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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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
CITIZENS FINANCIAL CORPORATION
(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(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:
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CITIZENS FINANCIAL CORPORATION
The Marketplace, Suite 300
12910 Shelbyville Road
Louisville, Kentucky 40243
NOTICE OF 2003 ANNUAL MEETING OF SHAREHOLDERS
Dear Shareholder:
You are cordially invited to attend this year's Annual Meeting of
Shareholders of Citizens Financial Corporation.
DATE: Thursday, May 22, 2003
TIME: 4:00 p.m., EDT (Louisville time)
PLACE: The Marketplace, Suite 300
12910 Shelbyville Road
Louisville, Kentucky 40243
AGENDA: The agenda for the meeting includes:
The election of seven directors for a term of one year; and
The transaction of such other business as may properly come
before the meeting.
RECORD DATE: The record date for determining shareholders entitled to vote
at the meeting is the close of business on April 15, 2003.
Even if you plan to attend the meeting, please complete, sign, date and
return the enclosed proxy. You may attend even though you have returned the
proxy. If you decide to revoke your proxy for any reason, you may do so at any
time before the voting as described in the accompanying Proxy Statement.
By Order of the Board of Directors,
DARRELL R. WELLS
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Louisville, Kentucky
April 25, 2003
PLEASE VOTE PROMPTLY
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CITIZENS FINANCIAL CORPORATION
The Marketplace, Suite 300
12910 Shelbyville Road
Louisville, Kentucky 40243
PROXY STATEMENT
This statement is furnished in connection with a solicitation of
proxies by the Board of Directors of Citizens Financial Corporation. The proxies
we receive will be voted at the Annual Meeting of Shareholders of Citizens
Financial on Thursday, May 22, 2003, beginning at 4:00 p.m., EDT. The Annual
Meeting will be held at our offices in Suite 300, The Marketplace, 12910
Shelbyville Road, Louisville, Kentucky.
Your vote is important. Please complete, date and sign the enclosed
proxy and return it in the enclosed postage-paid return envelope so your shares
are represented at the Annual Meeting.
This proxy statement provides information about Citizens Financial, the
proposals on the agenda for the Annual Meeting and this proxy solicitation. The
terms "we," "us," "our," "Citizens Financial" and the "Company" used in this
statement refer to Citizens Financial Corporation. This statement and the
enclosed proxy are first being sent to shareholders on or about April 25, 2003.
VOTING
VOTING RIGHTS. You are entitled to notice of the Annual Meeting and to
vote your Class A Stock if our records showed that you owned your shares as of
the close of business on April 15, 2003. At that time, there were 1,685,228
shares of Class A Stock outstanding and entitled to vote. You have one vote for
each share of Class A Stock you own on all proposals.
USING A PROXY TO VOTE. If you hold your shares in your own name, you
may indicate on the enclosed proxy how you want your shares voted and sign, date
and mail the proxy in the enclosed postage-paid envelope. The persons named on
the proxy will vote your shares in accordance with those instructions. If you
give us a proxy without giving specific voting instructions, your shares will be
voted for the director nominees named in this statement. We are not aware of any
other matters to be presented at the meeting except for those described in this
statement. If any other matters not described in this statement are properly
presented at the meeting, the persons named on the proxy will have the authority
to vote your shares in their discretion and will vote them in accordance with
the recommendations of the Board of Directors. If the meeting is adjourned to a
later time, they may vote your shares at the new time as well, unless you revoke
your proxy.
If your Class A Stock is held in "street name," the broker, bank or
other nominee holding your shares will send you directions you must follow in
order to give instructions on how to vote your shares.
HOW TO REVOKE YOUR PROXY. If you return the proxy before the Annual
Meeting, you may revoke it at any time before it is voted. You may revoke the
proxy by (1) delivering written notice of revocation to the Secretary of
Citizens Financial or (2) delivering a later-dated proxy or (3) voting in person
at the meeting.
If your Class A Stock is held in "street name," the broker, bank or
other nominee holding your shares will send you directions you must follow in
order to revoke or change your prior instructions on how to vote your shares.
