EXHIBIT 8.1
TAX OPINION
COMBINED UNDERWRITERS LIFE INSURANCE COMPANY
February 12, 2002
Citizens, Inc.
400 East Anderson Lane, 6th Floor
Austin, Texas 78752
Re: Plan and Agreement of Exchange between Citizens, Inc. and Combined
Underwriters Life Insurance Company
Ladies and Gentlemen:
Our opinions as expressed below are based solely upon: (1) the
information contained in the Proxy-Information Statement dated February 12, 2002
(hereafter "Proxy Statement") as filed with the Securities and Exchange
Commission; (2) the Plan and Agreement of Exchange (the "Plan") dated November
21, 2001, between Citizens, Inc. ("Citizens") and Combined Underwriters Life
Insurance Company ("Combined"), together with Exhibits thereto; (3) the Lease
Extension Agreement to be dated March 19, 2002, between Combined and Little,
Rooney & Little Associates; (4) the Marketing Development Agreement to be dated
March 19, 2002, between Combined, Lifeline Underwriters Life Insurance Company
and the Red Little Combined Agency, Inc. (the "Agency"); (5) relevant
information provided by the principals; (6) the Internal Revenue Code of 1986,
as amended (hereinafter "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 (7) existing
judicial decisions. All of the above 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.
"Exchange" refers to the transaction set forth in the Plan. Capitalized
terms herein have the same meaning as in the Plan.
Shareholders residing or conducting business in foreign countries,
states or municipalities having tax laws could be required to pay tax with
respect to transactions in that country, state or municipality. We do not
express any opinion as to foreign, state or local tax consequences of the
Exchange. We do not express any opinion regarding alternative minimum tax
consequences of the Exchange to any shareholder or as to any other income tax
consequences to any shareholder except as expressly provided herein.
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 Combined 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 Exchange 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 and diversity to Combined
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 Combined, including the principal reasons for the Exchange
expressed above and the following:
(1) that Citizens and Combined, in arriving at the method used
to determine the number of shares of Citizens Class A Common Stock to
be received by each Combined shareholder, attempted in good faith to
value the Combined Common Stock to be transferred and to value the
Citizens Class A Common Stock to be Exchanged for such Combined Common
Stock in an effort to ensure that each shareholder receiving Citizens
Class A Common Stock pursuant to the Exchange received a number of
shares of such stock approximately equal in value to the Combined
Common Stock exchanged therefor;
(2) that Combined has no plan or intention to issue additional
shares of its stock that would result in Citizens losing control of
Combined within the meaning of Section 368(c) of the IRC;
(3) that none of Citizens, Combined, any entity related
thereto, or shareholder thereof, have any plan or intention to redeem
or otherwise reacquire any Citizens Class A Common Stock to be issued
to Combined shareholders in the Exchange, and will not so redeem or
otherwise reacquire such stock;
2
(4) that Citizens has no plan or intention to liquidate
Combined; to merge Combined with or into another corporation; to cause
Combined to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business; or to sell or
otherwise dispose of the stock of Combined except for transfers
described in Section 368(a)(2)(C) of the IRC; preserving the nature of
Combined's charter makes avoidance of such transactions necessary;
(5) that following the Exchange, Citizens will continue the
historic business of Combined or use a significant portion of its
historic business assets in a business;
(6) that Citizens and Combined will assume and pay their
respective reorganization expenses, if any, incurred in connection with
the Plan and Exchange;
(7) that there is no corporate indebtedness between Citizens
or Combined that was issued, acquired or will be settled at a discount;
(8) that in the Exchange, shares of Combined Common Stock will
be exchanged solely for Citizens Class A voting Common Stock, with
Citizens thereby obtaining control of Combined as defined in Section
368(c) of the IRC;
(9) that on the Effective Date of the Exchange, Combined will
not have outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could acquire
stock in Combined that, if exercised or converted, would affect
Citizens' acquisition or retention of control of Combined, as defined
in Section 368(c) of the IRC;
(10) that Citizens does not own, nor has it owned during the
past five (5) years, directly or indirectly, any shares of Combined
stock;
(11) that neither Citizens nor Combined are investment
companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the IRC;
(12) that neither Citizens nor Combined are under the
jurisdiction of a court in a Title 11 or similar case within the
meaning of IRC Section 368(a)(3) (A);
(13) that the Exchange will be consummated and qualify as a
statutory exchange in full compliance with Texas law and will be
consummated in accordance with the terms of the Plan;
