**EXHIBIT 10.09**STOCK PURCHASE AGREEMENTby and betweenATLANTIC AMERICAN CORPORATIONandCOLUMBIA MUTUAL INSURANCE COMPANYDated December 26, 2007
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TABLE OF CONTENTS       PageARTICLE I PURCHASE AND SALE OF THE SHARES; THE CLOSING  1 1.1 Purchase and Sale of the Shares   1 1.2 Post-Closing Adjustment   1 1.3 Time and Place of the Closing   2 1.4 Deliveries by Seller at the Closing   2 1.5 Deliveries by Purchaser at the Closing   2      ARTICLE II REPRESENTATIONS AND WARRANTIES   2 2.1 Representations and Warranties of Seller   2 2.2 Representations and Warranties of Purchaser   7      ARTICLE III OTHER AGREEMENTS   8 3.1 Conduct of Business Pending Closing   8 3.2 Regulatory Filings and Approvals  10 3.3 Access   10 3.4 Further Actions  11 3.5 Notice of Proceedings   11 3.6 Non-Solicitation   11 3.7 Certain Tax Matters  11 3.8 Employee Matters   12 3.9 Delivery of 2007 Audited Statements   12 3.10 Retained Litigation  12 3.11 Fees for Seller Services   12      ARTICLE IV CONDITIONS TO CLOSING   13 4.1 Conditions to Obligations of Seller   13 4.2 Conditions to Obligations of Purchaser   13      ARTICLE V TERMINATION, AMENDMENT AND WAIVER   15 5.1 Termination   15 5.2 Effect of Termination; Termination Fee  15 5.3 Amendment   16 5.4 Extension; Waiver   16      ARTICLE VI GENERAL PROVISIONS   16 6.1 Survival of Representations, Warranties and Agreements   16 6.2 Indemnification  16 6.3 Notices   19 6.4 Fees and Expenses   20 6.5 Interpretation   20 6.6 Governing Law   20 6.7 Counterparts   20 6.8 Entire Agreement   20 6.9 Assignment   20 
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       Page6.10 Binding Effect   20 6.11 Severability   20 6.12 Publicity   20 6.13 Subsequent SEC Filings   20 6.14 Authorship   20      Exhibit A            Form of Non-Competition Agreement
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STOCK PURCHASE AGREEMENT     This STOCK PURCHASE AGREEMENT (the “Agreement”) is made and entered into as of this 26th dayof December, 2007, by and between ATLANTIC AMERICAN CORPORATION, a Georgia corporation (“Seller”),and COLUMBIA MUTUAL INSURANCE COMPANY, a Missouri corporation (“Purchaser”).     WHEREAS, upon and subject to the terms and conditions set forth herein, Seller wishes to sellto Purchaser, and Purchaser wishes to purchase from Seller, all of the issued and outstandingshares of stock (the “Shares”) of GEORGIA CASUALTY & SURETY COMPANY, a Georgia corporation(“Georgia Casualty”), ASSOCIATION CASUALTY INSURANCE COMPANY, a Texas corporation (“AssociationCasualty”) and ASSOCIATION RISK MANAGEMENT GENERAL AGENCY, INC., a Texas corporation (“ARMGA” andcollectively with Georgia Casualty and Association Casualty, the “Subsidiaries”), each awholly-owned subsidiary of Seller; and     WHEREAS, Seller owns 100% of the outstanding capital stock of Georgia Casualty, AssociationCasualty and ARMGA;     NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties,covenants and promises contained herein and other good and valuable consideration, the partieshereto agree as follows:ARTICLE IPURCHASE AND SALE OF THE SHARES; THE CLOSING     1.1  Purchase and Sale of the Shares. Subject to the terms and conditions of thisAgreement, at the Closing (as hereinafter defined), Seller shall sell, assign, transfer and deliverto Purchaser, and Purchaser shall purchase from Seller, all of the Shares, and Purchaser shall payto Seller as consideration therefor the following amounts, subject to adjustment pursuant toSection 1.2 and, if applicable, Section 4.2(h) (collectively, the “Purchase Price”):          (a) in respect of Georgia Casualty and Association Casualty, an amount equal to the statutorycapital and surplus of Georgia Casualty and Association Casualty as of December 31, 2007 to be setforth in the 2007 Annual Statement and computed in accordance with NAIC statutory accountingprinciples applied on a basis consistent with the December 31, 2006 statutory Annual Statement (the“Unaudited Statutory Capital and Surplus”), plus Four Million Five Hundred Thousand Dollars($4,500,000) to be allocated proportionally between the companies based upon the audited capitaland surplus of said companies as of December 31, 2007.          (b) in respect of ARMGA, an amount equal to the GAAP book value of ARMGA as of December 31,2007.     1.2 Post-Closing Adjustment. Upon Seller’s delivery to Purchaser of the 2007 AuditedStatements in accordance with Section 3.9:          (a) if the Unaudited Statutory Capital and Surplus exceeds the audited statutory capital andsurplus of Georgia Casualty and Association Casualty as of December 31, 2007 as set forth in the2007 Audited Statements and computed in accordance with NAIC statutory accounting principlesapplied on a basis consistent with the December 31, 2006 statutory Annual Statement (the “AuditedStatutory Capital and Surplus”), then Seller shall pay to Purchaser the difference between theUnaudited Statutory Capital and Surplus and the Audited Statutory Capital and Surplus by means of awire transfer of immediately available funds to such bank account in the United States asdesignated by Purchaser within two (2) days after the 2007 Audited Statements are delivered; and          (b) if the Audited Statutory Capital and Surplus exceeds the Unaudited Statutory Capital andSurplus, then Purchaser shall pay to Seller the difference between the Audited Statutory Capitaland Surplus and the Unaudited Statutory Capital and Surplus by means of a wire transfer ofimmediately available funds to such bankaccount in the United States as designated by Seller within two (2) days after the 2007Audited Statements are delivered.
 

 
     1.3 Time and Place of the Closing. Subject to the terms and conditions of thisAgreement, the closing of the transactions contemplated by this Agreement (the “Closing”) shalltake place within five business days following the satisfaction or waiver of the conditions toClosing set forth herein, but in any event no later than March 31, 2008, unless the regulatoryapprovals required pursuant to Article IV have not been obtained by such date in which case theClosing shall take place no later than the date mutually agreed to in writing by Purchaser andSeller to provide for additional time to obtain such approvals, or such other later date asmutually agreed in writing by Purchaser and Seller (the “End Date”), at 9:30 a.m., EST (the dateand time of the Closing being referred to herein as the “Closing Date”) at the offices of TroutmanSanders LLP in Atlanta, Georgia.     1.4 Deliveries by Seller at the Closing. At the Closing, Seller shall deliver, orcause to be delivered, to Purchaser (i) certificates representing all of the Shares, duly endorsedin blank or accompanied by stock powers duly executed in blank, and (ii) unless previouslydelivered, all other documents required herein to be delivered by Seller at the Closing.     1.5 Deliveries by Purchaser at the Closing. At the Closing, Purchaser (i) shall payto Seller the Purchase Price by means of a wire transfer of immediately available funds to suchbank account in the United States as designated by Seller; and (ii) shall deliver to Seller, unlesspreviously delivered, all other documents required herein to be delivered by Purchaser to Seller atthe Closing.ARTICLE IIREPRESENTATIONS AND WARRANTIES     2.1 Representations and Warranties of Seller. Seller hereby represents and warrantsto Purchaser as follows:          (a) Organization and Good Standing. Seller and each of the Subsidiaries are dulyorganized, validly existing and in good standing under the laws of their respective jurisdiction oforganization.          (b) Corporate Authorization. This Agreement has been duly authorized, executed anddelivered by or on behalf of Seller and Seller is duly authorized to enter into this Agreement, toperform its respective obligations hereunder, and to consummate the transactions contemplatedhereby.          (c) Enforceability. This Agreement is a legal, valid and binding obligation ofSeller, enforceable against Seller in accordance with its terms except as may be limited bybankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rightsgenerally or general principles of equity.          (d) Non-Contravention. Neither the execution and delivery of this Agreement by Sellernor the consummation by Seller of the transactions contemplated hereby will constitute a materialviolation of or a material default under, or materially conflict with, (i) the articles ofincorporation, bylaws or other organizational or governing documents of Seller or the Subsidiaries,(ii) any law, judgment, decree, order, regulation or rule of any court or governmental agency orauthority applicable to Seller or the Subsidiaries or any of their respective properties or assets(collectively, “Applicable Law”), or (iii) any indenture, mortgage, loan or credit agreement, orany material contract, commitment, agreement, understanding, arrangement or restriction of any kindby which Seller or the Subsidiaries is bound, other than the Pledge Agreement (defined below) orthe Guaranty Agreement (defined below).          (e) Brokerage. No broker, finder or other similar independent agent other thanBenfield Advisory Inc. has acted for Seller in connection with this Agreement and the transactionscontemplated hereby. All fees payable to Benfield Advisory, Inc. in connection with thetransactions contemplated by this Agreement shall be paid by Seller.          (f) Capitalization. Georgia Casualty’s authorized capital stock consists solely of10,000,000 shares of common stock, par value $1.00 per share, 2,000,000 of which are currentlyissued and outstanding. AssociationCasualty’s authorized capital stock consists solely of 1,500,000 shares of common stock, parvalue $2.00 per share, 900,000 of which are currently issued and outstanding. ARMGA’s authorizedcapital stock consists solely of 100,000 shares of common stock, par value $1.00 per share, 1,000of which are currently issued and outstanding. Pursuant to a pledge agreement by and betweenSeller and Wachovia Bank, National Association (“Bank”) dated as of December 22,
