<PAGE>
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only(as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
ALLMERICA FINANCIAL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ALLMERICA FINANCIAL CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- -------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
5) Total fee paid:
- -------------------------------------------------------------------------------
[_] Fee paid previously by written materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- -------------------------------------------------------------------------------
2) Form Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
3) Filing Party:
- -------------------------------------------------------------------------------
4) Date Filed:
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<PAGE>
[ALLMERICA FINANCIAL CORPORATION LOGO APPEARS HERE]
ALLMERICA FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
ANNUAL MEETING
OF SHAREHOLDERS
ALLMERICA FINANCIAL HEADQUARTERS
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS
MAY 12, 1998
<PAGE>
[ALLMERICA FINANCIAL CORPORATION LOGO APPEARS HERE]
ALLMERICA FINANCIAL CORPORATION
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
March 31, 1998
TO OUR SHAREHOLDERS:
You are cordially invited to attend the Annual Meeting of Shareholders of
Allmerica Financial Corporation to be held on Tuesday, May 12, 1998, at 9:00
a.m. local time, at the Company's headquarters in Worcester, Massachusetts.
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
President and Chief Executive
Officer
<PAGE>
ALLMERICA FINANCIAL CORPORATION
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
----------------
To the Shareholders of
Allmerica Financial Corporation:
The Annual Meeting of Shareholders of Allmerica Financial Corporation
("AFC") will be held at AFC's headquarters, Bullock Hall, 1st Floor, 440
Lincoln Street, Worcester, Massachusetts on Tuesday, May 12, 1998, at 9:00
a.m. local time, for the purpose of considering and voting on:
1. Election of four Directors for terms expiring at the 2001 annual
meeting of shareholders;
2. Ratification of the appointment of Price Waterhouse LLP as the
independent public accountants of AFC for 1998; and
3. 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 AFC 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
Worcester, Massachusetts
March 31, 1998
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>
ALLMERICA FINANCIAL CORPORATION
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
----------------
PROXY STATEMENT
----------------
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 Allmerica Financial
Corporation ("AFC" or the "Company") for use at the Annual Meeting of
Shareholders of AFC to be held on May 12, 1998 (the "Annual Meeting").
As of March 13, 1998, 59,847,492 shares of AFC's common stock, par value
$.01 per share (the "Common Stock"), were outstanding and entitled to be
voted. Each share 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 "Record Date").
The shares of Common Stock represented by the enclosed proxy will be voted
as directed by the shareholder or, in the absence of such direction, in favor
of the election of the nominees for Director designated herein and in favor of
the ratification of Price Waterhouse LLP as AFC's independent public
accountants for 1998. The enclosed proxy confers discretionary authority with
respect to any other proposals that 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. 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 AFC, nor any person who has been an executive officer, Director or
Director nominee of AFC 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.
The enclosed proxy is being solicited by the Board of Directors of AFC. The
cost of soliciting proxies will be borne by AFC, and will consist primarily of
preparing and mailing the proxies and Proxy Statements. AFC
<PAGE>
will also reimburse brokerage houses and other custodians, nominees and
fiduciaries for their expenses in sending proxy materials to the beneficial
owners.
AFC's Annual Report to Shareholders for the fiscal year ended December 31,
1997, including financial statements for AFC and its subsidiaries and the
report of Price Waterhouse LLP thereon, accompanies this Proxy Statement. The
Annual Report to Shareholders is neither a part of this Proxy Statement nor
incorporated herein by reference.
ITEM I
ELECTION OF DIRECTORS
The Board of Directors consists of three classes of approximately equal
size. Of the class of four Directors whose term will expire at the Annual
Meeting, Michael P. Angelini, J. Terrence Murray, John F. O'Brien and Herbert
M. Varnum have been nominated for re-election to a three-year term ending at
the 2001 Annual Meeting of Shareholders. The Board of Directors has elected M
Howard Jacobson to the Board for a term to expire at the 2000 Annual Meeting
of Shareholders. The remaining six Directors will continue to serve in
accordance with their previous appointment.
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 nominees.
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.
Information as to each nominee and as to Directors continuing in office
follows:
NOMINEES FOR DIRECTOR
Michael P. Angelini, 55, has been a Director of AFC since February 1995 and
was a Director of First Allmerica Financial Life Insurance Company ("FAFLIC")
from August 1984 to April 1996, and of Allmerica Property & Casualty
Companies, Inc. ("Allmerica P&C") from August 1992 to July 1997. He served as
a Director of The Hanover Insurance Company ("Hanover") from December 1991
through December 1992. Mr. Angelini is a partner at the law firm of Bowditch &
Dewey, with which he has been associated since 1968, and is a Director of
Flagship Bank & Trust Company.
Mr. Angelini is Chairman of the Audit Committee of AFC's Board of Directors.
J. Terrence Murray, 58, has been a Director of AFC since February 1995 and
of FAFLIC from January 1992 to April 1996. Mr. Murray is the Chairman and
Chief Executive Officer of Fleet Financial Group, Inc., a bank holding
company, where he has been employed since July 1962. Mr. Murray is also a
Director of A.T. Cross Co., a writing instrument company, and CVS Corporation,
a drugstore chain.
Mr. Murray is a member of the Committee on Directors of AFC's Board of
Directors.