VOTES REQUIRED. To transact business at the Annual Meeting, a majority
of the outstanding Class A Stock entitled to vote must be represented at the
meeting in person or by proxy. If you have returned a properly executed proxy or
attend the meeting in person, your Class A Stock will be
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counted for the purpose of determining whether a majority is represented, even
if you wish to abstain from voting on some or all matters introduced at the
meeting. A "broker non-vote" can occur if shares are held by a broker, bank or
other nominee who does not have authority to vote on a particular matter. Like
abstentions, broker non-votes will be counted for determining if a majority is
represented at the meeting. We do not count abstentions or broker non-votes as
votes for or against a proposal. As a result, they will not affect the outcome
of the vote in the election of directors. In the election of directors, the
seven nominees receiving the greatest number of votes will be elected.
YOUR VOTE IS IMPORTANT.
================================================================================
YOU MAY SAVE US THE EXPENSE OF A SECOND MAILING BY PROMPTLY RETURNING THE
ENCLOSED PROXY. PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN
ORDER THAT THE REQUIRED NUMBER OF SHARES MAY BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF IT IS MAILED WITHIN THE UNITED STATES.
================================================================================
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table reflects the beneficial ownership of our Class A
Stock as of April 15, 2003 [i] by Darrell R. Wells, a director and officer who
is the only person we know to own beneficially more than five percent (5%) of
our Class A Stock, [ii] by each of our other directors individually, [iii] by
each of the other named officers reflected in the Summary Compensation Table
individually and [iv] by all of our directors and executive officers as a group.
We believe that each person named or included below has the sole voting and
investment power with respect to the amount of Class A Stock listed, unless
otherwise indicated.
OWNERSHIP OF CLASS A STOCK
--------------------------
SHAREHOLDER SHARES PERCENT OF
----------- ------ CLASS
-----
Darrell R. Wells(1) 956,694(2) 56.77%
Suite 310, 4350 Brownsboro Road
Louisville, Kentucky 40207
John H. Harralson, Jr. 12,468 *
Lane A. Hersman 3,700 *
Frank T. Kiley 24,303 1.44%
Earle V. Powell 16,465 *
Thomas G. Ward 24,169 1.43%
Margaret A. Wells(1) 956,694(2) 56.77%
Brent L. Nemec 0 *
Robert N. Greenwood 2,979 *
14 Directors and Executive
Officers as a Group 1,043,285 61.91%
------------------
* Less than 1%.
(1) Margaret A. Wells, a director, is the wife of Darrell R. Wells. Under the
federal securities laws, a person is presumed to be the beneficial owner of
securities held by members of the person's immediate family sharing the same
household. Accordingly, the shares reported as beneficially owned by Mr. Wells
and Ms. Wells are the same shares.
(2) Mr. Wells shares voting and investment power with respect to 67,315 shares
of the Class A Stock.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, a full Board of Directors will be elected to
serve until the next Annual Meeting of Shareholders and until their respective
successors are elected and qualify. The terms of all present directors will
expire at the conclusion of the election of directors at the Annual Meeting.
Under the Company's Bylaws, the Board of Directors consists of seven (7)
persons.
The Board of Directors has nominated the following persons for election
as directors. All of them were elected at the 2002 Annual Meeting of
Shareholders and in previous years as shown in the following table.
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NAME, AGE, AND PRESENT DIRECTOR PRINCIPAL OCCUPATION(S) OR
POSITIONS WITH THE COMPANY OF THE EMPLOYMENT(S) DURING
AND THE INSURANCE SUBSIDIARIES (1) COMPANY PAST FIVE OR MORE YEARS
SINCE AND CERTAIN DIRECTORSHIPS(2)
---------------------------------- -------- -----------------------------
John H. Harralson, Jr. 1990 Publisher, Southern Publishing, Inc., publisher
75 of The Voice Tribune (suburban newspaper),
Director of the Company Louisville, Kentucky
and the Insurance Subsidiaries
Lane A. Hersman 1995 Present principal positions with the Company and
51 Citizens Security since 1995; formerly
Executive Vice President and Chief senior financial management positions with the
Operating Officer and Director of the Company since 1991 and citizens Security
Company; President and Chief Executive since 1988.
