Exhibit 10.1

 

 

 

STOCK PURCHASE AGREEMENT

 

 

By and Among

 

 

THE SELLERS NAMED HEREIN

ARMtech, INC.

ARMtech HOLDINGS, INC.

ARMtech INSURANCE SERVICES, INC.

AMERICAN AGRI-BUSINESS INSURANCE COMPANY

 

and

 

ENDURANCE U.S. HOLDINGS CORP.

 

 

Dated as of September 7, 2007

 

 

 

 

 

 

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TABLE OF CONTENTS

 

ARTICLE I

 

DEFINITIONS

 

2

Section 1.1.

 

Definitions

 

2

ARTICLE II

 

PURCHASE AND SALE OF SHARES

 

11

Section 2.1.

 

Purchase and Sale of Shares

 

11

Section 2.2.

 

Purchase Price

 

10

ARTICLE III

 

THE CLOSING

 

15

Section 3.1.

 

Closing

 

15

Section 3.2.

 

Payment of Purchase Price; Delivery of Shares; Repayment of Certain
Indebtedness; Limitation of Liability

 

15

Section 3.3.

 

Other Closing Deliveries

 

16

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

19

Section 4.1.

 

Authority; No Violation

 

19

Section 4.2.

 

Ownership of Securities

 

19

Section 4.3.

 

No Other Agreements

 

19

Section 4.4.

 

Disclosure

 

19

Section 4.5.

 

Takeover Statutes

 

17

Section 4.6

 

No Broker

 

20

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANIES

 

20

Section 5.1.

 

Organization and Related Matters

 

20

Section 5.2.

 

Authority; No Violation

 

20

Section 5.3.

 

Consents and Approvals

 

21

Section 5.4.

 

Capital Stock and Indebtedness

 

21

Section 5.5.

 

Subsidiaries

 

22

Section 5.6.

 

Financial Statements

 

22

Section 5.7.

 

Legal Proceedings

 

23

Section 5.8.

 

Undisclosed Liabilities

 

23

Section 5.9.

 

Absence of Certain Changes; No Material Adverse Effect

 

24

Section 5.10.

 

Compliance with Law; Permits; Regulatory Matters

 

27

Section 5.11.

 

Compliance Disputes

 

25

Section 5.12

 

Filings

 

28

Section 5.13.

 

Insurance Agents

 

29

Section 5.14.

 

Underwriting and Claims Handling

 

29

Section 5.15.

 

Market Conduct

 

30

Section 5.16.

 

Insurance Issued by AA-BIC

 

30

Section 5.17.

 

Reinsurance and Retrocessions

 

30

Section 5.18.

 

Material Contracts

 

31

Section 5.19.

 

Technology and Intellectual Property

 

31

 

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Section 5.20.

 

Real Property

 

33

Section 5.21.

 

Title to Assets

 

34

Section 5.22.

 

Sufficiency of Assets

 

34

Section 5.23.

 

Reserves

 

34

Section 5.24.

 

Taxes

 

35

Section 5.25.

 

Employee Matters

 

37

Section 5.26.

 

Collective Bargaining; Labor Disputes; Compliance

 

39

Section 5.27.

 

Internal Controls and Procedures

 

40

Section 5.28.

 

Transactions with Certain Persons

 

41

Section 5.29.

 

Investment Company

 

41

Section 5.30.

 

Environmental Laws

 

41

Section 5.31.

 

Insurance Coverage

 

41

Section 5.32.

 

Bank Accounts

 

42

Section 5.33.

 

Ratings

 

42

Section 5.34.

 

Disclosure

 

42

Section 5.35.

 

No Broker

 

42

ARTICLE VI

 

REPRESENTATIONS AND WARRANTIES OF BUYER

 

42

Section 6.1.

 

Organization and Related Matters

 

42

Section 6.2.

 

Authority; No Violation

 

43

Section 6.3.

 

Consents and Approvals

 

43

Section 6.4.

 

Legal Proceedings

 

43

Section 6.5.

 

Investment Intent of Buyer

 

43

Section 6.6.

 

Investment Company

 

44

Section 6.7.

 

Brokers

 

41

Section 6.8

 

Financing

 

44

ARTICLE VII

 

COVENANTS

 

44

Section 7.1.

 

Conduct of Business

 

44

Section 7.2.

 

Announcements

 

45

Section 7.3.

 

Confidentiality

 

45

Section 7.4.

 

Filings

 

47

Section 7.5.

 

Expenses

 

47

Section 7.6.

 

Third Party Consents

 

47

Section 7.7.

 

Access to Information; Due Diligence

 

48

Section 7.8.

 

Further Assurances

 

48

Section 7.9.

 

Notification of Certain Matters

 

48

Section 7.10.

 

Reinsurance

 

48

Section 7.11.

 

Internal Control over Financial Reporting

 

49

Section 7.12.

 

Intercompany Accounts

 

49

Section 7.13.

 

Exclusivity

 

49

Section 7.14.

 

Transfers of Securities of the Companies

 

49

Section 7.15.

 

Interim Financial Statements

 

47

Section 7.16.

 

Employees

 

47

 

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ARTICLE VIII

 

TAX MATTERS

 

51

Section 8.1.

 

Tax Indemnity

 

51

Section 8.2.

 

Tax Payments

 

52

Section 8.3.

 

Tax Returns

 

52

Section 8.4.

 

Tax Refunds

 

53

Section 8.5.

 

Tax Controversy

 

54

Section 8.6.

 

Tax Cooperation

 

53

Section 8.7.

 

Transfer Taxes

 

54

Section 8.8.

 

Miscellaneous

 

55

ARTICLE IX

 

CONDITIONS TO CLOSING

 

55

Section 9.1.

 

Conditions to Buyer’s Obligations

 

55

Section 9.2.

 

Conditions to Sellers’ Obligations

 

57

Section 9.3.

 

Frustration of Closing Conditions

 

58

ARTICLE X

 

SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS;
INDEMNIFICATION

 

58

Section 10.1.

 

Survival

 

58

Section 10.2.

 

Indemnification

 

59

Section 10.3.

 

Indemnification Procedures

 

60

Section 10.4.

 

Exclusive Remedy; Tax Indemnification

 

62

ARTICLE XI

 

TERMINATION

 

62

Section 11.1.

 

Termination

 

62

Section 11.2.

 

Obligations upon Termination

 

63

ARTICLE XII

 

MISCELLANEOUS

 

63

Section 12.1.

 

Non-Competition; Non-Solicitation

 

63

Section 12.2.

 

Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies

 

65

Section 12.3.

 

Entire Agreement

 

65

Section 12.4.

 

Interpretation

 

65

Section 12.5.

 

Construction

 

66

Section 12.6.

 

Severability

 

66

Section 12.7.

 

Notices

 

66

Section 12.8.

 

No Third Party Beneficiaries; Binding Effect

 

68

Section 12.9.

 

Counterparts

 

68

Section 12.10.

 

Dispute Resolution

 

61

Section 12.11.

 

Governing Law

 

68

Section 12.12.

 

Waiver of Jury Trial

 

69

Section 12.13.

 

No Strict Construction Against the Drafter

 

69

 

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EXHIBITS

 

Exhibit A

 

2006 Company Financial Statements

Exhibit B

 

Form of FCIC Reinsurance Run

Exhibit C

 

Calculation of 2006 Underwriting Profit

Exhibit D

 

Form of Escrow Agreement

Exhibit E

 

Form of Opinion of Sellers’ Counsel (Addressed to Buyer)

Exhibit F

 

Form of Opinion of Companies’ Counsel (Addressed to Buyer)

Exhibit G

 

Form of Opinion of ARMtech Holdings’ Delaware Counsel (Addressed to Buyer)

Exhibit H

 

Form of Opinion of Buyer’s Counsel (Addressed to Sellers)

Exhibit I

 

Form of Employment Agreement (Selling Shareholder Employees)

Exhibit J

 

Form of Employment Agreement (Non-Selling Shareholder Employees)

SCHEDULES

 

Schedule 1.1

 

Knowledge of the Companies

Schedule 1.2

 

Knowledge of Buyer

Schedule 2.2(b)

 

Expense Budget 4th Quarter 2007

Schedule 4.2

 

Sellers’ Beneficial and Record Ownership of Shares

Schedule 5.3

 

Consents and Approvals

Schedule 5.4(a)

 

Capital Stock

Schedule 5.4(b)

 

Debt Obligations

Schedule 5.6(a)

 

Permitted Accounting Practices of AA-BIC

Schedule 5.7(a)

 

Legal Proceedings

Schedule 5.9(a)

 

Absence of Certain Changes

Schedule 5.10(a)

 

Compliance with Applicable Laws

Schedule 5.10(b)

 

Insurance Licenses and Products

Schedule 5.10(c)

 

Insurance Company Permits

Schedule 5.11

 

RMA and TDI Compliance Disputes

Schedule 5.12

 

Filings

Schedule 5.13(a)

 

Insurance Agents

Schedule 5.13(b)(i)

 

Standard Form of Agreement with Agents

Schedule 5.13(b)(ii)

 

Agent Fees

Schedule 5.13(b)(iii)

 

Other Agency Agreements

Schedule 5.13(b)(iv)

 

Agents with Binding Authority

Schedule 5.16(b)

 

Exceptions to Underwriting Guidelines

Schedule 5.17(i)

 

Reinsurance and Retrocession Agreements

Schedule 5.17(ii)

 

Reinsurance Audit Reports

Schedule 5.18(a)

 

Material Contracts

Schedule 5.18(b)

 

Certain Company Contracts

Schedule 5.19(a)

 

Intellectual Property

 

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Schedule 5.19(g)

 

Employee Restrictive Agreements

Schedule 5.20(a)

 

Real Property

Schedule 5.20(b)

 

Leased Real Properties

Schedule 5.21

 

Encumbrances

Schedule 5.24(f)

 

Certain Transactions

Schedule 5.25(a)

 

Benefit Plans

Schedule 5.26(a)

 

Employees

Schedule 5.28(a)

 

Related Party Transactions

Schedule 5.31

 

Insurance Policies

Schedule 5.32

 

Bank Accounts

Schedule 6.3

 

Consents and Approvals

Schedule 7.1

 

Conduct of Business

Schedule 9.1(f)

 

Contract Employees

 

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STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT, dated as of September 7, 2007, is by and among
Samuel R. Scheef, Michael W. Smith, David L. Teague, Teddy D. Etheredge, Carlos
E. Johnson and Carroll Leon (each a “Seller,” and collectively “Sellers”),
ARMtech, Inc., a Texas corporation (“ARMtech”), ARMtech Holdings, Inc., a
Delaware corporation (“ARMtech Holdings”), ARMtech Insurance Services, Inc., a
Texas corporation (“ARMIS”), American Agri-Business Insurance Company, a Texas
corporation (“AA-BIC”), and Endurance U.S. Holdings Corp., a Delaware
corporation (“Buyer”). For purposes of this Agreement, ARMtech, ARMtech
Holdings, AA-BIC and ARMIS are sometimes referred to individually as the
“Company” and, collectively, the “Companies”.

RECITALS

WHEREAS, Sellers are, collectively, the owners of 119,286 shares (the “ARMtech
Shares”) of no par value common stock of ARMtech, which ARMtech Shares
constitute all of the issued and outstanding shares of ARMtech’s capital stock;
and

WHEREAS, ARMtech is the owner of 100,000 shares (the “ARMtech Holdings Shares”)
of common stock, par value $0.01 per share, of ARMtech Holdings, which ARMtech
Holdings Shares constitute all of the issued and outstanding shares of ARMtech
Holdings’ capital stock;

WHEREAS ARMtech Holdings is the owner of 2,000,000 shares (the “AA-BIC Shares”)
of common stock, par value $1.00 per share, of AA-BIC, which AA-BIC Shares
constitute all of the issued and outstanding shares of AA-BIC’s capital stock;
and

WHEREAS, Samuel R. Scheef is the owner of 100,000 shares (“ARMIS Shares”) of no
par value common stock of ARMIS, which ARMIS Shares constitute all of the issued
and outstanding shares of ARMIS’s capital stock; and

WHEREAS, Sellers desire to sell, and Buyer desires to purchase, the ARMtech
Shares, the ARMtech Holdings Shares, the AA-BIC Shares and the ARMIS Shares
(collectively, the “Shares”), upon the terms and subject to the conditions set
forth herein.

NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be bound hereby, the parties agree as follows:

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ARTICLE I

DEFINITIONS

Section 1.1.       Definitions. For all purposes of this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):

“2006 Company Financial Statements” means the audited annual combined balance
sheet, income statement and statement of cash flows of the Companies, as of and
for the year ended December 31, 2006, together with the notes thereto, which are
attached as Exhibit A hereto.

“Accountant” means KPMG LLP, or if such accounting firm is not available, an
independent certified public accounting firm of national standing and reputation
jointly selected and retained by Buyer and Sellers that is not an independent
auditor for either Buyer or any Seller and is otherwise neutral and impartial;
provided, however, that if Buyer and Sellers are unable to select such other
accounting firm within 20 days after the expiration of the Dispute Period, then
Buyer and Sellers shall each nominate three (3) independent certified public
accounting firms of national standing and reputation and if the same independent
certified public accounting firm is among the nominees of Buyer and Sellers,
such firm shall be the Accountant, otherwise each party shall eliminate two (2)
of the other party’s nominees and an independent certified public accounting
firm shall be selected at random from the remaining two (2) nominees. Each party
represents and warrants that it has not engaged KPMG LLP to provide auditing
services within the last five (5) years and has no current intention to engage
KPMG LLP for auditing services.

“Action” means any legal, administrative, arbitration or other similar
proceeding, claim, or action.

“Actuarial Standards of Practice” means the actuarial standards of practice
established by the Actuarial Standards Board for the actuarial profession in the
United States, consistently applied.

“Affiliate” means, with respect to any Person, any other Person who directly or
indirectly controls, is controlled by or is under common control with, or has
the ability to exercise significant influence over, such Person. The term
“control,” for the purposes of this definition, means the power to direct or
cause the direction of the management or policies of the controlled Person and
the term “significant influence” for the purposes of this definition has the
meaning ascribed in Accounting Principles Board Opinion No. 18, “The Equity
Method of Accounting for Investments in Common Stock”.

“Affiliated Group” has the meaning set forth in Section 1504(a) of the Code.

“Agreement” means this Stock Purchase Agreement among Sellers, the Companies and
Buyer, as such may hereafter be amended from time to time in accordance with
Section 12.2.

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“Applicable Law” means any federal, state or local statute, law, ordinance,
rule, regulation, order, writ, injunction, judgment, decree, directive,
principle of common law or interpretation of any of the foregoing by a
Governmental Authority applicable to a Person or any such Person’s Subsidiaries,
properties, assets, officers, directors, employees or agents.

“Audit” has the meaning set forth in Section 5.24(b).

“Base Purchase Price” has the meaning set forth in Section 2.2(a).

“Benefit Plans” has the meaning set forth in Section 5.25(a).

“Business Day” means any day other than a Saturday, a Sunday or a day on which
banks in New York, New York are required to be closed for regular banking
business.

“Buyer” has the meaning set forth in the first paragraph of this Agreement.

“Buyer Indemnitee” has the meaning set forth in Section 10.2(a).

“Buyer Restricted Period” has the meaning set forth in Section 12.1(f).

“Buyer Tax Indemnified Parties” has the meaning set forth in Section 8.1(a).

“Closing” has the meaning set forth in Section 3.1.

“Closing Date” means the date of the Closing.

“Closing Shareholders’ Equity” has the meaning set forth in Section 2.2(b).

“COBRA” has the meaning set forth in Section 5.25(h).

“Code” means the Internal Revenue Code of 1986, as amended from time to time or
any successor statute.

“Company Confidential Information” has the meaning set forth in Section 5.19(g).

“Company Financial Statements” has the meaning set forth in Section 5.6(b).

“Confidentiality Agreement” means that certain agreement, dated October 24,
2006, between ARMtech and Endurance Reinsurance Corporation of America, an
Affiliate of Buyer, with respect to the confidentiality of information about
ARMtech and its Subsidiaries, as such agreement may be amended from time to
time.

“Consumer Privacy Information” has the meaning set forth in Section 5.18(i).

“Contracts” means all agreements, contracts, binding commitments and binding
undertakings, indentures, notes, bonds, loans, instruments, leases, mortgages or
other binding arrangements.

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“Crop Hail Policies” means contracts of insurance for agricultural production
risks, including but not limited to hail and named perils, which are not
reinsured by FCIC.

“Current Tax Sharing Agreement” has the meaning set forth in Section 5.24(c).

“Data” has the meaning set forth in Section 5.18(d).

“Dispute Notice” has the meaning set forth in Section 2.3(d)(i).

“Dispute Period” has the meaning set forth in Section 2.3(d)(ii).

“Disputed Items” has the meaning set forth in Section 2.3(d)(i).

“DOJ” means the U.S. Department of Justice.

“Employee” means the employees of the Companies.

“Employee Restrictive Agreements” has the meaning set forth in Section 5.18(g).

“Employee Seller Employment Agreement” has the meaning set forth in Section
9.1(f).

“Employee Sellers” means Samuel R. Scheef, Michael W. Smith, Teddy D. Etheredge
and Carlos E. Johnson.

“Encumbrance” means any lien, pledge, security interest, easement or encumbrance
of any kind or nature whatsoever, or any agreement to give or grant or permit
any of the foregoing.

“Environmental Laws” means any Applicable Law which relates to or otherwise
imposes liability or standards of conduct concerning environmental protection,
health and safety of persons, discharges, emissions, releases or threatened
releases of any noises, odors or Hazardous Materials into ambient air, water or
land, or otherwise relating to the manufacture, processing, generation,
distribution, use, treatment, storage, disposal, cleanup, transport or handling
of Hazardous Materials, including the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act, as amended, the Occupational Safety and Health Act, as
amended, the Resource Conservation and Recovery Act, as amended, the Toxic
Substances Control Act, as amended, the Federal Water Pollution Control Act, as
amended, the Clean Water Act, as amended, any so-called “Superlien” law, and any
other similar federal, state or local law.

“Environmental Permits” means all Permits, approvals, identification numbers,
licenses and other authorizations required under any Environmental Law.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.

“ERISA Affiliate” has the meaning set forth in Section 5.25(f).

4

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“Escrow Agent” has the meaning set forth in Section 3.2(b).

“Escrow Agreement” has the meaning set forth in Section 3.2(b).

“Escrow Amount” has the meaning set forth in Section 3.2(b).

“FCIC” means the Federal Crop Insurance Corporation.

“Federal Crop Insurance Program” means the program of agricultural production
insurance established by the Federal Crop Insurance Act, the Agricultural Risk
Protection Act of 2000 and all related legislation.

“Final Determination” means (i) a decision, judgment, decree or other order by
the United States Tax Court or any other court of competent jurisdiction that
has become final and unappealable; (ii) a closing agreement under Section 7121
of the Code or a comparable provision of any state, local or foreign Tax law
that is binding against the IRS or other Taxing Authority; (iii) any other final
settlement with the IRS or other Taxing Authority; or (iv) the expiration of an
applicable statute of limitations.

“Final Statement” has the meaning set forth in Section 2.3(d)(ii).

“FTC” means the Federal Trade Commission.

“GAAP” means United States generally accepted accounting principles,
consistently applied.

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
or any self-regulatory agency, commissioner or authority.

“Hazardous Material” means any (i) hazardous substance, toxic substance,
hazardous waste or pollutant (as such terms are defined by or within the meaning
of any Environmental Law), (ii) material or substance which is regulated or
controlled as a hazardous substance, toxic substance, pollutant or other
regulated or controlled material, substance or matter pursuant to any
Environmental Law, (iii) petroleum, crude oil or fraction thereof, (iv)
asbestos-containing material, (v) polychlorinated biphenyls, (vi) lead-based
paint or (vii) radioactive material.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder.

“Indemnifying Person” has the meaning set forth in Section 10.3(a).

“Insurance Agent” means any or all Persons properly appointed with respect to
the Insurance Contracts, and required to be licensed by a Governmental
Authority, who submitted to AA-BIC on behalf of an agricultural producer one or
more applications for insurance written as part of AA-BIC’s business.

5

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“Insurance Contract” means any insurance policy entered into with a customer
whether directly or by reinsurance.

“Intellectual Property” means any and all United States and foreign:
(a) Registered Intellectual Property; (b) material trade secrets; (c) business
and product names and slogans, unregistered trademarks, service marks, trade
names, trade dress, logos, business and product names and slogans and other
similar designations of source or origin, any common law rights therein, and any
goodwill associated therewith; (d) unregistered copyrights and any common law
rights therein; (e) inventions, processes, methods, algorithms, models,
discoveries, techniques, designs, formulae, trade secrets and know-how and any
confidential information related thereto; (f) computer software (including,
without limitation, source code, object code, executables and utilities); (g)
datasets, databases and related documentation; and (h) all similar intellectual
property rights and tangible embodiments of any of the foregoing (in any media,
including electronic media, now known or later developed).

“Interim GAAP Financial Statements” has the meaning set forth in Section
7.15(a).

“Interim Statutory Statements” has the meaning set forth in Section 7.15(a).

“Investigation” means any governmental or regulatory investigation.

“IRS” means the Internal Revenue Service.

“Knowledge” means, as to Sellers, (i) the actual knowledge after reasonable
inquiry of Samuel R. Scheef, Michael W. Smith, David L. Teague, Teddy D.
Etheredge, Carlos E. Johnson or Carroll Leon with respect to any representation
or warranty related to the Sellers or the Companies, and (ii) the actual
knowledge without inquiry of Samuel R. Scheef, Michael W. Smith, David L.
Teague, Teddy D. Etheredge, Carlos E. Johnson or Carroll Leon with respect to
any representation or warranty related to Persons other than the Companies; as
to the Companies, (i) the actual knowledge after reasonable inquiry of the
individuals listed on Schedule 1.1 with respect to any representation or
warranty related to the Companies and (ii) the actual knowledge without inquiry
of the individuals listed on Schedule 1.1 with respect to any representation or
warranty related to Persons other than the Companies; and as to Buyer, the
actual knowledge after reasonable inquiry of any of the individuals listed on
Schedule 1.2.

“Lease” means any lease, leasehold interest, sublease or license, including any
amendment with respect thereto, pursuant to which any Company uses or holds any
material Leased Real Property.

“Leased Real Property” means the real property leased by any Company, as tenant,
together with, to the extent leased by any Company, all buildings and other
structures, facilities or improvements currently located thereon, all fixtures
thereto, and all easements, licenses, rights and other appurtenances relating to
the foregoing.

“Liability” means any indebtedness, liability, claim, loss, damage or financial
obligation, fixed or unfixed, choate or inchoate, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise.

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“Licensed Intellectual Property” has the meaning set forth in Section 5.18(a).

“Losses” has the meaning set forth in Section 10.2(a).

“Material Adverse Effect” means, with respect to the Companies, any event,
occurrence, fact, circumstance, violation, development, change in or effect on
the Companies, that, individually or in the aggregate with any other event,
occurrence, fact, circumstance, violation, development, change in or effect on
the Companies is, directly or indirectly, materially adverse to the business,
assets, liabilities, financial condition, prospects or results of operations of
the Companies, taken as a whole.

“Material Contracts” has the meaning set forth in Section 5.17(a).

“MPCI Policies” means contracts of insurance reinsured by FCIC.

“NAIC” means the National Association of Insurance Commissioners.

“Non-Seller Employment Agreement” has the meaning set forth in Section 9.1(f).

“Notice Period” has the meaning set forth in Section 2.3(d)(i).