2
<PAGE>
John F. O'Brien, 54, 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
has been a Director of Hanover since September 1989, of Citizens Insurance
Company of America ("Citizens Insurance") since March 1992 and Citizens
Corporation ("Citizens"), for which he also serves as Chief Executive Officer,
since December 1992. Citizens is a majority-owned, publicly traded subsidiary
of Hanover, and Citizens Insurance is a wholly-owned subsidiary of Citizens.
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 Allmerica
Financial Life Insurance and Annuity Company ("AFLIAC"). Mr. O'Brien also
currently serves as a Director of The TJX Companies, Inc., an off-price family
apparel retailer, ABIOMED, Inc., a medical device company, Cabot Corporation,
a diversified specialty chemicals and materials and energy company, and The
Life Insurance Association of Massachusetts. He also currently serves as a
member of the Steering Committee on Financial Services of The American Council
of Life Insurance and as a member of the executive committee of the Mass
Capital Resource Company, a Massachusetts investment partnership. Prior to
joining FAFLIC, Mr. O'Brien served as an officer of FMR Corp., the parent
company of various financial services companies in the Fidelity Group, and a
director and/or an executive officer at various other of FMR Corp.'s
affiliates.
Herbert M. Varnum, 60, has been a Director of AFC since February 1995 and
was a Director of FAFLIC from March 1979 to April 1996, of Allmerica P&C from
August 1992 to July 1997, and of Hanover from December 1991 through December
1992. Mr. Varnum was employed by Quabaug Corporation, a manufacturing company,
beginning in 1960 and served as President and Chief Executive Officer from
1982 to 1989, and as Chairman and Chief Executive Officer from January 1990
until his retirement in June 1995.
Mr. Varnum is Chairman of the Compensation Committee of AFC's Board of
Directors.
DIRECTORS CONTINUING IN OFFICE
Gail L. Harrison, 50, has been a Director of AFC since February 1995 and was
a Director of FAFLIC from March 1986 to April 1996, of Allmerica P&C from
August 1992 to July 1997, and of Hanover from December 1991 through December
1992. Since February 1981, Ms. Harrison has been affiliated with The Wexler
Group (formerly Wexler, Reynolds, Harrison & Shule, Inc.), a government
relations consulting firm, where she is a Founding Principal.
Ms. Harrison is Chairwoman of the Committee on Directors of AFC's Board of
Directors. Her term of office as a Director of AFC expires in 2000.
Robert P. Henderson, 66, has been a Director of AFC since September 1996.
Mr. Henderson has been a general partner of Greylock Management Corporation, a
venture capital firm, since 1983, and served as its Chairman until 1997. Mr.
Henderson is also a Director of Cabot Corporation and Filenes Basement, Inc.,
a Trustee of the Museum of Fine Arts in Boston, Massachusetts, and an Overseer
of the Amos Tuck School of Dartmouth College. Mr. Henderson is a former
Chairman of the Federal Reserve Bank of Boston.
Mr. Henderson is a member of the Compensation Committee of AFC's Board of
Directors. His term of office as a Director of AFC expires in 1999.
3
<PAGE>
M Howard Jacobson, 65, has been a Director of AFC since July 1997. He has
been a Senior Advisor of Bankers Trust, The Private Bank, since 1991, and was
a Senior Advisor of Prudential-Bache Capital Funding from 1989 to 1991. Mr.
Jacobson is also a Director of Boston Chicken, Inc., Wyman-Gordon Company and
Stonyfield Farm, Inc., and was a Director of Allmerica P&C from August 1992 to
July 1997. Mr. Jacobson was previously the President and Treasurer and a
Director of Idle Wild Foods, Inc., where he was employed from 1957 to 1986.
Mr. Jacobson is a member of the Audit Committee of AFC's Board of Directors.
His term of office as a Director of AFC expires in 2000.
Robert J. Murray, 56, has been a Director of AFC since May 1996. He has been
Chairman, President and Chief Executive Officer of New England Business
Service, Inc. ("NEBS"), a supplier of business forms, since December 1995 and
has served on the Board of Directors of NEBS since 1991. Prior to joining
NEBS, Mr. Murray was employed by The Gillette Company, Inc. ("Gillette"), a
manufacturing company, beginning in 1961. He served as a Corporate Vice
President of Gillette beginning in 1987 and as the Executive Vice President of
Gillette's North Atlantic Group from January 1991 to December 1995. Mr. Murray
is also a Director of Hannaford Bros. Co., LoJack Corporation and Fleet
National Bank, as well as a Trustee of Boston College.
Mr. Murray is a member of the Committee on Directors of AFC's Board of
Directors. His term of office as a Director of AFC expires in 1999.
John L. Sprague, 67, has been a Director of AFC since February 1995 and was
a Director of FAFLIC from September 1972 to April 1996. Mr. Sprague has been
President of John L. Sprague Associates, Inc., a consulting company for
technology companies, since January 1988. He served as President and Chief
Executive Officer of Sprague Electric Company, a semiconductor company, from
December 1980 to January 1988. Mr. Sprague is also a Director of Aerovox
Corp., a manufacturing company, Sipex Corporation and California MicroDevices
Corporation, an electronic components manufacturer.
Mr. Sprague is a member of the Audit Committee of AFC's Board of Directors.
His term of office as a Director of AFC expires in 1999.
Robert G. Stachler, 68, has been a Director of AFC since February 1995, and
was a Director of FAFLIC from March 1978 to April 1996, of Allmerica P&C from
August 1992 to July 1997, and of Hanover from April 1990 to December 1992. Mr.
