Document:

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                                                                 EXHIBIT 10.02.2

                         PLAN AND AGREEMENT OF EXCHANGE

                                 CITIZENS, INC.
                                       AND
                  LIFELINE UNDERWRITERS LIFE INSURANCE COMPANY

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

                                   WITNESSETH:

         WHEREAS, Lifeline is a stock 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 Lifeline 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 Lifeline 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 Lifeline 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.

                                   10.02.2-1

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         1.2 On the Effective Date, the separate corporate existence of Lifeline
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 Lifeline, 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 Lifeline 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 Lifeline 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 Lifeline shall receive a number
of shares of Citizens Class A Common Stock equal in market value ("Market
Value") to the Lifeline 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 Lifeline stock shall be $5.00
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 Lifeline, 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. Lifeline shall pay or otherwise
satisfy payment relating to shares as to which dissenters' rights have been
asserted and perfected

                                   10.02.2-2

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pursuant to Texas law solely out of its own funds; Citizens shall not contribute
or 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 Lifeline previously held shall
be canceled. Until so presented and surrendered, each certificate or
certificates which represented issued and outstanding shares of Lifeline 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 Lifeline 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 Lifeline shall be closed on the Closing
Date, and thereafter no transfers of the common stock of Lifeline 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 LIFELINE

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

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

         3.3 The aggregate number of shares which Lifeline is authorized to
issue is 700,000 shares of $1.00 par value common stock and 700,000 such shares
are issued and outstanding, fully paid and non-assessable. Lifeline 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.

                                   10.02.2-3

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         3.4 Lifeline 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 Lifeline will conflict with or result in a breach or violation of the
Articles of Incorporation or Bylaws of Lifeline or any contracts, agreements,
pledges, loans or any other obligations of Lifeline.

         3.6 Lifeline has delivered to Citizens its annual convention statement
for the year ended December 31, 2000. Also, Lifeline has delivered to Citizens
its quarterly financial statement for the quarter and six months ended June 30,
2001. All such statements, herein sometimes called "Lifeline Financial
Statements", present fairly, in all material respects, the admitted assets,
liabilities and surplus of Lifeline 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 Lifeline 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 Lifeline has delivered to Citizens a copy of each of the Federal
income tax returns of Lifeline for the years ended December 31, 1999 and
December 31, 2000. The provisions for taxes paid by Lifeline are believed by
Lifeline to be sufficient for payment of all accrued and unpaid Federal, state,
county and local taxes of Lifeline (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 Lifeline financial statements for the
payment of all taxes due to date by Lifeline, including accrued taxes for the
current year ended December 31, 2001. No Federal income tax return of Lifeline
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 Lifeline,
including any loss or damages to any of its assets, properties or rights as
shown on December 31, 2000 Lifeline statutory statement as filed with the Texas
Department of Insurance that would be material to Lifeline taken as a whole.

         3.10 Attached to Exhibit B is a listing of all pending legal
proceedings or known regulatory inquiries involving Lifeline and, except for
these proceedings, there are no legal proceedings or regulatory proceedings
involving claims pending, or to the knowledge of the officers of Lifeline,
threatened against Lifeline or affecting any of its assets, or properties.
Lifeline is not in any breach or violation of or default under any contract or
instrument to which Lifeline 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 or
violation of or default by Lifeline under any contract or other instrument to
which Lifeline is a party

                                   10.02.2-4
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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 Lifeline which breach or violation of or default could
have a material adverse effect on Lifeline.

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

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

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

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

         3.17 Lifeline has delivered, or will deliver to Citizens, any reports
relating to the financial and business condition of Lifeline 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 Lifeline in this Agreement, the
Lifeline 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.

                                   10.02.2-5
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                                   ARTICLE IV
              REPRESENTATIONS, WARRANTIES AND COVENANTS OF CITIZENS

         To the best of its knowledge and belief, Citizens hereby represents,
warrants and covenants to Lifeline 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 Lifeline its annual consolidated
financial statement for the year ended December 31, 2000. Also, Citizens has
delivered to Lifeline 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.

                                   10.02.2-6

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         4.7 Citizens has delivered to Lifeline 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 Lifeline 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 Lifeline 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 Lifeline and Little & Rooney 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.

                                   10.02.2-7

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                                    ARTICLE V
              OBLIGATIONS OF THE PARTIES PENDING THE EFFECTIVE DATE

         5.1 This Agreement shall be duly submitted to the shareholders of
Lifeline 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
Lifeline, such date to be the earliest practicable date after the proxy
statement may first be sent to Lifeline shareholders without objection by
applicable governmental authorities, provided that Lifeline will have at least
30 days to solicit proxies. Citizens will furnish to Lifeline 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
Lifeline 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. Lifeline represents
and warrants that at the time of the Lifeline shareholder meeting, the proxy
statement, insofar as it relates to Lifeline and contains information furnished
by Lifeline 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 Lifeline, subject to its fiduciary obligations to shareholders, shall use
reasonable efforts to obtain the requisite approval of Lifeline shareholders of
this Agreement and the transactions contemplated herein. Citizens and Lifeline
shall take all reasonable and necessary steps and actions to comply with and to
secure Lifeline'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) information in the public domain or generally
available to interested persons or which at a later date

                                   10.02.2-8

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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 Lifeline 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 Lifeline 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 Lifeline 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, Lifeline will mail a notice of special meeting to its
stockholders entitled to notice of and to vote at the Lifeline Stockholders'
Meeting.

         If at any time prior to the Effective Date any event or circumstance
relating to Lifeline or any of its Affiliates, or its or their respective
officers or directors should be discovered by Lifeline that should be set forth
in an amendment to the Registration Statement, Lifeline 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 Lifeline,
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 Lifeline. Citizens and Lifeline each
will advise the other, promptly after it receives notice thereof, of the time
when the Registration Statement has become effective or any

                                   10.02.2-9

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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 Lifeline 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 Lifeline duly and
properly called for such purpose in accordance with the applicable law.

                                   10.02.2-10

<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 Lifeline 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 Lifeline 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 Lifeline 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 Lifeline 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 Lifeline)
during or arising after the date of this Agreement.

         7.6 Lifeline shall have furnished Citizens with:

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

                  (2) a certified copy of a resolution or resolutions duly
adopted by the requisite number of shareholders of Lifeline 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
Lifeline. dated as of the Effective Date as set forth in Exhibit E attached
hereto; and

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

                                   10.02.2-11

<PAGE>
         7.7 Citizens shall furnish Lifeline 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 Lifeline 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 Combined Underwriters Life Insurance Company ("Combined") shall occur
simultaneously with the closing of the Exchange.

                                  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 Lifeline) prior to the Effective Date of such Exchange:

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

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

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

         (5)      By Citizens or Lifeline, if more than 2.5% of the shares of
                  Lifeline 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 Lifeline or
                  Combined or fails to approve both

                                   10.02.2-12

<PAGE>

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

                                   10.02.2-13

<PAGE>

         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 Lifeline and/or Citizens shall not be amended without approval of the
requisite shareholders of Lifeline.

         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 Lifeline:

Citizens, Inc.                      Lifeline 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 Lifeline. However, either Citizens or Lifeline 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.

                                   10.02.2-14

<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]

                                   10.02.2-15

<PAGE>

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

                                       LIFELINE UNDERWRITERS LIFE INSURANCE
                                            COMPANY

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

                                       CITIZENS, INC.

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

                                   10.02.2-16

<PAGE>

                                    EXHIBIT A
                              ARTICLES OF EXCHANGE

                                 CITIZENS, INC.
                                       AND
                  LIFELINE UNDERWRITERS LIFE INSURANCE COMPANY

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

         THIS IS TO CERTIFY:

         FIRST: The parties which are parties to these Articles of Exchange are
Lifeline 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 Lifeline (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: Lifeline 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 Lifeline 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

                                   10.02.2-17

<PAGE>

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 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 Lifeline shall be closed on the
Effective Date, and thereafter no transfers of the Lifeline 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 Lifeline
has been approved by the boards of directors of Citizens and Lifeline and the
requisite vote of shareholders of Lifeline. Approval by shareholders of Citizens
is not required.