“Owned Intellectual Property” means all Intellectual Property owned by the
Companies.

“Permits” means all licenses, permits, orders, consents, approvals,
registrations, authorizations, qualifications and filings with and under all
Federal, state, local or foreign laws and governmental or regulatory bodies and
all industry or other non-governmental self-regulatory organizations (including
Environmental Permits).

“Person” means any individual, corporation, company, partnership (limited or
general), joint venture, limited liability company, association, trust, a
government, any department or agency thereof or any other entity.

“Pre-Closing Tax Period” means any taxable period ending on or before the
Closing Date and with respect to a taxable period that begins before the Closing
Date and ends after the Closing Date the portion of such taxable period that is
deemed to end as of the Closing Date.

“Prohibited Transactions” has the meaning set forth in Section 7.13(a).

“Purchase Price” has the meaning set forth in Section 2.2.

“Quarterly Period” has the meaning set forth in Section 7.15(a).

“Records” means all of the Companies’ books, records (including all corporate
minute books, organizational documents and stock transfer books) and original
documents that reasonably pertain to or are reasonably used by the Companies to
administer, reflect, monitor, evidence or record information relating to the
business or conduct of the Companies and all such

7

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records and original documents, including all such records maintained on
electronic or magnetic media, or in any electronic database system of the
Companies, or necessary to comply with any Applicable Law with respect to the
business of the Companies.

“Reference Statement” has the meaning set forth in Section 2.3(b)(i).

“Registered Intellectual Property” means any and all United States and foreign: 
(a) patents (including, without limitation, design patents, industrial designs
and utility models), patent applications (including docketed patent disclosures
awaiting filing, reissues, divisions, continuations-in-part and extensions), and
patent disclosures awaiting filing determination; (b) registered trademarks,
service marks, Internet domain names, and any goodwill associated therewith; (c)
registered copyrights; and (d) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any Governmental Authority.

“Regulatory Proceeding” means (a) any administrative or regulatory hearing,
investigation or review commenced by the filing of or delivery to AA-BIC of a
subpoena, written request for public review, notice of charges, formal
investigative order or similar document by any U.S. Federal or State regulatory
authority or (b) any criminal proceeding in court of law.

“Related Party Transactions” has the meaning set forth in Section 5.28.

“Regulatory Agreements” has the meaning set forth in Section 5.10(d).

“Restricted Business” has the meaning set forth in Section 12.1(b).

“RMA” means the Risk Management Agency, a division of the United States
Department of Agriculture responsible for administering the FCIC and the Federal
Crop Insurance Program.

“SAP” has the meaning set forth in Section 5.6(a).

“Seller” has the meaning set forth in the first paragraph of this Agreement.

“Seller Allocation Notice” means a written notice signed by each of the Sellers
and delivered to the Buyer at least five Business Days prior to the Closing
Date. In the absence of delivery of a valid Seller Allocation Notice to the
Buyer within the required time frame, the allocated proportionate benefits and
obligations of the Sellers in the Seller Allocation Notice shall be deemed to be
the same as the ownership proportions of the Sellers in ARMtech set forth in
Schedule 4.2.

“Seller Indemnitee” has the meaning set forth in Section 10.2(c).

“Seller Restricted Period” has the meaning set forth in Section 12.1(b).

“Shareholders’ Equity” means, as of the specified date, Total Assets minus Total
Liabilities. The terms “Total Assets” and “Total Liabilities” mean the total
assets and total liabilities, respectively, of the Companies, calculated in
accordance with GAAP applied on a

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basis consistent with the Companies’ accounting principles, practices,
methodologies and policies used in the preparation of the Company Financial
Statements, eliminating all intercompany balances and transactions between or
among the Companies and accounting for the accrual, deferral and recognition of
items of income and expense including without limitation administration and
overhead and loss adjustment expense in the same manner as the 2006 Company
Financial Statements. For the purpose of calculating Closing Shareholders’
Equity, Shareholders’ Equity shall exclude any profit, loss, assets or
liabilities accrued, recorded or otherwise applied to Total Assets or Total
Liabilities in respect of the 2008 Underwriting Year.

“Shareholders’ Equity Adjustment” has the meaning set forth in Section 2.2(b).

“Shares” has the meaning set forth in the Recitals of this Agreement.

“Statutory Statements” has the meaning set forth in Section 5.6(a).

“Straddle Period” has the meaning set forth in Section 8.1(b).

“Subsidiaries” (or “Subsidiary” as the context may require) shall mean each
entity as to which a Person, directly or indirectly, has the power to (i) vote,
or to exercise a controlling influence with respect to, 50% or more of the
securities of any class of such entity the holders of which are ordinarily, in
the absence of contingencies, entitled to vote for the election of directors (or
Persons performing similar functions) of such entity or (ii) direct or cause the
direction of the management and policies of such entity, whether by contract or
otherwise.

“Taxes” means (i) federal, state, county, local, foreign and other taxes,
assessments, charges, duties, fees, levies, imposts or other similar charges
imposed by a Governmental Entity, including all income, franchise, profits,
capital gains, capital stock, transfer, gross receipts, production, customs,
sales, use, transfer, service, occupation, ad valorem, property, excise,
severance, windfall profits, premium, stamp, license, payroll, employment,
social security, workers compensation, unemployment, disability, environmental,
alternative minimum, add-on, value-added, capital taxes, withholding and other
taxes, assessments, deficiencies, charges, duties, fees, levies, imposts or
other similar charges of any kind whatsoever (whether payable directly or by
withholding and whether or not requiring the filing of a Tax Return), and all
estimated taxes, deficiency assessments, additions to tax and penalties (civil
or criminal), additional amounts imposed by any Governmental Entity and interest
on or in respect of a failure to comply with any requirement relating to such
taxes or any Tax Return and expenses incurred in connection with the
determination, settlement or litigation of any tax liability; (ii) any liability
of any Person pursuant to Treasury Regulation Section 1.1502-6 (or any similar
provision of foreign, state or local law) for the payment of amounts of a type
described in clause (i) above as a result of being a member of a group of
companies that files their Tax Returns on a consolidated, combined, affiliated,
unified, or group basis, or as a result of any obligation of such Person under
any Tax sharing arrangement or agreement whether imposed or assessed directly on
a Person (or the business, assets, operations or items of income, gain or losses
of Person), or (iii) any liability of any Person for the payment of amounts with
respect to payments of a type described in clauses (i) and (ii) above as a
transferee, successor, or payable pursuant to a contractual obligation or
otherwise.

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“Tax Benefit” means the actual reduction in a party’s Tax liability (or of the
affiliated group of which it is a member) resulting from any deductions, credits
or offsets against Taxes attributable to liabilities for Taxes for which an
indemnity payment is received pursuant to the terms of this Agreement; provided,
that any such deductions, credits or offsets will be treated as being used only
after all other Tax attributes of the recipient of the indemnity payment (or of
the affiliated group of which it is a member) have first been used. For purposes
of the preceding sentence, “Tax Benefit” shall include any actual refund in
Taxes received by a Person that is directly related to the actual carryforward
or a carryback of such losses or the utilization of a Tax credit, other similar
item, or depreciation, amortization, or other deduction resulting from an
increase in the Tax basis of an asset (determined after taking into account all
other Tax attributes of the recipient of the indemnity payment or of the
affiliated group of which it is a member), that the indemnified party would not
otherwise have taken but for the payment of such losses.

“Tax Claim” has the meaning set forth in Section 8.5(a).

“Tax Claim Notice” has the meaning set forth in Section 8.5(a).

“Taxing Authority” means the IRS and any other domestic or foreign Governmental
Authority responsible for the administration of any Tax.

“Tax Return” means any return, report or statement required to be filed with
respect to any Tax (including any elections, declarations, schedules or
attachments thereto, and any amendment thereof) including any information return
(which includes, but is not limited to, federal and state wage reporting,
employment and unemployment reports (e.g., IRS Forms 940, 941, W-2, W-3 and
their state and local equivalents) as well as reports of payments made (e.g.,
IRS Forms 1099 and 1042) that are required under Applicable Law to be supplied
to any Taxing Authority), claim for refund, amended return or declaration of
estimated Tax, and including, where permitted or required, combined,
consolidated or unitary returns for any group of entities that includes any of
the Companies.

“Tax Sharing Agreement” means any written agreement, indemnity or other
arrangement for the allocation or payment of Tax liabilities or payment for Tax
benefits that may exist as of the Closing Date between any of the Companies.

“TDI” means the Texas Department of Insurance.

“Threshold Amount” has the meaning set forth in Section 10.2(b).

“Transfer Taxes” has the meaning set forth in Section 8.7.

“Underwriting Profit Adjustment” has the meaning set forth in Section 2.2(c).

“Underwriting Profit Adjustment Statement” has the meaning set forth in Section
2.3(c)(i).

“Underwriting Year” means the period from July 1 of any year through June 30 of
the following year, identified by reference to the year containing the months
January through June.

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“Wire Transfer” means a payment in immediately available funds by wire transfer
in lawful money of the United States of America to such account or accounts as
shall have been designated by notice to the paying party.

ARTICLE II

PURCHASE AND SALE OF SHARES

Section 2.1.       Purchase and Sale of Shares. Upon the terms and subject to
the conditions set forth in this Agreement, at the Closing, Sellers shall sell,
transfer and deliver to Buyer, and Buyer shall purchase, acquire and accept from
Sellers, all interest in and title to the Shares, free and clear of all
Encumbrances, for the Purchase Price as set forth in Section 2.2.

Section 2.2.       Purchase Price. The Purchase Price shall be equal to the
aggregate of the Base Purchase Price, the Shareholders’ Equity Adjustment and
the Underwriting Profit Adjustment, each as defined below (collectively, the
“Purchase Price”).

(a)          Base Purchase Price. The base purchase price shall be One Hundred
Twenty Million Dollars ($120,000,000) (the “Base Purchase Price”). Payment of
the Base Purchase Price shall be made in accordance with Section 2.3(a).

(b)          Shareholders’ Equity Adjustment. The shareholders’ equity
adjustment shall be equal to the amount, if any, by which the Shareholders’
Equity as of the close of business on September 30, 2007 (“Closing Shareholders’
Equity”) differs from $24,124,711.00, which is the Shareholders’ Equity set
forth in the 2006 Company Financial Statements (the “Shareholders’ Equity
Adjustment”). The Shareholders’ Equity Adjustment shall exclude any profit,
loss, assets or liabilities accrued, recorded or otherwise applied to Total
Assets or Total Liabilities in respect of the 2008 Underwriting Year, including
but not limited to premiums, expense reimbursement allowances, agents’
commission expense and losses. The Shareholders’ Equity Adjustment shall be
decreased by the amount, if any, that the Companies’ actual operating expenses
(determined in accordance with GAAP, applied on a basis consistent with the
Companies’ accounting principles, practices, methodologies and policies used in
the preparation of the Company Financial Statements and accounting for the
accrual, deferral and recognition of items of income and expense including
without limitation administration and overhead and loss adjustment expense in
the same manner as the 2006 Company Financial Statements) exceed, in the
aggregate and not on a line item basis, the budgeted operating expenses set
forth in Schedule 2.2(b) for the period from October 1, 2007 to the date of
Closing. In the event the Closing Shareholders’ Equity is less than
$24,124,711.00, the Shareholders’ Equity Adjustment shall be negative and shall
reduce the amount of the Purchase Price. In the event the Closing Shareholders’
Equity is greater than $24,124,711.00, the Shareholders’ Equity Adjustment shall
be positive and shall increase the amount of the Purchase Price. Payment of the
Shareholders’ Equity Adjustment shall be made in accordance with Section 2.3(b).

(c)          First Underwriting Profit Adjustment. The underwriting profit
adjustment shall be equal to (i) the Companies’ profit share, if any, calculated
in the reinsurance settlement with the Companies’ reinsurers for the 2007
Underwriting Year, plus or minus (ii) AA-BIC’s

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underwriting gain or loss, if any, with respect to its 7.5% retention for the
2007 Underwriting Year, minus (iii) any of AA-BIC’s unrecoverable reinsurance
related to the 2007 or prior underwriting years (the “Underwriting Profit
Adjustment”). The Underwriting Profit Adjustment (x) shall be determined from
the 2007 underwriting gain as set forth on the FCIC Reinsurance Run, a form of
which is attached hereto as Exhibit B, (y) shall be calculated using the
methodology set forth in Exhibit C, which Sellers represent and warrant to Buyer
is the same methodology as employed by the Companies in the calculation of the
Companies’ profit share, underwriting gain and unrecoverable reinsurance for the
2006 Underwriting Year and (z) shall exclude any profit share, underwriting gain
or loss, unrecoverable reinsurance or other element of profit or loss which is
included or otherwise reflected in the determination of the Closing
Shareholders’ Equity. In the event the Underwriting Profit Adjustment is less
than zero, the Underwriting Profit Adjustment shall reduce the amount of the
Purchase Price. In the event the Underwriting Profit Adjustment is greater than
zero, the Underwriting Profit Adjustment shall increase the amount of the
Purchase Price. Payment of the Underwriting Profit Adjustment shall be made in
accordance with Section 2.3(c). In connection with this Section 2.2(c), Buyer
shall assign to Sellers the right to recover any amount of AA-BIC’s reinsurance
related to the 2007 or prior underwriting years, but solely to the extent such
reinsurance is charged against Sellers as unrecoverable and reduces the
Underwriting Profit Adjustment.

(d)          Subsequent Underwriting Profit Adjustments. Beginning six months
after the first Underwriting Profit Adjustment, and continuing every six months
thereafter until the sooner of the final settlement of all claims related to the
2007 Underwriting Year or the expiration of the Escrow Agreement, the Buyer
shall prepare, or cause to be prepared, and deliver to Sellers, an updated
Underwriting Profit Adjustment Statement and certification statement in
substantially the same form and method as that described in Section 2.3(c)(i).
In the event the Underwriting Profit Adjustment is less than the Underwriting
Profit Adjustment previously paid to the Sellers, the Underwriting Profit
Adjustment shall reduce the amount of the Purchase Price. In the event the
Underwriting Profit Adjustment is greater than the Underwriting Profit
Adjustment previously paid to the Sellers, the Underwriting Profit Adjustment
shall increase the amount of the Purchase Price. Payment of the Underwriting
Profit Adjustment shall be made in accordance with Section 2.3(c). In connection
with this Section 2.2(d), Buyer shall assign to Sellers the right to recover any
amount of AA-BIC’s reinsurance related to the 2007 or prior underwriting years,
but solely to the extent such reinsurance is charged against Sellers as
unrecoverable and reduces the Underwriting Profit Adjustment.

Section 2.3.         Payment of the Purchase Price. (a) Payment at the Closing.
At the Closing, Buyer shall pay to Sellers, in accordance with Section 3.2, the
Base Purchase Price, allocated among Sellers as specified in the Seller
Allocation Notice, less the Escrow Amount set forth in Section 3.2(b) hereof.

(b)          Payment of the Shareholders’ Equity Adjustment. Following the
Closing, the Shareholders’ Equity Adjustment shall be determined and payment
thereof shall be made by Buyer to Sellers or by Sellers to Buyer, as the case
may be, as provided in this Section 2.3(b). Any payments made under Section
2.3(b) shall be by Wire Transfer and, if to or by Sellers, shall be allocated
among Sellers in the same proportion as the Purchase Price as specified in the
Seller Allocation Notice.

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(i)           Not later than 60 days after the Closing Date or such other time
as is mutually agreed in writing by Buyer and Sellers, Buyer shall prepare, or
cause to be prepared, and deliver to Sellers (A) a statement (the “Reference
Statement”) setting forth the Closing Shareholders’ Equity determined in
accordance with GAAP applied on a basis consistent with the accounting
principles, practices, methodologies and policies used in the preparation of the
2006 Company Financial Statements, reflecting a level of detail for items of
income and expense and balance sheet amounts comparable to the detail contained
in the 2006 Company Financial Statements and accruing, deferring and recognizing
items of income and expense including, without limitation, administration and
overhead and loss adjustment expense in the same manner as the 2006 Company
Financial Statements and (B) a certificate of an authorized officer of Buyer
certifying that the calculations used in determining the Closing Shareholders’
Equity and certifying that such calculations are accurate and determined in
accordance with the terms set forth in this Section 2.3(b).

(ii)          From and after the delivery of the Reference Statement and the
accompanying officer’s certificate pursuant to Section 2.3(b)(i), Buyer shall
(A) provide to Sellers and their representatives copies of such work papers,
books and records and other documents relating to its and its accountants’
preparation of such documents and the calculation of the Closing Shareholders’
Equity and (B) cooperate in good faith with, and make its and its Affiliates’
employees and facilities reasonably available to, Sellers and their
representatives for the purpose of providing such other information as Sellers
may reasonably request concerning the Closing Shareholders’ Equity.

(iii)         Payment of the Shareholders’ Equity Adjustment shall be made
within ten (10) Business Days after delivery of the Final Statement with respect
to the Shareholders’ Equity Adjustment, in accordance with Section 2.3(d).

(c)          Payment of the Underwriting Profit Adjustment. Following the
Closing, the Underwriting Profit Adjustment shall be determined and payment
thereof shall be made by Buyer to Sellers or by Sellers to Buyer, as the case
may be, as provided in this Section 2.3(c). Any payments made under Section
2.3(c) shall be by Wire Transfer and, if to or by Sellers, shall be allocated
among Sellers in the same proportion as the Purchase Price as specified on the
Seller Allocation Notice.

(i)           Not later than March 15, 2008 and each subsequent September 15th
or March 15th until the sooner of the final settlement of all claims related to
the 2007 Underwriting Year or the expiration of the Escrow Agreement, or such
other time as is mutually agreed in writing by Buyer and Sellers, Buyer shall
prepare, or cause to be prepared, and deliver to Sellers (A) a statement setting
forth the Underwriting Profit Adjustment determined in accordance with Section
2.2(c) hereof (the “Underwriting Profit Adjustment Statement”) and (B) a
certificate of an authorized officer of Buyer certifying that the calculations
used in determining the Underwriting Profit Adjustment and certifying that such
calculations are accurate and determined in accordance with the terms set forth
in Section 2.2(c) hereof.

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(ii)          From and after the delivery of each Underwriting Profit Adjustment
Statement and the accompanying officer’s certificate pursuant to Section
2.3(c)(i), Buyer shall (A) provide to Sellers and their representatives copies
of such work papers, books and records and other documents relating to its and
its accountants’ preparation of such documents and the calculation of the
respective Underwriting Profit Adjustment and (B) cooperate in good faith with,
and make its and its Affiliates’ employees and facilities reasonably available
to, Sellers and their representatives for the purpose of providing such other
information as Sellers may reasonably request concerning such Underwriting
Profit Adjustment.

(iii)         Payment of each Underwriting Profit Adjustment shall be made
within ten (10) Business Days after delivery of the Final Statement with respect
to the Underwriting Profit Adjustment, in accordance with Section 2.3(d).

(d)    Resolution of Purchase Price Adjustment Disputes.

(i)           Within (A) 45 days after their receipt of the Reference Statement
and (B) 15 days after their receipt of an Underwriting Profit Adjustment
Statement or such other time as is mutually agreed in writing by the parties
(“Notice Period”), Sellers shall deliver in writing to Buyer (1) their agreement
as to the calculation of the Closing Shareholders’ Equity or the Underwriting
Profit Adjustment, as applicable, or (2) (x) their dispute thereof (if any),
specifying in reasonable detail the nature of the dispute and Sellers’ proposed
Closing Shareholders’ Equity and Underwriting Profit Adjustment, as applicable,
(such items in dispute, the “Disputed Items” and such notice of the Disputed
Items, the “Dispute Notice”) and (y) a certificate of Sellers certifying that
the calculations set forth in the Dispute Notice are accurate and determined in
accordance with the terms set forth in this Section 2.3(d).

(ii)          If Sellers fail to deliver to Buyer a Dispute Notice within the
applicable Notice Period, the Reference Statement or the Underwriting Profit
Adjustment Statement, as the case may be, shall be final and binding on the
parties and shall constitute the “Final Statement” with respect to the
Shareholders’ Equity Adjustment or the Underwriting Profit Adjustment, as
applicable. If Sellers deliver to Buyer a Dispute Notice prior to the expiration
of the applicable Notice Period, Sellers and Buyer shall cooperate and shall
cause their respective representatives to cooperate with the other parties and
their representatives in good faith to seek to promptly resolve the Disputed
Items. Any Disputed Items that are agreed to in writing by Sellers and Buyer
within 15 days of receipt of the Dispute Notice by Buyer or such other time as
is mutually agreed in writing by Sellers and Buyer (the “Dispute Period”) shall
be final and binding upon Buyer and Sellers and become part of the applicable
Final Statement. If at the end of the Dispute Period, Buyer and Sellers have
failed to reach agreement with respect to any Disputed Items, such unresolved
Disputed Items shall be submitted within 30 days after the expiration of the
Dispute Period to the Accountant for resolution.

(iii)        The Accountant may consider only those Disputed Items which Buyer
and Sellers have been unable to resolve within the Dispute Period, and must
resolve such Disputed Items in accordance with the terms and provisions of this

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Agreement. The Accountant shall deliver to Buyer and Sellers, as promptly as
practicable and in any event within 30 days after its appointment, a written
report setting forth the resolution of each Disputed Item and the resulting
Closing Shareholders’ Equity or Underwriting Profit Adjustment, as applicable,
determined in accordance with the terms of this Agreement. The conclusions in
such written report shall be final and binding upon Buyer and Sellers and become
part of the applicable Final Statement. The 30-day period for delivering the
written report may be extended by the mutual written consent of Buyer and
Sellers or by the Accountant for up to 30 days for good cause shown. Each of
Buyer and Sellers shall bear all of the fees and costs incurred by it or them in
connection with the resolution of Disputed Items, and each shall bear 50% of the
Accountant’s fees and costs.

(iv)         During the Dispute Period and, if applicable, the time in which the
Accountant is reviewing the Disputed Items, each party shall make available (1)
to the other party and its representatives its accountants’ work papers,
schedules and other supporting data as may be reasonably requested by such party
to enable such party to verify the amounts set forth on (x) the Reference
Statement and the accompanying certificate delivered pursuant to Section
2.3(b)(i), (y) the Underwriting Profit Adjustment Statement and the accompanying
certificate delivered pursuant to Section 2.3(c)(i)and (z) the Dispute Notice
and the accompanying certificate delivered pursuant to Section 2.3(d)(i), as
applicable, and (2) to the Accountant (if applicable) such work papers,
schedules and other supporting data as the Accountant may reasonably request to
resolve the Disputed Items submitted to it.

ARTICLE III

THE CLOSING

Section 3.1.       Closing. Upon the terms and subject to the conditions of this
Agreement, the closing of the purchase and sale of the Shares (the “Closing”)
shall be at 10:00 a.m. local time at the offices of LeBoeuf, Lamb, Greene &
MacRae LLP, 125 West 55th Street, New York, New York 10019, no later than the
fifth Business Day following the date on which all of the conditions set forth
in Article IX (other than those conditions designating instruments, certificates
or other documents to be delivered at the Closing) shall have been satisfied or
waived, or such other location, date and time as Buyer and Sellers shall agree
upon in writing.

Section 3.2.       Payment of Purchase Price; Delivery of Shares; Repayment of
Certain Indebtedness; Limitation of Liability. At the Closing:

(a)          Buyer shall deliver to Sellers, according to the purchase price
allocation set forth on the Seller Allocation Notice, by Wire Transfer, an
aggregate cash amount equal to the Base Purchase Price, less Twenty Million
Dollars ($20,000,000.00).

