NOTE PURCHASE AGREEMENT

                                                       DATED

                                                       AS OF

                                                   JUNE 30, 2000

                                                   BY AND AMONG

                                        AMERICAN FOUNDERS FINANCIAL CORP.,

                                         VESTA FIRE INSURANCE CORPORATION

                                                        AND

                                            VESTA INSURANCE GROUP, INC.

                                                 TABLE OF CONTENTS

                                                                                                               Page

1.    Definitions.................................................................................................1
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2.    Closing Transaction.........................................................................................1
--    -------------------

   2.1   ISSUANCE, SALE AND PURCHASE..............................................................................1
         ---------------------------
   2.2   CLOSING..................................................................................................2
         -------

3.    Representations and Warranties of AFFC......................................................................2
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   3.1   AUTHORIZATION, EXECUTION AND DELIVERY....................................................................2
         -------------------------------------
   3.2   NONCONTRAVENTION.........................................................................................2
         ----------------
   3.3   REQUIRED CONSENTS........................................................................................3
         -----------------
   3.4   ORGANIZATION, STANDING AND AUTHORITY; SUBSIDIARIES.......................................................3
         --------------------------------------------------
   3.5   LICENSES.................................................................................................3
         --------
   3.6   ACTIONS AND PROCEEDINGS..................................................................................3
         -----------------------
   3.7   OUTSTANDING CAPITAL STOCK AND SURPLUS NOTES OF AFFC AND ITS SUBSIDIARIES.................................3
         ------------------------------------------------------------------------
   3.8   TITLE TO SUBSIDIARY STOCK; SURPLUS NOTES.................................................................4
         ----------------------------------------
   3.9   OPTIONS OR OTHER RIGHTS..................................................................................4
         -----------------------
   3.10     CORPORATE RECORDS.....................................................................................4
            -----------------
   3.11     INSURANCE ANNUAL STATEMENTS; FINANCIAL STATEMENTS.....................................................5
            -------------------------------------------------
   3.12     ABSENCE OF LIABILITIES AND OBLIGATIONS................................................................5
            --------------------------------------
   3.13     NO MATERIAL ADVERSE CHANGE............................................................................5
            --------------------------
   3.14     COMPLIANCE WITH LAWS..................................................................................6
            --------------------
   3.15     PROPERTY..............................................................................................7
            --------
   3.16     CONTRACTS AND OTHER AGREEMENTS........................................................................7
            ------------------------------
   3.17     EMPLOYMENT BENEFITS...................................................................................7
            -------------------
   3.18     POWERS OF ATTORNEY...................................................................................10
            ------------------
   3.19     INSURANCE............................................................................................10
            ---------
   3.20     TAX MATTERS..........................................................................................11
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   3.21     TAX STATUS OF INSURANCE/ANNUITY PRODUCTS.............................................................12
            ----------------------------------------
   3.22     ENVIRONMENTAL MATTERS................................................................................12
            ---------------------
   3.23     BROKERAGE............................................................................................13
            ---------
   3.24     LOSS RESERVES........................................................................................13
            -------------
   3.25     TRADEMARKS, SERVICE MARKS, TRADE NAMES, COPYRIGHTS AND DATA PROCESSING SYSTEMS.......................13
            ------------------------------------------------------------------------------
   3.26     EMPLOYMENT MATTERS...................................................................................13
            ------------------
   3.27     IMPROPER PAYMENTS....................................................................................14
            -----------------
   3.28     REINSURANCE..........................................................................................14
            -----------
   3.29     EMPLOYMENT CONTRACTS.................................................................................14
            --------------------
   3.30     GUARANTEES...........................................................................................15
            ----------
   3.31     INVESTMENTS..........................................................................................15
            -----------
   3.32     ACCOUNTS; SECURITY DEPOSITS..........................................................................15
            ---------------------------
   3.33     INSURANCE BUSINESS...................................................................................15
            ------------------
   3.34     NO MISREPRESENTATIONS................................................................................16
            ---------------------

4.    Representations and Warranties of Vesta Fire and Vesta.....................................................16
--    ------------------------------------------------------

   4.1   ORGANIZATION, STANDING AND AUTHORITY....................................................................16
         ------------------------------------
   4.2   AUTHORIZATION, EXECUTION AND DELIVERY...................................................................16
         -------------------------------------
   4.3   REQUIRED CONSENTS.......................................................................................17
         -----------------
   4.4   NONCONTRAVENTION........................................................................................17
         ----------------

5.    Pre-Closing Covenants......................................................................................17
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   5.1   GENERAL.................................................................................................17
         -------
   5.2   NOTICES AND CONSENTS....................................................................................18
         --------------------
   5.3   OPERATION OF BUSINESS...................................................................................18
         ---------------------
   5.4   FULL ACCESS; CONFIDENTIALITY............................................................................18
         ----------------------------
   5.5   STATE INSURANCE AND OTHER REGULATORY APPROVALS..........................................................19
         ----------------------------------------------
   5.6   EXCLUSIVITY.............................................................................................20
         -----------
   5.7   OTHER DOCUMENTS.........................................................................................20
         ---------------
   5.8   FINANCIAL STATEMENT AUDIT...............................................................................20
         -------------------------

6.    Conditions to Obligation to Close..........................................................................20
--    ---------------------------------

   6.1   CONDITIONS TO OBLIGATION OF VESTA.......................................................................20
         ---------------------------------
   6.2   CONDITIONS TO OBLIGATION OF AFFC........................................................................22
         --------------------------------

7.    Remedies for Breaches of This Agreement....................................................................23
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   7.1   SURVIVAL PERIOD; INDEMNIFICATION AS REMEDY..............................................................23
         ------------------------------------------
   7.2   INDEMNIFICATION PROVISIONS FOR BENEFIT OF VESTA.........................................................24
         -----------------------------------------------
   7.3   INDEMNIFICATION PROVISIONS FOR BENEFIT OF AFFC..........................................................24
         ----------------------------------------------
   7.4   MATTERS INVOLVING THIRD PARTIES.........................................................................24
         -------------------------------
   7.5   EXCLUSIVE REMEDY AFTER THE CLOSING......................................................................25
         ----------------------------------
   7.6   CLAIM NOTICE............................................................................................25
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8.    Termination................................................................................................25
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   8.1   TERMINATION OF AGREEMENT................................................................................25
         ------------------------
   8.2   EFFECT OF TERMINATION...................................................................................26
         ---------------------

9.    Miscellaneous..............................................................................................26
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   9.1   ENTIRE AGREEMENT........................................................................................26
         ----------------
   9.2   SUCCESSION AND ASSIGNMENT...............................................................................26
         -------------------------
   9.3   COUNTERPARTS............................................................................................26
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   9.4   HEADINGS................................................................................................27
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   9.5   EXPENSES................................................................................................27
         --------
   9.6   NOTICES.................................................................................................27
         -------
   9.7   AMENDMENTS AND WAIVERS..................................................................................28
         ----------------------
   9.8   SEVERABILITY............................................................................................28
         ------------
   9.9   CONSTRUCTION............................................................................................28
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AFFC's Disclosure Schedule

3.3               .........Required Consents

3.7               .........Outstanding Capital Stock and Surplus Notes of AFFC and its Subsidiaries