Officer and Director of the Insurance
Subsidiaries
Frank T. Kiley 1990 Principal, Security Management Company
56 (investments and investment management),
Director of the Company Louisville, Kentucky
Earle V. Powell 1990 Retired; Trustee, Kentucky Teachers Retirement
86 Board, Frankfort, Kentucky
Director of the Company
and the Insurance Subsidiaries
Thomas G. Ward 1990 President, Third Kentucky Cellular Corp.
65 (telecommunications), Lexington, Kentucky
Director of the Company
and the Insurance Subsidiaries
Darrell R. Wells 1990 General Partner, Security Management Company
60 (investments and investment management),
President and Chief Executive Officer, Louisville, Kentucky. Director, Churchill Downs
Director and Chairman of the Board of the Incorporated and Jundt Growth Fund
Company
Margaret A. Wells 1993 Civic volunteer, Louisville, Kentucky
56
Director of the Company
------------------
(1) The Company's Insurance Subsidiaries are Citizens Security Life Insurance
Company ("Citizens Security"), which was the Company's corporate predecessor;
United Liberty Life Insurance Company ("United Liberty"); and Citizens Insurance
Company ("Citizens Insurance"), which is presently inactive. The Company's other
subsidiary is not significant to its overall business.
(2) Directorships in publicly-held companies other than the Company, in
registered investment companies and, in the discretion of the nominees, other
organizations.
The persons named on the enclosed proxy intend to vote for the seven
(7) nominees, unless you indicate on the proxy that your votes should be
withheld from any or all such nominees, subject to the matters described in
"Discretionary Authority in Election of Directors," below. If there are more
nominees at the meeting than there are directorships, the nominees receiving the
highest number of votes will be elected to the available directorships.
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DISCRETIONARY AUTHORITY IN ELECTION OF DIRECTORS
All of the nominees have agreed to serve if elected. If, however, any
nominee is unable to serve, the persons named on the proxy, or their
substitutes, reserve the right to vote for a substitute nominee selected by our
Board of Directors.
If for any reason more than seven (7) people are to be elected to our
Board of Directors, the persons named on the proxy, or their substitutes, are
not permitted to vote for more than seven (7) nominees. If for any reason less
than seven (7) persons are to be elected directors, the persons named on the
proxy reserve the right to vote such shares for a reduced number of nominees
from among those named above, or any substitute nominees.
BOARD MEETINGS AND COMMITTEES
Our Board of Directors held five (5) meetings during 2002. Each of the
directors attended at least 75% of the total number of meetings of the Board and
the committees on which she or he served.
Our Board of Directors has delegated certain functions to standing
committees of the Board, including the Executive Committee and the Audit
Committee. We have not established standing nominating or compensation
committees or committees performing similar functions.
THE EXECUTIVE COMMITTEE: Held no meetings in 2002.
CURRENT MEMBERS: Messrs. Wells, Hersman, and Kiley.
FUNCTIONS: This committee is authorized to perform all of the
functions of the Board except as limited by the
Company's Articles of Incorporation and Bylaws and
by certain provisions contained in the resolution
of the Board that created the Executive Committee.
THE AUDIT COMMITTEE: Held three (3) meetings during 2002.
CURRENT MEMBERS: Messrs. Harralson, Powell and Ward.
FUNCTIONS: This committee operates under a written charter
adopted by the Board of Directors. Its primary
responsibility is to oversee the Company's
financial reporting process on behalf of the Board
of Directors and report the results of its
activities to the Board of Directors. Its members
are independent as defined under the listing
standards of the National Association of Securities
Dealers.
The following is the report of the Audit Committee for the current year.
The Audit Committee of the Board of Directors is currently composed of
the three (3) independent directors named below. The Committee recommends
to the Board of Directors the selection of the Company's independent
accountants.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants are responsible
for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing
standards and to issue a report thereon. The Committee's responsibility is
to monitor and oversee these processes.
In this context, the Committee has met and held discussions with
management and the independent accountants. Management represented to the
Committee that the Company's audited consolidated financial statements
were prepared in accordance with generally accepted accounting principles,
and the Committee has reviewed and discussed the audited consolidated
financial statements with management and the independent accountants. The
Committee has discussed with the independent accountants the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
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The independent accountants also provided to the Committee the written
disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Committee
discussed with the independent accountants their independence.
