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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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 RuleCONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CITIZENS, INC.
--------------------------------------------------------Citizens, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check(check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)(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 orof transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------- --------------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------- --------------------------------------------------------------------------------
3) Filing Party:
------------------------------- --------------------------------------------------------------------------------
4) Date Filed:
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF CITIZENS, INC.
A COLORADO CORPORATION
EXECUTIVE OFFICE: 400 EAST ANDERSON LANE, AUSTIN, TEXAS 78752- --------------------------------------------------------------------------------
The Securities and Exchange Commission should contact:
Reid A. Godbolt, Esq.
David A. Thayer, Esq.
Jones & Keller, P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
303-573-1600 (telephone)
303-573-0769 (facsimile)
with respect to comments.
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE STOCKHOLDERSCOLLECTION OF CITIZENS,INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
(CITIZENS INC.:
Notice is hereby given that the Annual Meeting of Stockholders of Citizens, Inc.
will be held Tuesday, June 3, 2003, at 10:00 a.m., local time, at the Executive
Office of the Company, 400 East Anderson Lane, Austin, Texas, for the following
purposes:
(1) To elect the members of the Board of Directors of the Company; and
(2) To transact such other business as may properly come before the Meeting
or any adjournment thereof.
It is important, regardless of the number of shares you hold, that your stock be
represented at the Meeting by a signed proxy card or personal attendance.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. PLEASE
COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY TO THE TRANSFER
AGENT IN THE ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED. IF YOU ATTEND THE
MEETING YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ MARCIA F. EMMONS
---------------------------
APRIL 24, 2003 MARCIA F. EMMONS, SECRETARY
LOGO)
CITIZENS, INC.
400 EAST ANDERSON LANE
AUSTIN, TEXAS 78752
APRIL 24, 2003(512) 837-7100
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MARCH 4, 2004
---------------------
To the Shareholders of Citizens, Inc.:
DATE: March 4, 2004
TIME: 10:00 a.m. Central time
PLACE: 400 East Anderson Lane
Austin, Texas
We are holding this meeting:
1. To consider and act upon a proposal to amend our Articles of
Incorporation to (i) increase the number of authorized shares of our Class
A common stock from 50,000,000 to 100,000,000 shares and (ii) increase the
number of authorized shares of our Class B common stock from 1,000,000 to
2,000,000 shares.
2. To consider and act upon a proposal to amend our Articles of
Incorporation to create an authorized class of 25,000,000 shares of
preferred stock available for future issuance in series with terms and
preferences designated by our Board of Directors.
3. To consider and act upon a proposal to amend Article V of our
Articles of Incorporation to increase the maximum number of directors on
our Board of Directors from nine members to up to 15 members.
4. To transact any other business properly brought before the meeting
or any adjournment thereof.
You are cordially invited to attend the meeting in person. To ensure that
you are represented at the meeting, please fill in, sign, and return the
enclosed proxy card as promptly as possible. Your early attention to the proxy
statement and proxy card will be greatly appreciated. IF YOUR SHARES ARE HELD IN
STREET OR NOMINEE NAME, PLEASE RESPOND TO THE RECORD HOLDER'S COMMUNICATION WITH
YOU AS SOON AS POSSIBLE SO THAT YOUR SHARES CAN BE REPRESENTED AT THE MEETING.
By Order of the Board of Directors
/s/ MARCIA F. EMMONS
-------------------------------------
Marcia F. Emmons,
Secretary
January 29, 2004
(CITIZENS INC. LOGO)
CITIZENS, INC.
400 EAST ANDERSON LANE
AUSTIN, TEXAS 78752
PROXY STATEMENT
FOR ANNUALSPECIAL MEETING OF STOCKHOLDERS TO BE HELD
ON JUNE 3, 2003
SOLICITATION OF PROXIESSHAREHOLDERS
This proxy statementProxy Statement is furnished to you in connection with the
solicitation of proxies by and on behalf of theour Board of Directors of Citizens, Inc., for use at the
Annual Meetingour special meeting
of Stockholdersshareholders to be held Tuesday, June 3, 2003, at 10:00 a.m.,
local Central time (the "Meeting")on March 4, 2004, at our
Executive Office,headquarters located at 400 East Anderson Lane, Austin, Texas. This statement wasProxy
Statement and the enclosed proxy card were sent to our stockholdersshareholders on or about
April 28,
2003.January 29, 2004.
The following matters will be acted on at our meeting:
1. To consider and act upon a proposal to amend Article III of our
Articles of Incorporation to (i) increase the Meeting:
- TO ELECT THE MEMBERS OF OUR BOARD OF DIRECTORS; AND
- TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF.
You are requestednumber of authorized shares
of our Class A common stock from 50,000,000 to complete100,000,000 shares and (ii)
increase the enclosednumber of authorized shares of our Class B common stock from
1,000,000 to 2,000,000 shares.
2. To consider and act upon a proposal to amend Article III of our
Articles of Incorporation to create an authorized class of 25,000,000
shares of preferred stock available for future issuance in series with
terms and preferences designated by our Board of Directors.
3. To consider and act upon a proposal to amend Article V of our
Articles of Incorporation to increase the maximum number of directors on
our Board of Directors from nine members to up to 15 members.
4. To transact any other business properly brought before the meeting
or any adjournment thereof.
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE?
Holders of our Class A and Class B common stock can vote their shares if
our records show that you owned the shares on January 22, 2004. A total of
34,935,419 shares of Class A common stock and 874,935 shares of Class B common
stock can vote at the meeting. Each share of common stock is entitled to one
vote. Each proxy card sign where indicated, and
return it toindicates the Transfer Agent in the envelope provided, which requires no
postage if mailed in the United States. Solicitationnumber of proxiesshares that you will be
primarily through the mail. Proxies may also be solicited by personal
solicitation, telephone or telegram, by our directors, officers and employees at
no additional cost to us. We will also request banking institutions, brokerage
firms, custodians, trustees, nominees and fiduciaries to forward soliciting
material to the beneficial owners of our common stock held of record by such
persons, firms, or institutions, and we will reimburse the forwarding expense.
The cost of this solicitation will be borne by us.
PROXIES
Shares represented by properly executed proxies received by us prior to the
Meeting will be voted as specified thereon. If a proxy fails to specify how it
is to be voted on any proposal it will be voted FOR such proposal. A person
giving a proxy shall have the power to revoke it at any time before it is voted
by notifying our Secretary in writing or by personally withdrawing such proxy at
the Meeting. With regard to election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Brokers who have not received instructions from their
customers in uncontested elections may vote in the election of directors shares
held in street name.
RECORD DATE
Only stockholders of record at the close of business on April 18, 2003 are entitled
to vote at the Meeting. Asmeeting.
HOW DO I VOTE BY PROXY?
Follow the instructions on the enclosed proxy card to vote on each proposal
to be considered at the meeting. Sign and date the proxy card and mail it back
to us in the enclosed envelope. The proxyholders named on the proxy card will
vote your shares as you instruct. If you sign and return the proxy card but do
not vote on a matter, the proxyholders will vote for you on that proposal.
Unless you instruct otherwise, the proxyholders will vote:
- for the proposal to amend Article III of our Articles of Incorporation to
(i) increase the number of authorized shares of our Class A common stock
from 50,000,000 to 100,000,000 shares and (ii) increase the number of
authorized shares of our Class B common stock from 1,000,000 to 2,000,000
shares;
- for the proposal to amend Article III of our Articles of Incorporation to
create an authorized class of 25,000,000 shares of preferred stock
available for future issuance in series with terms and preferences
designated by our Board of Directors;
- for the proposal to amend Article V of our Articles of Incorporation to
increase the maximum number of directors on our Board of Directors from
nine members to up to 15 members.
- in the discretion of the record date,proxyholders with respect to any other matters
properly brought before the meeting.
WHAT IF OTHER MATTERS COME UP AT THE MEETING?
The matters described in this proxy statement are the only matters we had outstandingknow
will be voted on at the meeting. If other matters are properly presented at the
meeting, the proxyholders will vote your shares in their discretion.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. At any time before the vote on a proposal, you can change your vote
either by giving our secretary, Marcia F. Emmons, at our address shown above, a
written notice revoking your proxy card or by signing, dating, and returning to
us a new proxy card. We will honor the proxy card with the latest date.
CAN I VOTE IN PERSON AT THE MEETING RATHER THAN BY COMPLETING THE PROXY CARD?
Although we encourage you to complete and return the proxy card to ensure
that your vote is counted, you can attend the meeting and vote your shares in
person, even if you have previously completed and returned a proxy card.
WHAT DO I DO IF MY SHARES ARE HELD IN "STREET NAME"?
If your shares are held by your broker, a bank, or other nominee, you will
probably receive this proxy statement from them with instructions for voting
your shares. Please respond quickly so that they may represent you.
If your shares are held in the name of a broker, bank, or other nominee,
and you do not tell that person how to vote your shares (so-called "broker
non-votes"), that person can vote them as they see fit only on
2
matters that self regulatory organizations determine to be routine, and not on
any other proposal such as the proposals to amend our Articles of Incorporation.
Broker non-votes will be counted as present to determine if a quorum exists, but
will not be counted as present and entitled to vote 31,866,252 Class A shares of common stock and 817,696 Class B
shares of common stock.
2
QUORUM AND VOTING
The presence, in person or by proxy, ofon any non-routine proposal.
HOW ARE VOTES COUNTED?
