________________________, 2002
Citizens, Inc.
000 Xxxx Xxxxxxxx Xxxx, 0xx Xxxxx
Xxxxxx, Xxxxx 00000
Re: Plan and Agreement of Merger among First Alliance Corporation,
Citizens, Inc. and Citizens Acquisition, Inc.
Ladies and Gentlemen:
Our opinion as expressed below is based upon the following documents
("Documents"): (1) the information contained in the proxy statement-prospectus
dated _______________, 2003 (the "Proxy Statement") as filed with the Securities
and Exchange Commission; (2) the Plan and Agreement of Merger (the "Plan") dated
November 7, 2002, among First Alliance Corporation ("First Alliance"), Citizens,
Inc. ("Citizens") and Citizens Acquisition, Inc. ("Acquisition"), together with
the Exhibits thereto; and (3) officers' certificates provided by the officers of
Citizens and First Alliance. Our opinion as expressed below is also based upon
the Internal Revenue Code of 1986, as amended ("IRC"), the regulations
promulgated thereunder and the current administrative positions of the Internal
Revenue Service ("IRS") contained in published Revenue Rulings and Revenue
Procedures, and existing judicial decisions, all of which are subject to change
or modification by subsequent legislative, regulatory, administrative or
judicial decisions which could adversely affect our opinions.
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
"Merger" refers to the transaction set forth in the Plan. Capitalized
terms herein have the same meaning as in the Plan.
The consequences described herein are not applicable to nonresident
aliens, to foreign corporations, to debtors under the jurisdiction of a court in
a case under Title 11 of the United States Code or in a receivership,
foreclosure or similar proceeding, to shareholders that are real estate
investment trusts, to shareholders that are regulated investment companies, to
shareholders that are tax exempt persons, to shareholders that are persons that
hold their First Alliance Common Stock as part of a position in a "straddle" or
as part of a "hedging" or other integrated transaction, to shareholders that are
investment companies within the meaning of IRC Section 351(e), to shareholders
who are dealers in securities, to shareholders who do not hold their common
stock as capital assets, to shareholders who are financial institutions or to
shareholders who
acquired or will acquire their shares in connection with stock option or stock
purchase plans or in other compensatory transactions.
The principal reasons for the Merger can be summarized as follows:
(1) to become part of a combined entity with greater financial
strength and an enhanced competitive position as compared to the
separate entities;
(2) to achieve improved capitalization and economies of scale; and
(3) to provide greater liquidity to First Alliance shareholders.
This letter is conditioned on the accuracy of the factual information,
assumptions and representations contained in the Proxy Statement and provided by
Citizens and First Alliance, including the principal reasons for the Merger
expressed above and the following:
(1) that Citizens and First Alliance, in arriving at the method
used to determine the number of shares of Citizens Class A Voting
Common Stock to be received by each First Alliance shareholder,
attempted in good faith to value the First Alliance Common Stock to be
transferred and to value the Citizens Class A Voting Common Stock to be
exchanged for such First Alliance Common Stock in an effort to ensure
that each shareholder receiving Citizens Class A Voting Common Stock
pursuant to the Merger receive a number of shares of such stock
approximately equal in value to the First Alliance Common Stock
exchanged therefor;
(2) that prior to the Merger, Citizens will be in control of
Acquisition within the meaning of IRC Section 368(c);
(3) that following the Merger, First Alliance will hold at least
90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets and at least 90
percent of the fair market value of Acquisition's net assets and at
least 70 percent of the fair market value of Acquisition's gross assets
held immediately prior to the Merger. For purposes of this
representation, amounts paid by First Alliance to dissenters, amounts
paid by First Alliance to shareholders who receive cash or other
property, amounts used by First Alliance to pay reorganization
expenses, and all redemptions and distributions (except for regular,
normal dividends) made by First Alliance will be included as assets of
First Alliance immediately prior to the Merger, which it does not hold
after the Merger;
(4) that First Alliance has no plan or intention to issue
additional shares of its stock that would result in Citizens losing
control of First Alliance within the meaning of IRC Section 368(c);
(5) that none of Citizens, First Alliance, any entity related
thereto as described in Treasury Regulation Section 1.368-1(e) or
shareholder thereof, have any plan or intention to redeem or otherwise
reacquire any Citizens Class A Voting Common Stock to be issued to
First Alliance shareholders in the Merger, and will not so redeem or
otherwise reacquire such stock;
(6) that Citizens has no plan or intention to liquidate First
Alliance; to merge First Alliance with or into another corporation; to
sell or otherwise dispose of the stock of First Alliance except for
transfers of stock to corporations controlled by Citizens, as defined
in IRC Section 368(c); or to cause First Alliance to sell or otherwise
dispose of any of its assets or of any of the assets acquired from
Acquisition, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by First
Alliance, as defined in IRC Section 368(c);
(7) that following the Merger, Citizens will continue the historic
business of First Alliance or use a significant portion of its historic
business assets in a business;
(8) that Citizens, Acquisition, First Alliance and First Alliance
shareholders will assume and pay their respective reorganization
expenses, if any, incurred in connection with the Merger;
(9) that there is no corporate indebtedness between Citizens and
First Alliance or between Acquisition and First Alliance that was
issued, acquired or will be settled at a discount;
(10) that Acquisition will have no liabilities assumed by First
Alliance, and will not transfer to First Alliance any assets subject to
liabilities, in the Merger;
(11) that in the Merger, shares of First Alliance Common Stock
representing control of First Alliance, as defined in IRC Section
368(c), will be exchanged solely for voting Common Stock of Citizens.
