Exhibit 10.1
CONFIDENTIAL
 
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 6, 2007
AMONG
LIBERTY MUTUAL INSURANCE COMPANY,
WATERFALL MERGER CORP.
AND
OHIO CASUALTY CORPORATION
 

 

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TABLE OF CONTENTS

              Page ARTICLE I

 
        THE MERGER; CERTAIN RELATED MATTERS

 
       
Section 1.1. The Merger
    1  
Section 1.2. Closing
    1  
Section 1.3. Effective Time
    2  
Section 1.4. Articles of Incorporation
    2  
Section 1.5. Code of Regulations
    2  
Section 1.6. Directors
    2  
Section 1.7. Officers
    2  
Section 1.8. Effect on Capital Stock
    2  
Section 1.9. Treatment of Company Equity Awards
    3  
Section 1.10. Certain Adjustments
    5  
Section 1.11. Appraisal Rights
    5  
 
        ARTICLE II

 
        EXCHANGE OF CERTIFICATES AND COMPANY EQUITY AWARDS

 
       
Section 2.1. Exchange Fund
    6  
Section 2.2. Exchange Procedures
    6  
Section 2.3. No Further Ownership Rights in Company Common Stock
    7  
Section 2.4. Termination of Exchange Fund
    7  
Section 2.5. No Liability
    7  
Section 2.6. Investment of the Exchange Fund
    7  
Section 2.7. Lost Certificates
    8  
Section 2.8. Withholding Rights
    8  
Section 2.9. Share Transfer Books
    8  
 
        ARTICLE III

 
        REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 
       
Section 3.1. Corporate Existence and Power
    9  
Section 3.2. Corporate Authorization
    9  
Section 3.3. Governmental Authorization
    10  
Section 3.4. Non-Contravention
    10  
Section 3.5. Capitalization
    10  
Section 3.6. Subsidiaries
    11  
Section 3.7. Subsidiaries and Insurance Matters
    12  
Section 3.8. SEC Filings, etc.
    12  
Section 3.9. Financial Statements
    14  

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TABLE OF CONTENTS
(continued)

              Page
Section 3.10. Company SAP Statements
    14  
Section 3.11. Proxy Statement
    15  
Section 3.12. Absence of Certain Changes
    15  
Section 3.13. No Undisclosed Material Liabilities
    15  
Section 3.14. Compliance with Laws and Court Orders
    15  
Section 3.15. Litigation
    17  
Section 3.16. Insurance Matters
    17  
Section 3.17. Liabilities and Reserves
    19  
Section 3.18. Title to Properties; Absence of Encumbrances
    19  
Section 3.19. Opinion of Financial Advisor
    20  
Section 3.20. Taxes
    20  
Section 3.21. Employee Benefit Plans and Related Matters; ERISA
    21  
Section 3.22. Employees, Labor Matters
    24  
Section 3.23. Environmental Matters
    24  
Section 3.24. Intellectual Property
    25  
Section 3.25. Material Contracts
    26  
Section 3.26. Anti-takeover Statutes and Rights Plans
    27  
Section 3.27. Finders’ Fees
    27  
 
        ARTICLE IV   REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 
       
Section 4.1. Corporate Existence and Power
    27  
Section 4.2. Corporate Authorization
    28  
Section 4.3. Governmental Authorization
    28  
Section 4.4. Non-Contravention
    29  
Section 4.5. Capitalization; Interim Operations of Merger Sub
    29  
Section 4.6. Proxy Statement
    29  
Section 4.7. Litigation
    30  
Section 4.8. Finders’ Fees
    30  
Section 4.9. Financing
    30  
Section 4.10. Interested Shareholder
    30  
 
        ARTICLE V   CONDUCT OF BUSINESS BY THE COMPANY

 
       
Section 5.1. Conduct of Business by the Company Pending the Merger
    30  

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TABLE OF CONTENTS
(continued)

              Page ARTICLE VI   ADDITIONAL AGREEMENTS

 
       
Section 6.1. Preparation of Proxy Statement
    34  
Section 6.2. Shareholder Meeting; Company Recommendation
    35  
Section 6.3. No Solicitation
    35  
Section 6.4. Access to Information
    38  
Section 6.5. Reasonable Best Efforts
    38  
Section 6.6. Employee Matters
    39  
Section 6.7. Stock Purchase Plan
    43  
Section 6.8. Fees and Expenses
    43  
Section 6.9. Transfer Taxes
    43  
Section 6.10. Directors’ and Officers’ Indemnification and Insurance
    43  
Section 6.11. Public Announcements
    45  
Section 6.12. Agency Force
    45  
Section 6.13. State Takeover Laws
    45  
Section 6.14. Shareholder Litigation
    45  
Section 6.15. Charitable Contributions
    45  
 
        ARTICLE VII   CONDITIONS PRECEDENT

 
       
Section 7.1. Conditions to Each Party’s Obligation to Effect the Merger
    46  
Section 7.2. Conditions to Obligations of Parent and Merger Sub
    46  
Section 7.3. Conditions to Obligations of the Company
    47  
 
        ARTICLE VIII   TERMINATION AND AMENDMENT

 
       
Section 8.1. Termination
    47  
Section 8.2. Effect of Termination
    49  
Section 8.3. Fees and Expenses
    49  
 
        ARTICLE IX   GENERAL PROVISIONS

 
       
Section 9.1. Non-Survival of Representations, Warranties and Agreements
    51  
Section 9.2. Notices
    51  
Section 9.3. Interpretation
    52  
Section 9.4. Counterparts; Effectiveness
    53  

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TABLE OF CONTENTS
(continued)

              Page
Section 9.5. Entire Agreement; No Third Party Beneficiaries
    53  
Section 9.6. Severability
    54  
Section 9.7. Assignment
    54  
Section 9.8. Amendment
    55  
Section 9.9. Extension; Waiver
    55  
Section 9.10. Governing Law and Venue; Waiver of Jury Trial
    55  
Section 9.11. Enforcement
    56  
Section 9.12. Definitions
    56  

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AGREEMENT AND PLAN OF MERGER
     This AGREEMENT AND PLAN OF MERGER, dated as of May 6, 2007 (this
“Agreement”), is among Liberty Mutual Insurance Company, a Massachusetts stock
insurance company (“Parent”), Waterfall Merger Corp., an Ohio corporation and a
direct, wholly owned subsidiary of Parent (“Merger Sub”), and Ohio Casualty
Corporation, an Ohio corporation (the “Company” and, collectively with Parent
and Merger Sub, the “parties”).
RECITALS
     WHEREAS, the respective Boards of Directors of the Company, Parent and
Merger Sub have deemed it advisable and in the best interests of their
respective corporations and shareholders that the Company and Parent engage in a
business combination; and
     WHEREAS, in furtherance thereof, the respective Boards of Directors of the
Company, Parent and Merger Sub have approved this Agreement and the merger (the
“Merger”) of Merger Sub with and into the Company, on the terms and subject to
the conditions set forth in this Agreement.
     NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth in this Agreement, and intending
to be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
THE MERGER; CERTAIN RELATED MATTERS
     Section 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Section 1701.78 and 1701.81 of
the Ohio Revised Code (the “OGCL”), at the Effective Time, Merger Sub shall be
merged with and into the Company and the separate corporate existence of Merger
Sub shall thereupon cease. The Company shall be the surviving corporation in the
Merger (with respect to all post-Closing periods, the “Surviving Corporation”).
At the Effective Time, the effect of the Merger shall be as provided in this
Agreement, the Certificate of Merger and the applicable provisions of the OGCL,
including Section 1701.82.
     Section 1.2. Closing. The closing of the Merger (the “Closing”) shall take
place at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York,
New York at 9:00 a.m. New York City time on the third Business Day after all of
the conditions set forth in Article VII have been fulfilled or waived (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to fulfillment or waiver of those conditions) in accordance with
this Agreement, or at such other place

 

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and time and/or on such other date as the Company and Parent may agree in
writing (the “Closing Date”).
     Section 1.3. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date, the parties shall duly execute and
file a certificate of merger, in such form as is required by, and executed in
accordance with, the relevant provisions of the OGCL (the “Certificate of
Merger”), together with any required related certificates, with the Secretary of
State of the State of Ohio (the “OSOS”) in accordance with the OGCL. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with the OSOS on the Closing Date, or at such later time as Parent and the
Company shall agree and specify in the Certificate of Merger in accordance with
the OGCL. As used herein, the “Effective Time” shall mean the time at which the
Merger shall become effective.
     Section 1.4. Articles of Incorporation. The articles of incorporation of
the Surviving Corporation shall be amended and restated at the Effective Time to
be in the form attached as Exhibit A hereto and, as so amended and restated,
such articles of incorporation shall be the articles of incorporation of the
Surviving Corporation (the “Articles of Incorporation”), until thereafter
amended as provided therein or by applicable Law.
     Section 1.5. Code of Regulations. The code of regulations of Merger Sub in
effect immediately prior to the Effective Time shall be the code of regulations
of the Surviving Corporation (the “Code of Regulations”) until thereafter
amended as provided therein or by applicable Law.
     Section 1.6. Directors. The directors of Merger Sub immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Articles of Incorporation and the Code of Regulations.
     Section 1.7. Officers. The officers of the Company immediately prior to the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Articles of Incorporation and the Code of Regulations.
     Section 1.8. Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder thereof (other than
the requisite approval of the Merger by the shareholders of the Company in
accordance with the OGCL):

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     (a) each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (collectively, the “Shares”) (other than Excluded
Shares and Dissenting Shares) shall be converted into the right to receive $44
in cash, without interest (the “Merger Consideration”);
     (b) all Shares (other than Excluded Shares and Dissenting Shares) shall
cease to be outstanding and shall be canceled and retired, and each certificate
that, immediately prior to the Effective Time, represented any such Shares (the
“Certificates”) shall thereafter represent only the right to receive the Merger
Consideration with respect to such Shares formerly represented thereby;
     (c) each Excluded Share shall cease to be outstanding and shall be canceled
and retired and no consideration shall be delivered in exchange therefor; and
     (d) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and non-assessable share of common stock, par value $0.01 per
share, of the Surviving Corporation and such shares shall constitute the only
issued and outstanding shares of common stock of the Surviving Corporation.
     Section 1.9. Treatment of Company Equity Awards.
     (a) Company Options. At the Effective Time, the right to receive shares of
Company Common Stock pursuant to the exercise of any stock options (each, a
“Company Option”) granted pursuant to the Company’s 2002 Stock Incentive Plan,
2005 Incentive Plan, 2000 Directors Plan, 1999 Broad-Based Employees Stock
Option Plan, 1993 Stock Incentive Program and stock options granted pursuant to
Dan Carmichael’s employment agreement and any applicable agreements under the
foregoing (together, the “Company Incentive Plans”) that are outstanding
immediately prior to the Effective Time, whether or not vested, shall be
converted into the right to receive, as soon as reasonably practicable after the
Effective Time (but in any event no later than five Business Days after the
Effective Time), a cash payment equal to the product of (i) the excess, if any,
of (A) the Merger Consideration over (B) the per share exercise price of such
Company Option, multiplied by (ii) the number of shares covered by such Company
Option, less (iii) any required withholding taxes. Any stock appreciation rights
granted in tandem with a Company Option shall be cancelled without payment.
     (b) Stock Appreciation Rights. At the Effective Time, the right to receive
shares of Company Common Stock or cash pursuant to the exercise of any
freestanding stock appreciation rights (each, a “Company SAR”) granted pursuant
to the Company Incentive Plans or any agreement thereunder that is outstanding
immediately prior to the Effective Time, whether or not vested, shall be
converted into the right to receive, as soon as reasonably practicable after the
Effective Time (but in any event no later than five Business Days after the
Effective Time), a cash payment equal to the product of (i) the

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excess, if any, of (A) the Merger Consideration, over (B) the per share exercise
price of such Company SAR, multiplied by (ii) the number of shares covered by
such Company SAR, less (iii) any required withholding taxes.
     (c) Company Restricted Shares. Immediately prior to the Effective Time, the
Company shall waive any vesting conditions applicable to any shares of
restricted stock (each, a “Company Restricted Share”) granted pursuant to the
Company Incentive Plans, and such Company Restricted Shares shall be treated the
same as other Shares for purposes of this Agreement.
     (d) Director Units. At the Effective Time, the right to receive cash in
respect of director performance shares granted pursuant to the Second Amended
and Restated Directors’ Deferred Compensation Plan (each, a “Director Unit”)
that (i) are outstanding, and (ii) have not been converted into cash as of the
Effective Time shall be converted into the right to receive, as soon as
reasonably practicable after the Effective Time (but in any event no later than
five Business Days after the Effective Time), a cash payment equal to the Merger
Consideration for each Share to which such Director Unit relates, less any
required withholding taxes.
     (e) Performance-Based Awards. At the Effective Time, the right to receive
shares of Company Common Stock or cash in respect of outstanding
Performance-Based Awards under the Company Incentive Plans (each, a
“Performance-Based Award”), whether or not vested, shall be cancelled and shall
only entitle the holder of such Performance-Based Award to receive, as soon as
reasonably practicable after the Effective Time (but in any event no later than
five Business Days after the Effective Time), a cash payment equal to (i) the
number of shares issuable pursuant to the Performance-Based Award calculated at
the higher of the “target level” and the award level actually met as of the
Effective Time as determined by the compensation committee of the Board of
Directors prior to the Effective Time in good faith in accordance with the terms
of the Company Incentive Plans and the Performance-Based Award, multiplied by
(ii) the per share Merger Consideration, multiplied by (iii) a fraction, the
numerator of which is the number of whole calendar months between the beginning
of the performance period (as defined under the respective Company Incentive
Plan or award agreement under which the award was granted, as appropriate) and
the Effective Time, and the denominator of which is the whole number of calendar
months in such performance period, less applicable Taxes required to be withheld
with respect to such payment. The Company shall provide Parent the compensation
committee’s determination of the award level actually met at least three
Business Days prior to the Closing.
     (f) Automatic Cancellation. As of the Effective Time, all Company Options
(including any stock appreciation rights granted in tandem with such Company
Options), Company SARs, Company Restricted Shares, Director Units,
Performance-Based Awards and other equity-based awards granted by the Company
(together, “Company Equity Awards”) shall no longer be outstanding and shall
automatically be canceled and

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retired and shall expire and cease to exist, and each holder of such a Company
Equity Award shall cease to have any rights with respect thereto, except the
rights specified in this Section 1.9. The consideration pursuant to this
Section 1.9 (the “Equity Award Consideration”) shall be paid to each holder of a
Company Equity Award in accordance with Article II.
     (g) Prior to the Effective Time, the Company shall adopt such resolutions
and take or cause to be taken prior to the Effective Time all such other action
as may reasonably be required to effectuate the actions contemplated by this
Section 1.9.
     Section 1.10. Certain Adjustments. If, between the date of this Agreement
and the Effective Time, the Company Common Stock is changed into a different
number of shares or different class by reason of any reclassification,
recapitalization, stock split, split-up, combination or exchange of shares, or a
stock dividend or dividend payable in any other securities is declared with a
record date within such period, or any similar event occurs, the Merger
Consideration shall be appropriately adjusted to provide to the holders of
Shares or Company Equity Awards the same economic effect as contemplated by this
Agreement prior to such event.
     Section 1.11. Appraisal Rights. Notwithstanding any provision of this
Agreement to the contrary (other than the other provisions of this Section 1.11)
and to the extent available under the OGCL, no shares of Company Common Stock
held by a Person who has perfected a demand for appraisal rights pursuant to
Section 1701.85 of the OGCL (a “Dissenting Shareholder”) shall be converted
into, or represent the right to receive, the Merger Consideration. Any such
shareholder shall instead be entitled to receive payment of the fair cash value
of such Dissenting Shareholder’s Dissenting Shares in accordance with the
provisions of Section 1701.85 of the OGCL; provided, however, that all
Dissenting Shares held by any Dissenting Shareholder who shall have failed to
perfect or who otherwise shall have withdrawn, in accordance with Section
1701.85 of the OGCL, or lost such Dissenting Shareholder’s rights to appraisal
of such shares under Section 1701.85 of the OGCL shall thereupon be deemed to
have been converted into, and to have become exchangeable for, as of the
Effective Time, the right to receive the Merger Consideration, without any
interest thereon, upon surrender of the Certificate or Certificates that
formerly evidenced such shares in the manner provided in Article II. The Company
shall give Parent (a) prompt notice of any written demands for appraisal,
attempted withdrawals of such demands, and any other instruments served pursuant
to applicable Law received by the Company relating to shareholders’ rights of
appraisal and (b) the opportunity to participate in all negotiations and
proceedings with respect to demand for appraisal under the OGCL. The Company
shall not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any demands for appraisals of Dissenting Shares or
settle any such demands.

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ARTICLE II
EXCHANGE OF CERTIFICATES AND COMPANY EQUITY AWARDS
     Section 2.1. Exchange Fund. Prior to the Effective Time, Parent shall
appoint a commercial bank or trust company with the Company’s prior approval
(such approval not to be unreasonably withheld or delayed) to act as exchange
agent hereunder for the purpose of exchanging Certificates for the Merger
Consideration and the Company Equity Awards for the Equity Award Consideration
(the “Exchange Agent”). At or prior to the Effective Time, Parent shall deposit
with the Exchange Agent, in trust for the benefit of holders of Shares and the
Company Equity Awards an amount of cash representing the aggregate cash
consideration payable pursuant to Section 1.8 and Section 1.9. Any cash
deposited with the Exchange Agent shall hereinafter be referred to as the
“Exchange Fund”.
     Section 2.2. Exchange Procedures. Promptly after the Effective Time (and in
any event, within three Business Days), the Surviving Corporation shall cause
the Exchange Agent to mail (x) to each holder of record of Shares (other than
holders of Excluded Shares) immediately prior to the Effective Time (i) a letter
of transmittal, which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates (or affidavits of loss in lieu of the Certificates as provided in
Section 2.7) to the Exchange Agent, and which letter shall be in customary form
and have such other provisions as Parent and the Company may reasonably agree
and (ii) instructions for effecting the surrender of such Certificates (or
affidavits of loss in lieu of such Certificates as provided in Section 2.7) in
exchange for the Merger Consideration and (y) to each holder of a Company Equity
Award, a check in an amount due and payable to such holder pursuant to
Section 1.9 hereof in respect of such Equity Award. Upon surrender of a
Certificate (or affidavits of loss in lieu of a Certificate as provided in
Section 2.7) to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate (or provider of an affidavit as provided in Section
2.7) shall be entitled to receive in exchange therefor a check in an amount
equal to the Merger Consideration multiplied by the number of Shares represented
by such holder’s properly surrendered Certificates (or affidavits of loss in
lieu of such Certificates as provided in Section 2.7). No interest will be paid
or will accrue on any cash payable pursuant to Section 1.8. In the event of a
transfer of ownership of Shares that is not registered in the transfer records
of the Company, a check in the proper amount of any cash consideration pursuant
to Section 1.8 may be issued with respect to such Shares to such a transferee if
the Certificate representing such Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid.