Based upon the Committee's discussion with management and the
independent accountants and the Committee's review of audited consolidated
financial statements and the representation of management and the report
of the independent accountants to the Committee, the Committee recommended
that the Board of Directors include the audited consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 filed with the Securities and Exchange Commission.
Earle V. Powell
John H. Harralson, Jr.
Thomas G. Ward
DIRECTOR COMPENSATION
Each member of the Board of Directors who is not a full-time employee
of the Company or its subsidiaries or who is not otherwise compensated as such
receives a fee of $2,200 ($1,900 before the second quarter of 2002) per quarter
if she or he attends all meetings of the Board of Directors. Five hundred
dollars is deducted from each quarterly payment for each meeting missed by the
director for that quarter.
EXECUTIVE OFFICERS
Our executive officers, as listed below, are elected annually and serve
at the pleasure of our Board of Directors.
DIRECTOR PRESENT POSITIONS WITH THE COMPANY PRINCIPAL OCCUPATION(S) OR EMPLOYMENT
NAME/AGE AND THE INSURANCE SUBSIDIARIES(1) DURING PAST FIVE OR MORE YEARS
------------------------------- ---------------------------------------- -------------------------------------------
DARRELL R. WELLS President and Chief Executive Officer, General Partner, Security Management
60 Director and Chairman of the Board of Company (investments and investments
the Company management), Louisville, Kentucky
LANE A. HERSMAN Executive Vice President and Chief Present principal positions with the
51 Operating Officer and Director of the Company and with Citizens Security
Company; President and Chief since 1995 and with United Liberty since
Executive Officer and and Director of the 1998; formerly senior financial
Insurance Subsidiaries management positions with the Company
since 1991 and with Citizens Security
since 1988
ROBERT N. GREENWOOD Vice President, Operations, of the Present positions with the Company since
68 Company; Senior Vice President, 1992, with Citizens Security since 1989
Operations, of Citizens Security and and with United Liberty since 1998
United Liberty
JAMES L. HEAD Vice President, Administration, of the Present positions with the Company since
69 Company; Senior Vice President, 1992, with Citizens Security since 1990,
Administration, of Citizens Security and with United Liberty since 1998
and United Liberty
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DIRECTOR PRESENT POSITIONS WITH THE COMPANY PRINCIPAL OCCUPATION(S) OR EMPLOYMENT
NAME/AGE AND THE INSURANCE SUBSIDIARIES(1) DURING PAST FIVE OR MORE YEARS
------------------------------- ---------------------------------------- -------------------------------------------
PAUL M. MARQUESS Vice President, Agency, of the Present positions with the Company and
65 Company; Senior Vice President, Citizens Security since 1996 and with
Agency, of Citizens Security and United Liberty since 1998
United Liberty
BRENT L. NEMEC Vice President, Accounting and Chief Present positions with the Company and
48 Financial Officer, and Treasurer of Citizens Security since 1996 and with
the Company; Senior Vice President, United Liberty since 1998
Accounting and Chief Financial Officer
and Treasurer of the Insurance
Subsidiaries
TONYA G. CRAWFORD Vice President, Marketing, of the Executive positions with the Company
40 Company and Senior Vice President, since 1999 and with Citizens Security and
Marketing, of Citizens Security and United Liberty since 1998; formerly
United Liberty Director of Operations of United Liberty
(acquired in 1998)
THOMAS D. MUELLER Vice President, Special Projects, of Present positions with the Company,
32 the Company and Senior Vice President, Citizens Security and United Liberty
Special Projects, of Citizens Security since March, 2003; formerly executive
and United Liberty with SMC Capital, Inc., Security
Management Company and First Security
Trust Company, Louisville, Kentucky(2)
-------------------------
(1) The Company's Insurance Subsidiaries are Citizens Security Life Insurance
Company ("Citizens Security"), which was the Company's corporate predecessor;
United Liberty Life Insurance Company ("United Liberty"); and Citizens Insurance
Company ("Citizens Insurance"), which is presently inactive. The Company's other
subsidiary is not significant to its business.