We will proceed with the holders ofshareholders meeting if at least one-third of the
outstanding shares of each class of our common stock entitled to vote ateither sign and return their
proxy cards or attend the Meeting is necessarymeeting. If you sign and return your proxy card, your
shares will be counted to constitutedetermine whether we have a quorum for that particular classeven if you abstain
or fail to vote on any of the proposals listed on the proxy card. With respect
to the three proposals to amend our Articles of Incorporation, each proposal
will require the approval of at least a majority of the shares of the Class A
and Class B common stock atissued and outstanding, with each class voting
separately as a voting group.
WHO PAYS FOR THIS PROXY SOLICITATION?
We will pay the Meeting. Abstentions and broker non-votes are countedcost of this solicitation. In addition to sending you these
materials, some of our officers or directors may contact you by telephone, by
mail, or in person. None of these individuals will receive any extra
compensation for purposes
of determining the presence or absence of a quorum for the transaction of
business. If a quorum is not present or represented at the Meeting, the
stockholders entitled to vote thereat, present in person or represented by
proxy, have the power to adjourn or recess the Meeting from time to time for up
to thirty (30) days without notice, other than announcement at the Meeting,
until a quorum is present or represented. At such reconvened Meeting at which a
quorum is present or represented, any business may be transacted which might
have been transacted at the Meeting as originally noticed.
STOCKdoing this.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND PRINCIPAL STOCKHOLDERSMANAGEMENT
We have two classes of common stock. Both classes of common stock are equal
in all respects, except that (i) Class B common stockholdersshareholders elect a simple
majority of the Board of Directors of the Company and Class A common
stockholdersshareholders elect the remaining directors; and (ii) Class A stockholdersshareholders
receive, on a per-share basis, twice the cash dividends paid on a per-share
basis to Class B stockholders.shareholders. Each outstanding share of common stock has one
vote in all matters to be considered at the Meeting. In the election of
directors, the nominees receiving the highest number of votes cast in their
favor will be elected to our board, subject to the right of the Class B
stockholders to elect a simple majority of the directors.meeting.
Management knows of no matters to be submitted at the Meeting with respect
to which the stockholdersshareholders are entitled to vote, other than the proposals
listed
below.described in this proxy statement. In the event other matters properly come
before the Meeting, the persons named in the proxy will vote according to their
best judgment.
The following table shows, as of April 18,December 31, 2003, certain information
with regard to the beneficial ownership of our Common Stock:
- by each of our executive officers and directors,
- by all of our executive officers and directors as a group, and
- by each person who is known by us to own beneficially more than 5% of our
outstanding common stock.
SHARES OWNED AND PERCENT OF
NAME AND ADDRESS NATURE OF OWNERSHIP(1) CLASS
- ---------------- ------------------- --------------------------- ----------
Harold E. Riley 4,471,443Riley....................................... 4,765,483 Class A (2) 14.0%A(2) 13.6%
400 E. Anderson Lane 817,696874,935 Class B (2)B(2) 100.0%
Austin, TX 78752
Rick D. Riley 650,731Riley......................................... 681,161 Class AA(3) 1.9%
400 E. Anderson Lane
(3) 2.0%
Austin, TX 78752
Ray A. Riley.......................................... 417,124 Class A(4) 1.2%
400 E. Anderson Lane
Austin, TX 78752
Timothy T. Timmerman.................................. 7,937 Class A (5)
Commerce Properties, Inc.
P.O. Box 163061
Austin, TX 78716
3
SHARES OWNED AND PERCENT OF
NAME AND ADDRESS NATURE OF OWNERSHIP(1) CLASS
- ---------------- ---------------------- ----------
Timothy T. Timmerman 7,417Steven F. Shelton..................................... 2,654 Class A (4)
2490 FM 685
Hutto, TX 78634
Steven F. Shelton 2,480 Class A (4)(5)
7359 Road X
Lamar, Colorado 81052
Mark A. Oliver 5,054Oliver........................................ 5,468 Class A (4)
400 E. Anderson Lane
Austin, TX 78752
Jeffrey J. Wood 648 Class A (4)(5)
400 E. Anderson Lane
Austin, TX 78752
Marcia F. Emmons 13Emmons...................................... 39 Class A (4)(5)
400 E. Anderson Lane
Austin, TX 78752
DaveDavid J. Mehle - (4)Mehle........................................ -- (5)
400 E. Anderson Lane
Austin, TX 78752
Dr. E. Dean Gage 1,015Gage...................................... 1,086 Class A (4)(5)
Texas A&M University
College of Veterinary Medicine
College Station, Texas 77843
Dr. Richard C. Scott - (4)Scott.................................. -- (5)
Baylor University
University Development
Robinson Tower, 8th Floor
Waco, Texas 76798
All executive officers 5,138,801 Class A 16.1%
and directors as a group (ten
persons) 817,696............................................ 5,880,952 Class A 16.8%
874,935 Class B 100.0%
- -------------------------------
(1) Except as otherwise indicated, each person named in the table has sole
voting and investment power with respect to all shares beneficially owned,
subject to applicable community property law.
(2) Owns 4,135,0554,405,547 Class A shares directly and spouse owns 336,388359,936 Class A
shares. The Harold E. Riley Trust, of which Mr. Riley is the controlling
Trustee, owns all of the 817,696874,935 issued and outstanding shares of Class B
common stock.
(3) Owns 398,840411,532 Class A shares directly, 20,61822,165 Class A shares as joint tenant
with spouse, and 213,024227,940 and 18,24919,524 Class A shares indirectly as trustee for
minor children and spouse, respectively.
(4) Owns 253,382 Class A shares directly, 20,805 Class A shares as joint tenant
with spouse, and 142,937 Class A shares indirectly as trustee for minor
children.
(5) Owns less than one percent (1%).
4
We are not aware of any arrangement, including any pledge by any person, of our
common stock, the operation of which may at a subsequent date result in a change
of control of the company.
CONTROLBACKGROUND FOR PROPOSALS 1 THROUGH 3
We were incorporated in Colorado in November 1977. Over the years, our
shareholders have approved various amendments to our Articles of Incorporation,
some amendments which have amended earlier amendments. Because our Articles of
Incorporation and amendments thereto date back over a period of 25 years, it is
difficult to determine the content of our Articles of Incorporation as currently
in effect since the whole of the articles are in multiple filings over the
years. The Colorado Business Corporation Act ("CBCA"), which is the current law
that controls corporations formed in Colorado, allows Colorado corporations to
restate their Articles of Incorporation in order to bring the original articles
and all amendments into one document. We are restating our Articles of
Incorporation for purposes of clarity.
Under the CBCA, a restatement of articles of incorporation does not require
shareholder approval since the action simply combines existing articles into one
document. However, the CBCA also allow Colorado
4
corporations to amend their articles of incorporation while restating the
articles. The CBCA requires shareholder approval for any amendments to our
Articles of Incorporation. Our Board of Directors is recommending to our
shareholders three separate amendments which are described in the three
proposals which follow. We have attached a copy of our Articles of
Incorporation, restated and as proposed to be amended, as Appendix A to this
proxy statement.
PROPOSAL NO. 1
TO AMEND OUR ARTICLES OF INCORPORATION
TO INCREASE THE COMPANYNUMBER OF AUTHORIZED
SHARES OF COMMON STOCK
GENERAL
To provide for our future capital needs, our Board of Directors on January
9, 2004, unanimously adopted a resolution, subject to shareholder approval, to
amend Article III of our Articles of Incorporation to provide additional
authorized shares of common stock (a copy of Article III, as it is proposed to
be amended, is attached to this proxy statement as Appendix A). The proposal
provides for an increase in the authorized number of shares of our Class A
common stock from 50,000,000 to 100,000,000 shares, and for an increase in the
authorized number of shares of our Class B common stock from 1,000,000 to
2,000,000 shares.
Both classes of common stock are equal in all respects, except that (i)
Class B common shareholders elect a simple majority of our Board of Directors
and Class A common shareholders elect the remaining directors; and (ii) Class A
shareholders receive, on a per-share basis, twice the cash dividends paid on a
per-share basis to Class B shareholders. Each outstanding share of common stock
has one vote in all matters to be considered at the meeting. In the election of
directors, the nominees receiving the highest number of votes cast in their
favor will be elected to our board, subject to the right of the Class B
shareholders to elect a simple majority of the directors.
Of our presently authorized 50,000,000 shares of Class A common stock, as
of December 31, 2003, 37,674,293 shares were issued including 2,738,874 shares
in treasury. No shares are reserved for future issuance. Therefore, we have
approximately 12,325,707 authorized, unissued, and unreserved shares of Class A
common stock.
Of our presently authorized 1,000,000 shares of Class B common stock,
874,935 shares are outstanding and no shares are reserved for future issuance.
Therefore, we have 125,065 authorized, unissued, and unreserved shares of Class
B common stock. All of the outstanding Class B shares are owned by the Harold E.
Riley Trust, of which our Chairman, Harold E. Riley, is deemedcontrolling trustee.
INCREASE OF THE AUTHORIZED CLASS A AND B COMMON STOCK
Our Board of Directors believes that it is in our company's best interest
to increase the number of authorized shares of Class A and B common stock in
order to have additional authorized but unissued shares available for issuance
to meet business needs as they arise. The Board of Directors believes that the
availability of such additional shares will provide our company with the
flexibility to issue common stock for possible future financing transactions,
stock dividends or distributions, acquisitions, and other proper corporate
purposes that may be identified by the "controlling stockholder"Board of Directors. For example, in the
past five years we have acquired five insurance companies. The sole
consideration paid in each of these acquisitions was the issuance of shares of
our company.