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     Section 2.3. No Further Ownership Rights in Company Common Stock. All cash
paid upon conversion of the Shares in accordance with the terms of Article I and
this Article II shall be deemed to have been issued or paid in full satisfaction
of all rights pertaining to the Shares previously represented by such
Certificates (or affidavits of loss in lieu of a Certificate as provided in
Section 2.7).
     Section 2.4. Termination of Exchange Fund. Any portion of the Exchange Fund
that remains undistributed to the holders of Certificates for six months after
the Effective Time shall be delivered to the Surviving Corporation (or otherwise
on the instruction of Parent), and any holders of the Certificates who have not
theretofore complied with this Article II shall thereafter look only to the
Surviving Corporation for the Merger Consideration with respect to the Shares
formerly represented thereby to which such holders are entitled pursuant to
Section 1.8. Any such portion of the Exchange Fund remaining unclaimed by
holders of Shares five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity) shall, to the extent permitted by
applicable Law, become the property of the Surviving Corporation free and clear
of any claims or interest of any Person previously entitled thereto.
     Section 2.5. No Liability. None of Parent, Merger Sub, the Company, the
Surviving Corporation, any of their respective Affiliates or the Exchange Agent
shall be liable to any Person in respect of any Merger Consideration from the
Exchange Fund delivered to a public official or Governmental Entity pursuant to
any applicable abandoned property, escheat or similar Law.
     Section 2.6. Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent; provided
that such investments shall be in obligations of or guaranteed by the United
States of America or in commercial paper obligations rated A-1 or P-1 or better
by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation,
respectively or a combination of the foregoing or in certificates of deposit,
bank repurchase agreements or banker’s acceptances of commercial banks with
capital exceeding $1,000,000,000 and, in any such case, no such instrument shall
have a maturity exceeding three months. To the extent that there are losses with
respect to such investments, or the Exchange Fund diminishes for other reasons
below the level required to make prompt cash payment of the aggregate
consideration payable pursuant to Section 1.8 and Section 1.9, Parent shall
promptly replace or restore the cash in the Exchange Fund lost through such
investments or other events so as to ensure that the Exchange Fund is at all
times maintained at a level sufficient to make such cash payments. Any interest
and other income resulting from any such investments shall become a part of the
Exchange Fund, and any amounts in excess of the aggregate cash consideration
payable pursuant to Section 1.8 and Section 1.9 shall be promptly returned to
Parent upon request.

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     Section 2.7. Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent shall deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the Shares
formerly represented thereby.
     Section 2.8. Withholding Rights. Each of Parent and the Exchange Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares (including, for the
avoidance of doubt, Company Restricted Shares) or Company Equity Awards or any
other equity rights in the Company such amounts as it is required to deduct and
withhold with respect to the making of such payment under the Code and the rules
and regulations promulgated thereunder, or any provision of state, local or
non-U.S. Law. To the extent that amounts are so withheld and paid to the
appropriate taxing authority by Parent or the Exchange Agent, as the case may
be, such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Shares in respect of which such deduction
and withholding was made by the Surviving Corporation or Parent, as the case may
be.
     Section 2.9. Share Transfer Books. The share transfer books of the Company
shall be closed at the Effective Time and there shall be no further registration
of transfers of shares of Company Common Stock on the records of the Company.
From and after the Effective Time, any Certificates (or effective affidavits of
loss in lieu thereof) presented to the Exchange Agent or Parent for any reason
shall be converted into the right to receive the Merger Consideration with
respect to the shares of Company Common Stock formerly represented thereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
     Except as set forth in the Company SEC Documents filed on or after
January 1, 2006 and prior to the date of this Agreement (excluding any
disclosure set forth in the sections titled “risk factors” and “forward-looking
statements”) or otherwise disclosed to Parent in the corresponding sections or
subsections of the schedule (the “Company Disclosure Schedule”) delivered to it
by the Company prior to the execution of this Agreement (it being agreed that
disclosure of any item in any section or subsection of the Company Disclosure
Schedule shall be deemed disclosure with respect to any other section or
subsection to which the relevance of such disclosure to the applicable
representation and warranty is reasonably apparent), the Company represents and
warrants to Parent and Merger Sub as follows:

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     Section 3.1. Corporate Existence and Power. The Company is a corporation
duly incorporated and validly existing under the laws of the State of Ohio and
the Company and the Company Subsidiaries have all corporate, partnership or
other similar powers and all governmental licenses, authorizations, permits,
consents, franchises, variances, exemptions, orders and approvals required to
carry on their business as now conducted (the “Company Permits”), except for
those powers, licenses, authorizations, permits, consents, franchises,
variances, exemptions, orders and approvals the absence of which are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company. The Company and the Company Subsidiaries are in
compliance with the terms of the Company Permits, except where the failure to be
in such compliance, individually or in the aggregate, is not reasonably likely
to have a Material Adverse Effect on the Company. The Company is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is required, except for those
jurisdictions where failure to be so qualified is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company.
The Company has made available to Parent true and complete copies of the
articles of incorporation and code of regulations or similar organizational
documents of the Company and each Significant Subsidiary as currently in effect.
     Section 3.2. Corporate Authorization.
     (a) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby are within the Company’s corporate powers and, except for the Company
Shareholder Approval, have been duly authorized by all necessary corporate
action on the part of the Company. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws relating to or affecting
creditors’ rights or by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law (the
“Bankruptcy and Equity Exception”). The only vote of the holders of any class or
series of capital stock of the Company necessary to consummate the Merger and
the other transactions contemplated by this Agreement is the affirmative vote of
the holders of the Company Common Stock representing a majority of the votes
eligible to be cast by such holders approving the Merger and the Agreement at a
shareholder’s meeting duly called and held for such purpose (the “Company
Shareholder Approval”).
     (b) At a meeting duly called and held, the Board of Directors of the
Company has (i) determined that the Merger and the other transactions
contemplated hereby are fair to and in the best interests of the Company’s
shareholders, (ii) approved this Agreement and the transactions contemplated
hereby in accordance with the OGCL, and

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     (iii) resolved (subject to Section 6.3) to recommend adoption of this
Agreement by its shareholders.
     Section 3.3. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement, and the consummation by the
Company of the transactions contemplated hereby require no consent or approval
by, or filing with, any Governmental Entity, to be obtained or made by the
Company other than (i) the filing of the Certificate of Merger with the OSOS and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business, (ii) compliance with any applicable
requirements of the HSR Act, (iii) compliance with any applicable requirements
of the Securities Act, the Exchange Act, and any other applicable securities
laws, (iv) compliance with any applicable requirements of the Nasdaq, (v)
approvals or filings under all applicable state Laws regulating the business of
insurance (collectively, “Insurance Laws”) as set forth in Section 3.3 of the
Company Disclosure Schedule (the “Company Insurance Approvals”) and (vi) any
consents, approvals or filings the absence of which are not, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect on the
Company or prevent, materially delay or materially impair the consummation of
the transactions contemplated by this Agreement.
     Section 3.4. Non-Contravention. The execution, delivery and performance by
the Company of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, constitute or result in (i) a violation or breach
of any provision of the articles of incorporation or code of regulations of the
Company or any organizational documents of any Company Subsidiary, (ii) assuming
compliance with the matters referred to in Section 3.3, a violation or breach of
any provision of any applicable Law, Order or Company Permit, (iii) a default
under, or an event that, with or without notice or lapse of time or both, would
constitute a default under, or cause or permit the termination, cancellation or
acceleration of any right or obligation of the Company or any Company
Subsidiary, or require any consent by or notice to any Person, under (A) any
agreement or other instrument binding upon the Company or any Company Subsidiary
that involves payments of $5,000,000 or more or (B) any material contract for
the Company’s “Policy Administration Rating and Issuance System” (P.A.R.I.S.) or
(iv) the creation or imposition of any Lien on any asset of the Company or any
Company Subsidiary, except for such violations or breaches referred to in clause
(ii) and for such Liens referred to in clause (iv) that are not, individually or
in the aggregate, reasonably likely to have a Material Adverse Effect on the
Company or prevent, materially delay or materially impair the consummation of
the transactions contemplated by this Agreement.
     Section 3.5. Capitalization.
     (a) The authorized capital stock of the Company consists of (i) 150,000,000
common shares, $.125 par value (“Company Common Stock”), and (ii) 2,000,000
preferred shares, $.01 par value (“Company Preferred Stock”). As of May 3, 2007,
(i)

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59,984,141 shares of Company Common Stock (including 101,500 Company Restricted
Shares) were issued and outstanding; and (ii) no shares of Company Preferred
Stock were issued and outstanding. As of May 3, 2007, (i) Company Options to
purchase an aggregate of 3,445,080 shares of Company Common Stock (of which
options to purchase an aggregate of 2,942,593 shares of Company Common Stock
were exercisable) were issued and outstanding, (ii) Company SARs covering an
aggregate of 350,000 shares of Company Common Stock (of which Company SARs
covering 116,666 shares of Company Common Stock were exercisable), (iii)
Performance-Based Awards covering an aggregate of up to 825,925 shares of
Company Common Stock, and (iv) Director Units covering an aggregate of 46,435
shares of Company Common Stock. All outstanding shares of capital stock of the
Company have been, and all shares that may be issued pursuant to any Company
Incentive Plan will be, when issued in accordance with the respective terms
thereof, duly authorized and validly issued and are (or, in the case of shares
that have not yet been issued, will be) fully paid and nonassessable. No Company
Subsidiary or Affiliate owns any shares of Company Common Stock.
     (b) Except as set forth in this Section 3.5 and shares subject to issuance
under the Rights Agreement, there are no outstanding (i) shares of capital stock
or voting securities of the Company, (ii) securities of the Company convertible
into or exchangeable for shares of capital stock or voting securities of the
Company or (iii) options or other rights to acquire from the Company, or other
obligation of the Company to issue or pay cash valued by reference to, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of the Company (the items in clauses (i),
(ii), and (iii) being referred to collectively as the “Company Securities”).
There are no outstanding obligations of the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any of the Company Securities.
     Section 3.6. Subsidiaries.
     (a) Each Company Subsidiary is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of formation. Each such Company Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is required, except where failure to be so qualified is
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company. All Significant Subsidiaries of the Company and
their respective jurisdictions of formation are identified in the Company SEC
Documents.
     (b) All of the outstanding capital stock of, or other voting securities or
ownership interests in, each Company Subsidiary, is owned by the Company,
directly or indirectly, free and clear of any Lien and free of any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
voting securities or ownership interests (other than those restrictions under
applicable Insurance Laws). There are no outstanding

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(i) securities of the Company or any Company Subsidiary convertible into or
exchangeable for shares of capital stock or other voting securities or ownership
interests in any Company Subsidiary or (ii) options or other rights to acquire
from the Company or any Company Subsidiary, or other obligation of the Company
or any Company Subsidiary to issue, any capital stock or other voting securities
or ownership interests in, or any securities convertible into or exchangeable
for any capital stock or other voting securities or ownership interests in, any
Company Subsidiary (the items in clauses (i) and (ii) being referred to
collectively as the “Company Subsidiary Securities”). There are no outstanding
obligations of the Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire any of the Company Subsidiary Securities.
     Section 3.7. Subsidiaries and Insurance Matters. The Company conducts all
of its insurance operations through the Company Subsidiaries. Section 3.7 of the
Company Disclosure Schedule lists the jurisdiction of domicile of each Company
Subsidiary. None of the Company Subsidiaries is “commercially domiciled” in any
other jurisdiction. Each of the Company Subsidiaries is, where required, (i)
duly licensed or authorized as an insurance company and, where applicable, a
reinsurer in its jurisdiction of incorporation, (ii) duly licensed or authorized
as an insurance company and, where applicable, a reinsurer in each other
jurisdiction where it is required to be so licensed or authorized and (iii) duly
authorized in its jurisdiction of incorporation and each other applicable
jurisdiction to write each line of business reported as being written in the
Company SAP Statements, except, in each case, where the failure to be so
licensed or authorized is not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on the Company. All of the Company
Permits of such Company Subsidiaries conducting insurance operations are in full
force and effect and there is no proceeding or, to the knowledge of the Company,
investigation to which the Company or any Company Subsidiary is subject before a
Governmental Entity that is pending or, to the knowledge of the Company,
threatened which would reasonably be expected to lead to the revocation,
amendment, failure to renew, limitation, suspension or restriction of any such
Company Permits, except where the failures to be in full force and effect,
revocations, amendments, failures to renew, limitations, suspension or
restrictions are not, individually or in the aggregate, reasonably likely to be
materially adverse to the business, assets (including intangible assets),
liabilities, financial condition or results of operations of the Company and the
Company Subsidiaries taken as a whole. The Company has made available to Parent
a list of all pending market conduct examinations as of the date hereof by an
insurance regulatory Governmental Entity relating to any Company Subsidiary that
is a Significant Subsidiary.
     Section 3.8. SEC Filings, etc.
     (a) The Company has filed all required forms, reports, statements,
schedules, registration statements and other documents required to be filed by
it with the SEC since January 1, 2005 (the documents referred to in this
Section 3.8(a) collectively with any

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other forms, reports, statements, schedules, registration statements or other
documents filed with the SEC subsequent to the date hereof, the “Company SEC
Documents”).
     (b) As of its filing date, each Company SEC Document complied, and each
such Company SEC Document filed subsequent to the date hereof will comply, as to
form in all material respects with the applicable requirements of the Securities
Act and the Exchange Act, as the case may be.
     (c) As of its filing date (or, if amended or superseded by a filing prior
to the date hereof, on the date of such filing), each Company SEC Document filed
pursuant to the Exchange Act did not, and each such Company SEC Document filed
subsequent to the date hereof on the date of its filing will not, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
     (d) Each Company SEC Document that is a registration statement, as amended
or supplemented, if applicable, filed pursuant to the Securities Act, as of the
date such registration statement or amendment became effective, did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
     (e) Each required form, report and document containing financial statements
that has been filed with or submitted to the SEC by the Company since January 1,
2005, was accompanied by the certifications required to be filed or submitted by
the Company’s chief executive officer and chief financial officer pursuant to
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and, at the time of
filing or submission of each such certification, such certification was true and
accurate and complied in all material respects with the Sarbanes-Oxley Act.
     (f) The Company maintains “disclosure controls and procedures” required by
Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Such disclosure controls
and procedures are sufficient to ensure that material information (both
financial and non-financial) required to be disclosed by the Company in the
reports that it files or furnishes under the Exchange Act is recorded and
reported on a timely basis to the Company’s management to allow the principal
executive officer and the principal financial officer of the Company, or persons
performing similar functions, to make decisions regarding required disclosure.
The Company has disclosed, based on its most recent evaluation of such
disclosure controls and procedures prior to the date hereof, to its independent
auditors and the audit committee of its Board of Directors (A) any significant
deficiencies and material weaknesses in the design or operation of the Company’s
internal controls over financial reporting that are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report
financial information and (B) any fraud, whether or not material, that involves
management or other employees of the Company who have a significant role in the
Company’s internal controls over financial reporting.