3.9               .........Options or other Rights

3.17              .........Employment Benefits

Appendix A        .........Definitions

Exhibit A-1       .........Series B Exchange Agreement

Exhibit A-2       .........Investor Rights Agreement

Exhibit A-3       .........9.5% Convertible Subordinated Note

Exhibit A-4       .........Employment Agreement

Exhibit A-5       .........Series D Preferred Stock

AMERICAN FOUNDERS FINANCIAL CORPORATION NOTE PURCHASE AGREEMENT
----------------------- This Agreement is entered into this 30 day of June,
2000, by and among American Founders Financial Corp., an Arizona corporation
("AFFC"), Vesta Fire Insurance Corporation, an Illinois corporation ("Vesta
Fire") and Vesta Insurance Group, Inc., a Delaware corporation and the owner of
all of the outstanding capital stock of Vesta Fire ("Vesta"). AFFC, Vesta Fire
and Vesta are sometimes referred to collectively herein as the "Parties" and
individually as a "Party". AFFC is seeking investment capital. Vesta Fire
desires to make a $25 million investment in AFFC by purchasing from AFFC
convertible subordinated notes. In addition, Vesta Fire desires that it have the
right to vote the shares into which such note is convertible on an as-converted
basis. AFFC is willing to accept such investment by selling such notes to Vesta
Fire and providing Vesta Fire with its desired pre-conversion voting rights
through a newly created special voting preferred stock provided that Vesta is a
Party to this Agreement and that Vesta, Vesta Fire and AFFC enter into an
investor rights agreement delineating certain rights and obligations of the
Parties with respect to corporate governance and other matters. Vesta Fire is
willing to make its investment on such terms. Accordingly, the Parties agree as
follows: 1. Definitions. ----------- As used in this Agreement, the terms set
forth in Appendix A shall have the meanings ascribed to such terms in Appendix
A. 2. Closing Transaction. ------------------- 2.1 Issuance, Sale and Purchase.
--------------------------- At the Closing, subject to the conditions set forth
in Section 6 (the "Closing Conditions"), AFFC will duly execute, issue and
deliver five Notes, each in the principal amount of $5 million, and duly
executed certificates, each evidencing five shares of the Special Voting
Preferred, to Vesta Fire. Vesta Fire will purchase and accept (a) the Notes by
paying to AFFC $25 million in cash, by wire transfer to an account designated by
AFFC and (b) the Special Voting Preferred by paying to AFFC $250 in cash (by
wire transfer to an account designated by AFFC). In addition, at the Closing,
AFFC, Vesta and Vesta Fire will enter into the Investor Rights Agreement, AFFC
will enter into the Employment Agreements and the Exchange Agreement with the
Series B Preferred Holders and AFFC will, simultaneously with the Closing,
consummate the transactions contemplated by the Redemption Agreement and pay in
full AFFC's Promissory Note dated May 23, 2000, to Vesta in the original
principal amount of $5,500,000. 2.2 Closing. ------- The Closing will take place
at the offices of AFFC at 2720 East Camelback Road, Phoenix, Arizona, or at such
other place as the parties may agree, on June 30, 2000, or if the Closing
Conditions have not been satisfied by such date, on such later date within ten
days after the Closing Conditions have been satisfied as the Parties may
designate (the "Closing Date"). 3. Representations and Warranties of AFFC.
-------------------------------------- AFFC represents and warrants to Vesta
Fire and Vesta that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and complete on
and as of the Closing Date except where any such statement is made as of a
specific date. 3.1 Authorization, Execution and Delivery.
------------------------------------- AFFC has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement by AFFC and the
consummation by AFFC of the transactions contemplated hereby will have been,
before the Closing Date, duly authorized by the Board of Directors and
stockholders of AFFC, and no other corporate proceedings on the part of AFFC are
necessary to authorize the execution and delivery of this Agreement and the
consummation by AFFC of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by AFFC and constitutes a valid and binding
obligation of AFFC enforceable against it in accordance with its terms, except
as such enforcement may be limited by applicable bankruptcy, rehabilitation,
liquidation, insolvency, reorganization, rearrangement, receivership and other
similar laws relating to or affecting insurance companies or the enforcement of
creditors' rights generally, by general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law), and
by matters involving the discretionary authority of any court before which any
proceeding therefor may be brought or any state Insurance Commissioner or
Insurance Department that has jurisdiction. 3.2 Noncontravention.
---------------- Neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (a) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which AFFC or any of its Subsidiaries is subject or, any provision of
its charter or bylaws or the charter or bylaws of any of its Subsidiaries or (b)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which AFFC or any of its Subsidiaries is a
party or by which any of them is bound or to which any of their respective
assets is subject. 3.3 Required Consents. ----------------- Except as set forth
in Section 3.3 to the AFFC Disclosure Schedule, neither AFFC nor any of its
-------------------------------------------- Subsidiaries is required to give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any government or governmental agency or other Person in order for
the Parties to consummate the transactions contemplated by this Agreement. 3.4
Organization, Standing and Authority; Subsidiaries.
-------------------------------------------------- AFFC and each of its
Subsidiaries is duly organized, validly existing and in Good Standing under the
laws of the state of its organization. 3.5 Licenses. -------- AFFC and each of
the life insurance company Subsidiaries is duly licensed and qualified to
transact all business it is currently conducting and is in Good Standing in the
state of its incorporation and in each of the other jurisdictions where it is
currently conducting such business, except where the lack of such license or
qualification would not have a Material Adverse Effect. All Licenses held by
AFFC and its Subsidiaries are (i) in full force and effect and (ii) are not
subject to any action, proceeding, or investigation which restricts or would
restrict any of the Licenses except where the ineffectiveness of any License or
the existence of any such restriction would not have a Material Adverse Effect.
3.6 Actions and Proceedings. ----------------------- Except for claims under or
with respect to insurance policies, (i) there are no outstanding adverse,
material orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal against or naming AFFC
or its Subsidiaries, or any of the directors, officers or employees of AFFC or
its Subsidiaries in their capacity as such; and (ii) there are no material
complaints, actions, suits or claims or legal, administrative or arbitration
proceedings against or investigations of, or threatened against or involving,
any of AFFC or its Subsidiaries, or any of their directors, officers, employees
in their capacity as such or their properties or assets. 3.7 Outstanding Capital
Stock and Surplus Notes of AFFC and its Subsidiaries.
------------------------------------------------------------------------ Section
3.7 to the AFFC Disclosure Schedule sets forth the authorized capitalization of
AFFC --------------------------------------------- and each of its Subsidiaries
(i) immediately prior to the consummation of the Transactions, (ii) immediately
following the consummation of the Transactions, and (iii) immediately following
the consummation of the Transactions on a fully diluted and as converted basis,
including the number of issued and outstanding shares of each class of its
capital stock, the outstanding principal amount of each surplus note, the names
of the holders thereof, and the number of shares or principal amount held by
each such holder. All of the outstanding shares of capital stock of AFFC and
each Subsidiary are duly authorized and are validly issued, fully paid and
non-assessable. The outstanding surplus note of Laurel Life is duly authorized,
validly issued and fully enforceable. AFFC has delivered to Vesta Fire and Vesta
true and complete copies of the Redemption Agreement, as executed, including all
exhibits and attachments thereto. 3.8 Title to Subsidiary Stock; Surplus Notes.
---------------------------------------- AFFC owns, beneficially and of record,
all of the outstanding shares of capital stock and the surplus note of Laurel
Life, and Laurel Life owns, beneficially and of record, all of the outstanding
shares of capital stock of AFL, in each case free and clear of any Security
Interests or restrictions other than the Security Interest of Vesta in a surplus
note, which will be satisfied at Closing. 3.9 Options or Other Rights.
----------------------- Except as set forth in Section 3.9 to the AFFC
Disclosure Schedule, there is no (i) outstanding
-------------------------------------------- right, subscription, warrant, call,
unsatisfied preemptive right, option or other contract or other agreement of any
kind to purchase or otherwise to receive from AFFC or any of its Subsidiaries
any of the outstanding, authorized but unissued, unauthorized or treasury shares
of the capital stock, any surplus note, or any other security of AFFC or its
Subsidiaries, (ii) outstanding security of any kind convertible into any
security of AFFC or its Subsidiaries, or (iii) outstanding contract or other
agreement to purchase, redeem or otherwise acquire any outstanding capital
stock, surplus note or any other security of AFFC or its Subsidiaries. 3.10
Corporate Records. ----------------- AFFC has heretofore made available to Vesta
Fire and Vesta true, complete and correct copies of the Certificates or Articles
of Incorporation and the By-Laws of AFFC and its Subsidiaries, as in effect on
the date hereof, and made available to Vesta Fire and Vesta copies of (i) the
stock transfer records, which are true and complete and reflect all issuances
and transfers of capital stock, and (ii) the corporate records of meetings of