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2006 (the “PledgeAgreement”), Seller has pledged the Shares of Georgia Casualty and Association Casualty to Bank.On the date hereof, no other liens, charges, proxies, encumbrances or security interests(collectively, “Liens”) exist on the Shares and, except for the Pledge Agreement, Seller has titleto the Shares free and clear of all Liens. In accordance with Section 4.2(f), Seller shall causeBank to release the Shares from the Pledge Agreement prior to or at the Closing so that, at thetime Seller transfers the Shares held by it to Purchaser, Seller shall have title to the Shares,free and clear of all Liens. The Shares constitute all of the issued and outstanding shares ofcapital stock of the Subsidiaries, and there are no outstanding options, warrants or rights topurchase from Seller or the Subsidiaries any shares of capital stock of the Subsidiaries.          (g) Transfer of Title of Shares. The transfer of the Shares to Purchaser inaccordance with the terms of this Agreement will pass title to the Shares to Purchaser, free andclear of all Liens, other than Liens which may arise other than by reason of the actions orinactions of Seller.          (h) Qualification. Each of the Subsidiaries is duly qualified or licensed to dobusiness and is in good standing in each jurisdiction listed on Schedule 2.1(h).          (i) SEC Filings and Financial Statements.          (i) Seller has heretofore delivered to Purchaser copies of Seller’s (x) Annual Reporton Form 10-K for the fiscal year ended December 31, 2006, (y) Quarterly Report on Form 10-Qfor the fiscal quarter ended September 30, 2007. Since December 31, 2005, Seller has timelyfiled all reports, registration statements and other documents required to be filed with theSEC under the rules and regulations of the SEC, and all such reports, registrationstatements and other documents have complied in all material respects, as of theirrespective filing and effective dates, as the case may be, with all applicable requirementsof the Securities Act of 1933, as amended (the “Securities Act”) and the Securities ExchangeAct of 1934, as amended. As of their respective filing and effective dates, none of suchreports, registration statements or other documents contained any untrue statement of amaterial fact or omitted to state a material fact required to be stated therein or necessaryin order to make the statements therein, in light of the circumstances under which they weremade, not misleading.          (ii) Seller has delivered, or to the extent applicable with respect to the 2007 AnnualStatement will deliver prior to the Closing, to Purchaser complete and correct copies of thefollowing statutory financial statements:          (A) the Annual Statements of Georgia Casualty filed with the Georgia InsuranceDepartment and Association Casualty filed with the Texas Insurance Department forthe years ending December 31, 2004, 2005 and 2006 and, in the event that the Closingoccurs after March 1, 2008, for the year ending December 31, 2007 (the “2007 AnnualStatement”), together with the exhibits and schedules thereto (collectively, the“Annual Statements”);          (B) the Quarterly Statements of Georgia Casualty filed with the GeorgiaInsurance Department and of Association Casualty filed with the Texas InsuranceDepartment for the quarters ending March 31, 2007, June 30, 2007 and September 30,2007, together with the exhibits and schedules thereto (collectively, the “QuarterlyStatements”); and          (C) the audited statutory balance sheets of Georgia Casualty and AssociationCasualty on an unconsolidated basis as of and for the years ended December 31, 2004,2005 and2006, and the audited statutory statements of operations, changes in capitaland surplus, and cash flows of Georgia Casualty and Association Casualty on anunconsolidated basis as of and for the years ended December 31, 2004, 2005 and 2006(such financial statements, including all notes and schedules thereto, theindependent auditors’ report of Deloitte & Touche LLP thereon (with respect to thefinancial
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statements for the years ended December 31, 2004 and 2005) and theindependent auditors’ report of BDO Seidman, LLP thereon (with respect to thefinancial statements for the years ended December 31, 2006), being the “AuditedStatutory Statements”) (the balance sheet as of December 31, 2006 included in theAudited Statutory Statements is referred to herein as the “2006 Balance Sheet”).The statutory financial statements contained in the Annual Statements (and withrespect to clause (ii) below, other items contained in the Annual Statements) andthe Audited Statutory Statements (i) have been prepared in conformity with SAP usingcomparable estimates and assumptions applied on a consistent basis with the December31, 2006 financial statements, except that the financial statements contained in theQuarterly Statements are unaudited, (ii) are true, correct and complete and inaccordance with the books and records of Georgia Casualty and Association Casualty,and (iii) present fully and fairly, on a SAP basis, the financial condition, assetsand liabilities of each of Georgia Casualty and Association Casualty, as the casemay be, as of the respective dates thereof and the results of operations and cashflows for the respective periods indicated. The financial statements contained inthe Quarterly Statements include all adjustments necessary for a fair presentationof the financial position of each of Georgia Casualty and Association Casualty,respectively, and the results of their respective operations for the interim periodpresented, subject to normal recurring year-end adjustments and the omission offootnote disclosures.          (j) Absence of Certain Changes. Since September 30, 2007, there has been nooccurrence having, or which would reasonably be expected to result in, a Material Adverse Effect onthe Subsidiaries. Since September 30, 2007, the business of the Subsidiaries has been conductedonly in the ordinary and usual course consistent with past practice, except with respect to thetransactions contemplated by this Agreement. A “Material Adverse Effect” shall mean any condition,change or effect (or series of related conditions, changes or effects) that individually or in theaggregate is substantially or significantly different from the usual and customary norms of thecondition specified, or which is substantially or significantly adverse to (i) the business,operations, condition (financial or otherwise) or results of operations of the person specified;(ii) the validity or enforceability of this Agreement; or (iii) the ability of either of theparties to perform their obligations under this Agreement, provided, however, that a MaterialAdverse Effect shall not include changes generally affecting companies operating in the industry inwhich the person specified operates or any general economic conditions, except to the extent thatsuch changes disproportionately have a greater adverse impact on the person specified as comparedto the adverse impact such changes have on other persons operating in the same industry.          (k) Reserves. All losses and loss adjustment expenses established and reflected inthe Annual Statement for the year ended December 31, 2006, the Quarterly Statement for the quarterended September 30, 2007 and the 2006 Balance Sheet in respect of the Subsidiaries’ insurancepolicies were determined in accordance with generally accepted actuarial standards, were based onactuarial estimates and assumptions that were reasonable and appropriate to the relevant insurancepolicies and were recorded in compliance with the applicable requirements of the Georgia InsuranceCode and the Texas Insurance Code, as applicable, and each of the foregoing statements will be truewith respect to the 2007 Annual Statement upon its completion, and make good, sufficient andadequate provision (under commonly accepted actuarial standards consistently applied and fairlystated in accordance with sound actuarial principles) to cover the total amount of all reasonablyanticipated claims, expenses and other liabilities of the Subsidiaries under all policies issued bysaid Subsidiaries on the respective dates of said Annual Statements, and Quarterly Statement,including the 2007 Annual Statement upon its completion.          (1) Tax Matters.          (i) Each of the Subsidiaries has filed all Tax Returns and all income and othermaterial Tax Returns that they were required to file. All such Tax Returns were correct andcomplete in all material respects. All Taxes shown as due on such Tax Returns have beenpaid. There are no liens for Taxes (other than Taxes not yet due and payable) upon any ofthe assets of the Subsidiaries.          (ii) The United States federal income Tax Returns of the Subsidiaries and the Sellerhave not been audited or examined by the U.S. Internal Revenue Service and no waivers ofstatute of limitations have