         FIFTH: The Board of Directors of Lifeline 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 Lifeline, all in the manner
and by the vote required by the Texas Business Corporation Act and the Articles
of Incorporation of Lifeline.

         SIXTH: At a meeting of common shareholders of Lifeline 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 Lifeline.

                                   10.02.2-18

<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:                                 Principal Office:
      -----------------------                           ------------
-----------------------------          -----------------------------
-----------------------------          -----------------------------
-----------------------------          -----------------------------

         IN WITNESS WHEREOF, Citizens and Lifeline, parties to these Articles of
Exchange, have caused these Articles of Exchange to be signed and acknowledged
by its Chairman and attested by the Secretary all as of the ________ day of
_________________, 2001.

ATTEST:                                LIFELINE UNDERWRITERS LIFE
                                       INSURANCE COMPANY

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

ATTEST:                                CITIZENS, INC.

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

                                   10.02.2-19

<PAGE>

                                    EXHIBIT B
                          LIFELINE DISCLOSURE STATEMENT

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

                       (No Additional Disclosure Required)

                                   10.02.2-20

<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 Lifeline, 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.

                                   10.02.2-21

<PAGE>

         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, 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.

                                   10.02.2-22

<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)

                                   10.02.2-23

<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
                  Lifeline Underwriters Life Insurance Company

Ladies and Gentlemen:

         We have acted as counsel to Lifeline Underwriters Life Insurance
Company ("Lifeline") 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 Lifeline. 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 Lifeline 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
Lifeline, agreements and other instruments, certificates of officers and
representatives of Lifeline, 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 Lifeline.

                                   10.02.2-24

<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 Lifeline 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 Lifeline is a party or by which Lifeline is bound or the
charter or bylaws of Lifeline or other governing instruments of Lifeline.

         2. The Agreement has been duly authorized, executed and delivered by
Lifeline and is a legal, valid and binding obligation of Lifeline enforceable
against Lifeline 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. Lifeline is a Texas insurance corporation validly existing and in
good standing under the laws of the State of Texas;

         4. Lifeline 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 Lifeline which will constitute a breach of the
representations, warranties or covenants under the Agreement or will prevent
Lifeline from consummating the transactions contemplated by the Agreement;

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

         7. To our knowledge, except as set forth in the Agreement or Lifeline
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 Lifeline, or calling for or requiring the
issuance of any securities or rights convertible into or exchangeable for shares
of capital stock of Lifeline; and

         8. The execution, delivery, and performance of the Agreement, and the
performance by Lifeline 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

                                   10.02.2-25

<PAGE>

presently in effect, which affects or binds Lifeline or any of its 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
Lifeline.

         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 Lifeline 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.

                                   10.02.2-26

<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 Lifeline 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

                                   10.02.2-27

<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

                                   10.02.2-28
<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:
     ------------------------

                                   10.02.2-29

<PAGE>

                                    EXHIBIT G

                               _____________, 2001

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

         Re:      Plan and Agreement of Exchange between Citizens, Inc. and
                  Lifeline 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 Lifeline Underwriters Life Insurance Company ("Lifeline"). 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

                                   10.02.2-30

<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

                                   10.02.2-31

<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.

                                   10.02.2-32

<PAGE>

                                    EXHIBIT H

                               _____________, 2001

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

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

Ladies and Gentlemen:

         Our opinions as expressed below are based solely upon: (1) the
information contained in the Proxy-Information Statement dated
_______________________ (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
LifelineUnderwriters Life Insurance Company ("Lifeline"), together with Exhibits
thereto; (3) the Marketing Development Agreement dated __________ between
Lifeline, Combined Underwriters Life Insurance Company and the Red Little
Combined Agency, Inc. (the "Agency"); (4) relevant information provided by the
principals; (5) the Internal Revenue Code of 1986, as amended (hereinafter
"IRC"), the regulations promulgated thereunder and the current administrative
positions of the Internal Revenue Service ("IRS") contained in published Revenue
Rulings and Revenue Procedures; and (7) existing judicial decisions. All of the
above are subject to change or modification by subsequent legislative,
regulatory, administrative or judicial decisions which could adversely affect
our opinions.

         This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.

         "Exchange" refers to the transaction set forth in the Plan. Capitalized
terms herein have the same meaning as in the Plan.

         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

                                   10.02.2-33

<PAGE>

Code or in a receivership, foreclosure, or similar proceeding, to shareholders
that are real estate investment trusts, to shareholders that are regulated
investment companies, to shareholders that are tax exempt persons, to
shareholders that are persons that hold their Lifeline Common Stock as part of a
position in a "straddle" or as part of a "hedging" or other integrated
transaction, to shareholders that are investment companies within the meaning of
IRC Section 351(e), to shareholders who are dealers in securities, to
shareholders who do not hold their common stock as capital assets, to
shareholders who are financial institutions, or to shareholders who acquired or
will acquire their shares in connection with stock option or stock purchase
plans or in other compensatory transactions.

         The principal reasons for the Exchange can be summarized as follows:

                           (1) to become part of a combined entity with greater
                  financial strength and an enhanced competitive position as
                  compared to the separate entities;

                           (2) to achieve improved capitalization and economies
                  of scale; and

                           (3) to provide greater liquidity and diversity to
                  Lifeline shareholders.

         This letter is conditioned on the accuracy of the factual information,
assumptions and representations contained in the Proxy Statement and provided by
Citizens and Lifeline, including the principal reasons for the Exchange
expressed above and the following:

                           (1) that Citizens and Lifeline, in arriving at the
                  method used to determine the number of shares of Citizens
                  Class A Common Stock to be received by each Lifeline
                  shareholder, attempted in good faith to value the Lifeline
                  Common Stock to be transferred and to value the Citizens Class
                  A Common Stock to be Exchanged for such Lifeline Common Stock
                  in an effort to ensure that each shareholder receiving
                  Citizens Class A Common Stock pursuant to the Exchange
                  received a number of shares of such stock approximately equal
                  in value to the Lifeline Common Stock exchanged therefor;

                           (2) that Lifeline has no plan or intention to issue
                  additional shares of its stock that would result in Citizens
                  losing control of Lifeline within the meaning of Section
                  368(c) of the IRC;

                           (3) that none of Citizens, Lifeline, any entity
                  related thereto, or shareholder thereof, have any plan or
                  intention to redeem or otherwise reacquire any Citizens Class
                  A Common Stock to be issued to Lifeline shareholders in the
                  Exchange, and will not so redeem or otherwise reacquire such
                  stock;

                           (4) that Citizens has no plan or intention to
                  liquidate Lifeline; to merge Lifeline with or into another
                  corporation; to cause Lifeline to sell or otherwise dispose of
                  any of its assets, except for dispositions made in the
                  ordinary course of

                                   10.02.2-34

<PAGE>

                  business; or to sell or otherwise dispose of the stock of
                  Lifeline except for transfers described in Section
                  368(a)(2)(C) of the IRC;

                           (5) that following the Exchange, Citizens will
                  continue the historic business of Lifeline or use a
                  significant portion of its historic business assets in a
                  business;

                           (6) that Citizens and Lifeline will assume and pay
                  their respective reorganization expenses, if any, incurred in
                  connection with the Plan and Exchange;

                           (7) that there is no corporate indebtedness between
                  Citizens or Lifeline that was issued, acquired or will be
                  settled at a discount;

                           (8) that in the Exchange, shares of Lifeline Common
                  Stock will be exchanged solely for Citizens Class A voting
                  Common Stock, with Citizens thereby obtaining control of
                  Lifeline as defined in Section 368(c) of the IRC;

                           (9) that on the Effective Date of the Exchange,
                  Lifeline will not have outstanding any warrants, options,
                  convertible securities or any other type of right pursuant to
                  which any person could acquire stock in Lifeline that, if
                  exercised or converted, would affect Citizens' acquisition or
                  retention of control of Lifeline, as defined in Section 368(c)
                  of the IRC;

                           (10) that Citizens does not own, nor has it owned
                  during the past five (5) years, directly or indirectly, any
                  shares of Lifeline stock;