the directors and shareholders, of AFFC and its Subsidiaries, which are true and
complete and reflect all corporate actions and proceedings of the directors and
shareholders that actually took place and should be reflected therein. 3.11
Insurance Annual Statements; Financial Statements.
------------------------------------------------- AFFC has furnished to Vesta
Fire and Vesta copies of the Annual Statements ("Insurance Annual Statements")
of Laurel Life and each of its insurance company Subsidiaries for the years
ended December 31, 1999, 1998, 1997, and 1996, in each case as filed by Laurel
Life or the respective Subsidiary with the Insurance Department of the state of
its domicile and with the appropriate regulatory authorities in all
jurisdictions in which such filing is required. The Insurance Annual Statements
of Laurel Life and AFL for the years ended December 31, 1999, 1998, 1997, and
1996 have been audited. Additionally, AFFC has furnished to Vesta Fire and Vesta
copies of the unaudited insurance financial statements of Laurel Life and AFL
for the quarter ended March 31, 2000, filed by Laurel Life or AFL with the
Insurance Department of the state of its domicile and with the appropriate
regulatory authorities in all jurisdictions in which such filing is required.
(All of the foregoing financial statements referred to in this Section 3.11 are
hereinafter collectively referred to as the "Most Recent Financial Statements").
Each of the Most Recent Financial Statements fairly presents the financial
position of the applicable Subsidiary as of its date and results of its
operations for the periods set forth therein in accordance with SAP applied on a
consistent basis throughout the related periods, except that the unaudited
statements are subject to audit adjustments and may lack footnotes and other
presentation items. AFFC also has furnished Vesta Fire and Vesta with a list of
its assets and liabilities as of May 31, 2000. The reserves established and
reflected in the Most Recent Financial Statements in respect of the insurance
and annuity policies and contracts of Laurel Life and its life insurance
Subsidiaries were determined in accordance with generally accepted actuarial
standards consistently applied, are fairly stated in all material respects in
accordance with sound actuarial principles and are adequate and in compliance in
all material respects with the requirements of the applicable insurance laws,
rules and regulations in the state of Texas, as the case may be, as well as
those of any other applicable jurisdictions. 3.12 Absence of Liabilities and
Obligations. -------------------------------------- As of December 31, 1999,
neither AFFC nor any of its Subsidiaries had any liabilities or other
obligations that were not reflected on the Most Recent Financial Statements or
any footnotes thereto, except for such liabilities and obligations as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. 3.13 No Material Adverse Change. --------------------------
Since December 31, 1999, there has been (a) no change, or development involving
a prospective change, in the general affairs, management, shareholders' equity,
assets, liabilities, properties, business, operations, condition (financial or
otherwise) or results of operations of AFFC and its Subsidiaries, that has had
or may reasonably be expected to have a Material Adverse Effect, other than
those resulting from (i) a change in general economic or financial conditions in
the United States (ii) the effects of the acquisition by AFFC of Laurel Life on
January 31, 2000, or actions contemplated under this Agreement, and (b) no
material change in the manner in which the business of AFFC or its Subsidiaries
is conducted; nor will there be prior to Closing other than those resulting from
actions contemplated under this Agreement. 3.14 Compliance with Laws.
-------------------- AFFC and each of its Subsidiaries have complied in all
respects (or will comply within the applicable statutory or grace period
provided) with all laws, regulations, including, but not limited to,
requirements concerning sales practices, licensing requirements and orders
applicable to it or to the operation of its business, except where the failure
to do so would not have a Material Adverse Effect. Neither AFFC nor any of its
Subsidiaries is in violation of (i) any applicable order, judgment, injunction,
award or decree, or (ii) any federal, state, local or foreign law, ordinance or
regulation or any other requirement of any governmental authority, court or
arbitrator applicable to any of its business that would have a Material Adverse
Effect, and none of AFFC or its Subsidiaries has received written notice that
any such violation is being alleged or that AFFC or any of its Subsidiaries
needs to have licenses it does not have. AFFC and each of its Subsidiaries has
filed all reports and other documents that it was required to file with any
Insurance Department or other governmental or regulatory authority having
jurisdiction over AFFC or any of its Subsidiaries except where the failure to
file would not have a Material Adverse Effect. As of their respective dates,
each of such reports and documents complied in all respects with the relevant
statutes, rules and regulations enforced or promulgated by the authority with
which they were filed and did not contain any untrue statement of a fact or omit
to state any fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, where such non-compliance would not have, or such untrue
statement or omission does not relate to the existence of, a Material Adverse
Effect. AFFC has provided Vesta Fire and Vesta with access to true and complete
copies of (a) all exam reports issued by any Insurance Department with respect
to any examination of Laurel Life or any of its Subsidiaries conducted since
December 31, 1995, and (b) all insurance policy and annuity or insurance
contract forms issued by Laurel Life or its Subsidiaries. All insurance policy
and annuity or insurance contract forms issued by Laurel Life or its
Subsidiaries have been filed with and approved by all applicable Insurance
Departments to the extent required by law, except where the failure to file or
the lack of approval would not have a Material Adverse Effect. 3.15 Property.
-------- (a) With respect to each parcel of real property owned by Subsidiaries
of AFFC, except for matters which would not have a Material Adverse Effect, the
applicable Subsidiary has good and marketable title to the parcel of real
property, free and clear of any Security Interest, easement, covenant, or other
restriction, except for installments of special assessments not yet delinquent,
recorded easements, covenants, and other restrictions, and utility easements,
building restrictions, zoning restrictions, and other easements and restrictions
existing generally with respect to properties of a similar character. AFFC does
not own any real property. (b) Each lease and sublease to which AFFC or any of
its Subsidiaries is a party is legal, valid, binding, enforceable, and in full
force and effect, except where the illegality, invalidity, nonbinding nature,
unenforceability, or ineffectiveness would not have a Material Adverse Effect.
To the Knowledge of AFFC, none of AFFC, the applicable Subsidiary of AFFC or any
other party to such lease or sublease, is in material violation or breach of or
default under any such lease or sublease. (c) AFFC and its Subsidiaries own or
have the right to use all material items of tangible and intangible property
necessary for the conduct of the business of AFFC and its Subsidiaries as it is
currently conducted, except where the lack of ownership or the lack of such
right to use items of tangible and intangible property could not reasonably be
expected to have a Material Adverse Effect. 3.16 Contracts and Other Agreements.
------------------------------ No contract or commitment, written or oral, to
which any of AFFC or its Subsidiaries is a party or by which any of them is
bound, excluding direct insurance policies written or assumed by Laurel Life or
any of its Subsidiaries, could reasonably be expected to have a Material Adverse
Effect. 3.17 Employment Benefits. ------------------- (a) Section 3.17 of AFFC's
Disclosure Schedule lists each Benefit Plan that any of AFFC and its
Subsidiaries maintains or to which any of AFFC and its Subsidiaries contributes,
and except as set forth in Section 3.17 of AFFC's Disclosure Schedule:
------------------------------------------- (i) Each Benefit Plan that is an
Employee Benefit Plan (and each related trust, insurance contract, or fund)
complies in form and in operation in all material respects with the applicable
requirements of ERISA, the Code, and other applicable laws. (ii) All required
reports and descriptions (including Form 5500 Annual Reports, Summary Annual
Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed
appropriately and in accordance with the Code and ERISA with respect to each
such Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Sec. 4980B have been met in all material respects with respect to
each such Benefit Plan that is an Employee Welfare Benefit Plan. (iii) All
contributions (including all employer contributions and employee salary
reduction contributions) that are due have been paid to each such Benefit Plan
which is an Employee Pension Benefit Plan and all contributions for any period
ending on or before the Closing Date that are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance with the past custom
and practice of each of AFFC and its Subsidiaries. All premiums or other
payments for all periods ending on or before the Closing Date will have been
paid with respect to each such Benefit Plan that is an Employee Welfare Benefit
Plan or accrued in the Most Recent Financial Statements. All contributions
required to have been made by AFFC, or its Subsidiaries under the terms of any
Benefit Plan have been timely made. (iv) Each such Benefit Plan that is an
Employee Pension Benefit Plan meets all of the requirements of a "qualified
plan" under Code Sec. 401(a) and has received a favorable determination letter
from the Internal Revenue Service, and AFFC has no Knowledge of any
circumstances that could affect adversely the qualified status of such Benefit
Plan. (v) The market value of assets under each such Benefit Plan that is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or
exceeds the present value of all vested and nonvested liabilities thereunder
determined in accordance with PBGC methods, factors, and assumptions applicable