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The Company has made available to Parent any such disclosure made by management
to the Company’s independent auditors and the audit committee of the Board of
Directors of the Company.
     Section 3.9. Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company SEC Documents fairly present in all material
respects, in conformity with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
     Section 3.10. Company SAP Statements. As used herein, the term “Company SAP
Statements” means the statutory statements of each of the Company Subsidiaries
as filed with the applicable insurance regulatory authorities in their
respective jurisdictions of incorporation for the years ended December 31 2005
and December 31, 2006 and the quarterly period ended March 31, 2007 and any such
annual and quarterly statutory statements filed subsequent to the date hereof.
The Company has made available to Parent true and complete copies of the Company
SAP Statements filed as of the date of this Agreement with respect to the
Company Subsidiaries that are Significant Subsidiaries. Each of the Company
Subsidiaries has filed or submitted, or will file or submit, all Company SAP
Statements required to be filed with or submitted to the appropriate insurance
regulatory authorities of the jurisdiction in which it is domiciled or
commercially domiciled on forms prescribed or permitted by such authority,
except for such failures to file that are not, individually or in the aggregate,
reasonably likely to be materially adverse to the business, assets (including
intangible assets), liabilities, financial condition or results of operations of
the Company and the Company subsidiaries taken as a whole. The Company SAP
Statements were, and any Company SAP Statements filed after the date hereof will
be, prepared in all material respects in conformity with SAP consistently
applied for the periods covered thereby (except as may be indicated in the notes
thereto), and the Company SAP Statements present, and any Company SAP Statements
filed after the date hereof will present, in all material respects the statutory
financial position of such Company Subsidiaries as at the respective dates
thereof and the results of operations of such Company Subsidiaries for the
respective periods then ended. The Company SAP Statements complied, and the
Company SAP Statements filed after the date hereof will comply, in all material
respects with all applicable Insurance Laws when filed, and no material
deficiency has been asserted with respect to any Company SAP Statements filed
prior to the date hereof by the applicable insurance regulatory body or any
other Governmental Entity. The annual statutory balance sheets and income
statements included in the Company SAP Statements as of the date hereof have
been, where required by applicable Insurance Law, audited by an independent
accounting firm of recognized national or international reputation, and the

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Company has made available to Parent true and complete copies of all audit
opinions related thereto.
     Section 3.11. Proxy Statement. The Proxy Statement will, at the date mailed
to shareholders of the Company and at the time of the Company Shareholder
Meeting, not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, and the Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act, except that no representation
or warranty is made by the Company with respect to statements made therein based
on information supplied by Parent or Merger Sub or any of their representatives
specifically for inclusion therein.
     Section 3.12. Absence of Certain Changes. Except as contemplated by this
Agreement, since December 31, 2006, (i) the business of the Company and the
Company Subsidiaries has been conducted in the ordinary course of business
consistent with past practice, and (ii) except as set forth in Section 3.12 of
the Company Disclosure Schedule, there has not been any event, occurrence,
development or circumstance that has had or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
     Section 3.13. No Undisclosed Material Liabilities. There are no liabilities
or obligations of the Company or any Company Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
other than:
     (a) liabilities or obligations reflected or reserved against in the
Company’s consolidated balance sheet as of December 31, 2006 included in the
Company SEC Documents filed prior to the date hereof,
     (b) insurance claims litigation arising in the ordinary course of business,
     (c) those arising or incurred in connection with the Merger or any other
transaction or agreement contemplated by this Agreement,
     (d) liabilities or obligations that are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company,
and
     (e) liabilities or obligations that were incurred after December 31, 2006
in the ordinary course of business.
     Section 3.14. Compliance with Laws and Court Orders.
     (a) The business and operations (including the termination and appointment
of agents) of the Company and the Company Subsidiaries have been conducted in

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compliance with all applicable Insurance Laws, except where the failure to so
conduct such business and operations is not, individually or in the aggregate,
reasonably likely to be materially adverse to the business, assets (including
intangible assets), liabilities, financial condition or results of operations of
the Company and the Company Subsidiaries taken as a whole. Notwithstanding the
generality of the foregoing, each Company Subsidiary and, to the knowledge of
the Company, its agents, have marketed, sold and issued insurance products in
compliance with Insurance Laws applicable to the business of such Company
Subsidiary and in the respective jurisdictions in which such products have been
sold, except for such non-compliance that is not, individually or in the
aggregate, reasonable likely to be materially adverse to the business, assets
(including intangible assets), liabilities, financial condition or results of
operations of the Company and the Company Subsidiaries taken as a whole. In
addition, (i) there is no pending or, to the knowledge of the Company,
threatened proceeding to which the Company or a Company Subsidiary is subject
before any Governmental Entities regarding whether any of the Company
Subsidiaries has violated, nor to the knowledge of the Company any pending or
threatened investigation by any Governmental Entities with respect to possible
violations of, any applicable Insurance Laws; and (ii) since January 1, 2005,
the Company Subsidiaries have filed all reports required to be filed with any
insurance regulatory authority, except in each case (i) and (ii), for
proceedings, investigations or failures to file which, individually or in the
aggregate, are not reasonably likely to be materially adverse to the business,
assets (including intangible assets), liabilities, financial condition or
results of operations of the Company and the Company Subsidiaries taken as a
whole. Except as required by Insurance Laws of general applicability and the
Company Permits maintained by the Company Subsidiaries, there are no written
agreements, memoranda of understanding, commitment letters or similar
undertakings binding on the Company Subsidiaries to which the Company or any
Company Subsidiary is a party, on the one hand, and any Governmental Entity is a
party or addressee, on the other hand, or Orders of a Governmental Entity
specifically with respect to the Company or any Company Subsidiary, which (A)
limit in any material respect the ability of the Company or any of the Company
Subsidiaries to issue insurance policies, (B) in any manner impose any
requirements on the Company or any of the Company Subsidiaries in respect of
risk-based capital requirements that add to or otherwise modify the risk-based
capital requirements imposed under applicable Laws or (C) in any manner relate
to the ability of the Company or any of the Company Subsidiaries to pay
dividends or otherwise restrict the conduct of business of the Company or any of
the Company Subsidiaries in any material respect.
     (b) In addition to Insurance Laws, the businesses of the Company and each
Company Subsidiary is and have been conducted in compliance with any applicable
Laws, except for failures to comply that are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Company.

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     (c) The Company and each of its Subsidiaries is in compliance in all
material respects with the provisions of ERISA in the operation of each of their
respective businesses and there have been no non-exempt “prohibited
transactions,” as described in Section 4975 of the Code and Title 1, Part 4 of
Subtitle B of ERISA, in the operation of their respective businesses.
Section 3.14(c) of the Company Disclosure Schedule lists each employee benefit
plan subject to ERISA as to which the Company or any of its Subsidiaries is a
fiduciary, as defined in Section 3(21) of ERISA.
     Section 3.15. Litigation. There is no action, suit, investigation, claim,
complaint, arbitration proceeding, citation, summons, subpoena, cease and desist
letter, written notice of violation, injunction or other proceeding pending
against, or, to the knowledge of the Company, threatened against, the Company or
any of the Company Subsidiaries or, to the knowledge of the Company, pending
against or threatened against any present or former officer, director or
employee of the Company or any of the Company Subsidiaries or other Person in
connection with which the Company or any Company Subsidiary has an
indemnification obligation, before any Governmental Entity, domestic, foreign or
supranational (other than insurance claims litigation arising in the ordinary
course), that are, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company. No Order of any Governmental Entity is
outstanding against the Company or any Company Subsidiary.
     Section 3.16. Insurance Matters.
     (a) As of the date of this Agreement, no person performing the duties of
insurance producer, reinsurance intermediary, agency, agent, managing general
agent, wholesaler or broker on behalf of the Company or any of the Company
Subsidiaries (collectively, “Company Producers”) individually accounting for 1%
or more of the total gross premiums of all Company Subsidiaries for the year
ended December 31, 2006 has indicated to the Company or any Company Subsidiary
that such Company Producer will be unable or unwilling to continue its
relationship as a Company Producer with the Company or any Company Subsidiary
within twelve months after the date hereof. To the knowledge of the Company,
since January 1, 2005, at the time any Company Producer wrote, sold, or produced
business, or performed such other act for or on behalf of the Company or any
Company Subsidiary that may require a License, was duly licensed and appointed
as required by applicable Law, in the particular jurisdiction in which such
Company Producer wrote, sold, produced, solicited, or serviced such business,
and each of the agency agreements and appointments between the Company
Producers, including as subagents under the Company’s affiliated insurance
agency, and the Company and any Company Subsidiary, is valid, binding and in
full force and effect in accordance with its terms. To the knowledge of the
Company, as of the date of this Agreement, no Company Producer has been since
January 1, 2005, or is currently, in violation (or with or without notice or
lapse of time or both, would be in violation) of any term or provision of any
Law applicable to the writing, sale or production of insurance or other business
for the

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Company or any Company Subsidiary, except for such violations that are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company.
     (b) To the knowledge of the Company, all reinsurance treaties or
agreements, including retrocessional agreements, to which the Company or any
Company Subsidiary is a party or under which the Company or any Company
Subsidiary has any material existing rights, obligations or liabilities (the
“Company Reinsurance Agreements”) are in full force and effect. Copies of all
Company Reinsurance Agreements renewed as of January 1, 2007 have been made
available to Parent. Neither the Company nor any Company Subsidiary, nor, to the
knowledge of the Company, any other party to a reinsurance treaty, binder or
other agreement to which the Company or any Company Subsidiary is a party, is in
default in any material respect as to any provision thereof. Where the Company
Subsidiary is a cedent, the Company has not received any written notice to the
effect that the financial condition of any party to any such agreement is
impaired such that a default thereunder may reasonably be anticipated, whether
or not such default may be cured by the operation of any offset clause in such
agreement.
     (c) With respect to any Company Reinsurance Agreement for which the Company
or any Company Subsidiary is taking credit on its most recent statutory
financial statements or has taken credit on any statutory financial statements
from and after January 1, 2005, (i) there has been no separate written or oral
agreements between any of the Company or any Company Subsidiary and the assuming
reinsurer that would under any circumstances reduce, limit, mitigate or
otherwise affect any actual or potential loss to the parties under any such
Company Reinsurance Agreement, other than inuring contracts that are explicitly
defined in any such Company Reinsurance Agreement, (ii) for each such Company
Reinsurance Agreement entered into, renewed, or amended on or after January 1,
2005, for which risk transfer is not reasonably considered to be self-evident,
documentation concerning the economic intent of the transaction and the risk
transfer analysis evidencing the proper accounting treatment, as required by
SSAP No. 62, is available for review by the domiciliary state insurance
departments for each of the Company and the Company Subsidiaries, (iii) each of
the Company and the Company Subsidiaries complies and has complied from and
after January 1, 2005 in all material respects with all of the requirements set
forth in SSAP No. 62 and (iv) each of the Company and the Company Subsidiaries
has and has had from and after January 1, 2005 appropriate controls in place to
monitor the use of reinsurance and comply with the provisions of SSAP No. 62.
     (d) Prior to the date hereof, the Company has made available to Parent a
true and complete copy of all actuarial reports prepared by actuaries,
independent or otherwise, with respect to the Company or any Company Subsidiary
since December 31, 2005, and all attachments, addenda, supplements and
modifications thereto (the “Company Actuarial Analyses”). To the knowledge of
the Company, each Company

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Actuarial Analysis was based upon, in all material respects, an accurate
inventory of policies in force for the Company and the Company Subsidiaries, as
the case may be, at the relevant time of preparation and was prepared in
conformity with generally accepted actuarial principles in effect at such time,
consistently applied (except as may be noted therein).
     Section 3.17. Liabilities and Reserves.
     (a) The reserves carried on the Company SAP Statements of each Company
Subsidiary were, as of the respective dates of such Company SAP Statements, in
compliance in all material respects with the requirements for reserves
established by the insurance departments of the state of domicile of such
Company Subsidiary, were determined in all material respects in accordance with
generally accepted actuarial principles in effect at such time, consistently
applied, and were computed on the basis of methodologies consistent in all
material respects with those used in prior periods, except as otherwise noted in
the Company SAP Statements.
     (b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, no material claim or material assessment is pending or,
to the knowledge of the Company, threatened against any Company Subsidiary which
is unique to such Company Subsidiary by any state insurance guaranty association
in connection with such association’s fund relating to insolvent insurers.
     Section 3.18. Title to Properties; Absence of Encumbrances.
     (a) Section 3.18 of the Company Disclosure Schedule sets forth a true and
complete list of all real property owned by the Company or any Company
Subsidiary, and includes the address of the property (the “Owned Real
Property”). The Company or a Company Subsidiary has good and marketable title to
the Owned Real Property, in each case free and clear of Encumbrances.
     (b) Section 3.18 of the Company Disclosure Schedule sets forth a true and
complete list of all real property leased to or by the Company or any Company
Subsidiary providing for an annual rent of more than $250,000 (collectively, the
“Leased Real Property”).
     (c) Each lease or sublease for the Leased Real Property is in full force
and effect, none of the Company or any of the Company Subsidiaries is in breach
of or default under such lease or sublease and no event has occurred which, with
notice, lapse of time or both, would constitute a breach or default by any of
the Company or the Company Subsidiaries, except in each case, for such
unenforceability, ineffectiveness, breaches or defaults that are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company.

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     Section 3.19. Opinion of Financial Advisor. The Company has received a
written opinion from the Company Financial Advisor to the effect that the Merger
Consideration is fair, from a financial point of view, as of the date of such
opinion, to the holders of shares (other than Parent and its Subsidiaries) of
Company Common Stock. The Company has been authorized by the Company Financial
Advisor to include such opinion in its entirety in the Proxy Statement.
     Section 3.20. Taxes. Except as set forth in Section 3.20 of the Company
Disclosure Schedule:
     (a) All material Tax Returns required by applicable law to be filed with
any Taxing Authority by, or on behalf of, the Company or any Company Subsidiary
have been duly filed when due in accordance with all applicable laws, and all
such Tax Returns are true, correct and complete in all material respects.
     (b) The Company and each Company Subsidiary has duly and timely paid or has
duly and timely withheld and remitted to the appropriate Taxing Authority all
material Taxes due and payable, or, where payment is not yet due, has
established in accordance with SAP and GAAP an adequate accrual for all material
Taxes through the date of this Agreement.
     (c) The federal income Tax Returns of the Company and the Company
Subsidiaries through the Tax year ended December 31, 2001 have been examined and
closed or are Tax Returns with respect to which the applicable period for
assessment under applicable law, after giving effect to extensions or waivers,
has expired.
     (d) There is no claim, audit, action, suit, proceeding or investigation now
pending or, to the Company’s knowledge, threatened against or with respect to
the Company or any Company Subsidiary in respect of any material Tax.
     (e) During the five-year period ending on the date hereof, neither the
Company nor any Company Subsidiary was a distributing corporation or a
controlled corporation in a transaction intended to be governed by Section 355
of the Code.
     (f) The Company and each Company Subsidiary have withheld all material
amounts required to have been withheld by them in connection with amounts paid
or owed to any employee, independent contractor, creditor, shareholder or any
other third party; such withheld amounts were either duly paid to the
appropriate Taxing Authority or set aside in accounts for such purpose. The
Company and each Company Subsidiary have reported such withheld amounts to the
appropriate Taxing Authority and to each such employee, independent contractor,
creditor, shareholder or any other third party, as required under any Law.

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     (g) Neither the Company nor any Company Subsidiary is liable for Taxes of
any Person (other than the Company and the Company Subsidiaries) as a result of
being (i) a transferee or successor of such Person, (ii) a member of an
affiliated, consolidated, combined or unitary group that includes such Person as
a member or (iii) a party to a tax sharing, tax indemnity or tax allocation
agreement or any other express or implied agreement to indemnify such Person.
     (h) Neither the Company nor any Company Subsidiary has entered into any
transaction that is a “listed transaction” as defined in Treasury Regulation §
1.6011-4(b)(2).
     (i) No Tax is required to be withheld pursuant to Section 1445 of the Code
as a result of the transactions contemplated by this Agreement.
     Section 3.21. Employee Benefit Plans and Related Matters; ERISA.
     (a) Section 3.21(a) of the Company Disclosure Schedule sets forth a
complete and correct list of the material Company Benefit Plans (including but
not limited to all Company Benefit Plans subject to ERISA or similar provisions
of non-U.S. Law). With respect to each such Company Benefit Plan, the Company
has provided or made available to Parent a complete and correct copy of such
Company Benefit Plan, if written, or a description of such Company Benefit Plan
if not written, and to the extent applicable, (i) all trust agreements,
insurance contracts or other funding arrangements, (ii) the two most recent
actuarial and trust reports for both ERISA funding and financial statement
purposes, (iii) the two most recent Forms 5500 with all attachments required to
have been filed with the IRS or the Department of Labor or any similar reports
filed with any comparable governmental authority in any non-U.S. jurisdiction
having jurisdiction over any Company Benefit Plan and all schedules thereto,
(iv) the most recent IRS determination letter, (v) all current summary plan
descriptions, (vi) all material communications received from or sent to the IRS,
the Pension Benefit Guaranty Corporation or the Department of Labor (including a
written description of any oral communication), (vii) any actuarial study of any
pension, disability, post-employment life or medical benefits provided under any
such Company Benefit Plan, (viii) all material current employee handbooks and
manuals, (ix) material statements or other material communications regarding
withdrawal or other multiemployer plan liabilities (or similar liabilities
pertaining to any non-U.S. employee benefit plan sponsored by the Company or any
Company Subsidiary, if any) and (x) all material amendments and modifications to
any such Company Benefit Plan or related document. None of the Company or any
Company Subsidiary has communicated in writing to any current or former employee
thereof any intention or commitment to amend or modify any Company Benefit Plan
or to establish or implement any other employee or retiree benefit or
compensation plan or arrangement and, to the knowledge of the Company, no such
material communication has been made orally other than in each case, amendments,
modifications, establishments and implementations as would be permitted after
the date hereof pursuant to Section 5.1.

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     (b) Qualification. Each Company Benefit Plan intended to be qualified under
Section 401(a) of the Code, and the trust (if any) forming a part thereof, is so
qualified and has received a favorable determination letter from the IRS, and
there are no existing circumstances or any events that could reasonably be
expected to adversely affect the qualified status of any such plan. All
amendments and actions required to bring each Company Benefit Plan into
conformity with the applicable provisions of ERISA, the Code and other
applicable Law have been made or taken. Each Company Benefit Plan has been
administered and operated in all material respects in accordance with its terms
and with applicable Law.
     (c) Liability; Compliance. Except as set forth in Section 3.21(c) of the
Company Disclosure Schedule:
     (i) The present value of the benefit liabilities (whether or not vested)
under each Company Benefit Plan subject to Section 412 of the Code determined as
of the end of each such plan’s most recently ended plan year on the basis of the
assumptions specified for funding purposes, each of which assumption is
reasonable and in compliance with Section 412 of the Code, did not exceed the
current value of the assets of such plan allocable for such benefit liabilities.
The terms “present value”, “current value” and ‘benefit liabilities” shall have
the meanings assigned to such terms under Section 4001 of ERISA. No “reportable
event,” within the meaning of Section 4043 of ERISA, and no event described in
Section 4062 or 4063 of ERISA has occurred in connection with any Company
Benefit Plan that would have a material effect on the Company. Since June 1,
2002, neither the Company nor any Company Subsidiary nor any of their respective
ERISA Affiliates, has (A) engaged in, or is a successor or parent corporation to
an entity that has engaged in, a transaction described in Sections 4069 or
4212(c) of ERISA, (B) incurred, or reasonably expects to incur prior to the
Effective Time, (1) any material liability under Title IV of ERISA arising in
connection with the termination of, or a complete or partial withdrawal from,
any plan covered or previously covered by Title IV of ERISA or (2) any material
liability under Section 4971 of the Code, or (C) has incurred any material
“accumulated funding deficiency,” as defined in Section 412 of the Code, with
respect to any Company Benefit Plan subject to such Section 412, whether or not
waived.
     (ii) There are no pending claims by or on behalf of any of the Company
Benefit Plans, by any employee or otherwise involving any such plan or the
assets of any plan (other than routine claims for benefits). There is no action,
suit, investigation, audit or proceeding pending against or involving or, to the
knowledge of the Company, threatened against or involving, any Company Benefit
Plan before any Governmental Entity.