Stachler has been a partner at the law firm of Taft, Stettinius & Hollister
since 1964.
Mr. Stachler is a member of the Compensation Committee of AFC's Board of
Directors. His term in office as a Director of AFC expires in 2000.
Richard M. Wall, 69, has been a Director of AFC since February 1995 and was
a Director of FAFLIC from March 1986 to April 1996, of Allmerica P&C from
August 1992 to July 1997, and of Hanover from December 1991 through December
1992. Mr. Wall has been General Counsel and assistant to the Chairman and
Chief Executive Officer of FLEXcon Company, Inc., a plastics manufacturing
company, since November 1985.
Mr. Wall is a member of the Compensation Committee of AFC's Board of
Directors. His term in office as a Director of AFC expires in 1999.
CERTAIN INFORMATION REGARDING DIRECTORS
During the last fiscal year, the Board of Directors held seven regularly
scheduled meetings and one special meeting. All of the incumbent Directors,
with the exception of Messrs. Henderson and J. T. Murray, attended at least
75% of the meetings of the Board and of the committees that he or she was
scheduled to attend. The Board of Directors has an Audit Committee, a
Compensation Committee and a Committee on Directors.
4
<PAGE>
The Audit Committee of the Board of Directors is comprised of Messrs.
Angelini (Chair), Sprague and Jacobson. The committee reviews the professional
services to be provided by AFC's independent auditors and the independence of
such auditors from management of AFC. The committee also reviews the scope of
the audit by AFC's independent auditors, the annual financial statements of
AFC, AFC's system of internal accounting controls and such other matters with
respect to the accounting, auditing and financial reporting practices and
procedures of AFC as it may find appropriate or as may be brought to its
attention, and meets from time to time with members of AFC's internal audit
staff. The committee met twice during 1997.
The Compensation Committee of the Board of Directors is comprised of Messrs.
Varnum (Chair), Stachler, Henderson and Wall. The Compensation Committee has
oversight responsibility with respect to compensation matters involving
Directors and executive officers of AFC. No member of this committee has any
interlocking or other relationships with AFC and its subsidiaries that would
call into question his independence as a member of the committee. The
committee met four times in 1997.
The Committee on Directors is comprised of Ms. Harrison (Chair), Mr. J. T.
Murray and Mr. R. Murray. The Committee on Directors advises and makes
recommendations to the Board on all matters concerning directorship and
corporate governance practices and the selection of candidates as nominees for
election as directors. The committee held two meetings in 1997. The committee
recommended this year's candidates and recommended Board member committee
assignments to the full Board of Directors. The committee is authorized to
consider nominees recommended by shareholders. Shareholders who wish to
suggest qualified candidates for consideration by the committee may do so by
writing to the Secretary of the Company, giving the candidate's name,
biographical data and qualifications.
Non-employee Directors of AFC will receive an annual retainer consisting
entirely of 1,400 shares of AFC common stock payable on the first business day
following the annual meeting. Chairpersons of committees will receive a $4,000
annual retainer. In addition, Non-employee Directors of AFC will receive
$1,500 per meeting of the Board of Directors and $1,000 for each meeting of a
committee thereof that they attend. Mr. O'Brien, the only Director who is also
an employee of the Company, is not paid any fees or additional compensation
for service as a member of the Board of Directors or any of its committees.
All Directors are reimbursed for reasonable travel and other expenses of
attending meetings of the Board of Directors and committees of the Board of
Directors.
There are no family relationships among any of the Directors or executive
officers of AFC and its subsidiaries.
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 AFC'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 AFC for 1998. If ratification is not obtained, the Board of
Directors will reconsider the appointment.
5
<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
AFC, (ii) the named executive officers in the Summary Compensation Table
appearing later in this Proxy Statement, (iii) all executive officers and
directors of AFC as a group and (iv) each person who is known by AFC to be the
beneficial owner of more than five percent of the Common Stock as of such
date. This information has been furnished by the persons listed in the table.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF
COMMON STOCK OF COMMON STOCK OF
NAME OF BENEFICIAL OWNER AFC* CITIZENS*
- ------------------------ ------------------- -------------------
<S> <C> <C>
Michael P. Angelini................... 3,444 --
Gail L. Harrison...................... 1,668 --
Robert P. Henderson................... 2,400 --
M Howard Jacobson..................... 800 --
James R. McAuliffe.................... 11,747(1) 10,300(2)
J. Terrence Murray.................... 1,469 --
Robert J. Murray...................... 2,400 --
John F. O'Brien....................... 71,193(3) 1,000
Richard M. Reilly..................... 19,889(4) --
Eric A. Simonsen...................... 38,229(5) 3,000(6)
Phillip E. Soule...................... 11,250(7) 100
John L. Sprague....................... 1,620 --
Robert G. Stachler.................... 2,071 --
Herbert M. Varnum..................... 4,100 --
Richard M. Wall....................... 1,580 --
Directors and executive officers as a
group (22 persons)................... 262,608(8) 14,700(9)
Holders of Greater Than Five Percent of Common Stock
FMR Corp., Edward C. Johnson 3d and
Abigail P. Johnson
82 Devonshire Street
Boston, MA 02109.................... 7,795,840(10) 13.0% of shares
of AFC Common
Stock outstanding
Boston Partners Asset Management,
L.P., Boston Partners, Inc. and
Desmond John Heathwood
One Financial Center,
43rd Floor
Boston, MA 02111.................... 3,969,596(11) 6.6% of shares
of AFC Common
Stock outstanding
</TABLE>
- --------
* With the exception of amounts indicated for holders of greater than 5% of
AFC's Common Stock, 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.