to an Employee Pension Benefit Plan terminating on the Closing Date. (vi) No
such Benefit Plan that is in an Employee Pension Benefit Plan has an
"accumulated funding deficiency" (whether or not waived) within the meaning of
Code Sec. 412 or Section 302 of ERISA, and no member of the Controlled Group of
Corporations that includes AFFC and its Subsidiaries has an outstanding funding
waiver. (vii) With respect to each Benefit Plan that is an Employee Pension
Benefit Plan, AFFC has made available to Vesta correct and complete copies of
the plan documents and summary plan descriptions, the most recent determination
letter received from the Internal Revenue Service, the most recent Form 5500
Annual Report, and all related trust agreements, insurance contracts, and other
funding agreements that implement each such Employee Benefit Plan, if any, and
with respect to any Benefit Plan that is not an Employee Pension Benefit Plan,
AFFC has given Vesta Fire and Vesta access to the documents described in this
3.17(a)(vii) if any. (b) With respect to each Benefit Plan for which AFFC or any
of its Subsidiaries has or could have any liability: (i) No such Benefit Plan
that is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has
been completely or partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit Plan
(other than any Multiemployer Plan) has been instituted or, to the Knowledge of
AFFC, threatened. (ii) There have been no Prohibited Transactions with respect
to any such Benefit Plan that is an Employee Benefit Plan. No Fiduciary has any
liability for any material breach of fiduciary duty or any other material act or
failure to act or comply in connection with the administration of or investment
of the assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration of or the
investment of the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or, to the Knowledge of AFFC, threatened. (iii)
None of AFFC or any of its Subsidiaries has incurred any material liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) to the PBGC (other than PBGC premium payments)
or otherwise under Title IV of ERISA (including any withdrawal liability) or
under the Code with respect to any such Benefit Plan that is an Employee Pension
Benefit Plan. (c) None of AFFC, its Subsidiaries and the other members of the
Controlled Group of Corporations that includes AFFC and its Subsidiaries
contributes to, ever has contributed to, or ever has been required to contribute
to any Multiemployer Plan or has any material liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any withdrawal liability, under any Multiemployer Plan
except where such contribution, requirement to contribute, or liability would
not have a Material Adverse Effect. (d) None of AFFC or its Subsidiaries has
maintained nor maintains or contributes to, or ever has contributed to, or ever
has been required to contribute to any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with Code Sec. 4980B) except where such contribution,
requirement to contribute, or maintenance would not have a Material Adverse
Effect. (e) AFFC has made available to Vest Fire and Vesta true and complete
copies of all Benefit Plans currently in effect, all of which are listed on
Section 3.17 of AFFC's Disclosure Schedule.
------------------------------------------- 3.18 Powers of Attorney.
------------------ There are no outstanding powers of attorney granted by AFFC
or its Subsidiaries except those powers of attorney that, if exercised in
accordance with their terms, could not have a Material Adverse Effect. 3.19
Insurance. --------- At all times material, AFFC and its Subsidiaries have
maintained in full force and effect insurance coverage for all risks, and in
such amounts, customarily insured by a Person of similar size carrying on
similar businesses as AFFC and its Subsidiaries, except where the failure to
maintain such insurance coverage could not reasonably be expected to have a
Material Adverse Effect. 3.20 Tax Matters. ----------- For tax periods ending on
or prior to December 31, 1999: (a) The unpaid federal income Taxes of Laurel
Life and its Subsidiaries do not exceed the reserves for federal income Tax
liability (rather than any reserve for deferred taxes established to reflect
timing differences between book and tax income) set forth in the 1999 Insurance
Annual Statements for Laurel Life and its Subsidiaries by an amount in excess of
fifty thousand dollars ($50,000). AFFC has no unpaid federal income Taxes as of
December 31, 1999. (b) The unpaid Taxes (other than federal income Taxes) of
Laurel Life and its Subsidiaries do not exceed the reserves for those Taxes set
forth on the 1999 Insurance Annual Statements for Laurel Life and its
Subsidiaries by an amount in excess of fifty thousand dollars ($50,000). AFFC
has no unpaid Taxes as of December 31, 1999. (c) Each of AFFC and Laurel Life
and its Subsidiaries has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all material respects. None of
AFFC or Laurel Life and its Subsidiaries currently is the beneficiary of any
extension of time within which to file any income Tax Return. (d) There is no
material dispute or claim concerning any Tax liability of any of AFFC or Laurel
Life and its Subsidiaries either (i) claimed or raised by any authority in
writing or (ii) as to which AFFC has Knowledge based upon personal contact with
any agent of such authority. (e) AFFC has provided Vesta Fire and Vesta access
to correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by any of
AFFC or Laurel Life and its Subsidiaries since December 31, 1993. None of AFFC
or Laurel Life and its Subsidiaries has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to an Tax
assessment or deficiency. (f) Laurel Life and its subsidiary AFL each is subject
to federal income Tax as a "life insurance company" within the meaning of
Section 801 of the Code. (g) To the Knowledge of AFFC, proper and accurate
amounts have been withheld by AFFC and its Subsidiaries in full and complete
compliance with the Tax and social security withholdings provisions of
applicable Federal, state, local and foreign law, and such withholdings have
been timely paid to the respective governmental authorities. (h) To the
Knowledge of AFFC, AFFC and its Subsidiaries have made all required estimated
tax payments sufficient to avoid any underpayment penalties. 3.21 Tax Status of
Insurance/Annuity Products. ---------------------------------------- Except to
the extent that no Material Adverse Effect would exist: (a) All of the life
insurance contracts of Laurel Life and its Subsidiaries qualify as "life
insurance contracts" within the meaning of Section 7702 of the Code. (b) No life
insurance contracts issued by Laurel Life or its Subsidiaries meet the test of
"modified endowment contracts" contained in Section 7702A of the Code. (c) All
annuity contracts issued by Laurel Life and its Subsidiaries that are subject to
Section 72(s) of the Code, contain all of the necessary provisions of Section
72(s). 3.22 Environmental Matters. --------------------- Neither the conduct nor
operation of AFFC or its Subsidiaries nor any condition of or on any property
presently or previously owned, leased or operated by any of them violates or
violated any Environmental Laws in any respect material to the business of AFFC
and its Subsidiaries and no condition exists or event has occurred with respect
to any of them or any such property that, with notice or the passage of time, or
both, would constitute a violation of any Environmental Law material to the
business of AFFC or its Subsidiaries or obligate (or potentially obligate) AFFC
or its Subsidiaries to remedy, stabilize, neutralize or otherwise alter the
environmental condition of any such property where the aggregate cost of such
actions could reasonably be expected to have a Material Adverse Effect. None of
AFFC or its Subsidiaries has received any notice that any operation or condition
of any property presently or, previously owned, leased or operated by any of
them are or were in violation of any Environmental Laws or that any of them are
responsible (or potentially responsible) for the cleanup or other remediation of
any pollutants, contaminants, or hazardous or toxic wastes, substances or
materials at, on or beneath any such property. 3.23 Brokerage. --------- No
broker or finder has acted directly or indirectly for AFFC or its Subsidiaries
or has or will have any valid claim against AFFC or its Subsidiaries for any
brokerage, finder's fee or other commission or compensation. 3.24 Loss Reserves.
------------- The loss reserves reflected in the Insurance Annual Statements
were or will be determined in accordance with SAP and generally accepted
actuarial standards and principles applied by AFFC on a basis consistent with
prior periods. Such loss reserves make or will make sufficient provision for the
settlement of the total amount of all liabilities and obligations of AFFC and
the Subsidiaries through the Closing Date arising under the terms of all
insurance and assumed reinsurance contracts pursuant to which AFFC and the
Subsidiaries have any obligation or liability as of the Closing Date. 3.25
Trademarks, Service Marks, Trade Names, Copyrights and Data Processing Systems.
------------------------------------------------------------------------------
AFFC and the Subsidiaries have the right to use and hold good and marketable
title, free and clear of all encumbrances, to each of the trademarks, service
marks, trade names and copyrights and to those data processing systems,
including all component hardware, software, operating systems, programs,
manuals, forms, techniques or the like, used or relied upon by AFFC and the
Subsidiaries in connection with their respective business. Neither AFFC nor any
Subsidiary has any Knowledge of the infringement by any Person, of any such
trademark, service mark, tradename or copyright. 3.26 Employment Matters.
------------------ (a) To Knowledge of AFFC, AFFC and each Subsidiary is not and
has not engaged in any unfair labor practice. There is no unfair practice
complaint against AFFC or any Subsidiary pending or, to Knowledge of AFFC,
threatened before the National Labor Relations Board. (b) Neither AFFC nor any
Subsidiary is a party to any collective bargaining agreement with any labor
union or other association of employees and, to Knowledge of AFFC, no attempt
has been made to organize or certify the employees of AFFC or the Subsidiaries
as a bargaining unit. (c) To Knowledge of AFFC, neither AFFC nor any Subsidiary