                           (11) that neither Citizens nor Lifeline are
                  investment companies as defined in Section 368(a)(2)(F)(iii)
                  and (iv) of the IRC;

                           (12) that neither Citizens nor Lifeline are under the
                  jurisdiction of a court in a Title 11 or similar case within
                  the meaning of IRC Section 368(a)(3)(A);

                           (13) that the Exchange will be consummated and
                  qualify as a statutory exchange in full compliance with Texas
                  law and will be consummated in accordance with the terms of
                  the Plan;

                           (14) that in the event more than 2.5 percent of the
                  shareholders of Lifeline dissent to the Exchange, Citizens
                  would exercise its option not to proceed with the Exchange (as
                  permitted under the Plan) and the Exchange consequently would
                  not be consummated;

                           (15) that no Lifeline Common Stock will be acquired
                  for consideration other than solely Citizens Class A Common
                  Stock. For purposes of this

                                   10.02.2-35
<PAGE>

                  representation, Lifeline Common Stock redeemed for cash or
                  other property furnished by Citizens will be considered as
                  acquired by Citizens. Further, no liabilities of Lifeline or
                  the Lifeline shareholders will be assumed by Citizens, nor
                  will any of the Lifeline Common Stock be subject to any
                  liabilities;

                           (16) that Citizens will not assume nor repay any
                  Lifeline debt guaranteed by Lifeline shareholders nor will
                  Citizens assume or repay any outstanding loans between
                  Lifeline and its shareholders;

                           (17) that no compensation or agreement for services
                  received by any shareholder of Lifeline, or any entity related
                  to a Lifeline shareholder, will be separate consideration for,
                  or allocable to, any of their shares of Lifeline Common Stock;
                  no shares of Citizens Class A Common Stock received by any
                  Lifeline shareholder, or any entity related to any Lifeline
                  shareholder, will be separate consideration for, or allocable
                  to, any employment agreement or compensation agreement; and
                  the compensation paid to any Lifeline shareholder, or any
                  entity related to a Lifeline shareholder, will be for services
                  actually performed and will be commensurate with amounts paid
                  to third parties bargaining at arm's-length for similar
                  services;

                           (18) that Lifeline will pay its dissenting
                  shareholders the value of their Lifeline Common Stock out of
                  its own funds. No funds will be supplied or are required to be
                  supplied (by law or otherwise) for that purpose, directly or
                  indirectly, by Citizens, nor will Citizens, directly or
                  indirectly, reimburse Lifeline for any payments to dissenters;

                           (19) that on the Effective Date of the Exchange, the
                  fair market value of the assets of Lifeline will exceed the
                  sum of its liabilities plus the liabilities, if any, to which
                  its assets are subject;

                           (20) that the Marketing Development Allowance
                  Agreement (the "MDA Agreement") between Lifeline, Combined
                  Underwriters Life Insurance Company and the Red Little
                  Lifeline Combined, Inc. ("Agency") was negotiated at
                  arms-length; that the consideration to be paid by Lifeline to
                  the Agency pursuant to the MDA Agreement will be for services
                  actually to be performed and is reasonable in light of the
                  services to be performed and the benefit to Lifeline and
                  Citizens of retaining the Agency to preserve and increase the
                  business in force issued by Lifeline;

                           (21) that Lifeline has sufficient cash-flow to make
                  payments required to be made to the Agency pursuant to the MDA
                  Agreement; and

                                   10.02.2-36

<PAGE>

                           (22) that Citizens will not render Lifeline unable to
                  honor its payments under the MDA Agreement such that Citizens
                  would be required to make payments thereunder.

         We have relied on the truthfulness and accuracy of certificates of
officers of Lifeline and Citizens regarding the above factual information,
assumptions and representations. In the course of our representation of Citizens
in connection with the transaction described herein, no facts have come to our
attention that would give us actual knowledge that the certificates are not
accurate. However, we have not undertaken any independent investigation to
verify the accuracy of such factual information, assumptions and
representations, and no inference as to our knowledge thereof shall be drawn
from the fact of our representation of any party or otherwise.

         In rendering an opinion on the federal income tax consequences of such
a transaction, reasonable steps have been taken to assure that all material tax
issues are considered in light of the facts, and that all of such issues
involving a reasonable possibility of challenge by the IRS are fully and fairly
addressed. A "material tax issue" includes any tax issue that could have a
significant impact (either beneficial or adverse) on any Lifeline shareholder
participating in the Exchange under any reasonably foreseeable circumstances.

         The opinions expressed below are rendered only with respect to the
specific matters described herein, and we express no opinion with respect to any
other federal income tax aspects of the Exchange. Should any of the facts,
circumstances or assumptions specified herein be subsequently determined
incorrect or inaccurate, our conclusions may vary from those set forth below and
such variance could be material. In addition, we do not opine as to the taxable
or nontaxable status of any previous transactions not considered to be part of
the Exchange.

         Accordingly, in our opinion, the material tax consequences of the
Exchange are as follows:

                           (1) The Exchange will constitute a reorganization
                  within the meaning of IRC Section 368(a)(1)(B) and Citizens
                  and Lifeline will each be a "party to a reorganization" within
                  the meaning of IRC Section 368(b). No gain or loss will be
                  recognized by the shareholders of Lifeline upon the exchange
                  of their shares of Lifeline Common Stock for shares of
                  Citizens Class A Common Stock. IRC Section 354(a).

                           (2) The tax basis of the shares of Citizens Class A
                  Common Stock received by a shareholder of Lifeline will be the
                  same as the basis of the Lifeline Common Stock surrendered by
                  that shareholder in the Exchange. IRC Section 358(a); IRC
                  Regulation Section 1.358-1(a).

                           (3) The holding period of the shares of Citizens
                  Class A Common Stock received by a shareholder of Lifeline
                  will include the period during which such shareholder held the
                  Lifeline Common Stock exchanged therefor, to the extent that

                                   10.02.2-37

<PAGE>

                  such stock was held by the shareholder as a capital asset on
                  the date of the consummation of the Exchange. IRC Section
                  1223(1).

                           (4) Cash received by Lifeline shareholders who
                  properly exercise their dissenters' rights will be treated as
                  having been received in redemption of the shares so cashed
                  out, and may result in taxable gain or loss, measured by the
                  difference (if any) between the amount of cash received and
                  such shareholder's basis in the Lifeline Common Stock.
                  Provided the shares were held as capital assets at the time of
                  the redemption, such gain or loss will constitute capital gain
                  or loss, and such gain or loss will be long term capital gain
                  or loss if the holding period for such shares was greater than
                  one year. It is possible, that for some Lifeline shareholders,
                  the distribution of cash may be treated as a dividend taxable
                  as ordinary income. IRC Sections 302, 301.

                           (5) No material gain or loss will be recognized by
                  Citizens or Lifeline as a result of the Exchange. IRC Sections
                  361 and 1032.

                           (6) Section 382 limits the Net Operating Loss
                  carryover of a company following an ownership change. Lifeline
                  will be deemed to have an ownership change. After an ownership
                  change, the amount of income that a corporation may offset
                  each year by Net Operating Losses that occurred before the
                  change is generally limited to an amount determined by
                  multiplying the value of the equity of the corporation
                  immediately prior to this change by the federal long-term tax
                  exempt rate in effect on the date of the change. Any unused
                  limitation may be carried forward and added to the next year's
                  limitation, subject to certain limitations. To the extent
                  Lifeline also has built-in losses as defined in IRC Section
                  382(h) as of the date of the Exchange, IRC Section 382 limits
                  the utilization of such losses after the ownership change. IRC
                  Section 383 will similarly limit the utilization of excess
                  credits, net capital losses, and foreign tax credits, if any,
                  after the ownership change. In addition, IRC Section 384
                  limits the use of preacquisition losses to offset built-in
                  gains, if any, after the ownership change. Regulations under
                  IRC Sections 382 and 1502 implement the above restrictions.

                           (7) Each shareholder of Lifeline must file pursuant
                  to IRS Regulation 1.368-3(b), with his or her income tax
                  return for the year in which the Exchange is consummated, a
                  statement which provides details relating to the property
                  transferred and securities received in the Exchange.