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been given with respect to any Taxes of the Subsidiaries. Thereis no material dispute or claim concerning any Tax liability of the Subsidiaries claimed orraised by any Tax authority.          (iii) None of the Subsidiaries is a party to any agreement, contract, arrangement, orplan that has resulted or would result in the payment of any “excess parachute payment”within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the“Code”). None of the Subsidiaries has been a United States real property holdingcorporation within the meaning of Code Section 897(c)(2) during the applicable periodspecified in Code Section 897(c)(1)(A)(ii). The Subsidiaries are currently members of aconsolidated group for federal income tax purposes of which Seller is the parent corporationand are also parties to a tax sharing agreement. Except with respect to the members of suchgroup, none of the Subsidiaries is a party to or bound by any tax allocation or sharingagreement or has liability for the Taxes of any person under Treas. Regs Section 1.1502-6 asa transferee or successor, by contract, or otherwise.          (iv) None of the Subsidiaries has distributed stock of another person, or has had itsstock distributed by another person, in a transaction that was purported or intended to begoverned in whole or in part by Code Section 355 or Code Section 361.          (v) None of the Subsidiaries has been or is presently in material violation of anyapplicable law relating to the payment or withholding of taxes. Each of the Subsidiarieshas duly and timely withheld from employee salaries, wages or other compensation and paidover to the appropriate taxing authorities all amounts required to be so withheld and paidover for all periods under all applicable laws.               For purposes of this Agreement, “Tax” or “Taxes” means any federal, state, local, or foreignincome, gross receipts, license, payroll, employment, excise, severance, stamp, occupation,premium, windfall profits, environmental, customs duties, capital stock, franchise, profits,withholding social security, unemployment, real property, personal property, sales, use, transfer,registration, value added, alternative or add-on minimum, estimated, or other tax of any kindwhatsoever, including any interest, penalty, or addition thereto, whether disputed or not.               For purposes of this Agreement, “Tax Return” means any return, declaration, report, orinformation return or statement relating to taxes, including any schedule or attachment thereto,and including any amendment thereto.          (m) Pending Litigation or Proceedings. Except for claims under insurance contractsagainst the Subsidiaries in the ordinary course of business, there are no claims, suits, actions,proceedings, arbitrations or investigations now pending, or to the Knowledge of Seller threatened,against or otherwise relating to or involving any of the Subsidiaries or any of their properties,the outcome of which would reasonably be expected to have a Material Adverse Effect on theSubsidiaries. With respect to the Subsidiaries (i) no investigation or examination by anyinsurance regulatory authority is pending, and (ii) no such investigation or examination hasoccurred since the date upon which Seller acquired the Shares, other than routine insurancedepartment exams. With respect to the Subsidiaries, no fine or penalty imposed by an insuranceregulatory authority since the date upon which Seller acquired the Shares is currently unpaid oroutstanding. “Knowledge of Seller” shall mean those facts known by any of the officers ordirectors of Seller, the Subsidiaries or any affiliate of Seller.          (n) Compliance with Applicable Laws. None of the Subsidiaries is in violation of anyApplicable Law, except for possible violations that would not, individually or in the aggregate,have or be reasonably likely to have a Material Adverse Effect on the Subsidiaries. Each of theSubsidiaries holds all licenses, permits andregistrations required to conduct its business, and all such licenses, permits andregistrations are valid and in full force and effect, except for those the absence of which are notreasonably likely to have a Material Adverse Effect on the Subsidiaries. Each of the Subsidiariesis in compliance with all such licenses, permits and registrations, except for possible failures tobe so in compliance which are not reasonably likely to have a Material Adverse Effect on theSubsidiaries.          (o) Consents and Approvals. Except as set forth on Schedule 2.1(o), except asrequired under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rulesand regulations promulgated thereunder (the “Hart-Scott-Rodino Act”), and except for the approvalof the Georgia Insurance Department, the Texas
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Insurance Department and the Missouri InsuranceDepartment, the execution, delivery and performance of this Agreement by Seller and theconsummation of the transactions contemplated hereby do not require any consent, approval orauthorization of, or registration or filing with, any person or Governmental Entity (as hereinafterdefined).          (p) Legal Investments. The Subsidiaries have good and valid title to all bonds,stocks and other investments owned beneficially or of record, free and clear of any liens or otherencumbrances. All such bonds, stocks and other investments are permissible investments for theSubsidiaries under the Georgia Insurance Code and the Texas Insurance Code, as applicable.          (q) Insurance Issued. All insurance policies and contracts issued by the Subsidiariesnow in force (other than policies and contracts issued under applicable surplus lines laws) are onforms and at rates approved by the insurance regulatory authority of the state or jurisdictionwhere issued or have been filed with and not objected to by such authority within the periodprovided for objection.          (r) Material Contracts. Except as set forth in Schedule 2.1(r), Seller has madeavailable to Purchaser complete and correct copies of (i) all reinsurance agreements currently ineffect that have been entered into within the past fifteen (15) years and will provide prior to theClosing evidence of all reinsurance coverage currently in effect pursuant to reinsurance agreementsthat were entered into prior to such period; (ii) all loan or credit agreements, mortgages,indentures, or other agreements for borrowed money currently in effect; (iii) all employment orcompensation agreements currently in effect with officers, directors, employees, agents (other thaninsurance agents), consultants and independent contractors; and (iv) each other contract, lease,agreement or legal commitment of any kind currently in effect, oral or written, formal or informal,pursuant to which any of the Subsidiaries owes or could owe more than $75,000 per calendar year orwhich limits the ability of any of the Subsidiaries to engage in any line of business or to provideservices to any person (the agreements described in (i)-(iv) are collectively the “MaterialContracts”). All Material Contracts currently in effect are in full force and effect, and none ofthe Subsidiaries is in default under, nor has any event occurred which with the passage of time orgiving of notice or both would result in any of the Subsidiaries being in default under, any of theterms thereof.          (s) Employee Benefit Plans. The Subsidiaries sponsor no “employee benefit plans” (asdefined in Section 3(3) of the Employee Retirement Security Act of 1974, as amended (“ERISA”),including the rules and regulations thereunder and hereinafter the “Employee Benefit Plans”). Theemployees of the Subsidiaries participate in the Employee Benefit Plans of Seller that are setforth on Schedule 2.1(s). Except as set forth on Schedule 2.1(s) and except as required byApplicable Law, neither Seller nor the Subsidiaries nor their affiliates has any contract, plan orcommitment, whether legally binding or not, to create any additional benefit plan or to modify anyexisting benefit plan. To the Knowledge of Seller, all benefit plans applicable to employees ofthe Subsidiaries comply with all applicable provisions of ERISA and regulations promulgatedthereto.          (t) Transactions with Related Parties. Except as set forth on Schedule 2.1(t), noneof the Seller, any affiliate of the Seller or any officer or director of the Subsidiaries: (i) has borrowed money or loaned money to any ofthe Subsidiaries which will not be repaid on or before Closing;  (ii) has any contractual or other claim against anyof the Subsidiaries; or  (iii) has any interest in any property or assetsused by the Subsidiaries in their respective businesses.          (u) Labor Relations. (a) No employee of any of the Subsidiaries is represented by anyunion or other labor organization; (b) there is no unfair labor practice complaint against any ofthe Subsidiaries actually pending or, to the Knowledge of Seller, overtly threatened before theNational Labor Relations Board; and (c) there is no labor strike, dispute, slow down or stoppageactually pending or, to the Knowledge of Seller, threatened against or involving any of theSubsidiaries.