For purposes of this representation, shares of First Alliance Common
Stock exchanged for cash or other property originating with Citizens
will be treated as outstanding First Alliance Common Stock on the date
of the Merger;
(12) that on the Effective Date of the Merger, First Alliance will
not have outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could acquire
stock in First Alliance that, if
exercised or converted, would affect Citizens' acquisition or retention
of control of First Alliance, as defined in IRC Section 368(c);
(13) that Citizens does not own, nor has it owned during the past
five (5) years, directly or indirectly, any shares of First Alliance
Common Stock;
(14) that neither Citizens nor First Alliance are investment
companies as defined in IRC Section 368(a)(2)(F)(iii) and (iv);
(15) that neither Citizens nor First Alliance are under the
jurisdiction of a court in a Title 11 or similar case within the
meaning of IRC Section 368(a)(3)(A);
(16) that the Merger will be consummated and qualify as a statutory
merger in full compliance with Kentucky law, subject to the perfection
of dissenters' rights, if any, and will be consummated in accordance
with the terms of the Plan;
(17) that in the event more than 2.5 percent of the shareholders of
First Alliance dissent to the Merger, Citizens would exercise its
option not to proceed with the Merger (as permitted under the Plan) and
the Merger consequently would not be consummated;
(18) that no First Alliance Common Stock will be acquired for
consideration other than solely Citizens Class A Voting Common Stock.
For purposes of this representation, First Alliance Common Stock
redeemed for cash or other property furnished by Citizens will be
considered as acquired by Citizens. Further, no liabilities of First
Alliance or of the First Alliance shareholders will be assumed by
Citizens, nor will any of the First Alliance Common Stock be subject to
any liabilities;
(19) that Citizens will not assume or repay any First Alliance debt
guaranteed by First Alliance shareholders nor will Citizens assume or
repay any outstanding loans between First Alliance and its
shareholders;
(20) that no compensation or agreement for services received by any
shareholder of First Alliance, or any entity related to a First
Alliance shareholder, will be separate consideration for, or allocable
to, any of their shares of First Alliance Common Stock; no shares of
Citizens Class A Voting Common Stock received by any First Alliance
shareholder, or any entity related to any First Alliance shareholder,
will be separate consideration for, or allocable to, any employment
agreement or compensation agreement; and the compensation paid to any
First Alliance shareholder, or any entity related to a First Alliance
shareholder, will be for services actually performed, will be
reasonable in light of
the services to be performed and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services;
(21) that First Alliance will pay its dissenting shareholders the
value of their First Alliance Common Stock out of its own funds. No
funds will be supplied or are required to be supplied (by law or
otherwise) for that purpose, directly or indirectly, by Citizens, nor
will Citizens, directly or indirectly, reimburse First Alliance for any
payments to dissenters; and
(22) that on the Effective Date of the Merger, the fair market
value of the assets of First Alliance will exceed the sum of its
liabilities plus the liabilities, if any, to which its assets are
subject;
For purposes of rendering this opinion, we have assumed that the
Documents provide a true, complete and accurate description of all relevant
facts and circumstances surrounding the Merger and all such facts will be true,
complete and accurate at all relevant times. In rendering this opinion, we are
relying on, and the opinion is expressly conditioned on, the Merger being
carried out in all material respects, and in the same form, as described in the
Documents. This opinion will be signed on the Effective Time of the Merger.
Xxxxx & Xxxxxx has made no independent verification of any of the facts
and representations set forth in the Documents, and therefore, has relied upon
the completeness, correctness and accuracy of the Documents for purposes of
rendering this opinion. While Xxxxx & Xxxxxx may have had discussions with
management personnel of Citizens and First Alliance in connection with rendering
this opinion, (i) the substance of those discussions is in all material respects
is reflected in the Citizens Officer's Certificate and the First Alliance
Officer's Certificate, (ii) the management personnel of Citizens and First
Alliance have imparted no information materially additional to, or inconsistent
with, that contained in the Citizens Officer's Certificate and the First
Alliance Officer's Certificate, (iii) Xxxxx & Xxxxxx has assumed that any
information imparted in such discussions with management personnel is true, and
has not made (and has at no time had any means of making) any independent
verification of any information imparted in such discussions, and (iv) the
issuance of this opinion shall not imply anything to the contrary of (i) - (iii)
preceding. For purposes of rendering this opinion, Xxxxx & Xxxxxx has assumed
that all representations or warranties (including representations as to future
conduct, e.g. that no inconsistent filing or return position will be taken)
qualified by "to the knowledge of," "belief" or "expect" or similar
qualifications are true without any such qualification, and that future conduct
will occur consistently with such knowledge, belief, expectation or similar
qualification.