has ever been the subject of any inspection or investigation relating to its
compliance with or violation of the Immigration Reform and Control Act of 1986,
and the rules and regulations promulgated thereunder, nor have they been fined
or otherwise penalized by reason of any alleged failure to comply with such
immigration laws, nor is any such proceeding pending or, to Knowledge of AFFC,
threatened in respect of AFFC or any Subsidiary. 3.27 Improper Payments.
----------------- (a) No funds or assets of AFFC or any Subsidiary have been
used for any illegal purposes; (b) No unrecorded fund or asset of AFFC or any
Subsidiary has been established for any purpose; (c) All payments by or on
behalf of AFFC or any Subsidiary have been duly and properly recorded and
accounted for on the books and records of AFFC or the respective Subsidiary; and
(d) No false or artificial entry has been made on the books and records of AFFC
or any Subsidiary for any purpose or reason whatsoever. 3.28 Reinsurance.
----------- All reinsurance agreements or treaties to which AFFC or any
Subsidiary is a party or is a named reinsured and (i) under which there remains
any outstanding obligations or (ii) which covers loss or potential loss arising
out of any event occurring (whether or not reported) during the period of three
(3) years ending on the date hereof are in writing and in full force and effect.
To the Knowledge of AFFC, there are no oral side agreements or other oral
agreements between AFFC or the Subsidiary and the other parties to such
reinsurance agreements or treaties, except for such agreements, the existence,
performance or termination of which would not have a Material Adverse Effect. No
such agreement or treaty contains any provision providing that the other party
thereto may terminate such agreement or treaty by reasons of the transactions
contemplated by this Agreement. To the Knowledge of AFFC, there are no material
claims or losses which have arisen under policies written by AFFC or any
Subsidiary for which reinsurance has been purchased, and for which AFFC or any
Subsidiary intended there to be reinsurance coverage, that are not covered under
such reinsurance agreements. 3.29 Employment Contracts. --------------------
Except for the individuals covered by the Employment Agreements, the employment
of each officer, director and employee is terminable at will by AFFC or a
Subsidiary, without restriction, penalty or payment of any kind. 3.30
Guarantees. ---------- Neither AFFC nor any of its Subsidiaries is a guarantor
or indemnitor for any liability (including indebtedness) of an affiliate or any
other Person other than guaranties and indemnities, if any, made by Laurel Life
or AFL in the ordinary course of its insurance business and other than
guaranties of obligations of AFFC and any of its Subsidiaries. 3.31 Investments.
----------- There have been no material changes to the credit quality or
composition of the investment portfolio of AFFC and each Subsidiary since
December 31, 1999, other than changes in connection with the acquisition by AFFC
of Laurel Life on January 31, 2000, and other than a $5.5 million loan by AFFC
to ComStar Mortgage Corporation and other than changes due to changes in
interest rates and purchases and sales of investments in the normal course of
business. 3.32 Accounts; Security Deposits. --------------------------- There
have been no material changes to the composition of or number of bank accounts,
safe deposit boxes, brokerage accounts, trust accounts, depository accounts or
other custodial accounts of AFFC and each Subsidiary since December 31, 1999,
including but not limited to, any deposits maintained with any governmental
agency or department for the purpose of obtaining or continuing any authority
within any jurisdiction, other than changes in the ordinary course of business
3.33 Insurance Business. ------------------ (a) AFFC has received no written
notification from any agent, broker or other person that currently produces or
writes insurance on reinsurance business for AFFC or any Subsidiary ("Agents")
threatening litigation or termination of their agency agreements or otherwise
indicating that such Agents are likely to cease to do business with AFFC or such
Subsidiary in the same manner as such business has been conducted historically,
whether as a result of the transactions contemplated by this Agreement or
otherwise, which could reasonably be expected to result in a Material Adverse
Effect. (b) To the Knowledge of AFFC, each of the written contracts between AFFC
or any Subsidiary and its Agents ("Agency Agreements") is valid, binding and in
full force and effect in accordance with its terms, assuming no default by any
such Agent under any such agreement, except where there would not be a Material
Adverse Effect. To the Knowledge of AFFC, neither AFFC nor any other party
thereto is in default in any material respect with respect to any Agency
Agreement, and no such Agency Agreement contains any provision providing that
the other party thereto may terminate the same by reason of the transactions
contemplated by this Agreement or any other provision which would be altered or
otherwise become applicable solely by reason of such transactions, except where
there would not be a Material Adverse Effect. (c) There are no material oral
side agreements or other material oral agreements between AFFC or any Subsidiary
and its Agents or former agents with respect to the payment of compensation by
AFFC to its Agents or former agents in existence on the date hereof and on the
Closing Date. 3.34 No Misrepresentations. --------------------- None of the
representations and warranties of AFFC set forth in this Agreement or in the
certificates of officers to be delivered to Vesta Fire and Vesta at Closing
contains or shall contain any untrue statement of a material fact or omits or
shall omit any material fact required to be stated therein. AFFC has disclosed
all material facts necessary to make such representations and warranties
contained herein or any such statement not misleading, in light of the
circumstances under which they were made. 4. Representations and Warranties of
Vesta Fire and Vesta. ------------------------------------------------------
Vesta represents and warrants to AFFC that the statements contained in this
Section 4 are correct and complete on and as of the date of this Agreement and
will be correct and complete as of the Closing Date except where any such
statement is made as of a specific date. 4.1 Organization, Standing and
Authority. ------------------------------------ Vesta Fire is an insurance
company duly organized, validly existing and in Good Standing under the laws of
the state of Illinois. Vesta is a corporation duly organized, validly existing
and in Good Standing under the laws of the state of Delaware. 4.2 Authorization,
Execution and Delivery. ------------------------------------- Vesta Fire and
Vesta each has full corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by Vesta Fire and Vesta and the consummation by Vesta Fire and
Vesta of the transactions contemplated hereby have been duly authorized by the
Board of Directors of each such Person and no other corporate proceedings on the
part of Vesta Fire and Vesta are necessary to authorize the execution and
delivery of this Agreement and the consummation by Vesta Fire and Vesta of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Vesta Fire and Vesta and constitutes a valid and binding obligation
of Vesta Fire and Vesta, enforceable against each in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy,
rehabilitation, liquidation, insolvency, reorganization, rearrangement,
receivership and other similar laws relating to or affecting insurance companies
or the enforcement of creditors' rights generally, by general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law), and by matters involving the discretionary authority of any
court before which any proceeding therefor may be brought or any state Insurance
Commissioner or Insurance Department that has jurisdiction. 4.3 Required
Consents. ----------------- Other than the approval of the Texas Department of
Insurance, any approvals that may be required under the HSR, neither Vesta Fire
nor Vesta is required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government or governmental agency or
other Person in order for the Parties to consummate the transactions
contemplated by this Agreement where the failure to give notice, to file, or to
obtain any authorization, consent, or approval would have a Material Adverse
Effect or materially adversely affect the ability of the Parties to consummate
the transactions contemplated by this Agreement. 4.4 Noncontravention.
---------------- Neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Vesta is subject or any provisions of the charter or bylaws of
Vesta Fire or Vesta or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Vesta Fire or Vesta is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a Material Adverse Effect or materially
adversely affect the ability of the Parties to consummate the transactions
contemplated by this Agreement. 5. Pre-Closing Covenants. ---------------------
The Parties agree as follows with respect to the period between the execution of
this Agreement and the Effective Time. 5.1 General. ------- Each of the Parties
will use its reasonable best efforts to take all action and to do all things
necessary, proper, or advisable in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the Closing Conditions). 5.2 Notices and Consents.
-------------------- Each of the Parties will (i) give notices to those third
parties and will use their reasonable best efforts to obtain those third party
consents that are necessary, proper or advisable in connection with the
transactions contemplated hereby and (ii) give any notices to, make any filing
with, and use its reasonable best efforts to obtain any authorizations,
consents, and approvals of, governments and governmental agencies in connection
with the transactions contemplated hereby. 5.3 Operation of Business.
--------------------- Except as otherwise contemplated by this Agreement or as
Vesta Fire may otherwise consent to in writing, which consent will not be
unreasonably withheld or delayed, AFFC will and will cause each of its
Subsidiaries not to: (a) (i) declare or pay dividends or declare or make any
other distributions, or any other payment or transfer of assets, of any kind to
