AGREEMENT AND PLAN OF MERGER

DATED AS OF MAY 6, 2007

AMONG

LIBERTY MUTUAL INSURANCE COMPANY,

WATERFALL MERGER CORP.

AND

OHIO CASUALTY CORPORATION

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 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):

(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 Companys 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 Carmichaels 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 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 committees 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 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 Shareholders 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 Shareholders 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.

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 Companys 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 holders 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.

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 Moodys Investors Service, Inc. or Standard & Poors Corporation, respectively or a combination of the foregoing or in certificates of deposit, bank repurchase agreements or bankers 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.

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:

Section 3.01. 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 3.02. 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 Companys 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 shareholders 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 Companys shareholders, (ii) approved this Agreement and the transactions contemplated hereby in accordance with the OGCL, and (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 Companys "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) 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 (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 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 Companys 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 Companys 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 Companys internal controls over financial reporting that are reasonably likely to adversely affect the Companys 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 Companys internal controls over financial reporting.

The Company has made available to Parent any such disclosure made by management to the Companys 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 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 Companys 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 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.

(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 Companys 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 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 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 associations 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.

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 Companys 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.

(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.

(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 plans 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.

(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 Companys 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 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 Companys 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, workers 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;

(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.

(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 Companys 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).

(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 Parents 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 4.01. 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, 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, Parents 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 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 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 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 Companys 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 Subsidiarys 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;

(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 Companys 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 Companys 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 Companys 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 Companys 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 $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;

(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 6.01. 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 Companys shareholders as promptly as practicable after the date the SEC staff advises that it has no further comments thereon or 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 Subsidiarys 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 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 Persons 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 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 a