(2) SMC Capital, Inc., Security Management Company and First Security Trust
Company are among the financial management companies controlled by Darrell R.
Wells. Mr. Mueller's duties for these companies included operations and
financial management and responsibility for certain major projects.
EXECUTIVE COMPENSATION
The following table provides a profile of our executive compensation
and shows, among other things, salaries and bonuses paid during the last three
years to the persons named, who include our President and Chief Executive
Officer and each of the three other most highly compensated executive officers
of the Company.
SUMMARY COMPENSATION TABLE
OTHER
NAME AND PRINCIPAL POSITIONS ANNUAL COMPENSATION ANNUAL ALL OTHER
WITH THE COMPANY YEAR SALARY BONUS COMPENSATION COMPENSATION(4)
--------------------------- ---- ------ ----- ------------ ---------------
DARRELL R. WELLS, President and Chief 2002 $ 0 $0 $2,427(2) $ 0
Executive Officer and Chairman of the 2001 $ 0 $0 $2,568(2) $ 0
Board(1) 2000 $ 0 $0 $6,979(2) $ 0
LANE A. HERSMAN, Executive Vice 2002 $136,576 $0 $6,833(3) $4,712
President and Chief Operating Officer 2001 $135,846 $0 $7,096(3) $4,702
and Director 2000 $124,330 $0 $6,833(3) $4,465
BRENT L. NEMEC, Vice President, 2002 $118,462 $0 $0 $4,180
Accounting and Chief Financial 2001 $118,077 $0 $0 $3,871
Officer and Treasurer 2000 $108,429 $0 $0 $3,297
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SUMMARY COMPENSATION TABLE
OTHER
NAME AND PRINCIPAL POSITIONS ANNUAL COMPENSATION ANNUAL ALL OTHER
WITH THE COMPANY YEAR SALARY BONUS COMPENSATION COMPENSATION(4)
--------------------------- ---- ------ ----- ------------ ---------------
ROBERT N. GREENWOOD, Vice President, 2002 $113,077 $0 $0 $3,507
Operations 2001 $113,154 $0 $0 $3,378
2000 $104,923 $0 $0 $3,600
-------------------------
(1) Mr. Wells has not received any salary or bonus for serving as an officer in
a part-time capacity.
(2) Other Annual Compensation consists of personal use of an airplane partly
owned by the Company.
(3) Other Annual Compensation consists of reimbursement of auto expenses.
(4) The amounts shown in this column represent Company contributions to the
Company's 401(k) plan and term life insurance premiums, as follows:
YEAR MR. WELLS MR. HERSMAN MR. NEMEC MR. GREENWOOD
---- --------- ----------- --------- -------------
401(k)
------
2002 $0 $3,087 $2,768 $2,827
2001 $0 $3,145 $2,519 $2,723
2000 $0 $2,948 $1,967 $2,846
LIFE INSURANCE PREMIUMS
-----------------------
2002 $0 $1,625 $1,412 $680
2001 $0 $1,557 $1,352 $655
2000 $0 $1,517 $1,330 $754
Messrs. Hersman, Nemec and Greenwood and two other executives are
covered by a plan that would provide a severance payment of one year's current
salary and bonus in the event that both [i] a defined change in control of the
Company occurs on or before October 1, 2004 and [ii] within 12 months after the
change in control, the executive is discharged (other than for a defined cause
or disability) or resigns for a defined good reason. The Board of Directors is
not presently aware of any impending change in control.
REPORT ON EXECUTIVE COMPENSATION
The following is the Board of Directors report on executive
compensation for 2002.
Each year, the Board of Directors, other than Mr. Hersman, sets the
compensation and benefits of executive officers of the Company at one of
its meetings held after completion of the Company's financial statements
for the preceding year. The Board has not adopted a formal compensation
policy and does not regularly employ compensation consultants. In 2002,
the only material component of executive officer compensation was salary,
in addition to benefits generally available to all employees. The decision
process begins with a salary proposal by Mr. Hersman for each executive
officer, other than himself. In general, the Board intends that salary
levels will be near the median for executives with comparable
responsibilities at comparable companies in the insurance industry,
although reliable industry data is difficult to obtain, and that they will
be competitive with other opportunities available to Company executives.