its shareholders, or (ii) make any direct or indirect redemption, retirement,
purchase or other acquisition of its capital stock, except that AFFC may at
Closing redeem its Series A Convertible Preferred Stock, together with the
Warrants relating thereto, pursuant to the Redemption Agreement; and (b) take
any action or omit to take any action that would make any of the representations
or warranties of AFFC inaccurate or untrue. 5.4 Full Access; Confidentiality.
---------------------------- AFFC will permit, and AFFC will cause its
Subsidiaries to permit, representatives of Vesta Fire and Vesta to have full
access at all reasonable times, and in a manner so as not to interfere with the
normal business operations of AFFC and its Subsidiaries, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to AFFC and its Subsidiaries. Vesta Fire and Vesta
each will treat and hold as such any Confidential Information it receives from
AFFC and its Subsidiaries in the course of the reviews contemplated by this
Section 5, will not use any of the Confidential Information except in connection
with this Agreement. In the event that Vesta Fire or Vesta is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, Vesta Fire or Vesta will
notify AFFC promptly of the request or requirement so that the AFFC may seek an
appropriate protective order or waive compliance with the provisions of this
Section 5.4. If, in the absence of a protective order or the receipt of a waiver
hereunder, Vesta Fire or Vesta is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, AFFC may disclose the Confidential Information to the tribunal;
provided, however, that Vesta Fire and Vesta each shall use ------------------
its reasonable best efforts to obtain, at the reasonable request of AFFC, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as AFFC shall
designate. In the event this Agreement is terminated for any reason whatsoever,
Vesta Fire and Vesta will return to AFFC and its Subsidiaries all tangible
embodiments (and all copies) of the Confidential Information that are in its
possession or control. For purposes of this Agreement, "Confidential
Information" means any information concerning the businesses and affairs of AFFC
and its Subsidiaries provided to Vesta Fire or Vesta by AFFC or any Subsidiary
that is not already generally available to the public; provided, however, that
the term "Confidential Information" does not include information (i) which was
or becomes available to Vesta Fire or Vesta on a non-confidential basis from a
source other than AFFC or its representatives, provided that neither Vesta Fire
or Vesta is aware that such source is under an obligation (whether contractual,
legal or fiduciary) to AFFC to keep such information confidential; (ii) is
public knowledge at the time of disclosure; (iii) was in the possession of Vesta
Fire or Vesta or its representatives before receipt from AFFC; (iv) becomes
available to the public through no fault of Vesta Fire or Vesta or its
representatives; or (v) is developed independently by Vesta Fire or Vesta or its
representative as evidenced by written records of Vesta Fire or Vesta or its
representative. 5.5 State Insurance and Other Regulatory Approvals.
---------------------------------------------- Vesta Fire and Vesta each shall,
in cooperation with AFFC, use its reasonable best efforts: (a) to obtain as
promptly as practicable the approval of the Texas Department of Insurance to
consummate the transactions contemplated hereby; (b) to provide notice to the
appropriate governmental or regulatory body of each of the other applicable
departments of insurance with respect to the transactions contemplated hereby;
and (c) to obtain all necessary approvals, authorizations and consents of each
governmental and regulatory body required to be obtained prior to the Closing
Date to consummate the transactions contemplated hereby. Prior to the Closing
Date, AFFC shall, and shall cause Laurel Life and each of its Subsidiaries to,
cooperate with Vesta Fire and Vesta to the fullest extent practicable in seeking
to obtain the approval of the Texas Department of Insurance and any other
necessary governmental approvals, and in providing notice to other insurance
departments, and shall provide, and shall cause Laurel Life to provide, such
information and communications to the Texas Department of Insurance and such
other governmental and regulatory bodies as Vesta Fire and Vesta may reasonably
request in connection therewith. 5.6 Exclusivity. ----------- AFFC will not, and
will cause Laurel Life and its Subsidiaries not to solicit, initiate, encourage
or accept the submission of any proposal or offer from any Person relating to,
or agree to or otherwise facilitate, the sale or disposition of all or any part
of the capital stock, surplus notes or the assets of AFFC or any of its
Subsidiaries (including any disposition structured as a merger, consolidation,
or share exchange), except for sales or dispositions of assets in the Ordinary
Course of Business, and the sale of the corporate shells of BNL and APL. 5.7
Other Documents. --------------- Prior to the Closing Date, AFFC shall provide
Vesta Fire and Vesta with copies of all material filings made by AFFC or any of
its Subsidiaries and relating to Laurel Life or any of its Subsidiaries with any
insurance department or other governmental or regulatory agency (including,
without limitation, any tax returns), within ten (10) business days after the
filing thereof. 5.8 Financial Statement Audit. ------------------------- AFFC
will, in cooperation with Vesta and at Vesta's expense, take all commercially
reasonable steps to obtain, within 60 days following the Closing Date audited
financial statements for AFFC and its Subsidiaries for the purpose of enabling
Vesta to fulfill its requirements with respect to such financial statements
under the Securities Exchange Act of 1934 and the regulations promulgated
thereunder. 6. Conditions to Obligation to Close.
--------------------------------- 6.1 Conditions to Obligation of Vesta.
--------------------------------- The obligation of each of Vesta Fire and Vesta
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions: (a) the
representations and warranties of AFFC set forth in this Agreement that are
qualified as to materiality or Material Adverse Effect shall be true and correct
in all respects, and those not so qualified shall be true and correct in all
material respects, at and as of the Closing Date, provided that those
representations and warranties that are confined by their terms to a specified
date shall speak only as of such date; (b) AFFC shall have performed and
complied with all of its respective covenants and agreements hereunder in all
material respects through the Closing; (c) there shall not be any injunction,
judgment, order, decree, ruling, or charge in effect preventing consummation of
any of the transactions contemplated by this Agreement; (d) AFFC shall have
delivered to Vesta Fire and Vesta a certificate to the effect that each of the
conditions specified above in Section 6.1 (a) - (c) is satisfied in all
respects; (e) all approvals, authorizations, and consents from federal and state
governmental and regulatory bodies required for the transactions contemplated by
this Agreement (including, without limitation, the approval of the transactions
contemplated by this Agreement by the Texas Department of Insurance) shall have
been obtained and shall be in full force and effect and without conditions or
limitations reasonably unacceptable to Vesta Fire and Vesta, and Vesta Fire and
Vesta shall have been provided with appropriate evidence, reasonably
satisfactory to it and its counsel, of the granting of such approvals,
authorizations and consents; (f) Vesta Fire and Vesta shall have received either
(i) certificates of compliance (or the equivalent thereof) dated as of a date
not more than sixty (60) days prior to the Closing Date, with respect to each of
Laurel Life and its Subsidiaries, as to the applicable jurisdictions with
respect to which it has a License, or (ii) with respect to those jurisdictions
with respect to which no certificate of compliance is received, an officer's
certificate from AFFC stating that all reports and Taxes known to be due have
been filed and paid and no adverse regulatory actions are pending or have been
threatened; (g) Since June 7, 2000, there shall have been (a) no materially
adverse change, or development involving a prospective change, in the general
affairs, management, shareholders' equity, assets, liabilities, properties,
business, operations of AFFC and its Subsidiaries, other than those resulting
from (x) a change in general economic or financial conditions in the United
States or (y) matters contemplated under this Agreement, and (b) no material
change in the manner in which the business of AFFC or its Subsidiaries is
conducted other than those resulting from matters contemplated under this
Agreement; (h) AFFC and its Subsidiaries shall have given all notices, made all
filings and received all authorizations, consents or approvals of all Persons
required in order for the Parties to consummate the transactions contemplated by
this Agreement, except where the failure to give notice, to file or to obtain
such authorization, consent or approval would not materially adversely affect
the ability of the Parties to consummate the transactions contemplated by this
Agreement or materially affect AFFC or any of its Subsidiaries; (i) Vesta Fire
and Vesta shall have received from counsel to AFFC an opinion in form and
substance reasonably satisfactory to Vesta Fire and Vesta and their counsel,
addressed to Vesta Fire and Vesta, and dated as of the Closing Date; (j) the
Investor Rights Agreement, the Employment Agreements and the Exchange Agreement
shall have been executed by all parties other than Vesta Fire and Vesta that are
parties to such agreements and the transactions contemplated by the Redemption
Agreement shall have been consummated either prior to or contemporaneously with
the Closing; and (k) all actions to be taken by AFFC and its Subsidiaries in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to Vesta Fire, Vesta and their counsel. Vesta Fire and Vesta may waive
any condition specified in this Section 6.1 if it executes a writing so stating
at or prior to the Closing. 6.2 Conditions to Obligation of AFFC.
-------------------------------- The obligation of AFFC to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions: (a) the representations and warranties
