- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-9 (AMENDMENT NO. 1) SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- ALLIED GROUP, INC. --------------------------------------------------------------- (NAME OF SUBJECT COMPANY) ALLIED GROUP, INC. --------------------------------------------------------------- (NAME OF PERSON(S) FILING STATEMENT) COMMON STOCK, NO PAR VALUE -------------------------------- (TITLE OF CLASS OF SECURITIES) 019220102 --------------------------------------------------------------- (CUSIP NUMBER OF CLASS OF SECURITIES) ---------------- GEORGE OLESON, ESQ. VICE PRESIDENT AND CORPORATE COUNSEL ALLIED GROUP, INC. 701 FIFTH AVENUE DES MOINES, IOWA 50391-2000 (515) 280-4211 --------------------------------------------------------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING) WITH A COPY TO: STEVEN OSTNER, ESQ. DEBEVOISE & PLIMPTON 875 THIRD AVENUE NEW YORK, NEW YORK 10022 (212) 909-6000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This amendment ("Amendment No. 1") amends and supplements the Solicitation/Recommendation Statement on Schedule 14D-9 as from time to time amended (the "Schedule 14D-9") filed with the Securities and Exchange Commission (the "Commission") on June 2, 1998 by ALLIED Group, Inc., an Iowa corporation (the "Company"), with respect to the tender offer by Nationwide Mutual Insurance Company, an Ohio corporation ("Nationwide"), and Nationwide Group Acquisition Corporation, an Ohio corporation and wholly owned subsidiary of Nationwide ("Nationwide Sub" and, collectively with Nationwide, the "Bidder"), disclosed in a tender offer statement on Schedule 14D-1, filed with the Commission on May 19, 1998 (as the same may be amended from time to time, the "Schedule 14D-1"), to purchase up to 30,634,052 shares (the "Shares"), at a price of $47 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 19, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which collectively constitute the "Initial Offer" and, as proposed to be amended as described herein, the "Offer"). Capitalized terms used herein without separate definition are used with the meanings specified in this Schedule 14D-9. ITEM 2. TENDER OFFER OF THE BIDDER On June 3, 1998, Nationwide, Nationwide Sub and the Company entered into an Agreement and Plan of Merger, dated as of June 3, 1998 (the "Merger Agreement"), a copy of which has been filed as Exhibit 35 to this Schedule 14D-9, and is incorporated herein by reference. Pursuant to the Merger Agreement, as soon as practicable following the consummation of the Offer and the satisfaction or waiver of certain conditions, Nationwide Sub will be merged with and into the Company (the "Merger"), with the Company continuing as the surviving corporation (the "Surviving Corporation"). In the Merger, each Share outstanding at the effective time of the Merger (other than Shares owned by Nationwide or Nationwide Sub, shares held as treasury shares by the Company and Dissentary Shares (as defined in the Merger Agreement)) will, by virtue of the Merger and without any action by the holder thereof, be converted into the right to receive $48.25 per Share, net to the seller in cash, without interest thereon (the "Merger Consideration"), upon surrender of the certificate formerly representing such Shares (a "Certificate"). The Merger Agreement is summarized in Item 3 of this Schedule 14D-9. ITEM 3. IDENTITY AND BACKGROUND. (b) MERGER AGREEMENT The following summary of the Merger Agreement is qualified in its entirety by reference to the Merger Agreement, a copy of which has been filed as Exhibit 35 to this Schedule 14D-9. The Merger Agreement should be read in its entirety for a more complete description of the matters summarized below. The Offer. In the Merger Agreement, the Bidder has agreed, subject to certain conditions, and among other things, to amend the Initial Offer (a) to increase the purchase price offered from $47 per Share to $48.25 per Share net to the seller in cash without interest, and (b) to modify the conditions of the Initial Offer to those set forth below under "Amended Conditions to the Offer". The Merger Agreement provides that, without the consent of the Company, the Nationwide Sub shall not (a) reduce the number of Shares sought in the Offer, (b) reduce the Offer price to a price less than $48.25 per Share, (c) change or add to the conditions set forth below under "Amended Conditions to the Offer", (d) except as provided in the next sentence, extend the Offer, (e) change the form of consideration payable in the Offers (f) waive the Minimum Condition or the Insurance Regulatory Condition without the Company's consent, or (g) amend any other term of the Offer in any manner adverse to the holders of the Shares. Notwithstanding the foregoing, Nationwide Sub may, without the consent of the Company, (A) extend the Offer, if at the scheduled or extended expiration date of the Offer any of the conditions to the Bidder's obligation to purchase the Shares shall not be satisfied or waived, until such time as such conditions are satisfied or waived, (B) extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff thereof applicable to the Offer and (C) extend the Offer for any reason on one or more occasions for an aggregate period of not more than 10 business days (for all such extensions) pursuant to this clause (C) beyond the latest expiration date that would otherwise be permitted under clause (A) or (B) of this sentence. So long as 2 the Merger Agreement is in effect, and the Offer Conditions (as defined below) have not been satisfied or waived, Nationwide Sub shall, and Nationwide shall cause Sub to, cause the Offer not to expire. Subject to the terms and conditions of the Offer and the Merger Agreement, Nationwide Sub shall, and Nationwide shall cause Nationwide Sub to accept for payment, and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer that Nationwide Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer as soon as practicable after the expiration of the Offer. The Merger. The Merger Agreement provides that, following the satisfaction or waiver of the conditions set forth therein, Nationwide Sub will be merged with and into the Company, with the Company continuing as the Surviving Corporation, and each Share then outstanding (other than Shares owned by Nationwide or Nationwide Sub shares held as treasury shares by the Company and Dissenting Shares will, by virtue of the Merger and without any action by the holder thereof, be converted into the right to receive $48.25 per Share, net to the seller in cash, without interest thereon, upon the surrender of the Certificate formerly representing such Shares. Representations and Warranties. The Merger Agreement contains representations and warranties by the Company with respect to, among other things, the organization, qualification and capitalization of the Company, the subsidiaries of the Company, the authority of the Company relative to the Merger Agreement, the absence of violations of law, required governmental filings, the statutory financial statements of the Company's insurance company subsidiaries and their actuarial reserves, the SEC filings of the Company the absence of certain changes or events and of any undisclosed liabilities, the inapplicability of state takeover statutes, compliance with applicable law, the assets of the Company, environmental matters, contracts of the Company, taxes and tax returns, benefit plans, labor relations, intellectual property, transactions with affiliates, voting requirements applicable to the Merger and the status of the Company's subsidiaries as regulated investment companies. The Merger Agreement also contains representations and warranties of Nationwide and Nationwide Sub with respect to, among other things, their organization and qualification, their authority relative to the Merger Agreement, the absence of violations of law, required governmental filings, the absence of certain litigation, and their financial ability to perform. Covenants of the Company. In the Merger Agreement, the Company has covenanted and agreed that, among other things, during the period from the date of the Merger Agreement until the effective time of the Merger (the "Effective Time"), unless Nationwide shall otherwise agree in writing, or except as otherwise contemplated in the Merger Agreement, the Company and its subsidiaries shall conduct their respective businesses in the ordinary course consistent with past practice and shall use all reasonable efforts to preserve intact their business organizations and relationships with third parties (including but not limited to their respective relationships with policyholders, insureds, agents, underwriters, brokers and investment customers), and to keep available the services of their present officers and key employees, subject to the terms of the Merger Agreement. In addition, except as otherwise contemplated by the Merger Agreement, from the date thereof until the Effective Time, without the prior written consent of Nationwide, (a) the Company shall not adopt or propose any change in its Restated Articles of Incorporation or Bylaws; (b) the Company shall not declare, set aside or pay any dividend or other distribution with respect to any shares of capital stock of the Company except for regular quarterly dividends payable in an amount no greater than $0.14 per share on the Shares and the regular quarterly dividends per share on the Preferred Shares, or split, combine or reclassify any of the Company's capital stock, and the Company and its subsidiaries shall not repurchase, redeem or otherwise acquire any shares of capital stock or other securities of, or other ownership interests in, the Company; (c) the Company shall not, and shall not permit any of its subsidiaries to, merge or consolidate with any other person or (except in the ordinary course of business) acquire a material amount of assets of any other person; (d) the Company shall not, and shall not permit any subsidiary to, sell, lease, license or otherwise surrender, relinquish or dispose of (i) any material facility owned or leased by the Company or any of its subsidiaries or (ii) any assets or property which are material to the Company and its subsidiaries taken as a whole, except pursuant to existing contracts or commitments, or in the ordinary course of business consistent with past practice; (e) the Company shall not, and 3 shall not permit any of its subsidiaries to, settle any material audit, make or change any material tax election or file materially amended tax returns; (f) the Company and its subsidiaries shall not issue any capital stock or other securities or enter into any amendment of any material term of any outstanding security of the Company, and the Company and its subsidiaries shall not incur any material indebtedness except in the ordinary course of business pursuant to existing credit facilities or arrangements, amend or otherwise increase, accelerate the payment or vesting of the amounts payable or to become payable under or fail to make any required contribution to, any Benefit Plan (as defined in the Merger Agreement) or materially increase any non-salary benefits payable to any employee or former employee, except in the ordinary course of business consistent with past practice or as otherwise permitted by the Merger Agreement; (g) the Company shall not, and shall not permit any of its subsidiaries to, grant any increase in the compensation or benefits of directors, officers, employees, consultants or agents of the Company or any of its subsidiaries other than increases in the ordinary course of business consistent with past practice; (h) the Company shall not, and shall not permit any of its subsidiaries to, enter into or amend any employment agreement or other employment arrangement with any employee of the Company or any of its subsidiaries, except in the ordinary course of business consistent with past practices (which past practices shall not be deemed to include actions taken in connection with the Merger); (i) the Company shall not change any method of accounting or accounting practice by the Company or any of its subsidiaries, except for any such required change in GAAP or SAP (as such terms are defined in the Merger Agreement); (j) the Company shall not permit any Allied Insurer to conduct transactions in investment assets except in compliance with the investment policies of such Allied insurance subsidiaries in effect on the date hereof and all applicable insurance laws and regulations; (k) the Company shall not, and shall not permit any of its subsidiaries to, enter into any agreement to purchase, or to lease for a term in excess of one year, any real property, provided that the Company, or any of its subsidiaries, (i) may as a tenant, or a landlord, renew any existing lease for a term not to exceed eighteen months and (ii) may, in its capacity as a landlord, renew any lease pursuant to an option granted prior to the date hereof; and (l) none of the Allied insurance subsidiaries may make any material change in its underwriting, claims management or reserving practices. In addition to the foregoing, the Company has agreed that, except to the extent necessary to comply with the requirements of applicable laws and regulations, it shall not, and shall not permit any of its subsidiaries to, (a) take, or agree or commit to take, any action that would make any representation and warranty of the Company in the Merger Agreement inaccurate in any material respect at, or as of any time prior to, the Effective Time, (b) omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time, provided however, that the Company shall be permitted to take or omit to take such action which (without any uncertainty) can be cured, and in fact is cured, at or prior to the Effective Time or (c) take, or agree or commit to take, any action that would result in, or is reasonably likely to result in, any of the conditions of the Merger set forth in the Merger Agreement not being satisfied. Prohibition on Solicitation. Pursuant to the Merger Agreement, the Company has agreed that it will not, and will not permit or cause any of its subsidiaries or any of the officers or directors of it or its subsidiaries to, and shall direct its and its subsidiaries' employees, agents and representatives (including any investment banker, attorney or accountant retained by it or any of its subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, consolidation or similar transaction involving, or any purchase of 20 percent or more of the assets or any equity securities of, the Company or any of its Significant Subsidiaries (as defined in Regulation S-X promulgated by the Commission) other than as set forth in the Allied Disclosure Letter, or any other business combination (any such proposal or offer, an "Acquisition Proposal"). The Merger Agreement further provides that the Company will not, and will not permit or cause any of its subsidiaries or any of the officers and directors of it or its subsidiaries to and shall direct its and its subsidiaries' employees, agents and representatives (including any investment banker, attorney or accountant retained by it or any of its subsidiaries) to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, 4 whether made before or after the date of the Merger Agreement, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that nothing contained in the Merger Agreement shall prevent the Company or its Board of Directors from (i) complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal or (ii) at any time prior to the payment for Shares pursuant to the Offer (A) providing information in response to a request therefor by a person who has made an unsolicited bona fide written Acquisition Proposal if the Board of Directors receives from such person an executed confidentiality agreement on customary terms; (B) engaging in any negotiations or discussions with any person who has made an unsolicited bona fide written Acquisition Proposal; or (C) recommending such an Acquisition Proposal to the shareholders of the Company, if and only to the extent that, (i) in each such case referred to in clause (A), (B) or (C) above, the Board of Directors of the Company determines in good faith after consultation with outside legal counsel that such action is reasonably likely to be necessary in order for its directors to comply with their respective fiduciary duties under applicable law and (ii) in the case referred to in clause (C) above, the Board of Directors of the Company determines in good faith (after consultation with its financial advisor) that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the person making the proposal and would, if consummated, result in a more favorable transaction than the transaction contemplated by the Merger Agreement, taking into account the long-term prospects and interests of the Company and its shareholders. The Company has agreed in the Merger Agreement to immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing, and that it will notify Nationwide immediately if any such inquiries, proposals or offers are received by, any such information is requested from, or any such discussions or negotiations are sought to be initiated or continued with, any of its representatives indicating, in connection with such notice, the name of such person and the material terms and conditions of any proposals or offers and thereafter shall keep Nationwide informed, on a reasonably current basis, of the status and terms of any such proposals or offers and the status of any such negotiations or discussions. If, prior to the purchase of Shares pursuant to the Offer, there is an Acquisition Proposal which the Board of Directors determines represents a more favorable transaction to the Company and its shareholders than the transactions contemplated by the Merger Agreement, and if the Board of Directors of the Company, after consultation with outside counsel, shall have determined that failure to terminate the Merger Agreement is reasonably likely to be inconsistent with the fiduciary duties of the Board of Directors under applicable law, the Company may terminate the Merger Agreement. If the Company so elects to terminate the Merger Agreement, the Company shall, immediately prior to any such termination, pay a termination fee in the amount of $30 million in immediately available funds by wire transfer to a bank account designated by Nationwide. Stockholder Approval; Preparation of Proxy Statement. The Merger Agreement provides that as soon as practicable following the purchase of the Shares pursuant to the Offer, the Company shall prepare and file with the Commission the Proxy Statement, if required by applicable law. The Company will use its reasonable best efforts to cause the Proxy Statement to be mailed to its shareholders as promptly as practicable. Nationwide and Nationwide Sub will use their reasonable best efforts to assist the Company in the preparation and filing of the Proxy Statement. Subject to the fiduciary obligations of the Board of Directors of the Company, as described above, the Merger Agreement provides that following the purchase of Shares in the Offer, if Nationwide and its subsidiaries shall not following such purchase own shares representing at least 90% of the Company's outstanding Shares and 90% of Allied's outstanding Preferred Shares, the Company will take all actions necessary in accordance with applicable law and its Articles of Incorporation and By-laws to convene a meeting, if required by applicable law, of its shareholders (the "Shareholders Meeting") to consider and vote upon the approval of the Merger Agreement and the Merger. Subject to the fiduciary obligations of the Board of Directors of the Company, as described above, the Merger Agreement further provides that the Company will, through its Board of Directors, recommend to its shareholders approval of the Merger Agreement and the Merger, and that the Company will 5 use its reasonable best efforts to hold the Shareholders Meeting (unless following the purchase of Shares in the Offer Nationwide and its subsidiaries own at least 90% of the Company's outstanding Shares and 90% of the Company's outstanding Preferred Shares), as soon as practicable after the date of the Merger Agreement. For a description of the short-form merger provisions of the Iowa Business Corporation Law, which, under certain circumstances, could be applicable to the Merger, see the introduction to the Bidder's Offer to Purchase. Access to Information. Pursuant to the Merger Agreement, subject to applicable law, the Company (a) shall afford to Nationwide's and Nationwide Sub's accountants, legal counsel and other advisors ("Representatives") full access during normal business hours through the period immediately prior to the Effective Time to all of its and the its Significant Subsidiaries' assets, books, contracts, commitments and records (including, but not limited to, tax returns), and (b) during such period, shall furnish promptly to Nationwide and Nationwide Sub all such information concerning its business, assets and personnel or those of any of its affiliates, in either clause (a) or (b), as Nationwide or Nationwide Sub may reasonably request. Unless otherwise required by law, Nationwide and Nationwide Sub will, and will cause their Representatives to, hold any such information in confidence until such time as such information otherwise becomes publicly available through no wrongful act of Nationwide, Nationwide Sub or their Representatives. In the event of the termination of the Merger Agreement for any reason, Nationwide will, and will cause Nationwide Sub and their respective Representatives to, return to the Company all copies of written information furnished by the Company or its Representatives to Nationwide, Nationwide Sub or their Representatives and destroy all memoranda, notes and other writings prepared by Nationwide, Nationwide Sub or their Representatives based upon or including the information furnished by the Company or any of its Representatives to Nationwide, Nationwide Sub or their Representatives (and Nationwide will certify to the Company that such destruction has occurred) and neither Nationwide nor Nationwide Sub shall use any such information for any purpose. Prior to the completion of the Offer and, if the Merger Agreement is terminated, during the two-year period following the date of termination, Nationwide will not (and will not assist or encourage others, including its subsidiaries, to) solicit the services, as employee, consultant or otherwise, of any employee of the Company, provided, that nothing in the Merger Agreement shall be deemed to prohibit general solicitations of employment of persons in Nationwide's ordinary course of business not directed specifically toward employees of the Company, solicitations through executive recruiting firms not directed specifically toward employees of the Company or employees that make contact with Nationwide. Reasonable Best Efforts. Each of the parties to the Merger Agreement agrees to use its reasonable best efforts to take, or cause to be taken all action, to do, or cause to be done, and to assist and cooperate with the other parties in doing or causing to be done, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by the Merger Agreement, including, but not limited to, (i) the holding of the Shareholders Meeting and the preparation of the Proxy Statement, (ii) the obtaining of all governmental approvals, and all other necessary actions or nonactions, waivers, consents and approvals from all appropriate governmental entities and other persons and the making of all necessary registrations and filings, (iii) the obtaining of the opinions and other documents that are conditions to the closing of the Merger, (iv) the resolution of all organizational and human resources issues relating to the transactions contemplated by the Merger Agreement, (v) the obtaining or making of all consents, environmental permits, filings or licenses necessary or desirable to ensure that the business of the Surviving Corporation may be conducted without disruption consistent with the past practice of each of the constituent companies to the Merger and (vi) the defending of any legal proceedings challenging the Merger Agreement or the consummation of the transactions contemplated thereby, the defense of which shall, at the request of either the Company or Nationwide, be conducted jointly by Nationwide and the Company on a basis that is satisfactory to both the Company and Nationwide. The Company grants Nationwide the right to decide for purposes of the insurance regulatory hearings whether to submit regulatory applications for the Company, Allied Life and Allied Mutual concurrently or separately, and whether to conduct the regulatory hearing and approval proceeds concurrently or separately for each of the Company, Allied Life and Allied Mutual. Both the Company and Nationwide agree to use their reasonable best efforts to coordinate and cooperate during the regulatory approval process. 6 Certain Litigation. Nationwide shall cease, in any and all respects, the prosecution of any litigation against the Company or its affiliates. Immediately following the Effective Time Nationwide shall dismiss without prejudice any and all litigation brought by Nationwide against the Company or its affiliates. See "Pending Litigation". Board of Directors; Corporate Governance. Promptly upon acceptance for payment of the Shares by Nationwide Sub pursuant to the Offer, Nationwide Sub shall be entitled to designate such number of directors on the Board of Directors of the Company as will give Nationwide Sub, subject to compliance with Section 14(f) of the Exchange Act, a majority of such directors, and the Company shall, at such time, cause Nationwide Sub's designees to be so elected by its existing Board of Directors and each subsidiary of Company and each committee of the Board of Directors of the Company and each such Subsidiary as will give Nationwide Sub a majority of such directors or committee, and the Company shall, at such time, cause Nationwide Sub's designees to be so elected. Subject to applicable law, the Company shall take all action requested by Nationwide necessary to effect any such election. In connection with the foregoing, the Company will promptly, at the option of Nationwide, either increase the size of its Board of Directors and/or obtain the resignation of such number of its current directors as is necessary to enable Nationwide Sub's designees to be elected or appointed to the Company's Board of Directors. Treatment of Stock Options; Certain Benefits. Pursuant to the Merger Agreement, as of immediately prior to the Effective Time each option to acquire Shares (each, an "Option"), restricted stock award ("Restricted Stock") or stock appreciation right ("SARs" and, together with the Options and Restricted Stock, the "Awards") outstanding under any of the Company's Long- Term Management Incentive Plan, the Nonqualified Stock Option Plan, the Stock Option Plan, the Executive Equity Incentive Plan or any other similar plan, arrangement or agreement (together, the "Company Plans"), whether or not then exercisable or vested, shall become fully exercisable and vested and shall be canceled or repurchased and, in consideration of such cancellation or repurchase, the Company shall pay to the holder of such Award an amount in respect thereof equal to the product of (A) the Applicable Amount, multiplied by (B) the number of shares subject thereto (such payment to be net of applicable withholding taxes). The term "Applicable Amount" shall mean (i) in the case of Awards of Restricted Stock, the Merger Consideration, (ii) in the case of Awards of Options, the excess of (A) the Merger Consideration over (B) the exercise price of such Option or (iii) in the case of Awards of SARS, the excess of (A) the Merger Consideration over (B) the grant price of such SAR. The Merger Agreement provides that, for a period of at least one year following the Effective Time, Nationwide shall provide each employee or former employee of the Company or any of its subsidiaries with (i) the same basic compensation (including base salary, wages or commissions) and annual incentive opportunity, to the extent applicable, and (ii) benefits, which, in the aggregate, are substantially comparable, in each case to the compensation and benefits that were provided to such employee or former employee by the Company or any of its subsidiaries (including, but not limited to any Allied Benefit Plan) as of immediately prior to the Effective Time, provided that the foregoing items (i) and (ii) shall not be deemed to require Nationwide to offer an employee stock ownership plan or other equity related arrangement. Nationwide is not required to continue any such employee's employment following the Effective Time, provided, however, that, in the event that any such employee is terminated involuntarily following the Effective Time and prior to the first anniversary thereof by action of Nationwide or any of its subsidiaries, such employee shall receive at least the same severance and termination benefits as he or she would have received under the terms of the applicable Allied Benefit Plan, as in effect immediately prior to the Effective Time. From and after the Effective Time, for purposes of determining eligibility, but not for purposes of benefit accrual under the Nationwide defined benefit plan, and for purposes of determining entitlement to vesting and entitlement to vacation, severance and other benefits for employees under any compensation, severance, welfare, pension (but not for purposes of benefit accrual), benefit, savings or other plan of Nationwide or any of its subsidiaries in which employees of the Company or any of its subsidiaries become eligible to participate, service with the Company or any of its subsidiaries shall be credited as if such service had been rendered to Nationwide or such Nationwide Subsidiary; provided that Nationwide may, in lieu of providing retiree medical coverage under Nationwide's retiree medical plan, cause Allied to continue to offer its retiree medical plan as currently in effect to its current and former employees. For purposes of each 7 outstanding Company short-term, mid-term and long-term incentive award held by any Company employee that is based in whole or in part on the achievement of any performance or other similar criteria, such award shall be adjusted, as determined by Nationwide in consultation with the Company, to reflect factors that adversely impact the opportunity of such Allied employee to achieve such performance or other criteria, and which shall include financial advisory, legal and other expenses incurred in connection with the transactions contemplated by this Agreement. Indemnification and Insurance. The Merger Agreement provides that, in the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action, suit, proceeding or investigation by or in the right of the Company or any of its subsidiaries, in which any of the present officers or directors (the "Indemnified Parties") of the Company or any of its subsidiaries is, or is threatened to be, made a party by reason of the fact that he or she is or was a director, officer, employee or agent of the Company or any of its subsidiaries, or is or was serving at the request of the Company or any of its subsidiaries as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether before or after the Effective Time, the parties to the Merger Agreement will cooperate and use their best efforts to defend against and respond thereto. It is understood and agreed that the Company shall indemnify and hold harmless, and after the Effective Time the Surviving Corporation and Nationwide, jointly and severally, shall indemnify and hold harmless, as and to the full extent permitted by applicable Law, each such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorneys, fees and expenses), judgments, fines and amounts paid in settlement in connection with any such claim, action, suit, proceeding or investigation, and, in the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) the Indemnified Parties may retain one counsel satisfactory to them unless there are conflicts under applicable professional standards, and the Company, or the Surviving Corporation and Nationwide after the Effective Time, shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received and (ii) the Company and the Surviving Corporation and Nationwide will use their respective reasonable best efforts to assist in the vigorous defense of any such matter; provided, that neither the Company nor the Surviving Corporation nor Nationwide shall be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld); and provided further that the Surviving Corporation and Nationwide shall have no obligation under the Merger Agreement to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and non-appealable, that indemnification of such Indemnified Party in the manner contemplated by the Merger Agreement is prohibited by applicable law. The Merger Agreement further provides that Nationwide shall cause the Surviving Corporation to keep in effect in its By-Laws a provision for a period of not less than six years from the Effective Time (or, in the case of matters occurring prior to the Effective Time which have not been resolved prior to the sixth anniversary of the Effective Time, until such matters are finally resolved) which provides for indemnification of the Indemnified Parties to the full extent permitted by applicable law. In addition, the Merger Agreement provides that Nationwide shall cause to be maintained in effect for not less than six years from the Effective Time the current policies of the directors' and officers' liability insurance maintained by the Company (provided that Nationwide may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous) with respect to matters occurring prior to the Effective Time; provided, however, that if the aggregate annual premiums for such insurance at any time during such period shall exceed 200% of the per annum rate of premium currently paid by the Company and its Subsidiaries for such insurance on the date of the Merger Agreement, then Nationwide shall cause the Company (or the Surviving Corporation if after the Effective Time) to, and the Company (or the Surviving Corporation if after the Effective Time) shall, provide the maximum coverage that shall then be available at an annual premium equal to 200% of such rate, and Nationwide, in addition to the indemnification described above, shall indemnify the Indemnified Parties for the balance of such insurance coverage on the same terms and conditions as though Nationwide were the insurer under those policies. 