Document:

<PAGE>

                                                                    EXHIBIT 10.5

OPTION AGREEMENT DATED AUGUST 14, 2001 BETWEEN CHILDTIME LEARNING CENTERS, INC.
                              AND ALFRED R. NOVAS

                             STOCK OPTION AGREEMENT

Childtime Learning Centers, Inc. (the "Corporation"), hereby grants you an
option (the "Option") to purchase 200,000 shares of the Common Stock of the
Corporation (collectively, the "Shares"), upon the terms and conditions
contained in this Agreement. The Option is being granted pursuant to the terms
of your employment agreement dated August 14, 2001 (the "Employment Agreement"),
but will not become effective until your commencement of employment with the
Corporation, as contemplated under the Employment Agreement (the "Effective
Date").

23.      The Option is not intended to be an incentive stock option within the
         meaning of Section 422 of the Internal Revenue Code of 1986, as
         amended.

24.      The Option may not be transferred by you other than by will or by the
         laws of descent and distribution and, during your lifetime, the Option
         is exercisable only by you.

25.      Subject to the other terms contained in this Agreement, you may
         exercise the Option in accordance with the following schedule:

         e.       Prior to the third anniversary date of the Effective Date, you
                  may not purchase any of the Shares.

         f.       Beginning on the third anniversary date of the Effective Date,
                  you may purchase all of the Shares at an option exercise price
                  equal to $13.00 per share.

26.      Subject to earlier termination of the Option pursuant to this
         Agreement, the Option will expire (to the extent not previously
         exercised) on the seventh anniversary of the Effective Date.

27.      If your employment with the Corporation terminates for any reason, you
         will have three months following such termination to exercise the
         Option with respect to those Shares which have become fully vested at
         the time of your termination; provided that the Compensation Committee
         of the Corporation's Board of Directors (the "Compensation Committee")
         may, in its sole discretion, extend such post-termination exercise
         period; and provided further that, if you are involuntarily terminated
         by the Corporation without Cause, or you terminate your employment for
         Good Reason, each as defined in your Employment Agreement, the exercise
         period for the Option will be extended for six months from the date of
         termination of your employment. In no event, however, will any
         post-termination exercise period extend beyond the seventh anniversary
         of the Effective Date.

28.      Notwithstanding the foregoing, if your employment with the Corporation
         is terminated within six months after the occurrence of a "Change in
         Control" (as defined below), (a) the Option will become immediately
         exercisable with respect to all of the Shares and (b)

                                      E-19
<PAGE>
                                                                    EXHIBIT 10.5

OPTION AGREEMENT DATED AUGUST 14, 2001 BETWEEN CHILDTIME LEARNING CENTERS, INC.
                              AND ALFRED R. NOVAS

         the exercise period for the Option will be extended for six months from
         the date of termination of your employment, but in no event beyond the
         seventh anniversary of the Effective Date.

         For purposes of this Paragraph 6, a "Change in Control" of the
         Corporation will occur on the date that (i) any "person" (as that term
         is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
         of 1934), other than Childcare Associates or KD Partners II and their
         affiliates (collectively, "KD Partners") and/or Jacobson Partners and
         its affiliates (collectively, "Jacobson Partners"), (A) acquires
         beneficial ownership, directly or indirectly, of securities of the
         Company representing 50% or more of the combined voting power of the
         Company's then outstanding securities and (B) exercises that voting
         power to replace 50% or more of the directors who were serving on the
         Board of Directors of the Company prior to such acquisition or (ii) any
         person other than KD Partners and/or Jacobson Partners acquires all or
         substantially all of the assets of the Company (whether by purchase,
         merger or consolidation).

29.      The Option will be exercised by giving a written notice to the
         Treasurer of the Corporation. Such notice will specify the number of
         Shares to be purchased and will be accompanied by payment in full (by
         the means specified in Paragraph 8 below) of the aggregate option
         exercise price for the number of Shares purchased and, if applicable,
         by an appropriate representation as to your investment purpose and an
         acknowledgment that the Shares to be issued upon exercise of the Option
         have not been registered under the Securities Act of 1933. Such
         exercise will be effective only upon actual receipt of such written
         notice, and no rights or privileges of a shareholder of the Corporation
         in respect of any of the Shares issuable upon exercise of any part of
         the Option will inure to you or any other person who is entitled to
         exercise the Option unless and until certificates representing such
         Shares have been issued.

30.      The aggregate option exercise price for the number of Shares to be
         purchased will be payable in cash or, in the sole discretion of and
         subject to such conditions as may be established by the Compensation
         Committee, (a) by the Corporation retaining from the Shares to be
         delivered upon exercise of the Option that number of Shares having a
         fair market value on the date of exercise equal to the aggregate option
         exercise price of the number of Shares with respect to which you have
         exercised the Option, or (b) in such other manner as the Compensation
         Committee determines is appropriate, in its sole discretion. Fair
         market value of a Share will be determined by the Compensation
         Committee and may be determined by taking the mean between the highest
         and lowest quoted selling prices of the Corporation's Common Stock on
         any exchange or other market on which the shares of Common Stock of the
         Corporation will be traded on such date, or if there are no sales on
         such date, on the next following day on which there are sales.

31.      The number of Shares subject to the Option and the option exercise
         price will be subject

                                      E-20
<PAGE>
                                                                    EXHIBIT 10.5

OPTION AGREEMENT DATED AUGUST 14, 2001 BETWEEN CHILDTIME LEARNING CENTERS, INC.
                              AND ALFRED R. NOVAS

         to such adjustment as the Compensation Committee, in its sole
         discretion, deems appropriate to reflect such events as stock
         dividends, stock splits, recapitalizations, mergers, consolidations or
         reorganizations of or by the Corporation; provided, however, that no
         fractional shares will be issued pursuant to exercise of the Option,
         and any fractional shares resulting from such adjustments will be
         eliminated from the Option.

32.      Subject to the terms of the Employment Agreement, nothing contained in
         this Agreement, nor any action taken by the Compensation Committee,
         will confer upon you any right with respect to continuation of your
         employment by the Corporation or any subsidiary of the Corporation, nor
         interfere in any way with the right of the Corporation or any
         subsidiary to terminate your employment at any time.

33.      If, upon or as a result of your exercise of the Option, there is
         payable by the Corporation any amount for income tax withholding, you
         will pay such amount to the Corporation to reimburse it for such income
         tax withholding. The Compensation Committee may, in its sole
         discretion, permit you to satisfy any such withholding obligation, in
         whole or in part, by allowing you to elect either (a) to have the
         amount of Common Stock deliverable by the Corporation upon exercise of
         the Option appropriately reduced, or (b) to tender Common Stock back to
         the Corporation subsequent to your exercise of the Option, subject to
         such rules and regulations as the Compensation Committee, in its sole
         discretion, may adopt. The Compensation Committee may make such other
         arrangements with respect to income tax withholding as it, in its sole
         discretion, determines to be appropriate.

                                        Very truly yours,

                                        Childtime Learning Centers, Inc.
                                        a Michigan corporation

                                        By:  /s/ James Morgan
                                             ----------------------------------
                                             James Morgan
                                             Its:     Chairman of the Board

The above is agreed to and accepted:

/s/ Alfred R. Novas
-----------------------------------------
Alfred R. Novas

Dated as of August 14, 2001

                                      E-21<PAGE>
                                                                 EXHIBIT 10.01.1

                         PLAN AND AGREEMENT OF EXCHANGE

                                 CITIZENS, INC.
                                       AND
                  COMBINED UNDERWRITERS LIFE INSURANCE COMPANY

         This Plan and Agreement of Exchange ("Agreement") is by and between
Citizens, Inc. ("Citizens"), a Colorado corporation and Combined Underwriters
Life Insurance Company ("Combined"), a Texas insurance corporation.

                                   WITNESSETH:

         WHEREAS, Combined is a stipulated premium life insurance company duly
organized and existing under the laws of the State of Texas; and

         WHEREAS, Citizens is a corporation duly organized and existing under
the laws of the State of Colorado; and

         WHEREAS, the respective Boards of Directors of Combined and Citizens
have voted to effect a statutory exchange under both the Texas Business
Corporation Act and the Colorado Business Corporation Act whereby Citizens will
acquire all of the issued and outstanding common stock of Combined in exchange
for shares of Class A Common Stock of Citizens upon the conditions hereinafter
stated;

         NOW, THEREFORE, for good and valuable consideration consisting of the
premises below it is agreed between the parties as follows:

                                    ARTICLE I
                                 THE TRANSACTION

         1.1 Subject to approval of this Agreement by the Insurance Commissioner
of the State of Texas, and subject to the conditions set forth herein, on the
"Effective Date" as herein defined, Citizens shall acquire all of the issued and
outstanding common stock of Combined for shares of Citizens Class A Common Stock
pursuant to a share exchange (the "Exchange") under Part Five of the Texas
Business Corporation Act and Article 111 of the Colorado Business Corporation
Act as set forth herein, and for no cash or other property. The Exchange shall
be completed at a closing ("Closing") on a date ("Closing Date") which shall be
as soon as reasonably possible, and as mutually agreed between the parties, on
or before the tenth business day after regulatory and stockholder approvals are
obtained in accordance with applicable law.

