Item 1.01 Entry into a Material Definitive Agreement
Settlement and Dismissal of Colorado Litigation Against the Company and Board
As previously disclosed, Citizens, Inc. (the "Company") has been involved in
litigation in the District Court (the "Colorado Court") for Arapahoe County,
Colorado (the "Colorado Litigation") relating to a dispute between the Harold E.
Riley Foundation (the "Foundation") and the Company with respect to the
Foundation's nomination of certain individuals (the "Foundation Nominees") to
serve on the Company's Board of the Directors (the "Board"). The Foundation is
the record owner of 100% of the Company's Class B common stock, comprising of
1,001,714 shares (the "Class B Shares"). The Colorado Litigation was brought on
behalf of the Foundation by its now former trustees or officers, including
Michael C. Hughes and Charles W. Hott, who were two of the Foundation Nominees
trying to seat themselves on the Company's Board. The Company had countersued
the Foundation and Mr. Hughes and Mr. Hott alleging that Mr. Hughes and Mr.
Hott, as trustees or officers of the Foundation, among other things: (i)
defrauded state insurance regulators in order to seize control of the Company;
(ii) breached their fiduciary duties to all of the Company's shareholders; and
(iii) violated the Colorado Consumer Protection Act.
On February 6, 2021, Baylor University and Southwestern Theological Seminary, as
the two sole charitable beneficiaries of the Foundation (the "Foundation
Beneficiaries"), resolved their separate Texas litigation, in which they alleged
that the Foundation trustees, including Mr. Hughes and Mr. Hott, breached their
fiduciary duties to the Foundation and misused Foundation monies for personal
benefit, including the filing of the Colorado Litigation (see Item 7.01
below for more discussion). As a result of the settlement, Mr. Hughes and Mr.
Hott were removed as trustees or officers from the Foundation. The Foundation
Beneficiaries, upon regaining control of the Foundation through their appointed
trustees to the Foundation, have agreed to dismiss the Colorado Litigation. In
turn, the Company has agreed to dismiss its claims against the Foundation, Mr.
Hughes and Mr. Hott.
Accordingly, on February 6, 2021, the Company and its individual members of the
Board, Christopher W. Claus, J.D. Davis, Jr., Gerald W. Shields, Frank A.
Keating II, Terry S. Maness, E. Dean Gage, Robert B. Sloan, Jr. and Constance K.
Weaver, entered into a Mutual Agreement for Compromise, Settlement and Release
(the "Foundation Settlement Agreement") with the Foundation and the Foundation
Beneficiaries.
The Foundation Settlement Agreement, among other things, provides for the
following terms:
•Citizens and the Foundation will dismiss, all claims, counterclaims,
crossclaims, and third-party claims currently at issue in the Colorado
Litigation;
•The Company will act immediately to: (a) restore its Board to its form as of
August 12, 2020 consisting of a nine-seat Board comprised of four Class A
directors (Christopher W. Claus, J.D. Davis, Jr., Gerald W. Shields, and Frank
A. Keating II), four Class B directors (E. Dean Gage, Robert B. Sloan, Terry S.
Maness, and Constance K. Weaver), and one Class B vacancy; and (b) restore the
Company's Amended and Restated Bylaws to the form in which they existed on
August 12, 2020;
•Provisions related to the Class B shares, including requiring the Foundation to
sell, and the Company to buy, 100% of the Class B Shares from the Foundation;
and
•The parties will agree to mutual releases for conduct prior to February 5,
2021.
The foregoing summary of the Foundation Settlement Agreement does not purport to
be complete and is subject to, and is qualified in its entirety by, reference to
the complete text of the Foundation Settlement Agreement, which is filed
herewith as Exhibit 10.1 .
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Settlement of Counterclaims and Third Party Claims in Colorado Litigation
On February 5, 2021, the Company entered into a Mutual Agreement for Compromise,
Settlement and Release (the "Hughes-Hott-Boto Settlement Agreement") with Mr.
Hughes, Mr. Hott and David A. Boto as trustees or officers of the Foundation.