8 Conditions to the Merger. The respective obligation of each party to the Merger Agreement to effect the Merger shall be subject to the satisfaction, prior to the closing of the transactions contemplated by the Merger Agreement, of the following conditions: (a) the Offer shall have been successfully completed; (b) if required by applicable law, the Merger Agreement and the Merger shall have been approved and adopted by the vote of the shareholders of the Company at the Shareholders Meeting called for such purpose; and (c) no order entered or law promulgated or enacted by any governmental entity shall be in effect which would prevent the consummation of the Merger or any other material transactions completed by the Merger Agreement, and no proceeding brought by a governmental entity shall have been commenced and be pending which seeks to restrain, enjoin, prevent, or materially delay or restructure the Merger or any other material transactions contemplated by the Merger Agreement. Termination. The Merger Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time, whether before or after approval of the Merger by the shareholders of Nationwide or of Allied: (a) by mutual consent of Nationwide and the Company; (b) by Nationwide if the Board of Directors of the Company withdraws its recommendation to the Company's shareholders to approve the Merger; (c) by Nationwide or the Company if consummation of the Merger is barred by a permanent injunction which is final and non-appealable; (d) by the Company if, prior to the purchase of Shares pursuant to the Offer, there is an Acquisition Proposal which the Board of Directors of the Company determines represents a more favorable transaction to the Company and its shareholders than the transactions contemplated by the Merger Agreement, and if the Board of Directors, after consultation with outside counsel, shall have determined that failure to terminate the Merger Agreement is reasonably likely to be inconsistent with the fiduciary duties of the Board of Directors of the Company under applicable law; (e) by the Company prior to the completion of the Offer, upon a material breach of any representation or warranty of Nationwide or Nationwide's failure to comply in any material respect with any of its covenants or agreements, or if any representation or warranty of Nationwide or Nationwide Sub shall be or become untrue in any material respect, which breach or failure to comply or untruth is not curable or, if curable, is not cured within 30 Business Days (as defined in the Merger Agreement) after written notice thereof has been given to Nationwide (materiality being construed in light of the transactions contemplated by the Merger Agreement); (f) by Nationwide prior to the completion of the Offer, upon a material breach of any representation, or warranty of the Company or the Company's failure to comply in any material respect with any of its covenants or agreements, or if any representation or warranty of the Company shall be or become untrue in any material respect, which breach or failure to comply or untruth is not curable or, if curable, is not cured within 30 Business Days after written notice thereof has been given to the Company (materiality being construed in light of the transactions contemplated by the Merger Agreement); or (g) by Nationwide or by the Company, if Shares shall not have been purchased pursuant to the Offer by December 31, 1998 (the "Termination Date"), provided that such right to terminate the Merger Agreement shall not be available to a party whose failure to fulfill any obligation under the Merger Agreement has been the cause of the failure of such purchase to occur by such date. Fees and Expenses. The Merger Agreement provides that, if the Merger is not consummated, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring such costs or expenses, except for expenses incurred in connection with the printing, mailing and solicitation of proxies from shareholders and all filing fees and related expenses which shall be borne equally by Nationwide and the Company. Notwithstanding the foregoing provisions, as described under "Prohibition on Solicitation", above, if prior to the purchase of Shares pursuant to the Offer, there is an Acquisition Proposal which the Board of Directors determines represents a more favorable transaction to the Company and its shareholders than the transactions contemplated by the Merger Agreement, and if the Board of Directors of the Company, after consultation with outside counsel, shall have determined that failure to terminate the Merger Agreement is reasonably likely to be inconsistent with the fiduciary duties of the Board of Directors under applicable Law, the Company may terminate the Merger Agreement. If the Company so elects to terminate the Merger Agreement, the Company shall, immediately prior to any such termination, pay a termination fee in the amount of $30 million in 9 immediately available funds by wire transfer to a bank account designated by Nationwide. In the event of a termination by Nationwide for a willful breach of a representation or warranty, the Company shall pay Nationwide $10 million. The Company will also pay a $30 million termination fee following the termination of the Merger Agreement by Nationwide (i) following a withdrawal by the Board of Directors of its recommendation that the shareholder approve the Merger Agreement (other than if the recommendation is withdrawn because the conditions to the consummation of the Merger cannot be fulfilled for any reason other than a breach by the Company), or (ii) (A) by virtue of an uncured breach of covenant by the Company or (B) after the Termination Date, in each case following the making of an Acquisition Proposal by a third party, and with the termination fee only upon the execution, within one year of such termination, of a definitive agreement implementing an Acquisition Proposal. Amendment. The Merger Agreement may be amended by the parties thereto at any time before or after the approval of the Merger Agreement by the shareholders of the Company, but after such approval no amendment or modification shall be made which in any way materially adversely affects the rights of such shareholders without the further approval of such shareholders. The Merger Agreement may not be amended, modified or supplemented except by written agreement of the parties thereto. Amended Conditions of the Offer. Notwithstanding any other term of the Offer or the Merger Agreement, the Bidder is not required to accept for payment, or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to Nationwide Sub's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares not theretofore accepted for payment or paid for (a) unless (A) there are validly tendered and not properly withdrawn prior to the expiration of the Offer that number of Shares which constitute a majority of the Shares on a fully-diluted basis (the "Minimum Condition"), and (B) all insurance regulatory approvals necessary for Nationwide and Nationwide Sub's acquisition of control of the Company and its Insurance Subsidiaries are obtained on terms and conditions reasonably satisfactory to Nationwide (the "Insurance Regulatory Condition") and any waiting period applicable to the consummation of the Offer and the Merger under the HSR Act shall have expired or been terminated, or (b) if at any time on or after the date of the Merger Agreement and at or before the time that the particular Shares are accepted for payment (whether or not any other Shares shall theretofore have been accepted for payment or paid for pursuant to the Offer) any of the following conditions exists: (A) there shall have occurred and be continuing (i) any general suspension of, or limitation on prices for, trading in securities on the New York Stock Exchange, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, or (iii) a commencement of a war, armed hostilities or other international or national calamity directly involving the United States which has a material adverse effect on the general economic conditions in the United States; (B) any statute, rule, regulation, or temporary, preliminary or permanent order or injunction shall be promulgated, enacted, entered, enforced or deemed applicable to the Offer, the Merger or performance under the Merger Agreement, by any state, federal or foreign government or governmental authority or court or governmental agency of competent jurisdiction that (i) prohibits the consummation of the Offer or the Merger or (ii) imposes material limitations on the ability of Nationwide Sub effectively to exercise full rights of ownership with respect to the Shares, including, without limitation, the right to vote any Shares purchased by it on all matters properly presented to the stockholders of the Company; provided that Nationwide and Nationwide Sub shall have used their best efforts to have any such decree, order or injunction vacated or reversed; (C) the Company shall have entered into an agreement obligating the Company to enter into an Acquisition Transaction with a person other than Nationwide, Nationwide Sub or an affiliate of either; (D) (i) the Company shall have breached or failed to perform in any material respect any of its material obligations covenants or agreements under the Merger Agreement, (ii) the representations and warranties of the Company contained in Merger Agreement shall not be true and correct as of the date of the Merger Agreement or as of the scheduled or extended expiration of the Offer, as if made as of such dates (provided that representations and warranties made as of a specified date on or prior to the date of the Merger Agreement, need only be true as of such date), unless the failure to be so true and correct (without regard to any materiality 10 qualifiers) would not, in the aggregate, be reasonably likely to have a "Material Adverse Effect" (defined as any change in or effect on the business, operations, or financial condition of the Company or any of its subsidiaries that is materially adverse to the Company and its subsidiaries taken as a whole except for (1) any change or effect resulting from general economic, financial or market conditions, (2) any change or effect resulting from conditions or circumstances generally affecting the property and casualty insurance industry, (3) any change or effect resulting from the actions of Allied Mutual or of Allied Life Financial Corporation ("Allied Life"), including but not limited to the termination of any agreements between or among, the Company, Allied Mutual and/or Allied Life and (4) any change or effect resulting from the announcement of the Offer or of the Merger Agreement, including but not limited to the termination by any agents of their affiliation with the Company), or (iii) the representations and warranties of the Company in the Merger Agreement with respect to the capitalization of the Company and the Company's authority to enter into and perform its obligations under the Merger Agreement shall not be true and correct in all material respects; (E) the Board of Directors shall have withdrawn its recommendation or modified its recommendation in a manner adverse to Nationwide or Nationwide Sub; or (F) the failure to obtain any governmental approvals which failure, in the aggregate, would reasonably be expected to have a Material Adverse Effect. The foregoing conditions are for the sole benefit of Nationwide Sub and may be asserted by Nationwide Sub regardless of the circumstances giving rise to any such condition or may be waived by Nationwide Sub in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Nationwide Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. SHAREHOLDER AGREEMENT The following summary of the Shareholder Agreement is qualified in its entirety by reference to the Shareholder Agreement, a copy of which has been filed as Annex B to Exhibit 35 to this Schedule 14D-9 and is incorporated by reference herein. The Shareholder Agreement should be read in its entirety for a more complete description of the matters summarized below: Pursuant to the Shareholder Agreement, ALLIED Mutual agrees (i) not to sell, transfer, pledge, assign or otherwise dispose of, or enter into any Contract (as defined herein), option or other arrangement (including any profit sharing arrangement) or understanding with respect to the sale, transfer, pledge, assignment or other disposition of, the Shares or shares of 6 3/4% Series Preferred Stock held by ALLIED Mutual (collectively, the "Securities") to any person other than Nationwide or Nationwide's designee, (ii) not to enter into any voting arrangement, whether by proxy, voting agreement, voting, trust, power-of-attorney or otherwise, with respect to the Securities and (iii) to tender, and not to withdraw, the Shares it holds pursuant to the Offer. ALLIED Mutual agrees not to, and agrees not to permit any investment banker, financial adviser, attorney, accountant or other representative or agent of ALLIED Mutual to, directly or indirectly (i) solicit, initiate or knowingly encourage (including by way of furnishing information), or knowingly facilitate any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Acquisition Proposal or (ii) participate in any discussions or negotiations regarding any Acquisition Proposal. At any meeting of shareholders of the Company called to vote upon the Merger and the Merger Agreement or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval (including by written consent) with respect to the Merger and the Merger Agreement is sought, ALLIED Mutual agrees to, including by initiating a written consent solicitation if requested by Nationwide, vote (or cause to be voted) ALLIED Mutual's Securities in favor of the Merger, the adoption of the Merger Agreement and the approval of the other transactions contemplated by the Merger Agreement. At any meeting of shareholders of the Company or at any adjournment thereof or in any other circumstances upon which ALLIED Mutual's vote, consent or other approval is sought, ALLIED Mutual will vote (or cause to be voted) ALLIED Mutual's 11 Securities against (i) any merger (other than the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company or any other Acquisition Proposal (collectively, "Alternative Transactions") or (ii) any amendment of the Company's Certificate of Incorporation or by-laws or other proposal or transaction involving the Company or any of its subsidiaries, which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify, the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement including any consent to the treatment of any Securities in or in connection with such transaction (collectively, "Frustrating Transactions"). The Shareholder Agreement terminates upon the earlier to occur of a termination of the Merger Agreement or a termination of the ALLIED Mutual Merger Agreement (as defined below), in either case in accordance with such agreement's terms. ALLIED Mutual irrevocably grants to, and appoints, any individual who shall be designated by Nationwide as ALLIED Mutual's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of ALLIED Mutual, to vote ALLIED Mutual's Securities, or grant a consent or approval in respect of such Securities, at any meeting of shareholders of the Company or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, (i) in favor of the Merger, the adoption by the Company of the Merger Agreement and the approval of the other transactions contemplated by the Merger Agreement, and (ii) against any Alternative Transaction or Frustrating Transaction. Nationwide, in addition to entering into the Merger Agreement, has entered into an Agreement and Plan of Merger, dated as of June 3, 1998 (the "ALLIED Mutual Merger Agreement"), with ALLIED Mutual, providing for the merger of ALLIED Mutual into Nationwide (the "ALLIED Mutual Merger"). A copy of the ALLIED Mutual Merger Agreement is attached hereto as Exhibit 36 and incorporated herein by reference. The ALLIED Mutual Merger Agreement contemplates that, immediately prior to the consummation of the ALLIED Mutual Merger, ALLIED Mutual would make an extraordinary distribution of $110 million in cash to ALLIED Mutual's policyholders. Nationwide has also entered into an Agreement and Plan of Merger, dated as of June 3, 1998 (the "ALLIED Life Merger Agreement"), with ALLIED Life, providing for the merger of a subsidiary of Nationwide with and into ALLIED Life, with ALLIED Life being the surviving corporation (the "ALLIED Life Merger"). In the ALLIED Life Merger, the holders of the outstanding shares of common stock of ALLIED Life (other than ALLIED Mutual and holders exercising dissenters' rights of appraisal) would receive $30 per share in cash. A copy of the ALLIED Life Merger Agreement is attached hereto as Exhibit 37 and incorporated herein by reference. Certain of the directors and officers of the Company are also directors and/or officers of ALLIED Mutual and/or of ALLIED Life. A majority of the Company's directors, Messrs. Carpenter, Colby, Jacobson, Taylor, Timmons and Willis (the "Unaffiliated Directors"), are not officers or directors of, or otherwise affiliated with, either ALLIED Mutual or ALLIED Life. Except as described in this Schedule 14D-9, there are no material contracts, agreements, arrangements or understandings or any actual or potential conflicts of interest between the Company or its affiliates and (i) any of the Company's executive officers, directors or affiliates or (ii) Bidder and its executive officers, directors or affiliates. ITEM 4. THE SOLICITATION OR RECOMMENDATION. Item 4(a)-(b) of the Schedule 14D-9 is hereby amended and supplemented by the following: The Board of Directors of the Company, acting on the unanimous recommendation of a committee (the "Committee") consisting of all of the Unaffiliated Directors, has unanimously determined that the Offer and the Merger are fair to and in the best interests of the shareholders of the Company (other than Nationwide and its subsidiaries) and recommends that all shareholders of the Company accept the Offer, tender their Shares pursuant to the Offer and, if required, vote in favor of the Merger. 