         The preceding discussion and opinions are based on our interpretations
of the facts and assumptions, based on the IRC, the regulations thereunder and
judicial and administrative interpretations thereof. They are subject to change
by subsequent regulatory, administrative, legislative or judicial actions which
could have an adverse effect on the validity of our opinions. Our opinions are
effective as of the Effective Date for the Exchange as described in the Plan.

                                   10.02.2-38

<PAGE>

         We do not express an opinion on the valuations of Lifeline or Citizens
assets or common stock or the ratio of exchange of Lifeline Common Stock for
Citizens Class A Common Stock.

         If the Exchange is transacted as outlined in the facts given, the
material tax issues addressed singularly and in the aggregate will more likely
than not be upheld under challenge by the IRS.

         Each Lifeline shareholder should consult his own qualified tax advisor
to evaluate the tax effects of the Exchange based on his personal facts and
circumstances.

                                       Very truly yours,

                                       JONES & KELLER, P.C.

                                   10.02.2-39<PAGE>
                                                                    EXHIBIT 10.6

                              FORBEARANCE AGREEMENT

          This Forbearance Agreement ("Agreement") is entered into as of the 8th
day of November, 2001, by FLORIDA FINANCE GROUP, INC. ("Florida Finance"), a
Florida corporation; LIBERTY FINANCE COMPANY ("Liberty"), a Florida corporation;
SMART CHOICE RECEIVABLES HOLDING COMPANY ("Smart Choice Holdings"), a Delaware
corporation; FIRST CHOICE AUTO FINANCE, INC. ("First Choice"), a Florida
corporation (Florida Finance, Liberty, Smart Choice Holdings and First Choice
are referred to herein collectively as the "Florida Finance Borrowers"); PAACO
AUTOMOTIVE GROUP, L.P. ("Paaco"), a Texas limited partnership and successor by
conversion to Paaco Automotive Group, Inc., a Texas corporation; PREMIUM AUTO
ACCEPTANCE CORPORATION ("Paaco Acceptance"), a Texas corporation (Paaco and
Paaco Acceptance are referred to herein collectively as the "Paaco Borrowers");
SMART CHOICE AUTOMOTIVE GROUP, INC. ("Smart Choice"), a Florida corporation; SC
HOLDINGS, INC. ("SC Holdings"), a Florida corporation (Smart Choice and SC
Holdings are referred to herein collectively as the "Guarantors"); and FINOVA
CAPITAL CORPORATION ("Lender"), a Delaware corporation.

                                    RECITALS:

           A. The Florida Finance Borrowers are indebted to Lender, as set forth
(i) in that Second Amended and Restated Loan and Security Agreement (the
"Florida Finance Loan Agreement") dated as of November 9, 1998, as amended by
that Third Amended and Restated Schedule to Second Amended and Restated Loan and
Security Agreement dated as of September 25, 2000, and (ii) in the "Loan
Documents," as defined in the Florida Finance Loan Agreement (such Loan
Documents are referred to in this Agreement as the "Florida Finance Loan
Documents").

           B. The Paaco Borrowers are indebted to Lender, as set forth (i) in
that First Amended and Restated Loan and Security Agreement (the "Paaco Loan
Agreement") dated as of March 8, 1999, as amended by that Third Amended and
Restated Schedule to First Amended and Restated Loan and Security Agreement
dated as of September 25, 2000, and (ii) in the "Loan Documents," as defined in
the Paaco Loan Agreement (such Loan Documents are referred to in this Agreement
as the "Paaco Loan Documents").

           C. Pursuant to that Amended and Restated Guaranty (the "Smart Choice
Guaranty") executed by Smart Choice dated as of November 18, 1999, Smart Choice,
which is the sole shareholder of Florida Finance, SC Holdings and First Choice,
the majority shareholder of Liberty and of Paaco Acceptance, and the sole
limited partner of Paaco, has guaranteed the payment and performance of (i) all
debts and obligations of the Florida Finance Borrowers arising under the Florida
Finance Loan Documents (the "Florida Finance Obligations"), and (ii) all debts
and obligations of the Paaco Borrowers arising under the Paaco Loan Documents
(the "Paaco Obligations") (the Florida Finance Loan Documents and the Paaco Loan
Documents are referred to herein collectively as the "Loan Documents, and the
Florida Finance Obligations and the Paaco Obligations are referred to herein
collectively as the "Obligations").

<PAGE>

                  D. Pursuant to that Amended and Restated Guaranty (the "SC
Holdings Guaranty") executed by SC Holdings dated as of November 18, 1999, SC
Holdings has guaranteed the payment and performance of the Obligations, without
limitation.

                  E. Pursuant to the Florida Finance Loan Documents, FINOVA has
a first priority perfected security interest in the Collateral described therein
(the "Florida Finance Collateral") to secure the Florida Finance Obligations.

                  F. Pursuant to the Paaco Loan Documents, FINOVA has a first
priority perfected security interest in the Collateral described therein (the
"Paaco Collateral") to secure all of the Obligations.

                  G. Material Events of Default exist under the Florida Finance
Loan Agreement, and FINOVA is presently entitled to exercise its remedies
against the Florida Finance Collateral and the Paaco Collateral (collectively
the "Collateral") including, but not limited to, the recovery of all cash
proceeds of pledged chattel paper and other financial instruments, which
recovery would shut down the operations of the Florida Finance Borrowers and the
Paaco Borrowers (collectively the "Borrowers"), as they have no other identified
source of operating cash.

                  H. The fair market value of the Florida Finance Collateral is
less than the amount of the Florida Finance Obligations.

                  I. The fair market value of the Paaco Collateral may exceed
the amount of the Paaco Obligations, but the combined value of the Paaco
Collateral and the Florida Finance Collateral is less than the total amount of
the Obligations.

                  J. The Florida Finance Borrowers, the Paaco Borrowers, and the
Guarantors (collectively the "Obligors") have offered certain accommodations to
Lender as an inducement for Lender to forbear in the immediate liquidation of
all of the Collateral in order to permit a more orderly winding up of the
affairs of the Obligors.

                  K. Lender is willing to conditionally forbear in its exercise
of remedies, on the terms and conditions set forth in this Agreement.

                  NOW, THEREFORE, in consideration of the mutual agreements set
forth herein, and for other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

                  1. Definitions. As used below in this Agreement, (i) terms
defined in the recitals above shall have the meanings therein set forth, and
(ii) the following capitalized terms shall have the meanings assigned below:

         "Affiliate" means, with respect to any Person, another Person who (i)
owns an equity interest in the first Person, of any degree, (ii) is owned, as to
equity interest, by the first Person, in any degree, (iii) Controls the first
Person, (iv) is Controlled by the first Person, or (v) is Controlled by a Person
who also Controls the first Person.

                                      - 2 -
<PAGE>

         "Borrower Parties" means the Obligors and their respective
predecessors, successors and assigns and their present and previous agents,
attorneys, representatives, Affiliates, officers, directors, shareholders and
each of them.

         "Claims" means any and all accounts, covenants, agreements,
obligations, claims, debts, liabilities, offsets, demands, costs, expenses,
actions or causes of action of every nature, character and description, whether
arising at law or equity or under statute, regulation or otherwise, and whether
liquidated or unliquidated, contingent or noncontingent, known or unknown,
suspected or unsuspected.

         "Control" means the ability to substantially direct the policies of a
Person, whether directly or indirectly, and whether such influence exists by
right or by economic compulsion.

         "Forbearance Period" means the period commencing on the date hereof and
terminating on the earlier of sixty (60) days from the date hereof or a
Termination Event.

         "Interim Paaco Payments" means regular payments to Lender from the
Paaco Borrowers in the amount that would otherwise have become due under the
Paaco Loan Documents if the Paaco Obligations had not been accelerated.

         "Lender Parties" means Lender, its participants, predecessors,
successors and assigns and their present and previous agents, attorneys,
representatives, Affiliates, officers, directors, and each of them.