Mr. Riley owns, directly and indirectly, 4,471,443 shares (14.0%) of the
outstanding Class A common stock to the shareholders of these companies. We have no
plans, arrangements, agreements, or understandings at the present time regarding
any acquisition using our common stock. However, our Board of Directors may
consider future acquisition opportunities and 817,696believes it to be in our best
interests to have sufficient shares (100%) of theClass A and Class B common stock
whichavailable for our future financing needs. The Board of Directors does not intend
to issue any Class A and Class B common stock except on terms that the Board of
Directors deems to be in the best interests of our company and its shareholders.
5
The authorized shares of Class A and Class B common stock in excess of
those issued will be available for issuance at such times and for such corporate
purposes as our Board of Directors may deem advisable, without further action by
our shareholders, except as may be required by applicable law or by the rules of
the New York Stock Exchange. Upon issuance, such shares will have the same
rights as the outstanding shares of Class A and Class B common stock. Holders of
Class A and Class B common stock have no preemptive rights.
The issuance of additional shares of Class A and Class B common stock,
other than through a stock split in the form of a stock dividend, may have a
dilutive effect on earnings per share and on the percentage voting power of
existing shareholders. Any future issuance of Class A and Class B common stock
will be subject to the rights of holders of outstanding shares of any preferred
stock that our company may issue in the future if the preferred stock proposal
discussed in this proxy statement is approved. See the discussion of Proposal
No. 2 below.
POTENTIAL EFFECTS OF THE PROPOSED AMENDMENT
In deciding whether to issue additional shares of common stock, our Board
of Directors will consider the effect of the issuance on our operating results
and our then-existing shareholders. Since the simple majority of our Board of
Directors is elected by the holders of our Class B common stock, the issuance of
shares of Class A common stock in the future will likely not significantly
affect the control of our company. However, the acquisition of shares of our
Class A common stock by an entity in order to acquire a strong influence on the
Board of Directors and our policies might be discouraged through the public or
private issuance of additional shares of Class A common stock, since such
issuance would dilute the stock ownership of the acquiring entity. The Board of
Directors is committed to increasing the underlying value of the shares owned by
all holders in the event shares are issued. Our Board of Directors did not
propose this amendment for the purpose of discouraging mergers, tender offers,
proxy contests, or other changes in control of our company and we are not aware
of any specific effort by any party to accumulate our Class A common stock.
Our outstanding Class B common stock elects a majority of our Board of
Directors. ELECTION OF DIRECTORS
Harold E. Riley has advised us that he intends to vote all of his Class A shares
in favorAll of the Class A nominees and alloutstanding shares of theour Class B sharescommon stock are owned
by the
Harold E. Riley Trust in favor of the Class B nominees. A majority vote of a
quorum of Class A shares is necessary to elect the Class A nominees as
directors. Cumulative voting in the election of directors is not permitted. The
Class B nominees will be elected directors upon affirmative vote of the Class B
sharesindirectly by Harold E. Riley, as controlling trusteeChairman of the Board, through the Harold E.
Riley Trust. If for any reason any nominee herein namedAdditionally, Mr. Riley is the largest Class A shareholder.
Therefore, as a practical matter, Mr. Riley has effective control over
significant corporate transactions. Additionally, cumulative voting of shares is
not permitted by our Articles of Incorporation. These factors make it more
difficult and time consuming for a candidate whenthird party to acquire control of our company
or to change the election
takes place (which ismembers of our Board of Directors. Authorization of an
additional one million shares to the number of Class B common stock we can issue
could have the effect of diluting Mr. Riley's ability to effectively control the
company if such shares were issued to a third party. We do not expected), the proxy will be voted for the election of
a substitute nomineehave any current
plans, arrangements, agreements, or understandings at the discretionpresent time regarding
the issuance of any shares of Class B common stock.
No rights of appraisal or similar rights of dissenters exist with respect
to this proposal.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED AMENDMENT
Approval of the persons named inproposed amendment to our Articles of Incorporation will
require the proxy.
Listed below areaffirmative vote of at least a majority of the persons who have been nominated for election asissued and
outstanding shares of our directors to serve for one year until the next Annual Meeting of Stockholders,
or until their respective successors are duly elected and qualified. Class A
Stockholders will vote on the nominees indicated below for election by Class A
Stockholders, and Class B Stockholderscommon stock, with each class
voting separately as a voting group. Upon approval by our shareholders, the
proposed amendment will vote onbecome effective upon filing of articles of amendment
with the Class B nominees.
NOMINEES FOR ELECTION BY CLASS A STOCKHOLDERS
PRINCIPAL DIRECTOR
NAME AGE OCCUPATION SINCE
---- --- ---------- -----
Dr. E. Dean Gage 60 Associate Dean for 2000
Professional Programs
Texas A&M University
College Station, Texas
Steven F. Shelton 47 Farmer/Rancher 1993
Lamar, Colorado
Timothy T. Timmerman 42 President 1989
Commerce Properties, Inc.;
Partner, Realcom Management;
Partner, Interfase Capital
Austin, Texas
5
NOMINEES FOR ELECTION BY CLASS B STOCKHOLDERS
PRINCIPAL DIRECTOR
NAME AGE OCCUPATION SINCE
---- --- ---------- -----
Mark A. Oliver 44 President of the Company 1997
Austin, Texas
Harold E. Riley 74 Chairman of the Board 1987
of the Company
Austin, Texas
Rick D. Riley ** 49 Vice Chairman and CEO of the 1989
Company; Chairman of the Board,
CEO and President of Citizens
Insurance Company of America
Austin, Texas
Dr. Richard C. Scott 68 Vice President, Development 2000
Baylor University
Waco, Texas
- -----------------
** SonColorado Secretary of Harold E. Riley. There are no other family relationships between or
amongState, which will occur as soon as practicable
following the nomineesmeeting. In the event that the proposed amendment is not approved
by our shareholders at the meeting, the current articles of incorporation
relating to our Board and the Executive Officers.
Information concerning the nominees is set forth below:
Dr. E. Dean Gage, Associate Dean of Professional Programs, College of Veterinary
Medicine, Texas A&M University, College Station, Texas, 2001 to present;
President Men's Leadership Ministries, Bryan, Texas, from 1996 to 2000;
Executive Director, Center for Executive Development College of Business, Texas
A&M University, College Station, Texas, from 1994 to 1996; President, Texas A&M
University, College Station, Texas from 1993 to 1994; Executive Vice President
and Provost, Texas A&M University, College Station, Texas from 1989 to 1993; our
director from 2000 to present.
Mark A. Oliver, our President and Vice Chairman of our affiliates from February
1999 to present; President of us and our affiliates from March 1997 to February
1999; Executive Vice President, Chief Financial Officer, Secretary and Treasurer
of us and our affiliates from 1990 to 1997; Treasurer and Chief Financial
Officer of us and our affiliates from 1988 to 1990; Treasurer and Controller of
us and our affiliates from 1984 to 1988.
Harold E. Riley, controlling stockholder; our Chairman of the Board from 1987 to
present; Chairman of the Board of us and our affiliates from 1994 to 1999;
Chairman of the Board and Chief Executive Officer of us from 1992 to 2000;
Chairman of the Board and Chief Executive Officer of us and our affiliates from
1992 to 1999; President of us and our affiliates from November 1996 to March
1997; Chairman of the Board, Chief Executive Officer and President
6
of us and our affiliates from 1987 to 1992; Chairman of the Board, President and
Chief Executive Officer, Continental Investors Life Insurance Company from 1989
to 1992.
Rick D. Riley, our Vice Chairman and CEO from October 2000 to present; Vice
Chairman since 2000; Chairman of the Board of Directors, President and CEO of
Citizens Insurance Company of America and its affiliates, our subsidiary, from
February 1999 to present; our Chief Administrative Officer and Secretary from
October 1998 to February 1999; our Executive Vice President from September 1995
to 1998; our Chief Operating Officer from September 1995 to March 1997; our
Chief Administrative Officer from 1994 to June 1995, and President thereafter
until September 1995; our Executive Vice President and Chief Operating Officer
from 1990 to 1991 and 1992 to 1994; President, Computing Technology, Inc. our
subsidiary from 1991 to 1992; our Executive Vice President, Data Processing,
from 1987 to 1991; Executive Vice President, Continental Investors Life
Insurance Company from 1989 to 1992.
Dr. Richard C. Scott, Vice President, Development Baylor University, Waco, Texas
from 1996 to present; 1977 to 1996, Dean of Hankamer School of Business, Baylor
University; 1972 to 1977, Associate Dean, Director of Graduate Studies,
Professor of Management, Hankamer School of Business, Baylor University; 1971 to
1972, Acting Dean while Dean was on leave; 1968 to 1971, Associate Professor of
Management, Director of Special Programs, Hankamer School of Business, Baylor
University; 1964 to present, Consultant to various firms and governmental
agenciescommon stock will remain in the areas of planning, management strategy, acquisition and sale of
business and business evaluations; 1997 to present, Director of Winnebago
Industries; 1994 to 1997, Chairman of the Board of Trustees of Annuity Board of
the Southern Baptist Convention; 1990 to 1997, Member of Executive Committee of
the Board of Trustees of the Annuity Board of the Southern Baptist Convention;
1990 to 1994 Chairman of the Investment Committee of the Board of Trustees of
the Annuity Board of the Southern Baptist Convention; 1989 to 1994, Member of
Investment Committee of the Board of Trustees of the Annuity Board of the
Southern Baptist Convention; 1988 to 1989, Member of the Finance Committee of
the Board of Trustees of the Annuity Board of the Southern Baptist Convention;
1980 to 1987, Member of the Board of Directors of the Central National Bank;
1976 to present, Owner of controlling interest (with partner) in Trumas, Inc., a
closely held corporation; 1976 to present, General partner of S&T Financial; our
director from 2000 to present.