(1) 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"). Does not
6
<PAGE>
include 6,774 shares of restricted stock, the receipt of which Mr.
McAuliffe has deferred and over which Mr. McAuliffe has no voting or
investment power.
(2) Includes 8,800 shares of Citizens Corporation Common Stock that Mr.
McAuliffe has the right to acquire with in 60 days of March 13, 1998.
(3) Includes 199 shares held for the benefit of Mr. O'Brien by the trustees of
the FAFLIC Plan. Does not include 85,840 shares of restricted stock, the
receipt of which Mr. O'Brien has deferred and over which he has no voting
or investment power.
(4) Includes 99 shares held for the benefit of Mr. Reilly by the trustees of
the FAFLIC Plan, and 4,395 shares of restricted stock over which Mr.
Reilly has no investment power. Does not include 16,828 shares of
restricted stock, the receipt of which Mr. Reilly has deferred and over
which he has no voting or investment power.
(5) Includes 7,296 shares held for the benefit of Mr. Simonsen by the trustees
of the FAFLIC Plan, 4,281 shares held in trust for the benefit of Mr.
Simonsen's immediate family, for which trusts Mr. Simonsen acts as
trustee, and 7,326 shares of restricted stock over which Mr. Simonsen has
no investment power. Does not include 20,109 shares of restricted stock,
the receipt of which Mr. Simonsen has deferred and over which he has no
voting or investment power.
(6) Includes 1,000 shares of Citizens Corporation Common Stock 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 602 shares held for the benefit of Mr. Soule by the trustees of
the FAFLIC Plan, and 4,395 shares of restricted stock over which Mr. Soule
has no investment power. Does not include 12,322 shares of restricted
stock, the receipt of which Mr. Soule has deferred and over which he has
no voting or investment power.
(8) Includes 39,429 shares held by the trustees of the FAFLIC Plan, and 34,428
shares of restricted stock over which the executive officers have no
investment power. See notes 1, 3-5 and 7 above.
(9) Includes 8,800 shares that may be acquired within 60 days of March 13,
1998. See notes 2 and 6 above.
(10) Based on a Schedule 13G dated February 14, 1998 filed by FMR Corp.,
Edward C. Johnson 3d and Abigail P. Johnson, each of whom has sole
investment power over 7,785,240 shares and sole voting power over 411,325
shares, 11,000 shares and no shares, respectively.
(11) Based on a Schedule 13G dated February 9, 1998 filed by Boston Partners
Asset Management, L.P., Boston Partners, Inc. and Desmond John Heathwood,
each of whom has shared voting and investment power. Each of Boston
Partners, Inc. and Mr. Heathwood expressly disclaims beneficial ownership
of any shares.
As of March 13, 1998, there were no persons other than FMR Corp., Edward C.
Johnson 3d, Abigail P. Johnson and Boston Partners Asset Management, L.P.
known to AFC to be the beneficial owners of more than 5% of the outstanding
shares of Common Stock.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all plan and non-plan compensation awarded
to, earned by, or paid to: (i) the Chief Executive Officer of AFC; (ii) the
four other most highly compensated executive officers of AFC; and (iii) one
individual who would have been included in category (ii) above but for the
fact that he was not serving as an officer at December 31, 1997 (collectively,
the "Named Executive Officers"). Because AFC is a holding company, it does not
pay any compensation to its executive officers. The Named Executive Officers,
unless otherwise indicated, receive compensation in their capacities as
executive officers of FAFLIC, which is then reimbursed, in accordance with
AFC's policy and intercompany service agreements, by its various subsidiaries
for services rendered to such subsidiaries.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------- ------------------------------
OTHER ALL
ANNUAL RESTRICTED SECURITIES OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
BONUS SATION AWARDS OPTIONS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- --------------------------- ---- --------- --------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John F. O'Brien......... 1997 850,000 700,000 124,422 1,003,662 50,000 800,000 120,477
President and Chief 1996 850,000 1,816,000 109,422 -- -- 500,000 120,227
Executive Officer 1995 775,000 775,000 109,422 -- -- 250,000 120,227
Larry C. Renfro(7)...... 1997 357,500 300,000 4,800 150,529 20,000 -- 634,750
Vice President 1996 370,000 667,609 11,275 -- -- 160,000 4,500
1995 340,000 390,150 17,070 -- -- 200,000 0
Eric A. Simonsen........ 1997 410,000 176,628 4,800 250,916 30,000 280,000 4,750
Vice President 1996 370,000 406,436 12,215 -- -- 160,000 4,500
1995 305,000 99,430 18,492 -- -- 210,000 4,500
James R. McAuliffe(8)... 1997 359,096 108,737 4,800 -- 17,000 150,000 4,750
Vice President 1996 355,000 157,975 98,831 -- 7,000(4) 150,000 4,500
1995 305,000 114,985 67,560 -- 14,000(4) 190,000 4,500
Richard M. Reilly....... 1997 310,000 148,800 3,000 150,529 20,000 200,000 4,750
Vice President 1996 270,000 256,893 7,517 -- -- 120,000 4,500
1995 210,000 58,380 8,463 -- -- 130,000 4,500
Phillip E. Soule........ 1997 310,000 125,550 3,000 150,529 20,000 190,000 4,750
Vice President 1996 295,000 254,991 6,577 -- -- 120,000 4,500
1995 265,000 85,993 9,958 -- -- 120,000 4,500
</TABLE>
- --------
(1) Amounts represent bonuses earned pursuant to FAFLIC's Incentive
Compensation Plan, except that amounts in 1996 include special bonus
payments of $1,000,000 for Mr. O'Brien, $150,000 for Mr. Renfro, $250,000
for Mr. Simonsen, $150,000 for Mr. Reilly and $150,000 for Mr. Soule. In
addition, amounts reported for Mr. Renfro in 1997, 1996 and 1995, include
payments of $300,000, $335,384 and $255,000, respectively, in connection
with the sale of FAFLIC's mutual fund servicing business, discussed below.