         "Permitted Events of Default" means the Events of Default arising under
the Loan Documents arising from (i) the failure of the Florida Finance Borrowers
to make payments as required by the Florida Finance Loan Documents or to
maintain their solvency, (ii) all other breaches of covenants, warranties and
representations respecting the Florida Finance Borrowers that necessarily arise
from the Events of Default described in subsection (i) (but specifically not
including any Event of Default arising from the commencement of any case under
any chapter of the Bankruptcy Code), (iii) Events of Default arising under the
Paaco Loan Documents arising from the foregoing Events of Default respecting the
Florida Finance Borrowers and their common guarantors, and (iv) the failure of
the Obligors to make the payment of principal, interest and expenses due upon
the acceleration of the maturity of the Obligations.

         "Person" means any natural person and any legal entity with the ability
to enter into contracts.

         "Termination Event" means the occurrence of any of (i) the breach of
any warranty or representation made to Lender under this Agreement, (ii) any
Obligor's failure to comply strictly with all covenants and obligations under
this Agreement, or (iii) the existence of any Event of Default under the Loan
Documents other than the Permitted Events of Default.

                  2. Recitals. The Obligors warrant and represent that the
matters stated in the Recitals of this Agreement are true.

                                      - 3 -
<PAGE>

                  3. Florida Finance Borrowers' Affirmation of Documents. The
Florida Finance Borrowers acknowledge, warrant and represent that (i) pursuant
to the Florida Finance Loan Documents, their obligation to repay the Florida
Finance Obligations is absolute and unconditional, and there exists no right of
deduction, setoff, recoupment, counterclaim or defense of any nature whatsoever
to payment of the Florida Finance Obligations that has not been released herein,
(ii) the Permitted Events of Default arising under the Florida Finance Loan
Documents are valid, material and continuing Events of Default, (iii) this
Agreement confirms the acceleration of the maturity of the Florida Finance
Obligations, which are now presently due and payable in full, and (iv) the
Florida Finance Loan Documents are valid and enforceable against the Florida
Finance Borrowers in accordance with their terms (subject to principles of
equity and laws applicable to the rights of creditors generally, including
bankruptcy laws) and grant Lender valid and perfected security interests in the
Florida Finance Collateral with the priority required by the Florida Finance
Loan Documents, except as provided in Schedule 3 hereto.

                  4. Paaco Borrowers' Affirmation of Documents. The Paaco
Borrowers acknowledge, warrant and represent that (i) pursuant to the Paaco Loan
Documents, their obligation to repay the Paaco Obligations is absolute and
unconditional, and there exists no right of deduction, setoff, recoupment,
counterclaim or defense of any nature whatsoever to payment of the Paaco
Obligations that has not been released herein, (ii) the Permitted Events of
Default arising under the Paaco Loan Documents are valid, material and
continuing Events of Default, (iii) this Agreement confirms the acceleration of
the maturity of the Paaco Obligations, which are presently due and payable in
full, and (iv) the Paaco Loan Documents are valid and enforceable against the
Paaco Borrowers in accordance with their terms (subject to principles of equity
and laws applicable to the rights of creditors generally, including bankruptcy
laws) and grant Lender valid and perfected security interests in the Paaco
Collateral with the priority required by the Paaco Florida Finance Loan
Documents, except as provided in Schedule 4 hereto.

                  5. Guarantors' Affirmation of Documents. Guarantors
acknowledge, warrant and represent that (i) pursuant to their respective
Guaranties, Guarantors' obligations to repay the Obligations are absolute and
unconditional and there exists no right of deduction, setoff, recoupment,
counterclaim or defense of any nature whatsoever to payment of the Obligations
that has not been released herein, (ii) the Permitted Events of Default are
valid, material and continuing Events of Default under the Loan Documents, (iii)
this Agreement confirms the acceleration of the maturity of the Obligations,
which are presently due and payable in full, and (iv) the Loan Documents
executed by Guarantors are valid and enforceable against Guarantors in
accordance with their terms (subject to principles of equity and laws applicable
to the rights of creditors generally, including bankruptcy laws).

                  6. Lender's Conditional Agreement of Forbearance. Subject to
the conditions stated in this Agreement, Lender agrees to forbear in the
commencement of any collection proceedings under the Loan Documents and in the
exercise of any repossession rights, collection rights or other remedies against
the Collateral during the Forbearance Period, except for the remedies
specifically permitted under this Agreement. Upon the expiration or termination
of the Forbearance Period, Lender shall be entitled to exercise all such
remedies to the fullest

                                     - 4 -
<PAGE>

extent permitted under the Loan Documents and applicable law, without hindrance
or delay and without further notice to the Obligors, and any right to further
notice or delay is hereby waived.

         7. Interim Payments. During the Forbearance Period, the Paaco Borrowers
shall timely pay the Interim Payments, time being of the essence. The Interim
Payments shall be applied in accordance with the Loan Documents as received by
Lender.

         8. Liquidation of Florida Finance Collateral.

                  (a) Status of Florida Finance Borrowers. The Obligors warrant
and represent to Lender that (i) on a consolidated basis, the Florida Finance
Borrowers have been losing money on operations for at least all of 2001 and
their continued operation would only serve to further erode the Florida Finance
Collateral, (ii) although the gross amount of the Inventory and the Receivables
(as such capitalized terms are defined in the Florida Finance Loan Agreement)
owned by the Florida Finance Borrowers exceeds the principal amount of the
Florida Finance Obligations, appropriate deductions to the receivables amount
due to the "precomputed" method of carrying their receivables (which is a
customary accounting method in this market) and the reasonable expectations of
collections from the Receivables, given their high-risk market segment and
prevailing economic conditions, the value of the Florida Finance Collateral is,
by any commercially reasonable analysis, substantially less than the amount of
the Florida Finance Obligations, and (iv) the Florida Finance Borrowers have not
in the one (1)-year period preceding the date hereof made any payments or
transfers to any Person outside the ordinary course of business other than in
sales of assets to third parties who are not Obligors for commercially
reasonable consideration.

                  (b) Operations of Florida Finance Borrowers. Effective
immediately, Lender shall commence the exercise of its rights to collect and
enforce Receivables owned by the Florida Finance Borrowers and to repossess
Inventory and other tangible Florida Finance Collateral. The Florida Finance
Borrowers shall assist Lender in making this transition by providing reports,
information, access to personnel and other reasonable assistance. The Florida
Finance Borrowers shall also immediately begin winding down their operations in
anticipation of the disposition of all Florida Finance Collateral at a public
foreclosure sale scheduled to be held by Lender on November 9, 2001 (the
"Foreclosure Sale"). The Florida Finance Borrowers shall consult with Lender and
its liquidation agent as to the proper means for conducting this transition,
including the termination of personnel in a manner that will minimize expenses
but permit an orderly transition of the duties of servicing the receivables and
otherwise managing the Florida Finance Collateral as to preserve its value.
While Lender or its liquidation agent may elect in their sole discretion to hire
some former employees of the Florida Finance Borrowers, neither Lender nor its
liquidation agent shall be obligated to engage any employees of the Florida
Finance Borrowers on any basis, and none of their vacation pay, years of service
or other accruals shall be recognized by Lender or its liquidation agent. Until
the later to occur of the successful foreclosure sale of the Florida Finance
Collateral or the completion to Lender's satisfaction of the transition of
control of the Florida Finance Collateral, no Obligor shall commence or
encourage, and each Obligor will take all reasonable measures to prevent, the
filing of any petition under any chapter of the Bankruptcy Code with respect to
any Obligor. Thereafter, should it become necessary to an orderly completion of
the liquidation of the assets of

                                     - 5 -
<PAGE>

the Florida Finance Borrowers, any Obligor may sponsor or encourage such a
filing; provided, however, in any such proceeding (whenever filed), no Obligor
shall challenge or encourage the challenge of the validity or amount of the
Obligations, Lender's right to retain any payments or collections received, or
the attachment, perfection or priority of any security interest securing the
Obligations.