(14) that in the event more than 2.5 percent of the
shareholders of Combined dissent to the Exchange, Citizens would
exercise its option not to proceed with the Exchange (as permitted
under the Plan) and the Exchange consequently would not be consummated;
3
(15) that no Combined Common Stock will be acquired for
consideration other than solely Citizens Class A Common Stock. Further,
no liabilities of Combined or the Combined shareholders will be assumed
by Citizens, nor will any of the Combined Common Stock be subject to
any liabilities;
(16) that Citizens will not assume nor repay any Combined debt
guaranteed by Combined shareholders nor will Citizens assume or repay
any outstanding loans between Combined and its shareholders;
(17) that no compensation or agreement for services received
by any shareholder of Combined, or any entity related to a Combined
shareholder, will be separate consideration for, or allocable to, any
of their shares of Combined Common Stock; no shares of Citizens Class A
Common Stock received by any Combined shareholder, or any entity
related to any Combined shareholder, will be separate consideration
for, or allocable to, any employment agreement or compensation
agreement; and the compensation paid to any Combined shareholder, or
any entity related to a Combined shareholder, will be for services
actually performed and/or property actually leased and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services;
(18) that Combined will pay its dissenting shareholders the
value of their Combined 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 Combined for any payments
to dissenters;
(19) that on the Effective Date of the Exchange, the fair
market value of the assets of Combined will exceed the sum of its
liabilities plus the liabilities, if any, to which its assets are
subject;
(20) that the Marketing Development Allowance Agreement (the
"MDA Agreement") between Combined, Lifeline Underwriters Life Insurance
Company and the Red Little Combined Agency, Inc. ("Agency") was
negotiated at arms-length; that the consideration to be paid by
Combined to the Agency pursuant to the MDA Agreement will be for
services actually to be performed and is reasonable in light of the
services to be performed and the benefit to Combined and Citizens of
retaining the Agency to preserve and increase the business in force
issued by Combined;
(21) that Combined has sufficient cash-flow to make payments
required to be made to the Agency pursuant to the MDA Agreement;
(22) that Citizens will not render Combined unable to honor
its payments under the MDA Agreement such that Citizens would be
required to make payments thereunder; and
4
(23) that after the Exchange, the space leased pursuant to the
two (2) real estate leases between Combined and Little, Rooney & Little
Associates, will continue to be used for business purposes, including
the occupancy by businesses or agencies of Combined, Citizens or
related entities and the profitable sublease of any space not so used,
and the lease payments are commensurate with amounts paid to third
parties bargaining at arms-length.
We have relied on the truthfulness and accuracy of certificates of
officers of Combined and Citizens regarding the above factual information,
assumptions and representations. In the course of our representation of Citizens
in connection with the transaction described herein, no facts have come to our
attention that would give us actual knowledge that the certificates are not
accurate. However, we have not undertaken any independent investigation to
verify the accuracy of such factual information, assumptions and
representations, and no inference as to our knowledge thereof shall be drawn
from the fact of our representation of any party or otherwise.
In rendering an opinion on the federal income tax consequences of such
a transaction, reasonable steps have been taken to assure that all material tax
issues are considered in light of the facts, and that all of such issues
involving a reasonable possibility of challenge by the IRS are fully and fairly
addressed. A "material tax issue" includes any tax issue that could have a
significant impact (either beneficial or adverse) on any Combined shareholder
participating in the Exchange under any reasonably foreseeable circumstances.
The opinions expressed below are rendered only with respect to the
specific matters described herein, and we express no opinion with respect to any
other federal income tax aspects of the Exchange. 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. In addition, we do not opine as to the taxable
or nontaxable status of any previous transactions not considered to be part of
the Exchange.
Accordingly, in our opinion, the material tax consequences of the
Exchange are as follows:
(1) The Exchange will constitute a reorganization within the
meaning of IRC Section 368(a)(1)(B) and Citizens and Combined 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
Combined upon the exchange of their shares of Combined Common Stock for
shares of Citizens Class A Common Stock. IRC Section 354(a).
(2) The tax basis of the shares of Citizens Class A Common
Stock received by a shareholder of Combined will be the same as the
basis of the Combined Common Stock surrendered by that shareholder in
the Exchange. IRC Section 358(a); IRC Regulation Section 1.358-1(a).