(b)          Buyer shall deliver to the escrow agent mutually agreed by Buyer
and Sellers (“Escrow Agent”) Twenty Million Dollars ($20,000,000.00) by Wire
Transfer (the “Escrow Amount”) to be held by the Escrow Agent pursuant to and in
accordance with the terms

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of an escrow agreement to be executed substantially in the form attached hereto
as Exhibit D (“Escrow Agreement”), which Escrow Agreement shall provide, subject
to its other terms and conditions, for (A) fifty percent (50%) of the Escrow
Amount to be released on the first Business Day following the second annual
anniversary of the Closing Date and the remaining fifty percent (50%) of the
Escrow Amount to be released on the first Business Day following the third
annual anniversary of the Closing Date, (B) the Escrow Agent to invest the
Escrow Amount in a money market account or a mutual fund that consists solely of
U.S. Treasury obligations and to disburse to the parties, upon the release of
the escrow funds (including the Escrow Amount), any accumulated interest or
other income earned or realized thereon in proportion to the amounts deposited
in the escrow account and (C) the fees of the Escrow Agent to be borne equally
by Buyer (50%) and Sellers (50%) and allocated among Sellers as specified in the
Seller Allocation Notice.

(c)          Notwithstanding any provision of this Agreement to the contrary,
except as specifically provided in the immediately following sentence, under no
circumstances shall any Seller or any shareholder, officer, director or employee
of any Company, together with their representatives, heirs or assigns, be held
personally liable to Buyer and/or any of its Subsidiaries (including, after the
Closing, the Companies), Affiliates, successors or assigns for, nor shall any
property of any Seller or any shareholder, officer, director or employee of any
Company, other than the Escrow Amount prior to its release to Sellers pursuant
to the Escrow Agreement, be subject to any Encumbrance or obligation of any kind
with respect to any claim of Buyer and/or any of its Subsidiaries (including,
after the Closing, the Companies), Affiliates, successors or assigns under this
Agreement. For itself and on behalf of its Subsidiaries (including, after the
Closing, the Companies), Affiliates, successors and assigns, Buyer hereby
releases, discharges and waives any rights it may have or acquire to enforce any
such personal liability or Encumbrance or obligation set forth in this Section
3.2(c); provided, however, that the foregoing limitation of liability and
release shall not apply (to the extent such claims or liabilities are ultimately
determined to be obligations of Sellers) to: (i) claims of Buyer with respect to
fraud or intentional misrepresentation on the part of any Seller; (ii) Tax
indemnity claims of Buyer under Article VIII of this Agreement; (iii) Transfer
Taxes; (iv) Sellers’ liability under this Agreement for fees of the Escrow
Agent, the Accountant, any arbitrator or Sellers’ counsel; (v) claims of Buyer
for payment of a negative Shareholders’ Equity Adjustment as determined in
accordance with Section 2.2(b); or (vi) claims of Buyer for payment of a
negative Underwriting Profit Adjustment as determined in accordance with Section
2.2(c).

(d)          Sellers shall deliver to Buyer certificates representing all of the
Shares, which shall be in each case free and clear of all Encumbrances, duly
endorsed in blank or accompanied by duly executed instruments of transfer
acceptable to Buyer and accompanied by all requisite stock transfer tax stamps.

 

Section 3.3.  Other Closing Deliveries.

(a)          Closing Deliveries by Sellers. At the Closing, Sellers shall
deliver to Buyer the following:

(i)           a receipt or receipts signed by Sellers evidencing receipt by
Sellers, and payment by Buyer, of the amount set forth in Section 3.2(a);

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(ii)          a good standing certificate (or its equivalent) for each of the
Companies issued by the Secretary of State of the state in which each such
Company is incorporated and each state in which it is qualified to do business
as a foreign corporation, dated as of a date within ten (10) Business Days prior
to the Closing Date;

(iii)         a good standing certificate (or its equivalent) for AA-BIC,
certified by TDI, dated as of a date within ten (10) Business Days prior to the
Closing Date;

(iv)         good standing certificates or equivalents with respect to all
licenses or authorizations of AA-BIC listed in Schedule 5.10(b), dated as of a
date within (30) calendar days prior to the Closing Date;

(v)          Certificates or Articles of Incorporation of each Company, together
with all amendments thereto or restatements thereof, certified by the
appropriate Governmental Authority, dated as of a date within ten (10) Business
Days prior to the Closing Date;

(vi)         the bylaws of each Company, together with all amendments thereto or
restatements thereof, certified by the Secretary or Assistant Secretary of the
Companies as of the Closing Date;

(vii)       the resignations, effective as of the Closing, of each director of a
Company;

(viii)      the certificates required by Section 9.1(a)(iv);

(ix)         the original stock transfer and corporate minute books (or their
equivalent) of each Company;

(x)          a non-foreign person affidavit from each Seller certifying that
such Seller is not a foreign person, in a form that satisfies the requirements
of Section 1445 of the Code and the Treasury Regulations promulgated thereunder;

(xi)         a waiver of any claims against the Companies or Buyer with respect
to (i) the allocation among Sellers of any amounts payable to Sellers pursuant
to Articles II and III of this Agreement and (ii) the allocation among Sellers
of any distribution from the Companies prior to the Closing Date;

(xii)       all approvals required to be obtained by Sellers to consummate the
transactions contemplated hereby;

(xiii)      an opinion of counsel to Sellers in substantially the form of
Exhibit E, addressed to Buyer and dated as of the Closing Date; and

(xiv)      such other documents, instruments or certificates as Buyer may
reasonably request.

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(b)          Closing Deliveries by the Companies. At the Closing, the Companies
shall deliver

(i)           to Buyer, resolutions of the board of directors of each Company,
certified by the Secretary or Assistant Secretary of the Company, approving and
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and thereby;

(ii)         to Buyer, the certificates required by Section 9.1(b)(iv);

(iii)        to Buyer, an opinion of counsel to the Companies in substantially
the form of Exhibit F, addressed to Buyer and dated as of the Closing Date;

(iv)         to Buyer, an opinion of Delaware counsel to ARMtech Holdings’ in
substantially the form of Exhibit G, addressed to Buyer and dated as of the
Closing Date;

(v)          to Buyer, copies of each of the Employee Seller Employment
Agreements and Non-Employee Seller Employment Agreements required by Section
9.1(f);

(vi)         to Sellers, assignments from the Companies to each Seller for each
life insurance policy insuring the life of the respective Seller; provided, that
the Companies shall have no obligation under such policies as of the Closing
Date; and

(vii)       to Buyer, such other documents, instruments or certificates as Buyer
may reasonably request.

(c)          Closing Deliveries by Buyer. At the Closing, Buyer shall deliver to
Sellers the following:

(i)           a receipt or receipts signed by Buyer evidencing receipt by Buyer
of the Shares;

(ii)          the certificate required by Section 9.2(a)(iv);

(iii)         all approvals required to be obtained by Buyer to consummate the
transactions contemplated hereby;

(iv)         an opinion of LeBoeuf, Lamb, Greene & MacRae LLP, counsel to Buyer,
in substantially the form of Exhibit H, addressed to Sellers and dated as of the
Closing Date; and

(v)          such other documents, instruments or certificates as Sellers may
reasonably request.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLERS

Each Seller hereby represents and warrants to Buyer, severally and not jointly,
as of the date hereof and as of the Closing Date (except where this Article IV
provides that a representation or warranty is made only as of a particular
date), as follows:

Section 4.1.       Authority; No Violation. (a) Such Seller has full power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly approved by all
requisite corporate, partnership or trust action, as applicable, on the part of
such Seller. This Agreement has been duly and validly executed and delivered by
such Seller and (assuming the due authorization, execution and delivery of this
Agreement by Buyer, the Companies and each other Seller) constitutes a valid and
binding obligation of such Seller, enforceable against such Seller in accordance
with its terms, except as enforcement may be limited by general principles of
equity, whether applied in a court of law or a court of equity, and by
bankruptcy, insolvency, moratorium and similar laws affecting creditors’ rights
and remedies generally.

(b)          The execution and delivery by such Seller of this Agreement do not,
and the consummation by such Seller of the transactions contemplated by this
Agreement and compliance with any of the terms or provisions hereof will not,
assuming that the consents and approvals referred to in Section 5.3 are duly
obtained, result in the creation of any Encumbrance upon any of the Shares owned
by such Seller.

Section 4.2.       Ownership of Securities. Such Seller owns beneficially and of
record the number of Shares listed next to its name in Schedule 4.2. Such Seller
has the full and unrestricted power to sell, assign, transfer and deliver the
Shares owned by it to Buyer upon the terms and subject to the conditions of this
Agreement, free and clear of any Encumbrances. Upon consummation of the
transactions contemplated by this Agreement, Buyer will acquire record and
beneficial ownership of the Shares owned by such Seller, free and clear of any
Encumbrances. There are no (i) obligations (whether or not contingent) of such
Seller to offer, sell, transfer, vote or otherwise dispose of any capital stock
or other security of the Companies convertible into or exchangeable or
redeemable for shares of capital stock or any other security of the Companies or
(ii) obligations (whether or not contingent) of such Seller to repurchase,
redeem or otherwise acquire any shares of Common Stock.

Section 4.3.       No Other Agreements. Neither such Seller nor any of its
Affiliates has any Contract, absolute or contingent, with any other Person to
sell the capital stock, assets or business of any Company, to effect any merger,
consolidation or other reorganization of any Company or to engage in any other
business combination transaction involving any Company.

Section 4.4.       Disclosure. The representations and warranties made by such
Seller in this Agreement do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein not misleading in light of the circumstances in which they were
made.

 

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Section 4.5.       Takeover Statutes. No “moratorium,” “control share
acquisition,” “fair price,” “business combination” or other similar
anti-takeover law or regulation enacted under Federal or state laws in the
United States are applicable to Sellers, the Companies, the Shares or any of the
transactions contemplated by this Agreement.

Section 4.6.       No Broker. No broker, finder or similar intermediary has
acted for or on behalf of such Seller or any Affiliate of any Seller, or is
entitled to any broker’s, finder’s or similar fee or other commission based on
arrangements made by such Seller or its Affiliates in connection with this
Agreement or the transactions contemplated hereby.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANIES

The Companies hereby, jointly and severally, represent and warrant to Buyer, as
of the date hereof and as of the Closing Date (except where this Article V
provides that a representation or warranty is made only as of a particular
date), as follows:

Section 5.1.       Organization and Related Matters. Each Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. Each Company has full corporate power
and authority to carry on its business as it is now being conducted and to own,
lease and operate all of its properties and assets, and is duly licensed or
qualified to do business and in good standing in each jurisdiction in which the
nature of the business conducted by it or the character of the assets owned by
it makes such qualification or licensing necessary, except in those cases in
which any failure to qualify or be licensed has not had and would not reasonably
be expected to have a Material Adverse Effect on the Companies. Each Company has
previously delivered to Buyer an accurate, current and complete copy of the
Certificate or Articles of Incorporation and the bylaws of each Company, in each
case as amended to the date of this Agreement. The minute books of each Company
(containing the records of meetings of the stockholders, the board of directors
and any committees of the board of directors), which have been made available to
Buyer, are accurate, current and complete. The stock certificate books and the
stock record books of each Company, which have been made available to Buyer, are
accurate, current and complete. No Company is in default under or in violation
of any provision of its Certificate or Articles of Incorporation or bylaws.

Section 5.2.       Authority; No Violation. (a) The Companies have full
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and thereunder. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly and validly approved by all requisite corporate action on
the part of the Companies, and no other corporate proceedings on the part of the
Companies are necessary to approve this Agreement or to consummate the
transactions contemplated hereby and thereby. This Agreement has been duly and
validly executed and delivered by the Companies and (assuming the due
authorization, execution and delivery of this Agreement by Buyer, the Companies
and Sellers, as the case may be) constitutes a valid and binding obligation of
the Companies, enforceable against them in accordance with its

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terms, except as enforcement may be limited by general principles of equity,
whether applied in a court of law or a court of equity, and by bankruptcy,
insolvency, moratorium and similar laws affecting creditors’ rights and remedies
generally.

(b)          The execution and delivery by the Companies of this Agreement do
not and the consummation by the Companies of the transactions contemplated by
this Agreement and compliance with any of the terms or provisions hereof will
not (i) violate any provision of the certificate or articles of incorporation or
bylaws of any Company, or (ii) assuming that the consents and approvals referred
to in Section 5.3 are duly obtained, (A) violate in any respect any Applicable
Law with respect to any Company or any of its respective properties or assets,
(B) result in the creation of any Encumbrance (1) upon any of the Shares or (2)
upon any of the assets or properties of any Company, or (C) violate, conflict
with, result in a breach of any provision of, constitute a default under, or
give others any rights of termination, amendment, acceleration, suspension,
approval, revocation, cancellation of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
any Company is a party or by which any Company or any of its respective
properties or assets, may be bound or affected, except in the case of this
clause (C) for such violations, conflicts, breaches or defaults which would not,
individually or in the aggregate, prevent or materially delay the performance by
any Company of any of its obligations hereunder.

Section 5.3.       Consents and Approvals. Except for (i) consents or approvals
of the RMA and TDI, (ii) the applicable filings under the HSR Act, (iii) the
consents, approvals and filings set forth on Schedule 5.3 and (iv) such other
consents, approvals, filings or registrations the failure to make or obtain by
Sellers or the Companies would not, individually or in the aggregate, prevent or
materially delay the performance by Sellers or the Companies of any of their
obligations pursuant to this Agreement, no consents or approvals of or filings
or registrations with any Governmental Authority or third party are necessary in
connection with the execution and delivery by Sellers or the Companies of this
Agreement.

Section 5.4.       Capital Stock and Indebtedness. (a) The authorized capital
stock of ARMtech consists of 1,000,000 shares of common stock, of which 119,286
shares are issued and outstanding and constitute the ARMtech Shares. The
authorized capital stock of ARMtech Holdings consists of 100,000 shares of
common stock, of which 100,000 shares are issued and outstanding and constitute
the ARMtech Holdings Shares. The authorized capital stock of AA-BIC consists of
2,400,000 shares of common stock, of which 2,000,000 shares are issued and
outstanding and constitute the AA-BIC Shares. The authorized capital stock of
ARMIS consists of 1,000,000 shares of common stock, of which 100,000 shares are
issued and outstanding and constitute the ARMIS Shares. All of the Shares are
duly authorized, validly issued, fully paid and non-assessable. Except as set
forth on Schedule 5.4(a), there are no (i) outstanding options, warrants,
subscriptions, calls, puts, unsatisfied preemptive rights, securities
convertible or exchangeable or redeemable for shares of capital stock or other
security, or other rights, agreements, arrangements or commitments of any kind
relating to the Companies’ capital stock, (ii) obligations (whether or not
contingent) of the Companies or any of their Affiliates to offer, issue, sell,
transfer, vote or otherwise dispose of any capital stock or other security of
the Companies convertible into or exchangeable or redeemable for shares of
capital stock or any other security of the Companies, (iii) obligations (whether
or not contingent) of the Companies, or any of their Affiliates to repurchase or
otherwise acquire any shares of Common Stock,

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(iv) bonds, debentures, notes or other indebtedness of the Companies having
voting rights (or convertible into securities having voting rights), or (v)
shares of capital stock or other equity interests or securities of the Companies
reserved for issuance.

(b)          There are no debt obligations of the Companies other than as set
forth on Schedule 5.4(b).

Section 5.5.       Subsidiaries. (a) The Companies have no Subsidiaries except
for the Companies. There are no corporations, partnerships or other entities in
which the Companies own, of record or beneficially, any direct or indirect
equity interest or any right (contingent or otherwise) to acquire the same.

(b)          There are no (i) outstanding options, warrants, subscriptions,
calls, puts, unsatisfied preemptive rights, securities convertible or
exchangeable or redeemable for shares of capital stock or other security, or
other rights, agreements, arrangements or commitments of any kind relating to
the Companies’ capital stock, (ii) obligations (whether or not contingent) of
any Company or any of its Affiliates to offer, issue, sell, transfer, vote or
otherwise dispose of any capital stock or other security of any Company
convertible into or exchangeable or redeemable for shares of capital stock or
any other security of any Company, (iii) contracts, absolute or contingent with
any other Person to sell all or substantially all of the assets or business of
any Company to effect any merger, consolidation or other reorganization of any
Company or to enter into any agreement with respect thereto, (iv) obligations
(whether or not contingent) of any Company, or any of its Affiliates to
repurchase, redeem or otherwise acquire the Shares, (v) bonds, debentures, notes
or other indebtedness of any Company having voting rights (or convertible into
securities having voting rights), or (vi) shares of capital stock or other
equity interests or securities of the Companies reserved for issuance.

Section 5.6.       Financial Statements. (a) The Companies have previously
delivered to Buyer the following statements (collectively, the “Statutory
Statements”): (i) the annual statement of AA-BIC as of and for each of the years
ended December 31, 2006, 2005 and 2004, as filed with TDI, and (ii) the
quarterly statement of AA-BIC as of and for the quarter ended March 31, 2007, as
filed with TDI, together in each case with any exhibits, schedules, amendments,
supplements or notes thereto. The Statutory Statements were prepared from the
Records of AA-BIC and were filed with TDI on forms prescribed or permitted by
TDI. The Statutory Statements were prepared in conformity with statutory
accounting principles prescribed or permitted by TDI applied on a consistent
basis throughout the periods involved, except as may be stated in the notes
thereto or where such accounting practices have been amended, supplemented or
otherwise prescribed by TDI (“SAP”). Schedule 5.6(a) sets forth a description of
all specifically permitted accounting practices of AA-BIC not in accordance with
the NAIC Annual Statement instructions or the NAIC Accounting Practices and
Procedures manual. Each of the balance sheets included in the Statutory
Statements fairly presents in all material respects the financial position of
AA-BIC as of its date and each of the statements of operations included in the
Statutory Statements fairly presents in all material respects the results of
operations of AA-BIC for the period therein set forth, in each case in
accordance with SAP, except that the quarterly Statutory Statements are subject
to normal recurring year-end audit adjustments.

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(b)          The Companies have previously delivered to Buyer copies of (i) the
unaudited combined balance sheet, income statement and statement of cash flows
of each of the Companies, as of and for the year ended December 31, 2006, (ii)
the audited annual combined balance sheet, income statement and statement of
cash flows of the Companies and the Acquired Subsidiaries, as of and for the
years ended December 31, 2006, 2005 and 2004 (such financial statements in (i)
and (ii) above, together with the notes thereto, being hereinafter collectively
referred to as the “Company Financial Statements” and together with the
Statutory Statements, the “Financial Statements”). The Company Financial
Statements: (x) were prepared using the Records, (y) fairly present in all
material respects the combined financial position, the results of operations and
the consolidated cash flows of the Companies, as of their respective dates and
for the respective periods then ended, except that the unaudited Financial
Statements (including any quarterly Financial Statements) do not set forth any
footnote disclosures and are subject to normal recurring year-end audit
adjustments, and (z) were prepared in conformity with GAAP (except as may be
stated in the notes thereto) and applied on a consistent basis during the
periods involved.

(c)          There are no off-balance sheet transactions, arrangements,
obligations (including contingent obligations) or any other relationships
related to the business of the Companies with unconsolidated entities or other
Persons that have a current or will have a future effect on the Companies’
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.

Section 5.7.       Legal Proceedings. (a) Except as set forth on Schedule
5.7(a), there are no pending or, to the Knowledge of the Companies, threatened
Actions against and to the Knowledge of the Companies, no pending or threatened
Investigations of, the Companies or any of their properties or assets (i) which,
if adversely determined, would have a Material Adverse Effect on the Companies,
or (ii) challenging the validity or propriety of, or that have the effect of
preventing, delaying, making illegal or otherwise interfering with any of the
transactions contemplated by this Agreement, and there is no injunction, order,
judgment, decree, award or regulatory restriction which regulatory restriction
is specific to the Companies, imposed upon the Companies or any of their
respective properties or assets which (1) restricts the ability of any Company
to conduct its business in the ordinary course of business consistent with past
practices or (2) has had or could reasonably be expected to have a Material
Adverse Effect on the Companies.

(b)          As of the date of this Agreement, there are no pending Actions or,
to the Knowledge of the Companies, threatened material Actions against, and to
the Knowledge of the Companies, no pending or threatened Investigations of any
current or former officer, director or shareholder of any of the Companies in
his capacity as an officer, director or shareholder of any of the Companies.

Section 5.8.       Undisclosed Liabilities. (a) The Companies have no
Liabilities of the nature that would be required to be reflected on or disclosed
in the notes to a balance sheet prepared in accordance with GAAP, which are in
excess of $500,000 individually or which are otherwise material to the Companies
except for (i) those Liabilities that are reflected or reserved against on the
Financial Statements as of December 31, 2006 (including the notes thereto), (ii)
Liabilities incurred since December 31, 2006 in the ordinary course of business
consistent with

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past practice (none of which is material) and (iii) Liabilities incurred since
December 31, 2006 which are payable pursuant to Insurance Contracts issued by
AA-BIC in the ordinary course of business consistent with past practice.

(b)          AA-BIC has paid in full or established reserves reflected in the
Statutory Statements to the extent required by SAP for all guaranty or other
similar state governmental fund assessments required by any Governmental
Authority to be paid by them prior to the date of this Agreement. As of the date
of this Agreement, except as and to the extent paid prior to December 31, 2006
or reserved against in the Statutory Statements to the extent required by SAP,
neither the Companies nor AA-BIC has received written notice of any guaranty
fund assessments.

(c)          None of the Companies is in default and no waiver of default is
currently in effect, in the payment of any principal or interest on any
indebtedness for borrowed money of the Companies and, to the Knowledge of the
Companies, no event or condition exists with respect to any such indebtedness of
the Companies that would permit (or that with notice or lapse of time, or both,
would permit) one or more Persons to cause such indebtedness to become due and
payable before its stated maturity or before its regularly scheduled dates of
payment. The Companies have not agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise), themselves or any of
their equity interests, assets or properties, whether now owned or hereafter
acquired, to be subject to an Encumbrance.