                                   10.01.1-1
<PAGE>

         1.2 On the Effective Date, the separate corporate existence of Combined
shall be unaffected and unimpaired and it shall continue to be a Texas life
insurance corporation subject to and governed by the laws of the State of Texas,
with all of its rights, powers, duties, purposes, franchises and licenses as are
in existence on the Effective Date. Articles of Exchange, in the form attached
hereto as Exhibit A subject to any modifications as may be authorized or
required in accordance with applicable law (collectively the "Exchange
Filings"), shall be completed and executed by the parties and filed by Citizens
as contemplated by this Agreement as soon as reasonably possible, and on or
before the tenth business day after all regulatory and shareholder approvals are
obtained in accordance with applicable law.

         1.3 If this Agreement is duly adopted by the holders of the requisite
number of shares of Combined, in accordance with the applicable laws and subject
to the other provisions hereof, such documents as may be required by law to
accomplish the acquisition of Combined by Citizens shall be delivered to and
filed with the Commissioner of Insurance of the State of Texas (and any other
governmental entity with which a filing is required), by Citizens and upon the
approval of this Agreement as required by requisite states' laws, the
appropriate documents to accomplish the Exchange shall then be filed as required
by law to effectuate the transactions contemplated hereby, and the Exchange
shall become effective at the Closing Date. The Closing Date shall be the
Effective Date for the Exchange.

                                   ARTICLE II
                         ISSUANCE AND EXCHANGE OF SHARES

         2.1 The manner and basis of exchanging shares of Combined into Citizens
pursuant to the Exchange is as follows: As set forth in Section 2.2 and Section
2.4, on the Effective Date each shareholder of Combined shall receive a number
of shares of Citizens Class A Common Stock equal in market value ("Market
Value") to the Combined stock owned by such shareholder. For purposes of this
Agreement, the per share Market Value of Citizens Class A Common Stock shall be
equal to the average closing price of such stock as reported by the American
Stock Exchange for the 20 trading days immediately preceding (but not including)
the Effective Date; and the Market Value of the Combined stock shall be $8.64
per share. The offer and sale of the Citizens Class A Common Stock to be issued
hereunder shall be registered by Citizens pursuant to the Securities Act of 1933
and applicable state securities laws, as provided in Section 5.3 hereof.

         2.2 Upon the Effective Date, each holder of a certificate or
certificates representing shares of Combined, upon presentation and surrender of
such certificate or certificates to the Exchange Agent of Citizens, shall be
entitled to receive the consideration set forth herein, except that holders of
those shares as to which dissenters' rights shall have been asserted and
perfected pursuant to Texas law shall not be converted into shares of Citizens
Class A Common Stock, but shall represent only such rights as are permitted
under the Texas Business Corporation Act. Combined shall pay or otherwise
satisfy payment relating to shares as to which dissenters' rights have been
asserted and perfected pursuant to Texas law solely out of its own funds;
Citizens shall not contribute or

                                   10.01.1-2
<PAGE>

otherwise be liable for any payments to such persons arising from the Exchange.
Upon such presentation, surrender, and exchange as provided in this Section 2.2,
certificates representing shares of Combined previously held shall be canceled.
Until so presented and surrendered, each certificate or certificates which
represented issued and outstanding shares of Combined at the Effective Date
shall be deemed for all purposes to evidence the right to receive the
consideration set forth in Section 2.1 of this Agreement. If a certificate or
the certificates representing shares of Combined have been lost, stolen,
mutilated or destroyed, the Exchange Agent shall require the submission of an
indemnity agreement and may require the submission of a bond in lieu of such
certificate.

         2.3 The stock transfer books of Combined shall be closed on the Closing
Date, and thereafter no transfers of the common stock of Combined will be made.

         2.4 No fractional shares of Citizens stock shall be issued as a result
of the Exchange. In the event the exchange of shares results in any shareholder
being entitled to a fraction of a whole share of Citizens stock, the number of
shares to be issued to such shareholder shall be rounded up to the nearest whole
share.

                                   ARTICLE III
              REPRESENTATIONS, WARRANTIES AND COVENANTS OF COMBINED

         To the best of its knowledge and belief, Combined hereby represents,
warrants and covenants to Citizens as follows, except as stated in the Combined
Disclosure Statement attached hereto as Exhibit B:

         3.1 Combined is a life insurance corporation duly organized, validly
existing and in good standing under the insurance laws of Texas with full
corporate power and authority to own the respective properties which it now
owns; and is qualified or licensed to conduct its business and is in good
standing in all states where such qualifications or licensing is required, and
has full corporate power to enter into and, upon the appropriate approvals as
required by law, to consummate the transactions contemplated by this Agreement.

         3.2 The Articles of Incorporation and Bylaws of Combined, copies of
which have been delivered to Citizens, are complete and accurate and the minute
books of Combined contain a record of all meetings and corporate actions of the
shareholders and Board of Directors of Combined that is complete and accurate in
all material respects.

         3.3 The aggregate number of shares which Combined is authorized to
issue is one million five hundred thousand (1,500,000) shares of $1.00 par value
common stock and 1,000,000 such shares are issued and outstanding, fully paid
and non-assessable. Combined has no outstanding options, warrants or other
rights to purchase, or subscribe to, or securities convertible into or exchange
for any shares of capital stock.

                                   10.01.1-3
<PAGE>

         3.4 Combined has complete and unrestricted power to enter into and,
upon the appropriate approvals as required by law, to consummate the
transactions contemplated by this Agreement.

         3.5 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by Combined will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of Combined or any contracts, agreements,
pledges, loans or any other obligations of Combined.

         3.6 Combined has delivered to Citizens its annual convention statement
for the year ended December 31, 2000. Also, Combined has delivered to Citizens
its quarterly financial statement for the quarter and six months ended June 30,
2001. All such statements, herein sometimes called "Combined Financial
Statements", present fairly, in all material respects, the admitted assets,
liabilities and surplus of Combined as of the dates thereof, and the results of
operations and its cash flows for the year then ended, in conformity with the
accounting practices prescribed or permitted by the Insurance Department of the
State of Texas.

         3.7 The assets of Combined have admissible values at least equal to the
amounts attributed to them on its June 30, 2001 statutory financial statement
and will have a value at least equal to those set forth in the December 31, 2000
annual convention statement.

         3.8 Combined has delivered to Citizens a copy of each of the Federal
income tax returns of Combined for the years ended December 31, 1999 and
December 31, 2000. The provisions for taxes paid by Combined are believed by
Combined to be sufficient for payment of all accrued and unpaid Federal, state,
county and local taxes of Combined (including any penalties or interest payable)
whether or not disputed for the periods then ended and for all prior fiscal
periods. All returns and reports of information required or requested by
Federal, state, county and local tax authorities have been filed or supplied in
a timely fashion and all such information is true and correct in all material
respects. Provision has been made in Combined financial statements for the
payment of all taxes due to date by Combined, including accrued taxes for the
current year ended December 31, 2001. No Federal income tax return of Combined
is currently under audit.

         3.9 Since December 31, 2000, there has not been any material adverse
change in the business or condition, financial or otherwise, of Combined,
including any loss or damages to any of its assets, properties or rights as
shown on December 31, 2000 Combined statutory statement as filed with the Texas
Department of Insurance that would be material to Combined taken as a whole.

         3.10 Attached to Exhibit B is a listing of all pending legal
proceedings or known regulatory inquiries involving Combined and, except for
these proceedings, there are no legal proceedings or regulatory proceedings
involving claims pending, or to the knowledge of the officers of Combined,
threatened against Combined or affecting any of its assets, or properties.
Combined is not in any breach or violation of or default under any contract or
instrument to which Combined is a party, and no event has occurred which with
the lapse of time or action by a third party could result in a breach

                                   10.01.1-4
<PAGE>

or violation of or default by Combined under any contract or other instrument to
which Combined is a party or by which it or any of its property may be bound or
affected, or under its Articles of Incorporation or Bylaws, or any court order,
statute, ruling or regulation applicable to Combined which breach or violation
of or default could have a material adverse effect on Combined.

         3.11 The execution and delivery of this Agreement has been duly
authorized and approved by Combined's Board of Directors.

         3.12 Combined has provided Citizens a copy of Combined's employee
manual and related documents which include a description of Combined's employee
benefits. Except as shown in the material provided, Combined has no employment
agreements.

         3.13 Combined will call and hold a meeting of its shareholders as soon
as practicable after the date hereof, at which meeting the Board of Directors
will, subject to its fiduciary obligations to shareholders, submit and recommend
the Agreement and transactions described herein to its shareholders, and, if the
requisite approval by such shareholders is obtained, will undertake promptly to
consummate the Exchange as set forth herein.