                  (c) Limited Use of Cash Proceeds. Notwithstanding the
existence of Events of Default under the Florida Finance Loan Agreement, and as
an inducement to cause the Obligors to cooperate in the preservation of the
value of Lender's Collateral, Lender agrees that, during the Forbearance Period,
the proceeds of receipts and collections of receivables held by the Florida
Finance Borrowers and the proceeds of inventory sales undertaken in the usual
manner by the Florida Finance Borrowers (including, but not limited to, cash
proceeds on hand) may be used by the Florida Finance Borrowers (but only to the
extent reasonable and necessary) for the purposes of (i) paying the usual
payroll wages and taxes, including payment upon termination for any accrued
vacation time, with respect to employees of the Florida Finance Borrowers and
Smart Choice, (ii) paying lessors and vendors for current accruals of
liabilities to the extent that the continued service of such lessors and vendors
are necessary to the orderly winding up of the affairs of the Florida Finance
Borrowers, (iii) arranging the due termination of all employee benefit plans as
they affect employees of the Florida Finance Borrowers, and (iv) otherwise
paying such reasonable and necessary expenses of winding down the operations of
the Florida Finance Borrowers as Lender may approve in writing in its sole
discretion, it being understood that permitted expenses shall not include the
payment of previously existing debts generally or any other expenditure that is
not directly necessary for the orderly termination of operations by the Florida
Finance Borrowers. The Florida Finance Borrowers have proposed to Lender and
Lender has approved a separate budget of the amount of liquidation and
transition expenses. The Obligors acknowledge that, but for this Agreement,
Lender would have the present and absolute right to possession of all such cash
proceeds, and that any use of the cash proceeds of any Florida Finance
Collateral other than the specific uses permitted herein would constitute a
wrongful conversion thereof. Lender's consent to the limited use of cash
proceeds of Florida Finance Collateral shall terminate upon any Obligor's
becoming a debtor in a case under any chapter of the Bankruptcy Code.

                  (d) Transition of Control of Florida Finance Collateral. The
Florida Finance Borrowers shall immediately commence the sharing of all
information with Lender that is reasonably necessary for the liquidation of the
Florida Finance Collateral. The actual control of bank accounts containing
proceeds of Florida Finance Collateral shall be transitioned to Lender as soon
as practicable, and Lender shall release to the Florida Finance Borrowers funds
to the extent that they are needed for the payment of expenses permitted under
this Agreement.

                  (e) Foreclosure Sale of Florida Finance Collateral. Lender
intends that the Foreclosure Sale shall be conducted following the publication
of two (2) public notices thereof (November 4 and November 7) in the Orlando
Sentinel, which publications are hereby approved by all of the Obligors as
commercially reasonable means of advertisement of the sale. Without restricting
or prescribing in any way the manner or amount of bids that Lender may submit,
and without passing judgment on the sufficiency of any lesser amount as a
commercially reasonable bid, the Obligors further agree that they would regard a
bid at the Foreclosure Sale of

                                     - 6 -
<PAGE>

$55,000,000 to be a commercially reasonable price for the Florida Finance
Collateral. The Obligors acknowledge as commercially reasonable terms of sale
that the Foreclosure Sale may be conducted by telephone from any location as
long as all prospective bidders are provided access to the conference call; that
the foreclosure bill of sale and assignments(s) that would issue would disclaim
all warranties; and that bidders may be required to pre-qualify as to their
financial capability to tender a bid.

                  (f) Control of Florida Finance Borrowers. The management of
the Florida Finance Borrowers shall continue to be the responsibility of the
Florida Finance Borrowers' directors and officers and Lender has not undertaken
by this Agreement any right to control or interfere with the operations of the
Florida Finance Borrowers, but Lender has only acted to limit the disposition of
the Florida Finance Collateral, including its proceeds. Without limiting the
foregoing, the Florida Finance Borrowers are free to deal with their assets that
are not Florida Finance Collateral as they may wish, subject only to the already
existing covenants of the Florida Finance Loan Documents.

                  (g) Further Assistance Regarding Sales Taxes. Obligors shall
provide reasonable assistance to Lender, if it is the successful purchaser at
the Foreclosure Sale, respecting any mechanism by which Lender could obtain
sales tax refunds on account of repossessions of vehicles included in the
Florida Finance Collateral. It is the intention of the parties that the
purchaser at the Foreclosure Sale shall acquire all such present and future
rights to tax refunds to the fullest possible extent under applicable law.

         9. Option for Purchase of Smart Choice Stock. As further inducement to
cause Lender to enter into this Agreement, Smart Choice hereby grants to Lender
an option (the "Smart Choice Stock Option") to purchase up to all of Smart
Choice's remaining authorized but unissued and unreserved common stock (which
Smart Choice warrants and represents to be in excess of 38,000,000 shares, and
which shares shall be reserved for issuance to Lender upon the execution of this
Agreement) at the price of thirty cents ($.30) per share, to be paid through the
forgiveness of Florida Finance Obligations, which forgiveness shall be effective
for the benefit of Smart Choice as guarantor of the Florida Finance Obligations.
Smart Choice shall have no right of indemnity, exoneration, subrogation or other
right against the Florida Finance Borrowers on account of the issuance of stock
in satisfaction thereof, and any such right is hereby waived. Lender may
exercise the Smart Choice Stock Option in full or in part at any time and from
time to time by written notice to Smart Choice given within one hundred twenty
(120) days of the date of this Agreement (or, if any legal proceeding stays the
ability of Lender to exercise the Smart Choice Stock Option within the intended
option period, within thirty (30) days after such restrictions have been finally
removed, if such date would be later than the intended expiration). The Smart
Choice Stock Option is fully effective as of the date hereof, all necessary
approvals having been finally obtained. Upon receipt of a purchase election from
Lender, Smart Choice shall promptly (and in any event within five (5) days)
issue the stock so purchased, which shall be fully paid and nonassessable and
free and clear of all encumbrances or legends, except for a legend in customary
form reflecting that the stock has not been registered under any applicable
securities laws. Lender's right to exercise the Smart Choice Stock Option shall
be suspended upon Lender's exercise of the Paaco Option (as defined below) and
shall terminate upon Lender's successful closing under the Paaco Option.

                                     - 7 -
<PAGE>

         10. Option for Purchase of Paaco Equity Interests.

                  (a) As a further inducement to cause Lender to enter into this
Agreement and to satisfy the Smart Choice Deficiency (as defined herein), and
subject to the conditions stated below in this Section, Smart Choice hereby
grants to Lender an option (the "Paaco Option") to purchase, after the
Foreclosure Sale, all of (i) the limited partner interests of Paaco, (ii) the
membership interests of Paaco Holdings, LLC, a Delaware limited liability
company and the sole general partner of Paaco, and (iii) the issued and
outstanding stock of Paaco Acceptance (items (i) through (iii) are collectively
referred to as the "Paaco Equity Interests") at a price equal to the remaining
deficiency of the Florida Finance Obligations (the "Smart Choice Deficiency").
Lender may exercise the Paaco Option in full only at any time by written notice
to Smart Choice given after the date of the Foreclosure Sale and within one
hundred twenty (120) days of the date of this Agreement (or, if any legal
proceeding stays the ability of Lender to exercise the Paaco Option within the
intended option period, within thirty (30) days after such restrictions have
been finally removed, if such date would be later than the intended expiration).
Upon receipt of a purchase election from Lender, Smart Choice shall promptly
(and in any event within five (5) days) issue the Paaco Equity Interests, which
shall be fully paid and nonassessable and free and clear of all encumbrances or
legends, except for a legend in customary form reflecting that the Paaco Equity
Interests have not been registered under any applicable securities laws. The
Obligors warrant and represent that the issuers of the Paaco Equity Interests do
not have, and shall not have at the time of sale to Lender, any outstanding
warrants or other rights for the issuance of additional equity interests under
any circumstances.

                  (b) Smart Choice's obligation to perform under the Paaco
Option shall be subject to (i) its full compliance with all federal securities
laws and obtaining shareholder approval for the sale (which Smart Choice agrees
to seek in good faith upon Lender's exercise of the Paaco Option, and which
Smart Choice expects to finally obtain within thirty (30) days in the absence of
unforeseen difficulties), and (ii) obtaining an independent appraisal from a
qualified firm confirming that the value of the Paaco Equity Interests is not
greater than the amount of the Florida Finance Deficiency that is to be
satisfied by the transfer of the Paaco Equity Interests. The full satisfaction
of the Smart Choice Deficiency by the exercise of the Paaco Option shall be
effective against all the Obligors, whether liable as guarantor or coborrower;
provided, however, the Obligors shall warrant and represent to Lender at the
closing of the purchase that current financial statements for the Paaco
Borrowers delivered to Lender set forth all assets and liabilities known to
them.