Salaries are indirectly related to corporate performance in that improved
Company performance improves the climate for annual salary increases, but
no portion of executive salaries is contingent upon meeting specific
criteria. The Company has not adopted a bonus plan or other incentive
compensation plan, other than the 1999 Stock Option Plan. No options have
as yet been granted under the Plan.
Mr. Wells, the Company's president and chief executive officer, has
not accepted any salary or bonus or benefits generally provided to
employees of the Company. Mr. Wells is the Company's largest beneficial
shareholder and has responsibilities for various other businesses not
otherwise connected with the Company.
John H. Harralson, Jr.
Frank T. Kiley
Earle V. Powell
Thomas G. Ward
Darrell R. Wells
Margaret A. Wells
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PERFORMANCE GRAPH
This graph compares our total shareholder return with like data for the
Russell 2000 Index and the Total Return Industry Index for NASDAQ Insurance
Stocks prepared by Center for Research in Securities Prices. The graph assumes
$100 invested at the per share closing price of the Class A Stock on the NASDAQ
SmallCap Market on December 31, 1997 in Citizens Financial and each of the
indices. All data assume reinvestment of dividends. The Company has not
historically paid dividends.
[GRAPHIC OMITTED]
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
CITIZENS FINANCIAL $100.00 $137.50 $183.33 $195.83 $137.50 $83.33
RUSSELL $100.00 $97.45 $118.17 $114.60 $117.45 $93.39
NASDAQ INSURANCE $100.00 $89.09 $69.10 $86.78 $93.02 $93.75
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The members of the Board of Directors who participate in decisions
regarding the compensation of our executives are John H. Harralson, Jr., Frank
T. Kiley, Earle V. Powell, Thomas G. Ward, Darrell R. Wells, Margaret A. Wells
and, except as to his own compensation, Lane A. Hersman. Mr. Wells and Mr.
Hersman are current executive officers of the Company and Mr. Powell was
president of Citizens Security until his retirement in 1989.
Mr. Wells has responsibilities for other businesses including those
that employ Mr. Kiley, and either determines or participates in the
determination of the compensation received by him from his employers.
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Mr. Wells is involved in and he and Mr. Kiley are affiliated with other
entities that are involved in one or more continuing transactions with the
Company. These transactions are described in the next section.
CERTAIN TRANSACTIONS INVOLVING DIRECTORS AND
EXECUTIVE OFFICERS
SMC Advisors, Inc. provides securities portfolio management services
under separate contracts with us and each of our three insurance subsidiaries.
SMC Advisors is an investment advisory entity of which Darrell R. Wells, our
President and Chairman of the Board, is the principal officer, a director, and
the sole shareholder. Frank T. Kiley, another of our directors, is also an
officer and director of SMC Advisors. Each contract with SMC Advisors provides
for us to pay a fixed annual fee plus incentive compensation equal to five
percent (5%) of any net gain from net realized and net unrealized capital gains
and losses in the bond and stock portfolios of the particular company involved
for the year. Last year, we incurred $45,000 in fixed fees under the four
contracts as a group (0.05% of average cash and invested assets for the year)
but we did not incur any incentive fees. Any excess of net realized and
unrealized capital losses over net realized and unrealized capital gains at the
end of a year is not carried forward to the next year. Each contract provides
for automatic renewal for successive one-year periods unless we or SMC Advisors
notifies the other, at least 30 days prior to the end of the current contract
period, that we or it intends to terminate the contract. The contracts have been
renewed for 2003. The contracts are also subject to termination in certain
events of default or insolvency. Portfolio investments are limited to
investments that comply with the Kentucky Insurance Code and regulations and the
overall investment policies of the Company and our insurance subsidiaries.
Insurance regulatory statutes require the Company's insurance
subsidiaries to deposit portions of their assets in bank custodial accounts for
the protection of policyholders. The Company has chosen Commonwealth Bank and
Trust Company, which is controlled by Mr. Wells, as the principal custodian for
the Company's statutory deposits and other assets. The fees we pay the bank are
based on the amount of assets held. In 2002, we paid $100,675 in fees to the
bank (0.11% of average deposits and other assets). Mr. Kiley is also a director
of the bank.