         3.14 Combined shall not enter into or consummate any transactions prior
to the Effective Date other than in the ordinary course of business, will pay no
shareholder dividend and will not intentionally enter into any agreement or
transaction that would materially and adversely affect its financial condition,
and will not increase the compensation of any of its employees other than in the
usual course of business consistent with past practices.

         3.15 Combined has provided to Citizens all contracts, other than
insurance policies issued or assumed by Combined, to which Combined is a party.

         3.16 The representations and warranties of Combined shall be true and
correct as of the Effective Date as well as the date hereof.

         3.17 Combined has delivered, or will deliver to Citizens, any reports
relating to the financial and business condition of Combined which are prepared
after the date of this Agreement and sent to regulators after the execution date
of this Agreement.

         3.18 No representation or warranty by Combined in this Agreement, the
Combined Disclosure Statement or any certificate delivered pursuant hereto
contains any untrue statement of a material fact or omits to state any material
fact necessary to make such representation or warranty not misleading.

                                   10.01.1-5
<PAGE>

                                   ARTICLE IV
              REPRESENTATIONS, WARRANTIES AND COVENANTS OF CITIZENS

         To the best of its knowledge and belief, Citizens hereby represents,
warrants and covenants to Combined as follows, except as stated in the Citizens
Disclosure Statement attached hereto as Exhibit C:

         4.1 Citizens is a corporation duly organized, validly existing and in
good standing under the laws of Colorado, with full power and authority to own
the respective properties which it now owns; and is qualified or licensed to
conduct its business and is in good standing in all states where such
qualifications or licensing is required.

         4.2 The total number of shares of both classes of capital stock which
Citizens is authorized to issue is 50,000,000 shares of Class A Common Stock
with no par value and 1,000,000 shares of Class B common stock of no par value.
As of the date hereof, there are 26,642,938 shares of Class A Common Stock
issued, of which 24,417,118 are outstanding and 711,040 shares of Class B common
stock are issued and outstanding. Citizens has no outstanding options, warrants
or other rights to purchase, or subscribe to, or securities convertible into or
exchangeable for any shares of capital stock. The shares to be issued in
connection with the Exchange shall be, and all Citizens stock currently issued
or outstanding is, validly issued, fully paid and nonassessable.

         4.3 Neither the making of nor the compliance with the terms and
provisions of this Agreement and consummation of the transactions contemplated
herein by Citizens will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of Citizens.

         4.4 The execution of this Agreement has been duly authorized and
approved by Citizens' Board of Directors. Citizens has complete and unrestricted
power to enter into and, upon the appropriate approvals as required by law
(which such approvals are listed on the attached Exhibit D), to consummate the
transaction contemplated by this Agreement.

         4.5 Citizens has delivered to Combined its annual consolidated
financial statement for the year ended December 31, 2000. Also, Citizens has
delivered to Combined its consolidated financial statements for the quarter and
six months ended June 30, 2001. All such statements, herein sometimes called
"Citizens Financial Statements", are complete and correct in all material
respects and, together with the notes to these financial statements, present
fairly the financial position and results of operations of Citizens for the
period included and have been prepared in accordance with generally accepted
accounting principles consistently applied.

         4.6 Since December 31, 2000, there has not been any material adverse
change in the business or condition, financial or otherwise, of Citizens and its
subsidiaries taken as a whole, including any material loss or damages to any of
its assets, properties or rights from that shown on the Citizens Financial
Statements.

                                   10.01.1-6
<PAGE>

         4.7 Citizens has delivered to Combined a listing of all pending legal
proceedings involving Citizens and its consolidated subsidiaries as set forth on
Exhibit C and, except for these proceedings, there are no legal proceedings
pending, or to the knowledge of the officers of Citizens, threatened against
Citizens or affecting any of its assets or properties and Citizens is not in any
material breach or violation of or default under any contract or instrument to
which Citizens is a party, and no event has occurred which with the lapse of
time or action by a third party could result in a material breach or violation
of or default by Citizens under any contract or other instrument to which
Citizens is a party or by which it or any of its properties may be bound or
affected, or under its Articles of Incorporation or Bylaws, or any court order,
statute, ruling or regulation applicable to Citizens. The execution, delivery
and performance of the Agreement by Citizens will not with the lapse of time or
action by a third party result in a material breach or violation of or default
by Citizens under any contract or other instrument to which Citizens is a party
or by which it or any of its properties may be bound of affected, or under its
Articles of Incorporation or Bylaws, or any court order, statute, ruling or
regulation applicable to Citizens.

         4.8 Citizens' shareholders are not required to approve the issuance of
shares pursuant to this Agreement.

         4.9 Citizens is the owner of all of the issued and outstanding stock of
Citizens Insurance Company of America.

         4.10 Citizens has delivered to Combined true and correct copies of
Citizens Annual Report to Shareholders for the years ended December 31, 1999 and
2000 and each of its other reports to shareholders and filings with the
Securities and Exchange Commission ("SEC") for the years ended December 31,
1998, 1999, and for 2000. Citizens will also deliver to Combined on or before
the Closing Date any reports relating to the financial and business condition of
Citizens which are filed with the SEC after the date of this Agreement and any
other reports sent generally to its shareholders after the date of this
Agreement.

         4.11 Citizens has duly filed all reports required to be filed by it
under the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, (the "Federal Securities Laws"). No such reports, or any
reports sent to the shareholders of Citizens generally, contained any untrue
statement of material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements in such report, in light of
the circumstances and time under which they were made, not misleading.

         4.12 Citizens has received, and to the extent it deems necessary,
reviewed the various agent contracts, commission agreements and the other
contracts included in Exhibit B between Combined and Little Insurance Agency.

         4.13 The representations and warranties of Citizens shall be true and
correct as of the Effective Date as well as the date hereof.

                                   10.01.1-7
<PAGE>

                                    ARTICLE V
              OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE DATE

         5.1 This Agreement shall be duly submitted to the shareholders of
Combined for the purpose of considering and acting upon this Agreement in the
manner required by law at a meeting of shareholders on a date selected by
Combined, such date to be the earliest practicable date after the proxy
statement may first be sent to Combined shareholders without objection by
applicable governmental authorities, provided that Combined will have at least
30 days to solicit proxies. Citizens will furnish to Combined the information
relating to Citizens required by the Federal Securities Laws to be included in
the proxy statement. Citizens represents and warrants that at the time of the
Combined shareholders' meeting, the proxy statement, insofar as it relates to
Citizens and contains information furnished by Citizens specifically for use in
such proxy statement, (a) will comply in all material respects with the
provisions of the Federal Securities Laws and (b) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Combined represents
and warrants that at the time of the Combined shareholder meeting, the proxy
statement, insofar as it relates to Combined and contains information furnished
by Combined specifically for use in such proxy statement, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Board of Directors
of Combined, subject to its fiduciary obligations to shareholders, shall use
reasonable efforts to obtain the requisite approval of Combined shareholders of
this Agreement and the transactions contemplated herein. Citizens and Combined
shall take all reasonable and necessary steps and actions to comply with and to
secure Combined's shareholder approval of this Agreement and the transactions
contemplated herein as may be required by applicable law.

         5.2 At all times prior to the Effective Date, but during regular
business hours, each party will permit the other to examine its books and
records and the books and records of its affiliates and will furnish copies
thereof on request. It is recognized that, during the performance of this
Agreement, each party may provide the other party with information that is
confidential or proprietary in nature. During the term of this Agreement, and
for four years following the termination of this Agreement, the recipient of
such information shall protect such information from disclosure to persons,
other than members of its own or affiliated organizations and its professional
advisers, in the same manner as it protects its own confidential or proprietary
information from unauthorized disclosure and shall not use such information to
the competitive detriment of the disclosing party. In addition, if this
Agreement is terminated for any reason, each party shall promptly return or
cause to be returned all documents or other written records of such confidential
or proprietary information together with all copies of such writings and, in
addition, shall destroy or shall maintain the information with the standard of
care that is exercised with respect to its own confidential or proprietary
information. No information shall be considered confidential or proprietary if
it is (a) information already in the possession of the party to whom disclosure
is made, (b) information acquired by the party to whom the disclosure is made
from other sources, or (c)

                                   10.01.1-8
<PAGE>

information in the public domain or generally available to interested persons or
which at a later date passes into the public domain or becomes available to the
party to whom disclosure is made without any wrongdoing by the party or any of
its affiliates or any third party to whom the disclosure is made.

         5.3 Citizens and Combined shall promptly provide each other with
information as to any significant developments that materially hinder the
performance of this Agreement, and shall promptly notify the other if it
discovers that any of its representations, warranties and covenants contained in
this Agreement or in any document delivered in connection with this Agreement
was not true and correct in all material respects or became untrue or incorrect
in any material respect.