12 This recommendation is based in part upon an opinion received by the Company from Morgan Stanley, the Company's financial advisor, that the consideration to be received by the Company's stockholders pursuant to the Offer and received by the Company's stockholders in the Merger, taken together, is fair to such stockholders (other than Nationwide and its affiliates) from a financial point of view. THE FULL TEXT OF THE FAIRNESS OPINION RECEIVED BY THE COMPANY FROM MORGAN STANLEY IS FILED AS EXHIBIT 38 TO THIS SCHEDULE 14D-9 AND IS ALSO ATTACHED HERETO AS ANNEX A. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. As set forth in the Offer Documents, Nationwide Sub will purchase the Shares tendered prior to the close of the Offer if the Minimum Tender Condition has been satisfied by that time and if all other conditions to the Offer, including, without limitation, the condition that Bidder have obtained all required insurance regulatory approvals, have been satisfied (or waived). Stockholders considering not tendering their Shares in order to wait for the Merger should note that if the Minimum Tender Condition is not satisfied or any other condition to the Offer is not satisfied, the Purchaser is not obligated to purchase any Shares, and can terminate the Offer and the Merger Agreement and not proceed with the Merger. Under Iowa law, the approval of the Board of Directors and the affirmative vote of the holders of a majority of the voting power of the outstanding Shares and the 6 3/4% Series Preferred Stock, voting together as a class, is required to approve the Merger. Accordingly, if the Minimum Tender Condition is satisfied, the Bidder will have sufficient voting power to cause the approval of the Merger without the affirmative vote of any other stockholder. Pursuant to the Shareholder Agreement described above, ALLIED Mutual has, among other things, agreed to grant an irrevocable proxy to Nationwide's designees providing (i) for the vote of all the outstanding Shares and the shares of 6 3/4% Series Preferred Stock owned by ALLIED Mutual in favor of the Merger and (ii) voting against any Alternative Transaction or Frustrating Transaction (as such terms are defined in the Shareholder Agreement). The Offer is scheduled to expire at 12:00 midnight, New York City time, on June 16, 1998, but it is expected that the Bidder will extend the period of time for which the Offer remains open. A copy of the press release issued jointly by the Company and Nationwide on June 4, 1998 announcing the Merger and the amended Offer has been filed as Exhibit 39 to this Schedule 14D-9 and is incorporated herein by reference in its entirety. A copy of a letter to shareholders from the President and Chief Executive Officer of the Company relating to the Board's recommendation is filed as Exhibit 40 hereto and is incorporated herein by reference. (b) Background: Reasons for the Recommendation. In reaching its conclusions described as to the amended Offer, the Committee and the Board of Directors considered a number of factors, including, without limitation, the following: (i) the financial and other terms and conditions of the Offer and the Merger Agreement; (ii) the fact that the $48.25 per share price to be received by the shareholders in both the Offer and the Merger represents a substantial premium over the closing market price of $27 3/4 per Share on May 15, 1998, the last full trading day prior to Nationwide's first public announcement of the intention to commence a tender offer for the Shares; (iii) the oral opinion of Morgan Stanley, confirmed in writing, that the consideration to be received by the Company's shareholders pursuant to the Offer and the Merger, taken together, is fair to such shareholders (other than Nationwide and its affiliates) from a financial point of view. A copy of Morgan Stanley's written opinion is attached to this Schedule 14D-9 as Annex A and is incorporated herein by reference. Such opinion should be read in its entirety for a description of the procedures followed, assumptions and qualifications made, matters considered and limitations of the review undertaken by Morgan Stanley; (iv) the presentation of Morgan Stanley to the Committee and the Board of Directors at meetings on May 27, June 2 and 3, 1998, as to various financial and other matters deemed relevant to the Board of Directors; 13 (v) the fact that no other potential strategic partner had expressed an interest in engaging in a business combination or other strategic transaction that would likely be on terms as favorable to the Company's shareholders as those of the Offer and Merger; (vi) the risk, in light of the Offer, that delay by the Company would damage its franchise and would have an adverse impact on the Company's relationships with its employees, agents, regulators and customers, and the risk that any such damage or adverse impact would increase with time; and (vii) the fact that, prior to the purchase of Shares in the Offer, the Company may terminate the Merger Agreement if there is an acquisition proposal that the Board of Directors determines represents a more favorable transaction to the Company and its shareholders than the Offer and the Merger, if the Board of Directors, after consulting with outside counsel, shall have determined that failure to terminate is reasonably likely to be inconsistent with the Board's fiduciary duties under applicable law, following prior notice to Nationwide concerning the other acquisition proposal and upon the payment of a $30,000,000 termination fee, inclusive of Nationwide's expenses associated with the Offer and the Merger. See "Termination" under the description of the Merger Agreement above. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. Item 6(b) of the Schedule 14D-9 is hereby amended by adding to it the following: (b) To the best knowledge of the Company, the executive officers and directors of the Company intend to tender all Shares owned by them pursuant to the Offer, as amended by the Merger Agreement. The foregoing statement does not include any Shares over which, or with respect to which, any such executive officer, director or affiliate acts in a fiduciary or representative capacity or is subject to the instructions of a third party with respect to such decision to tender. In connection with the execution and delivery of the Merger Agreement, ALLIED Mutual has entered into a Shareholder Agreement with Bidder pursuant to which ALLIED Mutual has, among other things, agreed to grant an irrevocable proxy to Nationwide's designees providing (i) for the vote of all of the outstanding Preferred Stock owned by ALLIED Mutual in favor of the Merger and (ii) voting against any Alternative Transaction or Frustrating Transaction (as such terms are defined in the Shareholder Agreement). A copy of the Shareholder Agreement appears as Exhibit B to the Merger Agreement filed as Exhibit 35 hereto and incorporated herein by reference. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY. Item 7(a)-(b) of the Schedule 14D-9 is amended by adding to it the following: On the terms and subject to the conditions of the Merger Agreement, the Company has terminated discussions with third parties with respect to their possible interest in acquiring or merging with the Company. Except as set forth in this Schedule 14D-9, there is no transaction, board resolution, agreement in principle or signed contract in response to the Offer that relates to or would result in (i) an extraordinary transaction, such as a merger or reorganization, involving the Company or any subsidiary thereof, (ii) a purchase, sale or transfer of a material amount of assets by the Company or any subsidiary thereof, (iii) a tender offer for or other acquisition of securities by or of the Company, or (iv) any material change in the present capitalization or dividend policy of the Company. 14 ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 2 Motion filed in Rieff v. ALLIED Group in the Iowa District Court in and for Polk County on June 1, 1998. Exhibit 3 Text of Press Release issued by the Company on June 2, 1998. Exhibit 35 Agreement and Plan of Merger, dated June 3, 1998, among Nationwide, Nationwide Sub and ALLIED Group (including the Shareholder Agreement among Nationwide, Nationwide Sub and ALLIED Mutual attached as Exhibit B). Exhibit 36 Agreement and Plan of Merger, dated as of June 3, 1998, between Nationwide Mutual Insurance Company and ALLIED Mutual. Exhibit 37 Agreement and Plan of Merger, dated as of June 3, 1998, among Nationwide, Nationwide Life Acquisition Corporation and ALLIED Life. Exhibit 38 Opinion of Morgan Stanley & Co. Incorporated, dated June 3, 1998 (incorporated by reference to Annex A to this Amendment No. 1 to Schedule 14D-9). Exhibit 39 Joint Press Release, dated June 4, 1998, of the Company and Nationwide. Exhibit 40 Letter, dated June 4, 1998, of Douglas L. Andersen addressed to the shareholders of the Company.* - -------- * Included in copies mailed to shareholders. 15 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. Dated: June 4, 1998 ALLIED Group, Inc. /s/ Sally J. Malloy By: _________________________________ Name: Sally J. Malloy Title: Corporate Secretary 16 [LOGO] Morgan Stanley Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 (212) 761-4000 June 3, 1998 The Committee of Unaffiliated Directors and The Board of Directors ALLIED Group, Inc. 701 Fifth Avenue Des Moines, IO 50391 Gentlemen: We understand that ALLIED Group, Inc. ("ALLIED" or the "Company"), Nationwide Mutual Insurance Company (the "Buyer") and Nationwide Group Acquisition Corporation, a wholly owned subsidiary of the Buyer ("Acquisition Sub") have entered into an Agreement and Plan of Merger, dated as of June 3, 1998 (the "Merger Agreement"), which provides, among other things, for (i) the amendment by Acquisition Sub of its existing tender offer (the "Tender Offer") for all issued and outstanding shares of common stock, no par value (the "Company Common Stock"), of the Company to increase the purchase price from $47.00 to $48.25 per share net to the seller in cash and (ii) the subsequent merger (the "Merger") of Acquisition Sub with and into the Company. Pursuant to the Merger, the Company will become a wholly owned subsidiary of the Buyer, and each outstanding share of the Company Common Stock, other than shares held in treasury or held by the Buyer or any affiliate of the Buyer or as to which dissenters' rights have been perfected, will be converted into the right to receive $48.25 per share net to the holder in cash. The terms and the conditions of the Tender Offer and the Merger are more fully set forth in the Merger Agreement. You have asked for our opinion as to whether the consideration to be received by the holders of shares of the Company Common Stock in the Tender Offer and the Merger, taken together, is fair from a financial point of view to such holders (other than the Buyer and its affiliates). For purposes of the opinion set forth herein, we have: (ii) reviewed certain publicly available financial statements and other business and financial information of the Company; (iii) reviewed certain internal financial statements and other financial and operating data concerning the Company prepared by the management of the Company; (iv) reviewed certain financial forecasts prepared by the management of the Company; (v) discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company; (vi) reviewed the reported prices and trading activity for the Company Common Stock; (vii) compared the financial performance of the Company and the prices and trading activity of the Company Common Stock with that of certain other comparable publicly traded companies and their securities; (viii) reviewed the financial terms, to the extent publicly available, of certain acquisition transactions deemed relevant; (ix) participated in discussions and negotiations among representatives of the Company and the Buyer and their financial and legal advisors; (x) reviewed the Merger Agreement and certain related documents; and (xi) performed such other analyses and other factors as we have deemed appropriate. A-1 [LOGO] MORGAN STANLEY We have assumed and relied upon without independent verification the accuracy and completeness of the information reviewed by us for the purposes of this opinion. With respect to the financial forecasts, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial performance of the Company. We have not made any independent valuation or appraisal of the assets or liabilities of the Company, nor have we been furnished with any such appraisals. We have also assumed that the Tender Offer and the Merger will be consummated on the terms set forth in the Merger Agreement. Our opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. We have acted as financial advisor to the Committee of Unaffiliated Directors of the Board and to the Board of Directors of the Company in connection with this transaction and will receive a fee for our services. In the past, Morgan Stanley & Co. Incorporated and its affiliates have provided financial advisory and financing services for the Buyer and have received fees for the rendering of these services. It is understood that this letter is for the information of the Committee of Unaffiliated Directors and of the Board of Directors of the Company, except that this opinion may be included in its entirety in any filing made by the Company in respect of the transaction with the Securities and Exchange Commission. In addition, Morgan Stanley expresses no opinion or recommendation as to whether the holders of Company Common Stock should accept the Tender Offer. Based upon and subject to the foregoing, we are of the opinion on the date hereof that the consideration to be received by the holders of shares of the Company Common Stock pursuant to the Tender Offer and the Merger, taken together, is fair from a financial point of view to such holders (other than the Buyer and its affiliates). Very truly yours, Morgan Stanley & Co. Incorporated /s/ Phillip Barnett By: _________________________________ Phillip Barnett Managing Director A-2 EXHIBIT 2 IN THE IOWA DISTRICT COURT IN AND FOR POLK COUNTY, IOWA MARY M. RIEFF, CIVIL ACTION SSN: 480-16-6027 NO. CE 35780 Plaintiff, v. JOHN E. EVANS, DOUGLAS L. ANDERSEN, HAROLD S. EVANS, JAMIE H. SHAFFER, JAMES W. CALLISON, JAMES M. HOAK, JR., MARK. W. PUTNEY, WILLIAM J. HANCOCK, JAMES D. KIRKPATRICK, CHARLES I. COLBY, GEORGE E. MOORE, HERSCHEL G. LANGDON, CHARLES F. MORGAN, HARDY G. KUYKENDALL, WALTER J. FAYLE and ALLIED GROUP, INC. Defendants, and ALLIED MUTUAL INSURANCE COMPANY, Nominal Defendant PLAINTIFF'S MOTION FOR TEMPORARY AND PERMANENT INJUNCTIVE RELIEF AND FOR A HEARING ----------------------------------- Plaintiff, Mary M. Rieff, in the above-captioned action hereby moves this Court to enter a temporary and permanent injunction enjoining the defendant directors of Allied Mutual Insurance Company ("Allied Mutual" or "Company") from negotiating or approving or otherwise acting on a proposed merger offer made by Nationwide Mutual Insurance Company of Ohio ("Nationwide") and made public May 18, 1998, or any other mergers or acquisitions affecting Allied Mutual and its policyholders for whom the Company is exclusively operated, until further order of this Court. Plaintiff further requests that the Court set a date for a speedy hearing on the merits of this motion at the Monday, June 8, 8:00 a.m. scheduling conference in this action. The grounds for this motion are the director defendants' irreconcilable conflicts of interest, as further discussed herein and in the Complaint, as significant stockholders in, directors and officers of, and current or recent-past senior executives of defendant stock company Allied Group, Inc. ("Allied Group"), whose interests are also divergent from those of Allied Mutual. Nationwide made a simultaneous acquisition proposal for Allied Group's stock for $1.44 billion (a 69% premium price), a deal which is premised on acquiring Allied Mutual through the proposed merger at a potential windfall exceeding $500 to $750 million. The directors and executive officers of Allied Mutual would receive in excess of a $30 million premium on their stock holdings alone from the Allied Group deal. Upon information and belief, the director defendants of Allied Mutual have also negotiated for themselves and received assurances from Nationwide for indemnification from any judgment resulting from plaintiff's claim, which gives them an additional reason to ignore the Company's interests in favor of their own interests. As a result, these directors continue to demonstrate an inability to represent Allied Mutual and its policyholders' interest rather than their own. Plaintiff moves as follows: 1. Allied Mutual is a mutual insurance company, that is, its policyholders are its sole owners, and it exists solely to provide the best, low-cost insurance to its policyholder-owners. 