Section 5.9.       Absence of Certain Changes; No Material Adverse Effect. (a)
Except as set forth on Schedule 5.9(a) or as reflected on the 2006 Company
Financial Statements, the Companies (i) have conducted their business in the
ordinary course of business consistent with past practice, and (ii) have not:

(A)         made any material change in the underwriting, reinsurance,
marketing, advertising, pricing, personnel, employment, claim processing and
payment, reserving, financial or accounting practices or policies of any
Company, except as required by law, GAAP or SAP;

(B)         made any entry into or modified any reinsurance or retrocession
agreement or arrangement by any Company other than in the ordinary course of
business consistent with past practice;

(C)         issued, sold, pledged or encumbered any capital stock, notes, bonds
or other securities of any Company, or any option, warrant or other right to
acquire the same;

(D)         redeemed or repurchased any capital stock or declared, made, paid or
set aside any dividends or distributions (whether in cash, securities or other
property) to the holders of capital stock;

(E)         merged with, entered into a consolidation with or acquired an
interest of 5% or more in any Person or acquired a substantial portion of the
assets or business of any Person or any division or line of business thereof, or
otherwise acquired any assets (other than fixed maturity securities, equity
securities, cash and short-term

 

 

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investments) with a value in excess of $100,000.00 individually or $1,000,000.00
in the aggregate;

(F)          entered into any lease (as lessor or lessee), other than renewals
and extensions of current leases in the ordinary course of business, consistent
with past practice; sold, abandoned or made any other disposition of any of its
investments or other assets, properties or business other than in the ordinary
course of business, consistent with past practice; granted or suffered any
Encumbrance on any of its assets, properties or business other than in the
ordinary course of business, consistent with past practice; entered into,
amended or terminated any Contract to which it is a party or by or to which it
or its assets, properties or business are bound or subject or waived, released,
or assigned any right or claim thereunder, except in each case in the ordinary
course of business, in a manner consistent with past practice; or entered into
or amended any Contract pursuant to which it agrees to indemnify any Person
(other than insurance policies or similar instruments written, assumed or
reinsured by the Companies in the ordinary course of business consistent with
past practice) or any other Contract pursuant to which it agrees or is obligated
to refrain from competing with any Person;

(G)         engaged in any transaction with, or entered into any understanding,
arrangement or Contract with any Affiliate, any Seller or any Affiliate of a
Seller (other than between or among the Companies) that involves the transfer of
consideration and that (i) has terms less favorable to the Companies than the
Companies could receive from a non-Affiliate or (ii) has or would have a
material adverse financial impact on the Companies, other than, in each case
pursuant to the Contracts with Affiliates existing on the date of this Agreement
(without giving effect to any amendments or restatements);

(H)         made, after the date hereof, any capital expenditure or commitment
for any capital expenditure in excess of $100,000.00 individually or
$1,000,000.00 in the aggregate;

(I)          incurred indebtedness for money borrowed;

(J)          made any loan, advance or capital contribution to, guaranteed,
assumed or endorsed any indebtedness for money borrowed of, or otherwise
incurred or become responsible or liable (whether directly, contingently or
otherwise) for such indebtedness on behalf of, any Person;

(K)         (i) made or changed any election or method of accounting concerning
any Taxes or Tax Returns unless required by GAAP or SAP, (ii) filed any Tax
Return or amended Tax Return in a manner that is inconsistent with past
practices with respect to any Tax Return (as established on a separate Tax
Return basis by the most recently filed of each such Tax Return of which a copy
has been provided to Buyer prior to the date hereof); provided, that a copy of
any such Tax Return shall first be provided to Buyer at least 20 days prior to
filing for Buyer's comments and approval, (iii) settled any Tax Claim or
assessment that involves a liability for Taxes or surrender any right to claim a
refund or credit of any Taxes, in each case, in an amount in excess of
$50,000.00, (iv)

 

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requested or received any rulings or legal determinations with respect to any
matter relating to Taxes from a Governmental Authority, or (v) entered into any
agreements relating to Taxes with a Governmental Authority, in each case, that
could adversely affect Buyer or the Companies for taxable periods (or portions
thereof) beginning after the Closing Date;

(L)         generally failed to pay its creditors amounts owed to such creditors
when due;

(M)        except as required by Applicable Law or in the ordinary course of
business consistent with past practice, (i) granted any increase, or announced
any increase, in the wages, salaries, compensation, bonuses, incentives,
severance, pension or other direct or indirect compensation or benefits payable
to any of its employees, officers, directors, agents or consultants, including,
without limitation, any increase or change pursuant to any Benefit Plan, or (ii)
established or increased or promised to increase any benefits under any Benefit
Plan;

(N)         amended, terminated or waived any right of value material to its
business, other than with respect to the settlement of insured claims in the
ordinary course of business in a manner consistent with past practice;

(O)         revalued any portion of its assets, properties or business;

(P)          increased its reserves for losses (including incurred but not
reported losses) and loss adjustment expenses, except in a manner and in amounts
consistent with past practice;

(Q)         amended or restated its Articles or Certificate of Incorporation or
Bylaws (or other organizational documents);

(R)         terminated, canceled or amended any insurance coverage maintained by
the Companies with respect to any material assets of any Company or any material
risk which is not replaced by an adequate amount of insurance coverage;

(S)          made any distribution or other delivery of consideration to the
Sellers other than as set forth on Schedule 5.28(a);

(T)          other than in the ordinary course of business consistent with past
practice, amended, terminated or entered into any other material transaction; or

(U)         agreed, whether in writing or otherwise, to take any of the actions
specified in this Section 5.9(a), except as expressly contemplated by this
Agreement.

(b)          Since December 31, 2006, to the Knowledge of the Companies, there
has been no event or occurrence which has had or which would reasonably be
expected to have a Material Adverse Effect on the Companies.

 

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Section 5.10.     Compliance with Law; Permits; Regulatory Matters. (a)Except as
set forth on Schedule 5.10(a), the Companies have been since January 1, 2004 and
currently are in compliance in all material respects with all Applicable Laws.
Except as set forth on Schedule 5.10(a), none of the Companies has received any
written notice since January 1, 2004 to the effect that they are not in
compliance in all material respects with any Applicable Law and, to the
Knowledge of the Companies, there are no currently existing circumstances that
are likely to result in the Companies being in violation in any material respect
of any Applicable Law.

(b)          Schedule 5.10(b) lists the jurisdictions in which AA-BIC is
licensed to write insurance policies and the types of insurance and other
products that AA-BIC is licensed to write in each such jurisdiction. The
Companies have provided to Buyer true and complete copies of all such licenses.
Except as set forth on Schedule 5.10(b) or in connection with applications for
licenses, or rate or form filings made in the ordinary course of business and
consistent with past practice, AA-BIC is not the subject of (i) any supervision,
conservation, rehabilitation, liquidation, receivership, insolvency or other
similar proceeding, (ii) pending disciplinary action, (iii) other Regulatory
Proceedings or, (iv) to the Knowledge of the Companies, threatened disciplinary
action or other Regulatory Proceedings. The state of domicile of AA-BIC is
Texas. AA-BIC is not a “commercially domiciled insurer” under the laws of any
jurisdiction or is otherwise treated as domiciled in a jurisdiction other than
Texas.

(c)          Except as set forth on Schedule 5.10(c), (i) the Companies hold all
Permits necessary for the ownership and conduct of the business of the Companies
in each of the jurisdictions in which the Companies conduct or operate their
business in the manner now conducted, and all such Permits are in full force and
effect, with such exceptions which singularly and in the aggregate have not had
nor would reasonably be expected to have a Material Adverse Effect on the
Companies, (ii) the Companies are, and at all times since January 1, 2004 have
been, in compliance in all material respects with the terms of the Permits,
(iii) none of the Companies has received, at any time since January 1, 2004, any
notice or other communication (whether written or oral) from any Governmental
Authority or any other Person regarding (1) any actual, alleged, possible, or
potential violation of, or failure on the part of any Company to comply with,
any term or requirement of any material Permit or (2) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any material Permit, (iv) to the Knowledge of
the Companies, no event has occurred or circumstance exists that (with or
without the giving of notice or lapse of time or both) (1) constitutes or would
reasonably be expected to result in, directly or indirectly, a violation of, or
a failure to comply in any material respect with, any Applicable Law or any term
or requirement of any Permit, or (2) has resulted or would reasonably be
expected to result, directly or indirectly, in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to, any
material Permit, and (v) all applications required to have been filed for the
renewal of each such material Permit have been duly filed on a timely basis with
the appropriate Governmental Authority, and all other filings required to have
been made with respect to each such material Permit have been duly made on a
timely basis with the appropriate Governmental Authority. Subject to the receipt
of each of the consents and approvals set forth on Schedules 5.3 and 6.3 and
compliance by Sellers and/or Buyer with the HSR Act and the applicable change of
control insurance laws, regulations and other requirements of the State of Texas
and each other jurisdiction in which one or more of the Companies is either (x)
licensed to write insurance policies or (y) licensed to conduct business, the
consummation of the

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transactions contemplated by this Agreement will not result in any revocation,
cancellation, suspension or nonrenewal of any such material Permit.

(d)          None of the Companies or any of their properties or assets relating
thereto is subject to any outstanding order of, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any supervisory letter from or has adopted
any resolutions at the request of, any Governmental Authority that by its terms
restricts in any material respect the conduct of its business or that in any
manner relates to its capital adequacy, its management or its business (each, a
“Regulatory Agreement”), nor has any Company been advised in writing since
January 1, 2004 by any Governmental Authority that it is considering issuing or
requesting any such Regulatory Agreement.

(e)          All outstanding Insurance Contracts issued by AA-BIC, or which are
being issued by AA-BIC as of the date hereof, are in compliance, and at their
respective dates of issuance were in compliance, in all material respects with
all Applicable Laws and, to the extent required under Applicable Law in all
material respects, are on forms approved by the FCIC or the applicable
Governmental Authorities or on forms that have been filed and not objected to
(or such objection has been withdrawn or resolved) by such Governmental
Authorities within the period provided for objection. All forms of Insurance
Contracts currently outstanding together with all amendments thereto, are on the
forms that have been previously provided to Buyer.

(f)           All premium rates established by AA-BIC that are required to be
filed with or approved by any Governmental Authorities have been so filed or
approved, the premiums charged conform to the premiums so filed or approved and
comply (or complied at the relevant time) with the insurance laws applicable
thereto in all material respects.

(g)          There are no in force Insurance Contracts of AA-BIC under which the
holders or owners of such Insurance Contracts have any rights with respect to
dividends, surplus, profits, participation or voting rights.

(h)          The Company does not have any uncertain tax positions, as that term
is defined in Statement of Financial Accounting Standards No. 109, “Accounting
for Income Taxes,” as interpreted by Financial Accounting Standards Board
Interpretation No. 48.

Section 5.11.     Compliance Disputes. Schedule 5.11 sets forth a true and
complete listing of all requests by RMA and TDI for additional information
regarding MPCI Policies which have not resulted in a final, nonappealable
determination by RMA and TDI as of the date of this Agreement regarding whether
the MPCI Policies complied with FCIC requirements.

Section 5.12.     Filings. Except as set forth on Schedule 5.12, since January
1, 2004, (i) the Companies have filed all material reports, statements,
documents, registrations, filings and submissions required to be filed with any
Governmental Authority, and all such reports, statements, documents,
registrations, filing and submissions complied in all material respects with
Applicable Law in effect when filed, and (ii) no material deficiencies have been
asserted in writing by, nor have any material comments been received from, nor
any material

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penalties imposed by, any such Governmental Authorities with respect to such
reports, statements, documents, registrations, filings or submissions.

Section 5.13.     Insurance Agents. (a)Schedule 5.13(a) sets forth a list of all
Insurance Agents, including their names, addresses, telephone numbers,
electronic mail addresses and gross premiums written for or on behalf of Sellers
by line of business for each of 2004, 2005 and 2006.

(b)          Schedule 5.13(b)(i) lists the standard form of agreement between
the Companies and their agents, managers or brokers in existence on the date
hereof. Schedule 5.13(b)(ii) lists the fees (expressed as a percentage of
premium) paid to each of the Companies’ agents, managers or brokers for each
line of business. Except as set forth on Schedule 5.13(b)(iii), there are no
side agreements or other agreements (whether oral or written) between any of the
Companies or AA-BIC and their agents, managers or brokers which require the
payment of compensation in excess of the amounts payable as set forth on
Schedule 5.13(b)(ii). Except as set forth on Schedule 5.13(b)(iv), no such agent
has binding authority on behalf of AA-BIC.

(c)          The Companies have provided to Buyer true, complete and correct
copies of the Companies’ and AA-BIC’s written procedures designed to provide
assurance that agents comply with Applicable Laws. To the Knowledge of the
Companies, (i) each Insurance Agent at the time such agent wrote, sold, produced
or managed any MPCI Policies or any Crop Hail Policies for AA-BIC, was duly
licensed (for the type of business written, sold, produced or managed by such
agent) in the particular jurisdiction in which such Insurance Agent wrote, sold,
produced or managed such business for AA-BIC; (ii) all compensation paid to each
such Insurance Agent in connection with business placed for AA-BIC was paid in
accordance with Applicable Law and Permits; and (iii) no such Insurance Agent
violated (or with or without notice or lapse of time or both would have
violated) any term or provision of any Applicable Law or order applicable to any
aspect (including, but not limited to, the marketing, writing, sale, production
or management) of AA-BIC’s business.

Section 5.14.     Underwriting and Claims Handling. (a)All benefits claimed by
any Person under any Insurance Contract issued by AA-BIC have in all material
respects been paid (or provision for payment thereof has been made) in
accordance with the terms of the Insurance Contract and applicable provisions of
state law and the Federal Crop Insurance Program under which they arose, such
payments were not materially delinquent and were paid (or will be paid) without
fines or penalties, except for any such claim for benefits for which the
affected company reasonably believes or believed that there is a reasonable
basis to contest payment and is taking such action.

(b)          The underwriting standards utilized and ratings applied by AA-BIC
with respect to Insurance Contracts outstanding as of the date hereof have been
previously disclosed to Buyer and, with respect to any such contract reinsured
in whole or in part, conform in all material respects to the standards and
ratings required pursuant to the terms of the related reinsurance, coinsurance
or other similar Contracts.

 

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Section 5.15.     Market Conduct. AA-BIC and, to the Knowledge of the Companies,
AA-BIC’s agents and representatives, have marketed, sold and issued products of
AA-BIC in compliance, in all material respects, with Applicable Laws in the
respective jurisdictions in which such products have been sold. All advertising,
promotional and sales materials and other marketing practices used by AA-BIC
and, to the Knowledge of the Companies, any independent agents and
representatives thereof, have complied and are currently in compliance, in each
case, in all material respects, with Applicable Laws. Neither the manner in
which AA-BIC compensates any Person involved in the sale or servicing of the
Insurance Contracts that is not an insurance agent, nor, to the Knowledge of the
Companies, the conduct of any such Person, renders such Person an insurance
agent under any Applicable Laws, and the manner in which AA-BIC compensates each
Person involved in the sale or servicing of the Insurance Contracts is in
compliance in all material respects with all Applicable Laws.

Section 5.16.     Insurance Issued by AA-BIC. Except as required by law, since
January 1, 2004:

(a)          all insurance claims paid by AA-BIC have in all material respects
been paid in accordance with the terms of the Insurance Contracts under which
they arose, except for such claims for which AA-BIC has reasonable belief there
was a reasonable basis to contest payment; and,

(b)          The Companies have provided Buyer with copies of all underwriting
guidelines manuals utilized by the Companies since January 1, 2004. Except as
set forth on Schedule 5.16(b), AA-BIC has followed such guidelines in all
material respects in the ordinary course of business since January 1, 2004.

Section 5.17.     Reinsurance and Retrocessions. Schedule 5.17(i) sets forth an
accurate, current and complete list, as of the date hereof, of (a) all
reinsurance and retrocession treaties and agreements in force as of and
immediately prior to the date of this Agreement to which any Company is or was a
ceding party, (b) any terminated or expired treaty or agreement of any Company
under which there remains any outstanding reserves and (c) any treaty or
agreement with any Affiliate of any Company, and for each such treaty or
agreement described in (a), (b) or (c), the effective date of such treaty or
agreement and the termination date of any such treaty or agreement which has a
definite termination date. All such treaties or agreements set forth on Schedule
5.17(i) are in full force and effect to the respective dates noted on the
Schedule, and no Company is in default in any material respect as to any
material provision of any reinsurance or retrocession treaty or agreement. No
such treaty or agreement contains any provision providing that the other party
thereto may terminate or otherwise modify such treaty or agreement by reason of
the transactions contemplated by this Agreement; no such treaty or agreement
contains any provision which by its own terms would result in a modification in
the operation of the treaty or agreement by reason of the transactions
contemplated by this Agreement. The Companies and Sellers have no Knowledge that
the amounts due or coming due in the future under each such treaty or agreements
will not be collectible in full in the ordinary course. Except as set forth on
Schedule 5.17(i), AA-BIC is entitled to take full credit in its statutory
financial statements pursuant to Applicable Laws for all reinsurance and
coinsurance ceded pursuant to any reinsurance or coinsurance treaty or agreement
to which AA-BIC is a

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party. Schedule 5.17(ii) sets forth a list of each reinsurance audit report
issued in connection with AA-BIC since January 1, 2004.

Section 5.18.     Material Contracts. (a) Schedule 5.18(a) sets forth an
accurate, current and complete list, as of the date hereof, of all Contracts to
which each Company is a party (excluding Insurance Contracts, reinsurance
agreements or similar instruments written, assumed or reinsured by any Company
in the ordinary course of business in a manner consistent with past practice) or
by which any of their assets are bound which contain obligations of the
Companies in excess of $100,000.00 or are otherwise material to the business of
the Companies, taken as a whole (collectively, the “Material Contracts”). Each
of the Material Contracts is a legal, valid and binding obligation of the
applicable Company enforceable against such Company and, to the Knowledge of the
Companies, against the other parties thereto, in accordance with its respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, or similar laws affecting creditors’ rights
generally and by general principles of equity. The Companies have provided Buyer
with complete and accurate copies of all written Material Contracts and with a
reasonably detailed written description of all oral Material Contracts. None of
the Companies has received written notice of a cancellation of or an intent to
cancel any Material Contract. There exists no breach or event of default related
to any Material Contract on the part of the Companies or, to the Knowledge of
the Companies and Sellers, on the part of any other party to any Material
Contract.

(b)          Except as set forth on Schedule 5.18(b), as of the date hereof,
none of the Companies is a party to any Contract (i) containing provisions
giving others any rights of termination, amendment, acceleration, suspension,
approval, revocation, or cancellation, requiring any notice, consent, approval
or waiver, or resulting in the creation or continuance of any encumbrance on any
of the assets or properties of any of the Companies, in each case in connection
with or as a result of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby; (ii) containing covenants
limiting the freedom of any Company to engage in any line of business in any
geographic area or to compete with any Person or to incur indebtedness for
borrowed money; (iii) containing provisions providing for the indemnification by
any Company of any Person in an amount that is reasonably likely to be material
to the Companies, taken as a whole (except Insurance Contracts or similar
instruments written, assumed or reinsured by any Company in the ordinary course
of business in a manner consistent with past practice); (iv) with employees
relating to their employment with any Company; (v) forming joint ventures; (vi)
under which any Company has guaranteed the obligations of any Person (excluding
Insurance Contracts or similar instruments written, assumed or reinsured by any
Company in the ordinary course of business in a manner consistent with past
practice); or (vii) with any Governmental Authority affecting the business of
any Company and not made in the ordinary course of business.

Section 5.19.     Technology and Intellectual Property. (a) Schedule 5.19(a)
lists (i) all Registered Intellectual Property owned by the Companies (including
registration number and jurisdiction), (ii) all material Owned Intellectual
Property other than Registered Intellectual Property, and (iii) all Intellectual
Property used in or necessary for the conduct of the businesses of the Companies
as currently conducted (the “Licensed Intellectual Property”). Other than as set
forth on Schedule 5.19(a), the Companies own all right, title and interest in
and to the Owned Intellectual Property, free and clear of all Encumbrances. The
Companies own or have valid and

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enforceable licenses, agreements or rights (through non-assertion, settlement or
similar agreements or otherwise), which are in full force and effect, to use all
Licensed Intellectual Property.

(b)          There are no material agreements or arrangements pursuant to which
(i) the Companies have licensed to any other Person or otherwise permitted any
other Person to use (through non-assertion, settlement or similar agreements or
otherwise) any of the Owned Intellectual Property or (ii) the Companies permit
any Person to use any Intellectual Property that is not Owned Intellectual
Property. None of the Companies has entered into an agreement to indemnify any
party against a charge of infringement arising out of the authorized use of the
Owned Intellectual Property.

(c)          All Licensed Intellectual Property that is licensed from or to
another Person by the Companies is being used substantially in accordance with
the applicable license, agreement or arrangement to which the Companies are a
party.

(d)          The Companies own or have the right to use all of the data, files,
input, materials, reports, forms and records used and necessary to carry on the
business of the Companies (collectively, the “Data”) free and clear of any
Encumbrances.

(e)          No claim or demand of any Person has been made to the Companies,
nor is there any proceeding that is pending which (i) challenges the rights of
any Company in respect of any Intellectual Property or (ii) asserts that any
Company is infringing or otherwise in conflict with any Intellectual Property.

(f)           The Owned Intellectual Property and the conduct of the business of
the Companies as currently conducted, including the use of any Intellectual
Property used in or necessary to the conduct of the business of the Companies as
currently conducted, do not materially infringe the rights of any other Person,
including the rights in respect of any Intellectual Property owned by any other
Person. No use of any Intellectual Property Right by the Companies requires any
payment for the use of such Intellectual Property right (except for the payment
of computer licensing fees or fees required for maintaining or renewing Owned
Intellectual Property).

(g)          The Companies have taken all steps they reasonably believe
appropriate to protect and preserve the confidentiality of trade secrets or
other confidential information and proprietary know-how, ideas and information
used or necessary for any business of the Companies (“Company Confidential
Information”). Schedule 5.19(g) sets forth a complete and accurate list of
Contracts in effect as of the date hereof in which current or, to the Knowledge
of the Companies, former employees of the Companies have agreed not to disclose
confidential or proprietary information relating to the business of the
Companies or have agreed not to compete in such business with the Companies
(collectively, the “Employee Restrictive Agreements”). To the Knowledge of the
Companies, (i) no such current or former employee of the Companies has breached
or violated any of the Employee Restrictive Agreements, (ii) there has been no
breach of any Company Confidential Information by any other Person, (iii) all
use, disclosure or appropriation of confidential information of a third party
has been pursuant to the terms of a written agreement between the Companies, on
the one hand, and such third party, on the other

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hand, or is otherwise lawful and (iv) all use, disclosure or appropriation of
confidential information of a third party by the Companies has not violated the
rights of any Person.

(h)          The Companies have established and are in compliance with
commercially reasonable security programs that are designed to protect (i) the
security, confidentiality and integrity of transactions executed through their
computer systems, including encryption and/or other security protocols and
techniques when appropriate and (ii) the security, confidentiality and integrity
of all confidential or proprietary Data. The Companies have not suffered a
material security breach with respect to their data or systems, and none of the
Companies has notified (i) consumers of any information security breach or (ii)
employees of a security breach involving such employees’ confidential
information.

(i)           The Companies are in compliance in all material respects with all
Applicable Laws, and have established and are in compliance with their own
written privacy policies, in each case, applicable to its collection, use,
disclosure, maintenance and transmission of personal, private, health or
financial information about individual policyholders, customers, consumers or
benefits recipients (“Consumer Privacy Information”). As of the date hereof, the
Companies are not prohibited by any Applicable Law concerning privacy or their
own written privacy policies from providing Buyer with the Consumer Privacy
Information that has been, or will be, provided to Buyer, on or after the date
hereof, in connection with the transactions and provision of services
contemplated hereby.

(j)           All contracts, leases, licenses, agreements, arrangements,
commitments, instruments and undertakings related to Intellectual Property and
Data that are used in or necessary for the conduct of the businesses of the
Companies as currently conducted will be capable of being used by Companies upon
and after the Closing, without the consent, approval, waiver or authorization of
any other party thereto or any third party, and such use will not constitute a
breach thereof or a violation of Applicable Law nor entitle any other party to
any such license, sublicense or agreement to terminate or modify such license,
sublicense or agreement.

Section 5.20.     Real Property. (a) Schedule 5.20(a) sets forth a true and
complete listing, as of the date hereof, of all real property owned by the
Companies. Except as set forth on Schedule 5.20(a), the Companies have good and
valid title to all real property in which they own or have ever owned any
direct, indirect or beneficial interest, free and clear of all Encumbrances.

(b)          Schedule 5.20(b) sets forth a true and complete listing, as of the
date hereof, of all real estate Leases to which any Company is a party and
setting forth the address, the name of landlord, the name of the tenant, the
rent, the term, the entity in possession of any sublease, the amount of security
deposit, if any, whether the real property is used exclusively by the Companies
or is shared with other businesses operated by any Seller or any Affiliates of
any Seller for each Lease. The Companies have delivered to Buyer correct and
complete copies of the Leases (as amended or supplemented). Each Lease is legal,
valid, binding, in full force and effect, has not been modified or amended, and
enforceable in accordance with its respective terms against the Companies or
their Affiliates party thereto and, to the Knowledge of the Companies, against
the other parties thereto. None of the Companies has given or received any

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notification that disputes the computation of rents or charges payable pursuant
to the Leases and there are no pending unresolved material disputes with any
landlord under the Leases.