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     (iii) No Company Benefit Plan is a “multiemployer plan” within the meaning
of section 4001(a)(3) of ERISA or is a “multiple employer plan” within the
meaning of section 4063 or 4064 of ERISA. Neither the Company nor any Company
Subsidiary has at any time during the last six years contributed to or been
obligated to contribute to any such plan.
     (iv) All contributions or other amounts payable by the Company or the
Company Subsidiaries with respect to each Company Benefit Plan in respect of
current or prior plan years have been paid or accrued in accordance with GAAP.
     (d) Post-Employment Benefits. No employee or former employee of the Company
or any Company Subsidiary is or may become entitled to post-employment benefits
of any kind by reason of his or her employment, including, death or medical
benefits (whether or not insured), other than (i) coverage provided pursuant to
the terms of any Company Benefit Plan specifically set forth in Section 3.21(d)
of the Company Disclosure Schedule or mandated by section 4980B of the Code, or
(ii) retirement benefits payable under any plan qualified under section 401(a)
of the Code.
     (e) Acceleration or Increases in Compensation. The consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with another event, (i) entitle any current or former employee,
consultant, officer or director of the Company or any of Company Subsidiary to
severance pay or any other payment, except as expressly provided in Section 1.8
or 1.9 hereof, (ii) result in any payment becoming due, accelerate the time of
payment or vesting, or increase the amount of compensation due to any such
employee, consultant, officer or director, except as expressly provided in
Section 1.8 or 1.9 hereof, (iii) result in any forgiveness of indebtedness,
trigger any funding obligation under any Company Benefit Plan or impose any
restrictions or limitations on the Company’s rights to administer, amend or
terminate any Company Benefit Plan, or (iv) result in any payment (whether in
cash or property or the vesting of property) to any “disqualified individual”
(as such term is defined in Treasury Regulation Section 1.280G-1) (a
“Disqualified Individual”) that could reasonably be construed, individually or
in combination with any other such payment, to constitute an “excess parachute
payment” (as defined in Section 280G(b)(1) of the Code), in each case except as
set forth in Section 3.21(e) of the Company Disclosure Schedule. Except as set
forth in Section 3.21(e) of the Company Disclosure Schedule, no person is
entitled to receive any additional payment (including any tax gross up or other
payment) from the Company or any Company Subsidiary or any other person as a
result of the imposition of the excise tax required by Section 4999(a) of the
Code.
     (f) Deferred Compensation Arrangements. Each Company Benefit Plan that is a
“nonqualified deferred compensation plan” (as defined in Section 409A(d)(1) of
the Code) has been operated since January 1, 2005 in good faith compliance with
Section 409A of the Code, and the Treasury regulations and IRS guidance
thereunder. Each Company Option has been granted with an exercise price no lower
than “fair market

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value” (within the meaning of Sections 409A and 422 of the Code) as of the grant
date of such option.
     (g) Independent Contractors. Any person providing services to the Company
or any other Company Subsidiaries who has not been classified as an employee is
not eligible to participate in any Company Benefit Plan and is not entitled to
receive any benefits or other compensation under or pursuant to any such Company
Benefits Plan in respect of such non employee service, except for such benefits
or other compensation that are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
     Section 3.22. Employees, Labor Matters. Neither the Company nor any Company
Subsidiary is a party to or bound by any collective bargaining agreement, and to
the Company’s knowledge, as of the date of this Agreement, there are no labor
unions or other similar organizations representing, purporting to represent or
attempting to represent any employees of the Company or any Company Subsidiary.
Since January 1, 2004 and through the date hereof, there has not occurred or, to
the knowledge of the Company, been threatened any material strike, picketing,
work stoppage, concerted refusal to work overtime or other similar labor
activity or organizing campaign with respect to any employees of the Company or
any Company Subsidiary. As of the date hereof, there are no labor disputes
currently subject to any grievance procedure, arbitration or litigation and
there is no representation petition pending or, to the knowledge of the Company,
threatened with respect to any employee of the Company or any of the Company
Subsidiaries. The Company and each of the Company Subsidiaries have complied in
all material respects with all Laws pertaining to the employment or termination
of employment of their respective employees and agents, including all such Laws
relating to wages, hours, commissions, collective bargaining, unemployment
compensation, worker’s compensation, equal employment opportunity, prohibited
discrimination, immigration control, employee classification, payment and
withholding of taxes, continuation coverage with respect to group health plans
or under employment contracts except for such violations as are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
the Company
     Section 3.23. Environmental Matters.
     (a) Except as relates to any insurance product of the Company or any
Company Subsidiary except as is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on the Company:
     (i) no written demand or notification, request for information, citation,
summons or order has been received, no complaint has been filed, no penalty has
been assessed, and no investigation, action, written claim, suit or proceeding
is pending or, to the knowledge of the Company, is threatened by any
Governmental Entity or other Person with respect to or arising out of any
Environmental Law;

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     (ii) the Company and the Company Subsidiaries are and have been in
compliance with all Environmental Laws and all Environmental Permits;
     (iii) other than with respect to policies written in connection with the
insurance business of the Company or any Company Subsidiary, the Company or any
Company Subsidiary has not incurred any liability arising under any
Environmental Law;
     (iv) there has been no written environmental study, audit, assessment or
report conducted by or in the possession of the Company in relation to the
current or prior business of the Company or any Company Subsidiary (other than
with respect to policies written in connection with the insurance business for
which claims reserves have been established) or any property or facility now or
previously owned or leased by the Company or any Company Subsidiary that has not
been made available to Parent prior to the date hereof; and
     (v) to the knowledge of the Company, no Releases of Hazardous Substances
have occurred at, on, above, under or from any properties currently or formerly
owned, leased, operated or used by the Company, any Company Subsidiary or any
predecessors-in-interest that are likely to result in any cost, liability or
obligation of the Company or any Company Subsidiary under any Environmental Law.
     (b) For purposes of this Section 3.23, the terms “the Company” and “Company
Subsidiary” shall include any entity that is, in whole or in part, a predecessor
of the Company or any of Company Subsidiary.
     (c) Notwithstanding any other provision of this Agreement, the
representations and warranties in this Section 3.23 represent the sole
representations and warranties of the Company with respect to any Environmental
Law, Environmental Permit or Hazardous Substance.
     Section 3.24. Intellectual Property.
     (a) Except as is not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect on the Company: (i) the Company and/or each
Company Subsidiary owns, or is licensed or otherwise possesses sufficient rights
to use all patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, know-how, computer software programs or
applications, and proprietary information that are used in the business of the
Company and the Company Subsidiaries as currently conducted, and (ii) to the
knowledge of the Company, all registered patents, trademarks, trade names,
service marks and copyrights owned by the Company and/or the Company
Subsidiaries are subsisting.

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     (b) Except as is not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect on the Company:
     (i) no written claims with respect to (A) the patents, registered and
material unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefor owned by the Company or any Company
Subsidiary (the “Company Intellectual Property Rights”) or (B) any trade secret
owned by the Company or any Company Subsidiary are currently pending or to the
knowledge of the Company, are threatened in writing by any Person; and
     (ii) to the knowledge of the Company, the registered Company Intellectual
Property Rights do not infringe or misappropriate the Intellectual Property of
any Person.
     Section 3.25. Material Contracts.
     (a) All of the material contracts of the Company and each Company
Subsidiary that are filed as exhibits to the Company’s Annual Report on Form
10-K for the year ended December 31, 2006 or described in the Company SAP
Statements for the year ended December 31, 2006 (the “Material Contracts”) are
in full force and effect. True and complete copies of all Material Contracts
have been made available by the Company to Parent. Neither the Company nor any
Company Subsidiary nor, to the knowledge of the Company, any other party to the
Material Contracts is in breach of or in default under any Material Contracts,
and, to the knowledge of the Company, no event has occurred which, with the
passage of time and/or the giving of notice, would constitute a default
thereunder by the Company or the Company Subsidiary party thereto or by any
other party thereto, except for such breaches and defaults (i) as are not,
individually or in the aggregate, reasonably likely to be materially adverse to
the business, assets (including intangible assets), liabilities, financial
condition or results of operations of the Company and the Company Subsidiaries
taken as a whole and (ii) that result from the consummation of the transactions
contemplated by this Agreement. Neither the Company nor any Company Subsidiary
is party to any contract, agreement or arrangement containing any provision or
covenant limiting in any material respect the ability of the Company or any
Company Subsidiary (A) sell any products or services of or to any other Person
or (B) to (i) engage in any line of business or (ii) compete with or to obtain
products or services from any Person or limiting the ability of any Person to
provide products or services to the Company or any Company Subsidiary.
     (b) Each Material Contract is (assuming due power and authority of, and due
execution and delivery by, the other party or parties thereto) valid and binding
upon the Company or the Company Subsidiary party thereto and, to the knowledge
of the Company, each other party thereto (except as may be limited by the
Bankruptcy and Equity Exception).

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     (c) Neither the Company nor any Company Subsidiary provides insurance
contracts or otherwise provides services for consideration to the United States
Government or any agency thereof.
     Section 3.26. Anti-takeover Statutes and Rights Plans.
     (a) Assuming the accuracy of Parent’s representations and warranties in
Section 4.10, the Company has taken all actions to the extent necessary so that
the restrictions on business combinations contained in each “fair price”,
“moratorium”, “control share acquisition”, “business combination” or other
similar anti-takeover statute or regulation enacted under U.S. state or federal
laws applicable to the transactions contemplated by this Agreement, including
Chapters 1701 and 1704 of the OGCL (collectively, the “Anti-takeover Laws”),
will not apply with respect to this Agreement and the transactions contemplated
hereby, including the Merger, without any further action on the part of the
shareholders or the Board of Directors of the Company. True, correct and
complete copies of all resolutions of the Board of Directors of the Company
reflecting such actions have been previously provided to Parent.
     (b) Prior to the date of this Agreement, the Company had taken all actions
necessary to render the Rights Agreement inapplicable to this Agreement and the
transactions contemplated by this Agreement, including the Merger.
     Section 3.27. Finders’ Fees. Except for Merrill Lynch, a copy of whose
engagement agreement has been provided to Parent, there is no investment banker,
broker, finder or other intermediary that has been retained by or is authorized
to act on behalf of the Company or any Company Subsidiary who might be entitled
to any fee or commission from the Company or any of its Affiliates in connection
with the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
     Except as set forth in the corresponding sections or subsections of the
schedule (the “Parent Disclosure Schedule”) delivered to it by Parent and Merger
Sub prior to the execution of this Agreement (it being agreed that disclosure of
any item in any section or subsection of the Parent Disclosure Schedule shall be
deemed disclosure with respect to any other section or subsection to which the
relevance of such disclosure to the applicable representation and warranty is
reasonably apparent), Parent and Merger Sub represent and warrant to the Company
as follows:
     Section 4.1. Corporate Existence and Power. Each of Parent and Merger Sub
is a corporation duly incorporated and validly existing under the laws of its
jurisdiction of incorporation and Parent and its Subsidiaries have all
corporate, partnership or other similar powers and all governmental licenses,
authorizations, permits, consents,

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franchises, variances, exemptions, orders and approvals required to carry on
their business as now conducted (the “Parent Permits”), except for those powers,
licenses, authorizations, permits, consents, franchises, variances, exemptions,
orders and approvals the absence of which are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on Parent. Parent
is in compliance with the terms of the Parent Permits, except where the failure
to be in such compliance, individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect on Parent. Parent is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is required, except for those
jurisdictions where failure to be so qualified is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on Parent. Since
the date of its incorporation, Merger Sub has not engaged in any activities
other than in connection with or as contemplated by this Agreement. Parent has
made available to the Company true and complete copies of the articles of
incorporation and by-laws of Parent and the articles of incorporation and code
of regulations of Merger Sub, as currently in effect.
     Section 4.2. Corporate Authorization.
     (a) The execution, delivery and performance by each of Parent and Merger
Sub of this Agreement and the consummation by Parent and Merger Sub of the
transactions contemplated hereby are within the corporate powers of Parent and
Merger Sub and have been duly authorized by all necessary corporate action on
the part of Parent and Merger Sub. This Agreement has been duly executed and
delivered by each of Parent and Merger Sub and constitutes a valid and binding
agreement of Parent and Merger Sub enforceable against Parent and Merger Sub in
accordance with its terms, except as such enforceability may be limited by the
Bankruptcy and Equity Exception. No vote of any members of Parent or shareholder
of any Subsidiary of Parent (other than Merger Sub) is necessary to approve this
Agreement, the Merger and the other transactions contemplated hereby.
     (b) At a meeting duly called and held, Parent’s Board of Directors has (i)
unanimously determined that this Agreement and the transactions contemplated
hereby are fair to and in the best interests of Parent, and (ii) unanimously
approved this Agreement and the transactions contemplated hereby.
     Section 4.3. Governmental Authorization. The execution, delivery and
performance by Parent and Merger Sub of this Agreement and the consummation by
Parent and Merger Sub of the transactions contemplated hereby require no consent
or approval by, or filing with, any Governmental Entity to be obtained or made
by Parent or Merger Sub, other than (i) the filing of the Certificate of Merger
with the OSOS and appropriate documents with the relevant authorities of other
states in which Parent and Merger Sub is qualified to do business, (ii)
compliance with any applicable requirements of the HSR Act, (iii) compliance
with any applicable requirements of the Securities Act, the Exchange Act, and
any other applicable securities laws, (iv) compliance with any

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applicable requirements of the Nasdaq, and (v) approvals or filings under
Insurance Laws as set forth in Section 4.3 of the Parent Disclosure Schedule
(the “Parent Insurance Approvals” and, with the Company Insurance Approvals, the
“Transaction Approvals”) and (vi) any other actions or filings the absence of
which are not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on Parent or prevent, materially delay or materially
impair the consummation of the transactions contemplated by this Agreement.
     Section 4.4. Non-Contravention. The execution, delivery and performance by
Parent and Merger Sub of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, constitute or result in (i) a
violation or breach of any provision of the articles of incorporation or by-laws
of Parent or of the articles of incorporation or code of regulations of Merger
Sub, (ii) assuming compliance with the matters referred to in Section 4.3, a
violation or breach of any provision of any applicable Law, Order or Parent
Permit, (iii) a default under, or an event that, with or without notice or lapse
of time or both, would constitute a default under, or cause or permit the
termination, cancellation or acceleration of any right or obligation of Parent
or any of its Subsidiaries, or require any consent by or notice to any Person,
any agreement or other instrument binding upon Parent or any of its Subsidiaries
that involves payments of $5,000,000 or more or (iv) the creation or imposition
of any Lien on any asset of Parent or any of its Subsidiaries, except for such
violations or breaches referred to in clause (ii) and for such Liens referred to
in clause (iv) that are not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect on Parent or prevent, materially delay or
materially impair the consummation of the transactions contemplated by this
Agreement.
     Section 4.5. Capitalization; Interim Operations of Merger Sub. The
authorized capital stock of Merger Sub consists solely of 1,000 shares of common
stock, no par value, all of which are issued and outstanding. All the
outstanding shares of the Parent and Merger Sub are owned, directly or
indirectly, by Liberty Mutual Holding Company Inc. All of the issued and
outstanding shares of capital stock of Merger Sub have been, and as of the
Effective Time will be, duly authorized and validly issued and are, and as of
the Effective Time will be, fully paid and nonassessable and free of preemptive
or other similar rights. Merger Sub has not conducted any business prior to the
date hereof and has, and prior to the Effective Time will have, no assets,
liabilities or obligations of any nature other than those incident to its
formation or contemplated by this Agreement.
     Section 4.6. Proxy Statement. None of the information supplied or to be
supplied by Parent or Merger Sub in writing for inclusion or incorporation by
reference in the Proxy Statement will, at the date mailed to shareholders of the
Company and at the time of the Company Shareholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to

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make the statements therein, in light of the circumstances under which they are
made, not misleading.
     Section 4.7. Litigation. There is no action, suit, investigation, claim,
arbitration proceeding, citation, summons, subpoena, cease and desist letter,
injunction or other proceeding pending against, or, to the knowledge of Parent,
threatened against, Parent or Merger Sub, before any Governmental Entity,
domestic, foreign or supranational (other than insurance claims litigation),
that, as of the date hereof, is reasonably likely to prevent, materially delay
or materially impair the consummation of the transactions contemplated by this
Agreement. No Order of any Governmental Entity is outstanding against Parent or
Merger Sub.
     Section 4.8. Finders’ Fees. Except for Citigroup Global Markets Inc., there
is no investment banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of Parent or any of its
Subsidiaries who might be entitled to any fee or commission from Parent or any
of its Affiliates in connection with the transactions contemplated by this
Agreement.
     Section 4.9. Financing. Parent and Merger Sub have available to them, or as
of the Effective Time will have available to them, all funds necessary for the
payment to the Paying Agent of the aggregate amounts payable pursuant to
Section 1.8 and Section 1.9 and any other amounts required to be paid in
connection with the consummation of the transactions contemplated by this
Agreement and to pay all related fees and expenses.
     Section 4.10. Interested Shareholder. At the time immediately preceding the
date of this Agreement, neither Parent nor any of its Affiliates is, with
respect to the Company, an “interested shareholder” as such term is defined in
Section 1704 of the OGCL.
ARTICLE V
CONDUCT OF BUSINESS BY THE COMPANY
     Section 5.1. Conduct of Business by the Company Pending the Merger. From
the date of this Agreement until the Effective Time, except (i) as required by
applicable Law or by a Governmental Entity, (ii) as set forth in Section 5.1 of
the Company Disclosure Schedule or (iii) as otherwise contemplated by this
Agreement (including execution of the Agency Plan), unless Parent shall
otherwise consent in writing (which consent shall not unreasonably be withheld,
delayed or conditioned), the Company shall, and shall cause each of the Company
Subsidiaries to, conduct its business in the ordinary course consistent with
past practices and, to the extent consistent therewith, use its commercially
reasonable efforts to preserve intact its business organization and goodwill and
relationships with customers, third party payors, including Governmental
Entities, Company Producers and others having material business dealings with
it, and to keep available the services of its current officers and key
employees. In addition to and