2. This motion arises from this derivative action in which plaintiff is seeking the return of over $750 million (at current stock trading prices) in assets improperly taken by the defendants from Allied Mutual and its policyholder-owners. As set forth in detail in the Complaint, the 2 individual defendants -- all current and prior members of the board of directors of Allied Mutual -- defrauded and breached their duties to the company by a scheme in which they and their predecessors created a wholly-owned stock subsidiary of Allied Mutual, called Allied Group, Inc. ("Allied Group"), and subsequently granted and sold its stock to themselves and other inside investors for grossly inadequate or no consideration. 3. This scheme was perpetrated through a series of complex transactions beginning in 1985 whereby Allied Mutual went from owning 100% of Allied Group to owning none of its equity, or common stock. As alleged in the Complaint, Allied Mutual's interest in Allied Group has been effectively reduced to that of a subordinated creditor owning only a fixed-rate 6-3/4% series of Preferred Stock of Allied Group. In addition, defendants permitted Allied Group to take numerous corporate opportunities from Allied Mutual without any consideration, and in at least one instance they caused Allied Mutual to finance one of Allied Group's acquisitions for no consideration. See Complaint at (P)(P) 1, 43 and 46. 4. The individual defendants reorganized Allied Mutual and Allied Group in 1990 such that Allied Mutual was stripped of its employees and its agency distribution force, which Allied Group took for no consideration. In addition, an employee stock ownership plan ("ESOP") was established and, with Allied Group's complicity, purchased 8.1 million shares (then 37% of Allied Group's stock) of 8% Convertible Preferred Stock of Allied Group (each share convertible to 1 share of common stock) for approximately half its market value at $36 million. This diluted Allied Mutual's interests for clearly inadequate consideration, while it benefitted the ESOP with a windfall exceeding $200 million at the pre-offer value, and directly benefitted the director defendants and other Allied Group employee beneficiaries. See Complaint at (P)(P) 44(b)-(c). 3 5. The individual defendants also manipulated a critical pooling agreement through which virtually all the business of the two companies (and other Allied Group subsidiaries) was administered by Allied Mutual with expenses and profits apportioned on a pro rata basis. Through a series of unfair changes in the pooling agreement and the unjustifiable transfer to Allied Group of Allied Mutual's valuable right to administer the pool, Allied Mutual and its policyholder-owners were deprived of an asset worth over $200 million for no consideration, and suffer significant on-going overcharges on pool expenses. See Complaint at (P)(P) 44(d), 47-52. Allied Group's strong earnings performance is a direct result of the improper siphoning of Allied Mutual's assets for Allied Group's benefit, Allied Group's taking of Allied Mutual's corporate opportunities, its taking of Allied Mutual's employees and agency force without consideration, the manipulation of the pooling agreement to Allied Mutual's disadvantage, and the transfer of significant benefits through incentive plans and otherwise to the directors and employees who were thereby unduly enriched. See Complaint at (P)(P) 31-54. 6. This transfer of two-thirds of Allied Mutual's value resulted in the de facto demutualization of Allied Mutual (i.e., conversion to stock form) without the approval of policyholders or the payment of consideration to them as required under state law. I.C.A. (S)515G.1 et seq. See Complaint at (P)(P) 1 and 53. As a result, Allied Mutual's policyholders have suffered and continue to suffer significant economic harm, including loss of property, decreased dividends, increased premiums, and a decreased bargaining position regarding any suitors. 7. On May 18, 1998, Nationwide made two simultaneous offers; a hostile cash tender offer to purchase all of Allied Group, Inc. ("Allied Group") stock at $47 a share (a 69% premium over the then $27 trading price), and an unsolicited offer to acquire Allied Mutual by merging it into 4 Nationwide. Under the merger proposal, Allied Mutual's policyholders' interests would be grossly diluted. 8. Although the offers were made separately, they are in reality inseparably intertwined for three fundamental reasons. First, Nationwide is proposing to merge with Allied Mutual without paying anything for it, even though Allied Mutual is worth considerably more than $500 million (calculated at less than double its $270 million in current surplus assets, a conservative valuation of an insurer). In fact, this savings alone to Nationwide approximates the additional above-market-share cost Nationwide would incur through it current offer to acquire Allied Group stock for a premium. Absent the Allied Mutual merger, the Allied Group acquisition proposal would be at least $500 million less attractive and, therefore, almost surely prohibitively expensive. 9. Second, the two offers are inseparable because the Allied Mutual and Allied Group, once solely owned by Allied Mutual's policyholders, are still integrated. For example, Allied Mutual and Allied Group share the same board chairman, and have identical executive officers, including the president, chief executive officer, chief financial officer, and vice presidents. This is in addition to the four of Allied Mutual's six directors who also serve on Allied Group's board and four-man executive committee. In addition, Allied Mutual and Allied Group share the same agency distribution system which is highly coveted by Nationwide to "augment exponentially" its own capacity in sales. Absent a merger with Allied Mutual, Nationwide will be clearly restrained in how it can utilize this critically valuable asset, thereby significantly lessening the value of Allied Group. 10. Third, the two offers are inseparable because Nationwide seeks total ownership and control of Allied Group, and its objectives are not achievable as long as Allied Mutual retains ownership of preferred stock which controls 18.2% of Allied Group's voting stock. Moreover, a 5 hostile takeover by Nationwide of Allied Group can be blocked by Allied Mutual through its control of the 18.2% voting stock since Nationwide will not be able to acquire 85% of outstanding voting securities to effectuate the takeover as required by Section 490.1110 of the Iowa Code. Of course, Nationwide has conditionally offered to buy out Allied Mutual's preferred stock of Allied Group for $65 million, if the transactions are approved, and to make a one-time distribution of the net proceeds to Allied Mutual's current 220,000 policyholders. This, however, is grossly inadequate consideration to policyholders for the acquisition through merger of their valuable mutual, the loss of their last vestiges of interest in Allied Group (upon which they are totally dependent for all employee, distribution system and business services), and the loss of valuable voting leverage in Allied Group. 11. Nationwide's offers are not fair and equitable to Allied Mutual. The offer would: facilitate the absorption of Allied Mutual into Ohio-based Nationwide for inadequate consideration and the benefit of Nationwide's policyholders and facilitate the distribution of a significant financial windfall to Allied Group shareholders which belongs to Allied Mutual and its policyholders. The offers fail to make Allied Mutual, and therefore its policyholders, whole for, inter alia, the many years policyholders overpaid on their insurance premiums, received no or lower dividends than appropriate, and received no compensation for the de facto demutualization of most of their mutual insurer. Clearly, Allied Mutual and its policyholders' harms will not be rectified until they are compensated for their over $750 million losses. Nationwide's proposal to distribute anything less than the full value of Allied Mutual to Allied Mutual's 220,000 policyholders (the current offer is for under $300 per policyholder), pursuant to the merger, falls grossly short of what is fair and in the best interests of policyholders. 6 12. Although Allied Mutual's and Allied Group's directors have not approved the Nationwide offers to date, upon information and belief, both Allied Mutual and Allied Group have retained or are in the process of retaining investment bankers and other advisors to negotiate the offers. 13. Plaintiff seeks to enjoin defendants from taking any action in furtherance of these transactions because all six members of Allied Mutual's board of directors suffer from irreconcilable conflicts of interest with Allied Mutual and its policyholders and lack the necessary independence to consider, negotiate or approve them. Four of Allied Mutual's board members are also on the board of Allied Group and make up Allied Group's executive committee which has broad authority to act on behalf of the entire Allied Group board. John Evans, chairman of both Allied Mutual's and Allied Group's board, is also a highly paid consultant to Allied Mutual, Allied Group (and Allied Life Financial Corporation ("Allied Life") - see below). Douglas Andersen is president and chief executive officer for both Allied Mutual and Allied Group. Of the other two Allied Mutual directors and of the other two directors, one is a current and one a recent-past senior executive of Allied Group. All of Allied Mutual's directors own significant stock and stock options in Allied Group and stand to benefit personally from a premium price buy out and any future negotiated benefits for shareholders. As such, defendants cannot exercise the requisite independent business judgement on behalf of Allied Mutual in considering the intertwined offers while wearing at least four additional hats - that of Allied Group top executives, directors, and significant stockholders, and that of directors and shareholders of Allied Life, a publicly traded subsidiary of Allied Mutual for which a separate offer has reportedly been made by Nationwide. These defendants have also each presided 7 over all or part of the decimation of Allied Mutual since 1985 and have breached their fiduciary duty to Allied Mutual and its policyholders. 14. Each of the director defendants has an additional personal stake in the transactions to the extent that the transactions relate to this and any other claims against them. Upon information and belief, director defendants have successfully negotiated with Nationwide for their own indemnification as to the claims in this lawsuit. Thus, there is all the more incentive for director defendants to approve the merger in order to obtain this additional personal benefit. Nationwide's indemnification of defendants would permit defendants to keep their substantial ill-gotten gains in a miscarriage of justice which is grossly prejudicial to Allied Mutual's policyholders. 15. As a result of the foregoing, plaintiff will be irreparably harmed absent the requested Order because Allied Mutual's directors have been considering, may be negotiating, and could approve the merger proposal at any time. Allied Group's shareholders have been informed that its directors will respond to the offer on or around June 1, 1998 and so it is imminent. Any negotiations or approval by Allied Mutual's self-interested directors of the offers will result in an irreparable harm to the plaintiff and nominal defendant Allied Mutual on whose behalf this derivative suit has been filed. Plaintiff further states that such an Order is necessary to preserve the status quo and to prevent said immediate and irreparable harm. LEGAL ARGUMENT -------------- 16. The law on this issue is clear and concise. The directors of a corporation owe a fiduciary duty to the corporation and must serve in a manner believed to be in good faith to the best interest of the corporation. Cookies ------- Food Products v. Lakes Warehouse, 430 N.W. 447, 451 2d (Iowa 1988); see also - -------------------------------- Schildberg v. Rock Prods. Co., 140 N.W. 2d 132, 136 (Iowa 1966.) The law - ----------------------------- 8 commonly describes the fiduciary duties of corporate directors as two-fold, "consisting both of a duty of care and a duty of loyalty," Cookies Food Products --------------------- v. Lakes Warehouse, supra, at 451; see also Norlin Corporation v. Rooney, Pace - ------------------------- ---------------------------------- Inc., 744 F.2d, 255, 264 (2d Cir. 1984). The duty of loyalty derives from the - ---- prohibition against self-dealing that inheres in the fiduciary relationship. Id.; citing Pepper v. Litton, 308 U.S. 295, 306-07 (1939). In Norlin, the Court - -- ---------------- ------ of Appeals held that "[o]nce a prima facie showing is made that directors have a self-interest in a particular corporate transaction, the burden shifts to them to demonstrate that the transaction is fair and serves the best interest of the corporation and its shareholders." Norlin Corporation v. Rooney, Pace Inc., --------------------------------------- supra, at 264. - ----- 17. In Norlin, the Court of Appeals affirmed the district court's ------ granting of a preliminary injunction ruling that the director' transfer of stock to an Employee Stock Option Plan ("ESOP") was perpetrated by the directors in an effort to remain in control of the corporation and to avert a potential hostile take over. Id. at 265. The Court rejected the directors' contention that the -- creation of the ESOP was a prudent business decision and thus permissible under the business judgment rule. The Court repudiated this argument, holding that the "business judgment rule governs only where the directors are not shown to have a self-interest in the transaction at issue," and once "self dealing or bad faith is demonstrated, the duty of loyalty supersedes the duty of care, and the burden shifts to the directors to 'prove that the transaction was fair and reasonable to the corporation'." Id. at 265; quoting Treadway Companies, Inc. v. -- --------------------------- Care Corp., 638 F.2d 367, 382 (2d Cir. 1980). - ---------- 18. Iowa law similarly holds that when "the interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself" when "in fairness it belongs to the corporation." Rowen v. LeMars Mut. Ins. Co. of Iowa, 282 N.W. 2d ------------------------------------- 639, 660 (1979). In circumstances where the directors have a self-interest, these transactions "are scanned by the courts with skepticism and scrutiny, and may be nullified on slight grounds. It is the policy of the courts to put such fiduciaries beyond the reach of temptation and the 9 enticement of illicit profit." Des Moines Bank & Trust Co. v. George M. Bechtel ------------------------------------------------ & Co., 51 N.W. 2d 174, 216 (Iowa 1952). Moreover, if in fact it is deemed that - ----- the interests of the corporation have been betrayed