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          (v) Insurance. All of the Subsidiaries’ properties and assets of an insurable natureand of a character usually insured by companies of similar size and in similar businesses areinsured by the Subsidiaries in such amounts and against such losses, casualties or risks as is (a)usual in such companies and for such properties, assets and businesses, or (b) required by anyApplicable Law.          (w) Books and Records. The books and records of the Subsidiaries accurately reflectin all material respects the business or condition of the Subsidiaries and have been maintained inall material respects in accordance with good business and bookkeeping practices.          (x) No Undisclosed Liabilities. Except to the extent reflected in (i) the AnnualStatement for the year ended December 31, 2006 if the Closing occurs prior to March 1, 2008 or theAnnual Statement for the year ended December 31, 2007 if the Closing occurs after March 1, 2008,(ii) the Quarterly Statement for the quarter ended September 30, 2007, (iii) the Audited StatutoryStatement for the year ended December 31, 2006, (iv) the 2007 Unaudited Statements or (v) Section3.11 of this Agreement, there are no undisclosed liabilities as of the date of said statements thatindividually or in the aggregate have or may reasonably be expected to have a Material AdverseEffect on any of the Subsidiaries.     Except as set forth in this Section 2.1, Seller makes no express or implied representations orwarranties with respect to the business, operations, condition (financial or otherwise), assets,liabilities or prospects of the Subsidiaries or any of its direct or indirect subsidiaries or anyof the transactions contemplated hereby.     2.2 Representations and Warranties of Purchaser. Purchaser hereby represents andwarrants to Seller as follows:          (a) Organization and Good Standing. Purchaser is duly organized, validly existing andin good standing under the laws of its state of organization.          (b) Authorization. This Agreement has been duly authorized and delivered by or onbehalf of Purchaser and Purchaser is duly authorized to enter into this Agreement, to perform itsrespective obligations hereunder, and to consummate the transactions contemplated hereby.          (c) Enforceability. This Agreement is a legal, valid and binding obligation ofPurchaser, enforceable against Purchaser in accordance with its terms except as may be limited bybankruptcy, insolvency or other similar laws affecting the enforcement of creditors’ rightsgenerally or general principles of equity.          (d) Non-Contravention. Neither the execution and delivery of this Agreement nor theconsummation by Purchaser of the transactions contemplated hereby will constitute a materialviolation of or a material default under, or materially conflict with, (i) the Articles ofIncorporation or Bylaws or other organizational or governing documents of Purchaser, (ii) to theKnowledge of Purchaser, any law, judgment, decree, order, regulation or rule of any court orgovernmental agency or authority applicable to Purchaser or any of its respective properties orassets, or (iii) any indenture, mortgage, loan or credit agreement, or any material contract,commitment, agreement, understanding, arrangement or restriction of any kind by which Purchaser isbound. With respect to Purchaser, “Knowledge” shall mean those facts known by any of the officersor directors of Purchaser.          (e) Brokerage. No broker, finder or other similar independent agent has acted forPurchaser in connection with this Agreement and the transactions contemplated hereby.          (f) Investment Intent. Purchaser is purchasing the Shares for its own account, andwith no intention of distributing or reselling said securities or any part thereof in anytransaction that would be in violation of the securities laws of the United States of America orany state thereof, without prejudice, however, to Purchaser’s right at all times to sell orotherwise dispose of all or any part of said securities pursuant to an effective registrationstatement under the Securities Act, and applicable state securities laws, or under an exemptionfrom such registration available under the Securities Act and other applicable state securitieslaws and subject, nevertheless, to the disposition of Purchaser’s property being at all timeswithin Purchaser’s control.
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          (g) Pending Litigation or Proceedings. There are no claims, suits, actions,proceedings, arbitrations or investigations pending or, to the Knowledge of Purchaser, threatened,against or otherwise relating to or involving Purchaser or any of its properties, the outcome ofwhich would reasonably be expected to affect the ability of Purchaser to consummate thetransactions contemplated by this Agreement or to have a Material Adverse Effect on Purchaser.          (h) Consents and Approvals. Except as required under the Hart-Scott-Rodino Act, andexcept for the approval of the Georgia Insurance Department, the Texas Insurance Department and theMissouri Insurance Department, the execution, delivery and performance of this Agreement byPurchaser and the consummation of the transactions contemplated hereby do not require any consent,approval or authorization of, or registration or filing with, any person or Governmental Entity.     Except as set forth in this Section 2.2, Purchaser makes no express or implied representationsor warranties with respect to the business, operations, condition (financial or otherwise), assets,liabilities or prospects of Purchaser or any of its direct or indirect subsidiaries or any of thetransactions contemplated hereby.ARTICLE IIIOTHER AGREEMENTS     3.1 Conduct of Business Pending Closing. Seller covenants and agrees that, prior tothe Closing Date, unless Purchaser shall otherwise agree in writing or as otherwise expresslypermitted or contemplated by this Agreement or required by law, it will cause the business of theSubsidiaries to be conducted only in the ordinary course consistent with past practice.          (a) Without limiting the generality of the foregoing, Seller covenants and agrees that, priorto the Closing Date, unless Purchaser shall otherwise agree in writing or as otherwise expresslypermitted or contemplated by this Agreement or required by law, Seller shall not, and shall notpermit the Subsidiaries to:          (i) amend the articles of incorporation or bylaws of the Subsidiaries;          (ii) issue or sell any shares of, or rights of any kind to acquire any shares of or toreceive any payment based on the value of, the Subsidiaries’ capital stock or any securitiesconvertible into shares of any such capital stock, or redeem or make any payment or otherdistribution upon or with respect to any shares of capital stock of the Subsidiaries;          (iii) incur any indebtedness of the Subsidiaries for borrowed money;          (iv) agree to any merger or consolidation of or involving the Subsidiaries or sale ofall or substantially all of the assets of the Subsidiaries or any similar reorganization,arrangement or business combination of or involving the Subsidiaries;          (v) enter into any contract or other agreement which could materially and adverselyaffect Seller’s ability to perform its obligations under this Agreement, or amend or modifyany existing contract or other agreement in a manner which could have any such effect;          (vi) enter into any contract or other agreement relating to the direct or indirectguarantee by the Subsidiaries (other than the endorsement of negotiable instruments forcollection in the ordinary course of business) of or in respect of indebtedness for borrowedmoney or other financial obligations of any other person or entity;          (vii) declare or pay any dividend (other than routine monthly dividends paid by GeorgiaCasualty to Seller in amounts not to exceed $100,000 per month);
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          (viii) increase the compensation or benefits of officers or employees of theSubsidiaries or pay any bonuses except for normal and customary increases made or bonusespaid or accrued in accordance with past practices;          (ix) except in the ordinary course of business, create or incur any lien, encumbrance,mortgage, pledge, charge or security interest whatsoever on any of the Subsidiaries’properties; or, except for the issuance of insurance contracts or policies and thesettlement of insurance claims in the ordinary course of business, incur or assume anyguaranty or other liability to discharge an obligation of another;          (x) enter into or terminate any Material Contracts (other than the 2008 reinsuranceagreements), except with the written permission of Purchaser which shall not be unreasonablywithheld and which shall be deemed given if Purchaser shall not have denied permissionwithin three (3) business days of any such request, and except as provided in Section 4.2(i)of this Agreement;          (xi) except for outstanding commitments made prior to the date of this Agreement as setforth on Schedule 3.1(xi), make any expenditure for fixed assets in excess of $25,000 forany single item or $100,000 in the aggregate;          (xii) do or fail to do anything that will cause a breach of, or default under, anyMaterial Contract;          (xiii) make any change of a material nature in the Subsidiaries’ accounting orreserving procedures, methods, policies or practices or the manner in which the Subsidiariesmaintain their records; or          (xiv) invest any of the funds of the Subsidiaries in any investment other thansecurities designated as Category 1 Securities, or approved money market funds in thePurposes and Procedures Manual of the National Association of Insurance CommissionersSecurities Valuation Office.          (b) Seller further covenants and agrees that, prior to the closing date, Seller will:          (i) use commercially reasonable efforts to preserve intact the Subsidiaries’ presentbusiness organization, reputation, and policyholder relations;          (ii) use commercially reasonable efforts to keep available the services of theSubsidiaries’ current officers, employees, agents, consultants, and other similarrepresentatives;          (iii) use commercially reasonable efforts to maintain all licenses, qualifications, andauthorizations of the Subsidiaries to do business in each jurisdiction in which it is solicensed, qualified, or authorized;          (iv) use commercially reasonable efforts to continue all current marketing and sellingactivities relating to the business, operations, or affairs of the Subsidiaries;          (v) exercise commercially reasonable efforts to maintain and protect the confidentialand proprietary nature of all of each of the Subsidiaries’ policyholder lists, lists of theSubsidiaries’ agents and producers, billing records and commission statements, marketingplans, lists of prospective customers or agents, and other materials relating to theSubsidiaries’ sales and marketing practices or in force business, all of which, upon therequest of the Purchaser, shall be marked or designated by the Subsidiaries as “confidentialand proprietary information;”          (c) Seller will cause the books and records of the Subsidiaries to be maintained in the usualmanner and consistent with past practice and will not permit a material change in any underwriting,investment, actuarial, financial reporting, or accounting practice or policy of the Subsidiaries orin any assumption underlying such practice or policy, or in any method of calculating any bad debt,contingency, or other reserve for financial reporting purposes or for other accounting purposes(including, without limitation, any practice, policy, assumption, or method relating to or