Steven F. Shelton, Rancher/Farmer from 1974 to present; Director, First
Centennial Corporation, from January to October 1989 and August 1990 to 1992;
director from 1993 to present.
Timothy T. Timmerman, President, Commerce Properties, Inc. from 1990 to present;
Partner, Realcom Management from 1990 to present; Partner, Interfase Capital
from 1999 to present; our director from 1989 to present.
None of our directors is a director of any other company with a class of
securities registered under the Securities Exchange Act of 1934 or any
investment company registered under the Investment Company Act of 1940, except
for Richard C. Scott, who serves on the Board of Directors of Winnebago
Industries.
7
YOUReffect.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTIONPROPOSAL TO AMEND THE
ARTICLES OF INCORPORATION TO INCREASE THE NOMINEES FOR
ELECTION BYNUMBER OF OUR AUTHORIZED SHARES OF OUR
CLASS A STOCKHOLDERS. PROXIES SOLICITEDAND CLASS B COMMON STOCK.
6
PROPOSAL NO. 2
TO CREATE AND AUTHORIZE A CLASS OF 25,000,000 SHARES
OF PREFERRED STOCK AVAILABLE FOR FUTURE ISSUANCE
IN SERIES BY THEOUR BOARD OF DIRECTORS
WILL BE VOTED FOR THEM UNLESS INSTRUCTIONS ARE GIVEN TO THE CONTRARY.
MEETINGS AND COMMITTEESGENERAL
To provide for our future capital needs, our Board of Directors on January
9, 2004, unanimously adopted a resolution, subject to shareholder approval, to
amend Article III of our Articles of Incorporation to create and authorize
25,000,000 shares of preferred stock. Our Articles of Incorporation currently do
not provide for the issuance of preferred stock.
Under the CBCA, if the proposed preferred stock is approved by the
shareholders, our Board of Directors will have the authority to issue one or
more series of preferred stock with such voting rights (subject to the existing
rights of our common stock with respect to the election of directors), dividend
preferences or interest rates, redemption terms and prices, maturity terms and
dates, liquidation preferences, conversion or other special rights, and such
other terms qualifications, limitations or restrictions, as our Board may
designate for each series issued from time to time. As such, the preferred stock
would be available for issuance without further action by our shareholders,
except as may be required by applicable law or pursuant to the requirements of
the New York Stock Exchange (or other exchange or quotation system upon which
our securities are then trading.)
DISCUSSION OF THE BOARD OF DIRECTORSPROPOSED PREFERRED STOCK
Our business affairs are conducted underBoard of Directors believe that the directioncreation of preferred stock is
advisable and in the best interests of our company and our shareholders for
several reasons. The authorization of the preferred stock would permit our Board
of Directors to issue such stock without shareholder approval and, thereby,
provide us with maximum flexibility in structuring acquisitions, joint ventures,
strategic alliances, capital-raising transactions and for other corporate
purposes.
The preferred stock would enable us to respond promptly to and take
advantage of market conditions and other favorable opportunities without
incurring the delay and expense associated with calling a special shareholders'
meeting to approve a contemplated stock issuance.
We do not view the authorization of the preferred stock as part of any
"anti-takeover" strategy. Any future series of preferred stock created by our
Board of Directors would be subject to the existing rights of our Class B common
shareholders to elect a simple majority of our Board of Directors and to the
Class A common shareholders to elect the remaining members of our Board of
Directors. However, the issuance of shares of preferred stock under particular
circumstances could dilute or impair the voting power of our common stock with
respect to other matters.
We would likely issue preferred stock without first offering it to holders
of our common stock, as the holders of our common stock have no preemptive
rights. The actual effect of the issuance of any shares of preferred stock upon
the rights of holders of our common stock cannot be stated until the Board
determines the specific rights of the holders of such series of preferred stock.
However, the effects might include, among other things, granting superior
dividend rights to, or restricting dividends on, our common stock, diluting the
voting power of our common stock (except with respect to the elections of
directors), reducing the market price of our common stock, or impairing the
liquidation rights of our common stock, without further action by our
shareholders.
We may consider issuing preferred stock in the future for purposes of
acquiring other businesses and raising additional capital or for other reasons.
7
POTENTIAL ISSUANCE OF PREFERRED STOCK
On January 9, 2004, we entered into a term sheet with a New York based
institutional investor ("Investor"). The term sheet outlines a proposed issuance
of up to $25 million in senior convertible preferred stock by us to the
Investor. The letter agreement, while not a definitive agreement between the
parties, does require both the Investor and us to negotiate in good faith
towards a definitive agreement. The proposed preferred stock would be sold to
the Investor for cash. We contemplate that net proceeds from the sale would be
used for acquisitions and general working capital. The term sheet does not
require, nor is it contemplated, that the Investor be given a seat on our Board
of Directors. The term sheet is subject to:
- completion of due diligence by the Investor;
- mutual agreement on definitive terms, agreements and documentation;
- no material adverse change affecting us prior to closing; and
- approval by our shareholders of this proposal to amend our articles of
incorporation to issue preferred stock.
While the exact rights and terms of the proposed preferred stock are not
final, the term sheet contemplates that the series of preferred stock would have
the following terms:
- Security and Issuance Amount -- $25 million of 4% Senior Convertible
Preferred Stock, of which $20 million would be purchased on closing and
an option to purchase an additional $5 million for 12 months.
- Preferred Dividend -- 4% per annum, accrued to the principal face amount
of the preferred stock, compounded quarterly and payable in cash or
shares of our Class A common stock.
- Voting -- None, other than class voting rights as will be required under
the CBCA.
- Term/Maturity -- Principal face amount of the preferred stock plus
accrued, but unpaid, dividends would be due 60 months after the closing.
- Payment Terms -- We may pay the principal amount and any dividends due in
cash or, at our election, in shares of our Class A common stock. If
payment were to be made in Class A shares, the number of shares issued
would be calculated by taking the dollar amount due and dividing it by
the lesser of (a) the conversion price or (b) 95% of the 15-day volume
weighted average price of our Class A common shares for the 15-day period
prior to the payment date. The terms sheet defines the conversion price
to be 110% of the weighted average price of our Class A common shares for
the 30 business days prior to the closing of the transaction (the
"Conversion Price").
- Forced Conversion -- We would have the option to require conversion of
the preferred stock into our Class A common stock if our Class A common
stock trades higher than 135% of the Conversion Price for a period of 25
consecutive trading days after the closing.
- Forced Redemption -- If the average of the closing prices of our Class A
common stock is less than 80% of the Conversion Price during any 50 day
trading period after issuance of the preferred stock, following the first
anniversary of the closing, the Investor may force us every six months to
redeem up to 25% of any outstanding preferred stock at its face amount
plus any accrued dividends. We have the election of paying any forced
redemption in cash or in Class A common shares with the number of shares
to be issued calculated in the same manner described under "Payment
Terms" above. The Investor's right to force redemption is terminated if
the closing price of our Class A common stock exceeds 130% of the
Conversion Price for any 25 business day period after closing.
- Liquidation Rights -- In the case of a liquidation of our company, any
principal amount and accrued dividends on outstanding shares of the
preferred stock would be entitled to payment prior to a liquidating
distribution to our outstanding shares of common stock.
8
- Warrants -- The Investor would also receive a seven year warrant to
purchase shares of our Class A common stock for 100% of the Conversion
Price. The number of Class A common shares issuable under the warrant
would be equal to 27.5% of the number of preferred shares issued to the
Investor. The warrants would contain customary anti-dilution provisions
with respect to stock splits, stock dividends and other similar events.
The preferred stock will not contain anti-dilution provisions, although
the Investor will have the right to force redemption if we issue any
equity securities or equity-linked securities at a price per share below
the Conversion Price.
- Registration Rights -- We will be obligated to register for resale with
the Securities and Exchange Commission any of the shares of Class A
common stock issued in connection with the transaction described above.
- Borrowing Limitation -- We will not be allowed to incur any new debt or
obligations that is in any manner senior to or equal in right of payment
or liquidation to the preferred stock; however, we retained the right to
utilize a bank line of credit of up to $30 million.
THE FOREGOING TERMS ARE NOT NECESSARILY BINDING ON US OR THE INVESTOR. AS
WE PREPARE AND NEGOTIATE DEFINITIVE AGREEMENTS WITH THE INVESTOR, THE TERMS OF
THE PREFERRED STOCK MAY BE REVISED. SINCE APPROVAL OF THIS PROPOSAL WILL ALLOW
OUR BOARD OF DIRECTORS TO ISSUE THE PREFERRED STOCK IN SERIES WITH TERMS AND
RIGHTS AS IT DEEMS FIT WITHOUT SHAREHOLDER APPROVAL, OUR BOARD OF DIRECTORS
WOULD BE ABLE TO ISSUE A SERIES OF PREFERRED STOCK WITH TERMS OR RIGHTS THAT
VARY SIGNIFICANTLY FROM THE TERMS DESCRIBED ABOVE, WHETHER IT BE IN A
TRANSACTION WITH THE INVESTOR OR OTHERWISE. DEPENDING ON THE FINAL TERMS, THE
PREFERRED STOCK COULD BE CLASSIFIED AS A LIABILITY RATHER THAN EQUITY FOR
FINANCIAL REPORTING PURPOSES. FURTHERMORE, AS THE TERM SHEET ONLY OBLIGATES US
AND THE INVESTOR TO NEGOTIATE IN GOOD FAITH TOWARDS DEFINITIVE DOCUMENTS,
NEITHER PARTY IS BOUND TO COMPLETE THE TRANSACTION AS DESCRIBED ABOVE.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED AMENDMENT
Approval of the proposed amendment to our Articles of Incorporation will
require the affirmative vote of at least a majority of the issued and
outstanding shares of our Class A and Class B common stock, with each class
voting separately as a voting group. Upon approval by our shareholders, the
proposed amendment will become effective upon filing of Articles of Amendment
with the Colorado Secretary of State, which will occur as soon as practicable
following the meeting. In the event that the proposed amendment is not approved
by our shareholders at the meeting, we will not be able to issue preferred stock
and we will not be able to complete our proposed financing with the Investor.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL
TO AMEND OUR ARTICLES OF INCORPORATION TO CREATE AN AUTHORIZED CLASS OF
25,000,000 SHARES OF PREFERRED STOCK AVAILABLE FOR FUTURE ISSUANCE IN SERIES
WITH TERMS AND PREFERENCES DESIGNATED BY OUR BOARD OF DIRECTORS.