of Vesta Fire and Vesta set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and those not so
qualified shall be true and correct in all material respects, at and as of the
Closing Date, provided that those representations and warranties that are
confined by their terms to a specified date shall speak only as of such date;
(b) Vesta Fire and Vesta each shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; (c) there
shall not be any injunction, judgment, order, decree, ruling, or charge in
effect preventing consummation of any of the transactions contemplated by this
Agreement; (d) Vesta Fire and Vesta each shall have delivered to AFFC a
certificate to the effect that each of the conditions specified above in Section
6.2 (a) - (c) is satisfied in all respects; (e) all approvals, authorizations,
and consents from federal and state governmental and regulatory bodies required
for the transactions contemplated by this Agreement (including, without
limitation, the approval of the transactions by the Texas Department of
Insurance) shall have been obtained and shall be final and in full force and
effect and without conditions or limitations reasonably unacceptable to AFFC,
and AFFC shall have been provided with appropriate evidence, reasonably
satisfactory to it and its counsel, of the granting of such approvals,
authorizations and consents; (f) Vesta Fire and Vesta shall have given all
notices, made all filings and received all authorizations, consents or approvals
of all Persons required in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to file
or to obtain such authorization, consent or approval would not materially
adversely affect the ability of the Parties to consummate the transactions
contemplated by this Agreement or materially adversely affect Vesta Fire and
Vesta or any of their Subsidiaries; (g) the Investor Rights Agreement, the
Employment Agreements and the Exchange Agreement shall have been executed by all
parties other than AFFC that are parties to such agreements and the transactions
contemplated by the Redemption Agreement shall have been consummated either
before or contemporaneously with the Closing; and (h) all actions to be taken by
Vesta Fire and Vesta in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to AFFC and its counsel. AFFC may
waive any condition specified in Section 6.2 if AFFC executes a writing so
stating at or prior to the Closing. 7. Remedies for Breaches of This Agreement.
--------------------------------------- 7.1 Survival Period; Indemnification as
Remedy. ------------------------------------------ The representations and
warranties of AFFC contained in Sections 3.7, 3.8, 3.9, 3.20 and 3.22 shall
survive the Closing and continue in full force and effect indefinitely, subject
to the time limitations contained in any applicable statute of limitations
measured from the Closing Date. All of the other representations and warranties
of the Parties contained in this Agreement shall survive the Closing and
continue in full force and effect until the second anniversary of the Closing
Date. 7.2 Indemnification Provisions for Benefit of Vesta.
----------------------------------------------- In the event AFFC breaches any
of its representations, warranties, and covenants contained herein, or in the
event of any inaccuracy in such representations and warranties or in any
certificate delivered hereunder, provided that Vesta makes a written claim for
indemnification against AFFC pursuant to Section 7.6 within the applicable
survival period, then AFFC agrees to indemnify Vesta Fire or Vesta, as the case
may be, from and against the entirety of any Adverse Consequences Vesta Fire or
Vesta, as the case may be, shall suffer through and after the date of the claim
for indemnification caused proximately by the breach or inaccuracy. 7.3
Indemnification Provisions for Benefit of AFFC.
---------------------------------------------- In the event Vesta Fire or Vesta
breaches any of its representations, warranties, and covenants contained herein,
or in the event of any inaccuracy in such representations and warranties or in
any certificate delivered hereunder, and, provided that AFFC makes a written
claim for indemnification against Vesta Fire or Vesta, as the case may be,
pursuant to Section 7.6 within the applicable survival period, then Vesta agrees
to indemnify AFFC from and against the entirety of any Adverse Consequences AFFC
shall suffer through and after the date of the claim for indemnification that
are caused proximately by the breach or inaccuracy. 7.4 Matters Involving Third
Parties. ------------------------------- (a) If any third party shall notify any
Party (the "Indemnified Party") with respect to any matter (a "Third Party
Claim") that may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 7, then the Indemnified
Party shall promptly notify each Indemnifying Party thereof in writing. (b) Any
Indemnifying Party will have the right to assume and thereafter conduct the
defense of the Third Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party; provided, however, that the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably) unless the judgment or
proposed settlement involves only the payment of money damages and does not
impose an injunction or other equitable relief upon the Indemnified Party. (c)
Unless and until an Indemnifying Party assumes the defense of the Third Party
Claim as provided in Section 7.4(b), however, subject to Section 7.4(b), the
Indemnified Party may defend against the Third Party Claim in any manner it
reasonably may deem appropriate. (d) In no event will the Indemnified Party
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of each of the
Indemnifying Parties (not to be withheld unreasonably). 7.5 Exclusive Remedy
After the Closing. ---------------------------------- After the Closing, except
as otherwise provided in this Agreement, the indemnification provisions in this
Section 7 shall be the exclusive remedy of the Parties for any breach of any
certifications, representations, warranties or covenants set forth in this
Agreement or in the certificates delivered pursuant to Section 6. 7.6 Claim
Notice. ------------ To be effective, the claim notice for indemnification under
this Section 7 must (i) be sent in accordance with Section 9.6; and (ii) set
forth in reasonable detail the specific facts and circumstances with respect to
the claim. 8. Termination. ----------- 8.1 Termination of Agreement.
------------------------ The Parties may terminate this Agreement as provided
below: (a) The Parties may terminate this Agreement by mutual written consent at
any time prior to the Closing; (b) AFFC may terminate this Agreement by giving
written notice to Vesta Fire and Vesta at any time prior to the Closing (i) in
the event Vesta Fire or Vesta has breached any representation or warranty that
is qualified as to materiality, in any respect, or any representation or
warranty that is not qualified as to materiality or Material Adverse Effect, or
any covenant, in any material respect, AFFC has notified Vesta Fire and Vesta of
the breach, and the breach has continued without cure for a period of ten (10)
business days after the notice of breach or (ii) if the Closing shall not have
occurred on or before September 30, 2000, unless the failure results primarily
from AFFC's wrongful refusal to close; (c) Vesta Fire and Vesta may terminate
this Agreement by giving written notice to AFFC at any time prior to the Closing
(i) in the event AFFC has breached any representation or warranty that is
qualified as to materiality, in any respect, or any representation or warranty
that is not qualified as to materiality or Material Adverse Effect, or any
covenant, in any material respect, Vesta Fire and Vesta have notified AFFC of
the breach, and the breach has continued without cure for a period of ten (10)
business days after the notice of breach or (ii) if the Closing shall not have
occurred on or before September 30, 2000, unless the failure results primarily
from Vesta Fire's or Vesta's wrongful refusal to close; and (d) Either Vesta
Fire and Vesta or AFFC may terminate this Agreement by giving written notice to
the other Party (treating Vesta and Vesta Fire as one Party) at any time prior
to the Closing in the event that any order of any court or administrative agency
shall be in effect that restrains or prohibits the transactions contemplated
hereby or if any suit, action, or legal or administrative proceeding shall be
pending that has been brought by a governmental or regulatory body and that
challenges consummation of the transactions contemplated hereby, if not
dismissed or agreed to be dismissed prior to the giving of notice of
termination, which notice may not be given prior to the tenth (10th) business
day after such suit, action or proceeding is brought. 8.2 Effect of Termination.
--------------------- If any Party terminates this Agreement pursuant to Section
8.1, all rights and obligations of the Parties hereunder shall terminate without
any liability of any Party to any other Party (except for any liability of any
Party for a breach existing prior to termination of this Agreement or a breach
of Section 8.1, without regard to Section 7); provided, however, that any such
liability for breach or wrongful termination, this Section 8.2 and, the
confidentiality provisions contained in Section 5.4 shall survive termination.
9. Miscellaneous. ------------- 9.1 Entire Agreement. ---------------- This
Agreement (including the documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior understandings, agreements,
or representations by or among the Parties, written or oral, to the extent they
have related in any way to the subject matter hereof. 9.2 Succession and
Assignment. ------------------------- This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties. 9.3 Counterparts. ------------ This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which together will constitute one and the same instrument. 9.4
Headings. -------- The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement. 9.5 Expenses. -------- Each of the Parties
will bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby, except as set forth in Section 5.8. 9.6 Notices. ------- All notices,
requests, demands, claims, and other communications hereunder will be in
writing. Any notice, request, demand, claim, or other communication hereunder
shall be deemed duly given if (and then two (2) business days after) it is sent
by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:

          If to AFFC:                        American Founders Financial Corp.
                                            Kenneth W. Phillips, Chairman
                                            Wayne A. Schreck, President
                                            2720 East Camelback Road
                                            Phoenix, AZ  85016
                                            Facsimile:  (602) 224-6802

                  Copy to:          LeBoeuf, Lamb, Greene and McRae, L.L.P.
                                            50 North Laura Street
                                            Suite 2800
                                            Jacksonville, FL 32202
                                            Facsimile: (904) 353-1673
                                            Attention:  Kenneth M. Kirschner, Esquire

         If to Vesta Fire or Vesta: Vesta Fire Insurance Corporation

                                            Norman W. Gayle III, President
                                              and Chief Executive Officer

                                            James E. Tait, Chairman
                                              and Chief Financial Officer

                                            Donald W. Thornton,
                                            Senior Vice President, Secretary
                                              and General Counsel

                                            3760 River Run Drive
                                            Birmingham, AL  35243

Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.

9.7 Amendments and Waivers. ----------------------

          No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Parties hereto. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.

9.8 Severability. ------------

          Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.

9.9 Construction. ------------

          The Parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word “including” shall
mean including without limitation.

        IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement
to be duly executed as of the date first above written.

                                            "AFFC"

                                            AMERICAN FOUNDERS FINANCIAL CORP.

                                            By:      /s/ Kenneth W. Phillips       ___
                                                ----------------------------------------
                                                  Name:       Kenneth W. Phillips
                                                  Title:      Chairman

                                            "VESTA FIRE"

                                            VESTA FIRE INSURANCE CORPORATION

                                            By:      /s/ Donald W. Thornton
                                                -------------------------------------------------
                                                  Name:       Donald W. Thornton
                                                  Title:      Senior Vice President

                                            "VESTA"

                                            VESTA INSURANCE GROUP, INC.

                                            By:      /s/ Donald W. Thornton      _
                                                ----------------------------------------
                                                  Name:       Donald W. Thornton
                                                  Title:      Senior Vice President