by the self-interest of the directors, "the corporation may elect to claim all of the benefit of the transaction for itself, and the law will impress a trust in favor of the corporation, upon the property, interests, and profits so acquired." Rowen v. -------- LeMars Mut. Ins. Co. of Iowa, supra, at 660. - ----------------------------------- 19. In the present case, it is clear that the directors of Allied Mutual have persuasive self-interests involved in the transaction with Nationwide. Thus, based on this inherent conflict of interest, it is inconceivable that these directors can or should be allowed to negotiate the terms of a transaction that cannot be "beyond the reach of temptation and the enticement of illegal profit" and has potentially fatal consequences to Allied Mutual's policyholders and benefits the directors' respective self-interests. See Des Moines Bank & ----------------- Trust Co., v. George M. Bechtel & Co, supra, at 216. A prima facie showing has - ------------------------------------ ----- been made that the directors have a self-interest in the present transaction, and consequently, the burden shifts to the directors to demonstrate that they are in any position to exercise business judgment, and that the transaction is fair and serves the best interest of Allied Mutual. Cookies Food Products v. ------------------------ Lakes Warehouse, supra, at 451; see also Norlin Corporation v. Rooney, Pace - --------------- ----- ---------------------------------- Inc., supra, at 264. - ---- ----- INJUNCTION ---------- 20. Pursuant to I.R.C.P. 321, an injunction is an appropriate remedy when "the commission or continuance of some act...would greatly or irreparabl[y] injure" the plaintiff. A temporary injunction is a preventative remedy to maintain the status quo of the parties prior to final judgment and to protect the subject of the litigation. Atlas Mini Storage v. First Interstate -------------------------------------- Bank, 426 N.W. 2d 686 (Iowa App. 1988). In Berger v. Amana Society, 95 N.W. 2d - ---- ----------------------- 909 (Iowa 1959), the Iowa 10 Supreme Court affirmed the lower court's decision granting the plantiffs' (stockholders in the defendant corporation) request for an injunction. The plaintiffs sought to enjoin the directors of the defendant corporation from effectuating certain amendments to the articles of incorporation which would make radical changes in the stock structure of the corporation. Id. at 911. The -- Court held that the amendments "went beyond the power of the corporation" id. at -- 915, and that in granting the injunction "the trial court ruled correctly" id. -- at 916. 21. Moreover, in Norlin Corporation v. Rooney, Pace Inc., supra, at 260, --------------------------------------- ----- a preliminary injunction was deemed to be an appropriate remedy where the directors had conflicting interest in attempting to create an ESOP to prevent a hostile takeover. The Court held that the potential irreparable harm (the delisting of the common stock) justified the imposition of a temporary injunction. 22. Similarly, in the present case, without an injunction there is a significant danger that Allied Mutual and its policyholders will be irreparably harmed. These harms include, without limitation: (i) the distribution of a significant financial windfall to Allied Group shareholders -- including defendants -- most of which belongs to Allied Mutual and its policyholders; (ii) the extensive self-dealings of defendants; and (iii) the risk that Allied Mutual will not avail itself of legitimate corporation opportunities for the full value. WHEREFORE, the Plaintiff moves that this Court: 1. Set a date for a speedy hearing at the Monday, June 8, 1998 scheduling conference in this action. Plaintiff's counsel intend to attend this scheduling conference in person. 2. Provide for notice to defendants that the scheduling of a speedy hearing date on Plaintiff's Motion for Temporary and Permanent Injunctive Relief ---------------------------------------------------------------- shall be considered at the June 8, 11 1998 scheduling conference. Plaintiff has served copies of this motion, via express overnight mail, on counsel of record for defendants. On this date, Plaintiff also has served copies of her motion, via express overnight mail, to individual defendants for whom no counsel have yet appeared, at their last known addresses as provided by counsel for defendants of record. Plaintiff requests that the Court find that the above-described service is sufficient; 3. After such hearing, issue an Injunction to bar the six Allied Mutual directors from considering, negotiating, or approving any transaction on behalf of Allied Mutual, with Nationwide, or any other mergers or acquisitions affecting Allied Mutual and its policyholders, until further order of this Court. Plaintiff seeks leave to further supplement this motion prior to the hearing, and post-hearing to propose a fair and equitable alternative to the defendant directors considering, negotiating or approving the transactions at issue. But for now, it is clear that the defendant directors must be prohibited from passing judgment on a matter in which they are so obviously self-interested and in which their self-interest conflicts with the interests of Allied Mutual. Respectfully submitted, Mary M. Rieff, By her attorneys, /s/ Brad J. Brady ----------------------- Brad J. Brady Brady & O'Shea, P.C. 2735 1st Avenue SE, Cedar Rapids, IA 52402 (319) 866-9277 12 -and- /s/ Jason B. Adkins -------------------------- Jason B. Adkins Adkins & Kelston 90 Canal Street, 5th Floor Boston, MA 02114 (617) 367-1040 -and- BARRACK, RODOS & BACINE /s/ Daniel Bacine ------------------------ Daniel Bacine Leslie Molder 3300 Two Commerce Square 2001 Market Street Philadelphia, PA 19103 (215) 963-0600 -and- /s/ David L. Kelston -------------------------- David L. Kelston 90 Canal Street, 5th Floor Boston, MA 02114 (617) 367-1040 -and- /s/ Paula Isola ----------------------------- Paula Isola Center for Insurance Research 1130 Massachusetts Avenue Cambridge, MA 02138 (617) 441-2900 Dated: June 1, 1998 cc: Hon. Larry J. Eisenhauer 304 Polk County Courthouse 500 Mulberry Street Des Moines, IA 50309 13 CERTIFICATE OF SERVICE ---------------------- I, Dorothy Bergquist certify that true and correct copies of the Plaintiff's Motion For Temporary And Permanent Injunctive Relief And For A Hearing were served, via Express Mail, Overnight Delivery, this 1st day of June, 1998, upon counsel for defendants, or upon Defendants not yet represented by counsel, as follows: David L. Brown John E. Evans John A. McClintock 47218 Crystal Loop Eldorado 8th Floor Fleming Building Indian Wells, CA 92210 218 Sixth Avenue Des Moines, Iowa 50309 Harold S. Evans 5220 5th Avenue Bruce W. Fourdree Pittsburgh, PA 15232 Michael R. Hasson Lord, Bissell & Brook James W. Callison 115 S. Lasalle Street 5821 Woodland Avenue Chicago, Illinois 60603 West Des Moines, LA 50312 Glenn L. Smith James M. Hoak, Jr. Finley, Alt, Smith, Scharnbert, Hoak Capital May & Craig, P.C. 13355 Noel Road, Suite 1050 4th Floor Equitable Building Dallas, Texas 75240 604 Locust Street Des Moines, Iowa 50309 Mark W. Putney 600 Stevens Port Drive J. William Koegel North Sioux City, SD 57049 Steptoe & Johnson, LLP 1330 Connecticut Avenue William J. Hancock Washington, D.C. 20036-1795 Windsor Heights 7205 Bellaire Avenue Kent M. Forney Des Moines, Iowa 50311 Jason T. Madden Bradshaw, Fowler, Proctor & Hardy G. Kuykendall Fairgrave, P.C. 3709 Avenida Johanna 801 Grand Avenue, Suite 3700 LaMesa, CA 91941 Des Moines, Iowa 50309-2727 14 Walter J. Fayle James Kirkpatrick 676 Rinaldo Street 2908 S.W. 30th Street Santa Rosa, CA 95409 Des Moines, Iowa 50321 /s/ Dorothy Bergquist --------------------------- Dorothy Bergquist 15 EXHIBIT 3 - ----------------------------------------------------------------------------- NEWS GRP ALLIED RELEASE Listed GROUP NYSE INSURANCE ALLIED Group, Inc. 701 5th Ave. Des Moines, IA 50391-2000 - ----------------------------------------------------------------------------- For Immediate Release . www.alliedgroupinc.com . Contact: JIM SHAFFER (515) 280-4326 CONTACT: Joele Frank / Dan Katcher Abernathy MacGregor Frank (212) 371-5999 FOR IMMEDIATE RELEASE - --------------------- ALLIED GROUP IN TALKS WITH NATIONWIDE MUTUAL Recommends That Shareholders Not Tender Pending Outcome DES MOINES, Iowa - June 2, 1998 -- ALLIED Group, Inc. (NYSE: GRP) announced today that it has filed with the Securities and Exchange Commission a Schedule 14D-9 with respect to the tender offer by Nationwide Mutual Insurance Company for shares of ALLIED Group at $47 per share. In the filing, the ALLIED Group Board of Directors recommends that shareholders defer making a decision whether to tender their shares pending the outcome of discussions between ALLIED Group and Nationwide. In those discussions, Nationwide has stated that it will increase the price per ALLIED Group share to $48.25 as part of a negotiated merger agreement, and the ALLIED Group Board, on the recommendation of a committee of the directors who are not affiliated with ALLIED Mutual Insurance Company or with ALLIED Life Financial Corporation, has determined that it is prepared in principle to recommend a transaction at that price, subject to negotiation of an acceptable merger agreement. ALLIED Group intends to inform its shareholders if a definitive agreement is reached with Nationwide or if discussions are terminated. EXHIBIT 35 AGREEMENT AND PLAN OF MERGER by and among NATIONWIDE MUTUAL INSURANCE COMPANY NATIONWIDE GROUP ACQUISITION CORPORATION and ALLIED GROUP, INC. Dated as of June 3, 1998 TABLE OF CONTENTS PAGE ---- ARTICLE I THE OFFER.................................................................2 Section 1.1 The Offer...............................................................2 Section 1.2 Allied Actions..........................................................4 Section 1.3 Directors...............................................................6 ARTICLE II THE MERGER................................................................7 Section 2.1 The Merger..............................................................7 Section 2.2 Closing.................................................................7 Section 2.3 Effective Time..........................................................8 Section 2.4 Articles of Incorporation and By-Laws of the Surviving Corporation......8 Section 2.5 Board of Directors and Officers.........................................9 Section 2.6 Effect of Merger on Sub Capital Stock...................................9 Section 2.7 Conversion of Allied Stock..............................................9 Section 2.8 Exchange of Certificates and Related Matters...........................10 Section 2.9 Dissenting Shares......................................................12 Section 2.10 Adjustments to Prevent Dilution.......................................13 Section 2.11 Allied Employee Stock Options, Restricted Stock, etc..................13 ARTICLE III ADDITIONAL AGREEMENTS....................................................14 Section 3.1 Preparation of Proxy Statement; Information Supplied...................14 Section 3.2 Meeting of Shareholders................................................14 Section 3.3 Filings; Other Action..................................................15 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ALLIED.................................16 Section 4.1 Organization and Qualification.........................................16 Section 4.2 Capitalization of Allied...............................................17 Section 4.3 Subsidiaries...........................................................17 Section 4.4 Authority Relative to this Agreement...................................18 Section 4.5 No Violation; Governmental Filings.....................................19 Section 4.6 SAP Statements.........................................................20 Section 4.7 [Intentionally left blank.]............................................22 Section 4.8 Reserves...............................................................22 Section 4.9 SEC Documents..........................................................22 Section 4.10 Absence of Certain Changes or Events..................................23 Section 4.11 No Undisclosed Liabilities............................................23 Section 4.12 Takeover Statutes.....................................................23 Section 4.13 Compliance with Law...................................................24 Section 4.14 Assets................................................................24 Section 4.15 Environmental Matters.................................................25 Section 4.16 Contracts.............................................................26 Section 4.17 [Intentionally Left Blank]............................................27 Section 4.18 Taxes and Tax Returns.................................................27 Section 4.19 Benefit Plans.........................................................28 Section 4.20 Labor Relations and Employment........................................31 Section 4.21 Intellectual Property.................................................31 Section 4.22 Transactions with Affiliates..........................................32 i Section 4.23 Voting Requirements...................................................32 Section 4.24 Investment Company....................................................32 ARTICLE V REPRESENTATIONS AND WARRANTIES OF NATIONWIDE AND SUB..................................................................33 Section 5.1 Organization and Qualification.........................................33 Section 5.2 Authority Relative to this Agreement...................................33 Section 5.3 No Violation...........................................................34 Section 5.4 Litigation.............................................................35 Section 5.5 Financial Ability to Perform...........................................35 ARTICLE VI CERTAIN COVENANTS........................................................35 Section 6.1 Allied Conduct of Business Pending the Merger..........................35 Section 6.2 Disposition of Litigation..............................................38 Section 6.3 Reasonable Best Efforts................................................38 Section 6.4 Intentionally Left Blank...............................................38 Section 6.5 Access and Information.................................................39 Section 6.6 Notice of Proceedings..................................................40 Section 6.7 Notification of Certain Other Matters..................................40 Section 6.8 Indemnification........................................................41 Section 6.9 [Intentionally Omitted.]