(3) The holding period of the shares of Citizens Class A
Common Stock received by a shareholder of Combined will include the
period during which such shareholder held
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the Combined 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 Exchange. IRC Section 1223(1).
(4) Cash received by Combined 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 Combined
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 Combined shareholders, the distribution of cash
may be treated as a dividend taxable as ordinary income. IRC Sections
302, 301.
(5) No material gain or loss will be recognized by Citizens or
Combined as a result of the Exchange. IRC Sections 361 and 1032.
(6) Section 382 limits the Net Operating Loss carryover of a
company following an ownership change. Combined will be deemed to have
an ownership change. After an ownership change, the amount of income
that a corporation may offset each year by Net Operating Losses that
occurred before the change is generally limited to an amount determined
by multiplying the value of the equity of the corporation immediately
prior to this change by the federal long-term tax exempt rate in effect
on the date of the change. Any unused limitation may be carried forward
and added to the next year's limitation, subject to certain
limitations. To the extent Combined also has built-in losses as defined
in IRC Section 382(h) as of the date of the Exchange, IRC Section 382
limits the utilization of such losses after the ownership change. IRC
Section 383 will similarly limit the utilization of excess credits, net
capital losses, and foreign tax credits, if any, after the ownership
change. In addition, IRC Section 384 limits the use of preacquisition
losses to offset built-in gains, if any, after the ownership change.
Regulations under IRC Sections 382 and 1502 implement the above
restrictions.
(7) Each shareholder of Combined must file pursuant to IRS
Regulation 1.368-3(b), with his or her income tax return for the year
in which the Exchange is consummated, a statement which provides
details relating to the property transferred and securities received in
the Exchange.
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. They are subject to change
by subsequent regulatory, administrative, legislative or judicial actions which
could have an adverse effect on the validity of our opinions. Our opinions are
effective as of the Effective Date for the Exchange as described in the Plan.
6
We do not express an opinion on the valuations of Combined or Citizens
assets or common stock or the ratio of exchange of Combined Common Stock for
Citizens Class A Common Stock.
If the Exchange 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 Combined shareholder should consult his own qualified tax advisor
to evaluate the tax effects of the Exchange based on his personal facts and
circumstances.
Very truly yours,
/s/ Jones & Keller, P.C.
JONES & KELLER, P.C.
7
TAX OPINION
LIFELINE UNDERWRITERS LIFE INSURANCE COMPANY
February 12, 2002
Citizens, Inc.
400 East Anderson Lane, 6th Floor
Austin, Texas 78752
Re: Plan and Agreement of Exchange between Citizens, Inc. and Lifeline
Underwriters Life Insurance Company
Ladies and Gentlemen:
Our opinions as expressed below are based solely upon: (1) the
information contained in the Proxy-Information Statement dated February 12, 2002
(hereafter "Proxy Statement") as filed with the Securities and Exchange
Commission; (2) the Plan and Agreement of Exchange (the "Plan") dated November
21, 2001, between Citizens, Inc. ("Citizens") and Lifeline Underwriters Life
Insurance Company ("Lifeline"), together with Exhibits thereto; (3) the
Marketing Development Agreement to be dated March 19, 2002, between Lifeline,
Combined Underwriters Life Insurance Company and the Red Little Combined Agency,
Inc. (the "Agency"); (4) relevant information provided by the principals; (5)
the Internal Revenue Code of 1986, as amended (hereinafter "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 (7) existing judicial decisions. All of the above 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.
"Exchange" refers to the transaction set forth in the Plan. Capitalized
terms herein have the same meaning as in the Plan or as to any other income tax
consequences to any shareholder except as expressly provided herein.
Shareholders residing or conducting business in foreign countries,
states or municipalities having tax laws could be required to pay tax with
respect to transactions in that country, state or municipality. We do not
express any opinion as to foreign, state or local tax consequences of the
Exchange. We do not express any opinion regarding alternative minimum tax
consequences of the Exchange to any shareholder.