         As promptly as practicable after the execution of this Agreement,
Citizens will prepare and file with the Securities and Exchange Commission
("Commission") a registration statement on Form S-4 (the "Registration
Statement") covering the issuance of Citizens shares in the Exchange. Each of
Citizens and Combined will use all reasonable efforts to have or cause the
Registration Statement to become effective as promptly as practicable, and will
take any action required to be taken under any applicable federal or state
securities laws in connection with the issuance of shares of Citizens Common
Stock in the Exchange. Citizens will use all reasonable efforts to cause the
Registration Statement to remain effective through the Effective Date. Citizens
and Combined will furnish all information concerning it and the holders of its
capital stock as the other may reasonably request in connection with such
actions.

         Citizens will use all reasonable efforts to obtain all necessary state
securities laws or "blue sky" permits, approvals and registrations in connection
with the issuance of the Citizens Class A Common Stock in the Exchange.

         As promptly as practicable after the Registration Statement shall have
become effective, Combined will mail a notice of special meeting to its
stockholders entitled to notice of and to vote at the Combined Stockholders'
Meeting.

         If at any time prior to the Effective Date any event or circumstance
relating to Combined or any of its Affiliates, or its or their respective
officers or directors should be discovered by Combined that should be set forth
in an amendment to the Registration Statement, Combined will promptly inform
Citizens, and Citizens will undertake to amend or supplement the Registration
Statement and the prospectus contained therein accordingly.

         If at any time prior to the Effective Date any event or circumstance
relating to Citizens or any of its Affiliates, or to their respective officers
or directors, should be discovered by Citizens that should be set forth in an
amendment to the Registration Statement, Citizens will promptly inform Combined,
and Citizens will undertake to amend or supplement the Registration Statement
and the prospectus contained therein accordingly.

         No amendment or supplement to the Registration Statement will be made
by Citizens without prior consultation with Combined. Citizens and Combined each
will advise the other, promptly after

                                   10.01.1-9
<PAGE>

it receives notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, the issuance of
any stop order suspending the effectiveness of the Registration Statement, the
suspension of the qualification of Citizens Common Stock issuable in connection
with the Exchange for offering or sale in any jurisdiction, any request by the
staff of the Commission for amendment of the Registration Statement or the Proxy
Statement, the receipt from the staff of the Commission of comments thereon or
any request by the staff of the Commission for additional information with
respect thereto.

         Citizens will use all reasonable efforts to cause the shares of
Citizens Common Stock to be issued in the Exchange to be approved for listing
(subject to official notice of issuance) on the American Stock Exchange prior to
the Effective Date. To the knowledge of Citizens, there are no facts and
circumstances that would preclude Citizens Common Stock to be issued in the
Exchange from being approved for listing on the American Stock Exchange.

         5.4 The parties to this Agreement shall take all such action as may be
reasonably necessary and appropriate and shall use their best efforts in order
to consummate the transactions contemplated hereby as promptly as reasonably
practicable.

                                   ARTICLE VI
                               REGULATORY FILINGS

         6.1 Within 15 days after the execution of this Agreement, Citizens
shall file with the Insurance Commissioner of Texas all of the regulatory
approval documents required by Texas law in order to close this Agreement.

                                   ARTICLE VII
            CONDITIONS PRECEDENT TO THE CONSUMMATION OF THE EXCHANGE

         The following are conditions precedent to the consummation of the
Exchange, on or before the Effective Date:

         7.1 Citizens and Combined shall have performed and complied with all of
their respective obligations hereunder which are to be complied with or
performed on or before the Effective Date and shall provide one another at the
Closing with a certificate to the effect that such party has performed each of
the acts and undertakings required to be performed by it on or before the
Closing Date pursuant to the terms of this Agreement.

         7.2 This Agreement shall have been duly and validly authorized,
approved and adopted, at a meeting of the shareholders of Combined duly and
properly called for such purpose in accordance with the applicable law.

                                   10.01.1-10
<PAGE>

         7.3 This Agreement is in all things subject to the provisions of the
applicable insurance laws and the regulations promulgated thereunder, and shall
not become effective until approval of the Exchange is obtained from the
Commissioner of Insurance of the State of Texas (and any other governmental
entity with jurisdiction over the transaction) in accordance with the provisions
of the laws of said state. Citizens and Combined agree, as soon as practical
after the execution and delivery of this Agreement, to file and to use
commercially reasonable efforts to obtain such approval of the transactions
contemplated by this Agreement. Neither Citizens nor Combined shall be obligated
to file a suit or to appeal from any adverse ruling by the Commissioner of
Insurance of the State of Texas, and neither Citizens nor Combined shall be
obligated to make any material changes in any lawful, good faith management
policy in order to gain such approval.

         7.4 No action, suit or proceeding shall have been instituted or shall
have been threatened in writing before any court or other governmental body or
by any public authority to restrain, enjoin or prohibit the Exchange, or which
might subject any of the parties hereto or their directors or officers to any
material liability, fine, forfeiture or penalty on the ground that the
transactions contemplated hereby, the parties hereto or their directors or
officers, have violated any applicable law or regulation, or have otherwise
acted improperly in connection with the transactions contemplated hereby, and
the parties hereto have been advised by counsel that, in the opinion of such
counsel, such action, suit or proceeding raises substantial questions of law or
fact which could reasonably be decided adversely to any party hereto or its
directors or officers.

         7.5 The representations and warranties made by Citizens and Combined in
this Agreement shall be true in all material respects as though such
representation and warranties had been made or given on and as of the Closing
Date, except to the extent that such representations and warranties may be
untrue on and as of the Closing Date because of (1) changes caused by
transactions suggested or approved in writing by each party hereto or (2) events
or changes (which shall not, in the aggregate, have materially and adversely
affected the business, assets, or financial condition of Citizens or Combined)
during or arising after the date of this Agreement.

         7.6 Combined shall have furnished Citizens with:

                  (1) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors of Combined approving this Agreement and the
transactions contemplated by it and directing the submission thereof to a vote
of the shareholders of Combined;

                  (2) a certified copy of a resolution or resolutions duly
adopted by the requisite number of shareholders of Combined approving this
Agreement and the transactions contemplated by it in accordance with applicable
law;

                  (3) an opinion of Sneed, Vine & Perry, P.C., counsel to
Combined. dated as of the Effective Date as set forth in Exhibit E attached
hereto; and

                                   10.01.1-11
<PAGE>

                  (4) an agreement from each "affiliate" of Combined, in the
form attached as Exhibit F.

         7.7 Citizens shall furnish Combined with:

                  (1) a certified copy of a resolution or resolutions duly
adopted by the Board of Directors of Citizens, approving this Agreement and the
transactions contemplated by it; and

                  (2) opinions of Jones & Keller, P.C., counsel for Citizens,
dated as of the Effective Date, as set forth in Exhibits G and H attached
hereto.

         7.8 Citizens and Combined shall approve and file the Articles of
Exchange, consistent with this Agreement, for this transaction with the
requisite governmental authorities.

         7.9 The Closing of the Plan and Agreement of Exchange for the common
stock of Lifeline Underwriters Life Insurance Company ("Lifeline") shall occur
simultaneously with the closing of the Exchange.

         7.10 On or before Closing Date, Combined will implement a plan
reasonably acceptable to Citizens that will replace the three insurance policy
assets shown on page two of Combined's statutory statement (the "Policies") with
cash or other liquid, admissible assets of equal values acceptable to Citizens.

                                  ARTICLE VIII
                           TERMINATION AND ABANDONMENT

         8.1 Anything contained in this Agreement to the contrary
notwithstanding, the Exchange may be terminated and abandoned at any time
(whether before or after the approval and adoption thereof by the shareholders
of Combined) prior to the Effective Date of such Exchange:

                  (1) By mutual written consent of Citizens and Combined;

                  (2) By Citizens or Combined, if any condition set forth in
Article VII has not been met or has not been waived;

                  (3) By Citizens or Combined, if any suit, action or other
proceeding shall be pending or threatened by the federal or a state government
before any court or governmental agency, in which it is sought to restrain,
prohibit or otherwise affect the consummation of the Exchange;

                  (4) By Citizens or Combined, if there is discovered any
material error, misstatement or omission in the representations and warranties
of another party made herein;

                                   10.01.1-12
<PAGE>

                  (5) By Citizens or Combined, if more than 2.5% of the shares
of Combined are properly perfected as to rights to dissent to the Exchange under
Section 5.11 of the Texas Business Corporation Act;

                  (6) If the Texas Commissioner of Insurance issues an order
denying the application of Citizens to acquire control of Combined or Lifeline
or fails to approve both applications within 120 days from its filing, this
Agreement shall terminate in totality; or

                  (7) Any of the terms or conditions of this Agreement may be
waived at any time by the party which is entitled to the benefit thereof, by
action taken by its Board of Directors; provided, however, that such action
shall be taken only if, in the judgment of the Board of Directors taking the
action, such waiver will not have a material adverse effect on the benefits
intended under this Agreement to the party (or shareholders of the party)
waiving such term or condition.