...............................................43 Section 6.10 Acquisition Proposals.................................................43 Section 6.11 Maintenance of Benefits...............................................44 ARTICLE VII CONDITIONS...............................................................45 Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.............45 ARTICLE VIII TERMINATION..............................................................46 Section 8.1 Termination............................................................46 Section 8.2 Effect of Termination..................................................47 ARTICLE IX MISCELLANEOUS............................................................48 Section 9.1 Survival of Representations and Warranties.............................48 Section 9.2 Fees and Expenses......................................................48 Section 9.3 Notices................................................................48 Section 9.4 Amendments.............................................................49 Section 9.5 No Waiver..............................................................49 Section 9.6 Brokers................................................................50 Section 9.7 Publicity..............................................................50 Section 9.8 Headings...............................................................51 Section 9.9 Nonassignability.......................................................51 Section 9.10 Beneficiaries.........................................................51 Section 9.11 Duplicates; Counterparts..............................................51 Section 9.12 Governing Law; Jurisdiction...........................................51 Section 9.13 Entire Agreement......................................................51 Section 9.14 Severability..........................................................52 Section 9.15 Specific Performance..................................................52 Section 9.16 Survival of Certain Covenants.........................................52 Section 9.17 Counting..............................................................52 Section 10.1 Definitions...........................................................52 ii EXHIBITS Exhibit A Conditions of the Offer Exhibit B Shareholder Agreement iii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of June 3, 1998 by and among NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio mutual insurance company ("Nationwide"), NATIONWIDE GROUP ACQUISITION CORPORATION, an Ohio corporation and a wholly-owned subsidiary of Nationwide ("Sub") and ALLIED GROUP, INC., an Iowa corporation ("Allied") (hereinafter sometimes collectively referred to as the "parties"). WHEREAS, Sub has outstanding an offer (the "Existing Offer," and as amended, the "Offer") to purchase all of the outstanding shares of common stock, no par value, of Allied (the "Common Shares"), at a purchase price of $47 per Common Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 19, 1998, and in the related letter of transmittal; WHEREAS, in consideration of Allied's entering into this Agreement, Nationwide is willing to cause Sub to increase the price to be paid pursuant to the Offer to $48.25 per Common Share, net to the seller in cash, without interest thereon (such amount being hereinafter referred to as the "Offer Price"); WHEREAS, the Board of Directors of Allied has (i) determined that the consideration to be paid for each Common Share in the Offer and in the Merger (as defined below) is fair to and in the best interests of the shareholders of Allied, (ii) approved this Agreement and the transactions contemplated hereby and (iii) resolved to recommend acceptance of the Offer and the Merger and approval of this Agreement by such shareholders; and WHEREAS, the Boards of Directors of Sub and Nationwide, as sole stockholder of Sub, have each approved the merger (the "Merger") of Sub with Allied in accordance with applicable law upon the terms and subject to the conditions set forth herein. WHEREAS, concurrently with the execution of this Agreement and as an inducement to Nationwide to enter into this Agreement, Nationwide, Sub and Allied Mutual Insurance Company ("Allied Mutual") are entering into a Shareholder Agreement (the "Shareholder Agreement"), attached hereto as Exhibit B, pursuant to which Allied Mutual has, among other things, agreed to grant an irrevocable proxy to Nationwide's designees providing (1) for the vote of all of the outstanding shares of 6-3/4% Series Preferred Stock, no par value, of Allied (the "Preferred Shares") and all of the Common Shares owned by Allied Mutual in favor of the Merger and the tender of all the Common Shares owned by Allied Mutual pursuant to the Offer and (2) for the vote of all such securities against any "Alternative Transaction" or "Frustrating Transaction" (as such terms are defined in the Shareholder Agreement); and the Shareholder Agreement has been approved by the Board of Directors of Allied; and WHEREAS, Nationwide, Sub and Allied desire to make certain representations, warranties, covenants and agreements in connection with the Offer and the Merger and also to prescribe various conditions to the Offer and the Merger. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Nationwide, Sub and Allied hereby agree as follows: ARTICLE I THE OFFER Section 1.1 The Offer. --------- (a) Sub shall amend the Offer as soon as practicable after the date hereof to (i) increase the purchase price offered to the Offer Price, (ii) modify the conditions of the Offer to conform to the conditions or events set forth in Exhibit A hereto (the "Offer Conditions") and no others and (iii) to make such other amendments as are required to conform the Offer to this Agreement, it being understood that except for the foregoing amendments or as otherwise provided herein, the Offer shall be on the same terms and conditions as the Existing Offer. The obligation of Sub to, and of Nationwide to cause Sub to, accept for payment, and pay for, any Common Shares tendered pursuant to the Offer shall be subject to the Offer Conditions (any of which may be waived in whole or in part by Sub in its sole discretion, provided that, without the consent of Allied, Sub shall not waive the Minimum Condition or the Insurance Regulatory 2 Condition (as such terms are defined in Exhibit A) and to the terms and conditions of this Agreement. Without the consent of Allied, Sub shall not (i) reduce the number of Common Shares sought in the Offer, (ii) reduce the Offer Price, (iii) change or add to the Offer Conditions, (iv) except as provided in the next sentence, extend the Offer, (v) change the form of consideration payable in the Offer or (vi) amend any other term of the Offer in any manner adverse to the holders of the Common Shares. Notwithstanding the foregoing, Sub may, without the consent of Allied, (A) extend the Offer, if at the scheduled or extended expiration date of the Offer any of the Offer Conditions shall not be satisfied or waived, until such time as such conditions are satisfied or waived, (B) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer and (C) extend the Offer for any reason on one or more occasions for an aggregate period of not more than 10 Business Days (for all such extensions pursuant to this clause (C)) beyond the latest expiration date that would otherwise be permitted under clause (A) or (B) of this sentence. So long as this Agreement is in effect and the Offer Conditions have not been satisfied or waived, Sub shall, and Nationwide shall cause Sub to, cause the Offer not to expire. Subject to the terms and conditions of the Offer and this Agreement, Sub shall, and Nationwide shall cause Sub to, accept for payment, and pay for, all Common Shares validly tendered and not withdrawn pursuant to the Offer that Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer as soon as practicable after the expiration of the Offer. (b) As soon as reasonably practicable after the date hereof, Sub shall amend its Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to the Offer that was originally filed with the SEC on May 19, 1998, and shall file such amendment with the SEC. The Schedule 14D-1 will contain a supplement to the Offer to Purchase dated May 19, 1998, and a revised form of the related letter of transmittal (which Schedule 14D-1, Offer to Purchase and other documents, as amended and supplemented, together with any further amendments or supplements thereto, are referred to herein collectively as the "Offer Documents"), which shall be mailed to the holders of Common Shares. Nationwide and Sub represent and agree that the Offer Documents complied (and, as amended from time to time, shall comply) in all material respects with the Exchange Act and the rules and regulations promulgated thereunder and the Offer Documents, on the date first published, sent or given to Allied's shareholders, shall not 3 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 were made, not misleading, except that no covenant is made by Nationwide or Sub with respect to information supplied by Allied or any of its shareholders specifically for inclusion or incorporation by reference in the Offer Documents. Nationwide, Sub and Allied each agrees promptly to correct any information provided by it for use in the Offer Documents that shall have become false or misleading in any material respect, and Nationwide and Sub further agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of Common Shares, in each case as and to the extent required by applicable federal securities laws. Allied and its counsel shall be given reasonable opportunity to review and comment upon the Schedule 14D-1 prior to its filing with the SEC or dissemination to shareholders of Allied. Nationwide and Sub agree to provide Allied and its counsel with copies of any comments Nationwide, Sub or their counsel may receive from the SEC or its staff with respect to the Schedule 14D-1 promptly after the receipt of such comments. (c) Nationwide shall provide or cause to be provided to Sub on a timely basis the funds necessary to accept for payment, and pay for, any Common Shares that Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer. Section 1.2 Allied Actions. -------------- (a) Allied hereby approves of and consents to the Offer and represents that the Board of Directors of Allied, at a meeting duly called and held, duly and unanimously adopted resolutions adopting this Agreement, approving the Shareholder Agreement, approving the Offer and the Merger, determining that the terms of the Offer and the Merger are fair to, and in the best interests of, Allied's shareholders, recommending that Allied's shareholders accept the Offer, tender their shares pursuant to the Offer and approve this Agreement (if required) and approving the acquisition of Common Shares by Sub pursuant to the Offer and the other transactions contemplated by this Agreement. Allied has been advised by each of its directors and executive officers that each such person intends to tender all Common Shares owned by such person pursuant to the Offer. 4 (b) On June 2, 1998, Allied filed with the SEC a Solicitation/ Recommendation Statement on Schedule 14D-9 with respect to the Existing Offer (such Schedule 14D-9 as amended from time to time, the "Schedule 14D-9"). Simultaneously with the filing of the amendment to the Schedule 14D-1 by Nationwide and Sub, Allied shall file with the SEC an amendment to the Schedule 14D-9 which contains the recommendation described in Section 1.2(a) and shall mail the Schedule 14D-9 as so amended to the shareholders of Allied. Allied agrees that the Schedule 14D-9 shall comply in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder and, on the date filed with the SEC and on the date first published, sent or given to Allied's shareholders, shall 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 were made, not misleading, except that no covenant is made by Allied with respect to information supplied by Nationwide or Sub specifically for inclusion in the Schedule 14D-9. Each of Allied, Nationwide and Sub agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and Allied further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Allied shareholders, in each case as and to the extent required by applicable federal securities laws. Nationwide and its counsel shall be given reasonable opportunity to review and comment upon the Schedule 14D-9 prior to its filing with the SEC or dissemination to shareholders of Allied. Allied agrees to provide Nationwide and its counsel any comments Allied or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. (c) In connection with the Offer and the Merger and promptly following the execution of this Agreement, Allied shall cause its transfer agent to furnish Sub promptly with mailing labels containing the names and addresses of the record holders of Common Shares as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of shareholders, security position listings and computer files and all other information in Allied's possession or control regarding the beneficial owners of Common Shares, 5 and shall furnish to Sub such information and assistance (including updated lists of shareholders, security position listings and computer files) as Nationwide may reasonably request in communicating the Offer and any and all amendment thereto to Allied's shareholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Nationwide and Sub and their agents shall hold in confidence the information contained in any such labels, listings and files, will use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, will, upon request, deliver, and will use their reasonable efforts to cause their agents to deliver, to Allied all copies and any extracts or summaries from such information then in their possession or control. Section 1.3 Directors. Promptly upon the acceptance for payment of Common --------- Shares by Sub pursuant to the Offer, Sub shall be entitled to designate such number of directors on the Board of Directors of (i) Allied as will give Sub, subject to compliance with Section 14(f) of the Exchange Act, a majority of such directors, and Allied shall, at such time, cause Sub's designees to be so elected by its existing Board of Directors and (ii) each Subsidiary of Allied and each committee of the Board of Directors of Allied and each such Subsidiary as will give Sub a majority of such directors or committee, and Allied shall, at such time, cause Sub's designees to be so elected. In the event that Sub's designees are elected to the Board of Directors of Allied, until the Effective Time such Board of Directors shall have at least two directors who are directors on the date of this Agreement and who are not officers of Allied (the "Independent Directors"); provided that, in such event, if the number of -------- Independent Directors shall be reduced below two for any reason whatsoever, the remaining Independent Director shall designate a person to fill such vacancy who shall be deemed to be an Independent Director for purposes of this Agreement or, if no Independent Directors then remain, the other directors shall designate two persons to fill such vacancies who shall not be officers or Affiliates of Allied or any of its Subsidiaries, or officers or Affiliates of Nationwide or any of its Subsidiaries, and such persons shall be deemed to be Independent Directors for purposes of this Agreement. Subject to applicable law, Allied shall take all action requested by Nationwide necessary to effect any such election, including mailing to its stockholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 6 promulgated thereunder, and Allied agrees to make such mailing with the mailing of the Schedule 14D-9 (provided that Sub shall have provided to Allied on a timely basis all information required to be included in the Information Statement with respect to Sub's designees). In connection with the foregoing, Allied will promptly, at the option of Nationwide, either increase the size of Allied's Board of Directors and/or obtain the resignation of such number of its current directors as is necessary to enable Sub's designees to be elected or appointed to Allied's Board of Directors as provided above. Following the election or appointment of Sub's designees pursuant to this Section 1.3 and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors then in office shall be required by Allied to (i) amend or terminate this Agreement by Allied, (ii) exercise or waive any of Allied's rights or remedies under this Agreement or (iii) extend the time for performance of Nationwide's and Sub's respective obligations under this Agreement. ARTICLE II THE MERGER Section 2.1 The Merger. Upon the terms of this Agreement and subject to ---------- the satisfaction of the conditions set forth herein, at the Effective Time Sub shall be merged with and into Allied in accordance with the applicable provisions of the Laws of the States of Ohio and Iowa and the separate corporate existence of Sub shall thereupon cease, and Allied, which shall be the surviving company (hereinafter sometimes referred to as the "Surviving Corporation"), shall continue its corporate existence under the Laws of the State of Iowa under the name "Allied Group, Inc." From and after the Effective Time, the Surviving Corporation shall possess all the assets and other rights, privileges, immunities, powers and purposes of each of Sub and Allied and shall be liable for all of the Liabilities of the Sub and Allied, all to the full extent provided in Section 1701.82 of the General Corporation Law of the State of Ohio (the "OGCL") and Section 490.1106 of the Iowa Business Corporation Act ("IBCA"). Section 2.2 Closing. Unless this Agreement shall have been terminated and ------- the transactions herein contemplated shall have been abandoned pursuant to Section 8.1, and subject to the satisfaction or waiver of the conditions set forth in Article VII, the closing of the Merger (the "Closing") will take place at 9:00 a.m. on the second business day following the date on 7 which the last of the conditions set forth in Article VII shall be fulfilled or waived in accordance with this Agreement (the "Closing Date"), at the offices of Holleb & Coff, 55 E. Monroe Street, Chicago, Illinois 60603, unless another date, time or place is agreed to in writing by the parties hereto. Section 2.3 Effective Time. As soon as is practicable following the -------------- execution of this Agreement, the parties shall cause this Agreement to be provided to the Ohio Superintendent in accordance with, and in such form as required by, Section 3925.08(D)(2) of the Ohio Insurance Law and the regulations promulgated thereunder, to the Iowa Commissioner in accordance with Section 521A.3 of the Iowa Insurance Law and the regulations promulgated thereunder and the Iowa Attorney General in accordance with Section 521.12 of the Iowa Insurance Law, and to the Arizona Director in accordance with Sections 20-481.02 of the