(c)          There are no subtenants occupying any portion of the Leased Real
Properties, and except for the Companies, no other person or entity has any
right to occupy or possess any portion of the Leased Real Properties. None of
the Companies’ interest in any of the Leased Real Properties have been pledged,
assigned, hypothecated, mortgaged, or otherwise encumbered in any manner.

(d)          No construction, alteration, decoration or other work due to be
performed by the Companies and/or any landlord pursuant to any Lease, remains to
be performed thereunder and all construction allowances to be paid to any
Company or any other sums to be paid to outside contractors or other third
parties for work performed at any of the Leased Real Properties has been paid in
full.

(e)          None of the Companies has vacated or abandoned any of the Leased
Real Properties, or given notice of its intent to do the same. None of the
Companies has the right or option to purchase or otherwise acquire any of the
Leased Real Properties. None of the Companies has given notice to any landlord
indicating that it will or will not exercise any extension or renewal option, or
any right or option to purchase any of the Leased Real Properties or any portion
thereof.

Section 5.21.     Title to Assets. The Companies have good title to, or valid
and subsisting leasehold interests in, all personal property and other assets on
their books and reflected on the Companies’ combined balance sheet included in
the 2006 Company Financial Statements or acquired in the ordinary course of
business since December 31, 2006 which would have been required to be reflected
on such balance sheet if acquired on or prior to December 31, 2006, other than
assets which have been disposed of in the ordinary course of business. Other
than investment portfolio assets, which are not subject to any Encumbrances,
none of such assets having a value in excess of $100,000.00 subject to any
Encumbrance, except for Encumbrances set forth on Schedule 5.21 or reflected in
the 2006 Company Financial Statements.

Section 5.22.     Sufficiency of Assets. The assets owned or leased by the
Companies are sufficient in all material respects for the operation of the
businesses of the Companies as currently conducted (including all books,
records, computers and computer programs and data processing systems).

Section 5.23.     Reserves. The loss (including incurred but not reported loss)
and loss adjustment expense reserves of the Companies reflected on the combined
balance sheets as of and for the periods ended December 31, 2006 and March 31,
2007 included in the Statutory Statements and the 2006 Company Financial
Statements have been booked consistent with past practices of the Companies and,
(i) have been prepared in accordance with SAP or GAAP, as applicable, (ii) were
determined in accordance with Actuarial Standards of Practice consistently
applied and (iii) are fairly stated in accordance with sound actuarial
principles.

 

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Section 5.24.   Taxes.

(a)          All (i) Tax Returns required to have been filed by, or with respect
to the Companies have been filed on a timely basis within the time and manner
prescribed by Applicable Law and (ii) Taxes (including, without limitation, any
Taxes the Companies have been required to withhold with respect to payments made
to employees, service providers, policyholders, shareholders and other third
parties) shown to be due on such Tax Returns or otherwise due have been paid
within the time and manner required by Applicable Law.  All such Tax Returns
were and continue to be true, correct and complete in all material respects and
the Companies (either on a stand-alone or consolidated basis as required by
GAAP) has made due and sufficient accruals for any and all unpaid Taxes on their
respective Financial Statements.  There are no Encumbrances on the Shares of any
of the Companies or on any of the assets of any of the Companies (other than for
Taxes that are not due and payable as of the date hereof for which a sufficient
reserve has been accrued for on the Financial Statements).

(b)          (i) No Federal, state, local or foreign audit or other
administrative proceeding or court proceeding (each an “Audit”) exists, has been
initiated, is pending or is threatened with regard to Taxes or Tax Returns
(including, without limitation, the amount of any Tax item shown on such Tax
Returns) of or relating to the Companies; (ii) there are no written proposed
reassessments or other proposals received from a Governmental Authority that
could increase the amount of any Tax to which the Companies could be subject to
after the Closing Date; (iii) with respect to each Company, no claim has ever
been made by a Governmental Authority in a jurisdiction where a Company (or a
Seller with respect to a Company) does not file Tax Returns that the Company is
or may be subject to taxation by that jurisdiction and none of the Companies
have been or are subject to Tax in a jurisdiction other than the United States
(or any state or locality that comprises the United States of America); (iv)
none of the Companies (or Sellers with respect to the Companies) have submitted
a request for a ruling from a Governmental Authority relating to Taxes that has
not been granted or have proposed to enter into an agreement with a Governmental
Authority relating to Taxes that is currently pending, in each case, that could
adversely affect the Companies or Buyer after the Closing Date; and (v) the
Companies have not requested an extension of time within which to file any Tax
Return in respect of any taxable year which has subsequently not been filed and
no outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Returns of the Companies
has been given by or on behalf of any of the Companies.

(c)          Since July 2003, (i) none of the Companies has been a member of an
Affiliated Group other than the current Affiliated Group that includes ARMtech
Holdings as a common parent; (ii) except for the agreement entered into by
ARMtech Holdings and AA-BIC that provides for the allocation and payment of
Taxes between such parties that is dated as of March 2004 and a copy of which
Sellers have provided to Buyer as of the date hereof (the “Current Tax Sharing
Agreement”), none of the Companies has granted, is a party to, is bound by, is
subject to and has no obligation under, any (A) Tax sharing or allocation
agreement, (B) other agreement which provides an indemnification for Taxes, or
(C) power of attorney with respect to any matter relating to Taxes and (iii)
none of the Companies is liable for any Taxes of another person as a successor,
transferee, by indemnity or otherwise.

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(d)          Except as required by Applicable Law, since December 31, 2006, none
of the Companies (or Sellers with respect to the Companies) have: (A) made or
changed any election concerning any Taxes, (B) filed any amended Tax Return, (C)
settled any Tax Claim or assessment, (D) received or filed a request for a
ruling relating to Taxes issued by a Governmental Authority or entered into any
agreement with a Governmental Authority relating to Taxes or (E) surrendered any
right to claim a refund of any Taxes, in each case, to the extent such action
would materially affect the Taxes or any Tax attributes of such Company
following the Closing Date.

(e)          The Companies have delivered or made available to Buyer correct and
complete copies of all (i) Tax Returns filed by or including the Companies, (ii)
all Tax reports, memoranda, work papers and analyses provided to or performed by
or at the request of the Companies or Sellers with respect to Taxes of the
Companies, Tax matters and positions regarding Taxes of the Companies and (iii)
all examination reports and other relevant written materials with respect to
Audits (whether proposed, threatened, pending or concluded) related to the three
taxable years ending prior to the Closing Date.

(f)           Except as set forth on Schedule 5.24(f), none of the Companies has
engaged in any transaction or agreement (including without limitation, an
installment sale) prior to the Closing Date which could result in the
recognition of a material amount of income or gain by the Companies in any
period ending after the Closing Date.

(g)          The deductibility of interest paid by any of the Companies on debt
obligations is not limited in any manner by Section 279 or 163 of the Code. 

(h)          None of the Companies (nor any Seller with respect to the
Companies) has participated, within the meaning of Treasury Regulation Section
1.6011-4(c), or has been a “material advisor” or “promoter” (as those terms are
defined in Section 6111 and 6112 of the Code and the Treasury Regulations
promulgated thereunder) in any “listed transaction” within the meaning of
Section 6011 of the Code and the Treasury Regulations promulgated thereunder.

(i)           None of the Companies has a deferred intercompany gain (as
described in Section 1.1502-13 of the Treasury Regulations) or an “excess loss
account” (as defined in Treasury Regulation Section 1502-19) in respect of the
stock of any Subsidiary.

(j)           Within the meaning of Section 355 of the Code, none of the
Companies was a “distributing corporation” in a transaction intended to be
governed by Section 355 of the Code (A) in the two years prior to the date of
this Agreement or (B) in a distribution which could otherwise constitute part of
a “plan” or “series of related transactions” in conjunction with the
transactions contemplated by this Agreement.

(k)          None of the Insurance Contracts is a “specified insurance contract”
under Internal Revenue Code Section 848 and none of the Companies has issued,
assumed, modified, exchanged, administered, marketed or sold any policies,
annuities or other contracts or plans that are subject to or otherwise intended
to qualify under Sections 72, 101, 130, 401, 403, 408, 457, 817, 817A, 7702 and
7702A of the Code.

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(l)           Tax reserves for AA-BIC have and are computed and maintained in
the manner required under Sections 832 and 846 of the Code and any other
applicable tax provision.

(m)         Since the date of its formation and through the Closing Date, (i)
each of ARMtech and ARMIS has, at all times, been an “S Corporation” as that
term is defined pursuant to Section 1361(a) of the Code and each such Company
properly elected in the manner and within the time required by Applicable Law to
be treated as such. 

Section 5.25.     Employee Matters. (a) Schedule 5.25(a) contains a complete and
accurate list of each “employee benefit plan,” as that term is defined in
Section 3(3) of ERISA, and each bonus, pension, profit sharing, incentive
compensation, deferred compensation, stock ownership, stock purchase, stock
appreciation, restricted stock, stock option, phantom stock, performance,
thrift, savings, stock bonus, cafeteria, paid time off, perquisite, fringe
benefit, vacation, disability, death benefit, hospitalization, medical or other
welfare benefit, employment, severance, termination, retention,
change-of-control, equity-based performance or other employee or retiree benefit
or compensation plan or arrangement, written or unwritten, in each case
maintained, sponsored or established by, or contributed to (or for which there
is an obligation to contribute to) by the Companies or any of their Affiliates
for any of their employees or former employees (collectively, “Benefit Plans”).

(b)          The Companies have made available to Buyer true, complete and
correct copies of (i) the plan document for each Benefit Plan (or, in the case
of any unwritten Benefit Plan, a description thereof) and all amendments
thereto, (ii) the most recent annual report on Form 5500 filed with the IRS with
respect to each Benefit Plan (if any such report was required by Applicable
Law), (iii) all material employee communications with respect to each Benefit
Plan, (iv) the most recent summary plan description and summary of material
modifications for each Benefit Plan for which such summary plan description and
summary of material modifications is required, (v) each trust agreement, group
annuity contract, administrative services, consulting, investment or other
agreement relating to any Benefit Plan, (vi) the most recent determination
letter received from the IRS, if any, with respect to each Benefit Plan that is
intended to be a “qualified” plan under Sections 401(a) and 501(a) of the Code,
and (vii) the most recently prepared actuarial valuation report and audited
financial statements in connection with each Benefit Plan for which an actuarial
valuation report or audited financial statements were required to be prepared
under Applicable Law.

(c)          Each Benefit Plan that is intended to be “qualified” within the
meaning of Section 401(a) of the Code either (i) has received a favorable
determination letter (where such determination letter is permissible under
Section 19.01 of IRS Rev Proc 2005-16) from the IRS as to its qualification
under the Code and to the effect that each related trust is exempt from taxation
under Section 501(a) of the Code and covering all tax Law changes pursuant to
the Benefit Plan’s applicable Cumulative List as identified in IRS Rev Proc
2005-66 or (ii) has applied or will apply for such favorable determination
letter within the remedial amendment period under Section 401(b) of the Code and
no event has occurred since the date of such determination letter, and no
condition exists, that will adversely affect such qualification or tax-exempt
status.

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(d)          All contributions, premiums or other payments (including all
employer contributions and employee salary reduction contributions) which are
due have been paid to each of the Benefit Plans and all contributions, premiums
or other payments for any period ending on or before the Closing Date which are
not yet due have been paid to each such Benefit Plan or accrued properly on the
date of the most recent financial statements of the Companies and their
Affiliates.

(e)          Each Benefit Plan has been operated and administered in accordance
with its terms and with all applicable provisions of ERISA, the Code and all
other Applicable Laws. No Benefit Plan is presently under audit or examination
(nor has notice been received of a potential audit or examination) by the IRS,
the Department of Labor, or any other Governmental Authority, and no matters are
pending with respect to any Benefit Plan under any IRS or Department of Labor
program. There is no pending or, to the Knowledge of the Companies, threatened
legal action, suit or claim or arbitration relating to the Benefit Plans (other
than routine claims for benefits) and no set of circumstances exists that would
reasonably be expected to give rise to a claim or lawsuit relating to the
Benefit Plans that would reasonably be expected to result in a liability of the
Companies to the Pension Benefit Guaranty Corporation, the Department of
Treasury, the Department of Labor, a Benefit Plan or a participant in a Benefit
Plan or any other person.

(f)           With respect to the Companies, their Affiliates or any entity that
is considered one employer with any Company under Section 4001(b) of ERISA or
Section 414 of the Code (an “ERISA Affiliate”), there does not exist, nor do any
circumstances exist that would reasonably be expected to result in, a liability,
at or after the Closing Date, of any Company or any of its Affiliates or ERISA
Affiliates (i) under Title IV of ERISA, other than for payment of premiums to
the Pension Benefit Guaranty Corporation, (ii) under Section 302, 4062, 4063,
4064, 4068 or 4069 of ERISA, (iii) under Section 412(n) or 4971 of the Code, and
(iv) for a violation of the continuation coverage requirements of Sections 601
et seq. of ERISA, Section 4980B of the Code or the group health requirements of
Sections 701 et seq. of ERISA and Sections 9801 et seq. of the Code. No Benefit
Plan that is an employee pension benefit plan (as defined in Section 3(2) of
ERISA), had, as of the respective last annual valuation date for each such
Benefit Plan, an “unfunded benefit liability” (as defined in Section 4001(a)(18)
of ERISA) or an “accumulated funding deficiency” (as defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived. No such Benefit Plan
or trusts created thereunder has been terminated, nor has there been any
“reportable event” (as defined in Section 4043 of ERISA) with respect to such
Benefit Plan during the last five years and no notice of a reportable event will
be required to be filed in connection with the transactions contemplated hereby.
No Benefit Plan is a “multiemployer plan,” as defined in Section 3(37) of ERISA
or a “multiple employer plan,” under Section 4063 of ERISA, and the Companies do
not contribute to and has never contributed to, or had any liability with
respect to, a multiemployer plan.

(g)          Neither the Companies, nor any of their Affiliates, nor any ERISA
Affiliate, or any director or officer of any Company or any of its Affiliates,
any of the Benefit Plans that are subject to ERISA, any trusts created
thereunder or any trustee or administrator thereof, has engaged in a “prohibited
transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) or
any other breach of fiduciary responsibility that could subject the Companies,
any of its Affiliates, an ERISA Affiliate, or any director or officer of any
Company

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or any of its Affiliates to the tax or penalty on prohibited transactions
imposed by such Section 4975 or to any liability under Section 502(i) or 502(l)
of ERISA.

(h)          With respect to any Benefit Plan that is an employee welfare
benefit plan, as defined in Section 3(1) of ERISA, (i) except for the
continuation coverage requirements of Section 4980B of the Code or Part 6 of
Title I of ERISA (“COBRA”) or similar federal, state or local law, none of the
Companies has any liability or potential liability for benefits to any employees
following the termination of employment or retirement under such Benefit Plans,
and (ii) each such Benefit Plan (including any such Benefit Plan covering
retirees or other former employees) may be amended or terminated without
liability to the Companies and its Affiliates on or at any time after the
Closing Date. No written or oral representations have been made to any current
or former employee of any Company promising or guaranteeing any employer payment
or funding for the continuation of medical, dental, life or disability coverage
for any period of time beyond the end of the current plan year (except to the
extent of coverage required under COBRA or similar federal, state or local law).

(i)           The consummation of the transactions contemplated by this
Agreement will not result in an increase in the amount of compensation or
benefits or the acceleration of the vesting or timing of payment of any
compensation or benefits payable to, or in respect of, or accrued on behalf of
any current or former employee or any director or officer of any Company, or
entitle any such current or former employee, director or officer to any
severance or similar compensation or benefits.

(j)           Each Benefit Plan that is a “nonqualified deferred compensation
plan” subject to Section 409A of the Code has been operated since January 1,
2005 based upon a good faith, reasonable interpretation of Section 409A of the
Code, IRS Notice 2005-1 and the proposed regulations promulgated under Section
409A of the Code. No Benefit Plan that is a “nonqualified deferred compensation
plan” that is not subject to Section 409A of the Code has been materially
modified (as determined under IRS Notice 2005-1) after October 3, 2004.

(k)          No amount that could be received (whether in cash or property or
the vesting of property) as a result of the transactions contemplated by this
Agreement by any person who is a “disqualified individual” (as defined in
Treasury Regulation Section 1.280G-1) with respect to any Company could be
characterized as an “excess parachute payment” (as defined in Section 280G(b)(1)
of the Code), and no such disqualified individual is entitled to receive any
additional payment from any Company or any other person in the event that the
excise tax required by Section 4999(a) of the Code is imposed on such
disqualified individual.

Section 5.26.     Collective Bargaining; Labor Matters; Compliance. (a) Schedule
5.26(a) lists each Employee and his or her title and current salary.

(b)          No general work stoppage or other significant labor dispute with
respect to any Company, is pending or, to the Knowledge of the Companies,
threatened, and no petition for certification of a collective bargaining agent
is pending or, to the Knowledge of the Companies, threatened with respect to the
business of any Company. No Employees are covered by a collective bargaining
agreement. Each Company has complied in all material respects with all
Applicable Laws relating to the employment of labor.

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(c)          None of the Companies has received (i) notice of any currently
pending charge or complaint with respect to or relating to them pending before
the Equal Employment Opportunity Commission or any other Governmental Authority
responsible for the prevention of unlawful employment practices, (ii) notice of
the intent of any Governmental Authority responsible for the enforcement of
labor, employment, wages and hours of work, child labor or immigration laws to
conduct an investigation with respect to or relating to them or notice that such
investigation is in progress, or (iii) notice of any complaint, lawsuit or other
proceeding pending or threatened in any forum by or on behalf of any present or
former employee of such entities, any applicant for employment, or classes of
the foregoing alleging breach of any express or implied contract of employment,
violation of any Applicable Law governing employment or the termination thereof,
or other discriminatory, wrongful or tortious conduct in connection with the
employment relationship. To the Knowledge of the Companies, there is no charge,
complaint, investigation, lawsuit or other proceeding of the type described in
clauses (i), (ii), or (iii) of the immediately preceding sentence pending or in
progress, whether the Companies received notice of the same before.

(d)          Each Company is and has been in compliance in all material respects
with all notice and other requirements under the Workers’ Adjustment and
Retraining Notification Act and any similar state or local law relating to plant
closings and layoffs.

(e)          To the Knowledge of the Companies, no current or former employee is
in any respect in violation of any term of any employment agreement,
nondisclosure agreement, common law nondisclosure obligation, fiduciary duty,
non-competition agreement, restrictive covenant or other obligation to a former
employer of any such employee relating to the right of any such employee to be
employed by any Company.

(f)           The Companies have no Knowledge that any current Employee with the
title of Vice President or higher who is employed by any Company intends to
terminate his or her employment.

Section 5.27.     Internal Controls and Procedures. (a) Each Company maintains
accurate Records reflecting its assets and liabilities and maintains adequate
internal accounting controls that are consistent with sound business practices
applicable to a non-publicly traded company of similar type, size and scope.
Such Records are maintained to provide reasonable assurance that (i)
transactions are executed with management’s authorization; (ii) transactions are
recorded as necessary to permit preparation and certification of its financial
statements and to maintain accountability for its assets; (iii) access to its
assets is permitted only in accordance with management’s authorization; (iv) the
reporting of its assets is compared with existing assets at regular intervals;
and (v) accounts, notes and other receivables are recorded accurately, and
procedures are implemented to effect the collection thereof, in the cases of (i)
through (v), consistent with sound business practices applicable to a
non-publicly traded company of similar type, size and scope.

(b)          No director, officer or other individual has since January 1, 2004,
received or been under a duty to report (including any self reporting
obligation) any material complaint, allegation, assertion or claim, whether
written or oral, regarding the accounting, reserving or auditing practices,
procedures, methodologies or methods of the Companies or their respective

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internal accounting controls, including any complaint, allegation, assertion or
claim that any Company has engaged in questionable accounting, reserving or
auditing practices.

Section 5.28.     Transactions with Certain Persons. (a) Excluding compensation
and dividends or other distributions of earnings completed prior to December 31,
2006 and reflected in the 2006 Company Financial Statements, Schedule 5.28(a)
contains an accurate, current and complete list of all Contracts, transfers of
assets or liabilities, provision of goods or services or other binding
commitments or transactions (whether or not reduced to writing) and whether or
not entered into in the ordinary course of business consistent with past
practice and custom between any Company and any of the following Persons: (i)
Sellers; and (ii) any Person related by blood or marriage to any Seller (such
transactions, “Related Party Transactions”). Schedule 5.28(a) contains a
complete and correct list of all amounts paid in 2006 or 2007 in Related Party
Transactions, including amounts paid since December 31, 2006 and amounts
expected to be paid prior to the Closing, and all amounts due and owing under
any Related Party Transactions.

(b)           (i) All Related Party Transactions have been entered into and
performed on arm’s length terms and in the ordinary course of business
consistent with past practice and custom and in compliance with all applicable
transfer pricing, disclosure, reporting and other related requirements and (ii)
all Related Party Transactions have been incurred in the ordinary course of
business consistent with past practice and custom.

Section 5.29.     Investment Company. None of the Companies is an investment
company subject to registration and regulation under the Investment Company Act
of 1940, as amended.

Section 5.30.     Environmental Laws. To the Knowledge of the Companies, (i)
each Company is in compliance with all applicable Environmental Laws, and
possesses and is in compliance with all Environmental Permits required under
such laws for the conduct of its business and operations, (ii) there are no
past, present or future events, conditions, circumstances, practices, plans or
legal requirements that would prevent any Company from, or increase the burden
on any Company in, complying with applicable Environmental Laws or obtaining,
renewing or complying with all Environmental Permits required under such laws
for the conduct of its business and operations, (iii) none of the Companies has
received any claims or notices alleging liability relating to any Environmental
Laws, and (iv) there are and have been no conditions at any property owned,
operated or otherwise used by any Company now or in the past, or at any other
location, that would give rise to liability of any Company under any
Environmental Law.

Section 5.31.     Insurance Coverage. Schedule 5.31 sets forth an accurate,
current and complete list of all insurance policies relating to the assets,
properties, business, operations, employees, officers or directors of the
Companies. The Companies have provided to Buyer true and complete copies of all
such insurance policies. Schedule 5.31 also describes each pending claim under
any of such policies and sets forth the aggregate amounts paid out since January
1, 2004 under each such policy through the date hereof. Such policies are valid
and binding in accordance with their terms and are in full force and effect and
insure against risks and liabilities customary for the business in which the
Companies are engaged. Except as set forth on

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Schedule 5.31, none of the Companies has received a notice of cancellation or
nonrenewal of any such policy and, to the Knowledge of the Companies, no state
of facts exists which might form the basis for termination of any such policy.
Except as set forth on Schedule 5.31, the Companies have made or will make
provision for insurance coverage consistent with current practices through the
Closing Date. None of the Insurance Contracts for the benefit of the Companies
is in default, and none of the Companies has failed to give any notice or
present any claim thereunder in due or timely fashion or as required by any of
such insurance policies so as to jeopardize full recovery under such policies.
The Companies have paid or will pay all premiums payable for periods through the
Closing Date with respect to such Insurance Contracts and will assign the life
insurance policies insuring the lives of Sellers as set forth on Schedule 5.31
to each respective Seller at Closing; provided, that the Companies shall have no
obligation under such policies as of the Closing Date.