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without limiting the generality of the foregoing, except (i) as required by
applicable Law or by a Governmental Entity, (ii) as set forth in Section 5.1 of
the Company Disclosure Schedule or (iii) as otherwise contemplated by this
Agreement (including execution of the Agency Plan), from the date hereof until
the Effective Time, without the prior written consent of Parent, which consent
shall not unreasonably be withheld, delayed or conditioned, the Company shall
not, and shall not permit any Company Subsidiary to:
     (a) adopt or propose any change in its charter, code of regulations or
other comparable organizational documents;
     (b) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property) in respect of any of its capital stock,
except for (A) dividends or distributions by wholly owned Company Subsidiaries
to the Company or another wholly owned Subsidiary or (B) regular quarterly cash
dividends paid by the Company on the Company Common Stock not in excess of $0.13
per share per quarter (appropriately adjusted to reflect any stock dividends,
subdivisions, splits, combinations or other similar events relating to the
Company Common Stock), with usual record and payment dates and in accordance
with the Company’s past dividend policy, (ii) adjust, split, combine or
reclassify any of its capital stock or issue or propose or authorize the
issuance of any other securities (including options, warrants or any similar
security exercisable for, or convertible into, such other security) in respect
of, in lieu of, or in substitution for, shares of its capital stock, or (iii)
repurchase, redeem or otherwise acquire any shares of the capital stock of the
Company or any Company Subsidiary, or any other equity interests or any rights,
warrants or options to acquire any such shares or interests;
     (c) issue, sell, pledge, grant any rights in respect of or otherwise
encumber any shares of its capital stock or other securities (including any
options, warrants or any similar security exercisable for, or convertible into,
such capital stock or similar security) or make any changes (by combination,
merger, consolidation, reorganization, liquidation or otherwise) in the capital
structure of the Company or any Company Subsidiary, other than (i) issuances of
shares of Company Common Stock upon the exercise of Company Stock Options and
Company SARs in accordance with their terms in effect as of the date hereof,
(ii) issuances of shares of Common Stock in satisfaction of Director Units and
Performance-Based Awards in accordance with their terms in effect as of the date
hereof, or (iii) issuances by a wholly owned Company Subsidiary of capital stock
to such Company Subsidiary’s parent or another wholly owned Company Subsidiary;
     (d) subject to Section 6.3, (i) redeem the Rights, or amend or modify or
terminate the Rights Agreement other than to delay the Distribution Date (as
defined in the Rights Agreement) or to render the Rights inapplicable to the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby, or (ii) change the redemption price for the Rights from the
redemption price currently in effect;

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     (e) merge or consolidate with any other Person or acquire any material
assets or make a material investment in (whether through the acquisition of
stock or otherwise) any other Person, other than (i) acquisitions of inventory,
equipment or software in the ordinary course of business consistent with past
practice or (ii) ordinary course investment portfolio transactions in accordance
with the Company’s investment guidelines in effect on the date hereof;
     (f) sell, lease, license, subject to a Lien, other than a Permitted Lien,
encumber or otherwise surrender, relinquish or dispose of any material assets,
product lines or businesses of the Company or its Subsidiaries (including
capital stock or other equity interests of a Company Subsidiary) except (i)
pursuant to existing written contracts or commitments set forth in
Section 5.1(f) of the Company Disclosure Schedule, or (ii) in an amount not in
excess of $250,000 individually or $1,000,000 in the aggregate or (iii) ordinary
course investment portfolio transactions in accordance with the Company’s
investment guidelines in effect on the date hereof;
     (g) (i) make any loans, advances or capital contributions to any other
Person, other than (A) in connection with the agency loan program of the Company
not in excess of $5 million in the aggregate, (B) by the Company or any Company
Subsidiary to or in the Company or any Company Subsidiary and (C) ordinary
course investment portfolio transactions in accordance with the Company’s
investment guidelines in effect on the date hereof, (ii) create, incur,
guarantee or assume any indebtedness for borrowed money in excess of
$10 million, (iii) make or commit to make any capital expenditure in excess of
$1 million in the aggregate during any 12 month period other than capital
expenditures approved by the Board of Directors of the Company prior to the date
hereof or within the Company’s capital budget for fiscal 2007 previously
provided to Parent or (iv) cancel any debts, except for cancellations made in
the ordinary course of business consistent with past practice;
     (h) amend or otherwise modify benefits under any Company Benefit Plan
(other than immaterial amendments or modifications), accelerate the payment or
vesting of benefits or amounts payable or to become payable under any Company
Benefit Plan as currently in effect on the date hereof (except as expressly
provided in Section 1.9 hereof), fail to make any required contribution to any
Company Benefit Plan, merge or transfer any Company Benefit Plan or the assets
or liabilities of any Company Benefit Plan, change the sponsor of any Company
Benefit Plan, or terminate or establish any Company Benefit Plan, except (i) to
the extent required to comply with Section 409A of the Code, (ii) to the extent
required by an existing agreement, Company Benefit Plan or Law, or (iii)
identified in Section 5.1(h) of the Company Disclosure Schedule;
     (i) grant any increase in the compensation, bonus or benefits of directors,
officers, employees, consultants, representatives or agents of the Company or
any Company Subsidiary, other than increases in the compensation, bonus and
benefits of persons who are not directors, executive officers or employees who
earn more than

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$200,000 in annual base salary in the ordinary course of business consistent
with past practice;
     (j) enter into or materially amend or modify any severance, consulting,
retention or employment agreement, plan, program or arrangement, except (i) to
the extent required to comply with Section 409A of the Code, (ii) routine
changes to welfare plans for 2007, or (iii) to the extent required by an
existing Company Benefit Plan, consulting agreement or Law;
     (k) settle or compromise any material claim, audit, arbitration, suit,
investigation, complaint or other proceeding in an amount in excess of
$5 million (except that if a reserve has been established on the balance sheet
of the Company for an amount less than the settlement or compromise amount, the
Company may settle such claim, audit, arbitration, suit, investigation,
complaint or proceeding for an amount up to $5 million in excess of such reserve
amount) or enter into any consent decree, injunction or similar restraint or
form of equitable relief in settlement of any material claim or audit that would
materially restrict the operations of the business after the Effective Time;
     (l) (i) make or rescind any material election relating to Taxes, (ii)
settle or compromise any material claim relating to Taxes, (iii) make a request
for a written ruling of a Taxing Authority relating to material Taxes, (iv)
enter into a written and legally binding agreement with a Taxing Authority
relating to material Taxes, (v) except as required by Law, change any of its
material methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of its federal income tax
returns for the taxable year ended December 31, 2006 or (vi) change any material
method of accounting or accounting principles or practices by the Company or any
Company Subsidiary, except for any such change required by a change in GAAP;
     (m) other than in the ordinary course of business consistent with past
practice, (i) modify or amend in any materially adverse respect or terminate any
Material Contract, (ii) enter into any successor agreement to an expiring
Material Contract that changes the terms of the expiring Material Contract in a
way that is materially adverse to the Company or any Company Subsidiary or,
(iii) modify, amend or enter into any new agreement that would have been
considered a Material Contract if it were entered into at or prior to the date
hereof;
     (n) enter into or renew or extend any agreements or arrangements that limit
or otherwise restrict the Company or any Company Subsidiary or any of their
respective Affiliates or any successor thereto, or that would, after the
Effective Time, limit or restrict Parent or any of its Affiliates (including the
Surviving Corporation) or any successor thereto, from engaging or competing in
any line of business or in any geographic area;

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     (o) terminate, cancel, amend or modify any insurance policies maintained by
it covering the Company or the Company Subsidiaries or their respective
properties which is not replaced by a comparable amount of insurance coverage;
     (p) adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of the Company or any
Company Subsidiary;
     (q) enter into any new reinsurance transaction as assuming or ceding
insurer (i) which does not contain market cancellation, termination and
commutation provisions or (ii) which adversely changes the existing reinsurance
profile of the Company and the Company Subsidiaries on a consolidated basis
outside of the ordinary course of business;
     (r) alter or amend in any material respect any existing underwriting, claim
handling, loss control, investment, actuarial, financial reporting or accounting
practices, guidelines or policies (including compliance policies) or any
material assumption underlying an actuarial practice or policy, except as may be
required by (or, in the reasonable good faith judgment of the Company, advisable
under) GAAP, applicable SAP, any Governmental Entity or applicable Law, or
     (s) agree or commit to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
     Section 6.1. Preparation of Proxy Statement. The Company, after providing
Parent with a reasonable opportunity to review and comment, shall prepare and
file a preliminary proxy statement to be used in connection with the Company
Shareholder Meeting (the “Proxy Statement”) with the SEC as soon as reasonably
practicable following the date of this Agreement. The Company shall use its
reasonable best efforts to have the Proxy Statement cleared by the SEC as
promptly as practicable after filing. The Company shall notify Parent promptly
of the receipt of any written or oral comments from the SEC or its staff and of
any request by the SEC or its staff for amendments or supplements to the Proxy
Statement or for additional information and will supply Parent with copies of
all correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement. The Company shall prepare written responses, after providing Parent
with a reasonable opportunity to review and comment, with respect to such
written comments. The Company will advise Parent promptly after it receives
notice that the Proxy Statement has been cleared by the SEC or any request by
the SEC for amendment of the Proxy Statement. The Company and Parent shall each
use its reasonable best efforts to promptly provide responses to the SEC with
respect to all comments received on the Proxy Statement from the SEC. To the
extent permitted by Law, the Company shall cause the Proxy Statement to be
mailed to the Company’s shareholders as promptly as practicable after the date
the SEC staff advises that it has no further comments thereon or

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that the Company may commence mailing the Proxy Statement. If at any time prior
to the Company Shareholder Meeting there shall occur any event (including
discovery of any fact, circumstance or event by any party hereto) that should be
set forth in an amendment or supplement to the Proxy Statement, the party which
discovers such information shall promptly notify the other parties hereto and
the Company shall promptly prepare and mail to its shareholders such an
amendment or supplement, in each case to the extent required by applicable Law.
Parent shall cooperate with the Company in the preparation of the Proxy
Statement or any amendment or supplement thereto.
     Section 6.2. Shareholder Meeting; Company Recommendation. The Company shall
duly take, in accordance with applicable Law and its articles of incorporation
and code of regulations, all action to call, give notice of, convene and hold a
meeting of its shareholders on a date as soon as reasonably practicable
following the mailing of the Proxy Statement (the “Company Shareholder Meeting”)
for the purpose of obtaining the Company Shareholder Approval. Subject to
Section 6.3, the Board of Directors of the Company shall take all lawful action
to solicit the adoption of this Agreement by the Company Shareholder Approval
and recommend adoption of this Agreement by the shareholders of the Company (the
“Company Recommendation”).
     Section 6.3. No Solicitation.
     (a) The Company shall immediately cease, and shall cause each Company
Subsidiary and each of their respective Representatives to, immediately cease
any discussions or negotiations with any parties conducted prior to the date
hereof with respect to a Takeover Proposal. Except as permitted by this
Section 6.3, after the execution and delivery of this Agreement, the Company and
its directors and officers shall not, and shall cause each Company Subsidiary
and use its reasonable best efforts to cause its and each Company Subsidiary’s
Representatives not to, directly or indirectly, (i) solicit, initiate or
knowingly encourage any inquiry with respect to, or the making of, any proposal
that constitutes or could reasonably be expected to lead to a Takeover Proposal,
(ii) participate in any negotiations regarding a Takeover Proposal with, or
furnish any nonpublic information relating to a Takeover Proposal to, any Person
that has made or, to the knowledge of the Company, is considering making a
Takeover Proposal, or (iii) engage in discussions regarding a Takeover Proposal
with any Person that has made, or, to the knowledge of the Company, is
considering making, a Takeover Proposal, except to notify such Person of the
existence of the provisions of this Section 6.3.
     (b) Notwithstanding Section 6.3(a), prior to the time, but not after, the
Company Shareholder Approval is obtained, if the Company receives a written and
unsolicited Takeover Proposal that the Board of Directors of the Company
reasonably believes to be credible, which the Board of Directors of the Company
determines in good faith (after consultation with its financial advisors and
outside counsel) is or could reasonably be expected to result in a Superior
Proposal, the Company may take the following actions: (1) furnish nonpublic
information to the Person making such

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Takeover Proposal, but only if (A) prior to so furnishing such information, the
Company has entered into a Qualifying Confidentiality Agreement with such
Person, and (B) all such information has previously been provided to Parent and
Merger Sub or is provided to Parent and Merger Sub prior to or contemporaneously
with the time it is provided to the Person making such Takeover Proposal or such
Person’s Representatives, and (2) engage or participate in any discussions or
negotiations with such Person with respect to the Takeover Proposal. The Company
promptly (and in any event within 48 hours) shall advise Parent orally and in
writing of the receipt of (i) any proposal that constitutes or could reasonably
be expected to lead to a Takeover Proposal and the material terms of such
proposal (including the identity of the party making such proposal and, if
applicable, copies of any documents or correspondence evidencing such proposal),
and (ii) any request for non-public information relating to the Company or any
Company Subsidiary other than requests for information not reasonably expected
to be related to a Takeover Proposal. The Company shall, thereafter, keep Parent
reasonably informed on a reasonably current basis of the status of any such
Takeover Proposal (including any material change to the terms thereof).
     (c) The Board of Directors of the Company shall not (i) withhold, withdraw
or modify (or publicly propose to withhold, withdraw or modify), in a manner
adverse to Parent, the Company Recommendation, (ii) approve or recommend (or
publicly propose to approve or recommend ) any Takeover Proposal or (iii) take
any action to render the Rights Agreement inapplicable to a Third Party, (it
being understood that the Board of Directors may take no position with respect
to a Takeover Proposal that takes the form of a tender offer until the close of
business as of the tenth Business Day after the commencement of such tender
offer pursuant to Rule 14d-2 under the Exchange Act without such action being
considered an adverse modification) (any of the foregoing, a “Change in the
Company Recommendation”). The Company shall not, and the Board of Directors
shall not allow the Company to, and the Company shall not allow any Company
Subsidiary to, in each case except as permitted by Section 8.1 hereof, enter
into any letter of intent, memorandum of understanding, agreement in principle,
acquisition agreement, merger agreement or other agreement (except for
Qualifying Confidentiality Agreements permitted under Section 6.3(b)) relating
to any Takeover Proposal.
     (d) Notwithstanding anything to the contrary set forth in this Agreement,
the Board of Directors of the Company may, prior to but not after the time the
Company Shareholder Approval is obtained, (1) make a Change in Company
Recommendation and/or (2) terminate this Agreement pursuant to Section 8.1, in
each case of clauses (1) or (2), if the Board of Directors of the Company has
determined in good faith, after consulting with its outside counsel, that the
failure to take such action would be inconsistent with the directors’ fiduciary
duties under applicable Law; provided that the Board of Directors may not take
any such action in connection with a Takeover Proposal unless (1) such Takeover
Proposal constitutes a Superior Proposal, (2) prior to terminating this
Agreement pursuant to Section 8.1(d)(ii), the Company provides prior

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written notice to Parent at least three Business Days in advance (the “Notice
Period”) of its intention to take such action, which notice shall specify all
material terms and conditions of such Superior Proposal (including the identity
of the party making such Superior Proposal and copies of any documents or
correspondence evidencing such Superior Proposal), and any material
modifications to any of the foregoing, (3) during the Notice Period the Company
shall, and shall cause its financial advisors and outside counsel to, negotiate
with Parent in good faith should Parent propose to make such adjustments in the
terms and conditions of this Agreement so that such Takeover Proposal ceases to
constitute (in the good faith judgment of the Board of Directors) a Superior
Proposal and (4) such Takeover Proposal continues to constitute (in the good
faith judgment of the Board of Directors) a Superior Proposal after taking into
account any such amendments that Parent shall have agreed to make prior to the
end of the Notice Period.
     (e) Nothing contained in this Section 6.3 shall prohibit the Company from
(i) complying with its disclosure obligations under U.S. federal or state law
with regard to a Takeover Proposal, including Rule 14a-9, 14d-9 or 14e-2
promulgated under the Exchange Act, (ii) making any disclosure to the Company’s
shareholders if, after consultation with its outside legal counsel, the Company
determines that such disclosure would be required under applicable Law or (iii)
informing any Person of the existence of the provisions contained in this
Section 6.3.
     (f) For purposes of this Agreement:
     “Takeover Proposal” means any proposal or offer (i) with respect to a
merger, consolidation, business combination, share exchange or similar
transaction involving the Company or any Company Subsidiary (any of the
foregoing, a “Business Combination Transaction”) with any Person other than
Parent, Merger Sub or any controlled Affiliate thereof (a “Third Party”), or
(ii) to acquire directly or indirectly, whether by tender or exchange offer or
otherwise, by any Third Party, 20% or more of the total voting power of any
class, share issuance of capital stock of the Company or 20% or more of the
consolidated total assets of the Company and the Company Subsidiaries, in a
single transaction or a series of related transactions.
     “Superior Proposal” means any Takeover Proposal (with the percentages set
forth in such definition changed from 20% to 50%) the Board of Directors of the
Company determines in good faith, after consultation with its outside counsel
and a financial advisor of nationally recognized reputation, (x) would result in
a transaction that if consummated, would be more favorable to the shareholders
of the Company than the Merger, taking into account all of the terms and
conditions of such proposal and of this Agreement (including any proposal by
Parent to amend the terms of this Agreement), and (y) is reasonably capable of
being consummated on the terms so proposed, taking into account all financial,
regulatory, legal and other aspects of such proposal.