Our subsidiary Corporate Realty Service, Inc. manages our home office
building, as well as two office buildings owned by partnerships controlled by
Mr. Wells. These partnerships pay management fees to Corporate Realty Service
based upon a percentage of rental income and leasing commissions according to a
prescribed schedule, and also reimburse certain salary expenses of Corporate
Realty Service. During 2002, the partnerships paid Corporate Realty Service
$213,000, consisting of $62,000 in management fees, $96,000 in leasing
commissions and $55,000 in salary reimbursement. Mr. Kiley also owns interests
in the partnerships. Corporate Realty Service provides occasional consulting
services to Commonwealth Bank and Trust Company on an hourly fee basis. No such
fees were paid in 2002.
In December 2002, the Company borrowed $2,000,000 from Mr. Wells to
increase the capital and surplus of Citizens Security. The loan is unsecured and
bears interest payable quarterly at the greater of six percent (6%) per annum or
the prime rate charged by the unaffiliated commercial bank with which the
Company has its primary borrowing relationship, reset on the first day of each
calendar quarter. Interest accrued for 2002 was $4,000. By its terms, the
principal of the loan is repayable on 90 days' notice by Mr. Wells or on June
30, 2005. However, Mr. Wells has agreed with the bank referred to above that no
part of the principal of the loan shall be repaid to him until all the Company's
indebtedness to the bank has been repaid. Such indebtedness to the bank is
presently scheduled to be paid in installments through July 1, 2007. The Company
is permitted to prepay the bank indebtedness without penalty, in which event it
would also be permitted to prepay the loan from Mr. Wells. The Company has also
agreed to reimburse Mr. Wells for fees he will incur after March 1, 2003 to
maintain a line of credit to fund one or more additional loans to the Company,
if both he and the Company agree. The fee is equal to one fourth of one percent
(0.25%) of the undrawn amount of the line of credit, presently $3,000,000.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and 10% shareholders to file reports of holdings
and transactions in our shares with the Securities and Exchange Commission and
the Company. Based on our records and other information, we believe that our
directors, executive officers and 10% shareholders met these requirements in
2002.
OTHER MATTERS
We are not aware of any other matters requiring a vote of shareholders
at the Annual Meeting (except for procedural matters), and we do not expect any
such other matters to arise. If, however, any such other matters are presented,
the persons named on the enclosed proxy, or any substitutes, will vote on these
matters according to their judgment of the best interests of the Company.
INDEPENDENT ACCOUNTANTS
Ernst & Young, LLP has served as our independent accountant and the
auditor of our annual financial statements since the Company was organized in
1990. The Board of Directors ordinarily selects our independent accountant and
auditor in the last half of the year. It has not yet made a selection for the
current year.
The Company incurred fees payable to Ernst & Young, LLP for the year
ending December 31, 2002 as follows:
AUDIT FEES. Fees for professional services for the audit of the
Company's annual financial statements and the review of consolidated
financial statements included in the Company's quarterly reports were
$85,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. There
were no services of this kind.
ALL OTHER FEES. Fees for all other services were $94,900 including
$70,000 for audits of the separate annual financial statements of the
insurance subsidiaries submitted to insurance regulatory authorities,
$14,900 for review of income tax returns and other tax services and
$10,000 for services associated with implementing new accounting
guidelines applicable to the insurance subsidiaries and reviewing
certain new product reserves.
The Audit Committee has determined that the provision by Ernst & Young,
LLP of the services covered by All Other Fees is compatible with maintaining its
independence.
We expect that a representative of Ernst & Young, LLP will be present
at the Annual Meeting, will have the opportunity to make a statement if the
representative desires to do so, and will be available to respond to appropriate
questions.
FINANCIAL STATEMENTS
Our most recent annual financial statements are contained in the 2002
Annual Report to Shareholders, which may be enclosed with this proxy statement.