Section 5.32.     Bank Accounts. Schedule 5.32 sets forth a complete and
accurate list of bank accounts and investment accounts maintained by the
Companies, including the name of each bank or other institution, account numbers
and a list of signatories to such account.

Section 5.33.     Ratings. As of the date hereof, (i) the financial strength or
claims-paying ability of AA-BIC is rated B++ by A.M. Best Company, Inc.; and
(ii) A.M. Best Company, Inc. has not announced that it has under surveillance or
review its rating of the financial strength or claims-paying ability of AA-BIC.
As of the date hereof, no other nationally recognized rating agency rates the
financial strength, debt obligations or claims-paying ability of the Companies.

Section 5.34.     Disclosure. The representations and warranties made by the
Companies in this Agreement do not contain any statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained herein not misleading in light of the circumstances in which they were
made.

Section 5.35.     No Broker. No broker, finder or similar intermediary has acted
for or on behalf of any Company or its Affiliate, or is entitled to any
broker’s, finder’s or similar fee or other commission based on arrangements made
by any Company or its Affiliates in connection with this Agreement or the
transactions contemplated hereby.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Sellers, as of the date hereof and as of
the Closing Date (except where this Article VI provides that a representation or
warranty is made only as of a particular date), as follows:

Section 6.1.       Organization and Related Matters. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Buyer has full corporate power and authority to carry on its
business as it is now being conducted and to own, lease and operate all of its
properties and assets.

 

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Section 6.2.       Authority; No Violation. (a) Buyer has full corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
approved by all requisite corporate action on the part of Buyer, and no other
proceedings on the part of Buyer are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Buyer and (assuming the due authorization,
execution and delivery of this Agreement by Sellers and the Companies)
constitutes a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, except as enforcement may be limited by general
principles of equity, whether applied in a court of law or a court of equity,
and by bankruptcy, insolvency, moratorium and similar laws affecting creditors’
rights and remedies generally.

(b)          Neither the execution and delivery of this Agreement by Buyer, nor
the consummation by Buyer of the transactions contemplated hereby to be
performed by it, nor compliance by Buyer with any of the terms or provisions
hereof, will (i) violate any provision of the Certificate of Incorporation or
Bylaws of Buyer, or (ii) assuming that the consents and approvals referred to in
Section 5.3 are duly obtained, (A) violate in any respect any Applicable Law
with respect to Buyer, or any of its properties or assets or (B) violate,
conflict with, result in a breach of any provision of, or constitute a default
under, any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Buyer is a party, or by
which Buyer or any of its properties or assets may be bound, except for such
violations, conflicts, breaches or defaults which would not, individually or in
the aggregate, prevent or materially delay the performance by Buyer of any of
its obligations hereunder.

Section 6.3.       Consents and Approvals. Except for (i) the consents,
approvals, filings and registrations described in Section 6.3 and set forth on
Schedule 6.3 and (ii) such other consents, approvals, filings or registrations
the failure to make or obtain would not, individually or in the aggregate,
prevent or materially delay the performance by Buyer of any of its obligations
pursuant to this Agreement, no consents or approvals of or filings or
registrations with any Governmental Authority or any third party are necessary
in connection with the execution and delivery by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby.

Section 6.4.       Legal Proceedings. Buyer is not a party to any, and there are
no pending or, to the Knowledge of Buyer, threatened Actions against or to the
Knowledge of Buyer, pending or threatened Investigations of Buyer or its
properties or assets or challenging the validity or propriety of, or that have
the effect of preventing, delaying, making illegal or otherwise interfering
with, any of the transactions contemplated by this Agreement, and there is no
injunction, order, judgment, decree, award or regulatory restriction imposed
upon Buyer or any of its properties or assets which has prevented or delayed or
could reasonably be expected to prevent or materially delay the performance by
Buyer of any of its obligations pursuant to this Agreement.

Section 6.5.       Investment Intent of Buyer. The Shares will be acquired by
Buyer for its own account and not for the purpose of a distribution. Buyer will
refrain from transferring or otherwise disposing of any of the Shares acquired
by it, or any interest therein, in such manner

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as to violate any registration provision of the Securities Act of 1933, as
amended, or any applicable state securities law regulating the disposition
thereof. Buyer agrees that the certificates representing the Shares may bear
legends to the effect that the Shares have not been registered under the
Securities Act of 1933, as amended, or such other state securities laws, and
that no interest therein may be transferred or otherwise disposed of in
violation of the provisions thereof.

Section 6.6.       Investment Company. Buyer is not an investment company
subject to registration and regulation under the Investment Company Act of 1940,
as amended.

Section 6.7.       Brokers. Other than Buyer’s financial advisor, no broker,
finder or similar intermediary has acted for or on behalf of Buyer or any
Affiliate of Buyer, or is entitled to any broker’s, finder’s or similar fee or
other commission based on arrangements made by Buyer or its Affiliates in
connection with this Agreement or the transactions contemplated hereby.

Section 6.8       Financing. Buyer has, and at the Closing Date will have, cash
available or existing borrowing facilities, which together are sufficient to
enable it to consummate the transactions contemplated hereby.

ARTICLE VII

COVENANTS

Section 7.1.       Conduct of Business. (a) Except as set forth on Schedule 7.1,
as otherwise contemplated or permitted by this Agreement, or as consented to in
writing by Buyer during the period from the date of this Agreement through the
Closing Date, the Companies shall

(i)           conduct their business in the ordinary course of business
consistent with past practice;

(ii)          not take any of the actions referred to in Sections 5.9(a)(ii)(A)
through 5.9(a)(ii)(T); and

(iii)        use commercially reasonable efforts to (A) preserve substantially
intact their present business organization, (B) perform in all material respects
all of their obligations under all Contracts relating to or affecting their
assets or its business, (C) maintain their Records in the usual manner
consistent with past practice, and (D) comply in all material respects with all
Applicable Laws.

(b)          During the period from the date of this Agreement through the
Closing Date, the Companies shall not take any actions for the purpose or intent
of breaching any representations and warranties contained in Article V hereof.
During the period from the date of this Agreement through the Closing Date, the
Companies shall consult in good faith with members of Buyer’s management: (i)
with respect to significant developments, transactions and

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decisions involving the operations of the Companies not prohibited under this
Agreement, and (ii) with respect to the development and implementation of
business strategies.

Section 7.2.       Announcements. Neither Sellers, nor the Companies, nor Buyer,
nor any of their respective Affiliates, shall publicly disclose the execution,
delivery or contents of this Agreement other than (i) with the prior written
consent of the other parties hereto, or (ii) as required by any Applicable Law
or the applicable rules of any stock exchange upon prior notice to the other
parties hereto and an opportunity by such other parties to review and comment on
the form and substance of such disclosure.

(a)          Buyer, the Companies and Sellers shall agree with each other as to
the form, timing and substance of any press release related to this Agreement or
the transactions contemplated hereby, and shall consult each other as to the
form, timing and substance of other public disclosures related thereto;
provided, however, that nothing contained herein shall prohibit a party,
following notification to the other parties, from making any disclosure which
its counsel determines to be required by any Applicable Law or the applicable
rules of any stock exchange.

Section 7.3.       Confidentiality. (a) Each party acknowledges that the success
of the transactions contemplated hereby and of the continuing business of each
such party and its Affiliates from and after the Closing depends upon the
continued preservation of the confidentiality of certain information possessed
by the other parties and their respective Affiliates and that the preservation
of the confidentiality of certain information by the other parties and their
respective Affiliates is an essential premise of the bargain among the parties.
Each of the parties acknowledges that each of the other parties would be
unwilling to enter into this Agreement in the absence of this Section 7.3 and
the protections established hereby.

(b)          The Companies shall not, and Sellers shall not, and the Companies
and Sellers shall cause their respective Affiliates and their respective agents
and representatives not to, at any time from and after the date of this
Agreement, directly or indirectly, disclose or use any confidential or
proprietary information involving or relating to (x) the Companies, including
any information contained in the Records and (y) Buyer and its Affiliates;
provided, however, that disclosure and use of any such information shall be
permitted (i) with the prior written consent of Buyer, (ii) as, and to the
extent, expressly permitted by this Agreement, (iii) as, and solely to the
extent, necessary or required for the performance by Sellers, the Companies or
any of their Affiliates of any of their respective obligations under this
Agreement, solely with respect to information relating to the Companies, (iv)
as, and to the extent necessary to advise A.M. Best Company, Inc. or any other
rating agency that has issued a rating of any of the Companies of the
transactions contemplated by this Agreement; provided, that Buyer shall be
entitled to be present or otherwise participate in (as Buyer shall elect in its
sole discretion) any discussions the Companies and Sellers engage in with A.M.
Best Company, Inc.; (v) prior to the Closing, with respect to confidential and
proprietary information involving or relating to the Companies, as, and to the
extent, necessary, required or appropriate in the operation of the Companies’
businesses in the ordinary course of business consistent with past practices,
(vi) to the extent such information is generally available to, or known by, the
public or otherwise has entered the public domain (other than as a result of
disclosure in violation of this Section 7.3(b) by Sellers, the Companies or any
of their Affiliates), (vii) as, and to the extent, necessary or required by any
Applicable Law or Governmental Authority, subject to Section 7.3(e), and (viii)
as, and to the

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extent, necessary or required or reasonably appropriate in connection with the
enforcement of any right or remedy relating to this Agreement.

(c)          Buyer shall not, and Buyer shall cause its Affiliates (including
the Companies following the consummation of the Closing) and their respective
agents and representatives not to, at any time from and after the date of this
Agreement, directly or indirectly, disclose or use any confidential or
proprietary information involving or relating to Sellers and their Affiliates
(excluding the Companies); provided, however, that disclosure and use of any
such information shall be permitted (i) with the prior written consent of
Sellers, (ii) as, and solely to the extent, necessary or required for the
performance by Buyer or any of its Affiliates of any of their respective
obligations under this Agreement, solely with respect to information relating to
the Companies, (iii) as, and to the extent necessary to advise A.M. Best
Company, Inc. or any other rating agency that has issued a rating of any Company
of the transactions contemplated by this Agreement, (iv) to the extent such
information is generally available to, or known by, the public or otherwise has
entered the public domain (other than as a result of disclosure in violation of
this Section 7.3(c) by Buyer or any of its Affiliates), (v) as, and to the
extent, necessary or required by any Applicable Law or Governmental Authority,
subject to Section 7.3(e), and (vi) as, and to the extent, necessary or required
or reasonably appropriate in connection with the enforcement of any right or
remedy relating to this Agreement.

(d)          For the avoidance of doubt, confidential information includes
business plans, financial information, operational information, strategic
information, legal strategies or legal analysis, formulas, production processes,
lists, names, research, marketing, sales information and any other information
similar to any of the foregoing or serving a purpose similar to any of the
foregoing. However, the parties are not required to mark or otherwise designate
information as “confidential or proprietary information,” “confidential” or
“proprietary” in order to receive the benefits of this Section 7.3.

(e)          In the event that a party is required by Applicable Law or any
Governmental Authority to disclose any confidential or proprietary information
of another party hereto that is subject to the restrictions under this Section
7.3, such party shall (i) notify such other party in writing as soon as
possible, unless it is otherwise affirmatively prohibited by such Applicable Law
or such Governmental Authority from notifying such other party, (ii) cooperate
with such other party to preserve the confidentiality of such confidential or
proprietary information consistent with the requirements of such Applicable Law
or such Governmental Authority and (iii) use its reasonable best efforts to
limit any such disclosure to the minimum disclosure necessary or required to
comply with such Applicable Law or such Governmental Authority, in each case, at
the cost and expense of such other party.

(f)           Nothing in this Section 7.3 shall prohibit a party from keeping or
maintaining any copies of any records, documents or other information that may
contain information that is otherwise subject to the requirements of, and
compliance with, this Section 7.3; provided, however, that in the event this
Agreement is terminated in accordance with Section 11.1, then each party hereto,
upon receipt of the written request of one of the other parties hereto, shall
destroy all confidential information of the requesting party in the possession
or under the control of the party receiving such written request (including such
party’s directors,

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officers, employees, agents, consultants and advisors). The party destroying the
confidential information shall notify the party requesting such destruction in
writing that all confidential information has been destroyed in accordance with
the preceding sentence.

(g)          Prior to any permitted disclosure or use of any information that is
subject to the requirements of both Sections 7.3(b) and (c) by any party, such
party shall use its reasonable best efforts to redact or otherwise conceal any
information that is not otherwise disclosable or useable in accordance with the
requirements of this Section 7.3.

(h)          Each party shall be responsible for any breach or violation of the
requirements of this Section 7.3, as it applies to such party, by any of its
agents or representatives.

Section 7.4.       Filings. Without limiting Section 7.6, as promptly as
practicable after the date hereof (but in no event later than 30 days after the
date hereof), Sellers, the Companies and Buyer (i) if and to the extent required
under the HSR Act, shall prepare and file all documents and notifications with
the FTC and the DOJ as are required to comply with the HSR Act and (ii) shall
file with the RMA, TDI and any other applicable Governmental Authority requests
for approval of the transactions provided for by this Agreement, including the
filing of any Form A application or other requests for approval of the
acquisition of control of a domestic insurer. Prior to furnishing any written
materials or presentations to the FTC, DOJ, RMA, TDI or any Governmental
Authority in connection with the transactions provided for by this Agreement,
the parties shall furnish each other with a copy thereof and the receiving party
shall have a reasonable opportunity to provide comments thereon. The parties
shall give each other prompt written notice upon receipt of any notice or other
communication from the FTC, DOJ, RMA, TDI or any Governmental Authority in
connection with the transactions provided for by this Agreement and, in the case
of any such notice or communication that is in writing, shall promptly furnish
the other parties with a copy thereof. If any Governmental Authority requires
that a hearing be held in connection with such approval, the parties shall use
commercially reasonable efforts to arrange for such hearing to be held promptly
following receipt of the notice that such hearing is required.

Section 7.5.       Expenses. Regardless of whether any or all of the
transactions contemplated by this Agreement are consummated, and except as
otherwise expressly provided herein, each of Buyer, the Companies and Sellers
shall bear their respective direct and indirect expenses incurred in connection
with the negotiation and preparation of this Agreement and the consummation of
the transactions contemplated hereby, including all fees and expenses of agents,
representatives, counsel, financial advisors, actuaries and accountants (it
being understood that the Companies shall not bear any of the direct or indirect
expenses of Sellers, including any fees and expenses of counsel, incurred after
September 30, 2007 in connection with the transactions contemplated by this
Agreement.

Section 7.6.       Third Party Consents. Buyer shall use its commercially
reasonable efforts to obtain any consents, approvals, waivers or authorizations
referred to in Section 7.4(ii). The Companies shall use their commercially
reasonable efforts to obtain any consents, approvals, waivers or authorizations
from any Person necessary for the Companies to use on and

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after the Closing Date the Intellectual Property and Data that is used in or
necessary for the conduct of the business of the Companies as currently
conducted.

Section 7.7.       Access to Information; Due Diligence. Prior to the Closing
Date, the Companies shall permit Buyer through its employees, agents and
representatives, to make such reasonable investigation of the assets,
liabilities, financial condition, properties, business and operations of the
Companies during normal business hours as Buyer may reasonably deem necessary or
appropriate, and for such purposes to have access to the Records, Contracts,
facilities and personnel of the Companies, including without limitation an
examination of the corporate records and minute books, financial statements and
projections, insurance department filings, reports and examinations, summaries
of pending litigation, Tax Returns, accounting and actuarial methods, business
plans and prospects, in each case wherever located, of the Companies. Any such
investigation, access and examination shall be conducted during regular business
hours upon reasonable prior notice and under other reasonable circumstances, and
Sellers, the Companies and their respective employees, agents and
representatives, including their respective counsel and independent public
accountants, shall cooperate fully with such employees and representatives in
connection with such investigation, access and examination. Any information
provided to Buyer pursuant to this Section 7.7 shall be subject to Section 7.3,
which shall survive termination of this Agreement, except as otherwise agreed by
the parties thereto.

Section 7.8.       Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its commercially reasonable efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the transactions contemplated
hereby, including the execution and delivery of any documents, certificates,
instruments or other papers that are reasonably required for the consummation of
the transactions contemplated hereby. Sellers shall not take, and shall cause
their Affiliates not to take, any action that would reasonably be expected to
delay or prevent the Companies from timely performing and complying with all of
the covenants, obligations and agreements of the Companies under this Agreement
to be performed or complied with by the Companies prior to the Closing.

Section 7.9.       Notification of Certain Matters. Each party shall give prompt
notice to the other party (i) if it becomes aware that any representation or
warranty contained in this Agreement (a) was untrue or inaccurate when made or
(b) will, absent corrective action, be untrue or inaccurate in any material
respect if and when made on and as of the Closing Date (or in the case of any
representation or warranty qualified by materiality or Material Adverse Effect,
will, absent corrective action, be untrue or inaccurate in any respect), and
(ii) of any failure on its part to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement.

Section 7.10.     Reinsurance. The Companies shall not enter into any
reinsurance or retrocession agreement or arrangement with respect to their
business between the date of this Agreement and the Closing Date.

 

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Section 7.11.     Internal Control over Financial Reporting. Between the date of
this Agreement and the Closing Date, the Companies shall cooperate with Buyer
with respect to the development, implementation and testing of internal controls
over financial reporting (as such term is defined in Rule 13a-15(f) under the
Securities and Exchange Act of 1934, as amended) for the Companies.

Section 7.12.     Intercompany Accounts. All Liabilities between any Company, on
the one hand, and Sellers and any of their Affiliates (excluding for this
purpose any Company that may be an Affiliate of any Seller), on the other hand,
as of the Closing shall be settled in full as of the Closing.

Section 7.13.     Exclusivity. From the date hereof through the Closing Date:

(a)          Sellers, the Companies and each of their Affiliates shall cease any
discussions or negotiations with any third party regarding (i) any merger, sale
of assets not in the ordinary course of business, acquisition, business
combination, change of control, bulk reinsurance transaction or other similar
transaction involving the Companies, (ii) any purchase or other acquisition by
any Person of any shares of the capital stock of the Companies, or (iii) any
sale or issuance by any Company of any shares of its capital stock
(collectively, “Prohibited Transactions”).

(b)          None of Sellers, the Companies nor any of their Affiliates shall,
nor shall any of them authorize or permit any of their respective directors,
officers, employees, representatives, agents or Affiliates to, directly or
indirectly, solicit, initiate, encourage, respond favorably to, permit or
condone inquiries or proposals from, or provide any confidential information to,
or participate in any discussions or negotiations with, any Person (other than
Buyer and its directors, officers, employees, representatives and agents) in
furtherance of a Prohibited Transaction.

Section 7.14.     Transfers of Securities of the Companies. From and after the
date hereof except as expressly permitted by Article III of this Agreement,
Sellers shall not transfer or permit any Encumbrance (other than any Encumbrance
deemed to arise by virtue of this Agreement) on any of the Shares without the
prior written consent of Buyer.

Section 7.15.     Interim Financial Statements.

(a)          From and after the date hereof and through the Closing Date, the
Companies shall furnish promptly to Buyer (a) a copy of each annual statement or
quarterly statement filed by AA-BIC with TDI after the date hereof, together in
each case with any exhibits, schedules, amendments, supplements or notes thereto
(collectively, the “Interim Statutory Statements”) and (b) a copy of the annual
and quarterly GAAP financial statements of the Companies prepared after the date
hereof and the related income statement and statement of cash flows for the year
or quarter and year-to-date period then ended and, in the case of any quarterly
GAAP financial statements, for the corresponding period of the preceding fiscal
year (collectively, the “Interim GAAP Financial Statements”). The Interim GAAP
Financial Statements will be prepared in accordance with GAAP (except that the
Interim GAAP Financial Statements will not set forth any footnote disclosures)
and, in the case of annual financial

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statements, will be audited. The Interim GAAP Financial Statements as of the end
of each quarterly period ending after December 31, 2006 (each a “Quarterly
Period”) and for the quarter and year-to-date period then ended shall be
furnished no later than 135 days after the end of the quarterly period preceding
such Quarterly Period.

(b)          The Interim Statutory Statements will be prepared from the Records
of AA-BIC and will be filed with TDI on forms prescribed or permitted by such
domiciliary regulators. The Interim Statutory Statements will be prepared in
conformity with SAP applied on a consistent basis during the periods involved.
Each of the balance sheets included in the Interim Statutory Statements will
fairly present in all material respects the financial position of AA-BIC as of
its date and each of the statements of operations included in the Interim
Statutory Statements will fairly present in all material respects the results of
operations of AA-BIC for the period therein set forth, in each case in
accordance with SAP applied on a consistent basis during the periods involved.

(c)          The Interim GAAP Financial Statements: (x) will be prepared using
the Records, (y) will fairly present in all material respects the combined
financial position, the combined results of operations and the combined cash
flows of each of the Companies, as of their respective dates and for the period
ended, and (z) will be prepared in conformity with GAAP (except as may be stated
in the notes thereto) applied in a manner consistent with the 2006 Company
Financial Statements.

(d)          The Companies shall reasonably cooperate with Buyer, and shall use
commercially reasonable efforts to cause its independent auditors to so
cooperate, in the preparation and filing by Buyer of any registration statement
or offering memorandum and the issuance of any comfort letter in connection with
any capital raising transaction undertaken by Buyer prior to the Closing Date.
Any audited financial statements provided hereunder will be audited by the
Companies’ independent auditors at Buyer’s expense.

Section 7.16.     Employees. (a) On the Closing Date, Buyer agrees to offer to
continue the employment of all Employees, including any Employee who has rights
of employment upon return from any vacation, approved leave or other approved
absence, at a base annual compensation not less than the base annual
compensation paid to such Employee on the date immediately preceding the Closing
Date; provided, however, that with respect to any Employee who as of the Closing
Date is on a disability leave of absence, Buyer shall have no obligation to
employ such Employee unless such Employee returns to work within one year
following the date hereof. Buyer further agrees to provide benefits to the
Employees that are comparable in the aggregate to benefits provided to similarly
situated United States employees of Buyer.

(b)          Buyer and its Affiliates shall not provide credit for any service
an Employee earned with any Company prior to the Closing Date for any purposes
under any plans, programs or policies of Buyer or Buyer’s Affiliates in which
such Employee became eligible to participate on and after the Closing Date.

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ARTICLE VIII

TAX MATTERS

Section 8.1.     Tax Indemnity.

(a)          From and after the Closing Date, each Seller shall severally and
not jointly be responsible for, and shall indemnify and hold Buyer and all of
Buyer’s Affiliates, which for purposes of this Article VIII, shall include the
Companies (the “Buyer Tax Indemnified Parties”), harmless against (i) any
liability for Taxes and related Losses imposed on or with respect to the
Companies (including, without limitation, all such Taxes imposed on such Seller)
that relates to, arises out of or is attributable to any taxable period ending
on or before the Closing Date, and for the portion of any Straddle Period ending
on the Closing Date (a “Pre-Closing Tax Period”), (ii) any Taxes and related
Losses resulting from or attributable to the transactions contemplated by this
Agreement or that are undertaken at the direction of or for the benefit of such
Seller; (iii) any Taxes or Losses relating to, arising out of or resulting from
a breach or inaccuracy of the representations set forth in Section 5.24 or any
covenants or agreements relating to Tax matters set forth in this Agreement;
(iv) all Taxes imposed with respect to the Underwriting Profit Adjustment; and
(v) all Transfer Taxes (clauses (i) - (v) hereinafter referred to as the “Tax
Losses”); provided, however, that Sellers shall not be required to indemnify
Buyer Tax Indemnified Parties for any Taxes specifically accrued for on the
Reference Statement. The amount of any indemnification due from Sellers to any
Buyer Tax Indemnified Party pursuant to the provisions of this Agreement shall
be net of any actual Tax Benefit received by the Companies that are directly
attributable to the Loss relating to such indemnity payment. To the extent any
such Tax Benefit is realized subsequent to an indemnity payment being made by
Sellers to Buyer or the Company, such indemnity payment shall not be subject to
offset as provided above, and upon such Tax Benefit actually being realized (as
determined above) Buyer shall pay to Sellers the amount of such realized Tax
Benefit no later than 10 days after the filing of the Tax Return which reflects
such Tax Benefit. Notwithstanding anything to the contrary in this Agreement,
the indemnification provided for in this Section 8.1(a) shall not be affected by
the disclosure of any item on any Schedule to this Agreement.