PROPOSAL NO. 3
TO INCREASE THE MAXIMUM NUMBER OF DIRECTORS ON OUR BOARD OF
DIRECTORS FROM NINE MEMBERS TO UP TO 15 MEMBERS
Considering the growth and size of our company, our Board of Directors held three (3) meetings during 2002, at which
allon
January 9, 2004, unanimously adopted a resolution, subject to shareholder
approval, to amend Article V of our Articles of Incorporation to increase the
maximum number of directors were present except for Timothy T. Timmerman who missed one
meeting. During 2002, theon our Board of Directors from nine members to up to
15 members (a copy of Article V, as it is proposed to be amended, is attached to
this proxy statement as Appendix A).
9
Our Articles of Incorporation provide that our Board of Directors shall
consist of at least five members and not more than nine members. Our company has
grown significantly since it was served by four committees -incorporated 1977. We have grown to become a
life insurance holding company with approximately 120 employees and
approximately $400 million in assets at December 31, 2003 (unaudited). Our Class
A common stock is traded on the Executive Committee,New York Stock Exchange ("NYSE").
As a life insurance holding company and stature as a company traded on the
Compensation Committee,NYSE, along with intentions to continue our growth pattern, our Board of
Directors believes it requires the flexibility to increase the size of the Board
to meet the challenges of a complex and highly competitive insurance industry.
In order to effectively manage and guide the business plan of the company, we
may require Board members with diverse backgrounds, such as in sales, national
and international business contacts and experience, insurance regulation and
medicine (considering our significant life insurance business).
Additionally, recent NYSE regulations and federal securities laws require
Boards of Directors of public companies to include members on the Board who are
sophisticated in accounting matters. Current NYSE regulations require that we
maintain an Audit Committee and the
Disclosure Committee.
The Executive Committee, composed of Messrs. Harold E. Riley, Dr. E. Dean Gage,
and Timothy T. Timmerman, met ten (10) times during 2002 and has exercised and
may exercise all of the authority of the Board of Directors incomprised of at least
three independent directors, all of whom must be financially sophisticated and
one of whom must be an accounting expert.
Thus, we believe it is important to be authorized to maintain a board size
to meet the managementregulatory and business challenges of the business affairsinsurance industry.
Failure to obtain shareholder approval of this amendment could lead to our Board
being unprepared to effectively complete and meet the significant regulatory
requirements of a publicly traded insurance holding company.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED AMENDMENT
Approval of the Company, except where action of a majority of all
members of the Board of Directors is required by law or byproposed amendment to our Articles of Incorporation or Bylaws. All actions takenwill
require the affirmative vote of at least a majority of the issued and
outstanding shares of our Class A and Class B common stock, with each class
voting separately as a voting group. Upon approval by our shareholders, the
Executive Committee are
subsequently reviewedproposed amendment will become effective upon filing of Articles of Amendment
with the Colorado Secretary of State, which will occur as soon as practicable
following the meeting. In the event that the proposed amendment is not approved
by our shareholders at the Board of Directors.
The Audit Committee is currently composed of Messrs. Richard C. Scott, Dr. E.
Dean Gage and Timothy T. Timmerman, all are independent directors. Effective as
of November 7, 2002, Ralph Smith resigned from themeeting, our Board of Directors will be limited to no
more than nine members.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL
TO AMEND OUR ARTICLES OF INCORPORATION TO INCREASE THE MAXIMUM NUMBER OF
DIRECTORS ON OUR BOARD OF DIRECTORS FROM NINE MEMBERS TO UP TO 15 MEMBERS.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
The deadline for receipt of shareholder proposals for our 2004 meeting was
on December 26, 2003. Any shareholder who wishes to present a proposal to be
considered at our 2005 annual meeting of shareholders and who wishes to have
such proposal receive consideration for inclusion in our proxy statement for
such meeting must deliver such proposal in writing to us at 400 East Anderson
Lane, Austin, Texas 78752, not later than 120 calendar days before the Audit Committee. Upon his resignation, Dr. E. Dean Gage becamedate that
our proxy statement is released to our shareholders in connection with our 2004
annual meeting of shareholders. Any such shareholder proposal must comply with
the requirements of Rule 14a-8 promulgated under the Securities Exchange Act of
1934.
The persons who will be named as proxies for the 2004 annual meeting of
shareholders will generally have discretionary authority to vote on any matter
presented by a membershareholder for action at that meeting. In the event that we
receive notice of any shareholder proposal no later than forty-five (45) days
before the date on which we first mail our 2004 proxy statement, then so long as
we include in our proxy statement for the 2004 annual meeting of shareholders
advice on the nature of the Audit Committee. The Audit Committee met four times during 2002. The functions
ofmatter and how the Audit Committee include recommendingnamed proxies intend to vote the
shares for which they have received discretionary authority, such proxies may
exercise discretionary authority with respect to such matter, except to the
Board each year the firm of
independent auditors to be engagedextent limited by us, reviewing our annual financial
statements, reviewing and approving in advance the plan and scope of our audit
to be performed for the following year by the independent auditors, reviewing
with the principal independent auditors upon completion of their audit their
findings and recommendations, conducting quarterly reviews of the financial
reports issued by us with the independent auditors, and periodically reviewing
with them our principal accounting policies and other pertinent matters. We have
adopted a written charter for our Audit Committee.
The Compensation Committee, composed of Messrs. Dr. Richard C. Scott, Timothy T.
Timmerman and Steven F. Shelton, met once during 2002. The functions of the
Compensation Committee include establishing compensation policies applicable to
our executive officers and making recommendations concerning executive
compensation to the Board of Directors.
The Disclosure Committee, composed of Dr. Richard C. Scott, Mark A. Oliver, Rick
D. Riley and Marcia F. Emmons, was formed in November, 2002 and met once during
2002. The function of the Disclosure Committee includes designing and
establishing controls and procedures to ensure that information to be disclosed
in our publicly filed reports and other written information that we disclose to
the investment community is recorded, processed, summarized and reported
accurately and on a timely basis.
8
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
Our Compensation Committee, which is composed of the three non-employee
directors named below, makes recommendations to the Board concerning the
compensation of our executive officers. In order to make such recommendations,
toward the end of each year, the Committee evaluates our performance relative to
our business plan and similar companies. Additionally, each of our executive
officer's contribution to our achievements during the year is evaluated.
The goal of the Compensation Committee is to ensure that we employ
qualified, experienced executive officers whose financial interest is aligned
with that of shareholders. The Committee considers general industry practice,
tax effects and other factors in structuring executive compensation awards. The
following is a discussion of the compensation forms currently being utilized.
Salaries for each of our executive officers are determined by taking
into consideration performance, length of tenure, compensation by industry
competitors for comparable positions and career achievements. Salaries paid
within the industry are weighted more heavily in setting base salary levels. In
order to determine comparable salary levels paid within the industry, the
Committee reviews various industry surveys and publicly filed information of its
competitors. No bonus or stock option plans exist; however, there is a profit
sharing plan, where distribution is based on tenure.
Harold E. Riley was elected Chairman of the Board and Chief Executive
Officer in 1987, although as our founder, his tenure began in 1968. In October,
2000, he relinquished the position of Chief Executive Officer to Rick D. Riley,
while remaining as Chairman. Harold E. Riley and Rick D. Riley are currently
employed by us on an "at-will" basis. The Compensation Committee reviewed
industry salary surveys and determined that total cash compensation for both
persons was lower in 2000 compared to similar positions with industry
competitors; however, their cash compensation was reasonable given our present
size and resources. The Committee considered the significant role Harold Riley
has played in the development of our various operating and marketing programs,
as well as his experience in the merger and acquisition area and his overall
management expertise in establishing his compensation for the year 2001.
Furthermore, the additional responsibilities assumed by Rick Riley, along with
his significant industry experience and salaries of individuals in comparable
positions were considered in his compensation for the year. The Committee
believes that the cash compensation paid to our Chairman and Chief Executive
Officer is designed to closely align their interests with those of the
shareholders, and that their compensation is related directly to their
performance as individuals with considerable experience and ability in the
insurance industry.
COMPENSATION COMMITTEE
Richard C. Scott
Steven F. Shelton
Timothy T. Timmerman
9
AUDIT COMMITTEE REPORT
Our Audit Committee reports to and acts on behalf of the Board of
Directors by providing oversight of our financial management, independent
auditors and financial reporting procedures. The Audit Committee's written
Charter was adopted in 2000. The Audit Committee Charter was revised in
November, 2002 in order to meet the new requirements of Sarbanes-Oxley Act of
2002. A copy of the revised Charter is attached hereto.
Management is responsible for preparing our financial statements and the
independent auditors are responsible for auditing those financial statements.