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     Section 6.4. Access to Information. Subject to applicable Law, the Company
shall, and shall cause the Company Subsidiaries to, afford to the officers,
directors, employees, accountants, counsel, financial advisors, consultants,
financing sources and other advisors or representatives (collectively,
“Representatives”) of Parent reasonable access during normal business hours
throughout the period prior to the Effective Time to all of the Company’s and
the Company Subsidiaries’ properties, books, records, contracts, commitments and
personnel, and shall furnish, and shall cause to be furnished, as promptly as
practicable to Parent such information as Parent may reasonably request,
provided that the foregoing shall not require the Company (i) to permit any
inspection, or to disclose any information, that in the reasonable judgment of
the Company would result in the disclosure of any trade secrets of third parties
or violate any of its obligations with respect to confidentiality if the Company
shall have used reasonable best efforts to obtain the consent of such third
party to such inspection or disclosure or (ii) to disclose any privileged
information of the Company or any of its Subsidiaries. All information provided
by the Company shall be governed by the terms of the Confidentiality Agreement.
No investigation pursuant to this Section 6.4 shall affect the representations,
warranties or conditions to the obligations of the parties contained herein.
     Section 6.5. Reasonable Best Efforts.
     (a) Subject to the terms and conditions of this Agreement, each of the
Company, Parent and Merger Sub will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under this Agreement and applicable Laws and
regulations to consummate the Merger and the other transactions contemplated by
this Agreement as promptly as practicable after the date of this Agreement,
including (i) preparing and filing as promptly as practicable all documentation
to effect all necessary applications, notices, petitions, filings and other
documents and to obtain as promptly as practicable all consents, clearances,
waivers, licenses, orders, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement and (ii) taking all reasonable steps
as may be necessary or advisable to make all necessary filings and obtain all
such consents, clearances, waivers, licenses, registrations, permits,
authorizations, orders and approvals (including providing all necessary
information and documentary material and providing personnel as necessary to
attend any regulatory meetings, hearings or other proceedings). In furtherance
and not in limitation of the foregoing, each of the Company and Parent agrees to
make, as promptly as practicable after the date of this Agreement, (A) an
appropriate filing of a Notification and Report Form pursuant to the HSR Act,
(B) appropriate filings required by the Transaction Approvals and (C) all other
necessary filings with any other Governmental Entity with respect to the
transactions contemplated hereby and to supply as promptly as practicable any
additional information and documentary material that may be requested pursuant
to such requirements and to use its reasonable best efforts to cause the

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expiration or termination of the applicable waiting periods under the HSR Act in
the most expeditious manner practicable. Notwithstanding the foregoing, neither
Parent nor the Company shall, and shall cause their respective Representatives
not to, participate in any meeting with any Governmental Entity in connection
with the Transaction Approvals unless it consults with the other party in
advance and gives the other party the opportunity to attend or participate to
the extent permitted by such Governmental Entity. The Company and Parent will
each request early termination of the waiting period with respect to the Merger
under the HSR Act.
     (b) To the extent permissible under applicable Law or any rule, regulation
or restriction of a Governmental Entity, each of the Company and Parent shall,
in connection with the efforts referenced above to obtain all requisite material
approvals, clearances and authorizations for the transactions contemplated by
this Agreement under the HSR Act or any other approval of a Governmental Entity,
use its reasonable best efforts to (i) cooperate in all respects with each other
in connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, (ii) promptly inform the other party of any communication received by
such party from, or given by such party to, the Antitrust Division of the
Department of Justice (the “DOJ”), the Federal Trade Commission (the “FTC”) or
any other Governmental Entity and of any material communication received or
given in connection with any proceeding by a private party, in each case
regarding any of the transactions contemplated hereby, and provide to the other
party, in advance of filing, all filings and submissions to be made by such
party, such that the other party has a reasonable opportunity to comment
thereon, such comments to be taken into account by the filing party, (iii)
permit the other party, or the other party’s legal counsel, to review any
communication given by it to, and consult with each other in advance of any
meeting or conference with, the DOJ, the FTC or any such other Governmental
Entity or, in connection with any proceeding by a private party, with any other
Person and (iv) to the extent permitted by such Governmental Entity or other
Person, give the other party the opportunity to attend and participate in such
meetings and conferences.
     (c) If any objections are asserted with respect to the transactions
contemplated hereby under any applicable Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
contemplated hereby as violative of any applicable Law, each of the Company and
Parent shall use its reasonable best efforts to resolve any such objections or
challenge as such Governmental Entity or private party may have to such
transactions under such applicable Law so as to permit consummation of the
transactions contemplated by this Agreement on the terms and conditions set
forth in this Agreement.
     Section 6.6. Employee Matters.
     (a) Until the second anniversary of the Effective Time (the “Benefits
Continuation Period”), the Surviving Corporation and its Affiliates shall
provide, or

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cause to be provided, for those employees of the Company and the Company
Subsidiaries who continue as employees of the Company, the Company Subsidiaries
or the Surviving Corporation during the Benefits Continuation Period,
compensation (acknowledging this includes reference to base salary and incentive
compensation) and employee benefits that are substantially comparable in the
aggregate to those provided by the Company or the applicable Company Subsidiary
to such employees immediately before the date of this Agreement (it being
understood that neither the Surviving Corporation nor any of its Affiliates will
have any obligation to provide any equity-based arrangements). The provisions of
this Section 6.6 shall not create in any current or former employee of the
Company or any Company Subsidiary any rights to employment or continued
employment with Parent, the Company or any of their respective Subsidiaries or
any right to any specific terms or conditions of employment. Nothing herein
shall be deemed to be a guarantee of employment for any current or former
employee of the Company or any of its Subsidiaries, or to restrict the right of
Parent or the Surviving Corporation to terminate any such employee.
     (b) The Surviving Corporation and its Affiliates shall (i) waive any
applicable pre-existing condition exclusions and waiting periods with respect to
participation and coverage requirements in any replacement or successor welfare
benefit plan of the Surviving Corporation (except for the short and long term
disability benefit plans of the Surviving Corporation or any of its Affiliates,
which plans, however, will recognize prior service for purposes of meeting the
time requirements in those plans’ preexisting condition exclusions) that an
employee of the Company or any Company Subsidiary is eligible to participate in
following the Effective Time to the extent such exclusions or waiting periods
were inapplicable to, or had been satisfied by, such employee immediately prior
to the Effective Time under the analogous Company Benefit Plan in which such
employee participated, (ii) provide each such employee with credit for any
co-payments and deductible paid prior to the Effective Time (to the same extent
such credit was given under the analogous Company Benefit Plan prior to the
Effective Time) in satisfying any applicable deductible or out-of-pocket
requirements and (iii) recognize service prior to the Effective Time with the
Company and the Company Subsidiaries for purposes of eligibility to participate,
vesting and level of benefits (but not for any other purpose) under any employee
benefit plan of the Surviving Corporation or its Affiliates, to the same extent
such service was recognized by the Company and the Company Subsidiaries under
any similar Company Benefit Plan (including vacation) in which such employee
participated immediately prior to the Effective Time; provided that (x) the
Surviving Corporation and its Affiliates shall not be obligated to provide
credit for benefit accrual purposes under any defined benefit pension plan
sponsored by the Surviving Corporation or its Affiliates for service prior to
the date on which the employee actually becomes a participant in such plan,
except that the Liberty Mutual Retirement Benefit Plan will give such employees
credit for prior service with the Company and the Company Subsidiaries after
June 30, 2004 for benefit accrual purposes, (y) with respect to any health plan
of the Surviving Corporation or any of its Affiliates which provides

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post-retirement coverage (other than Company Benefit Plans in which such
employee participated prior to the Effective Time), the Surviving Corporation
will recognize service only for periods of an employee’s employment with
Surviving Corporation or its Subsidiaries after the Effective Time (except that
(A) with respect to Parent’s or its Affiliates’ pre-age 65 retiree health
program, employees of the Company and the Company Subsidiaries with at least
25 years of service as of July 1, 2004 and retired employees of the Company and
the Company Subsidiaries as of July 1, 2004 will receive credit for periods of
an employee’s employment with the Company and the Company Subsidiaries prior to
the Effective Time for purposes of eligibility and cost sharing, (B) with
respect to Parent’s or its Affiliates’ post-age 65 retiree health program,
retired employees of the Company and the Company Subsidiaries as of July 1, 2004
will receive cost sharing at the lowest level for which retirees are eligible
under such program, (C) with respect to Parent’s or its Affiliates’ post-age 65
retiree health program, employees of the Company and the Company Subsidiaries
with at least 25 years of service as of July 1, 2004 will receive credit for
periods of an employee’s employment with the Company and the Company
Subsidiaries prior to the Effective Time for purposes of eligibility and Parent
or its Affiliates will give such employees credit for prior service with the
Company and the Company Subsidiaries after June 30, 2004 for purposes of cost
sharing (provided that upon retirement such employees will receive cost sharing
which is no lower than the lowest level for which retirees are eligible under
such program), and (D) with respect to Parent’s or its Affiliates’ pre-age 65
and post-age 65 retiree health programs, employees of the Company and the
Company Subsidiaries with less than 25 years of service as of July 1, 2004 will
receive credit for periods of an employee’s employment with the Company and the
Company Subsidiaries prior to the Effective Time for purposes of eligibility and
Parent or its Affiliates will give such employees credit for prior service with
the Company and the Company Subsidiaries after June 30, 2004 for purposes of
cost sharing, and (z) the foregoing provisions of this Section 6.6(b) shall not
apply to the extent it would result in any duplication of benefits for the same
period of service (except that this subclause (z) will not limit the additional
incremental benefit accrual provided under subclause (x) above).
     (c) With respect to matters described in this Section 6.6, the Company
shall consult with Parent (and consider in good faith the advice of Parent)
prior to sending any material notices or other material communication materials
to its employees or former employees. Prior to the Effective Time, subject to
applicable Law, the Company shall provide Parent with reasonable access to such
employees or former employees for purposes of Parent providing reasonable
notices or other communication materials regarding Parent compensation and
benefit plans and the matters described in this Section 6.6, provided that such
notices or other communication materials are reasonably approved in advance by
the Company.

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     (d) Parent shall cause the Surviving Corporation and any successor thereto
to honor, fulfill and discharge the Company’s and its Subsidiaries’ obligations
under the agreements identified in Section 6.6(d) of the Company Disclosure
Schedule.
     (e) Immediately prior to the Effective Time, the Company will pay each
participant in the applicable Ohio Casualty Insurance Company Annual Incentive
Plan listed on Section 3.21(d) of the Company Disclosure Schedule (each, a
“Bonus Plan”) who remains employed through the Effective Time for the year in
which the Effective Time occurs, an annual bonus in an amount equal to the
product of (x) the annual bonus earned by such participant for the year in which
the Effective Time occurs under the applicable Bonus Plan (assuming a full year
of performance) as reasonably determined by the Company in accordance with the
terms of the applicable Bonus Plan and (y) a fraction, the numerator of which is
the number of whole calendar months during the period beginning on the first day
of the calendar year during which the Effective Date occurs and ending on the
last day of the month during which the Effective Date occurs, and the
denominator of which is twelve. Following the payment of pro rata bonuses as
provided in the preceding sentence (the “Pro Rata Bonus”), Parent will cause the
Company to (A) maintain a bonus plan for the remainder of year in which the
Effective Time occurs on the same terms and conditions and pursuant to the same
targets and performance measures as were in effect for such year and (B) pay
bonuses within two and a half months following the end of such year or such
later time as provided in the applicable Bonus Plan in an amount equal to the
excess, if any, of (i) the annual bonus which would have been earned by the
participants for the entire calendar year under the bonus plan described in
clause (A) above over (ii) any Pro Rata Bonus previously paid in respect of such
year. If the Effective Time occurs in 2008, the Company shall be permitted,
prior to the Effective Time, to pay annual bonuses for 2007 in an amount equal
to the annual bonus earned by participants for the 2007 calendar year.
     (f) Parent hereby acknowledges that a “change in control” or “change of
control” within the meaning of each Company Benefit Plan listed in
Section 6.6(f) of the Company Disclosure Schedule will occur upon the Effective
Time.
     (g) Notwithstanding the foregoing provisions of this Section 6.6, nothing
contained herein, whether express or implied, (i) shall be treated as an
amendment or other modification of any Company Benefit Plan, or (ii) shall limit
the right of Parent or the Surviving Corporation or any of its Subsidiaries to
amend, terminate or otherwise modify any Company Benefit Plan following the
Closing Date. Parent, Merger Sub and the Company acknowledge and agree that all
provisions contained in this Section 6.6 with respect to employees of the
Company and its Subsidiaries are included for the sole benefit of Parent, Merger
Sub and the Company, and that nothing herein, whether express or implied, shall
create any third party beneficiary or other rights (i) in any other person,
including any current or former employees of the Company or any of its
Subsidiaries, any participant in any Company Benefit Plan, or any dependent or
beneficiary thereof, or (ii)

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to continued employment with Parent, the Surviving Corporation, or any of their
respective affiliates or continued participation in any Company Benefit Plan.
     Section 6.7. Stock Purchase Plan. The Company shall amend the Company
Employee Stock Purchase Plan (the “Stock Purchase Plan”) to (a) prohibit any
increase in the rate of payroll deductions between the date of this Agreement
and the Effective Time, and (b) suspend payroll deductions and the purchase of
additional shares of Company Common Stock immediately after the next regularly
scheduled date on which shares of Company Common Stock are purchased under the
plan (the “Purchase Date”), provided, however, that if the Effective Time occurs
prior to the Purchase Date, the Company shall, as promptly after the Effective
Time as is practicable, refund to each participant under the Stock Purchase Plan
the amount credited to such participant’s account under the Stock Purchase Plan.
     Section 6.8. Fees and Expenses. Subject to Section 8.3, whether or not the
Merger is consummated, all Expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such Expenses. As used in this Agreement, “Expenses” includes all out-of-pocket
expenses (including all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its Affiliates) incurred
by a party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement and the
transactions contemplated hereby, including the preparation and filing of the
Notification and Report Form required by the HSR Act, the preparation, printing,
filing and mailing, as the case may be, of the Proxy Statement and any
amendments or supplements thereto, and the solicitation of the Company
Shareholder Approval and all other matters related to the transactions
contemplated hereby.
     Section 6.9. Transfer Taxes. The Company and Parent shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer, sales, use, transfer,
value added, stock transfer and stamp Taxes, and transfer, recording,
registration and other fees and any similar Taxes that become payable in
connection with the transactions contemplated by this Agreement.
     Section 6.10. Directors’ and Officers’ Indemnification and Insurance.
     (a) From and after the Effective Time, each of Parent and the Surviving
Corporation shall, and Parent shall cause the Surviving Corporation to,
indemnify and hold harmless, to the fullest extent permitted under applicable
law (and Parent and the Surviving Corporation shall also advance expenses as
incurred to the fullest extent permitted under applicable law; provided the
Person to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Person is not entitled to
indemnification), each present and former director and officer of the Company
and the Company Subsidiaries (collectively, the “Indemnified Parties”)

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against any costs or expenses (including attorneys’ fees), judgments, fines,
losses, claims, damages or liabilities (collectively, “Costs”) incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, including
the transactions contemplated by this Agreement, whether asserted or claimed
prior to, at or after the Effective Time.
     (b) Prior to the Effective Time, the Company shall, and if the Company is
unable to Parent shall cause the Surviving Corporation as of the Effective Time
to, fully pay the premium for “tail” insurance policies for the extension of (i)
the Side A coverage part (directors’ and officers’ liability) of the Company’s
existing directors’ and officers’ insurance policies, and (ii) the Company’s
existing fiduciary liability insurance policies, in each case for a claims
reporting or discovery period of at least six years from and after the Effective
Time from an insurance carrier rated at least “A” by A.M. Best with respect to
directors’ and officers’ liability insurance and fiduciary liability insurance
(collectively, “D&O Insurance”) with terms, conditions, retentions and limits of
liability that are at least as favorable as the Company’s existing policies with
respect to any matter claimed against a director or officer of the Company or
any of the Company Subsidiaries by reason of him or her serving in such capacity
that existed or occurred at or prior to the Effective Time (including in
connection with this Agreement or the transactions or actions contemplated
hereby). If the Company and the Surviving Corporation for any reason fail to
obtain such “tail” insurance policies as of the Effective Time, the Surviving
Corporation shall, and Parent shall cause the Surviving Corporation to, continue
to maintain in effect for a period of at least six years from and after the
Effective Time the D&O Insurance in place as of the date hereof terms,
conditions, retentions and limits of liability that are at least as favorable as
provided in the Company’s existing policies as of the date hereof, or the
Surviving Corporation shall, and Parent shall cause the Surviving Corporation
to, purchase comparable D&O Insurance for such six-year period with terms,
conditions, retentions and limits of liability that are at least as favorable as
provided in the Company’s existing policies as of the date hereof; provided,
however, that in no event shall Parent or the Surviving Corporation be required
to expend for any such policies contemplated by this Section 6.10 an annual
premium (measured for “tail” purposes by reference to 1/6th the premium paid
therefor) amount in excess of 300% of the annual premiums currently paid by the
Company for such insurance; and, provided further that if the annual premiums of
such insurance coverage exceed such amount, the Surviving Corporation shall
obtain a policy with the greatest coverage available for a cost not exceeding
such amount. Without limiting the forgoing, the parties agree that the Company
shall exercise its option to purchase a one year “tail” insurance policy under
its existing D&O Insurance policy.
     (c) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers all or

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substantially all of its properties and assets to any Person, then, and in each
such case, proper provisions shall be made so that the successors and assigns of
the Surviving Corporation shall assume all of the obligations set forth in this
Section 6.10.
     (d) The provisions of this Section 6.10 are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties. The rights of
the Indemnified Parties under this Section 6.10 shall be in addition to any
rights such Indemnified Parties may have under the articles of incorporation or
code of regulations of the Company or any of the Company Subsidiaries, or under
any applicable contracts or Laws.
     Section 6.11. Public Announcements. The initial press release regarding the
Merger shall be a joint press release. Thereafter, unless otherwise required by
applicable Law or by obligations pursuant to any listing agreement with or rules
of any securities exchange, Parent and the Company shall consult with each other
and provide each other with a reasonable opportunity to review and comment
before issuing any press release or otherwise making any public statement or
communication with respect to this Agreement or the transactions contemplated
hereby.
     Section 6.12. Agency Force. As promptly as practicable following the date
of this Agreement and in compliance with applicable Law, Parent and the Company
shall develop a joint plan (the “Agency Plan”) for the communication with and
retention of the Company’s agency force.
     Section 6.13. State Takeover Laws. If any Anti-takeover Law is or shall
become applicable to the transactions contemplated hereby, the Company and its
Board of Directors shall use all reasonable best efforts to grant such approvals
and take such actions as are necessary so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and shall otherwise act to minimize the effects of any such statute or
regulation on the transactions contemplated hereby.
     Section 6.14. Shareholder Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any shareholder
litigation against the Company and/or its directors relating to the transactions
contemplated by this Agreement. The Company shall not settle or offer to settle
any such litigation without the prior written consent of Parent, which consent
will not be unreasonably withheld or delayed.
     Section 6.15. Charitable Contributions. Parent shall cause the Surviving
Corporation to continue to make annual contributions of $750,000 to the Ohio
Casualty Foundation for each of the five years following the Closing.