                  (c) The closing of the purchase of the Paaco Equity Interests
would be evidenced by customary documents of assignment and deliveries,
including warranties of title.

                  (d) To enable Lender to perform its due diligence regarding
the prospect of exercising the Paaco Option, the Obligors shall offer reasonable
assistance to Lender and shall provide Lender with reasonable access to the
Paaco Borrowers' books and records and shall allow Lender's representatives to
meet with employees, officers and directors of the Paaco Borrowers.

                                     - 8 -
<PAGE>

                  (e) The management of the Paaco Borrowers shall continue to be
the responsibility of their directors and officers and Lender has not undertaken
by this Agreement any right to control or interfere with the operations of the
Paaco Borrowers.

         11. Operation of the Paaco Borrowers. From the date hereof until the
Termination Date or the earlier purchase by Lender of the Paaco Equity
Interests, the Paaco Borrowers shall operate in the ordinary course of business
in all respects. The Paaco Borrowers shall not pay any additional amounts with
respect to debt owed to Crown Group, Inc. unless made in accordance with an
Amended and Restated Subordination Agreement approved by Lender.

         12. Capacity of the Obligors. The Obligors warrant and represent that
they are and shall remain duly organized business organizations in good standing
under the laws of the respective states of their incorporation (as disclosed in
the recitals hereto) and are and shall remain duly qualified to do business in
each other state in which qualification is necessary.

         13. No Conflicting Law or Agreement. The Obligors warrant and represent
that their execution, delivery and performance of this Agreement do not
constitute a breach of or default under, and will not violate or conflict with,
any provisions of the constituent documents of any Obligor; of any contract,
financing agreement, lease, or other agreement to which any Obligor is a party
or by which its properties may be affected; or any law, regulation, judgment,
order or decree to which any Obligor is subject or by which its properties may
be affected; nor will the same result in the creation or imposition of any
encumbrance upon any properties of any Obligor, other than those in favor of
Lender.

         14. No Consent Required. Each of the Obligors and Lender warrant and
represent that their respective execution, delivery, and performance of this
Agreement do not require the consent or approval of or the giving of notice to
any person or entity except for those consents which have been duly and finally
obtained and are in full force and effect or which are expressly referenced in
this Agreement.

         15. Conditions to Closing. Concurrently with the execution and delivery
hereof, the Obligors shall deliver the following additional documents to Lender,
in form and substance acceptable to Lender and its counsel, as conditions to the
effectiveness of this Agreement:

                  (a) Certificate of existence or of good standing, as
available, issued by the Secretary of State for the domicile of each Obligor.

                  (b) Certificates from the Secretaries of each Obligor
certifying the adoption of resolutions by the Board of Directors of each Obligor
to approve the execution, delivery and performance of this Agreement and the
incumbency of officers.

                  (c) Opinion letter of outside counsel to the Obligors
addressing whether the obligors exist and have duly authorized, executed and
delivered this Agreement.

                                     - 9 -
<PAGE>

         16. Bankruptcy. In the event that any Obligor's property or any portion
thereof or any interest therein becomes property of any bankruptcy estate or
subject to any state or federal insolvency proceeding, then Lender shall
immediately become entitled, in addition to all other relief to which Lender may
be entitled under this Agreement, to obtain an order from the Bankruptcy Court
or other appropriate court granting immediate relief from the automatic stay
pursuant to Section 362 of the Bankruptcy Code (or any analogous stay under any
other such law) as to permit Lender to pursue its rights and remedies against
any such Obligor and all other rights and remedies of Lender at law and in
equity under applicable state law. In connection with such an order, no Obligor
shall contend or allege in any pleading or petition filed in any court
proceeding that Lender does not have sufficient grounds for relief from the
automatic stay unless Lender has failed to comply with its obligations under
this Agreement.

         17. Unconditional Full Release of All Claims and Defenses. In
consideration of Lender's execution of this Agreement, the sufficiency of which
is acknowledged, and excepting only the contractual obligations respecting
future performance by Lender arising under the Loan Documents and this
Agreement, the Obligors hereby release and forever discharge the Lender Parties
of and from any and all Claims that any Obligor may have against any Lender
Party as of the execution of this Agreement. The Obligors further agree that
they shall forever refrain and forbear from commencing, instituting or
prosecuting any lawsuit, action, or other proceeding, whether judicial,
administrative or otherwise, or otherwise attempting to collect or enforce, any
such released Claim and agree to indemnify, defend (with counsel satisfactory to
Lender) and hold harmless the Lender Parties against any and all loss,
liability, claim or expense, including attorneys' fees, that any of them might
incur as a result of any breach of this Section by any Borrower Party or the
assertion of any Claim or defense that exists as of the date of this Agreement
by any Borrower Party. The Obligors further waive any presently existing
defenses against the payment and performance of all obligations (of every
nature, character and description) to the Lender Parties under the Loan
Documents.

         18. No Alienation of Claims.

                  (a) The Obligors warrant and represent to Lender that no
Obligor has granted or purported to grant to any other person or entity any
interest whatsoever in any Claim, as security or otherwise, and that their
execution hereof does not require the consent of or notice to any third party in
order to be fully effective as to any Claim that may have existed in favor of
any Obligor at any time.

                  (b) Lender warrants and represents to the Obligors that no
Lender has granted or purported to grant to any other person or entity any
interest whatsoever in any Claim, as security or otherwise, and that Lender's
execution hereof does not require the consent of or notice to any third party in
order to be fully effective as to any Claim that may have existed in favor of
any Lender at any time.

         19. Valid Consideration; Binding Agreement.

                  (a) The Obligors warrant, represent and acknowledge that
absent this Agreement Lender is not obligated to the Obligors to forbear in its
exercise of remedies; that Lender has agreed to forbear in reliance upon the
binding effect, validity and enforceability of

                                     - 10 -
<PAGE>

this Agreement; that this Agreement has been executed and delivered by the
Obligors for adequate consideration and value under all applicable laws; and
that this Agreement is valid, binding and enforceable in accordance with its
terms.

                  (b) Lender warrants, represents and acknowledges that this
Agreement has been executed and delivered by Lender for adequate consideration
and value under all applicable laws and that this Agreement is valid, binding
and enforceable in accordance with its terms.

         20. Notices. All notices, demands, and requests which may be given or
which are required to be given by either party to the other, and any exercise of
a right of termination provided by this Agreement, shall be in writing and shall
be deemed effective when either: (1) personally delivered to the intended
recipient; (2) sent by certified or registered mail, return receipt requested,
addressed to the intended recipient at the address specified below; (3)
delivered in person to the address set forth below for the party to which the
notice was given; (4) deposited into the custody of a nationally-recognized
overnight delivery service such as Federal Express Corporation, Emery, or
Purolator, addressed to such party at the address specified below; or (5) sent
by facsimile, telegram, or telex, provided that receipt for such facsimile,
telegram, or telex is verified by the sender and followed by a notice sent in
accordance with one of the other provisions set forth above. Notices shall be
effective on the date of delivery or receipt or, if delivery is not accepted, on
the earlier of the date that delivery is refused or three (3) days after the
date the notice is mailed. For purposes of this Section, the addresses of the
parties for all notices are as follows (unless changes by similar notice in
writing are given by the particular person whose address is to be changed):

                  If to Lender:         Finova Capital Corporation
                                        4800 N. Scottsdale Boulevard
                                        Scottsdale, AZ  85251
                                        Attention: John B. Burtchaell, Jr.
                                        Fax #:480/636-6667

                  With a copy to:       Boult, Cummings, Conners & Berry, PLC
                                        Suite 1600
                                        414 Union Street
                                        Nashville, TN 37219
                                        Attention: John E. Murdock III
                                        Fax #: 615/252-6359

                  If to Guarantors
                  or the Florida Finance
                  Borrowers:            1555 N. Semoran Avenue
                                        Winter Park, Florida 32792
                                        Attention: James E. Ernst, President
                                        Fax #: 407/673-3214

                                     - 11 -
<PAGE>

                  If to the Paaco
                  Borrowers:             PAACO Automotive Group, L.P.
                                         2915 Alouette Drive
                                         Grand Prairie, Texas 75052
                                         Attention:  Larry Lange, President
                                         Fax #:  972-206-7133

         21. Construction of Agreement. Except as expressly provided herein, the
Loan Documents shall remain in full force and effect in accordance with their
respective terms, and this Agreement shall not be construed to (i) impair the
validity, perfection, or priority of any security interest granted therein, or
(ii) waive or impair any rights, powers, or remedies of Lender under the Loan
Documents. This Agreement has been reviewed fully by all parties and shall not
be construed against any party as author. All periods of limitations specified
by statute applicable to actions by the Obligors and all defenses of laches
available to the Obligors are hereby tolled and otherwise suspended.