8
<PAGE>
(2) The amounts shown reflect the payment of taxes in the amount of $109,422
in 1997, 1996 and 1995 in connection with the payment by FAFLIC of a life
insurance premium on behalf of Mr. O'Brien. All other amounts shown
include interest earned on long-term incentive compensation paid, or
deferred at the election of the Named Executive Officer, in the respective
year except for the amounts reported for Mr. McAuliffe, which include
moving expenses paid in 1995 and 1996 in the amount of $47,491 and $82,825
respectively. Except for Mr. McAuliffe, no Named Executive Officer
received any perquisites or other personal benefits from any source for
his services to FAFLIC or any subsidiary with an aggregate value exceeding
the lesser of $50,000 or 10% of cash compensation.
(3) Amounts reflect the market value of the restricted stock awards on the
date of grant. The aggregate holdings and market value of restricted stock
as of December 31, 1997, for each individual are: Mr. O'Brien, 29,304
shares, receipt deferred until retirement/$1,463,369; Mr. Renfro, 0/$0;
Mr. Simonsen, 7,326/$365,842; Mr. McAuliffe, 0/$0; Mr.
Reilly,4,395/$219,475; and Mr. Soule, 4,395/$219,475. Mr. Renfro forfeited
his shares of restricted stock upon termination of employment. Dividends
will be paid on restricted stock reported in this column to the extent
dividends are paid to other shareholders of AFC. Mr. O'Brien has also
deferred receipt of dividends payable on restricted stock.
(4) The securities underlying options are shares of the Company's Common
Stock, except for the securities underlying options reported for Mr.
McAuliffe in 1995 and 1996, which are shares of Common Stock of Citizens
Corporation. Mr. Renfro forfeited his options upon his termination of
employment.
(5) Amounts shown include installment payments vesting and received by the
Named Executive Officers in the respective year pursuant to awards which
were earned in 1993, 1995, 1996 and 1997 under FAFLIC's Long-Term
Performance Unit Plan (the "Long-Term Performance Plan").
(6) Amounts shown include $4,750 paid to each of the Named Executive Officers
by FAFLIC, or by Citizens with respect to Mr. McAuliffe, during 1997 in
the form of employer contributions to each Named Executive Officer's
401(k) and related post-retirement accounts pursuant to FAFLIC's 401(k)
Matched Savings Plan ("Matched Savings Plan") (in effect beginning in
1995) (except amounts contributed on behalf of Messrs. O'Brien and Reilly
in 1997, which are attributable to the Executive Non-Qualified Retirement
Plan described more fully below). The amount shown for Mr. O'Brien in 1997
also reflects the payment by FAFLIC of a life insurance premium of
$115,727. The amount shown for Mr. Renfro in 1997 also reflects the
reimbursement by FAFLIC for unused vacation at termination in the amount
of $30,000 and an amount accrued pursuant to a severance agreement in the
amount of $600,000.
(7) Mr. Renfro terminated employment effective November 30, 1997.
(8) The amounts indicated are total compensation paid to Mr. McAuliffe
directly by Citizens Insurance for services rendered in his capacity as an
executive officer of that company.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock options granted to
the Named Executive Officers in 1997. The Company has not granted SARs.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
PERCENT OF
NUMBER OF TOTAL GRANT DATE VALUE
SECURITIES OPTIONS EXERCISE ----------------
UNDERLYING GRANTED TO OR GRANT DATE
OPTIONS EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) IN 1997 ($ 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
Larry C. Renfro(3)...... 20,000 2.4 35.375 11/30/97 306,900
Eric A. Simonsen........ 30,000 3.5 35.375 05/20/07 460,350
James R. McAuliffe...... 17,000 2.0 35.375 05/20/07 260,865
Richard M. Reilly....... 20,000 2.4 35.375 05/20/07 306,900
Phillip E. Soule........ 20,000 2.4 35.375 05/20/07 306,900
</TABLE>
- --------
(1) The securities underlying the options granted were shares of the Company's
Common Stock. The options granted become exercisable in 20% increments on
the first, second, third, fourth and fifth anniversaries of the date of
grant.
(2) In accordance with Securities and Exchange Commission rules, the Black-
Scholes option pricing model was chosen to estimate the grant date present
value of the options set forth in the table. The Company's use of the
model should not be construed as an endorsement of its accuracy at valuing
options. All stock option valuation models, including the Black-Scholes
model, require a prediction about the future movement of the stock price.
The following assumptions were made for purposes of calculating the Grant
Date Present Value: options exercised from 2.5 to 7 years, stock price
volatility of 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 the Company's Common Stock during the applicable period.
