Registration Rights Agreement

EXHIBIT 10.12(b)


OBLIGATIONS OF THE COMPANY TO PAY CASH TO THE PURCHASERS IN THIS REGISTRATION RIGHTS AGREEMENT ARE SUBORDINATE IN RIGHT OF PAYMENT TO THE EXISTING CREDIT FACILITY (AS THAT TERM IS DEFINED IN THE STOCK PURCHASE AGREEMENT DATED JULY 12, 2004) AS PROVIDED IN THE SUBORDINATION AGREEMENT DATED JULY 12, 2004 BY AND AMONG THE COMPANY, THE PURCHASERS AND REGIONS BANK.


REGISTRATION RIGHTS AGREEMENT


This Registration Rights Agreement (this "AGREEMENT") is made and entered into as of July 12, 2004, among Citizens, Inc., a Colorado corporation (the "COMPANY"), and the investors signatory hereto (each such investor is a "PURCHASER" and all such investors are, collectively, the "PURCHASERS").


WHEREAS, the parties have agreed to enter into this Agreement in connection with, and as a condition to the Closing under, the Securities Purchase Agreement, dated as of the date hereof, among the Company and the Purchasers (the "PURCHASE AGREEMENT");


NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows:


1. Definitions. In addition to the terms defined elsewhere in this Agreement, (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, and (b) the following terms have the meanings indicated:


"FILING DATE" means, with respect to the initial Registration
Statement required to be filed pursuant to Section 2, _________ __,
2004(1), and, with respect to any additional Registration Statements
that may be required pursuant to Section 3(c), the 30th day following
the date on which the Company first knows, or reasonably should have
known, that such additional Registration Statement is required under
such Section.


"HOLDER" means any holder, from time to time, of Registrable
Securities.


"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.


"PURCHASER COUNSEL" means each counsel designated by each
Holder. Mainfield Enterprises, Inc. has initially designated Proskauer
Rose LLP as its Purchaser Counsel.


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(1) 30 days following closing.


"REGISTRABLE SECURITIES" means any Common Stock (including
Underlying Shares) issued or issuable pursuant to the Transaction
Documents, together with any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or
similar event with respect to the foregoing.


"REGISTRATION STATEMENT" means the initial registration
statement required to be filed hereunder and any additional
registration statements contemplated by Section 3(c), including (in
each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by
reference or deemed to be incorporated by reference in such
registration statement.


"REQUIRED EFFECTIVENESS DATE" means, with respect to the
initial Registration Statement required to be filed hereunder, ________
__, 2004(2) (or, if the Commission conducts a review of the
Registration Statement, _________ __. 2004(3)), and, with respect to
any additional Registration Statements that may be required pursuant to
Section 3(c), the 60th day following the date on which the Company
first knows, or reasonably should have known, that such additional
Registration Statement is required under such Section.


"RULE 415," "RULE 424" and "RULE 461" means Rule 415, Rule 424
and Rule 461, respectively, promulgated by the Commission pursuant to
the Securities Act, as such Rules may be amended from time to time, or
any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.


2. Shelf Registration


(a) As promptly as possible, and in any event on or prior to each Filing Date, the Company shall prepare and file with the Commission a "Shelf" Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith as the Holders may consent) and shall contain (except if otherwise directed by the Holders) the "Plan of Distribution" attached hereto as Annex A. The Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the Required Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the earlier of (i) the fifth anniversary of the Effective Date and (ii) when all Registrable Securities covered by such Registration Statement have been sold (the "EFFECTIVENESS Period"). The Company shall notify each Holder in writing promptly (and in any event within one Trading Day) after receiving notification from the Commission that a Registration Statement has been declared effective.


(b) The initial Registration Statement to be filed hereunder shall cover the sale by the Holders of at least the Required Minimum number of shares of Common Stock.


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(2) 90 days following Closing.


(3) 120 days following Closing.


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(c) Upon the occurrence of any Event (as defined below) and on every monthly anniversary thereof until the applicable Event is cured, as partial relief for the damages suffered therefrom by the Holders (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to (i) for the first month such Event remains uncured, 1.0% of the aggregate purchase price paid under the Purchase Agreement for the Securities held by such Holder, (ii) for the second month such Event remains uncured, 1.5% of the aggregate purchase price paid under the Purchase Agreement for the Securities held by such Holder and (iii) for each month thereafter that such Event remains uncured, 2.0% of the aggregate purchase price paid under the Purchase Agreement for the Securities held by such Holder. The liquidated damages payable pursuant to the terms hereof shall apply on a pro-rata basis for any portion of a month prior to the cure of an Event. For such purposes, each of the following shall constitute an "EVENT":


(i) a Registration Statement is not filed on or prior
to the applicable Filing Date or is not declared effective on
or prior to the applicable Required Effectiveness Date;


(ii) after the Effective Date for a Registration
Statement, a Holder is not permitted to sell Registrable
Securities under such Registration Statement (or a subsequent
Registration Statement filed in replacement thereof) for any
reason for five or more consecutive Trading Days;