The Hughes-Hott-Boto Settlement Agreement resolves the counterclaims and
third-party claims in the Colorado Litigation filed by the Company and potential
claims which could have been made against the Foundation, Mr. Hott, Mr. Hughes
and Mr. Boto. The Hughes-Hott-Boto Settlement Agreement settles all
controversies between the parties thereto, including dismissal with prejudice of
all claims in the Colorado Litigation against Mr. Hughes and Mr. Hott.
The foregoing summary of the Hughes-Hott-Boto Settlement Agreement does not
purport to be complete and is subject to, and is qualified in its entirety by,
reference to the complete text of the Hughes-Hott-Boto Settlement Agreement,
which is filed herewith as Exhibit 10.2 .
Entry into Purchase and Sale Agreement to Acquire Class B Shares
Pursuant to the terms of the Foundation Settlement Agreement, on February 6,
2021, the Company entered into a Purchase and Sale Agreement (the "Purchase
Agreement") with the Foundation, as the record owner of 100% of the Company's
Class B Shares, for the purchase by the Company of 100% of the Class B Shares
from the Foundation at a purchase price of $9.08 per share for an aggregate
purchase price equal to $9,090,463.80 (the "Class B Purchase"). The closing of
the Class B Purchase is scheduled for on or about March 5, 2021.
Because the Class B Shares have the right to nominate a simple majority of the
Board, the transfer of the Class B Shares to the Company would constitute a
divestiture of the Foundation's control of the Company, which may require
. . .
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year
Pursuant to the terms of the Foundation Settlement Agreement, on February 6,
2021, the Board amended and restated the Company's Fourth Amended and Restated
Bylaws (the "Amended and Restated Bylaws") effective immediately, to, among
other things: (i) change the voting standard required for an action of the Board
from a super majority (2/3) standard to a majority standard; and (ii) revise the
voting standard for Bylaws alteration, amendment or repeal or the adoption of
new Bylaws from a supermajority (2/3) standard to a majority standard. In doing
so, the Board restored the Company's Amended and Restated Bylaws to the form in
which they existed on August 12, 2020.
The foregoing summary of the Amended and Restated Bylaws is qualified by
reference to the Amended and Restated Bylaws, which is filed herewith as
Exhibit 3.1 .
Item 7.01 Regulation FD Disclosure
Board Size and Composition
Pursuant to the terms of the Foundation Settlement Agreement, on February 6,
2021, the Board (i) reduced the size of the Board from thirteen to nine
directors and (ii) redesignated E. Dean Gage, Robert B. Sloan, Terry S. Maness,
and Constance K. Weaver, representing the existing undesignated directors
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on the Board, as Class B directors to serve on the Board until the next Annual
Meeting of Shareholders, in each case, effective immediately. In addition, the
Foundation also agreed to withdraw the Foundation Nominees who were previously
submitted to the Company's Nominating and Corporate Governance Committee for
review and consideration.
Thus, the Board currently consists of four Class A directors (Christopher W.
Claus, J.D. Davis, Jr., Gerald W. Shields, and Frank A. Keating II), four Class
B directors (E. Dean Gage, Robert B. Sloan, Terry S. Maness, and Constance K.
Weaver), and one Class B vacancy.
Settlement and Dismissal of the Texas Suit Against the Foundation
As previously disclosed, on September 8, 2020, the Foundation Beneficiaries
filed a lawsuit in the 67th District Court of Tarrant County, Texas (the "Texas
Court") against the Foundation and its CEO/President, Mike Hughes (the "Texas
Suit"). The Texas Attorney General intervened in December 2020 on behalf of the
Foundation Beneficiaries. On February 6, 2021, the Foundation Beneficiaries and
the Foundation entered into a settlement agreement to, among other things,
dismiss the Texas Suit and give the Foundation Beneficiaries control of the
Foundation. Neither the Company nor the Board is a party to the Texas Suit.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
3.1 Amended and Restated Bylaws effective February 6, 2021
10.1 Mutual Agreement for Compromise, Settlement and Release with the Harold E.
Riley Foundation dated February 6, 2021
10.2 Mutual Agreement for Compromise, Settlement and Release with Michael C.
Hughes, Charles W. Hott and David August Boto dated February 5, 2021
10.3 Purchase and Sale Agreement dated February 6, 2021
99.1 Press Release of Citizens, Inc., dated February 9, 2021
104 Inline XBRL for the cover page of this Current Report on Form 8-K
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