(3) Mr. Renfro's employment with the Company ended on November 30, 1997. All
of Mr. Renfro's stock options terminated on that date.
10
<PAGE>
YEAR-END 1997 OPTION VALUE TABLE
The following table sets forth information for the Named Executive Officers
regarding unexercised options to acquire shares of the Company's Common Stock
held as of December 31, 1997. No options were exercisable by the Named
Executive Officers in 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT YEAR- THE-MONEY OPTIONS AT
END 1997(#) YEAR-END 1997($)(1)
---------------------- ------------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---- ---------------------- ------------------------
<S> <C> <C>
John F. O'Brien................. 0/50,000 0/728,125
Larry C. Renfro(2).............. 0/0 0/0
Eric A. Simonsen................ 0/30,000 0/436,875
James R. McAuliffe.............. 0/17,000 0/247,563
Richard M. Reilly............... 0/20,000 0/291,250
Phillip E. Soule................ 0/20,000 0/291,250
</TABLE>
- --------
(1) Calculated based on the difference between the option exercise price and
$49.9375, the closing price per share of the Company's Common Stock on the
New York Stock Exchange Composite Tape on December 31, 1997.
(2) Mr. Renfro's stock options terminated on November 30, 1997, the date his
employment with the Company ended.
LONG-TERM INCENTIVE AWARDS
Neither the Company nor FAFLIC made any awards to Named Executive Officers
under the Long-Term Performance Plan in 1997.
EMPLOYMENT AGREEMENTS AND NON-SOLICITATION AGREEMENTS
In connection with the sale of FAFLIC's mutual fund servicing business to
The Shareholder Services Group, Inc. ("TSSG") and related transactions in
March 1995, and in consideration of the agreement by Mr. Renfro not to engage
in this business for four years, FAFLIC agreed, pursuant to a Compensation
Agreement (the "Compensation Agreement"), to pay Mr. Renfro (i) a one-time
bonus payment of $350,000 in 1995 ($95,000 of which represents a payment under
FAFLIC's Incentive Compensation Plan in respect of his 1994 performance), and
(ii) annual contingent payments based upon the prospective performance of the
businesses sold or assigned in the TSSG transactions for four years with
certain guaranteed minimum payments up to a maximum aggregate amount for four
years of $3.7 million. FAFLIC has paid Mr. Renfro annual contingent payments
of $335,384 and $300,000 for 1996 and 1997, respectively. The Compensation
Agreement also provided that, in the event Mr. Renfro was terminated without
cause, he would receive $25,000 per month until March 31, 1998 in lieu of
further contingent payments under item (ii) above, and he would be subject to
confidentiality and non-competition restrictions during the payment period. In
connection with the termination without cause of Mr. Renfro's employment
effective November 30, 1997, FAFLIC agreed to pay Mr. Renfro $600,000, payable
in twelve monthly installments of $50,000 per month commencing on January 1,
1998, in full satisfaction of the Company's obligations outstanding under the
Compensation Agreement. In addition, the severance agreement contains non-
competition provisions in effect through November 30, 1998. Mr. Renfro has
also entered into a two-year Non-Solicitation Agreement discussed below.
As of April 30, 1997, all of the Company's executive officers had entered
into non-solicitation agreements ("Non-Solicitation Agreements") with the
Company. The Non-Solicitation Agreements provide that, during employment and
for a period of two years after termination, the executive officer will not
recruit or solicit,
11
<PAGE>
attempt to induce, or assist or encourage others to recruit or solicit, any
employee, agent or broker of the Company to terminate employment with the
Company. The Non-Solicitation Agreements prohibit the executive officers from
soliciting the business or patronage of any policyholders or existing or
prospective clients, customers or accounts of the Company that were contacted,
solicited or served while the executive officer was employed by the Company.
Finally, the Non-Solicitation Agreements provide that all proprietary
information relating to the Company's business and all software, works of
authorship and other developments created during employment by the Company are
the sole property of the Company.
EMPLOYMENT CONTINUITY PLAN
In December 1996 the AFC Board of Directors voted to adopt the Allmerica
Financial Corporation Employment Continuity Plan (the "Employment Continuity
Plan"). The purposes of the Employment Continuity Plan are (i) to secure
senior management's objectivity and ensure focus on behalf of shareholder
interest in the event of actions or occurrences that could lead to a Change of
Control, and (ii) to ensure, in the event of a Change in Control resulting in
payment under the Employment Continuity Plan, that senior management does not
compete in the business of the Company, solicit Company employees or disclose
any confidential or propriety information of the Company. The Employment
Continuity Plan is administered by the AFC Board of Directors. All of the
Named Executive Officers were named as participants in the Employment
Continuity Plan at its adoption.
In the event of a Change in Control (defined below) of the Company and
subsequent involuntary termination of a participant within a two-year period
after the Change in Control, or voluntary termination of the participant in
the 13th month after a Change in Control, the Employment Continuity Plan
authorizes the payment of specified benefits to eligible participants. These
include a lump-sum cash payment equal to a Multiplier (defined below) times a
participant's base salary, average bonus for the preceding three years, and
the amount that would be credited under a cash balance pension plan sponsored
by the Company or its affiliates. The Multiplier is three (3) for the Chief
Executive Officer and two (2) for all other participants. Additionally, the
Employment Continuity Plan provides for continued coverage under the health
and welfare benefit plans sponsored by the Company and its affiliates, the
lump-sum actuarial equivalent for grandfathered benefits earned under the
retirement plan for "transition group" employees for the number of years
commensurate with the Multiplier, 75% of a participant's maximum bonus
potential pro-rated for service performed in the year of termination, and
outplacement services. The Chief Executive Officer is also entitled to a
gross-up payment when the Change in Control payment or other benefit under the
plan is subject to the excise tax imposed by section 4999 of the Internal
Revenue Code.