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 Lifeline 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 Exchange 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 and diversity to Lifeline
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 Lifeline, including the principal reasons for the Exchange
expressed above and the following:
(1) that Citizens and Lifeline, in arriving at the method used
to determine the number of shares of Citizens Class A Common Stock to
be received by each Lifeline shareholder, attempted in good faith to
value the Lifeline Common Stock to be transferred and to value the
Citizens Class A Common Stock to be Exchanged for such Lifeline Common
Stock in an effort to ensure that each shareholder receiving Citizens
Class A Common Stock pursuant to the Exchange received a number of
shares of such stock approximately equal in value to the Lifeline
Common Stock exchanged therefor;
(2) that Lifeline has no plan or intention to issue additional
shares of its stock that would result in Citizens losing control of
Lifeline within the meaning of Section 368(c) of the IRC;
(3) that none of Citizens, Lifeline, any entity related
thereto, or shareholder thereof, have any plan or intention to redeem
or otherwise reacquire any Citizens Class A Common Stock to be issued
to Lifeline shareholders in the Exchange, and will not so redeem or
otherwise reacquire such stock;
(4) that Citizens has no plan or intention to liquidate
Lifeline; to merge Lifeline with or into another corporation; to cause
Lifeline to sell or otherwise dispose of any of its
2
assets, except for dispositions made in the ordinary course of
business; or to sell or otherwise dispose of the stock of Lifeline
except for transfers described in Section 368(a)(2)(C) of the IRC;
(5) that following the Exchange, Citizens will continue the
historic business of Lifeline or use a significant portion of its
historic business assets in a business;
(6) that Citizens and Lifeline will assume and pay their
respective reorganization expenses, if any, incurred in connection with
the Plan and Exchange;
(7) that there is no corporate indebtedness between Citizens
or Lifeline that was issued, acquired or will be settled at a discount;
(8) that in the Exchange, shares of Lifeline Common Stock will
be exchanged solely for Citizens Class A voting Common Stock, with
Citizens thereby obtaining control of Lifeline as defined in Section
368(c) of the IRC;
(9) that on the Effective Date of the Exchange, Lifeline will
not have outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could acquire
stock in Lifeline that, if exercised or converted, would affect
Citizens' acquisition or retention of control of Lifeline, as defined
in Section 368(c) of the IRC;
(10) that Citizens does not own, nor has it owned during the
past five (5) years, directly or indirectly, any shares of Lifeline
stock;
(11) that neither Citizens nor Lifeline are investment
companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the IRC;
(12) that neither Citizens nor Lifeline are under the
jurisdiction of a court in a Title 11 or similar case within the
meaning of IRC Section 368(a)(3) (A);
(13) that the Exchange will be consummated and qualify as a
statutory exchange in full compliance with Texas law and will be
consummated in accordance with the terms of the Plan;
(14) that in the event more than 2.5 percent of the
shareholders of Lifeline dissent to the Exchange, Citizens would
exercise its option not to proceed with the Exchange (as permitted
under the Plan) and the Exchange consequently would not be consummated;
(15) that no Lifeline Common Stock will be acquired for
consideration other than solely Citizens Class A Common Stock. Further,
no liabilities of Lifeline or the Lifeline shareholders will
3
be assumed by Citizens, nor will any of the Lifeline Common Stock be
subject to any liabilities;
(16) that Citizens will not assume nor repay any Lifeline debt
guaranteed by Lifeline shareholders nor will Citizens assume or repay
any outstanding loans between Lifeline and its shareholders;
(17) that no compensation or agreement for services received
by any shareholder of Lifeline, or any entity related to a Lifeline
shareholder, will be separate consideration for, or allocable to, any
of their shares of Lifeline Common Stock; no shares of Citizens Class A
Common Stock received by any Lifeline shareholder, or any entity
related to any Lifeline shareholder, will be separate consideration
for, or allocable to, any employment agreement or compensation
agreement; and the compensation paid to any Lifeline shareholder, or
any entity related to a Lifeline shareholder, will be for services
actually performed and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services;
(18) that Lifeline will pay its dissenting shareholders the
value of their Lifeline 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 Lifeline for any payments
to dissenters;
(19) that on the Effective Date of the Exchange, the fair
market value of the assets of Lifeline will exceed the sum of its
liabilities plus the liabilities, if any, to which its assets are
subject;
(20) that the Marketing Development Allowance Agreement (the
"MDA Agreement") between Lifeline, Combined Underwriters Life Insurance
Company and the Red Little Lifeline Combined, Inc. ("Agency") was
negotiated at arms-length; that the consideration to be paid by
Lifeline to the Agency pursuant to the MDA Agreement will be for
services actually to be performed and is reasonable in light of the
services to be performed and the benefit to Lifeline and Citizens of
retaining the Agency to preserve and increase the business in force
issued by Lifeline;
(21) that Lifeline has sufficient cash-flow to make payments
required to be made to the Agency pursuant to the MDA Agreement; and
(22) that Citizens will not render Lifeline unable to honor
its payments under the MDA Agreement such that Citizens would be
required to make payments thereunder.