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affecting the determination of the Subsidiaries’ investment income, reserves or other similaramounts, or operating ratios with respect to expenses, losses, or premiums).          (d) Seller will cause the Subsidiaries to:          (i) cause all reserves and other similar amounts with respect to insurance contractsestablished or reflected in the books and records of the Subsidiaries to be (1) computed andreflected on a basis consistent with those reserves and other similar amounts and reservingmethods followed by the Subsidiaries as of December 31, 2006 and (2) good, sufficient andadequate (under commonly accepted actuarial standards consistently applied and fairly statedin accordance with sound actuarial principles) to cover the total amount of all reasonablyanticipated matured and unmatured benefits, dividends, losses, claims, expenses, and otherliabilities of the Subsidiaries under all insurance contracts pursuant to which theSubsidiaries have or will have any liability (including, without limitation, any liabilityarising under or as a result of any reinsurance, coinsurance, or other similar contract);and          (ii) continue to own admitted assets that qualify as legal reserve assets under allapplicable insurance laws in an amount at least equal to the required reserves of each ofthe Subsidiaries and other similar amounts.          (e) The Subsidiaries will continue to comply, in all material respects, with all ApplicableLaws.     3.2 Regulatory Filings and Approvals.          (a) Each of Purchaser and Seller shall make and diligently pursue, and shall cooperate fullywith each other in making and pursuing, all filings and requests for licenses, requests andapprovals of any federal, state or local department, agency, commission, board, bureau oradministrative or regulatory authority or instrumentality (each a “Governmental Entity”) as shallbe reasonably necessary or advisable in order to consummate the transactions contemplated by thisAgreement as promptly as practicable, and shall use all reasonable efforts to obtain all suchlicenses, consents and approvals as promptly as practicable and to thereafter maintain all suchlicenses, consents and approvals in full force and effect until the transactions contemplated bythis Agreement have been consummated. Any filing fees for filings or requests which may berequired for the consummation of the transactions contemplated by this Agreement shall be paid bythe party required to make said filing or request.          (b) Purchaser shall use commercially reasonable efforts to file a “Form A Statement Regardingthe Acquisition of Control of or Merger with a Domestic Insurer” (a “Form A Statement”) with theGeorgia Insurance Department and the Texas Insurance Department with respect to the transactionscontemplated hereby within three (3) calendar weeks after the date this Agreement is fullyexecuted.          (c) Purchaser and Seller acknowledge and agree that American Southern Insurance Company, awholly-owned subsidiary of Seller (“American Southern”), shall be released at the Closing from allof its obligations under that certain Unconditional Guaranty Agreement by and between AssociationCasualty and American Southern dated January 8, 2007 (the “Guaranty Agreement”), which was enteredinto as a requirement for Association Casualty to obtain a license to do business in North Carolina. At or prior to the Closing, Purchasershall, or shall cause its affiliates to, take whatever action is necessary to maintain AssociationCasualty’s license to do business in North Carolina and, in the event that Purchaser fails tomaintain such license, Seller shall not be responsible for any liabilities or any breaches orinaccuracies of its representations, warranties or other agreements contained in this Agreement orthe disclosure schedules hereto that are a direct result of Purchaser’s failure to maintain suchlicense.     3.3 Access. From the date hereof through the Closing Date, upon reasonable notice,Seller shall (i) afford the officers, employees and authorized agents and representatives ofPurchaser reasonable access, during normal business hours, to the books and records of theSubsidiaries and (ii) furnish to the officers, employees and authorized agents and representativesof Purchaser such additional information regarding the Subsidiaries as Purchaser may from time totime request; provided, however, that such investigation shall not unreasonablyinterfere with the business or operations of the Subsidiaries or Seller.
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     3.4 Further Actions.          (a) Subject to the rights of each party pursuant to Section 5.1 hereof, each of the partieshereto shall use all commercially reasonable efforts to cause the conditions precedent to therespective obligations of the other party hereto to be fully satisfied so that the Closing mayoccur at the earliest practicable date; provided, however, that if the Closingoccurs, the obligations of each of the parties pursuant to this Section 3.4(a) shall be deemed tohave been satisfied.          (b) Upon and following the Closing Date, each party shall, if reasonably requested by theother party, execute and deliver such further instruments or agreements and take such otherreasonable actions as may be necessary or desirable (i) to convey or transfer more effectively toPurchaser the Shares, or (ii) otherwise to effectuate the intent of the covenants and agreements ofthe parties herein.     3.5 Notice of Proceedings. Each of Seller and Purchaser shall promptly notify theother of, and provide to the other all reasonably requested information relating to, any claim,action, suit, proceeding or governmental or regulatory investigation commenced or, to its actualKnowledge, threatened against, relating to or involving or otherwise affecting such party or any ofits subsidiaries, as the case may be, which, if pending on the date hereof, would have made anyrepresentation of such party hereunder false or which otherwise relates to the execution of thisAgreement or the consummation of any of the transactions contemplated hereby.     3.6 Non-Solicitation. Seller will not, and will not cause or permit the Subsidiariesto, solicit any proposal or offer from any third party relating to the acquisition of all orsubstantially all of the capital stock or assets of the Subsidiaries (including any acquisitionstructured as a merger, consolidation or share exchange); provided, however that, after givingnotice thereof to Purchaser, Seller and the Subsidiaries and each of their officers and directorsshall be entitled to participate in any discussions or negotiations regarding, furnish anyinformation with respect to, assist or participate in, or facilitate in any other manner anyunsolicited effort or attempt by any third party to do or seek to do any of the foregoing, in eachcase as and to the extent that their fiduciary duties may require (as determined in good faith byany such person taking such action). Purchaser further acknowledges and agrees that (i) anyproposal or offer with respect to the stock or assets of the Subsidiaries which is not solicited inviolation of this Section 3.6 and any discussions or negotiations not prohibited by this Section3.6 shall not constitute a breach of this Agreement or interference with this Agreement or thewithin described contractual arrangement by Seller, any of its officers, directors or employees orany such third party, and (ii) Purchaser shall not take or cooperate with any other person or partyin taking any action to enjoin or otherwise interfere with any such discussions or negotiations orto assert any liability on the part of Seller, any of its officers, directors or employees or anysuch third party resulting therefrom.     3.7 Certain Tax Matters.          (a) Seller shall prepare or cause to be prepared and Seller shall file or cause to be filedall Tax Returns for the Subsidiaries for all periods ending on or prior to the Closing Date, andshall pay such Tax as shown as due on such Tax Returns. Purchaser shall prepare or cause to beprepared all Tax Returns with respect to any taxable period that includes, but does not end on theClosing Date (a “Straddle Period”). Purchaser shall permit Seller toreview and comment on each Tax Return described in the preceding sentence and shall considerSeller’s comments in good faith. Purchaser shall file or cause to be filed the Tax Returns in atimely manner. With respect to Taxes relating to the Straddle Period, Seller shall be responsiblefor the portion of such Taxes relating to the portion of the Straddle Period ending on the ClosingDate (in the case of income taxes, determined on a closing of the books basis, and in the case ofother taxes, on a per diem basis), and the Purchaser shall be responsible for Taxes relating to theportion of the Straddle Period starting on the Closing Date.          (b) Purchaser and its affiliates (including the Subsidiaries) shall, upon receipt of notice ofany claim, proceeding or audits regarding Taxes relating to a Tax period ending on or prior to theClosing Date or any Straddle Period, shall immediately give a copy of such notice to Seller.Seller shall be entitled to control any claim, proceeding or audit for tax periods ending prior tothe Closing Date, and Seller shall be responsible for any additional tax liability that may beassessed. Purchaser shall be entitled to control any claim, proceeding or audit for any StraddlePeriod; provided, that Seller shall be entitled, at its expense, to participate in any suchclaim, proceeding or audit; and provided, further, that, to the extent Seller wouldbe responsible for any potential portion of a tax liability pursuant to the last