                                   ARTICLE IX
      TERMINATION OF REPRESENTATIONS AND WARRANTIES AND CERTAIN AGREEMENTS

         9.1 The respective representations, warranties, covenants and
agreements of the parties hereto, shall expire with, and be terminated and
extinguished by, the Exchange or at the time of the consummation thereof.
Neither Party shall be under any liability whatsoever with respect to any such
representation, warranty, covenant or agreement which does not so survive, it
being intended that the sole remedy of the parties for a breach of any such
representation, warranty, covenant or agreement shall be to elect not to proceed
with the Exchange if such breach has resulted in the failure to satisfy a
condition precedent to such party's obligation to consummate the transactions
contemplated hereby.

                                    ARTICLE X
                                  MISCELLANEOUS

         10.1 This Agreement embodies the entire agreement between the parties,
and there have been and are no agreements, representations or warranties among
the parties other than those set forth herein or those provided for herein.

         10.2 To facilitate the execution of this Agreement, any number of
counterparts hereof may be executed, and each such counterpart shall be deemed
to be an original instrument, but all such counterparts shall constitute but one
instrument.

         10.3 Each of the parties hereto will pay its own fees and expenses
incurred in connection with the transactions contemplated by this Agreement.
Citizens and Combined each represent to the other that it has not employed any
investment bankers, brokers, finders or intermediaries in connection with the
transaction contemplated hereby who might be entitled to any fee or other

                                   10.01.1-13
<PAGE>

payment from Citizens or Combined or any subsidiary of any of them because of
the consummation of the transactions contemplated by this Agreement.

         10.4 All parties to this Agreement agree that if it becomes necessary
or desirable to execute further instruments or to make such other assurances as
are deemed necessary, the party requested to do so will use its best efforts to
provide such executed instruments or do all things necessary or proper to carry
out the purpose of this Agreement.

         10.5 This Agreement may be amended upon approval of the Board of
Directors of each party; provided that the definition of Market Value for the
stock of Combined and/or Citizens shall not be amended without approval of the
requisite shareholders of Combined.

         10.6 Any notices, requests, or other communications required or
permitted hereunder shall be delivered personally or sent by overnight courier
service, fees prepaid, addressed as follows:

To Citizens:                        To Combined:

Citizens, Inc.                      Combined Underwriters Life Insurance Company
400 E. Anderson Lane                307 N. Glenwood
Austin, Texas 78752                 Tyler, Texas 75702
Attn: Mark A. Oliver                Attn: Gary C. Cole
President                           President

with copies to:                     with copies to:

Jones & Keller, P.C.                Sneed, Vine & Perry, P.C.
1625 Broadway, Suite 1600           901 Congress Ave.
Denver, CO 80202                    Austin, Texas 78701
Attn: Reid Godbolt, Esq.            Attn: Jim Shawn, Esq.

or such other addresses as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
received.

         10.7 No press release or public statement will be issued relating to
the transaction contemplated by this Agreement without prior approval of
Citizens or Combined. However, either Citizens or Combined may issue at any time
any press release or other public statement it believes on the advice of its
counsel it is obligated to issue to avoid liability under the law relating to
disclosures, but the party issuing such press release or public statement shall
make a reasonable effort to give the other party prior notice of and opportunity
to participate in such release or statement.

         10.8 This Agreement shall be governed, construed and enforced in
accordance with the laws of Texas, without regard to any conflicts of law
provisions.

                                   10.01.1-14
<PAGE>

         10.9 This Agreement shall be deemed to have been drafted by both
parties, and therefore the rule against construing ambiguities against the party
drafting a contract shall be inapplicable to this Agreement.

         10.10 If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.

                     [REST OF PAGE INTENTIONALLY LEFT BLANK]

                                   10.01.1-15
<PAGE>

         IN WITNESS THEREOF, the parties have set their hands this the 20th day
of November, 2001.

                                       COMBINED UNDERWRITERS LIFE INSURANCE
                                         COMPANY

                                       By: /s/ Gary C. Cole
                                          --------------------------------------
                                          Gary C. Cole, President

                                       CITIZENS, INC.

                                       By: /s/ Mark A. Oliver
                                          --------------------------------------
                                          Mark A. Oliver, President

                                   10.01.1-16
<PAGE>

                                    EXHIBIT A
                              ARTICLES OF EXCHANGE

                                 CITIZENS, INC.
                                       AND
                  COMBINED UNDERWRITERS LIFE INSURANCE COMPANY

         ARTICLES OF EXCHANGE entered into this ___ day of ___________, 2001, by
and between Citizens, Inc., a Colorado corporation ("Citizens") and Combined
Underwriters Life Insurance Company, a Texas corporation ("Combined").

         THIS IS TO CERTIFY:

         FIRST: The parties which are parties to these Articles of Exchange are
Combined Underwriters Life Insurance Company, a Texas corporation and Citizens,
Inc., a Colorado corporation, and each of said corporations agrees to have the
$1.00 par value common stock of Combined (hereinafter the "Common Stock")
acquired by Citizens in a share exchange (the "Exchange") as provided by these
Articles of Exchange.

         SECOND: The name and state of incorporation of each party to these
Articles of Exchange are as follows: Combined Underwriters Life Insurance
Company is a corporation incorporated under the laws of the State of Texas, and
Citizens, Inc. is a corporation incorporated under the laws of the State of
Colorado.

         THIRD: As to the Common Stock:

A. On the Effective Date (as defined in Article TENTH below), each one share of
the Common Stock of Combined issued and outstanding immediately prior thereto
shall automatically be converted into and shall be exchanged for ________ shares
of the Citizens' Class A Common Stock subject to D. below.

B. Upon the Effective Date, each holder of a certificate or certificates
representing shares of Common Stock, upon presentation and surrender of such
certificate or certificates to the exchange agent for Citizens, shall be
entitled to receive the consideration set forth in this Article THIRD, except
that holders of those shares as to which dissenters' rights shall have been
asserted and perfected pursuant to Texas law shall not be converted into shares
of Citizens' Common Stock, but shall represent only such rights as are perfected
under the Texas Business Corporation Act. Upon such presentation, surrender and
exchange as provided in this Article THIRD, certificates representing shares of
Common Stock previously held shall be canceled. Until so presented and
surrendered, each certificate or certificates which represented issued and
outstanding shares of Common Stock at the Effective Date shall be deemed for all
purposes to evidence the right to receive the consideration set forth in this
Article THIRD. If the certificate or certificates representing shares of Common
Stock have been lost, stolen, mutilated or destroyed, the exchange agent of
Citizens

                                   10.01.1-17
<PAGE>

shall require the submission of an indemnity agreement and may require the
submission of a bond in lieu of such certificate.

C. The stock transfer books of Combined shall be closed on the Effective Date,
and thereafter no transfers of the Combined Common Stock will be made.

D. No fractional shares of Citizens' Class A Common Stock will be issued as a
result of the Exchange. In the event the exchange of shares results in any
shareholder being entitled to a fraction less than whole share of Citizens'
Class A Common Stock, such fraction will be rounded up to the nearest whole
share.

         FOURTH: A Plan and Agreement of Exchange between Citizens and Combined
has been approved by the boards of directors of Citizens and Combined and the
requisite vote of shareholders of Combined. Approval by shareholders of Citizens
is not required.

         FIFTH: The Board of Directors of Combined by [minutes at the
__________, 2001 meeting or by unanimous written action signed by all of the
directors] duly authorized and adopted a resolution declaring that the Plan and
Agreement of Exchange as herein set forth and the performance of its terms is
duly authorized and advisable and directing that these Articles of Exchange be
submitted for action thereon by the shareholders of Combined, all in the manner
and by the vote required by the Texas Business Corporation Act and the Articles
of Incorporation of Combined.

         SIXTH: At a meeting of common shareholders of Combined held on
________, 2001, _______ shares were outstanding and entitled to vote on the
matters set forth in these Articles of Exchange. ________ shares voted in favor
of the Plan and Agreement of Exchange and ______ shares voted against the Plan
and Agreement of Exchange; ________ shares abstained. The number of shares
voting on the Plan and Agreement of Exchange was sufficient for approval by the
common shareholders.

         SEVENTH: The Board of Directors of Citizens by [minutes at the
________, 2001 meeting or by unanimous written action signed by all of the
directors] duly authorized and adopted a resolution declaring that the Plan and
Agreement of Exchange as herein set forth and the performance of its terms is
duly authorized and advisable, all in the manner and by the vote required by the
Colorado Business Corporation Act and the Articles of Incorporation of Citizens.

         EIGHTH: An executed Plan and Agreement of Exchange is on file at the
principal place of business of Citizens located at 400 E. Anderson Lane, Austin,
Texas 78752.

         NINTH: A copy of the Plan and Agreement of Exchange will be furnished
by each surviving, acquiring or new domestic or foreign corporation or other
entity, on written request and without charge, to any shareholder of Combined.

                                   10.01.1-18
<PAGE>

         TENTH: The Exchange provided for by these Articles of Exchange shall
become effective at the time of filing the last document required by law (the
"Effective Date").