You may obtain additional copies of the Annual Report by writing to the
President, The Marketplace, Suite 300, 12910 Shelbyville Road, Louisville,
Kentucky 40243. Although enclosed, you should not consider the Annual Report and
such financial statements to be part of this statement because we do not
consider the information contained in the Annual Report or financial statements
to be material for purposes of exercising your judgment regarding the matters
considered at the Annual Meeting.
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14
PROPOSALS BY SHAREHOLDERS
Shareholders are entitled to present proposals for action at a
forthcoming meeting if they comply with applicable rules of the Securities and
Exchange Commission. If you would like for us to consider including a proposal
in the Board of Directors' proxy statement and form of proxy for presentation at
the 2004 Annual Meeting of Shareholders, you must deliver the proposal to our
offices not later than December 26, 2003. If you intend to submit a proposal at
the 2004 Annual Meeting of Shareholders but do not intend to include it in the
Board of Directors' proxy statement and form of proxy for that meeting, you must
provide appropriate notice to us not later than March 11, 2004. You should send
your proposal or notice described above to the Secretary of the Company at The
Marketplace, Suite 300, 12910 Shelbyville Road, Louisville, Kentucky 40243.
GENERAL INFORMATION
Our Board of Directors is conducting this solicitation of proxies
primarily by mail. The Company will bear the costs of the solicitation, which
may include reimbursement to brokerage firms and others for expenses involved in
forwarding this solicitation material for the Annual Meeting to you and other
shareholders on our behalf. Certain officers, directors, and regular employees
of the Company may also solicit proxies on behalf of the Board of Directors by
means of telephone calls, personal interviews and mail at no additional expense
to the Company, except any actual out-of-pocket communications charges.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and promptly return the enclosed proxy in the enclosed envelope. No
postage is required for mailing in the United States.
By Order of the Board of Directors,
DARRELL R. WELLS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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APPENDIX TO PROXY STATEMENT
FORM OF PROXY
(Front)
PROXY
CITIZENS FINANCIAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SHAREHOLDERS MEETING ON MAY 22, 2003
The undersigned hereby appoints James L. Head and Len E. Schweitzer and
each or either of them, as true and lawful agents and proxies, with full power
of substitution in each, to represent the undersigned in all matters coming
before the 2003 Annual Meeting of Shareholders of Citizens Financial Corporation
to be held at the office of the Company, The Marketplace, Suite 300, 12910
Shelbyville Road, Louisville, Kentucky on Thursday, May 22, 2003 at 4:00 p.m.
Eastern Daylight Time, and any adjournments thereof, and to vote all shares
owned of record by the undersigned as follows:
1. ELECTION OF DIRECTORS
Nominees: John H. Harralson, Jr., Lane A. Hersman, Frank T. Kiley,
Earle V. Powell, Thomas G. Ward, Darrell R. Wells and
Margaret A. Wells.
[ ] VOTE FOR all nominees listed above, except vote withheld
from the following nominees (if any):
----------------------------------------------------------------------
OR
[ ] VOTE WITHHELD from all nominees listed above.
2. OTHER MATTERS
In their discretion, to vote with respect to any other matters that may
come before the Meeting or any adjournments thereof, including matters incident
to its conduct.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER SPECIFIED
ABOVE BY THE SHAREHOLDER. TO THE EXTENT CONTRARY SPECIFICATIONS ARE NOT GIVEN,
THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN ITEM 1, WITH THE
DISCRETIONARY AUTHORITY SET FORTH IN THE ACCOMPANYING PROXY STATEMENT.
PLEASE DATE AND SIGN ON THE REVERSE SIDE
16
(Back)
Dated:_______________, 2003
PLEASE SIGN EXACTLY AS ____________________________Signature
NAME APPEARS BELOW
____________________________Signature
(JOINT OWNERS SHOULD EACH SIGN.ATTORNEYS-
IN-FACT, EXECUTORS, ADMINISTRATORS,
CUSTODIANS, PARTNERS, OR CORPORATION
OFFICERS SHOULD GIVE FULL TITLE).
PLEASE DATE, SIGN, AND RETURN THIS PROXY
IN THE ENCLOSED ENVELOPE PROMPTLY.
NO POSTAGE IS NECESSARY IF MAILED
IN THE UNITED STATES.