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sentence ofSection 3.7(a) resulting from any such claim, proceeding or audit, Purchaser shall not settle anysuch claim, proceeding or audit without the prior written consent of Seller, which consent shallnot be unreasonably withheld or delayed. Purchaser shall not file any amended Tax Return withrespect to the Subsidiaries relating to Tax Periods ending on or prior to the Closing Date withoutthe prior written consent of Seller, which shall not be unreasonably withheld or delayed.          (c) Purchaser, Seller and their affiliates shall cooperate fully, as and to the extentreasonably requested by the other party, in connection with the filing of Tax Returns pursuant tothis Section 3.7 and any audit, litigation or other proceeding with respect to such Taxes.     3.8 Employee Matters. Purchaser shall, and shall cause any of its subsidiaries oraffiliates to, recognize the service of each employee of the Subsidiaries, immediately prior to theClosing Date, who remain in the active employment of the respective Subsidiaries after the ClosingDate (the “Continuing Employees”), as if such service had been performed with Purchaser or itssubsidiaries or affiliates with respect to any plans or programs in which Continuing Employees areeligible to participate after the Closing Date (i) for purposes of eligibility to participate,eligibility for early retirement and vesting (but not for benefit accrual unless required byapplicable law) under any retirement plan, (ii) for purposes of eligibility for, and amount of,vacation, (iii) for purposes of eligibility and participation under any health or welfare plan withthe exception of the long term disability plan, and (iv) for benefit determination purposes underany severance plan.     3.9 Delivery of 2007 Audited Statements. Seller shall deliver to Purchaser theaudited statutory balance sheets of Georgia Casualty and Association Casualty on an unconsolidatedbasis as of and for the year ended December 31, 2007, and the audited statutory statements ofoperations, changes in capital and surplus, and cash flows of Georgia Casualty and AssociationCasualty on an unconsolidated basis as of and for the year ended December 31, 2007 (such financialstatements, including all notes and schedules thereto and the independent auditors’ report of BDOSeidman, LLP thereon, being the “2007 Audited Statements”), promptly upon the completion of the2007 Audited Statements.     3.10 Retained Litigation.          (a) Purchaser and Seller acknowledge and agree that Seller shall retain all rights to pursuein the name of Georgia Casualty and Association Casualty that certain litigation pending in CaseNo. 1:06-cv-00954-KS-RHW in the United States District Court for the Southern District ofMississippi, Southern Division (the “Retained Litigation”), including the sole and exclusive rightto control the prosecution of the Retained Litigation (including the settlement thereof).          (b) Purchaser and Seller acknowledge and agree that Seller shall be entitled to any and allrewards or proceeds resulting from the Retained Litigation (including from the settlement thereof).Purchaser and Seller acknowledge and agree that Seller shall bear the responsibility for, andshall indemnify Purchaser against, all costs and expenses incurred in connection with Seller’spursuit of the Retained Litigation, including any liabilities that may arise therefrom.          (c) To the extent requested by Seller, Purchaser agrees to cooperate, and shall cause theSubsidiaries to cooperate, with Seller in its pursuit of the Retained Litigation, including bymaking available such of its or the Subsidiaries’ employees and officers and books and records thatthe Seller determines are necessary to pursue the Retained Litigation.     3.11 Fees for Seller Services. From the date hereof through the Closing Date, Sellershall continue to provide to the Subsidiaries the intercompany services that Seller and itsaffiliates have historically provided to the Subsidiaries consistent with past practice and theSubsidiaries shall reimburse Seller and its affiliates for the costs of such services;provided, however, that the Subsidiaries shall not reimburse Seller and itsaffiliates for amounts for such services in excess of Three Hundred Seventy-Five Thousand Dollars($375,000) in the aggregate for each calendar month during the period from January 1, 2008 throughthe Closing Date and said amount includes the dividends, if any, paid by Georgia Casualty to Sellerreferred to in Section 3.1(a)(vii) hereto. In the event that the Closing occurs on a date otherthan the last day of a month, said amount shall be prorated for said month. Seller and Purchaseracknowledge and agree that such monthly reimbursements shall be paid by the Subsidiaries to Selleror its affiliates within one month after such services
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are performed, including with respect to themonth in which the Closing occurs in which case such fees for the period from the beginning of suchmonth through the Closing Date shall be paid within one month after the Closing Date.ARTICLE IVCONDITIONS TO CLOSING     4.1 Conditions to Obligations of Seller. The obligations of Seller to effect thetransactions contemplated by this Agreement shall be subject to the fulfillment of the followingconditions:          (a) the representations and warranties made by Purchaser in this Agreement that are qualifiedas to materiality or Material Adverse Effect shall be true and correct, and the representations andwarranties made by Purchaser in this Agreement that are not so qualified shall be true and correctin all material respects, as of the date of this Agreement; and all such representations andwarranties, certifications and statements of Purchaser that are qualified as to materiality orMaterial Adverse Effect shall be true and correct, and all such representations and warranties,certifications and statements of Purchaser that are not so qualified shall be true and correct inall material respects, as of the Closing Date with the same effect as though such representationsand warranties had been made on and as of the Closing Date (except that representations andwarranties made with respect to a specified date need only be true and correct as of such date),and Seller shall have received a certificate to such effect signed by an authorized officer ofPurchaser;          (b) Purchaser shall have performed and complied with all agreements and conditions required bythis Agreement to be performed or complied with by it at or prior to the Closing, and Seller shallhave received a certificate to such effect signed by an authorized officer of Purchaser;          (c) the transactions contemplated hereby shall have been approved or not disapproved at theconclusion of all applicable waiting periods, as the case may be, by the Georgia InsuranceCommissioner, the Texas Insurance Commissioner and the Missouri Insurance Commissioner and eachsuch approval shall remain in effect, and such other licenses, consents and approvals of anyGovernmental Entity as are required by law in order to permit each of the parties hereto toconsummate the transactions contemplated by this Agreement shall have in each case been obtainedand not rescinded (other than with respect to the matters set forth in Section 3.2(c)), and any andall applicable waiting periods imposed by law shall have expired;          (d) no order entered or law promulgated or enacted by any court, legislature or otherGovernmental Entity shall be in effect which would prevent the consummation of the transactionscontemplated hereby, and no claim, action, suit or proceeding shall have been commenced and bepending which seeks to restrain, prevent, materially delay or restructure the transactionscontemplated hereby or which otherwise questions the validity or legality of such transactions;          (e) the waiting period under the Hart-Scott-Rodino Act (and any extension thereof) shall haveexpired or terminated, if applicable;          (f) Purchaser shall have obtained approval of a Form A Statement with the Georgia InsuranceDepartment and the Texas Insurance Department with respect to the transactions contemplated hereby,and shall have obtained written or verbal approval of the Missouri Insurance Department to acquirethe Subsidiaries; and          (g) at or prior to the Closing, Purchaser shall have, or shall have caused its affiliates to,use commercially reasonable efforts to maintain Association Casualty’s license to do business inNorth Carolina and American Southern shall be released from all of its obligations under theGuaranty Agreement.     4.2 Conditions to Obligations of Purchaser. The obligations of Purchaser to effectthe transactions contemplated by this Agreement shall be subject to the fulfillment of thefollowing conditions:          (a) the representations and warranties made by Seller in this Agreement and any disclosureschedule that are qualified as to materiality or Material Adverse Effect shall be true and correct,and the representations and
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warranties made by Seller in this Agreement that are not so qualifiedshall be true and correct in all material respects, as of the date of this Agreement; and all suchrepresentations and warranties, certifications and statements of Seller that are qualified as tomateriality or Material Adverse Effect shall be true and correct, and all such representations andwarranties, certifications and statements of Seller that are not so qualified shall be true andcorrect in all material respects, as of the Closing Date with the same effect as though suchrepresentations and warranties had been made on and as of the Closing Date (except for any suchrepresentations or warranties that are no longer true and correct as a direct result of Purchaser’sfailure to maintain Association Casualty’s license to do business in North Carolina in accordancewith Section 3.2(c), and except that representations and warranties made with respect to aspecified date need only be true and correct as of such date), and Purchaser shall have received acertificate to such effect signed by an authorized officer of Seller;          (b) Seller shall have performed and complied with all agreements and conditions required bythis Agreement to be performed or complied with by Seller at or prior to the Closing, and Purchasershall have received a certificate to such effect signed by an authorized officer of Seller;          (c) the transactions contemplated hereby shall have been approved or not disapproved at theconclusion of all applicable waiting periods, as the case may be, by the Georgia InsuranceCommissioner, the Texas Insurance Commissioner and the Missouri Insurance Commissioner and eachsuch approval shall remain in effect, and such other licenses, consents and approvals of anyGovernmental Entity as are required by law in order to permit each of the parties hereto toconsummate the transactions contemplated by this Agreement shall have in each case been obtainedand not rescinded (other than with respect to the matters set forth in Section 3.2(c)), and any andall applicable waiting periods imposed by law shall have expired;          (d) no order entered or law promulgated or enacted by any court, legislature or otherGovernmental Entity shall be in effect which would prevent the consummation of the transactionscontemplated hereby, and no claim, action, suit or proceeding shall have been commenced and bepending which seeks to restrain, prevent, materially delay or restructure the transactionscontemplated hereby or which otherwise questions the validity or legality of such transactions;          (e) the waiting period under the Hart-Scott-Rodino Act (and any extension thereof) shall haveexpired or terminated, if applicable;          (f) at or prior to the Closing, Seller shall cause Bank to release the Shares of GeorgiaCasualty and Association Casualty from the Pledge Agreement; and          (g) from and after the date hereof, there shall have been no material adverse change in thefinancial condition, operations or prospects of the Subsidiaries.          (h) prior to the Closing, Seller shall cause the Subsidiaries to dispose of the securitieslisted on Schedule 4.2(h); provided, in the event that such securities are sold afterDecember 31, 2007, the Purchase Price shall be (i) increased by the amount, if any, that the salesprice received for such securities exceeds the book adjusted carrying value for such securitiesshown on the Annual Statements of the Subsidiaries for the year ended December 31, 2007 (the “BookValue”), net of tax, or (ii) decreased by the amount, if any, that the Book Value exceeds the salesprice for such securities, net of tax;          (i) simultaneous with the Closing, Seller shall, and shall cause the Subsidiaries to,terminate all management agreements, cost allocation agreements and leases, whether written orotherwise, between any of the Subsidiaries and Seller or any of its affiliates, and theSubsidiaries other than the contracts referred to in Section 4.2(k) hereof;          (j) Purchaser and Seller shall have entered into a mutually agreeable Non-CompetitionAgreement in the form attached hereto as Exhibit A; and
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          (k) Seller shall have entered into contracts with the Subsidiaries and/or Purchaser on termsmutually agreeable to Purchaser and Seller pursuant to which Seller or its affiliates shall provideto the Subsidiaries and/or Purchaser certain services to be mutually agreed upon by Purchaser andSeller.ARTICLE VTERMINATION, AMENDMENT AND WAIVER     5.1 Termination. This Agreement may be terminated at any time prior to the Closing:          (a) by mutual written consent of Purchaser and Seller;          (b) by either party hereto if a material breach of or failure to perform any representation,warranty, covenant or agreement on the part of the other party set forth in this Agreement (otherthan such material breaches on the part of Seller that are a direct result of Purchaser’s failureto maintain Association Casualty’s license to do business in North Carolina in accordance withSection 3.2(c)) shall have occurred and such breach has not been waived by the non-breaching partyor cured to the reasonable satisfaction of the non-breaching party within 30 days of thenon-breaching party’s written notice to the breaching party thereof;          (c) by either party hereto, upon written notice to the other party hereto, if the party givingsuch notice determines, in such party’s sole good faith judgment, that any condition to theconsummation by such party of the transactions contemplated by this Agreement set forth in Section4.1 with respect to Seller and Section 4.2 with respect to Purchaser has become impossible to befulfilled;          (d) by either party hereto, if the Closing shall not have occurred by the End Date;provided, however, that no party may terminate this Agreement pursuant to thisSection 5.1(d) if such party’s breach of its obligations under this Agreement proximately causedthe failure of the Closing to occur by such date;          (e) by either party hereto, upon payment to the other party hereto of the Break-Up Fee inaccordance with Section 5.2(a); or          (f) by either party hereto, if any regulatory approvals described in Section 4.2(c) have beendenied or refused, notwithstanding the best efforts of the party having responsibility forobtaining such regulatory approvals.     5.2 Effect of Termination; Termination Fee.          (a) In the event of any termination of this Agreement as provided in Section 5.1, thisAgreement shall have no further force and effect, and there shall be no liability on the part ofeither party hereto or its officers or directors hereunder, except (i) that the provisions of thisSection 5.2 and Sections 6.3, 6.4, 6.5, 6.6, 6.8, 6.10, 6.11, 6.12and 6.14 shall survive any such termination; (ii) that this section 5.2 shall not relieveeither party from liability for any willful breach of any representation or warranty set forthherein or any breach prior to such termination of any covenant or agreement contained herein, (iii)as provided in Section 5.2(b) and (iv) as provided in Section 5.2(c).          (b) In order for either party hereto to terminate this Agreement pursuant to Section 5.1(e),such party shall pay to the other party hereto a break-up fee in the amount of Two Million Dollars($2,000,000) (the “Break-Up Fee”) by means of a wire transfer of immediately available funds tosuch bank account designated by the other party and such termination shall be effective uponreceipt by the non-terminating party of the Break-Up Fee.          (c) If the Closing shall not have occurred by the End Date, Purchaser shall pay to Seller theBreak-Up Fee by means of a wire transfer of immediately available funds to such bank accountdesignated by Seller within two (2) business days following such date; provided,however, that Purchaser shall not be required to pay to Seller the Break-Up Fee pursuant tothis Section 5.2(c) if (i) any of Seller’s representations or warranties that are qualified as tomateriality or Material Adverse Effect are untrue, or any of Seller’s representations or warrantiesthat are not so qualified are untrue in any material respect, as of the date made or as of the EndDate (except for any representations or warranties that are untrue as a direct result ofPurchaser’s failure to maintain Association Casualty’s license to do business in North
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Carolina inaccordance with Section 3.2(c)); (ii) Seller has violated any of the covenants or agreementscontained in Article III of this Agreement in any material respect; or (iii) any of the conditionsto Closing contained in Sections 4.2(a) through (i) hereof have not occurred or Seller has failedto execute the Non-Competition Agreement referred to in Section 4.2(j) or the agreements referredto in Section 4.2(k).     5.3 Amendment. This Agreement may be amended by mutual consent of the parties heretoat any time prior to the Closing Date; provided, however, that any amendment mustbe by an instrument or instruments in writing signed and delivered on behalf of each of the partieshereto.     5.4 Extension; Waiver. At any time prior to the Closing Date, any party hereto whichis entitled to the benefits hereof may (i) extend the time for performance of any of theobligations or other acts of the other party hereto; (ii) in whole or in part, waive any inaccuracyin the representations and warranties of the other party hereto contained herein or in any documentdelivered pursuant hereto, and (iii) in whole or in part, waive compliance with any of theagreements of the other party hereto or conditions to the obligations of such party containedherein. Any such agreement on the part of either party hereto to any extension or waiver shall bevalid only if set forth in an instrument in writing signed and delivered on behalf of the partygranting such extension or waiver.ARTICLE VIGENERAL PROVISIONS     6.1 Survival of Representations, Warranties and Agreements. The representations,warranties and agreements contained in this Agreement, any exhibits and schedules hereto, and inany certificates delivered pursuant to this Agreement shall survive for a period of twenty-four(24) months following the Closing Date, and neither party shall have any right or claim against theother party after such period by virtue of any breach or violation of any such representation,warranty or agreement; provided, however, that (i) nothing contained herein shalllimit any covenant or agreement of the Parties that by its terms contemplates performance after theClosing Date; (ii) Section 3.10 shall survive indefinitely and (iii) in all cases, anyrepresentation, warranty, covenant or agreement that is the subject of a claim which is asserted bythe party seeking indemnification pursuant to Section 6.2 in a reasonably detailed writingdelivered to the other party or parties, as the case may be, prior to the expiration of theapplicable survival period shall survive with respect to such claim or dispute until the finalresolution thereof.     6.2 Indemnification.          (a) Indemnification by Seller. Subject to the conditions and provisions ofSections 3.2(c) and 6.2(c), (d) and (f), from and after the Closing Date, Seller agrees toindemnify, defend and hold Purchaser, the Subsidiaries and their officers, directors, employees,agents and shareholders (the “Purchaser Indemnified Parties”) harmless from and against and in anyrespect of any loss, liability,claim, obligation, damage or deficiency (a “Loss”) arising out of or resulting from (i) anymisrepresentation or breach of the representations, warranties or certifications of Sellercontained in or made pursuant to this Agreement, or (ii) any breach by Seller of any covenants ofSeller contained in or made pursuant to this Agreement.          (b) Indemnification by Purchaser. Subject to the conditions and provisions ofSections 6.2(c), (d) and (f), from and after the Closing Date, Purchaser agrees to indemnify,defend and hold Seller and Seller’s officers, directors, employees, agents and shareholders (the“Seller Indemnified Parties”) harmless from and against and in any respect of any Loss arising outof or resulting from (i) any misrepresentation or breach of the representations, warranties orcertifications of Purchaser contained in or made pursuant to this Agreement, or (ii) any breach byPurchaser of any covenants of Purchaser contained in or made pursuant to this Agreement.          (c) Limitations on Indemnification.          (i) Seller shall not be liable to the Purchaser Indemnified Parties in respect of anyindemnification under Section 6.2(a) except to the extent that the aggregate Losses of thePurchaser Indemnified Parties under Section 6.2(a) exceed $250,000 (the “Basket Amount”), inwhich event the Purchaser Indemnified Parties may claim indemnification for all Losses ofthe Purchaser Indemnified Parties.