(b)          For purposes of Section 8.1(a), in the case of Taxes that are
payable with respect to a taxable period that begins before the Closing Date and
ends after the Closing Date (a “Straddle Period”), the portion of any such Tax
that is allocable to the portion of the period ending on the Closing Date shall
be:

(i)           in the case of Taxes that are either (x) based upon or related to
income, or receipts, or (y) imposed in connection with any sale or other
transfer or assignment of property (real or personal, tangible or intangible),
deemed equal to the amount that would be payable if the taxable year ended with
(and included) the Closing Date;

(ii)          in the case of Taxes that are based upon gross premiums deemed
equal to the amount that would be payable with respect to the premium written as
of the Closing Date; and

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(iii)        in the case of Taxes imposed on a periodic basis with respect to
the assets of the Companies, or otherwise measured by the level of any item,
deemed to be the amount of such Taxes for the entire period (or, in the case of
such Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding period), multiplied by a fraction the numerator of which
is the number of calendar days in the period ending on the Closing Date and the
denominator of which is the number of calendar days in the entire period.

Section 8.2.       Tax Payments. All payments due from Sellers with respect to
Taxes for which Sellers have provided the Buyer Tax Indemnified Parties with an
indemnity pursuant to this Agreement shall be made within ten (10) days of the
earlier to occur of: (i) an agreement by any Seller and Buyer as to the Seller’s
liabilities for such Taxes, (ii) the filing of a Tax Return by the Companies or
Buyer which includes an amount of Tax for which Sellers are liable for indemnity
pursuant to Section 8.1 and (iii) with respect solely to a Tax Claim, a
resolution, agreement or settlement being reached with the applicable Tax
authority.

Section 8.3.       Tax Returns.

(a)          From the date of this Agreement to the Closing Date, the Companies
shall (i) prepare and file all Tax Returns which are required to be filed under
Applicable Law during such period in a manner that is consistent with past
practice to the extent that such past practices are not contrary to Applicable
Law; provided, that the Companies shall not take any positions on any such Tax
Returns that could adversely affect the Companies or Buyer for taxable periods
(or portions thereof) commencing after the Closing Date without first obtaining
Buyer’s written consent and no later than 45 days prior to the filing of any
such Tax Return (taking into account any extension of time that is applicable to
the person filing such Tax Return if such extension is claimed) the Companies
shall provide to Buyer copies of all such Tax Returns for Buyer's review and
comments and the Companies shall in good faith take into account all reasonable
comments provided by Buyer with respect to such Tax Returns to the extent such
comments are provided no later than ten (10) days prior to the relevant actual
filing date and (ii) reasonably cooperate with Buyer in the preparation,
execution and filing of all Tax Returns, questionnaires, applications or other
documents regarding Transfer Taxes and take all reasonable steps necessary to
obtain any exemptions from such Transfer Taxes.

(b)          With respect to all Tax Returns filed by the Companies after the
Closing Date and which report an amount of Tax for which Sellers, in whole or in
part, are liable (except for the federal income Tax Returns to be filed by
ARMtech and ARMIS for the tax period that ends on the Closing Date), the
Companies shall provide the relevant Sellers with a copy of such Tax Return no
later than 45 days prior to filing (taking into account any extension of time
that is applicable to the person filing such Tax Return if such extension is
claimed).  Sellers shall provide any comments regarding such Tax Returns to
Buyer in writing no later than twenty (20) days prior to such relevant filing
date with sufficient detail to reasonably allow Buyer to determine the nature
and basis of Sellers' disputed item(s).  If any such disputes cannot be settled
by the parties by such date then the disputed items shall be presented to the
Accountant for settlement and the decision of such Accountant shall be binding
upon the parties.  The cost of such Accountant shall be shared equally by Buyer
(50%) and Sellers (50%).

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(c)          Notwithstanding any of the foregoing, Sellers, at their expense,
shall have the right to cause the Accountant to prepare and file the United
States federal income Tax Return Form 1120S required to be filed by ARMtech and
ARMIS for the tax period ending on the Closing Date (which shall include that
part of the year’s operations for each of those two Companies ending on the
Closing Date). Such Tax Returns shall include and take into account the
Underwriting Profit Adjustment to the extent permitted by law. The Companies, at
Sellers’ expense, shall use reasonable efforts to provide Sellers and their
advisors with such access and information as is reasonably requested by Sellers
by written notice and to the extent such information or access is reasonably
necessary to prepare and file complete and accurate Tax Returns consistent with
the time requirements set out in this Section 8.3. Sellers shall provide the
Companies with a copy of such Tax Returns no later than 45 days prior to filing
(taking into account any extension of time that is applicable to the person
filing such Tax Return if such extension is claimed). The Companies shall
provide any comments regarding such Tax Returns to Sellers in writing no later
than twenty (20) days prior to the relevant filing date with sufficient detail
to reasonably allow Sellers to determine the nature and basis of Companies’
disputed item(s). If any such disputes cannot be settled by the parties by the
date such Tax Returns are required to be filed, then such Tax Returns will be
filed in a manner that is consistent with Buyer’s positions and such disputed
items shall be presented to the Accountant for settlement and the decision of
the Accountant shall be binding upon the parties. The cost of the Accountant
shall be shared equally by Buyer (50%) and Sellers (50%); provided, however,
that if the Accountant determines that Buyer’s positions are correct the cost of
the Accountant’s services in connection with such dispute shall be paid by
Sellers.

Section 8.4.       Tax Refunds. Any Tax refund (including any interest with
respect thereto) relating to ARMtech Holdings or AA-BIC for Taxes paid for any
Taxable period ending on or prior to the Closing Date (except to the extent any
such refund is specifically accounted for as an asset on the Reference
Statement, in which case such Tax refund is for the account of Buyer) shall be
the property of Sellers, and if received by Buyer shall be paid over promptly to
Sellers. All other refunds of Taxes (including any interest with respect
thereto) of the Companies shall be for the account of Buyer and if received by
Sellers shall be promptly paid to Buyer. Buyer shall provide Sellers (at
Sellers' written request and cost) with such reasonable assistance as is
necessary to allow Sellers to claim a refund of Taxes that is Sellers' property
pursuant to this Section 8.4; provided, that such assistance shall not include
in any manner Buyer agreeing to carryback any Tax attribute of the Companies or
Buyer to taxable periods ending on or before the Closing Date.

Section 8.5.       Tax Controversy.

(a)          Sellers or Buyer, as the case may be, will notify the other party
in writing within 30 days (a “Tax Claim Notice”) of its discovery of any matter
that may give rise to a claim for indemnity by the Buyer Tax Indemnified Parties
pursuant to this Article VIII (a “Tax Claim”); provided, however, that failure
to comply with this clause by Buyer shall not affect Sellers' indemnification
obligation hereunder except only to the extent Sellers’ ability to control such
Tax Claim is adversely and materially affected by such failure.  A Tax Claim
Notice shall contain a summary of the facts (set forth with reasonable
specificity) underlying or relating to the relevant claim, any correspondence or
notice received from any third party with respect thereto,

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and if provided by Buyer, a statement that Buyer seeks indemnification for Taxes
relating to such claim.

(b)          (i) Sellers, at their expense, shall have the right to control the
conduct of the defense of any Tax Claim that involves solely a matter for which
Sellers shall be liable and are required to indemnify the Buyer Tax Indemnified
Parties against; provided, that (1) Buyer is provided written notice within 15
days of receiving a Tax Claim Notice (which will include Sellers acknowledgement
that it is liable for all Taxes and Losses of the Buyer Tax Indemnified Parties
that result or arise from such Tax Claim) that Sellers have elected to control
the defense of such Tax Claim and (2) Sellers' will not have the right to
control or settle any such Tax Claim if the resolution or determination of such
Tax Claim could materially adversely affect or prejudice any of the Buyer Tax
Indemnified Parties, on an aggregate or individual basis, which for purposes of
this provision ‘‘materially’’ shall be determined by reference solely to the
Company to which such claim relates as it exists as of the Closing Date.  Buyer
shall control the conduct of all other Tax Claims.  Buyer shall have the right
to participate in the conduct of the defense of any Tax Claim controlled by
Sellers and Sellers (at their expense) will have the right to participate in any
Tax Claim that is not controlled by Sellers; provided, that such Tax Claim (i)
relates solely to the Companies and (ii) could adversely affect Sellers.

(c)          Notwithstanding any provision in this Agreement to the contrary,
the parties agree that they will not settle, compromise or agree to any Tax
adjustment with respect to any Tax Claim without first obtaining the prior
written consent of the other party, which consent shall not be unreasonably
withheld or delayed, if such compromise, settlement or agreement materially
affects or could materially affect the other party’s Tax liability; provided,
however, that Buyer shall have the right to settle or compromise any such
proceeding if such proceeding does not relate solely to the Companies.

Section 8.6.       Tax Cooperation. The parties will provide each other with
such cooperation and information as either of them reasonably may request of the
other with respect to any Tax matter at the expense of the requesting party.
Such cooperation and information shall include providing signatures with respect
to any Tax Returns that must be filed, and providing copies of relevant Tax
Returns or portions thereof, together with accompanying schedules, related work
papers and documents relating to rulings or other determinations by taxing
authorities. Sellers shall each make themselves available upon reasonable notice
and for a reasonable period of time to provide explanations of any documents or
information provided hereunder. Each Seller, Buyer and its Affiliates shall
retain all Tax Returns, schedules and work papers, records and other documents
in its possession relating to Tax matters of the Companies until the later of
(i) the expiration of the statute of limitations of the taxable periods to which
such Tax Returns and other documents relate, without regard to extensions, or
(ii) six years following the due date (without extension) for such Tax Returns.
Prior to disposing of any such records, notice shall be given to the other party
providing reasonable terms allowing such other party to take, at its sole
expense, possession of such records.

Section 8.7.       Transfer Taxes. Notwithstanding any other provision in this
Agreement to the contrary, all stock transfer, real estate transfer,
documentary, stamp, registration, filing, sales, use, recording, ad valorem, and
other similar Taxes arising out of, or directly attributable to, the
transactions contemplated by this Agreement (“Transfer Taxes”) will

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be borne and paid by Sellers. Sellers shall to the extent allowed by Applicable
Law pay any such Taxes prior to the Closing Date and in all other cases no later
than the day any such Taxes are required to be paid pursuant to Applicable Law
and shall cooperate with Buyer with respect to any such payments and the filing
of any Tax Returns related thereto.

Section 8.8.       Miscellaneous.

(a)          Sellers and Buyer agree to treat all payments made between or among
them under this Agreement as adjustments to the Purchase Price for Tax purposes
and that such treatment shall govern for purposes hereof except to the extent
that the laws of a particular jurisdiction provide otherwise.

(b)          All agreements among and between the Companies providing for the
sharing or allocation of Taxes between members of the same combined,
consolidated, unified or affiliated group shall be terminated immediately prior
to the Closing Date and shall have no continuing force or effect.  The Companies
and Sellers shall, unless otherwise directed by Buyer, terminate any power of
attorney granted by or on behalf of any Company, and any such terminated power
of attorney shall have no continuing force or effect after the Closing Date.

(c)          Notwithstanding any provision in this Agreement to the contrary,
all agreements, covenants and indemnification matters contained in this
Article VIII and the representations and warranties set forth in Section 5.24
shall survive the Closing and shall not terminate until 60 days after the
expiration of all relevant statute of limitations; provided, however, that upon
Buyer providing Sellers with notice of any claim for indemnity pursuant to
Section 8.1(a) prior to the applicable date determined pursuant to the
immediately preceding sentence, the representations, warranties and agreements
that are the subject of such indemnification claim shall survive with respect to
such claim until such time as such claim is resolved.

ARTICLE IX

CONDITIONS TO CLOSING

Section 9.1.       Conditions to Buyer’s Obligations. The obligations of Buyer
to consummate the transactions contemplated hereby on the Closing Date are
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions, any one or more of which may be waived in writing by Buyer
to the extent permitted by Applicable Law; provided, however, that to the extent
any Seller or any Company is incapable of satisfying any of the conditions in
Sections 9.1(a), 9.1(b), 9.1(c) and 9.1(e) of this Article IX, Buyer shall
either (i) waive such condition or conditions and release, in writing, any claim
under this Agreement with respect to such condition or conditions, or (ii)
refuse to consummate the transactions contemplated hereby and release, in
writing, Sellers from any further obligation under this Agreement:

(a)          (i) The representations and warranties of Sellers set forth in this
Agreement shall be true and correct in all material respects (except that
representations and

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warranties qualified by materiality or Material Adverse Effect shall be true and
correct in all respects) as of the date of this Agreement; (ii) the
representations and warranties of Sellers set forth in this Agreement shall be
true and correct in all respects (without giving effect to any limitation or
qualification as to materiality or Material Adverse Effect contained therein) as
of the Closing Date as though made on and as of the Closing Date (except that
any such representation and warranty that is given as of a particular date or
period and relates solely to such particular date or period shall be true and
correct only as of such date or period), except where the aggregate result of
all events, occurrences, facts, circumstances, violations, developments, changes
or effects that cause such representations or warranties not to be true and
correct in all respects (without giving effect to any limitation or
qualification as to materiality or Material Adverse Effect contained therein)
does not have and would not reasonably be expected to have a Material Adverse
Effect on Sellers or the Companies; (iii) Sellers shall have performed and
complied in all material respects with all agreements, covenants, obligations
and conditions required by this Agreement to be performed or complied with by
Sellers on or prior to the Closing Date and (iv) each Seller shall have executed
and delivered to Buyer a certificate to the effect set forth in clauses (i),
(ii) and (iii) above.

(b)          (i) The representations and warranties of the Companies set forth
in this Agreement shall be true and correct in all material respects (except
that representations and warranties qualified by materiality or Material Adverse
Effect shall be true and correct in all respects) as of the date of this
Agreement; (ii) the representations and warranties of the Companies set forth in
this Agreement shall be true and correct in all respects (without giving effect
to any limitation or qualification as to materiality or Material Adverse Effect
contained therein, other than in the case of Section 5.9(b)) as of the Closing
Date as though made on and as of the Closing Date (except that any such
representation and warranty that is given as of a particular date or period and
relates solely to such particular date or period shall be true and correct only
as of such date or period), except where the aggregate result of all events,
occurrences, facts, circumstances, violations, developments, changes or effects
that cause such representations or warranties not to be true and correct in all
respects (without giving effect to any limitation or qualification as to
materiality or Material Adverse Effect contained therein, other than in the case
of Section 5.9(b)) does not have and would not reasonably be expected to have a
Material Adverse Effect on the Companies; (iii) the Companies shall have
performed and complied in all material respects with all agreements, covenants,
obligations and conditions required by this Agreement to be performed or
complied with by the Companies on or prior to the Closing Date; and (iv) the
Companies shall have delivered to Buyer a certificate executed by a duly
authorized officer of each of the Companies to the effect set forth in clauses
(i), (ii) and (iii) above.

(c)          There shall not have occurred since December 31, 2006 any Material
Adverse Effect on the Companies or any event that would reasonably be expected
to have a Material Adverse Effect on the Companies.

(d)          (i) No order, injunction or decree issued by any Governmental
Authority of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
shall be in effect; (ii) no proceeding initiated by any Governmental Authority
seeking an injunction against the transactions contemplated by this Agreement
shall be pending; and, (iii) no statute, rule, regulation, order, injunction or
decree

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shall have been enacted, entered, promulgated or enforced by any Governmental
Authority which prohibits or makes illegal consummation of the transactions
contemplated hereby;

(e)          All approvals of Governmental Authorities, including the DOJ, FTC,
RMA and TDI, required to consummate the transactions contemplated hereby shall
have been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired; provided, however, that
no such approvals shall contain any limitations, requirements or conditions on
Buyer or any Company, which have or could reasonably be expected to have a
Material Adverse Effect on Buyer or a Material Adverse Effect on the Companies;

(f)           On the Closing Date, each Employee Seller shall have executed and
delivered an employment agreement in the form attached hereto as Exhibit I (an
“Employee Seller Employment Agreement”) and each Employee listed on Schedule
9.1(f) shall have executed and delivered an employment agreement in
substantially the form attached hereto as Exhibit J (a “Non-Seller Employment
Agreement”), and each such Employee Seller Employment Agreement and Non-Seller
Employment Agreement shall be in full force and effect on the date thereof. Each
counterparty to an Employee Seller Employment Agreement and Non-Seller
Employment Agreement shall be an officer or employee of a Company serving in the
position or positions specified in the applicable Employee Seller Employment
Agreement or Non-Seller Employment Agreement and in compliance therewith;

(g)          Sellers and the Companies shall have made the deliveries required
to be made by them under Sections 3.3(a) and 3.3(b), respectively; and

(h)          Neither the Companies nor any Seller shall have given to Buyer any
notice pursuant to Section 7.9.

Section 9.2.       Conditions to Sellers’ Obligations. The obligations of
Sellers to consummate the transactions contemplated hereby on the Closing Date
are subject to the satisfaction on or prior to the Closing Date of each of the
following conditions, any one or more of which may be waived in writing by
Sellers to the extent permitted by Applicable Law:

(a)          (i) The representations and warranties of Buyer set forth in this
Agreement shall be true and correct in all material respects (except that
representations and warranties qualified by materiality shall be true and
correct in all respects) as of the date of this Agreement; (ii) the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all respects (without giving effect to any limitation or
qualification as to materiality or Material Adverse Effect contained therein) as
of the Closing Date as though made on and as of the Closing Date (except that
any such representation and warranty that is given as of a particular date or
period and relates solely to such particular date or period shall be true and
correct only as of such date or period), except where the aggregate result of
all events, occurrences, facts, circumstances, violations, developments, changes
or effects that cause such representations or warranties not to be true and
correct in all respects (without giving effect to any limitation or
qualification as to materiality or Material Adverse Effect contained therein)
does not have and would not reasonably be expected to have a Material Adverse
Effect on Buyer; (iii) Buyer shall have performed and complied in all material
respects with all agreements, covenants, obligations

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and conditions required by this Agreement to be performed or complied with by
Buyer on or prior to the Closing Date and (iv) Buyer shall have delivered to
Sellers a certificate executed and authorized by an officer of Buyer to the
effect set forth in clauses (i), (ii) and (iii) above;

(b)          No order, injunction or decree issued by any Governmental Authority
of competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect. No proceeding initiated by any Governmental Authority seeking an
injunction against the transactions contemplated by this Agreement shall be
pending. No statute, rule, regulation, order, injunction or decree (other than
any order, injunction or degree customarily imposed by the domiciliary
regulators in connection with changes in control of insurance companies
domiciled in AA-BIC’s state of domicile) shall have been enacted, entered,
promulgated or enforced by any Governmental Authority which prohibits, restricts
or makes illegal consummation of the transactions contemplated hereby;

(c)          All approvals of Governmental Authorities, including the DOJ, FTC,
RMA and TDI, required to consummate the transactions contemplated hereby shall
have been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired;

(d)          Buyer shall not have given to Sellers any notice pursuant to
Section 7.9; and

(e)          Buyer shall have made the deliveries required to be made by it
under Section 3.3(c).

Section 9.3.       Frustration of Closing Conditions. None of the parties hereto
may rely on the failure of any condition set forth in this Article IX to be
satisfied if such failure was caused by the failure of such party to act in good
faith or to use its reasonable best efforts to cause the Closing to occur.

ARTICLE X

SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS; INDEMNIFICATION

Section 10.1.     Survival. (a) The representations and warranties of the
Companies set forth in Section 5.24, 5.25 and 5.30 shall survive until 60 days
after the expiration of all the applicable statutes of limitations (including
all periods of extension, whether automatic or permissive), the representations
and warranties of the parties set forth in Sections 4.1, 4.2, 4.3, 5.1, 5.2, 5.4
and 5.5 shall survive the Closing without limitation as to time. All other
representations and warranties of the parties set forth in this Agreement shall
terminate and expire on the day that is the third anniversary date of the
Closing Date. Notice with respect to any claim in respect of any inaccuracy in
or breach of any representation or warranty shall be in writing and shall be
given to the party against which such claim is asserted. Any representation or
warranty shall survive the time it would otherwise terminate pursuant to this
Section 10.1 to the extent that the party claiming indemnification for a breach
thereof shall have delivered to the

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other party written notice setting forth with reasonable specificity the basis
of such claim prior to the expiration of such time pursuant to this Section
10.1; provided, that after the delivery of any such notice, the party claiming
indemnification continues to expeditiously pursue the resolution of such claim.

(b)          All covenants and agreements made by the parties to this Agreement
which contemplate performance following the Closing Date (including, without
limitation, Section 7.3) shall survive the Closing Date. All other covenants and
agreements shall not survive the Closing Date and shall terminate as of the
Closing to the extent that such covenants were performed in accordance with
their terms.

(c)          Notwithstanding anything in this Agreement to the contrary, if the
Closing occurs, (i) Sellers hereby irrevocably and forever waive and release any
right to indemnification, contribution, reimbursement, set-off or other rights
to recovery that Sellers might otherwise have against the Companies with respect
to representations and warranties made with respect to, and the covenants,
obligations and agreements that contemplate action at or prior to the Closing
by, the Companies in this Agreement, and (ii) such representations and
warranties and such covenants, obligations and agreements shall terminate solely
with respect to the Companies (but not as to Sellers).

(d)          The right to indemnification or other remedy based upon the
representations, warranties, covenants, obligations and agreements of the
parties to this Agreement will not be affected by any investigation conducted
with respect to, or any knowledge acquired (or capable or being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with any such representation, warranty, covenant, obligation or agreement. The
waiver of any condition based on the accuracy of any representation or warranty,
or on the performance of or compliance with any covenant, obligation or
agreement, will not affect the right to indemnification or other remedy based on
such representations, warranties, covenants, obligations or agreements.

Section 10.2.     Indemnification. (a) Subject to Sections 10.1 and 10.4,
subject to and after the Closing, Sellers shall severally and not jointly (in
proportion to the Purchase Price allocation among Sellers set forth in the
Seller Allocation Notice) indemnify Buyer and its directors, officers, employees
and Affiliates (including, after the Closing, the Companies, and their
respective successors and assigns (each, a “Buyer Indemnitee”), against, and
hold each Buyer Indemnitee harmless from, any damage, claim, loss, Liability or
expense, including, without limitation, interest, penalties and reasonable
attorneys’ fees (collectively, “Losses”), based upon, arising out of or
otherwise in respect of (i) any breach by such Seller or the Companies of any of
their respective representations or warranties contained herein, or the
certificates delivered at the Closing pursuant to Sections 9.1(a)(iv) and
9.1(b)(iv), (ii) any breach by such Seller of any of its or the Companies’
respective covenants or agreements contained herein (including but not limited
to the agreements of each Seller contained in Section 12.1), (iii) any Loss
arising out of, resulting from or associated with (x) the conduct or business
operation of any Company prior to the Closing Date, or (y) any former employee
or former leased or temporary employee of any Company prior to the Closing Date,
(iv) any claims made in connection with the sale to ARMtech, Inc by Samuel R.
Scheef, Lance Ekersell and Jerry

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Jackson of shares of common stock of ARMtech Holdings, Inc. and (v) any Loss
incident to any of the foregoing. The amount of any indemnification due from
such Seller pursuant to the provisions of this Agreement shall not exceed the
after-tax economic impact of the Loss on a Buyer Indemnitee.