         22. Voluntary Agreement. Each of the Obligors and Lender warrant and
represent that they are represented by legal counsel of their choice; have
investigated fully their alternatives to the execution and performance of this
Agreement; have had ample time to review this Agreement and consult with their
counsel; are fully aware of the terms contained in this Agreement; and have
knowingly, voluntarily and without coercion or duress of any kind entered into
this Agreement and the documents executed in connection with this Agreement.

         23. CONSENT TO JURISDICTION; EXCLUSIVE VENUE. THE PARTIES HERETO AGREE
TO JURISDICTION AND VENUE ELECTIONS SET FORTH IN THE LOAN AGREEMENT RESPECTING
ALL MATTERS ARISING FROM OR RELATED TO THIS AGREEMENT.

         24. Not Partners; No Third Party Beneficiaries. Nothing contained
herein or in any related document shall be deemed to render Lender a partner of
any Obligor for any purpose. This Agreement has been executed for the sole
benefit of Lender and the Obligors and there are no third party beneficiaries
hereof.

         25. Indulgence Not Waiver. Lender's indulgence in any other departure
from the terms of this Agreement shall not prejudice Lender's right to demand
strict compliance with this Agreement.

         26. Assignment. This Agreement shall be binding upon and inure to the
benefit of the respective heirs, successors and assigns of the Obligors and
Lender, except that the Obligors may not assign any rights or delegate any
obligations arising hereunder without the prior written consent of Lender. Any
attempted assignment or delegation without the required prior consent shall be
void.

         27. Entire Agreement. This Agreement and the other written agreements
among the parties represent the entire agreement between the parties concerning
the subject matter hereof, and all oral discussions and prior agreements are
merged herein. In the event of an

                                     - 12 -
<PAGE>

inconsistency between this Agreement and the provisions of the Loan Documents,
the provisions of this Agreement shall control.

         28. Amendment and Waiver in Writing. No provision of this Agreement can
be amended or waived, except by a statement in writing signed by the party
against which enforcement of the amendment or waiver is sought.

         29. Severability. Should any provision of this Agreement be invalid or
unenforceable for any reason, the remaining provisions hereof shall remain in
full effect.

         30. APPLICABLE LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE DETERMINED ACCORDING TO THE SUBSTANTIVE LAWS OF ARIZONA
WITHOUT REGARD TO CONFLICTS PRINCIPLES.

         31. Gender and Number. Words used herein indicating gender or number
shall be read as context may require.

         32. Captions Not Controlling. Captions and headings have been included
in this Agreement for the convenience of the parties, and shall not be construed
as affecting the content of the respective sections.

         33. WAIVER OF JURY TRIAL. THE OBLIGORS AND LENDER HEREBY KNOWINGLY AND
VOLUNTARILY WAIVE ANY RIGHT TO A TRIAL BY JURY WITH REGARD TO ANY ACTION,
PROCEEDINGS, CLAIMS OR COUNTERCLAIMS, WHETHER IN CONTRACT OR IN TORT, AT LAW OR
IN EQUITY, OF ANY TYPE OR NATURE WHATSOEVER ARISING UNDER OR CONCERNING THIS
AGREEMENT OR THE LOAN DOCUMENTS.

         34. Joint and Several. All warranties, representations and undertakings
of the Obligors or other collective groups under this Agreement are made and
undertaken jointly and severally.

            [The remainder of this page is intentionally left blank]

                                     - 13 -
<PAGE>

Executed as of the date first written above.

                                             FINOVA CAPITAL CORPORATION

                                             By:
                                                -----------------------------

                                             Title:
                                                   --------------------------

                                             FLORIDA FINANCE GROUP INC.

                                             By:
                                                -----------------------------

                                             Title:
                                                   --------------------------

                                             LIBERTY FINANCE COMPANY

                                             By:
                                                -----------------------------

                                             Title:
                                                   --------------------------

                                             SMART CHOICE RECEIVABLES
                                             HOLDING COMPANY

                                             By:
                                                -----------------------------

                                             Title:
                                                   --------------------------

              [Signature page to Forbearance Agreement - continued]

                                     - 14 -
<PAGE>

                                             FIRST CHOICE AUTO FINANCE INC.

                                             By:
                                                -----------------------------

                                             Title:
                                                   --------------------------

                                             PAACO AUTOMOTIVE GROUP, L.P.

                                                   By: PAACO HOLDINGS, LLC,

                                                       General Partner

                                             By: /s/ LARRY LANGE
                                                -----------------------------

                                             Title: Larry Lange, Manager
                                                   --------------------------

                                             PREMIUM AUTO ACCEPTANCE
                                             CORPORATION

                                             By: /s/ LARRY LANGE
                                                -----------------------------

                                             Title: Larry Lange, President
                                                   --------------------------

                                             SMART CHOICE AUTOMOTIVE GROUP,
                                             INC.

                                             By:
                                                -----------------------------

                                             Title:
                                                   --------------------------

              [Signature page to Forbearance Agreement - continued]

                                     - 15 -
<PAGE>

                                             SC HOLDINGS, INC.

                                             By:
                                                -----------------------------

                                             Title:
                                                   --------------------------

              [Signature page to Forbearance Agreement - continued]

                                     - 16 -
<PAGE>

                                   SCHEDULE 3

<Table>
<Caption>

                                                             DATE/LOCATION FILED;
DEBTOR                          SECURED PARTY                FILE NO.                     COLLATERAL
--------------------------      --------------------------   --------------------         ---------------------------
<S>                             <C>                          <C>                          <C>
First Choice Auto Finance,      225 N. Military Corp.        6/2/97                       All Used Motor Vehicle
Inc.                            d/b/a Miracle Mile Motors    Florida SOS                  Inventory located at 225
                                                             #970000184222                N. Military Trail, West
                                                                                          Palm Beach, Florida

First Choice Auto Finance,      Orix Credit Alliance, Inc.   8/27/97                      Automotive Equipment on
Inc.                                                         Florida SOS                  LEASE
                                                             #970000193085

First Choice Auto Finance,      Kendall Motor Oil            8/3/98                       Various Oil-Change
Inc.                                                         Florida SOS                  Equipment
                                                             #980000072420

First Choice Auto Finance,      Automotive Warehouse of      4/8/98                       Automobile replacement
Inc.                            Lakeland, Inc.               Florida SOS                  parts sold by Secured
                                                             #980000076194                Party to Debtor

First Choice Auto Finance,      Navistar Financial           1/31/00                      1999 Vulcan 19 Ft. Steel
Inc.                            Corporation                  Florida SOS                  Carrier
                                                             #200000026173

First Choice Auto Finance,      Paccar Financial Corp.       2/21/00                      2000 Peterbilt 330 Tractor
Inc.                                                         Florida SOS
                                                             #200000043902

First Choice AutoFinance        Navistar Financial           4/3/00                       2000 Chevron 4 car carrier
                                Corporation                  Florida SOS
                                                             #200000078145

First Choice AutoFinance        Navistar Financial           7/24/00                      2000 Chevron Series 20 4
                                Corporation                  Florida SOS                  Car
                                                             #20000170017
</Table>

<PAGE>

                                   SCHEDULE 4

                                      None.

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