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ARTICLE VII
CONDITIONS PRECEDENT
     Section 7.1. Conditions to Each Party’s Obligation to Effect the Merger.
The respective obligations of the Company, Parent and Merger Sub to effect the
Merger are subject to the satisfaction or waiver on or prior to the Effective
Time of the following conditions:
     (a) Shareholder Approval. The Company shall have obtained the Company
Shareholder Approval.
     (b) Regulatory Approval.
     (i) The waiting period (and any extension thereof) applicable to the Merger
under the HSR Act shall have terminated or shall have expired; and
     (ii) The Transaction Approvals shall have been obtained or the waiting
periods applicable thereto shall have terminated or expired.
     (c) No Injunctions or Restraints, Illegality. No Laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order, judgment, decision, opinion or decree
issued by a court or other Governmental Entity of competent jurisdiction shall
be in effect, having the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; provided, however, that each of the
parties shall have used their reasonable best efforts to prevent the entry of
any such temporary restraining order, injunction or other order, including
taking such action as is required to comply with Section 6.5, and to appeal as
promptly as possible any injunction or other order that may be entered.
     Section 7.2. Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are subject to the
satisfaction of, or waiver by Parent, on or prior to the Effective Time of the
following additional conditions:
     (a) Representations and Warranties. (i) The representation and warranty of
the Company set forth in Section 3.12(ii) shall be true and correct in all
respects as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing Date; (ii) except for the representation of the
Company set forth in Section 3.12(ii), each of the representations and
warranties of the Company set forth in this Agreement, in each case, made as if
none of such representations and warranties contained any qualifications or
limitations as to “materiality” or Material Adverse Effect on the Company, shall
be true and correct, in each case, as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to the
extent in either case that any such representation and warranty expressly speaks
as of

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another date, in which case such representation and warranty shall be true and
correct as of such earlier date), except where the failure of such
representations and warranties to be true and correct as so made does not have
and is not, individually or in the aggregate, reasonably likely to have or
result in a Material Adverse Effect on the Company, and (iii) Parent shall have
received at the Closing a certificate of the chief executive officer or the
chief financial officer of the Company to such effect.
     (b) Performance of Obligations of the Company. The Company shall have
performed or complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the Closing
Date and Parent shall have received a certificate signed on behalf of the
Company by the chief executive officer or the chief financial officer of the
Company to such effect.
     Section 7.3. Conditions to Obligations of the Company. The obligations of
the Company to effect the Merger are subject to the satisfaction of, or waiver
by the Company, on or prior to the Effective Time of the following additional
conditions:
     (a) Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub set forth in this Agreement, in each case,
made as if none of such representations and warranties contained any
qualification or limitation as to “materiality” or Material Adverse Effect on
Parent, shall be true and correct, in each case, as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent in either case that such representations and
warranties speak as of another date), except where the failure of such
representations and warranties to be true and correct as so made does not have
and is not, individually or in the aggregate, reasonably likely to have or
result in, a Material Adverse Effect on Parent, and the Company shall have
received a certificate of an executive officer of Parent to such effect.
     (b) Performance of Obligations of Parent and Merger Sub. Parent and Merger
Sub shall have performed or complied in all material respects with all
agreements and covenants required to be performed by it under this Agreement at
or prior to the Closing Date and the Company shall have received a certificate
signed on behalf of Parent and Merger Sub of an executive officer of Parent to
such effect.
ARTICLE VIII
TERMINATION AND AMENDMENT
     Section 8.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, whether before or after receipt of the Company Shareholder
Approval:
     (a) by mutual written consent of Parent and the Company;

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     (b) by either Parent or the Company, if:
     (i) the Merger shall not have been consummated on or before October 31,
2007, provided that if Parent or the Company determine in good faith that
additional time is necessary in order to obtain the Transaction Approvals or the
Company Shareholder Approval, such date may be extended by either party until
December 31, 2007 (the “Outside Date”); and provided further that the right to
terminate the Agreement pursuant to this Section 8.1(b)(i) shall not be
available to any party whose material breach of this Agreement primarily
contributes to the failure of the Merger to be consummated by such date;
     (ii) any Governmental Entity of competent jurisdiction issues an order,
judgment, decision, opinion, decree or ruling or takes any other action
permanently restraining, enjoining or otherwise prohibiting the Merger and such
order, judgment, decision, opinion, decree or ruling or other action shall have
become final and non-appealable; or
     (iii) the Company Shareholder Approval shall not have been obtained at the
Company Shareholder Meeting or any adjournment or postponement thereof.
     (c) by Parent, if:
     (i) the Company shall have breached or failed to perform any of its
representations, warranties or covenants contained in this Agreement, which
breach or failure to perform (A) has not been cured or is incapable of being
cured by the Company prior to the earlier of (x) the Outside Date and (y)
30 days following written notice to the Company by Parent or Merger Sub of such
breach, and (B) would result in a failure of any condition set forth in
Section 7.2(a) or Section 7.2(b); or
     (ii) the Board of Directors of the Company shall have (A) failed to
authorize, approve or recommend the Merger, or to include its recommendation, in
any Proxy Statement, (B) effected a Change in the Company Recommendation, or (C)
in the case of a Takeover Proposal made by way of a tender offer or exchange
offer, failed to recommend (other than during the Notice Period) that the
Company’s shareholders reject such tender offer or exchange offer within the ten
Business Day period specified in Section 14e-2(a) under the Exchange Act or (if
later than the end of such ten Business Day period) failed to reconfirm (other
than during the Notice Period) its authorization, approval or recommendation of
the Merger within five Business Days after a written request by Parent to do so;
or
     (d) by the Company:

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     (i) if Parent shall have breached or failed to perform in any material
respect any of its representations, warranties or covenants contained in this
Agreement, which breach or failure to perform (A) has not been cured or is
incapable of being cured by Parent prior to the earlier of (1) the Outside Date
and (2) 30 days following written notice to Parent by the Company of such breach
and (B) would result in a failure of any condition set forth in Section 7.2(a)
or Section 7.2(b); or
     (ii) if (A) the Board of Directors of the Company authorizes the Company to
enter into an agreement with respect to a Superior Proposal, (B) Parent does not
make, prior to the end of the Notice Period, an offer that the Board of
Directors of the Company determines, in good faith after consultation with its
financial advisors, is at least as favorable, from a financial point of view, to
the shareholders of the Company as the Superior Proposal and (C) the Company,
prior to such termination, pays to Parent the Termination Fee in immediately
available funds; or
     (iii) if the Board of Directors of the Company shall have made a Change in
the Company Recommendation pursuant to Section 6.3(d) other than in connection
with a Takeover Proposal and the Company, prior to such termination, pays to
Parent the Termination Fee in immediately available funds.
     Section 8.2. Effect of Termination. In the event of any termination of this
Agreement as provided in Section 8.1, the obligations of the parties hereunder
shall terminate and there shall be no liability on the part of any party hereto
with respect thereto, except for the confidentiality provisions of Section 6.4
and the provisions of Section 3.27, Section 4.8, this Section 8.2, Section 8.3
and Article IX, each of which shall remain in full force and effect, provided,
however, that no party hereto shall be relieved or released from any liability
or damages arising from a willful breach of any provision of this Agreement
prior to such termination.
     Section 8.3. Fees and Expenses.
     (a) If this Agreement is terminated pursuant to any of the following
provisions, the Company shall pay to Parent a fee equal to $62 million (the
“Termination Fee”):
     (i) Section 8.1(c)(ii);
     (ii) Section 8.1(d)(ii) or Section 8.1(d)(iii); or
     (iii) Section 8.1(b)(i) if (A) after the date of this Agreement, any Person
or “group” (within the meaning of section 13(d)(3) of the Exchange Act) publicly
makes or publicly announces an intention to make a Takeover Proposal and such

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     Takeover Proposal or publicly announced intention shall not have been
publicly withdrawn without qualification at least ten (10) days prior to the
Outside Date, and (B) this Agreement is terminated thereafter by either Parent
or the Company pursuant to Section 8.1(b)(i); or
     (iv) Section 8.1(b)(iii) if (A) after the date of this Agreement any Person
or “group” (within the meaning of section 13(d)(3) of the Exchange Act) publicly
makes or publicly announces an intention to make a Takeover Proposal prior to
the Company obtaining the Company Shareholder Approval and such Takeover
Proposal or publicly announced intention shall not have been publicly withdrawn
without qualification at least five (5) Business Days prior to the vote of the
shareholders with respect to the Merger, and (B) this Agreement is terminated
thereafter by either Parent or the Company pursuant to Section 8.1(b)(iii).
     (b) If the Company is required to pay Parent a Termination Fee, such
Termination Fee shall be payable not later than two Business Days after
termination of this Agreement (except with respect to Section 8.1(d)(ii) or
Section 8.1(d)(iii), which shall be paid as set forth in Section 8.1(d)(ii) or
Section 8.1(d)(iii)), in each case by wire transfer of immediately available
funds to an account designated by Parent. Notwithstanding the foregoing, the
Termination Fee (less the amount of any Parent Expenses previously paid) shall
not be payable to Parent pursuant to Section 8.3(a)(iii) or 8.3(a)(iv) unless
and until within 12 months of such termination the Company or any of its
Subsidiaries shall have entered into a binding written agreement containing all
of the material terms (an “Alternate Acquisition Agreement”) with respect to, or
shall have consummated, a Takeover Proposal (substituting “50%” for “20%” in the
definition of “Takeover Proposal”); provided that for purposes of this
Agreement, a Takeover Proposal shall not be deemed to have been “publicly
withdrawn” by any Person if, within 12 months of such termination, the Company
or any of its Subsidiaries shall have entered into an Alternative Acquisition
Agreement with respect to, or shall have consummated, a Takeover Proposal made
by or on behalf of such Person or any of its Affiliates. If this Agreement is
terminated under the circumstances described in Section 8.3(a)(iii) or
8.3(a)(iv), the Company shall reimburse Parent and Merger Sub for all of their
reasonable and documented Expenses, up to a maximum amount of $5 million (the
“Parent Expenses”), within three Business Day of receipt of written notice from
Parent requesting payment thereof.
     (c) The parties each agree that the agreements contained in this
Section 8.3 are an integral part of the transaction contemplated by this
Agreement, and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if the Company fails promptly to pay any amounts due
under this Section 8.3 and, in order to obtain such payment, Parent commences a
suit that results in a judgment against the Company for such amounts, the
Company shall pay interest on such amounts from the

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date payment of such amounts were due to the date of actual payment at the rate
of interest published from time to time in The Wall Street Journal, Eastern
Edition (or any successor publication thereto), designated therein as the prime
rate on the date such payment was due, together with the costs and expenses of
Parent (including reasonable legal fees and expenses) in connection with such
suit. Notwithstanding anything to the contrary in this Agreement, the parties
hereby acknowledge that in the event that the Termination Fee becomes payable
and is paid by the Company pursuant to this Section 8.3, the Termination Fee
shall be Parent’s and Merger Sub’s sole and exclusive remedy for monetary
damages under this Agreement.
ARTICLE IX
GENERAL PROVISIONS
     Section 9.1. Non-Survival of Representations, Warranties and Agreements.
None of the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement, including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article IX.
     Section 9.2. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or facsimile, upon confirmation of receipt,
(b) on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the third Business Day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
If to Parent or Merger Sub, to:
c/o Liberty Mutual Group Inc.
175 Berkeley Street
Boston, MA 02116
Attention: Gary Gregg, Executive Vice President
                  Michael Fallon, Vice President
Fax: 617-574-5753
with a copy to (which shall not constitute notice):
Liberty Mutual Group Inc.
175 Berkeley Street
Boston, MA 02116

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Attention: Christopher Mansfield, General Counsel
                   Richard Quinlan, Deputy General Counsel
Fax: 617-574-5753
and
Debevoise & Plimpton LLP
919 Third Avenue
New York, NY 10022
Attention: Gregory V. Gooding, Esq.
                  Nicholas F. Potter, Esq.
Fax: 212-909-6836
If to the Company, to:
Ohio Casualty Corporation
9450 Seward Road
Fairfield, OH 45014
Attention: Dan Carmichael
                 Debra Crane
Fax: 513-603-2208
with a copy to (which shall not constitute notice):
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attention: James C. Morphy
                  Audra D. Cohen
Fax: 212-558-3588
Vorys, Sater, Seymour and Pease LLP
221 East Fourth Street
Suite 2000, Atrium Two
Cincinnati, Ohio 45202
Attention: Roger E. Lautzenhiser
Telephone: 513-723-4091
Fax: 513-852-8490
     Section 9.3. Interpretation.
     (a) When a reference is made in this Agreement to a Section, Exhibit or
Schedule, such reference shall be to a Section of or Exhibit or Schedule to this

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Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
“include”, “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation.”
     (b) The parties have participated jointly in negotiating and drafting this
Agreement. In the event that an ambiguity or a 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 provision of this
Agreement.
     Section 9.4. Counterparts; Effectiveness. This Agreement may be executed in
two or more counterparts, including by facsimile, each of which shall be deemed
to be an original but all of which shall constitute one and the same instrument.
This Agreement shall become effective when each party hereto has received
counterparts thereof signed and delivered (by telecopy or otherwise) by all of
the other parties hereto.
     Section 9.5. Entire Agreement; No Third Party Beneficiaries.
     (a) This Agreement (including the Exhibits and Schedules) constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and thereof. EACH PARTY HERETO AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER PARENT AND MERGER SUB NOR THE
COMPANY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS
ANY OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OR AS TO THE
ACCURACY OR COMPLETENESS OF ANY OTHER INFORMATION, MADE BY, OR MADE AVAILABLE
BY, ITSELF OR ANY OF ITS REPRESENTATIVES, WITH RESPECT TO, OR IN CONNECTION
WITH, THE NEGOTIATION, EXECUTION OR DELIVERY OF THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO
THE OTHER OR THE OTHER’S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER
INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
     (b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and, except as provided in Section 6.10, nothing in this
Agreement, express or implied, is intended to or shall confer upon any Person
not a party to this Agreement any rights, benefits or remedies of any nature
whatsoever; except that the Company shall have the right to recover, solely
through an action brought by the Company, damages from Parent in the event of a
willful or intentional breach of this Agreement by Parent, in which event the
damages recoverable by the Company for itself

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and on behalf of the shareholders shall be determined by reference to the total
amount that would have been recoverable by the Company’s shareholders if all
such shareholders brought an action against Parent and were recognized as third
party beneficiaries hereunder. The parties hereto further agree that the rights
of third party beneficiaries under Section 6.10 shall not arise unless and until
the Effective Time occurs. The representations and warranties in this Agreement
are the product of negotiations among the parties hereto and are for the sole
benefit of the parties hereto. Any inaccuracies in such representations and
warranties are subject to waiver by the parties hereto in accordance with
Section 9.9 without notice or liability to any other Person. In some instances,
the representations and warranties in this Agreement may represent an allocation
among the parties hereto of risks associated with particular matters regardless
of the knowledge of any of the parties hereto. Consequently, Persons other than
the parties hereto may not rely upon the representations and warranties in this
Agreement as characterizations of actual facts or circumstances as of the date
of this Agreement or as of any other date.
     Section 9.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Notwithstanding the foregoing, upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the greatest extent possible.
     Section 9.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties, in
whole or in part (whether by operation of law or otherwise), without the prior
written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void, except that (i) Merger
Sub may assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any wholly owned Subsidiary of Parent
without the consent of the Company in which event all references herein to
Merger Sub shall be deemed references to such other subsidiary, except that all
representations and warranties made herein with respect to Merger Sub as of the
date of this Agreement shall be deemed representations and warranties made with
respect to such other subsidiary as of the date of such designation; provided
that any such designation shall not materially impede or delay the consummation
of the transactions contemplated by this Agreement or otherwise materially
impede the rights of the shareholders of the Company under this Agreement. Any
purported assignment in violation of this Agreement is void.

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     Section 9.8. Amendment. This Agreement may be amended by the parties, by
action taken or authorized by their respective Boards of Directors, at any time
before or after the Company Shareholder Approval is obtained, but after such
approval no amendment shall be made which by Law or in accordance with the rules
of any relevant stock exchange requires further approval by the Company’s
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
     Section 9.9. Extension; Waiver. At any time prior to the Effective Time,
the parties, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto and (c) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
     Section 9.10. Governing Law and Venue; Waiver of Jury Trial.
     (a) All disputes, claims or controversies arising out of or relating to
this Agreement, or the negotiation, validity or performance of this Agreement,
or the transactions contemplated hereby shall be governed by and construed in
accordance with the laws of the State of Ohio without regard to its rules of
conflict of laws.
     (b) Except as set out below, each of the Company, Parent and Merger Sub
hereby irrevocably and unconditionally consents to submit to the sole and
exclusive jurisdiction of the courts of the State of Ohio or any court of the
United States located in the State of Ohio (the “Ohio Courts”) for any
litigation arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement, or the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the Ohio Courts and agrees not to plead or claim in any Ohio Court that such
litigation brought therein has been brought in an inconvenient forum. Each of
the parties hereto agrees that service of process may be made on such party by
prepaid certified mail with a proof of mailing receipt validated by the United
States Postal Service constituting evidence of valid service. Service made
pursuant to the immediately preceding sentence shall have the same legal force
and effect as if served upon such party personally within the State of Ohio. In
the event any party hereto fails to notify any other party hereto of its agent
for service of process in the State of Ohio, nothing herein contained shall be
deemed to affect the right of any party hereto to serve process in any manner
permitted by Law or to commence legal proceedings or otherwise proceed against
any other party

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hereto in any other jurisdiction to enforce judgments obtained in any action,
suit or proceeding brought pursuant to this Section 9.10.
     (c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.10(c).
     Section 9.11. Enforcement. The parties agree that irreparable damage would
occur in the event that any provision of this Agreement was not performed by the
Company in accordance with its specific terms or was otherwise breached by the
Company. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in the Courts of the State of Ohio,
this being in addition to any other remedy to which they are entitled at law or
in equity.
     Section 9.12. Definitions. As used in this Agreement:
     An “Affiliate” of any Person means another Person that directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such first Person, where “control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a Person, whether through the ownership
of voting securities, by contract, as trustee or executor or otherwise.
     “Agency Plan” has the meaning set forth in Section 6.12.
     “Agreement” has the meaning set forth in the preamble hereto.
     “Alternative Acquisition Agreement” has the meaning set forth in
Section 8.3(b).
     “Anti-takeover Laws” has the meaning set forth in Section 3.26(a).