The opinion expressed below is rendered only with respect to the
specific matters described herein, and we express no opinion, and no opinion
should be implied or inferred, with respect to any other federal income tax
aspects of the Merger beyond the matters expressly stated. Shareholders residing
or conducting business in foreign
countries, states or municipalities having tax laws could be required to pay tax
with respect to the Merger in those countries, states or municipalities. We do
not express any opinion as to foreign, state or local tax consequences of the
Merger. We do not opine as to the taxable or nontaxable status of any previous
transactions not part of the Merger. We do not express any opinion regarding
alternative minimum tax issues, employee benefit issues, consolidated return
issues or IRC Section 306 or 382 consequences of the Merger, nor do we express
an opinion on the valuations of First Alliance or Citizens assets or common
stock or the ratio of exchange of First Alliance Common Stock for Citizens Class
A Voting Common Stock. Should any of the facts, circumstances or assumptions
specified herein be subsequently determined incorrect or inaccurate, our
conclusions may vary from those set forth below and such variance could be
material.
Accordingly, in our opinion:
(1) The Merger will constitute a reorganization within
the meaning of IRC Section 368(a) and Citizens, Acquisition and First
Alliance will each be a "party to a reorganization" within the meaning
of IRC Section 368(b). No gain or loss will be recognized by the
shareholders of First Alliance solely upon the exchange of their shares
of First Alliance Common Stock for shares of Citizens Class A Voting
Common Stock. IRC Section 354(a).
(2) The tax basis of the shares of Citizens Class A
Voting Common Stock received by a shareholder of First Alliance will be
the same as the basis of the First Alliance Common Stock surrendered in
exchange therefor by that shareholder in the Merger. IRC Section
358(a); Treasury Regulation Section 1.358-1(a).
(3) The holding period of the shares of Citizens Class A
Voting Common Stock received by a shareholder of First Alliance will
include the period during which such shareholder held the First
Alliance Common Stock exchanged therefor, to the extent that such stock
was held by the shareholder as a capital asset on the date of the
consummation of the Merger. IRC Section 1223(1).
(4) Xxxx received by First Alliance shareholders who
properly exercise their dissenters' rights will be treated as having
been received in redemption of the shares so cashed out, and may result
in taxable gain or loss, measured by the difference (if any) between
the amount of cash received and such shareholder's basis in the First
Alliance Common Stock. Provided the shares were held as capital assets
at the time of the redemption, such gain or loss will constitute
capital gain or loss, and such gain or loss will be long term capital
gain or loss if the holding period for such shares was greater than one
year. It is possible, that for some First Alliance shareholders, the
distribution of cash may be treated as a dividend taxable as ordinary
income. IRC Sections 302, 301.
Each shareholder of First Alliance must file pursuant to Treasury
Regulation Section 1.368-3(b), with his or her income tax return for the year in
which the Merger is consummated, a statement which provides details relating to
the property transferred and securities received in the Merger.
The preceding discussion and opinions are based on our interpretations
of the facts and assumptions, based on the IRC, the regulations thereunder and
judicial and administrative interpretations thereof, all of which are subject to
change by subsequent regulatory, administrative, legislative or judicial actions
which could have an adverse effect on the validity of our opinion. In addition,
our opinion is based on the information contained in the Documents and assumes
that the facts, assumptions and representations contained therein could, in
fact, be established in a court of law in accordance with the appropriate
governing laws and burdens of proof.
This opinion is rendered as of the date hereof, and we undertake no,
and hereby disclaim any, obligation to advise you of any changes in or new
developments which might affect any matters or opinion set forth herein. The
opinion merely represents our interpretation of existing federal income tax law,
and is not binding on the IRS or any court of law. No ruling has been, or will
be, sought from the Internal Revenue Service as to the Federal tax consequences
of the Merger. No assurance can be given that the IRS would not adopt a position
contrary to our opinion and prevail in a court of law.
If the Merger is transacted as outlined in the facts given, the
material tax issues addressed singularly and in the aggregate will more likely
than not be upheld under challenge by the IRS.
Each First Alliance shareholder should consult his own qualified tax
advisor to evaluate the tax effects of the Merger based on his personal facts
and circumstances.
Very truly yours,
XXXXX & XXXXXX, P.C.