The Audit Committee is responsible for overseeing the conduct of these
activities by the Company's management and the independent auditors. The Audit
Committee is also responsible for establishing procedures to address complaints
regarding accounting, internal control or auditing issues, as well as the
anonymous submission by employees of concerns regarding accounting or auditing
matters. In this context, the Audit Committee has met and held discussions with
management and the independent auditors. Management represented to the Audit
Committee that our consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP"), and the Audit Committee has reviewed and discussed the consolidated
financial statements with management and the independent auditors.
The Company has designated Dr. Richard C. Scott as the financial expert
on the Audit Committee. Dr. Scott has an understanding of GAAP and financial
statements and audit committee functions. Dr. Scott, as well as the other
members of the Audit Committee, are independent directors as defined under the rules of the New York Stock Exchange. The members of the Audit Committee are not
professionally engaged in the practice of auditing or accountingSecurities and are not
financial experts in the fields of accounting or auditing, including auditor
independence. The members of the Audit Committee rely without independent
verification on the information provided to them and on the representations made
by our management and the independent accountants. Accordingly, the Audit
Committee's oversight does not provide an independent basis to determine that
management has maintained appropriate accounting and financial reporting
principles or appropriate internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions referred to
above do not assure that the audit of our financial statements has been carried
out in accordance with auditing standards generally accepted in the United
States of America, that the financial statements are presented in accordance
with GAAP, or that our auditors are in fact "independent".
The Committee has discussed with KPMG LLP, the independent auditor's
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees). In addition, the independent auditors
provided to the Audit Committee the written disclosures required by Independent
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Committee and the independent auditors have discussed the auditors'
independence from us and our management, including the matters in those written
disclosures. Additionally, the Committee considered the financial information
systems services and other non-audit services provided by the independent
auditors and the fees and costs billed and expected to be billed by the
independent auditors for those services (as shown below). The Committee has
discussed with management the procedures for selection of consultants and the
related competitiveExchange Commission governing
shareholder proposals.
10
bidding practices and fully considered whether those services providedINCORPORATION BY REFERENCE OF ANNUAL REPORT ON FORM 10-K
AND QUARTERLY REPORT OF FORM 10-Q
This Proxy Statement incorporates by the
independent auditors are compatible with maintaining auditor independence.
The Committee has discussed withreference our independent auditors their
evaluations of our internal accounting controls and the overall quality of our
financial reporting.
In reliance on the reviews and discussions with management and the
independent auditors referred to above, the Audit Committee recommended to the
Board of Directors and the Board has approved, the inclusion of the audited
financial statements in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2002, which was previously delivered to our shareholders
and which contains important information about us and our financial condition
that is not included in this Proxy Statement. This Proxy Statement also
incorporates by reference our quarterly report on Form 10-Q for filingthe periods
ended March 31, June 30 and September 30, 2003. We will provide upon written
request, without charge to each shareholder, a copy of our Form 10-K and Forms
10-Q, as filed with the Securities and Exchange Commission. Any such requests
should be directed to our corporate secretary at our executive offices set forth
in this proxy statement or may be acquired from our web site at
www.citizensinc.com by clicking on the "Investor Information" button and then
clicking on the "SEC Filings" button. You may also obtain copies of the Form
10-K and Forms 10-Q by accessing the SEC's homepage (www.sec.gov).
OTHER MATTERS
At the date of mailing of this proxy statement, we are not aware of any
business to be presented at the meeting other than the proposals discussed
above. If other proposals are properly brought before the meeting, any proxies
returned to us will be voted as the proxyholders see fit.
By Order of the Board of Directors
By /s/ MARCIA F. EMMONS
------------------------------------
Marcia F. Emmons,
Secretary
Austin, Texas
January 26, 2004
11
APPENDIX A
RESTATED AND AMENDED ARTICLES OF INCORPORATION
OF
CITIZENS, INC.
RESTATED AND AMENDED ARTICLES OF INCORPORATION
OF
CITIZENS, INC.
Citizens, Inc., a Colorado corporation (hereinafter referred to as the
"Corporation") pursuant to the provisions of the Colorado Business Corporation
Act, hereby certifies to the Secretary of State of Colorado that:
FIRST: The Audit Committee also recommendedCorporation desires to restate and amend its Articles of
Incorporation as currently in effect as hereinafter provided.
SECOND: The provisions set forth in these Restated and Amended Articles of
Incorporation supersede the original Articles of Incorporation and all
amendments thereto. These Restated and Amended Articles of Incorporation
correctly set forth the provisions of the Articles of Incorporation, as amended,
of the Corporation.
THIRD: The Articles of Incorporation of the Corporation are hereby amended
and restated by striking in their entirety all previous articles, and by
substituting in lieu thereof the following:
ARTICLE I
NAME
The name of the corporation is Citizens, Inc.
ARTICLE II
PURPOSE
The objects and purposes for which this company is formed and incorporated
are:
To purchase, hold, pledge, transfer, sell, or otherwise dispose of or
deal in, the shares of the capital stock, bonds, debentures, notes or other
securities or evidences of indebtedness of any corporation; to receive,
collect and dispose of dividends, interests or other income on any such
securities held by it; and do any and all acts and things tending to
increase the value of said corporation; to issue bonds and secure the same
by pledge or deed of trust of or upon any part of such securities or other
property held or owned by the company and to sell or pledge such bonds for
proper corporate purposes and in the promotion of its corporate business;
to purchase, receive, hold and dispose of any securities of any person or
corporation, whether such securities shall be bonds, mortgages, debentures,
notes, shares of capital stock or otherwise, and in respect to any such
securities, to exercise any and all rights and privileges of ownership
thereof; to borrow and lend money and negotiate loans; to know, accept,
endorse, buy and sell promissory notes, bonds, stocks, debentures, coupons
and other securities; to issue, subscribe for, take, acquire, hold, sell,
exchange and deal in shares, stocks, bonds, obligations, and securities of
any government, authority, or company; to form, promote, subsidize and
assist companies, syndicates or partnerships of all kinds, and to finance
and refinance the same.
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Colorado.
ARTICLE III
SHARES
The total number of shares of all classes which the Corporation has
authority to issue is 127,000,000 of which 102,000,000 shares shall be Common
Stock, and 25,000,000 shares shall be Preferred Stock.
A-1
The designations and the preferences, conversion and other rights, voting
powers, restrictions, limitations as to distributions, qualifications, and terms
and conditions of redemption of the shares of each class of stock are as
follows:
COMMON STOCK
Subject to all of the rights of the Preferred Stock as expressly provided
herein, by law or by the Board of Directors pursuant to this Article, common
stock divided into two (2) classes:
A. 100,000,000 shares of Class A Common Stock of no par value per
share; and
B. 2,000,000 shares of Class B Common Stock of no par value per share.
Cumulative voting shall be denied as to each class of common stock and no
shareholder of either class shall have any pre-emptive right to acquire any
share of stock to be issued by the Corporation.
The Common Stock of the Corporation shall possess all such rights and
privileges as are afforded to capital stock by applicable law in the absence of
any express grant of rights or privileges in these Articles of Incorporation.
The Class A Common Stock and the Class B Common Stock shall be equal in all
respects, except that:
1. The cash dividends paid upon each share of Class A Common Stock
shall be twice the cash dividends paid on each share of Class B Common
Stock.
2. The holders of the Class B Common Stock shall have the exclusive
right to elect a simple majority of the members of the Board of Directors
of the Corporation; and the holders of Class A Common Stock shall have the
exclusive right to elect the remaining Directors.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. The description of shares of each
series of Preferred Stock, including any preferences, conversion and other
rights, voting powers, restrictions, limitations as to distributions,
qualifications, and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors and in Articles of Amendment to
State Terms of Series Shares filed as required by law from time to time prior to
the Board has
approved the selectionissuance of KPMG LLP as our independent auditors for 2003. A
member of KPMG LLP is expected to attend the Meeting and will have the
opportunity to make a statement, if desired. Such member will also be available
to respond to appropriate questions of stockholders.
AUDIT COMMITTEE
Dr. Richard C. Scott
Dr. E. Dean Gage
Timothy T. Timmerman
11
CERTAIN REPORTS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934 requires that our directors,
executive officers and persons who own more than ten percent of a registered
class of our equity securities file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based solely upon a
reviewany shares of such reportsseries.
The Board of Directors is expressly authorized, prior to issuance, by
adopting resolutions providing for the issuance of, or providing for a change in
the number of, shares of any particular series of Preferred Stock and, amendments thereto furnishedif and to
us, we believe that
during 2002, with the exceptionextent from time to time required by law, by filing Articles of Amendment to
State Terms of Series Shares to set or change the number of shares to be
included in each series of Preferred Stock and to set or change in any one late Form 4 filed by E. Dean Gage on
September 3, 2002 regarding a stock purchase transactionor
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to distributions, qualifications, or terms
and conditions of 1,015redemption relating to the shares all
reports were filed on a timely basis.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our executive
officers who are elected annually byof each such series.
Notwithstanding the foregoing, the Board of Directors atshall not be authorized to
change the first meetingright of the Board following our Annual Meeting of Stockholders:
NAME AGE POSITION
---- --- --------
Harold E. Riley (1) 74 Chairman of the Board
Rick D. Riley (2) 49 Vice Chairman and CEO
Mark A. Oliver (3) 44 President
Dave Mehle(4) 50 Executive Vice President, CFO, and
Treasurer
Marcia F. Emmons(5) 47 Vice President, Secretary and Corporate
Counsel
- --------------
(1) Mr. Riley has served since 1987.