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     “Articles of Incorporation” has the meaning set forth in Section 1.4.
     “Bankruptcy and Equity Exception” has the meaning set forth in
Section 3.2(a).
     “Benefits Continuation Period” has the meaning set forth in Section 6.6(a).
     “Board of Directors” means the Board of Directors of any specified Person
and any committees thereof.
     “Bonus Plans” has the meaning set forth in Section 6.6(e).
     “Business” means the business and operations of the Company and the Company
Subsidiaries as currently conducted.
     “Business Combination Transaction” has the meaning set forth in
Section 6.3(f).
     “Business Day” means any day on which banks are not required or authorized
to close in the City of New York.
     “Certificate of Merger” has the meaning set forth in Section 1.3.
     “Certificates” has the meaning set forth in Section 1.8(b).
     “Change in Company Recommendation” has the meaning set forth in
Section 6.3(c).
     “Closing” has the meaning set forth in Section 1.2.
     “Closing Date” has the meaning set forth in Section 1.2.
     “Code” means the Internal Revenue Code of 1986, as amended from time to
time.
     “Code of Regulations” has the meaning set forth in Section 1.5.
     “Company” has the meaning set forth in the preamble hereto.
     “Company Actuarial Analyses” has the meaning set forth in Section 3.16(d).
     “Company Benefit Plans” means each written or oral employee benefit plan,
scheme, program, policy, arrangement and contract (including any “employee
benefit plan,” as defined in Section 3(3) of ERISA, whether or not subject to
ERISA, and any bonus, deferred compensation, stock bonus, stock purchase,
restricted stock, stock option or other equity-based arrangement, and any
employment, termination, retention, bonus, change in control or severance
agreement, plan, program, policy, arrangement or contract) for the benefit of
any current or former officer, employee or director of the

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Company or any Company Subsidiary that is maintained or contributed to by the
Company or any Company Subsidiary, or with respect to which any of them could
incur liability under the Code or ERISA or any similar non-U.S. law.
     “Company Common Stock” has the meaning set forth in Section 3.5(a).
     “Company Disclosure Schedule” has the meaning set forth in Article III.
     “Company Equity Awards” has the meaning set forth in Section 1.9(f).
     “Company Financial Advisor” means Merrill Lynch.
     “Company Incentive Plans” has the meaning set forth in Section 1.9(a).
     “Company Insurance Approvals” has the meaning set forth in Section 3.3.
     “Company Intellectual Property Rights” has the meaning set forth in Section
3.24(b)(i).
     “Company Option” has the meaning set forth in Section 1.9(a).
     “Company Permits” has the meaning set forth in Section 3.1.
     “Company Preferred Stock” has the meaning set forth in Section 3.5(a).
     “Company Producers” has the meaning set forth in Section 3.16(a).
     “Company Recommendation” has the meaning set forth in Section 6.2.
     “Company Reinsurance Agreements” has the meaning set forth in
Section 3.16(b).
     “Company Restricted Share” has the meaning set forth in Section 1.9(c).
     “Company SAP Statements” has the meaning set forth in Section 3.10.
     “Company SAR” has the meaning set forth in Section 1.9(b).
     “Company SEC Documents” has the meaning set forth in Section 3.8(a).
     “Company Securities” has the meaning set forth in Section 3.5(b).
     “Company Shareholder Approval” has the meaning set forth in Section 3.2(a).
     “Company Shareholder Meeting” has the meaning set forth in Section 6.2.

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     “Company Subsidiary” means any Subsidiary of the Company.
     “Company Subsidiary Securities” has the meaning set forth in
Section 3.6(b).
     “Confidentiality Agreement” means the confidentiality letter agreement,
dated as of April 24, 2007, between Parent and the Company.
     “Costs” has the meaning set forth in Section 6.10.
     “D&O Insurance” has the meaning set forth in Section 6.10.
     “Director Unit” has the meaning set forth in Section 1.9(d).
     “Disqualified Individual” has the meaning set forth in Section 3.21(e).
     “Dissenting Shareholder” has the meaning set forth in Section 1.11.
     “Dissenting Shares” means shares of Company Common Stock as to which the
holder thereof is entitled to demand, and properly demands, appraisal for such
shares and as to which the holder thereof complies in all other respects with
the provisions of Section 1701.85 of the OGCL.
     “DOJ” has the meaning set forth in Section 6.5(b).
     “Effective Time” has the meaning set forth in Section 1.3.
     “Encumbrance” means any mortgage, lien, pledge, charge, security interest,
easement, covenant, or other restriction or title matter or encumbrance of any
kind in respect of such asset but specifically excludes (a) encumbrances for
current Taxes or other governmental charges not yet due and payable or the
amount or validity of which is being contested in good faith; (b) carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar liens;
(c) pledges or deposits in connection with workers’ compensation, unemployment
insurance and other social security legislation; (d) other encumbrances that do
not, individually or in the aggregate, materially impair the continued use,
operation or value of the specific parcel of Owned Real Property to which they
relate or the conduct of the business of the Company and its Subsidiaries as
presently conducted; and (e) immaterial easements, rights of way or other
similar matters or restrictions or exclusions which would be shown by a current
title report or other similar report.
     “Environmental Law” means any foreign, federal, state or local law, treaty,
statute, rule, regulation, order, ordinance, decree, injunction, judgment,
governmental restriction or any other requirement of law (including common law)
regulating or relating to the protection of human health and safety from
exposure to any Hazardous Substance, natural resource damages or the protection
of the environment, including laws relating to

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wetlands, pollution, contamination or the use, generation, management, handling,
transport, treatment, disposal, storage, Release or threatened Release of
Hazardous Substances.
     “Environmental Permits” means, with respect to any Person, all permits,
licenses, franchises, certificates, approvals and other similar authorizations
of governmental authorities relating to or required by Environmental Laws and
affecting, or relating to, the business of such Person or any of such Person’s
Subsidiaries, as currently conducted.
     “Equity Award Consideration” has the meaning set forth in Section 1.9(f).
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended.
     “ERISA Affiliate” of any entity means any other entity that, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
     “Exchange Agent” has the meaning set forth in Section 2.1.
     “Exchange Fund” has the meaning set forth in Section 2.1.
     “Excluded Shares” means any shares of Company Common Stock held by the
Company, Parent, Merger Sub, any other wholly owned Subsidiary of Parent or by
any wholly owned Subsidiary of the Company, in each case not held on behalf of
third parties.
     “Expenses” has the meaning set forth in Section 6.7.
     “FTC” has the meaning set forth in Section 6.5(b).
     “GAAP” means the United States generally accepted accounting principles.
     “Governmental Entity” means any nation or government, any state, agency,
stock exchange, commission, or other political subdivision thereof, any
insurance regulatory governmental authority, or any entity (including a court)
of competent jurisdiction properly exercising executive, legislative, judicial
or administration functions of the government.
     “Hazardous Substances” means any substance or material that: (i) is or
contains asbestos, urea formaldehyde insulation, polychlorinated biphenyls,
petroleum, petroleum products or petroleum-derived substances or wastes, radon
gas, microbial or microbiological contamination, (ii) requires investigation or
remedial action pursuant to

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any Environmental Law, or is defined, listed or identified as a “hazardous
waste,” “hazardous substance,” “toxic substance” or words of similar import
thereunder, or (iii) is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated
under any Environmental Law.
     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
     “Indemnified Parties” has the meaning set forth in Section 6.10.
     “Insurance Laws” has the meaning set forth in Section 3.3.
     “Intellectual Property” means all trademarks, service marks, trade names,
trade dress, including all goodwill associated with the foregoing, domain names,
copyrights, software and computer programs, mask works and similar rights, and
registrations and applications to register or renew the registration of any of
the foregoing, patents and patent applications and rights, trade secrets and all
similar intellectual property rights.
     “IRS” means the Internal Revenue Service.
     “knowledge” means (i) with respect to Parent, the actual knowledge of the
individuals named on Section 1.1 of the Parent Disclosure Schedule and (ii) with
respect to the Company, the actual knowledge of the individuals named on
Section 1.1 of the Company Disclosure Schedule.
     “Law” (and with the correlative meaning “Laws”) means federal, state or
foreign rule, regulation, statute, order, ordinance, code or other legally
enforceable requirement of a Governmental Entity.
     “Leased Real Property” has the meaning set forth in Section 3.18(b).
     “Liens” means any mortgage, pledge, hypothecation, assignment, encumbrance,
lien (statutory or other), other charge or security interest.
     “License” means any permit, certification, approval, registration, consent,
authorization, franchise, variance, exemption or order issued by a Governmental
Entity.
     “Material Adverse Effect” means, as to the Company or Parent, as the case
may be, any event, change, circumstance or effect that, individually or in the
aggregate, is materially adverse to the business, assets (including intangible
assets), liabilities, financial condition or results of operations of such party
and its Subsidiaries, taken as a whole, provided, however, that none of the
following shall be considered in determining whether a Material Adverse Effect
on the Company has occurred: (A) changes in the economy or financial markets
generally in the United States or changes that are the result of acts of war,
armed hostilities or terrorism; (B) changes that are the result of factors

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generally affecting the property-casualty insurance industry and the geographic
areas in which the Company and the Company Subsidiaries operate; (C) any loss
of, or adverse change in, the relationship of the Company or any of the Company
Subsidiaries with its customers, employees, agents or suppliers caused by the
pendency or the announcement of the transactions contemplated by this Agreement;
(D) changes in GAAP, the rules or policies of the Public Company Accounting
Oversight Board, SAP in any state where the Company’s subsidiaries operate or
any statute, rule or regulation or interpretation of any of the foregoing after
the date of this Agreement; (E) any failure by the Company to meet any estimates
of revenues or earnings for any period ending on or after the date of this
Agreement and prior to the Closing, provided that the exception in this clause
shall not preclude a determination that any change, effect, circumstance or
development underlying such failure has resulted in, or contributed to, a
Material Adverse Effect on the Company; (F) the suspension of trading in
securities on the New York Stock Exchange or Nasdaq or a decline in the price of
the Company Common Stock on Nasdaq, provided that the exception in this clause
shall not preclude a determination that any change, effect, circumstance or
development underlying such decline has resulted in, or contributed to, a
Material Adverse Effect on the Company; (G) effects resulting from natural
disasters; (H) any change or announcement of a potential change in the credit
rating or A.M. Best rating of the Company or any of the Company Subsidiaries or
any of their securities; provided that the exception in this clause shall not
preclude a determination that any change, effect, circumstance or development
underlying such failure has resulted in, or contributed to, a Material Adverse
Effect on the Company; and (I) the entry into or announcement of the execution
of this Agreement or compliance by the Company with the terms of this Agreement;
provided that, with respect to clauses (A), (B) and (G), such change, event,
circumstance or development does not (i) relate only to (or have the effect of
relating only to) the Company and the Company Subsidiaries or (ii)
disproportionately adversely affect the Company and the Company Subsidiaries
compared to other companies of similar size operating in the property and
casualty insurance industry in similar geographic areas in which the Company and
the Company Subsidiaries operate.
     “Material Contracts” has the meaning set forth in Section 3.25(a).
     “Merger” has the meaning set forth in the recitals hereto.
     “Merger Consideration” has the meaning set forth in Section 1.8(a).
     “Merger Sub” has the meaning set forth in the preamble hereto.
     “Nasdaq” means The NASDAQ National Market.
     “Notice Period” has the meaning set forth in Section 6.3(c).
     “OGCL” has the meaning set forth in Section 1.1.

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     “Ohio Courts” has the meaning set forth in Section 9.10(b).
     “Order” means any charge, order, writ, injunction, judgment, decree,
ruling, determination, directive, award or settlement, whether civil, criminal
or administrative and whether formal or informal, applicable to the Company or
any Company Subsidiary.
     “OSOS” has the meaning set forth in Section 1.3.
     “other party” means, with respect to the Company, Parent, and means, with
respect to Parent, the Company, unless the context otherwise requires.
     “Outside Date” has the meaning set forth in Section 8.1(b)(i).
     “Owned Real Property” has the meaning set forth in Section 3.18(a).
     “Parent” has the meaning set forth in the preamble hereto.
     “Parent Disclosure Schedule” has the meaning set forth in Article IV.
     “Parent Insurance Approvals” has the meaning set forth in Section 4.3.
     “Parent Permits” has the meaning set forth in Section 4.1.
     “parties” has the meaning set forth in the preamble hereto.
     “Parent Expenses” has the meaning set forth in Section 8.3(b).
     “Performance-Based Awards” has the meaning set forth in Section 1.9(e).
     “Permitted Liens” means (i) any liens for current Taxes or other
governmental charges not yet due and payable or the amount or validity of which
is being contested in good faith, (ii) carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s or other similar liens, (iii) pledges or deposits in
connection with workers’ compensation, unemployment insurance and other social
security legislation, (iv) encumbrances or liens that do not, individually or in
the aggregate, materially impair the continued use, operation or value of the
property to which they relate or the conduct of the business of the Company and
its Subsidiaries as presently conducted, and (v) immaterial easements, rights of
way or other similar matters or restrictions or exclusions which would be shown
by a current title report or other similar report.
     “Person” means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, or other entity or
group (as defined in the Exchange Act).
     “Pro Rata Bonus” has the meaning set forth in Section 6.6(e).

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     “Proxy Statement” has the meaning set forth in Section 6.1.
     “Purchase Date” has the meaning set forth in Section 6.7.
     “Qualifying Confidentiality Agreement” means an executed agreement with
provisions requiring any Person receiving nonpublic information with respect to
the Company to keep such information confidential, which provisions shall be no
less restrictive in the aggregate to such Person than the confidentiality
provisions of the Confidentiality Agreement are to Parent, its Affiliates, and
their respective personnel and representatives; provided that any such executed
agreement need not prohibit the making, or amendment, of a Takeover Proposal to
the Company.
     “Release” means any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, migration, transporting, placing and the like, including the moving
of any materials through, into or upon any land, soil, surface water,
groundwater or air, or otherwise entering into the indoor or outdoor
environment.
     “Representatives” has the meaning set forth in Section 6.4.
     “Rights” has the meaning set forth in the Rights Agreement.
     “Rights Agreement” means the Amended and Restated Rights Agreement, dated
as of February 19, 1998, as amended by the First Amendment thereto, dated as of
November 8, 2001, between the Company and First Chicago Trust Company of New
York, as rights agent.
     “Sarbanes-Oxley Act” has the meaning set forth in Section 3.8(e).
     “SAP” means statutory accounting principals prescribed or permitted by the
applicable insurance Governmental Entity as in effect as of the date hereof.
     “SEC” means the Securities and Exchange Commission.
     “Securities Act” means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
     “Shares” has the meaning set forth in Section 1.8(a).
     “Significant Subsidiary” has the meaning set forth in Regulation S-X under
the Exchange Act.
     “Stock Purchase Plan” has the meaning set forth in Section 6.7.

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     “Subsidiary” when used with respect to any party, means any corporation or
other organization, whether incorporated or unincorporated, (i) of which such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interests in
such partnership), or (ii) a majority of the securities or other interests of
which having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
     “Superior Proposal” has the meaning set forth in Section 6.3(f).
     “Surviving Corporation” has the meaning set forth in Section 1.1.
     “Takeover Proposal” has the meaning set forth in Section 6.3(f).
     “Tax” (and with the correlative meaning “Taxes”) means income, gross
receipts, franchise, sales, use, ad valorem, property, payroll, withholding,
excise, severance, transfer, employment, estimated, alternative or add-on
minimum, stamp, occupation, premium, environmental or windfall profits taxes,
and other taxes, charges, fees, levies, imposts, customs, duties, licenses or
other assessments, together with any interest and any penalties (including
penalties for failure to file or late filing of any return, report or other
filing, and any interest in respect of such penalties and additions, additions
to tax or additional amounts imposed by any and all federal, state, local,
foreign or other taxing authority.
     “Tax Return” means any declaration, statement, report, return, information
return or claim for refund relating to Taxes (including information required to
be supplied to a governmental entity in respect of such report or return),
including, if applicable, any combined or consolidated return for any group of
entities that includes the Company or any Company Subsidiary.
     “Taxing Authority” means, with respect to any Tax, the Governmental Entity
that imposes such Tax, and the agency (if any) charged with the collection of
such Tax for such Governmental Entity.
     “Termination Fee” has the meaning set forth in Section 8.3(a).
     “Third Party” has the meaning set forth in Section 6.3(f).
     “Transaction Approvals” has the meaning set forth in Section 4.3.

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     IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.

            LIBERTY MUTUAL INSURANCE COMPANY
      By:   /s/ Michael J. Fallon       Name:   Michael J. Fallon       Title:  
Vice President       WATERFALL MERGER CORP.
      By:   /s/ Michael J. Fallon       Name:   Michael J. Fallon       Title:  
Vice President       OHIO CASUALTY CORPORATION
      By:   /s/ Dan R. Carmichael         Name:   Dan R. Carmichael       
Title:   Chief Executive Officer and President   

 

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EXHIBIT A
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
OHIO CASUALTY CORPORATION

     
FIRST:
  The name of the Corporation is Ohio Casualty Corporation.
 
   
SECOND:
  The place in Ohio where its principal office is to be located is the City of
Fairfield, County of Butler.
 
   
THIRD:
  The purpose for which the Corporation is formed is to engage in any lawful act
or activity for which corporations may be formed under Sections 1701.01 to
1701.98 of the Ohio Revised Code.
 
   
FOURTH:
  The aggregate number of shares which the Corporation shall have the authority
to issue shall be 1,000, each with no par value.

A-1