         ELEVENTH: The name and address of the Registered Agent and principal
office of the acquiring entity is:

Agent: CSC                             Principal Office:
1675 Broadway                                           ------------------------
Denver, Colorado 80202                 -----------------------------------------
                                       -----------------------------------------
                                       -----------------------------------------

         IN WITNESS WHEREOF, Citizens and Combined, parties to these Articles of
Exchange, have caused these Articles of Exchange to be signed and acknowledged
by their respective Presidents and attested by their respective Secretaries all
as of the ________ day of _________________, 2001.

ATTEST:                                COMBINED UNDERWRITERS LIFE
                                       INSURANCE COMPANY

                                       By:
-----------------------------             --------------------------------------
                                       Gary C. Cole, President

ATTEST:                                CITIZENS, INC.

                                       By:
-----------------------------             --------------------------------------
                                       Mark A. Oliver, President

                                   10.01.1-19
<PAGE>

                                    EXHIBIT B
                          COMBINED DISCLOSURE STATEMENT

         Pursuant to the provisions of Article III of the Plan and Agreement of
Exchange ("Agreement") by and between Combined and Citizens, Combined hereby
makes the following disclosures respecting the similarly numbered sections in
the Agreement:

         3.1 Combined is currently qualified and licensed to conduct its
         business and is in good standing in the following states except where
         otherwise indicated:

                           1.       Alabama (not currently marketing in this
                                    state due to legal climate)

                           2.       Arizona

                           3.       Arkansas

                           4.       Florida (not currently marketing in this
                                    state due to rate regulation environment)

                           5.       Louisiana

                           6.       Mississippi

                           7.       Missouri (see attached Order and Consent
                                    effective September 1, 1990)

                           8.       New Mexico

                           9.       Oklahoma

                           10.      Texas

                           11.      Virginia (see attached February 3, 1992
                                    Order Suspending License to transact the
                                    business of Insurance and January 17, 1992
                                    Order to Take Notice.)

         3.10     Pending Legal Proceedings

                  Civil Action no. 600cv442; Nathan L. Johnson et al v. East
                  Texas Medical Center Athens, et al v. Aetna Health and Life
                  Insurance Company, et al; In the United States District Court
                  for the Eastern District of Texas, Tyler Division.

                  Regulatory Inquiries

                  Combined has previously provided Citizens with a copy of its
                  June 14, 2001 response to the Texas Department of Insurance
                  Life Insurance Survey.

                                   10.01.1-20
<PAGE>

                                    EXHIBIT C
                          CITIZENS DISCLOSURE STATEMENT

         Pursuant to the provisions of Article IV of the Plan and Agreement of
Exchange ("Agreement") by and between Citizens and Combined, Citizens hereby
makes the following disclosures respecting the similarly numbered sections in
the Agreement:

         4.2 Citizens filed a Form S-3 ("Statement") Registration Statement
under the Securities Act of 1933 with the Securities and Exchange Commission
("SEC") which became effective on August 30, 2001. The Statement registers
2,000,000 shares of Citizens Class A Common Stock for sale to the public through
the Citizens, Inc. Stock Investment Plan ("the Plan"), the creation of which is
included in the Statement. Although the Statement by definition registers shares
for sale to the public, the activities of the Plan involve the acquisition of
Citizens Class A Common Stock through the public market, rather than directly
from the public. The Plan provides for the participation by owners of insurance
policies issued by the Citizens' subsidiaries, existing holders of Citizens
Class A Common Stock, employees of Citizens, Inc., members of the marketing
force of any of Citizens' subsidiaries, or any member of the public in general
who elects to participate. The Plan is sponsored by Citizens, Inc. and will be
administered by Mellon Bank.

         4.7 Delia Bolanos Andrade, Luis Martin Tapia Alberti, Sonio Lucia
Montoya Botero, Luisa F. Botero and Carlos A Botero, Roberto Carlos Paniagua
Cardona, Luis Rberto Paniagua Grisales, Blanca Numbia Cardona, and Fernando
Hakim Daccach v. Citizens Insurance Company of America, Citizens, Inc., Negocios
Savoy, S.A., Harold E. Riley, and Mark A. Oliver, Cause Number 99-09099 Travis
County, Texas. A lawsuit seeking class action status with Fernando Hakim as the
class representative and naming a class of all persons who made premium payments
who are not residents of the United States as potential members of the class.
The suit alleges that the policies are unregistered securities in violation of
the Texas Blue Sky laws. In addition, the other plaintiffs made individual
claims primarily under the Texas Deceptive Trade Practices Act. The DTPA claims
relate to limitations and exclusions stated in the policies, excessive surrender
charges stated in the policies, and the amount of premiums charged. The
individual claimants also claim breach of contract (failure to provide the
insurance as represented, not alleged but stated), fraud in the inducement,
negligent misrepresentation, breach of duty of good faith and fair dealing. The
plaintiffs have filed a motion for class certification. Defendants have filed an
answering motion denying that the case is properly certifiable. Additionally, a
motion for summary judgment has been filed by defendants on the issue of whether
insurance policies issued to members of the putative class are unregistered
securities in violation of the Texas Blue Sky laws. A hearing was held on
October 16, 2001, regarding defendants' motion for summary judgment. On October
29, 2001, a hearing on the Class Certification was held.

         Velma U Bayhi and David Bayhi v. Donald G. Welsh, Funeral Homes of
Louisiana, Inc. dba Baker Funeral Home, Citizens, Inc., Lumbermens Mutual
casualty Company and Kemper Insurance Companies, Cause number 468864 division M
in the 19th District Court, Parish of East Baton Rouge,

                                   10.01.1-21
<PAGE>

Louisiana. The funeral home is a subsidiary of Citizens Insurance Company of
America. Mrs. Bayhi is making a claim for injuries from a collision between a
hearse driven by Mr. Welsh and her stalled car. The hearse was insured with
Lumbermens through Kemper. Mr. Bayhi also claims that he suffered emotional
distress because he observed the crash. Kemper is defending Baker Funeral Home
in this matter.

         George M. Campbell v. American Liberty Life Insurance Company, Case
number 94-1625. Originally filed in the Parish of Ouachita, Louisiana in
1994--re-filed in 1998. Mr. Campbell had a hospitalization policy covering
cancer. He filed a claim for two hospital stays at a V. A. hospital, but did not
submit any bills from the hospital. The claim was denied because the policy
required that the hospital provide services "...for compensation from its
patients...." There was no activity in the case, until July, 2001, when
defendant received a Request for Production of a certified copy of Mr.
Campbell's policy.

         Juanita Hall v. Citizens Insurance Company of America and Rex Beverly,
Civil Action Number CV 99-190, Marengo County, Alabama. Mrs. Hall claims that
Rex Beverly and Assured Investors Life Insurance Company misrepresented the
death benefit payable upon her husband's death. Following defendant's motion for
summary judgment the court dismissed all tort claims and left open only a
contract claim that the amount of the death benefit paid was incorrect. A
rehearing was granted, however plaintiff's motion was denied.

         Velma Jenkins v. United Security Life Insurance Company, Jack Lane, and
fictitious defendants. Filed as Cause Number 2001-142 in the Circuit Court of
Noxubee County, Mississippi and removed to the United States District Court for
the Southern District of Mississippi Eastern Division as Civil Action Number
4:01-CV-156LN. Remanded to County Court and all claims above $75,000 have been
dismissed with prejudice. Plaintiff alleges that she intended to purchase a
supplement to her major medical insurance coverage, but was sold a
hospitalization policy. Plaintiff alleges that the agent and the insurance
company engaged in a pattern and practice of misrepresentation and fraud as to
the benefits and coverage on policies sold to consumers in the State of
Mississippi. Plaintiff made claims under her policy for medication and for out
patient treatments all of which were denied because the policy covered
hospitalization. Plaintiff filed Interrogatories and Requests for Production
with her original complaint. No hearings have been set.

         Mary Hart Whittington, Mayoda C. Parker, Sharon P. Browning, Patricia
M. Brown, Mary Catherine Rawles, and Barry Maricelli v. Citizens Insurance
Company of America f/k/a United Security Life Insurance Company, American
Investment Network f/k/a Great American Investment Network, Larry T. Reynolds,
Virgil Styles, and Jesse L. Byrd. Cause number 251-01-713CIV, filed in the
Circuit Court of the First Judicial District of Hinds County, Mississippi.
Plaintiffs allege that the whole-life nature of the insurance policies was
misrepresented to them as an investment because the policies would pay
dividends. The plaintiff's allege fraud, negligent misrepresentation,
negligence, civil conspiracy, breach of contract, conversion, and violation of
Mississippi Securities laws.