(b)          Subject to Sections 10.1 and 10.4, prior to the Closing or if this
Agreement terminates prior to the Closing, the Companies shall jointly and
severally indemnify the Buyer Indemnitees against, and hold each Buyer
Indemnitee harmless from, any Losses based upon, arising out of or otherwise in
respect of any breach by any Company of any of its covenants or agreements
contained herein.

(c)          No indemnification payments shall be payable to a Buyer Indemnitee
with respect to the indemnification obligations of Sellers pursuant to Section
10.2(a) or the indemnification obligations of the Companies pursuant to this
Section 10.2(b) unless the total aggregate indemnification obligations under
such Sections exceeds One Hundred Thousand Dollars ($100,000.00) (the “Threshold
Amount”). Once the Threshold Amount is satisfied, Sellers or the Companies, as
the case may be, shall pay to such Buyer Indemnitee all indemnification
obligations in excess of the Threshold Amount, subject to the provisions of
Section 3.2(c).

(d)          Subject to Sections 10.1 and 10.4, Buyer shall indemnify Sellers
and their directors, officers, employees and Affiliates, and, prior to the
Closing, the Companies and their respective successors and assigns (each, a
“Seller Indemnitee”), against, and hold each Seller Indemnitee harmless from,
any Losses based upon, arising out of or otherwise in respect of (i) any breach
by Buyer of any of its representations or warranties contained herein or the
certificate delivered at the Closing pursuant to Section 9.2(a)(iv) and (ii) any
breach by Buyer of any of its covenants or agreements contained herein.

(e)          The term “Losses” as used in this Article X is not limited to
matters asserted by third parties against any Person entitled to be indemnified
under this Article X, but includes Losses incurred or sustained by any Buyer
Indemnitee or Seller Indemnitee in the absence of third party claims.

Section 10.3.     Indemnification Procedures. (a) Upon any Person entitled to be
indemnified under this Article X (the “Indemnified Person”) becoming aware of a
fact, condition or event for which indemnification is provided under this
Article X, the Indemnified Person will with reasonable promptness notify the
Person from whom indemnification is sought (the “Indemnifying Person”) in
writing of such fact, condition or event; provided, that the failure to provide
such notice shall not prejudice the Indemnified Person’s right to
indemnification hereunder except to the extent that the Indemnifying Person is
materially prejudiced thereby. If such fact, condition or event is the assertion
of a claim by a third party, the Indemnifying Person will be entitled to assume
the defense and investigation against such claim; provided, that the
Indemnifying Person and its counsel shall proceed with diligence and in good
faith with respect thereto. Notwithstanding the Indemnifying Person’s election
to assume the defense or investigation of such claim, the Indemnified Person
shall have the right to employ separate counsel and to participate in the
defense or investigation of such claim, action or proceeding, and the
Indemnifying Person shall bear the expense of one firm of such separate counsel,
if and only

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if (i) use of counsel of the Indemnifying Person’s choice would give rise to a
conflict of interest, (ii) the Indemnifying Person shall not have employed
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person within a reasonable time after notice of the assertion of any
such claim or institution of any such action or proceeding or (iii) the
Indemnifying Person shall authorize the Indemnified Person in writing to employ
separate counsel at the expense of the Indemnifying Person. An Indemnifying
Person who is not entitled to, or elects not to, assume the defense and
investigation of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all Indemnified Persons with respect to such claim.

(b)          Neither the Indemnified Person nor the Indemnifying Person shall
make any settlement of any claim which would give rise to liability on the part
of the Indemnifying Person under this Article X without the prior written
consent of the other, which consent shall not be unreasonably withheld;
provided, that an Indemnified Person shall not be required to consent to any
settlement involving the imposition of equitable remedies or involving the
imposition of any material obligations on such Indemnified Person other than
financial obligations for which such Indemnified Person will be indemnified
hereunder. No Indemnifying Person shall consent to entry of any judgment or
shall enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the Indemnified Person of a
release from all liability in respect to such claim or litigation. Whenever the
Indemnified Person or the Indemnifying Person receives a firm offer to settle a
claim for which indemnification is sought under this Article X, it shall
promptly notify the other of such offer. If the Indemnifying Person refuses to
accept such offer within ten (10) Business Days after receipt of such offer (or
of notice thereof), such claim shall continue to be contested and, if such claim
is within the scope of the Indemnifying Person’s indemnity contained in this
Article X, the Indemnified Person shall be indemnified pursuant to the terms
hereof. If the Indemnifying Person notifies the Indemnified Person in writing
that the Indemnifying Person desires to accept such offer, but the Indemnified
Person refuses to accept such offer (in a manner permitted by this Section 10.3)
within ten (10) Business Days after receipt of such notice, the Indemnified
Person may continue to contest such claim and, in such event, the total maximum
liability of the Indemnifying Person to indemnify or otherwise reimburse the
Indemnified Person hereunder with respect to such claim shall be limited to and
shall not exceed the amount of such offer, plus reasonable out-of-pocket costs
and expenses (including reasonable attorneys’ fees and disbursements) to the
date of notice that the Indemnifying Person desires to accept such offer;
provided, that the Indemnifying Party shall not withhold its consent to any
settlement of any claim that does not involve the imposition of equitable
remedies on any Indemnified Party and does not impose any material obligations
on such Indemnified Person other than financial obligations for which the
Indemnifying Party has acknowledged in writing such Indemnified Person will be
indemnified hereunder. If the Indemnifying Person disputes its liability with
respect to any claim, a representative of each of the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through the negotiations of such representatives or
designees within 60 days after the delivery of the Indemnified Party’s notice of
such claim, such dispute (except for any such dispute which gives rise or could
give rise to equitable relief under this Agreement) shall be resolved in
accordance with the dispute resolution procedures set forth in Section 12.10.

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(c)          Buyer’s indemnification claims pursuant to Article VIII and this
Article X may be settled from and limited to Buyer’s withdrawal of amounts from
the escrow account pursuant to the terms and conditions of the Escrow Agreement
attached as Exhibit D hereto subject to the limitation set forth in Section
3.2(c) (except for any indemnification claim seeking to recover any Losses based
upon, arising out of or otherwise in respect of (i) fraud or intentional
misrepresentation on the part of any Seller, (ii) the Tax indemnity provided by
Sellers under Article VIII of this Agreement, (iii) Transfer Taxes, (iv)
Sellers’ liability under this Agreement for fees of the Escrow Agent, the
Accountant, any arbitrator or Sellers’ counsel, (v) Sellers’ failure to pay
Buyer a negative Shareholders’ Equity Adjustment as determined in accordance
with Section 2.2(b), or (vi) Sellers’ failure to pay Buyer a negative
Underwriting Profit Adjustment as determined in accordance with Section 2.2(c)).

Section 10.4.     Exclusive Remedy; Tax Indemnification. The remedies and
procedures set forth in Article VIII, this Article X and in Section 12.10 with
respect to the dispute resolution procedures, are the sole and exclusive
remedies and procedures available to the parties for financial Losses under this
Agreement or certificates delivered under this Agreement at Closing, except that
the foregoing shall not preclude any party (a) from seeking specific performance
against any other party with respect to the performance or non-performance by
such other party of its obligations under this Agreement (including but not
limited to obligations under Section 12.1) or (b) from seeking to recover any
Losses based upon, arising out of or otherwise in respect of (i) claims of Buyer
with respect to fraud or intentional misrepresentation on the part of any
Seller; (ii) Tax indemnity claims of Buyer under Article VIII of this Agreement;
(iii) Transfer Taxes; (iv) Sellers’ liability under this Agreement for fees of
the Escrow Agent, the Accountant, any arbitrator or Sellers’ counsel; (v) claims
of Buyer for payment of a negative Shareholders’ Equity Adjustment as determined
in accordance with Section 2.2(b); or (vi) claims of Buyer for payment of a
negative Underwriting Profit Adjustment as determined in accordance with Section
2.2(c).

ARTICLE XI

TERMINATION

Section 11.1.     Termination. (a) This Agreement may be terminated prior to the
Closing Date only as follows:

(i)           by mutual written consent of Buyer and Sellers;

(ii)          at the election of either Buyer or Sellers, if the Closing Date
shall not have occurred on or before December 15, 2007; provided, that no party
shall be entitled to terminate this Agreement pursuant to this Section
11.1(a)(ii) if such party’s failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing Date
to occur on or before such date;

(iii)         by either Buyer or Sellers if a court of competent jurisdiction
shall have issued an order, decree or ruling permanently restraining, enjoining
or otherwise

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prohibiting the transactions contemplated by this Agreement, and such order,
decree, ruling or other action shall have become final and nonappealable; or,

(iv)         by either Buyer or Sellers if a condition to its obligation to
consummate the transactions contemplated hereby as set forth in Section 9.1 and
9.2, respectively, becomes incapable of fulfillment. Notwithstanding the
foregoing, the right to terminate this Agreement pursuant to this Section
11.1(a)(iv) shall not be available to any party if its condition to perform
became incapable of fulfillment due to its failure to fulfill any obligation
under this Agreement.

(b)          The termination of this Agreement shall be effectuated by the
delivery of a written notice of such termination from the party terminating this
Agreement to the other party.

Section 11.2.     Obligations upon Termination. In the event that this Agreement
shall be terminated pursuant to Section 11.1, all obligations of the parties
hereto under this Agreement shall terminate and there shall be no liability of
any party hereto to any other party except that (a) Sections 7.3 and 12.1(f)
shall survive termination of this Agreement until October 24, 2008 and (b)
nothing herein will relieve any party from liability for any breach of this
Agreement for which indemnification or another remedy may be sought or asserted
under this Agreement.

ARTICLE XII

MISCELLANEOUS

Section 12.1.     Non-Competition; Non-Solicitation. (a) Sellers acknowledge and
agree that the agreement by Buyer to enter into this Stock Purchase Agreement,
and the agreement by Buyer to pay the Purchase Price for the Shares, is partly
in consideration of Employee Sellers’ agreement to the terms of their respective
Employee Seller Employment Agreement and Sellers’ agreement not to compete with
Buyer as set forth in this Section 12.1.

(b)          During the Seller Restricted Period, each Seller shall not,
directly or indirectly, engage in, be employed by, be a consultant to, own,
manage, operate, provide financing to, control or participate in the ownership,
management or control of, or otherwise have an interest in, or aid or assist any
other Person in the conduct of, any Restricted Business or any Person who is
engaged in any Restricted Business; provided, however, that each Seller shall
not be precluded from ownership for investment purposes only of less than 2% of
the issued and outstanding stock or other securities of a corporation listed on
a national securities exchange, electronic quotation and trading system or
traded in the over-the-counter market with which Seller has no other
affiliation. For purposes of this Section 12.1, (i) “Seller Restricted Period”
shall mean the period from and after the Closing Date until the fifth
anniversary of the Closing Date; and (ii) “Restricted Business” shall mean (x)
multi-peril crop insurance, crop hail insurance, livestock risk protection
coverage or any other agricultural insurance or agricultural reinsurance product
underwritten by Buyer, the Companies or any of their respective divisions,
subsidiaries or affiliates as an insurer or reinsurer in the United States of
America as of the date of this Agreement, and (y) computer hardware or software
applications directly or indirectly

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related to the origination, administration, underwriting, loss reserving, claims
adjusting or claims payment of agricultural insurance or agricultural
reinsurance products.

(c)          During the Seller Restricted Period, each Seller

(i)           shall not, without the prior written consent of Buyer, directly or
indirectly, for or on behalf of himself or any other Person, employ or solicit
for employment any officer, executive or employee of Buyer or any of Buyer’s
Affiliates or cause or seek to cause any such individual to leave the employ of
Buyer or any of its Affiliates;

(ii)          shall not, directly or indirectly, seek to encourage, induce or
attempt to induce any customer, agent or vendor of Buyer or any of its
Affiliates to cease doing business with, or lessen its business with Buyer or
any of Buyer’s Affiliates, or otherwise interfere with or damage (or attempt to
interfere with or damage) any of Buyer's or its Affiliate’s relationships with
their customers, agents and vendors; and

(iii)      shall not, without prior approval of Buyer to act on its behalf, use
proprietary business customer information related to Buyer or any Company.

(d)          The Employee Sellers shall be subject to the restrictive covenants
contained in their respective Employee Seller Employment Agreements.

(e)          From and after the date of this Agreement, each Seller agrees that
it shall not engage in any conduct that involves the making or publishing of
written or oral statements or remarks (including the repetition or distribution
of derogatory rumors, allegations, negative reports or comments) which are
disparaging, deleterious or damaging to the integrity, reputation or goodwill of
the Companies, Buyer or any of their respective Affiliates or any of their
respective officers, directors or current employees or their operation of the
Companies’ business. From and after the date of this Agreement, Buyer agrees
that it shall not, and it shall cause its Affiliates and the officers, directors
and current employees of it and its affiliates not to, engage in any conduct
that involves the making or publishing of written or oral statements or remarks
(including the repetition or distribution of derogatory rumors, allegations,
negative reports or comments) which are disparaging, deleterious or damaging to
the integrity, reputation or goodwill of Sellers. Buyer agrees to be responsible
for any breach or violation of the requirements of this Section 12.1(e), as it
applies to its Affiliates and the officers, directors and current employees of
Buyer and its Affiliates.  Notwithstanding the foregoing, nothing in this
Agreement shall prevent any Seller or Buyer from making any such comments that
are specifically related to asserting its claims or defending itself against
claims filed with the body exercising arbitration or similar quasi-judicial
authority or power, or defending itself against claims made by any other Seller
or Buyer, as the case may be.

(f)           During the period from and after the date of this Agreement until
October 24, 2008 (“Buyer Restricted Period”), neither Buyer nor its
representatives (including Buyer’s directors, officers, employees, agents,
consultants and advisors) shall employ or solicit for employment any Person who
was employed by the Companies as of the commencement of the Buyer Restricted
Period; provided, however, that this Section 12.1(f) shall not prohibit Buyer

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from (i) recruiting through general solicitations posted in newspapers, trade
journals or on the Internet or (ii) soliciting for employment any Person who is
no longer an employee of the Companies.

Section 12.2.     Waivers and Amendments; Non-Contractual Remedies; Preservation
of Remedies. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by each of Buyer, the Companies and Sellers or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any right, power or privilege, nor
any single or partial exercise of any such right, power or privilege, preclude
any further exercise thereof or the exercise of any other such right, power or
privilege. Subject to Article X, the rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity.

Section 12.3.     Entire Agreement. This Agreement (including the Escrow
Agreement and the Employee Seller Employment Agreements) constitutes the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersedes all prior agreements and understandings,
written and oral, among the parties with respect to the subject matter hereof
and thereof including, but not limited to, the Confidentiality Agreement. The
Confidentiality Agreement shall terminate upon execution of this Agreement and
the terms and conditions of this Agreement (including the Escrow Agreement and
Employee Seller Employment Agreements) shall supersede the rights and
obligations of the parties thereunder with respect to any confidential
information which may have been exchanged prior to the date of this Agreement.

Section 12.4.     Interpretation. (a) The Exhibits and Schedules to this
Agreement that are specifically referred to herein are a part of this Agreement
as if fully set forth herein. When reference is made in this Agreement to any
Section, Exhibit or Schedule, such reference is to a Section, Exhibit or
Schedule of this Agreement unless otherwise indicated. The inclusion by a party
of a matter or item in any Schedule to this Agreement shall not, for any purpose
of this Agreement, be deemed to be the inclusion of such matter or item in any
other Schedule to this Agreement, except to the extent that such inclusion
provides reasonable notice to the other party of the matter or item disclosed.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.

(b)          Whenever the words “include,” “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without
limitation.” The phrases “the date of this Agreement,” “the date hereof” and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement. The
words “hereof,” “herein,” “hereby” and other words of similar import refer to
this Agreement as a whole unless otherwise indicated. Whenever the singular is
used herein, the same shall include the plural, and whenever the plural is used
herein, the same shall include the singular, where appropriate.

 

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Section 12.5.     Construction. The parties intend that each representation,
warranty, covenant, obligation, agreement and condition contained herein will
have independent significance. If any party has breached or violated or not
fulfilled, or if there is an inaccuracy in, any representation, warranty,
covenant, obligation, agreement or condition contained herein in any respect,
the fact that there exists another representation, warranty, covenant,
obligation, agreement or condition relating to the same subject matter
(regardless of the relative levels of specificity) that the party has not
breached or violated, has fulfilled or in respect of which there is not an
inaccuracy, will not detract from or mitigate the fact that the party has
breached or violated, not fulfilled or there is an inaccuracy in, the other
representation, warranty, covenant, obligation, agreement or condition.

Section 12.6.     Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, that provision shall be
interpreted to be only so broad as is enforceable.

Section 12.7.     Notices. All notices and other communications hereunder shall
be in writing, shall be given by one or more of the following means and shall be
deemed given: (a) when delivered, if delivered in person, (b) upon confirmation
of receipt, if transmitted by facsimile, (c) three (3) Business Days after
mailing, if mailed by certified or registered mail (return receipt requested),
or (d) on the Business Day on which delivered by an express courier (with
confirmation), (or, if not delivered on a Business Day, on the next Business
Day), if delivered. In each case to a party at its address listed below (or at
such other address as such party shall deliver to the other party by like
notice):

To Sellers:

Samuel R. Scheef

7101 82nd Street

Lubbock, Texas 79424

Facsimile: (806) 784-3436

Teddy D. Etheredge

7101 82nd Street

Lubbock, Texas 79424

Facsimile: (806) 784-3436

Michael W. Smith

P. O. Box 496

2105 Avenue J

Petersburg, Texas 79520

Facsimile: (806) 667-3414

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Carlos E. Johnson

11009 Genoa Ave.

Lubbock, Texas 79424

Facsimile: (806) 798-7380

David L. Teague

7103 82nd Street

Lubbock, Texas 79424

Facsimile: (806) 799-0915

Carroll Leon

P. O. Box 637

Petersburg, Texas 79520

Facsimile: (806) 784-3436

To the Companies:

ARMtech, Inc.

7101 82nd Street

Lubbock, Texas 79424

Facsimile: (806) 799-0915

Attention: Samuel R. Scheef

With a concurrent copy to:

Sneed, Vine & Perry, P.C.

901 Congress Avenue

Austin, Texas 78701

Facsimile: (512) 476-1825

Attention: Michael R. Perkins

To Buyer:

Endurance U.S. Holdings Corp.

333 Westchester Avenue, West Building

White Plains, New York 10604

Facsimile: (914) 206-4369

Attention: Secretary

With a concurrent copy to:

LeBoeuf, Lamb, Greene & MacRae LLP

125 West 55th Street

New York, NY 10019-4513

Facsimile: (212) 424-8500

Attention: William S. Lamb, Esq.

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Section 12.8.     No Third Party Beneficiaries; Binding Effect. Except as
provided in Article X, nothing in this Agreement is intended or shall be
construed to confer upon any Person, including any employee of any Company,
other than the parties hereto and their respective successors and permitted
assigns, any right, remedy or claim under or by reason of this Agreement or any
part hereof. The representations and warranties in this Agreement are the
product of negotiations among the parties hereto and are for the sole benefit of
the parties hereto. Any inaccuracies in such representations and warranties are
subject to waiver by the parties hereto in accordance with this Agreement
without notice or Liability to any other Person. In some instances, the
representations and warranties in this Agreement may represent an allocation
among the parties hereto of risks associated with particular matters regardless
of the knowledge of any of the parties hereto. Consequently, Persons other than
the parties hereto may not rely upon the representations and warranties in this
Agreement as characterizations of actual facts or circumstances as of the date
of this Agreement or as of any other date. Neither this Agreement nor any of the
rights or obligations hereunder may be assigned by Sellers without the prior
written consent of Buyer, or by Buyer without the prior written consent of
Sellers, except that before or after the Closing, Buyer shall have the right,
without such consent, to assign to a Subsidiary of Buyer its rights and
obligations under this Agreement; provided, that no such assignment shall
relieve Buyer of its obligations hereunder. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Facsimile copies of
original signatures shall be effective as original signatures.

Section 12.9.     Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same agreement, it being understood that all of the
parties need not sign the same counterpart.

Section 12.10.  Dispute Resolution. Any and all disputes between the parties
with respect to any claim or matter arising out of this Agreement, including but
not limited to any claim arising pursuant to Section 10.2 or the Escrow
Agreement, that the parties are unable to resolve after the exercise of
reasonable efforts to resolve them informally, shall be resolved by binding
arbitration proceedings and such dispute shall be resolved and settled by
arbitration pursuant to the Federal Arbitration Act (9 U.S.C. Section 1 et seq.)
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association and following the laws of the State of New York. The decision of the
arbitrator shall be final and binding upon the parties and judgment upon the
award may be entered in any court having jurisdiction thereof in the State of
New York. The parties agree that the arbitrator shall not be authorized to award
punitive damages. The arbitration shall take place in the City of Kansas City,
Missouri. Each party shall bear its respective costs related to arbitration, and
the fees of the arbitrator shall be borne equally by Buyer (50%) and Sellers
(50%) and allocated among Sellers as specified in the Seller Allocation Notice.

Section 12.11.  Governing Law. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED
AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.

 

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Section 12.12.   Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

Section 12.13.   No Strict Construction Against the Drafter. The parties have
participated jointly in the negotiation and drafting of this Agreement. In the
event any ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by all parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provision of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement
to be executed as of the date first set forth above.

SELLERS:

 

 

 

 

 

 

By: 

/s/ Samuel R. Scheef

 

By: 

/s/ Teddy D. Etheredge

Name: 

Samuel R. Scheef

 

Name: 

Teddy D. Etheredge

 

 

 

 

 

 

By: 

/s/ Michael W. Smith

 

By: 

/s/ Carlos E. Johnson

Name: 

Michael W. Smith

 

Name: 

Carlos E. Johnson

 

 

 

 

 

 

By: 

/s/ David L. Teague

 

By: 

/s/ Carroll Leon

Name: 

David L. Teague

 

Name: 

Carroll Leon

THE COMPANIES:

 

ARMtech, Inc.

 

ARMtech Holdings, Inc.

 

 

 

 

 

 

 

 

 

 

By: 

/s/ Samuel R. Scheef

 

By: 

/s/ Samuel R. Scheef

Name: 

 Samuel R. Scheef

 

Name: 

 Samuel R. Scheef

Title:

 President

 

Title:

 President

 

ARMtech Insurance Services, Inc.

 

American Agri-Business Insurance Company

 

 

 

 

 

 

 

 

 

 

By: 

/s/ Samuel R. Scheef

 

By: 

/s/ Samuel R. Scheef

Name: 

 Samuel R. Scheef

 

Name: 

 Samuel R. Scheef

Title:

 President

 

Title:

 President

BUYER:

 

Endurance U.S. Holdings Corp.

 

 

 

 

 

 

 

 

 

 

 

 

By: 

/s/ Kenneth J. LeStrange

 

 

 

Name: 

 Kenneth J. LeStrange

 

 

 

Title:

 Chairman

 

 

 

 

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