(2) Rick Riley became Vice Chairman in December 1999 and Chief Executive Officer
in 2000. He has served in various capacities for the Company and its
affiliates since 1976.
(3) Mark A. Oliver has served since 1987. Prior to becoming President in March
1997, Mr. Oliver served as Executive Vice President, Chief Financial Officer
and Secretary/Treasurer.
(4) David J. Mehle joined the Company in January, 2003 as Executive Vice
President, Chief Financial Officer and Treasurer. Mr. Mehle worked at CNA
Insurance Companies as Vice President and Controller for 6 years before
coming to Citizens.
(5) Marcia F. Emmons assumed the position of Vice President, General Counsel and
Secretary of Citizens in October 2002. Prior to that Mrs. Emmons provided
legal services to various clients and she spent over 16 years as in house
counsel with Sun Company, Inc. and its operating subsidiaries. Mrs. Emmons
is a memberCommon Stock of the Texas Bar Association and the Pennsylvania Bar
Association.
12
EXECUTIVE OFFICER AND DIRECTOR COMPENSATIONCorporation to vote one vote per
share on all matters submitted for stockholder action. The following table presents the aggregate compensation which was earned by our
Chairman and Chief Executive Officer for each of the past three years and, our
four most highly compensated officers other than the Chairman and Chief
Executive Officer. There has been no compensation awarded to, earned by or paid
to any employee required to be reported in any table or column in any fiscal
year, other than what is set forth in the table below.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and All Other
Principal Compen-
Position Year Salary sation (1)
- ------------------------------------------------------------------
Harold E. Riley, 2002 $571,164 $ 32,765
Chairman 2001 $519,436 $ 34,495
2000 $495,546 $ 24,000
Clayton Dunham, 2002 $276,062 $ 4,587
Executive Vice 2001 $250,127 $ 4,829
President and 2000 $204,704 $ 3,000
Chief Marketing
Officer(2)
Rick D. Riley, Vice 2002 $233,655 $ 32,765
Chairman and Chief 2001 $202,701 $ 34,495
Executive Officer 2000 $150,785 $ 24,000
Mark A. Oliver, 2002 $193,662 $ 22,280
President 2001 $173,474 $ 23,456
2000 $167,519 $ 16,000
Jeffrey J. Wood, 2002 $142,008 $ 655
Executive Vice 2001 $135,200 $ 689
President, and 2000 $129,568 256
Secretary/ Treasurer
Robert E. Rainey, Jr. 2002 $139,439 $ 22,076
Vice President, 2001 $132,508 $ 22,076
Electronic Systems 2000 $107,219 $ 15,376
- -------------
(1) Company contribution to qualified profit-sharing plan. 2002 amounts are
estimates.
(2) Messr. Dunham served as an officer of the Company until February 1999, and
continues to serve as an officer of the Company's subsidiaries.
Our employees are covered under a non-contributory profit-sharing plan. Under
the terms of the Plan, all employees who have completed one year of service are
eligible to participate. Vesting begins following completion of three years'
service and employees become fully vested after seven years' service. We made a
$200,000 annual contribution in 2000, a $250,000 contribution in 2001 and a
$300,000 contribution in 2002. Messrs. H.E. Riley, R.D. Riley, and Mark Oliver
had $232,468, $252,456 and $104,081, respectively, vested under the
13
Plan as of December 31, 2001, the last year for which allocations are complete.
Mr. Wood and Mr. Dunham had $201 and $18,692 vested in the Plan as of December
31, 2001, respectively.
During 2002, the members of Board of Directors who are not employees were paid
$10,200 per year, while Committee members who are not employees were paid $500
per physical Committee meeting attended. Committee fees remain unchanged. Total
directors' fees paid during 2002 were $57,700.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We are not aware of any transaction, or series of transactions, since January 1,
2002, or any currently proposed transactions, or series of transactions, to
which we or any of our subsidiaries was to be a party, in which the amount
involved exceeds $60,000 and in which any director, nominee for director,
executive officer, more than 5% shareholder or any member of the immediate
family of the foregoing persons had, or will have, a direct or indirect material
interest.
AUDIT FEES
The aggregate fees billed by our independent auditors for professional
services rendered for the audit of our annual financial statements for the
fiscal year ended December 31, 2002, and for the reviews of the financial
statements included in our Quarterly Reports on Form 10-Q for that fiscal year
were $149,500.
ALL OTHER FEES
The aggregate fees billed by our independent auditors for services
rendered to us, other than the services described in the preceding paragraph,
were $170,741 for 2002, consisting primarily of tax services. There were no
other professional service fees billed by our independent auditors for 2002.
14
COMPARATIVE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CITIZENS, INC.,
NYSE MARKET INDEX AND PEER GROUP INDEX
The following graph represents a comparison of our preceding five-year
cumulative total return, along with the total return of our peer group and a
broad market index. The broad market index chosen was the NYSE Market Index. The
peer group, which includes life, accident and health companies, was compiled by
Media General Financial Services.
ASSUMES $100 INVESTED ON JANUARY 01, 1998
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 2002
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE COMPANIES, PEER GROUPS,
INDUSTRY INDEXES AND/OR BROAD MARKETS
COMPANY 01/01/98 12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002
- ------- -------- ---------- ---------- ---------- ---------- ----------
Citizens, Inc. 100.00 86.54 114.15 115.18 208.15 141.85
Life Insurance 100.00 148.32 134.56 159.03 118.49 80.68
AMEX Market Index 100.00 98.64 122.98 121.47 115.87 111.25
Source: Media General Financial Services
P.O. Box 85333
Richmond, Virginia 23293
15
OTHER BUSINESS
Should any other business come before the Meeting, and management is not aware
of any at this time and does not expect any, the persons named in the proxy will
vote on such business as their best judgment and discretion indicates.
PUBLIC ACCOUNTANTS
KPMG LLP, 717 North Harwood Street, Suite 3100, Dallas, Texas 75201, is our
principal independent auditor. A representative of KPMG LLP will be present at
the Annual Meeting of Stockholders to answer questions and make any desired
statement.
ANNUAL REPORT AND OTHER MATERIAL
A copy of our Annual Report to Stockholders has been mailed under separate
cover. A copy of the report of the Compensation Committee and the Audit
Committeeauthority of the
Board of Directors with respect to each series of Preferred Stock shall include,
but not be limited to, setting or changing the following:
(a) the distinctive serial designation of such series and the number
of shares constituting such series (provided that the aggregate number of
shares constituting all series of Preferred Stock shall not exceed
25,000,000);
(b) the annual distribution rate on shares of such series, whether
distributions shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or dates
upon and after which such shares shall be redeemable, and
A-2
the amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to redeem or repurchase
shares of such series pursuant to a Performance Graph regarding
stockholder return accompany this Proxy Statement. NO PART OF SUCH MATERIAL IS
INCORPORATED HEREIN AND NO PART THEREOF IS TO BE CONSIDERED PROXY SOLICITING
MATERIAL.
STOCKHOLDER PROPOSAL
DEADLINE FOR 2004 ANNUAL MEETING
Any proposalsinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if so,
the terms and conditions of such conversion or exchange, including the
price or prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of
such voting rights;
(g) the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation;
and
(h) any other relative rights, powers, preferences, qualifications,
limitations or restrictions thereof relating to such series which may be
authorized or permitted under the Colorado Business Corporation Act.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
ARTICLE IV
DURATION
The term of existence of the corporation shall be perpetual.
ARTICLE V
DIRECTORS
The business and affairs of the corporation shall be under the control and
management of a stockholderBoard of Directors consisting of not less than five (5) members
and not more than fifteen (15) members, the number to be presented at our next annual meeting
currently scheduledfixed by the by-laws of
the company.
ARTICLE VI
NO PRE-EMPTIVE RIGHTS
Shareholders shall not have a pre-emptive right to subscribe for additional
shares of the corporation issued from time to time by the corporation.
ARTICLE VII
BYLAWS
The Board of Directors shall have power to enact, alter, amend and repeal
the by-laws of the corporation not inconsistent with the laws of the State of
Colorado and these Articles of Incorporation as it may deem best for the
management of the corporation.
ARTICLE VIII
ELIMINATION OF PERSONAL LIABILITY OF A DIRECTOR
No director shall be liable to the Corporation or any shareholder for
monetary damages for breach of fiduciary duty as a director, except for any
matter in respect of which such director (a) shall be liable under
A-3
C.R.S. Section 7-5-114 or any amendment thereto or successor provision thereto;
(b) shall have breached the director's duty of loyalty to the Corporation or
its. shareholders; (c) shall not have acted in good faith or, in failing to act
shall not have acted in good faith; (d) shall have acted or failed to act in a
manner involving intentional misconduct or a knowing violation of law; or (e)
shall have derived an improper personal benefit. Neither the amendment nor
repeal of this Article, nor the adoption of any provision in the Articles of
Incorporation inconsistent with this Article, shall eliminate or reduce the
effect of this Article in respect to any matter occurring prior to such
amendment, repeal or adoption of an inconsistent provision. This Article shall
apply to the full extent now permitted by Colorado law or as may be permitted in
the future by changes or enactments in Colorado law, including without
limitation C.R.S. Section 7-2-102 and/or C.R.S. Section 7-3-101.