For purposes of the Employment Continuity Plan, a Change in Control is
defined as follows: (i) a change in the composition of the Board of Directors
such that the Incumbent Directors (as defined in the Employment Continuity
Plan) at the beginning of any consecutive twenty-four month period cease to
constitute a majority of the Board; (ii) any person or group is or becomes the
beneficial owner of 35% or more of the Company's voting stock outstanding;
(iii) a merger or consolidation of the Company or any affiliate that requires
shareholder approval, unless the shareholders immediately prior to the merger
or consolidation own more than 50% of the total voting stock of the successor
corporation or a majority of the board of directors of the successor
corporation were Incumbent Directors immediately prior to the merger or
consolidation; or (iv) the approval by shareholders of a plan of liquidation
or dissolution of the Company or the sale of all or substantially all of the
Company's assets.
In the event of a Change of Control, for all stock awards and stock options
granted to a participant pursuant to the Company's Long-Term Stock Incentive
Plan that do not otherwise vest immediately after the Change of Control, the
participant will be paid a lump sum amount equal to (i) the fair market value
of all stock awards as of the date of the Change of Control (excluding stock
options) and (ii) with respect to stock options, the excess
12
<PAGE>
of the fair market value of the Company's common stock as of the date of the
Change of Control over the stock option exercise price.
The payment of benefits under the Employment Continuity Plan is contingent
upon the Company's receipt of a signed waiver and release from the participant
that release certain claims the participant may have and precludes the
participant from competing with the Company for a period of two years.
PENSION BENEFITS
FAFLIC maintains a tax-qualified, non-contributory defined benefit
retirement plan ("Pension Plan") for the benefit of eligible employees.
Identical plans maintained by Hanover and Citizens were merged with the FAFLIC
Pension Plan effective January 1, 1998.
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 Messrs. McAuliffe and Soule. 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. Simonsen: $121,769; Mr. McAuliffe:
$368,806; Mr. Reilly: $48,240; Mr. Soule: $386,262. Such figures include
amounts that have accrued under the Pension Plan as in effect on December 31,
1994, with the exception of the figures for Mr. McAuliffe and Mr. Soule, which
include grandfathered benefits projected to normal retirement age under the
Pension Plan formula in effect as of December 31, 1994, in the amounts of
$302,063 and $279,183, respectively. 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 that 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 that may be paid from
the
13
<PAGE>
Pension Plan consistent with Federal tax law. In addition, certain employees
of FAFLIC and its subsidiaries may participate, at the discretion of the Board
of Directors, in either an unfunded, Non-Qualified Executive Retirement Plan
or an 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 limitation
set forth in the Internal Revenue Code in respect of defined contribution
plans, (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 plans of FAFLIC, Hanover or
Citizens.
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 AFC or of any affiliate or subsidiary of AFC. Among
other duties, the Committee has oversight responsibility with respect to
compensation matters involving Directors and executive officers of AFC. As a
holding company, AFC has no employees of its own and does not pay any
compensation to its executive officers. The Company's executive officers are
employees of FAFLIC and are compensated directly by FAFLIC. In addition, a
portion of the salaries and other compensation paid by FAFLIC to executive
officers who provide services to the various subsidiaries of AFC and FAFLIC is
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 Hanover and Citizens Insurance. This report reflects
the compensation philosophy of FAFLIC, Hanover and Citizens Insurance as
endorsed by the Committee.
Compensation Philosophy. The objectives of the executive compensation
program are to attract and retain individuals key to the future success of AFC
and its subsidiaries, to motivate executives to achieve the business
objectives of AFC, 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 in 1997 for employees of
FAFLIC, Hanover and Citizens Insurance was tied to the achievement of
significant financial performance goals. During 1997, FAFLIC, Hanover and
Citizens Insurance maintained 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. 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
14
<PAGE>
options and other awards under the Plan include the contribution of each
executive to the long-term performance of AFC and the importance of such
executive's responsibilities within the organization.
Compensation of the Chief Executive Officer. In approving the 1997
compensation package for Mr. O'Brien, the 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 Property-Casualty Insurance Index
and the Standard & Poor's Life Insurance Index. The 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 median 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.
The Committee believes that the executive compensation policies of AFC and
its subsidiaries are appropriate both to attract and retain corporate officers
and other key employees with 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. In 1997, the compensation
paid to the Chief Executive Officer exceeded the limit imposed by Section
162(m) by approximately $19,000. 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 AFC's compensation philosophy,
recognizing that under certain circumstances it may be appropriate to exceed
the deduction limit.
Members of the Compensation Committee:
Herbert M. Varnum, Chair
Robert P. Henderson
Robert G. Stachler
Richard M. Wall
15
<PAGE>
COMMON STOCK PERFORMANCE CHART
The following graph compares the performance of the Company's Common Stock
since its initial public offering on October 11, 1995 with the performance of
the S&P 500 Index and with the performance of an industry peer group comprised
of a composite of two published indices--the S&P Property-Casualty Insurance
Index and the S&P Life Insurance Index. Returns of the latter two indices have
been weighted according to their respective aggregate market capitalization at
the beginning of each period shown on the graph. The graph plots the changes
in the value of an initial $100 investment over the indicated time periods,
assuming reinvestment of all dividends.