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          (ii) Purchaser acknowledges and agrees that the maximum aggregate liability of Sellerpursuant to Section 6.2(a) to the Purchaser Indemnified Parties and any third parties forany and all Losses shall not exceed $7,500,000; provided, however, thatnothing in this Section 6.2(c)(ii) shall be construed to constitute a waiver or limitationof any claims by Purchaser based on fraud, willful misconduct or bad faith of Seller.          (iii) The Purchaser Indemnified Parties’ right to indemnification pursuant to Section6.2(a) on account of any Losses will be reduced by all insurance or other third partyindemnification proceeds actually received by the Purchaser Indemnified Parties. ThePurchaser Indemnified Parties shall use their commercially reasonable efforts to claim andrecover any Losses suffered by the Purchaser Indemnified Parties under any such insurancepolicies or other third party indemnities. The Purchaser Indemnified Parties shall remit toSeller any such insurance or other third party proceeds which are paid to the PurchaserIndemnified Parties with respect to Losses for which the Purchaser Indemnified Parties havebeen previously compensated pursuant to Section 6.2(a).          (iv) Purchaser shall not be liable to the Seller Indemnified Parties in respect of anyindemnification under Section 6.2(b) except to the extent that the aggregate Losses of theSeller Indemnified Parties under Section 6.2(a) exceed the Basket Amount, in which event theSeller Indemnified Parties may claim indemnification for all Losses of the SellerIndemnified Parties.          (v) Seller acknowledges and agrees that the maximum aggregate liability of Purchaserpursuant to Section 6.2(b) to the Seller Indemnified Parties and any third parties for anyand all Losses shall not exceed $7,500,000; provided, however, that nothingin this Section 6.2(c)(iv) shall be construed to constitute a waiver or limitation of anyclaims by Seller based on fraud, willful misconduct or bad faith of Purchaser.          (vi) The Seller Indemnified Parties’ right to indemnification pursuant to Section6.2(b) on account of any Losses will be reduced by all insurance or other third partyindemnification proceeds actually received by the Seller Indemnified Parties. The SellerIndemnified Parties shall use their commercially reasonable efforts to claim and recover anyLosses suffered by the Seller Indemnified Parties under any such insurance policies or otherthird party indemnities. The Seller Indemnified Parties shall remit to Purchaser any suchinsurance or other third party proceeds which are paid to the Seller Indemnified Partieswith respect to Losses for which the Seller Indemnified Parties have been previouslycompensated pursuant to Section 6.2(b).          (vii) No claim for indemnification may be made pursuant to this Section 6.2 after theexpiration of the applicable survival period set forth in Section 6.1.          (d) Conditions of Indemnification. The obligations and liabilities of Seller and ofPurchaser hereunder with respect to their respective indemnities pursuant to this Section 6.2,resulting from any Losses, shall be subject to the following terms and conditions:          (i) The party seeking indemnification (the “Indemnified Party”) must give the otherparty or parties, as the case may be (the “Indemnifying Party”), notice of any such Lossespromptly after the Indemnified Party receives notice thereof; provided that thefailure to give such notice shall not affect the rights of the Indemnified Party hereunderexcept to the extent that the Indemnifying Party shall have suffered actual damage by reasonof such failure.          (ii) The Indemnifying Party shall have the right to undertake, by counsel or otherrepresentatives of its own choosing (reasonably acceptable to the Indemnified Party), thedefense of such Losses at the Indemnifying Party’s risk and expense; provided,however, that as a condition to the exercise of such right to undertake defense ofsuch Losses, the Indemnifying Party shall, as between the Indemnifying Party and theIndemnified Party, assume the liability for such Losses, without regard to the limitationsset forth in Section 6.2(c)(ii) or Section 6.2(c)(v), as applicable.          (iii) In the event that the Indemnifying Party shall elect not to undertake suchdefense, or, within a reasonable time after notice from the Indemnified Party of any suchLosses, shall fail to defend, the Indemnified Party (upon further written notice to theIndemnifying Party) shall have the right to undertake the
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defense, compromise or settlementof such Losses, by counsel or other representatives of its own choosing, on behalf of andfor the account and risk of the Indemnifying Party (subject to the right of the IndemnifyingParty to assume defense of such Losses at any time prior to settlement, compromise or finaldetermination thereof (with counsel reasonably acceptable to the Indemnified Party)). Insuch event, the Indemnifying Party shall pay to the Indemnified Party, in addition to theother sums required to be paid hereunder, the costs and expenses incurred by the IndemnifiedParty in connection with such defense, compromise or settlement as and when such costs andexpenses are so incurred.          (iv) Notwithstanding anything contained in this Section 6.2(d) to the contrary, (a) ifany third party alleges the right to or seeks any remedy other than money damages or othermoney payments, the Indemnified Party shall have the right, at the cost and expense of theIndemnifying Party, to participate in and direct the defense, compromise or settlement ofthe Losses, (b) the Indemnifying Party shall not, without the Indemnified Party’s writtenconsent, settle or compromise any Losses or consent to entry of any judgment which does notinclude as an unconditional term thereof the giving by the claimant or the plaintiff to theIndemnified Party of a release from all liability in respect of such Losses in form andsubstance reasonably satisfactory to the Indemnified Party, (c) in the event that theIndemnifying Party undertakes defense of any Losses, the Indemnified Party, by counsel orother representative of its own choosing and at its sole cost and expense, shall have theright to consult with the Indemnifying Party and its counsel or other representativesconcerning such Losses and the Indemnifying Party and the Indemnified Party and theirrespective counsel or other representatives shall cooperate with respect to such Losses,(d) in the event that the Indemnifying Party undertakes defense of any Losses, theIndemnifying Party shall have an obligation to keep the Indemnified Party informed of thestatus of the defense of such Losses and furnish the Indemnified Party with all documents,instruments and information that the Indemnified party shall reasonably request inconnection therewith, and (e) in the event that both the Indemnified Party and theIndemnifying Party are parties (directly or through interpleader) to any Losses giving riseto indemnification hereunder and the Indemnified Party is advised by counsel that there isor may be a conflict of interest in the representation of both the Indemnified Party and theIndemnifying Party by one firm of counsel, the Indemnified Party shall be entitled toassume, at the sole cost and expense of the Indemnifying Party, the defense, compromise andsettlement (subject to clause (b) of this Section 6.2(d)(iv) above) of such Loss withcounsel (in addition to local counsel) reasonably satisfactory to the Indemnifying Party.          (v) In the event that an Indemnified Party has a good faith basis for a claim forindemnification which does not involve a claim against it by a third party (a “DirectClaim”), the Indemnified Party shall notify the Indemnifying Party in writing of such DirectClaim with reasonable promptness,specifying, to the extent known, the nature, circumstances and amount of such DirectClaim, including with particularity the specific representation and warranty or covenant andagreement alleged to have been breached; provided, that the failure to give suchnotice shall not affect the rights of the Indemnified Party hereunder except to the extentthat the Indemnifying Party shall have suffered actual damage by reason of such failure. Ifthe Indemnifying Party notifies the Indemnified Party that it disputes an IndemnifiedParty’s right of indemnification with respect to a particular Direct Claim, the partiesshall use their reasonable efforts to negotiate a resolution of such dispute promptly.Except to the extent of the limitations on indemnification set forth in this Section 6.2,nothing in this Section 6.2(d)(v) shall be deemed to prevent any Indemnified Party frominitiating litigation under this Agreement with respect to any Direct Claim disputed by theIndemnifying Party for the purpose of establishing the Indemnified Party’s right toindemnification hereunder.          (e) Exclusive Remedy. Except with respect to fraud, willful misconduct or bad faith,from and after the Closing Date, the indemnification rights provided in Section 6.2 of thisAgreement shall be the sole and exclusive remedy available under contract, tort or any other legaltheory to Purchaser, Seller or any other person with respect to any Losses, including any debts,liabilities, damages, obligations, claims, demands, judgments, and settlements, whether asserted bythird parties or incurred or sustained in the absence of third-party claims, including all costsand expenses, including interest, penalties, attorneys’ fees and any amounts paid in investigation,defense or settlement of any of the foregoing incurred or sustained pursuant to or in connectionwith this Agreement or the transactions contemplated hereby.
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          (f) Exception to Indemnification. Notwithstanding anything to the contrary containedherein, if the Closing occurs no claim for indemnification may be asserted under this Agreement orany document delivered in connection herewith with respect to any matter which the indemnifyingparty can prove was discovered or known by the party otherwise entitled to seek indemnification onor before the Closing Date.     6.3 Notices. All notices and other communications required to be given hereundershall be in writing and shall be deemed to have been duly given upon delivery, if delivered byhand; if given by mail, three (3) days after the date of mailing, postage prepaid, certified orregistered mail to a party hereto at the address set forth below; if given by facsimile, upontransmission to the number set forth below provided written confirmation is sent to the addressbelow; if given by overnight delivery service addressed to the address set forth below, thebusiness day following the day on which such notice is sent:If to Seller:Atlantic American Corporation