ARTICLE IX
VOTING REQUIREMENTS
When, with respect to any action to be heldtaken by shareholders of the
Corporation, the Colorado Corporation Code requires the affirmative vote of the
holders of two-thirds of the outstanding shares entitled to vote thereon, or of
any class or series, such action may be taken by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote on such action,
unless any class of shares is entitled to vote thereon as a class, in which
event the proposed action may be taken upon receiving the affirmative vote of
the holders of a majority of the shares of each class of shares entitled to vote
thereon as a class and of the total shares entitled to vote thereon.
ARTICLE X
INCORPORATORS
The name and address of each incorporator is:
NAME ADDRESS
- ---- -------
Dr. Bruce Holman......................... 3401 East Kentucky Avenue
Denver, Colorado 80209
Stanford E. Ernest....................... 3280 Dartmouth Avenue
Boulder, Colorado 80302
Max P. Osborn............................ 2445 Vance
Lakewood, Colorado 80215
Howard M. Jeffries....................... 7720 South Race
Littleton, Colorado 80122
George A. Powell......................... 6601 South Marion Court
Littleton, Colorado 80121
Thomas J. Murphy......................... 3361 South Ulster Court
Denver, Colorado 80321
James F. Martin.......................... 1216 Pierce, No. A-13
Lakewood, Colorado 80215
FOURTH: By resolution of the Board of Directors of the Corporation at a
duly called meeting on January 9, 2004, the Board of Directors approved these
Restated and Amended Articles of Incorporation and advised to the stockholders
of the Corporation the same, and by vote of the stockholders of the Corporation
at a duly called meeting on March 4, 2004, the stockholders duly approved these
Restated and Amended Articles of Incorporation in compliance with the CBCA.
FIFTH: The number of votes cast for the amendments contained in these
Restated and Amended Articles of Incorporation by each voting group entitled to
vote separately on the first Tuesday in June 2004, must be
received at the officesamendments was sufficient for approval by that voting
group.
A-4
The (a) name or names, and (b) mailing address or addresses, of any one or more
of the Company,individuals who cause this document to be delivered for filing and to
which the Secretary of State may deliver notice if filing of this document is
refused, are: David A. Thayer, Esq., Jones & Keller, P.C., 1625 Broadway, Suite
1600, Denver, CO 80202, (303) 573-1600.
A-5
PROXY PROXY
CITIZENS, INC.
400 East Anderson Lane
Austin, Texas 78752
no later than December 29, 2003.
BY THE ORDERTHIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AUSTIN, TEXAS MARCIA F. EMMONS, SECRETARY
16
THE AUDIT COMMITTEE CHARTER
There shall be a committeeThe undersigned shareholder of Citizens, Inc. acknowledges receipt of
the Board of Directors known as the Audit
Committee. Only independent directors may serve on the Audit Committee. The
primary functionnotice of the Committee shallspecial meeting of shareholders, to be to assist the Board of Directors in
fulfilling its oversight role regardingheld Thursday, March 4,
2004, at 10:00 a.m. Central time, at the Company's financial reporting
process, its systemheadquarters at 400 East
Anderson Lane, Austin, Texas and hereby appoints Rick D. Riley and Mark A.
Oliver, or either of internal controlthem, each with the power of substitution, as attorneys and
its compliance with applicable laws,
regulations and Company policies. Activitiesproxies to vote all the shares of the Audit Committeeundersigned at the special meeting and at
all adjournments thereof, hereby ratifying and confirming all that the attorneys
and proxies may do or cause to be done by virtue hereof. The above-named
attorneys and proxies are instructed to vote all of the undersigned's shares as
follows:
Continuous Activities --- General
1. Provide an open avenue of communication between the independent auditors,
internal auditors and the Board of Directors
2. Meet at least two times per year or more frequently as circumstances
require; the Committee may ask members of management or othersProposal to attend
meetings and provide pertinent information as necessary
3. Confirm and ensure the independent auditors and the objectivityamend Article III of the internal auditors
4. InquireArticles of management,Incorporation
to (i) increase the independent auditorsnumber of authorized shares of our Class A
common stock from 50,000,000 to 100,000,000 shares and (ii)
increase the chief financial
officer about significant risks or exposures, and assess the steps
management has takennumber of authorized shares of our Class B common
stock from 1,000,000 to minimize such risks2,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to the Company
5. Meet periodically with the independent auditors, the chief financial officer
and management in separate executive sessions to discuss any matters that
the Committee or these groups believe should be discussed privately with the
Committee
6. Report periodically to the Board of Directors on significant resultsamend Article III of the foregoing activities
7. Instruct the independent auditors that the BoardArticles of DirectorsIncorporation
to create an authorized class of 25,000,000 shares of
preferred stock available for future issuance in series with
terms and the Audit
Committee, as the stockholders' representatives, are the auditors' client
Continuous Activities --- Reporting Specific Policies
1. Advise financial management and the independent auditors that they are
expected to provide a timely analysis of significant current financial
reporting issues and practices
2. Provide a medium for financial management and the independent auditors to
discuss with the Audit Committee their qualitative judgments about the
appropriateness, not just the acceptability, of accounting principles and
financial disclosure practices used or proposed to be adopted by the Company
and, particularly, about the degree of aggressiveness or conservatism of its
accounting principles and underlying estimates
3. Determine, as it relates to new transactions or events, the auditors'
reasoning for the appropriateness of the accounting principles and
disclosure practices adopted by management
4. Assure that the auditors' reasoning is described in determining the
appropriateness of changes in accounting principles and disclosure practices
5. Assure that the auditors' reasoning is described in accepting or questioning
significant estimates by management
Scheduled Activities
1. Recommend the selection of the independent auditors for approvalpreferences designated by the Board of Directors, and approve the compensationDirectors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to amend Article V of the independent auditors
2. Consider, in consultation withArticles of Incorporation
to increase the independent auditors and the Directormaximum number of Internal Audit, the audit scope and plan of the independent auditors and the
internal auditors to assure completeness of coverage, reduction of redundant
efforts and the effective use of audit resources
17
3. Review with management and the independent auditors the results of annual
audits and related comments in consultation with other committees as deemed
appropriate, including:
a. The annual financial statements, accompanying footnotes and the
independent auditors' report thereon
b. Any significant changes required in the independent auditors' audit plan
c. Any difficulties or disputes with management encountered during the
course of the audit
d. Other matters related to the conduct of the audit, which are to be
communicated to the Committee under generally accepted auditing
standards
4. Consider and review with management and the chief financial officer:
a. Significant internal audit findings during the year and management's
responses to them
b. Any difficulties encountered in the course of internal audit work,
including any restrictionsdirectors on the scope of activities or access to
required information
c. Any changes required in the planned scope of the Internal Audit Plan
d. The Internal Audit Department charter, budget and staffing
5. Review the interim financial reports with management, the independent
auditors and the chief financial officer before those interim reports are
released to the public or filed with the SEC
6. Consider and review with the independent auditors and the chief financial
officer:
a. The adequacy of the Company's internal controls, including computerized
information system controls and security
b. Related findings and recommendations of the independent auditors and
Internal Audit Department, together with management's responses
7. Review annually with the independent auditors and the chief financial
officer the results of the monitoring of compliance with the company's code
of conduct
8. Arrange for the independent auditors to be available to the fullour Board of
Directors at least annually
9. Review and update the Committee's Charter annually
"When Necessary" Activities
1. Review and concur with the appointmentfrom nine members to up to 15 members.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Transaction of the chief financial officer
2. Review and approve requests for any management consulting engagement to be
performed by the independent auditors, and be advised of any other study
undertaken at the request of management that is beyond the scope of the
audit engagement letter
3. Review periodically with legal counsel any regulatory matters that may have
a material impact on the Company's financial statements, compliance policies
and programs
4. Conduct or authorize investigations into any matters within the Committee's
scope of responsibilities; the Committee shall be empowered to retain
independent counsel and other professionals to assist in conducting any
investigation
18
Please mark
your vote as [X]
indicated in
this example
1. Election of Directors.
FOR all nominees WITHHOLD
listed below AUTHORITY
(except as indicated to vote for all nominees
to the contrary) listed below
[_] [_]
Class A Nominees:
01 Dr. E. Dean Gage, 02 Steven F. Shelton, 03 Timothy T. Timmerman
(Instruction: To withhold authority to vote for any nominee, write that
nominee's name on the line below.)
- --------------------------------------------------------------------------------
2. In their discretion, the proxies are authorized to vote upon such other business as may properly come before
the meeting.
PLEASE COMPLETE, DATE, SIGN AND RETURNmeeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE ENCLOSED ENVELOPE.
SIGNATURE(S)_____________________ Signature if held jointly_____________________
Dated________________ 2003
NOTE:MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS ONE, TWO AND THREE AND AS THE PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING.
DATED:___________________ 2004 ____________________________________________
SIGNATURE
____________________________________________
SIGNATURE IF HELD JOINTLY
Please sign your name exactly as nameit appears
hereon.below. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
- --------------------------------------------------------------------------------
/\ FOLDIf a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND DETACH HERE /\
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
CITIZENS, INC.
June 3, 2003
CITIZENS, INC.RETURN THE PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mark A. Oliver, Rick D. Riley, Marcia F.
Emmons or any of them with full power of substitution, as proxies to vote at the
Annual Meeting of Stockholders of Citizens, Inc. (the "Company") to be held on
June 3, 2003 at 10:00 a.m., local time, and at any adjournment or adjournments
thereof, hereby revoking any proxies heretofore given, to vote all shares of
common stock of the Company held or owned by the undersigned as directed on the
reverse side and in their discretion upon such other matters as may properly
come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR proposal 1.
(To be signed on Reverse Side)
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
[CITIZENS LOGO]CARD PROMPTLY.