                                   10.01.1-22
<PAGE>

                                    EXHIBIT D
                            APPROVALS REQUIRED BY LAW

         1.       Texas Insurance Department

         2.       U.S. Securities and Exchange Commission (approval not
                  required; however, must declare Registration Statement
                  Effective)

         3.       Colorado Division of Insurance (approval not required;
                  however, notice required pursuant to Form B)

                                   10.01.1-23
<PAGE>

                                    EXHIBIT E

                               _____________, 2001

Citizens, Inc.
Citizens Insurance Company of America
400 East Anderson Lane
Austin, Texas 78752

         Re:      Plan and Agreement of Exchange between Citizens, Inc. and
                  Combined Underwriters Life Insurance Company

Ladies and Gentlemen:

         We have acted as counsel to Combined Underwriters Life Insurance
Company ("Combined") in connection with the above referenced agreement. This
letter is provided to you pursuant to Paragraph 7.6(3) of the Plan and Agreement
of Exchange, dated as of ____________________, 2001 (the "Agreement"), between
Citizens, Inc. ("Citizens") and Combined. Except as otherwise indicated herein,
capitalized terms used in this letter are defined as set forth in the Agreement
or the Accord (see below).

         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.

         Our opinions are limited in all respects to the substantive law of the
State of Texas, and the federal law of the United States, and we assume no
responsibility as to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction.

         We have relied upon factual representations made by Combined in Article
III of the Agreement and we have reviewed such documents and given consideration
to such matters of law and fact as we have deemed appropriate to render this
opinion. We have been furnished with, and examined originals or copies,
certified or otherwise identified to our satisfaction, of all such records of
Combined, agreements and other instruments, certificates of officers and
representatives of Combined, certificates of public officials, and other
documents, as we have deemed necessary or desirable as a basis for the opinions
hereinafter expressed. As to questions of fact material to such opinions, we
have, where relevant facts were not independently verified or established,
relied upon certificates of officers of Combined.

                                   10.01.1-24
<PAGE>

         Based upon and subject to the foregoing and the other qualifications
and limitations stated in this letter, we are of the opinion that:

         1. To our knowledge, execution, delivery and performance of the
Agreement by Combined shall not result in a breach of, or constitute a default
(or an event which, with or without notice or lapse of time or both, would
constitute a default) under any contract, commitment, agreement, indenture,
mortgage, pledge agreement, note, bond, license, or other instrument or
obligation to which Combined is a party or by which Combined is bound or the
charter or bylaws of Combined or other governing instruments of Combined.

         2. The Agreement has been duly authorized, executed and delivered by
Combined and is a legal, valid and binding obligation of Combined enforceable
against Combined in accordance with its terms (subject to the applicability of
equitable principles or the effect of bankruptcy or creditors' rights laws on
the enforceability of the Agreement);

         3. Combined is a Texas insurance corporation validly existing and in
good standing under the laws of the State of Texas;

         4. Combined has full corporate power and authority to enter into the
Agreement and to carry out the transactions contemplated by the Agreement;

         5. To our knowledge, there are no civil or criminal actions, suits,
arbitrations, administrative or other proceedings or governmental investigations
pending or threatened against Combined which will constitute a breach of the
representations, warranties or covenants under the Agreement or will prevent
Combined from consummating the transactions contemplated by the Agreement;

         6. The authorized and, to our knowledge, outstanding capital stock of
Combined is as stated in Section 3.3 of the Agreement.

         7. To our knowledge, except as set forth in the Agreement or Combined
Disclosure Statement, there are no outstanding subscriptions, options, warrants,
rights, convertible securities, calls, commitments, privileges or other
arrangements, preemptive or contractual, calling for or requiring the
acquisition of, or the issuance, transfer, sale or other disposition of any
shares of the capital stock of Combined, or calling for or requiring the
issuance of any securities or rights convertible into or exchangeable for shares
of capital stock of Combined; and

         8. The execution, delivery, and performance of the Agreement, and the
performance by Combined of its obligations thereunder, are not in contravention
of any law, ordinance, rule or regulation of Texas or of the United States and
will not contravene any order, writ, judgment, injunction, decree,
determination, or award of any court or other authority having jurisdiction, and
will not cause the suspension or revocation of any authorization, consent,
approval, or license presently in effect, which affects or binds Combined or any
of its material properties, and will not

                                   10.01.1-25
<PAGE>

have a material adverse effect on the validity of the Agreement or on the
validity of the consummation of the transactions contemplated by the Agreement
or constitute grounds for the loss or suspension of any permits, licenses, or
other authorizations used in the business of Combined.

         This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated. This opinion is
rendered pursuant to Section 7.6(3) of the Agreement and, to the extent, if any,
that the law of the State of Texas permits you to rely upon it, it is to be
limited in its use to reliance by you in consummating the transactions described
herein and no other person or entity may rely or claim reliance upon this
opinion.

         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 opinions set forth herein.

         The use of the words "to our knowledge" means that during the course of
our current and past representation of Combined no information has come to the
attention of the attorneys involved in the transaction described herein that
could give any such attorney actual knowledge of the existence of the documents
or facts so qualified. Except as set forth herein, this Firm has not undertaken
any investigation to determine the existence of such documents or facts, and no
inference as to our knowledge thereof shall be drawn from the fact of our
representation of any party or otherwise.

                                       Very truly yours,

                                       Sneed Vine & Perry P.C.

                                   10.01.1-26
<PAGE>

                                    EXHIBIT F

                               AFFILIATE AGREEMENT

Citizens, Inc.
400 East Anderson Lane
Austin, Texas 78752

Ladies and Gentlemen:

         I have been advised that I have been identified as a possible
"affiliate" of Combined Underwriters Life Insurance Company, a Texas corporation
(the "Company"), as that term is defined for purposes of paragraphs (c) and (d)
of Rule 145 of the General Rules and Regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933 (the "Securities Act"), although nothing contained herein
should be construed as an admission of such fact.

         Pursuant to the terms of that certain Plan and Agreement of Exchange,
dated as of _______________, 2001 (the "Exchange Agreement"), between the
Company and Citizens, Inc., a Colorado corporation ("Citizens"), Citizens shall
acquire all of the issued and outstanding $1.00 par value common stock of the
Company ("Company Stock") for shares of no par value Class A Common Stock of
Citizens ("Citizens Stock") pursuant to a share exchange (the "Exchange"). As a
result of the Exchange, I will receive shares of Citizens Stock in exchange for
shares of Company Stock owned by me on the Effective Date (as defined in the
Exchange Agreement) of the Exchange as determined pursuant to the Exchange
Agreement.

         A. In connection therewith, I represent, warrant and agree that:

                  1. I will not make any sale, transfer or other disposition of
Citizens Stock I receive as a result of the Exchange in violation of the
Securities Act or the Rules and Regulations.

                  2. I have been advised that the issuance of Citizens Stock to
me as a result of the Exchange has been registered with the Commission under the
Securities Act on a Registration Statement on Form S-4. However, I have also
been advised that, because at the time the Exchange was submitted for a vote of
the stockholders of the Company I may have been an "affiliate" of the Company,
and the distribution by me of the shares of Citizens Stock I receive as a result
of the Exchange has not been registered under the Securities Act, such shares
must be held by me indefinitely unless (i) such distribution of such shares has
been registered under the Securities Act, (ii) a sale of such shares is made in
conformity with the provisions of Rule 145 promulgated by the Commission under
the Securities Act or (iii) such sale is pursuant to a transaction which, in the

                                   10.01.1-27
<PAGE>

opinion of counsel reasonably satisfactory to Citizens or as described in a
"no-action" or interpretive letter from the staff of the Commission, is not
required to be registered under the Securities Act.

                  3. I have carefully read this letter and the Exchange
Agreement and have discussed the requirements of the Exchange Agreement and
other limitations upon the sale, transfer or other disposition of the shares of
Citizens Stock to be received by me, to the extent I have felt necessary, with
my counsel or with counsel for the Company.

         B. Furthermore, in connection with the matters set forth herein, I
understand and agree that:

                  1. Citizens is under no further obligation to register the
sale, transfer or other disposition of the shares of Citizens Stock received by
me as a result of the Exchange or to take any other action necessary in order to
make compliance with an exemption from registration available, except as set
forth in paragraph C below.

                  2. Stop transfer instructions will be given to the transfer
agent of Citizens with respect to the shares of Citizens Stock I will receive as
a result of the Exchange, and there will be placed on the certificates
representing such shares, or any certificates delivered in substitution
therefor, a legend stating in substance:

         The shares represented by this certificate were issued in a transaction
         to which Rule 145 under the Securities Act of 1933 applies. The shares
         represented by this certificate may be transferred only in accordance
         with the terms of an agreement dated ______________, 2001 between the
         registered holder hereof and Citizens, Inc., a copy of which agreement
         is on file at the principal offices of Citizens, Inc.

                  3. Unless the transfer by me of my shares of Citizens Stock is
a sale made in conformity with the provisions of Rule 145 of the Rules and
Regulations or made pursuant to a registration under the Securities Act,
Citizens reserves the right to put on the certificates issued to my transferee a
legend stating in substance:

         The shares represented by this certificate have not been registered
         under the Securities Act of 1933 and were acquired by the holder not
         with a view to, or for resale in connection with, any distribution
         thereof within the meaning of the Securities Act of 1933 and may not be
         sold, pledged or otherwise transferred except pursuant to a
         registration statement or in accordance with an exemption from the
         registration requirements of the Securities Act of 1933.