(iii) the Common Stock is not listed or quoted, or is
suspended from trading, on an Eligible Market for a period of
three Trading Days (which need not be consecutive Trading
Days);


(iv) the Company fails for any reason to deliver a
certificate evidencing any Securities to a Holder within three
Trading Days after delivery of such certificate is required
pursuant to any Transaction Document or the exercise or
conversion rights of the Holders pursuant to the Transaction
Documents are otherwise suspended for any reason; or


(v) the Company fails to have available a sufficient
number of authorized but unissued and otherwise unreserved
shares of Common Stock available to issue Underlying Shares
upon any exercise of the Warrants or any conversion of
convertible Securities.


(d) At the election of any Holder, any amount required to be paid by the Company to such Holder pursuant to Section 2(c) may instead be added to the Stated Value of the outstanding Preferred Stock then owned by such Holder. A Holder may make such election by delivering written notice to the Company at any time before such cash payment is received by such Holder.


(e) The Company shall prepare and file the Registration Statement with the Commission, prior to preparing or filing with the Commission any other registration statement


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relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities.


(f) If (i) any Event (other than an Event relating to the effectiveness of the Registration Statement or an Event described in Section 2(C)(iv) above) occurs and remains uncured for 90 days, (ii) any Event relating to the effectiveness of the Registration Statement occurs and remains uncured for 180 days; (iii) any Event described in Section 2(C)(iv) above occurs and remains uncured for 60 days; (iv) the Company fails to make any cash payment required under the Transaction Documents and such failure is not cured within five days after notice of such default is first given to the Company by a Holder; or (v) the Company defaults in the timely performance of any other obligation under the Transaction Documents and such default continues uncured for a period of 30 days after the date on which notice of such default is first given to the Company by a Holder (it being understood that no prior notice need be given in the case of a default that cannot reasonably be cured within 30 days), then at any time or times thereafter any Holder may deliver to the Company a notice (a "REPURCHASE NOTICE") requiring the Company to repurchase all or any portion of the shares of Series A Preferred Stock and any Underlying Shares then held by such Holder at a price per share equal to (i) with respect to all shares of Series A Preferred Stock held by such Holder the greater of (A) 115% of the Stated Value plus all accrued but unpaid dividends thereon through the date of payment, or (B) the product of (x) the Event Equity Value and (y) the Underlying Shares then issuable upon conversion of such Series A Preferred Stock (including such accrued but unpaid dividends thereon) (without regard to any limitation on conversion or issuance of such shares), and (ii) with respect to any Underlying Shares issued to such Holder and then owned by such Holder, at a price per share equal to the Event Equity Value of such Underlying Shares. If a Holder delivers a Repurchase Notice pursuant to this Section, the Company shall pay the aggregate repurchase price (together with any other payments, expenses and liquidated damages then due and payable pursuant to the Transaction Documents, but net of any liquidated damages previously paid to such Holder) to such Holder no later than the fifth Trading Day following the date of delivery of the Repurchase Notice, and upon receipt thereof such Holder shall deliver certificates evidencing the Securities so repurchased to the Company (to the extent such certificates have been delivered to such Holder). Notwithstanding the foregoing, immediately upon the occurrence of a Bankruptcy Event, each Holder will automatically be deemed to have delivered a Repurchase Notice pursuant to this Section and will be entitled to receive the corresponding repurchase price without any further action or notice to the Company.


3. Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall:


(a) Not less than three Trading Days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to the Holders and their respective Purchaser Counsel copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders and their respective Purchaser Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the


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Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities and their respective Purchaser Counsel shall reasonably object.


(b) Prepare and file with the Commission (i) such amendments, including post-effective amendments, to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any event within fifteen Trading Days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented.


(c) If, on any date, the number of shares of Common Stock previously registered under all existing Registration Statements is less than 115% of the Actual Minimum on such date, then the Company shall file an additional Registration Statement covering a number of shares of Common Stock at least equal to (i) the Required Minimum on such date, less (ii) the number of shares of Common Stock previously registered under all existing Registration Statements; provided that the Company will not be required at any time to register a number of shares of Common Stock greater than the maximum number of shares of Common Stock that could possibly be issued pursuant to the Transaction Documents.


(d) Notify the Holders of Registrable Securities to be sold and their respective Purchaser Counsel as promptly as reasonably possible, and (if requested by any such Person) confirm such notice in writing no later than two Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a "review" of any Registration Statement; (ii) the Commission comments in writing on any Registration Statement (in which case the Company shall deliver to each Holder a copy of such comments and of all written responses thereto); (iii) any Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to a Registration Statement or Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Registration Statement become ineligible for inclusion therein or any statement made in any Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Registration Statement, Prospectus


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or other document is required so that it will not contain any untrue statement of a material fact or omit to state any 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.


(e) Use its best efforts to avoid the issu ...