We have relied on the truthfulness and accuracy of certificates of
officers of Lifeline and Citizens regarding the above factual information,
assumptions and representations. In the course of our representation of Citizens
in connection with the transaction described herein, no facts have
4
come to our attention that would give us actual knowledge that the certificates
are not accurate. However, we have not undertaken any independent investigation
to verify the accuracy of such factual information, assumptions and
representations, and no inference as to our knowledge thereof shall be drawn
from the fact of our representation of any party or otherwise.
In rendering an opinion on the federal income tax consequences of such
a transaction, reasonable steps have been taken to assure that all material tax
issues are considered in light of the facts, and that all of such issues
involving a reasonable possibility of challenge by the IRS are fully and fairly
addressed. A "material tax issue" includes any tax issue that could have a
significant impact (either beneficial or adverse) on any Lifeline shareholder
participating in the Exchange under any reasonably foreseeable circumstances.
The opinions expressed below are rendered only with respect to the
specific matters described herein, and we express no opinion with respect to any
other federal income tax aspects of the Exchange. 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. In addition, we do not opine as to the taxable
or nontaxable status of any previous transactions not considered to be part of
the Exchange.
Accordingly, in our opinion, the material tax consequences of the
Exchange are as follows:
(1) The Exchange will constitute a reorganization within the
meaning of IRC Section 368(a)(1)(B) and Citizens and Lifeline 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
Lifeline upon the exchange of their shares of Lifeline Common Stock for
shares of Citizens Class A Common Stock. IRC Section 354(a).
(2) The tax basis of the shares of Citizens Class A Common
Stock received by a shareholder of Lifeline will be the same as the
basis of the Lifeline Common Stock surrendered by that shareholder in
the Exchange. IRC Section 358(a); IRC Regulation Section 1.358-1(a).
(3) The holding period of the shares of Citizens Class A
Common Stock received by a shareholder of Lifeline will include the
period during which such shareholder held the Lifeline 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
Exchange. IRC Section 1223(1).
(4) Cash received by Lifeline 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 Lifeline
Common Stock. Provided the shares were held as capital assets at the
time of the redemption, such gain or loss will
5
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 Lifeline
shareholders, the distribution of cash may be treated as a dividend
taxable as ordinary income. IRC Sections 302, 301.
(5) No material gain or loss will be recognized by Citizens or
Lifeline as a result of the Exchange. IRC Sections 361 and 1032.
(6) Section 382 limits the Net Operating Loss carryover of a
company following an ownership change. Lifeline will be deemed to have
an ownership change. After an ownership change, the amount of income
that a corporation may offset each year by Net Operating Losses that
occurred before the change is generally limited to an amount determined
by multiplying the value of the equity of the corporation immediately
prior to this change by the federal long-term tax exempt rate in effect
on the date of the change. Any unused limitation may be carried forward
and added to the next year's limitation, subject to certain
limitations. To the extent Lifeline also has built-in losses as defined
in IRC Section 382(h) as of the date of the Exchange, IRC Section 382
limits the utilization of such losses after the ownership change. IRC
Section 383 will similarly limit the utilization of excess credits, net
capital losses, and foreign tax credits, if any, after the ownership
change. In addition, IRC Section 384 limits the use of preacquisition
losses to offset built-in gains, if any, after the ownership change.
Regulations under IRC Sections 382 and 1502 implement the above
restrictions.
(7) Each shareholder of Lifeline must file pursuant to IRS
Regulation 1.368-3(b), with his or her income tax return for the year
in which the Exchange is consummated, a statement which provides
details relating to the property transferred and securities received in
the Exchange.
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. They are subject to change
by subsequent regulatory, administrative, legislative or judicial actions which
could have an adverse effect on the validity of our opinions. Our opinions are
effective as of the Effective Date for the Exchange as described in the Plan.
We do not express an opinion on the valuations of Lifeline or Citizens
assets or common stock or the ratio of exchange of Lifeline Common Stock for
Citizens Class A Common Stock.
If the Exchange 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.
6
Each Lifeline shareholder should consult his own qualified tax advisor
to evaluate the tax effects of the Exchange based on his personal facts and
circumstances.
Very truly yours,
/s/ Jones & Keller, P.C.
JONES & KELLER, P.C.
7