COMPARISON OF 26 MONTH CUMULATIVE TOTAL RETURN*
AMONG ALLMERICA FINANCIAL CORPORATION,
THE S&P 500 INDEX AND A PEER GROUP
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Cumulative Total Return
------------------------------------------
10/11/95 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C>
Allmerica Finl Corp AFC 100.00 111.34 139.14 208.46
PEER GROUP 100.00 106.72 130.94 188.02
S&P 500 100.00 106.78 131.29 175.10
</TABLE>
- --------
* $100 invested on 10/11/95 in stock or index--including reinvestment of
dividends. Fiscal year ending December 31.
The insurance composite is a market value weighted composite of the S&P
Property-Casualty Insurance and the S&P Life Insurance indices. The components
of the insurance composite have been weighted in accordance with the
respective aggregate market capitalization of the companies in each index as
of the date of Allmerica Financial Corporation's public offering and at the
beginning of each period shown on the graph, as indicated below:
<TABLE>
<CAPTION>
10/11/95 12/95 12/96 12/97
-------- ------ ------ ------
<S> <C> <C> <C> <C>
S&P Property-Casualty.......................... 69.03% 69.95% 66.01% 69.30%
S&P Life....................................... 30.97% 30.05% 33.98% 30.70%
------ ------ ------ ------
Total.......................................... 100.00% 100.00% 100.00% 100.00%
</TABLE>
The Compensation Committee Report and 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 AFC specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such Acts.
16
<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 (the "SEC")
and the New York Stock Exchange (the "NYSE"). Such persons are required by SEC
regulations to provide to AFC copies of all their Section 16(a) filings. Based
solely on a review of the forms furnished to AFC and written representations
from AFC's executive officers and Directors, AFC believes that during 1997
there was full compliance with all Section 16(a) filing requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's subsidiaries or affiliates have, from time to time, retained
the services of Bowditch & Dewey, LLP, a law firm in which Mr. Angelini is a
partner, and Taft, Stettinius & Hollister, a law firm in which Mr. Stachler is
a partner.
FORM 10-K
Shareholders may obtain without charge a copy of AFC'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 AFC at 440 Lincoln Street,
Worcester, Massachusetts 01653 (attention: Secretary).
OTHER MATTERS
Management knows of no business that 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 proxy holders 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.
SHAREHOLDER PROPOSALS
Proposals submitted by shareholders of AFC must be received at Allmerica
Financial Corporation, 440 Lincoln Street, Worcester, Massachusetts 01653 on
or before November 30, 1998, 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,
Richard J. Baker
Vice President and Secretary
17
<PAGE>
[ALLMERICA FINANCIAL CORPORATION LOGO APPEARS HERE]
09668 (Rev.3/98)
<PAGE>
PROXY
ALLMERICA FINANCIAL CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1998
The undersigned, having received the Notice of Annual Meeting of Shareholders
and the Board of Directors' Proxy Statement (the "Proxy Statement"), hereby
appoint(s) John F. O'Brien and John F. Kelly, and each of them, Proxies of the
undersigned (with full power of substitution) to attend the Annual Meeting of
Shareholders of Allmerica Financial Corporation to be held May 12, 1998, and
all adjournments thereof (the "Meeting"), and there to vote all shares of
Common Stock of Allmerica Financial Corporation that the undersigned would be
entitled to vote, if personally present, in regard to all matters that may come
before the Meeting.
The undersigned hereby confer(s) upon the Proxies, and each of them,
discretionary authority (i) to consider and act upon such business, matters or
proposals other than the business set forth below as may properly come before
the Meeting and (ii) with respect to the election of Directors in the event
that any of the nominees is unwilling to serve. THE PROXY WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER SPECIFIED HEREIN. IF NO SPECIFICATION IS
MADE, THE PROXIES INTEND TO VOTE FOR EACH PROPOSAL AND FOR ALL NOMINEES FOR
DIRECTOR.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS,
WHICH RECOMMENDS APPROVAL OF THE FOLLOWING PROPOSALS
SEE REVERSE SIDE
<PAGE>
[X] PLEASE MARK VOTE AS IN THIS EXAMPLE.
1. For the election of all nominees listed below (except as otherwise
indicated).
NOMINEES: Michael P. Angelini, J. Terrence Murray, John F. O'Brien
and Herbert M. Varnum
[_] FOR all nominees [_] WITHHOLD from all nominees
-----------------------------------
FOR all nominees, except those listed on the line above
2. Ratification of the appointment of Price Waterhouse LLP as the independent
public accountants of Allmerica Financial Corporation.
[_] FOR [_] AGAINST [_] ABSTAIN
Mark here for address change and note below. [_]
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SIGNATURE DATE
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SIGNATURE DATE
IN SIGNING, PLEASE WRITE NAME(S)
EXACTLY AS APPEARING IN THE
IMPRINT ON THIS CARD. FOR SHARES
HELD JOINTLY, EACH JOINT OWNER
SHOULD SIGN. IF SIGNING AS
EXECUTOR, OR IN ANY OTHER
REPRESENTATIVE CAPACITY, OR AS
AN OFFICER OF A CORPORATION,
PLEASE INDICATE YOUR FULL TITLE
AS SUCH.