         It is understood and agreed that the legends set forth above shall be
removed, and substitute certificates shall be delivered without any such legend,
and the transfer agent will be instructed to effectuate transfers of shares of
Citizens Stock if the undersigned delivers to Citizens a letter from

                                   10.01.1-28
<PAGE>

the staff of the Commission or an opinion of counsel in form and substance
reasonably satisfactory to Citizens to the effect that such legend is not
required for the purposes of the Securities Act.

         C. By Citizens's acceptance of this letter, Citizens hereby agrees with
me as follows:

                  1. For so long as and to the extent necessary to permit me to
sell the Citizens Stock pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Act, Citizens will: (a) use its reasonable efforts to (i) file, on
a timely basis, all reports and data required to be filed with the Commission by
it pursuant to Section 13 of the Securities Exchange of 1934, as amended (the
"1934 Act"), and (ii) furnish to me upon request a written statement as to
whether Citizens has complied with such reporting requirements during the 12
months preceding any proposed sale of the Citizens Stock by me under Rule 145;
and (b) otherwise use its reasonable efforts to permit such sales pursuant to
Rule 145 and Rule 144. Citizens hereby represents to me that it has filed all
reports required to be filed with the Commission under Section 13 of the 1934
Act during the preceding 12 months.

                  2. It is understood and agreed that certificates with the
legends set forth in paragraphs B.2. and B.3. above will be substituted by
delivery of certificates without such legend if (i) one year shall have elapsed
from the date the undersigned acquired the Citizens Stock received in the
Exchange and the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) two years shall have elapsed from the date the undersigned
acquired the Citizens Stock received in the Exchange and the provisions of Rule
145(d)(3) are then applicable to the undersigned, or (iii) Citizens has received
either an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Citizens, or a "no action" letter obtained by the undersigned
from the staff of the Commission, to the effect that the restrictions imposed by
Rule 145 under the Act no longer apply to the undersigned.

                                       Very truly yours,

Date:                                  [Name of Affiliate]
     ------------------------

ACCEPTED:

CITIZENS, INC.

By:
   --------------------------
   Mark A. Oliver, President

Date:
     ------------------------

                                   10.01.1-29
<PAGE>

                                    EXHIBIT G

                               _____________, 2001

Combined Underwriters Life Insurance Company
307 N. Glenwood
Tyler, Texas 75702

         Re:      Plan and Agreement of Exchange between Citizens, Inc. and
                  Combined Underwriters Life Insurance Company

Ladies and Gentlemen:

         We have acted as counsel to Citizens, Inc. ("Citizens") in connection
with the above referenced agreement. This letter is provided to you pursuant to
Paragraph 7.7(2) of the Plan and Agreement of Exchange, dated as of
____________________, 2001 (the "Agreement") between Citizens, Inc. ("Citizens")
and Combined Underwriters Life Insurance Company ("Combined"). Except as
otherwise indicated herein, capitalized terms used in this letter are defined as
set forth in the Agreement or the Accord (see below).

         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.

         In giving the opinion expressed below, insofar as such opinion relates
to other than Federal law or the laws of jurisdiction other than the State of
Colorado, we advise that our opinion is with respect to Federal law and the laws
of the State of Colorado only and that, to the extent such opinion is derived
from laws of other jurisdictions, the statements are based on examinations of
relevant authorities and are believed to be correct, but we have obtained no
legal opinions as to such matters from attorneys licensed to practice in such
other jurisdictions. Accordingly, the law covered by the opinion expressed
herein is limited to the Federal law of the United States and the law of the
State of Colorado.

         We have relied upon factual representations made by Citizens in Article
IV of the Agreement and we have reviewed such documents and given consideration
to such matters of law and fact as we have deemed appropriate to render this
opinion. We have been furnished with, and examined originals or copies,
certified or otherwise identified to our satisfaction, of all such records of

                                   10.01.1-30
<PAGE>

Citizens, agreements and other instruments, certificates of officers and
representatives of Citizens, certificates of public officials, and other
documents, as we have deemed necessary or desirable as a basis for the opinions
hereinafter expressed. As to questions of fact material to such opinions, we
have, where relevant facts were not independently verified or established,
relied upon certificates of officers of Citizens.

         Based upon and subject to the foregoing and the other qualifications
and limitations stated in this letter, we are of the opinion that:

         1. To our knowledge, execution, delivery and performance of the
Agreement by Citizens shall not result in a breach of, or constitute a default
(or an event which, with or without notice or lapse of time or both, would
constitute a default) under any contract, commitment, agreement, indenture,
mortgage, pledge agreement, note, bond, license, or other instrument or
obligation to which Citizens is a party or by which Citizens is bound or the
charter or bylaws of Citizens or other governing instruments of Citizens.

         2. The Agreement has been duly authorized, executed and delivered by
Citizens and is a legal, valid and binding obligation of Citizens enforceable
against Citizens in accordance with its terms (subject to the applicability of
equitable principles or the effect of bankruptcy or creditors' rights laws on
the enforceability of the Agreement);

         3. Citizens is a Colorado corporation validly existing and in good
standing under the laws of the State of Colorado;

         4. Citizens has full corporate power and authority to enter into the
Agreement and to carry out the transactions contemplated by the Agreement;

         5. To our knowledge, there are no civil or criminal actions, suits,
arbitrations, administrative or other proceedings or governmental investigations
pending or threatened against Citizens which will constitute a breach of the
representations, warranties or covenants under the Agreement or will prevent
Citizens from consummating the transactions contemplated by the Agreement;

         6. The authorized and, to our knowledge, outstanding capital stock of
Citizens is as stated in Section 4.2 of the Agreement;

         7. To our knowledge, except as set forth in the Agreement or Citizens'
Disclosure Statement, there are no outstanding subscriptions, options, warrants,
rights, convertible securities, calls, commitments, privileges or other
arrangements, preemptive or contractual, calling for or requiring the
acquisition of, or the issuance, transfer, sale or other disposition of any
shares of the capital stock of Citizens, or calling for or requiring the
issuance of any securities or rights convertible into or exchangeable for shares
of capital stock of Citizens; and

                                   10.01.1-31
<PAGE>

         8. The execution, delivery, and performance of the Agreement, and the
performance by Citizens of its obligations thereunder, are not in contravention
of any law, ordinance, rule or regulation of Colorado or of the United States
and will not contravene any order, writ, judgment, injunction, decree,
determination, or award of any court or other authority having jurisdiction, and
will not cause the suspension or revocation of any authorization, consent,
approval, or license presently in effect, which affects or binds Citizens or any
of its subsidiaries or any of their material properties, and will not have a
material adverse effect on the validity of the Agreement or on the validity of
the consummation of the transactions contemplated by the Agreement or constitute
grounds for the loss or suspension of any permits, licenses, or other
authorizations used in the business of Citizens.

         This opinion is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated. This opinion is
rendered pursuant to Section 7.7(2) of the Agreement and, to the extent, if any,
that the law of the State of Colorado permits you to rely upon it, it is to be
limited in its use to reliance by you in consummating the transactions described
herein and no other person or entity may rely or claim reliance upon this
opinion.

         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 opinions set forth herein.

         The use of the words "to our knowledge" means that during the course of
our current and past representation of Citizens and our past representation of
Citizens no information has come to the attention of the attorneys involved in
the transaction described herein that could give any such attorney actual
knowledge of the existence of the documents or facts so qualified. Except as set
forth herein, this Firm has not undertaken any investigation to determine the
existence of such documents or facts, and no inference as to our knowledge
thereof shall be drawn from the fact of our representation of any party or
otherwise.

                                       Very truly yours,

                                       Jones & Keller, P.C.

                                   10.01.1-32
<PAGE>

                                    EXHIBIT H

                              November_______, 2001

Combined Underwriters Life Insurance Company
307 N. Glenwood
Tyler, Texas 75702

Ladies and Gentlemen:

         Our opinions as expressed below are based solely upon: (1) the
information contained in the Proxy-Information Statement dated
_______________________ (hereafter "Proxy Statement") as filed with the
Securities and Exchange Commission; (2) the Plan and Agreement of Exchange ("the
Plan") dated __________________ between Citizens, Inc. ("Citizens") and Combined
Underwriters Life Insurance Company ("Combined"), together with Exhibits
thereto; (3) the Lease Extension Agreement dated __________ between Combined and
Little, Rooney & Little Associates; (4) the Marketing Development Agreement
dated __________ 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.

         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

                                      H-1
<PAGE>

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;

                  (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;

                                      H-2
<PAGE>

                  (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;

                  (15) that no Combined Common Stock will be acquired for
         consideration other than solely Citizens Class A Common Stock. For
         purposes of this representation, Combined Common Stock redeemed for
         cash or other property furnished by Citizens will be considered as
         acquired by Citizens. 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;

                                      H-3
<PAGE>

                  (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

                  (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.

                                      H-4
<PAGE>

         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 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

                                      H-5
<PAGE>

         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.

         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.

                                      H-6
<PAGE>

         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,

                                       JONES & KELLER, P.C.

                                      H-7

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