Arizona Insurance Law, in each case together with all other documents as may be required by applicable Law. Subject to the conditions set forth in Article VII of this Agreement, the Merger shall become effective (the "Effective Time") upon the last to occur of (a) the filing of the Certificate of Merger with the Ohio Secretary of State, (b) the filing of the Articles of Merger as required by Iowa law and (c) such later time as the parties designate in such filings; provided, however, the Effective Time shall not be more than one year -------- ------- from the date of approval of the Merger by the Ohio Superintendent or 31 days after the filing and recording of the Articles of Merger as described herein. Upon the terms and subject to the conditions of this Agreement, the parties hereto will use reasonable best efforts to assure that the filings contemplated hereby are made, and the Effective Time occurs, as soon as is practicable. Section 2.4 Articles of Incorporation and By-Laws of the Surviving ------------------------------------------------------ Corporation. Following the Effective Time, the Articles of Incorporation of - ----------- Allied, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by Law. The Amended and Restated Code of By- Laws of Allied, as in effect immediately prior to the Effective Time, shall be the Amended and Restated Code of By-Laws of the Surviving Corporation until thereafter changed or amended as provided therein or by Law. 8 Section 2.5 Board of Directors and Officers. The directors of Sub ------------------------------- immediately prior to the Effective Time shall be the directors of the Surviving Corporation immediately following the Effective Time, each of such directors to hold office, subject to the applicable provisions of the Articles of Incorporation and Code of By-Laws of the Surviving Corporation, until his or her successor is duly elected and qualified, or his or her earlier death, resignation or removal. The officers of Allied immediately prior to the Effective Time shall be the officers of the Surviving Corporation at and immediately following the Effective Time, each of such officers to hold their respective offices, subject to the applicable provisions of the Articles of Incorporation and Code of By-Laws of the Surviving Corporation, until his or her successor is duly elected and qualified, or his or her earlier death, resignation or removal. Section 2.6 Effect of Merger on Sub Capital Stock. Each share of capital ------------------------------------- stock, par value $1.00 per share, of Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into one validly issued, fully paid and nonassessable share of common stock, no par value, of the Surviving Corporation. Section 2.7 Conversion of Allied Stock. -------------------------- (a) Outstanding Common Stock. Subject to the other provisions of this ------------------------ Section 2.7, each Common Share issued and outstanding immediately prior to the Effective Time (other than shares owned by Nationwide or Sub, shares held as treasury shares by Allied and Dissenting Shares (as defined in Section 2.9 below)) shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive $48.25 per Common Share (or if a greater per Common Share price shall have been paid in the Offer, such greater price), net to the shareholder in cash, without interest thereon (the "Merger Consideration"). (b) Treasury Shares and Nationwide Owned Shares. Each Common Share and ------------------------------------------- each Preferred Share issued and outstanding immediately prior to the Effective Time which is then held as a treasury share by Allied, or owned by Nationwide or Sub, immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Allied, be cancelled and retired and cease to exist, without any conversion thereof. 9 (c) Preferred Shares. Each Preferred Share issued and outstanding prior to ---------------- the Effective Time (other than Preferred Shares held by Allied or by Nationwide, Sub or any other Subsidiary of Nationwide) shall not be affected by the Merger and shall remain issued and outstanding Preferred Shares of the Surviving Corporation. Section 2.8 Exchange of Certificates and Related Matters. -------------------------------------------- (a) Paying Agent. As of the Effective Time, Sub shall, and Nationwide ------------ shall cause Sub to, deposit, on an as needed basis, with a bank or trust company selected by Nationwide and reasonably acceptable to Allied (the "Paying Agent"), for the benefit of the holders of Common Shares, cash in an aggregate amount equal to the aggregate Merger Consideration (such amount being sometimes hereinafter referred to as the "Payment Fund"). (b) Exchange Procedure. Upon surrender to the Paying Agent of a ------------------ certificate representing Common Shares for cancellation, together with a letter of transmittal and such other customary documents as may be required by the instructions to the letter of transmittal (collectively, the "Certificate"), the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the number of Common Shares previously represented by such Certificate shall have been converted pursuant to Section 2.7. The Paying Agent shall accept such Certificate upon compliance with such reasonable terms and conditions as the Paying Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. If the Merger Consideration (or any portion thereof) is to be delivered to any person other than the person in whose name the Certificate representing Common Shares surrendered in exchange therefor is registered on the record books of Allied, it shall be a condition to such exchange that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the person requesting such exchange shall pay to the Paying Agent any transfer or other taxes required by reason of the payment of such consideration to a person other than the registered holder of the Certificate surrendered, or shall establish to the satisfaction of the Paying Agent that such tax has been paid or is not applicable. After the Effective Time, there shall be no further transfer on the records of the Surviving Corporation or its transfer agent of any Certificate representing Common Shares and if any such Certificate is presented to the Surviving Corporation for transfer, it shall be cancelled against delivery of the Merger Consideration as hereinabove provided. Until 10 surrendered as contemplated by this Section 2.8(b), each Certificate representing Common Shares (other than a Certificate representing Common Shares to be cancelled in accordance with Section 2.7(b) or representing Dissenting Shares), shall, at any time after the Effective Time, represent only the right to receive upon such surrender the Merger Consideration, without any interest thereon. (c) Letter of Transmittal. Promptly after the Effective Time (but in no --------------------- event more than five business days thereafter), Nationwide shall require the Paying Agent to mail to each record holder of Certificates that immediately prior to the Effective Time represented Common Shares which have been converted pursuant to Section 2.7(a), a letter of transmittal (which shall specify that delivery shall be effective, and risk of loss and title shall pass, only upon proper delivery of Certificates representing Common Shares to the Paying Agent and shall be in such form and have such provisions as Nationwide reasonably may specify) and instructions for use in surrendering such Certificates and receiving the Merger Consideration to which such holder shall be entitled therefor pursuant to Section 2.7. (d) No Further Ownership Rights in Shares. The Merger Consideration paid ------------------------------------- upon the surrender for exchange of Certificates representing Common Shares in accordance with the terms of this Article II shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to the Common Shares theretofore represented by such Certificates, subject, however, to the Surviving Corporation's obligation (if any) to pay any dividends or make any other distributions with a record date prior to the Effective Time which may have been declared by Allied on such Common Shares in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Effective Time. (e) Termination of Payment Fund. Any portion of the Payment Fund which --------------------------- remains undistributed to the holders of the Certificates representing Common Shares for 180 days after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holders of Common Shares who have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation and only as general creditors thereof for payment, without interest, of their claim for any Merger Consideration with respect to their Common Shares. 11 (f) No Liability. None of Nationwide, Sub, the Surviving Corporation or ------------ the Paying Agent shall be liable to any person in respect of any cash, shares, dividends or distributions payable from the Payment Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates representing Common Shares shall not have been surrendered prior to seven years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any Governmental Entity), any such cash, shares, dividends or distributions payable in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation free and clear of all claims or interest of any person previously entitled thereto. Section 2.9 Dissenting Shares. Notwithstanding anything in this Agreement ----------------- to the contrary, the Common Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded properly in writing appraisal for such Common Shares in accordance with Sections 490.1301 through 490.1331 of the IBCA and who shall not have withdrawn such demand or otherwise have forfeited appraisal rights shall not be converted into or represent the right to receive the Merger Consideration ("Dissenting Shares"). Such shareholders shall be entitled to receive payment of the appraised value of such Common Shares held by them in accordance with the Iowa Corporation Law, except that all Dissenting Shares held by shareholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such Common Shares held by them under such Iowa Corporation Law shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Merger Consideration, upon surrender, in the manner provided in Section 2.8(b), of the Certificate or Certificates that formerly evidenced such Common Shares. Allied shall give Nationwide prompt notice of any demands of appraisal received by Allied, withdrawals of such demands, and any other instruments served pursuant to Iowa Corporation Law and received by Allied, and Nationwide shall have the right to participate in all negotiations and proceedings with respect to such demands. Prior to the Effective Time, Allied shall not, except with the prior written consent of Nationwide, make any payment with respect to any demands for appraisal, or settle or offer to settle, any such demands. 12 Section 2.10 Adjustments to Prevent Dilution. In the event that Allied ------------------------------- changes the number of Common Shares issued and outstanding prior to the Effective Time as a result of a reclassification, stock split (including a reverse split), stock dividend or distribution, recapitalization, merger, subdivision or other similar transaction, the Merger Consideration shall be equitably adjusted. Section 2.11 Allied Employee Stock Options, Restricted Stock, etc. As of ----------------------------------------------------- immediately prior to the Effective Time each option to acquire Common Shares (each, an "Option"), restricted stock award ("Restricted Stock") or stock appreciation right ("SARs" and, together with the Options and Restricted Stock, the "Awards") outstanding under any of Allied's Long-Term Management Incentive Plan, the Nonqualified Stock Option Plan, the Stock Option Plan, the Executive Equity Incentive Plan or any other similar plan, arrangement or agreement of Allied or any Allied Subsidiaries (together, the "Allied Plans"), whether or not then exercisable or vested, shall become fully exercisable and vested and shall be cancelled or repurchased and, in consideration of such cancellation or repurchase, Allied shall pay to the holder of such Award an amount in respect thereof equal to the product of (A) the Applicable Amount, multiplied by (B) the number of shares subject thereto (such payment to be net of applicable withholding taxes). The term "Applicable Amount" shall mean (i) in the case of Awards of Restricted Stock, the Merger Consideration, (ii) in the case of Awards of Options, the excess of (A) the Merger Consideration over (B) the exercise price of such Option or (iii) in the case of Awards of SARs, the excess of (A) the Merger Consideration, over (B) the grant price of such SAR. No consent or other authorization is required by the holder of any Awards to effectuate the transactions contemplated by this Section 2.11. In addition, following the Effective Time, no Person has any options, warrants, or other rights to buy any Securities of the Surviving Corporation. 13 ARTICLE III ADDITIONAL AGREEMENTS Section 3.1 Preparation of Proxy Statement; Information Supplied. ---------------------------------------------------- (a) Proxy Statement. As soon as practicable following the purchase of the --------------- Common Shares pursuant to the Offer, Allied shall prepare and file with the SEC the Proxy Statement (as defined below), if required by applicable law. Allied will use its reasonable Best Efforts to cause the Proxy Statement to be mailed to Allied's shareholders as promptly as practicable. Nationwide and Sub will use their reasonable best efforts to assist Allied in the preparation and filing of the Proxy Statement. (b) Allied Information. Allied agrees that none of the information ------------------ supplied or to be supplied by Allied specifically for inclusion in the Proxy Statement will, at the date it is first mailed to Allied's shareholders or at the time of the Shareholders 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. The Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder. (c) Nationwide Information. Nationwide and Sub agree that none of the ---------------------- information supplied or to be supplied by Nationwide specifically for inclusion in the Proxy Statement will, at the date it is first mailed to Allied's shareholders or at the time of the Shareholders 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 3.2 Meeting of Shareholders. Subject to Section 6.10 hereof, ----------------------- following the purchase of Shares in the Offer, if Nationwide and its subsidiaries shall not following such purchase own shares representing at least 90% of Allied's outstanding Common Shares and 90% of Allied's outstanding Preferred Shares, Allied will take all actions necessary in accordance with applicable law and its Articles of Incorporation and By-laws to convene a meeting, if required by applicable law, of its shareholders (the "Shareholders Meeting") to consider and vote upon the approval of this Agreement and the Merger. Subject to Section 6.10 hereof, Allied will, through 14 its Board of Directors, recommend to its shareholders approval of this Agreement and the Merger. Allied will use its reasonable best efforts to hold the Shareholders Meeting (unless following the purchase of Shares in the Offer Nationwide and its subsidiaries own at least 90% of Allied's outstanding Common Shares and 90% of Allied's outstanding Preferred Shares), as soon as practicable after the date hereof. Section 3.3 Filings; Other Action. As promptly as practicable, (i) --------------------- Nationwide and Allied shall make any additional filings and submissions under the HSR Act, (ii) Nationwide shall make any additional filings required by the insurance regulatory authorities in Iowa, Arizona and Ohio and deliver notices and consents to jurisdiction to such state insurance departments, each as reasonably may be required to be made in connection with this Agreement and the transactions contemplated hereby, and (iii) Allied and Nationwide shall cooperate in all reasonable respects with each other in (A) determining if other filings are required to be made prior to the Effective Time with, or if other material consents, approvals, permits, notices or authorizations are required to be obtained prior to the Effective Time from any Governmental Entity in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (B) timely making all such filings and timely seeking all such consents, approvals, permits, notices or authorizations. In connection with the foregoing, Allied will provide Nationwide, and Nationwide will provide Allied, with copies of correspondence, filings or communications (or memoranda setting forth the substance thereof) between such party or any of its representatives, on the one hand, and any Governmental Entity or members of their respective staffs, on the other hand, with respect to this Agreement and the transactions contemplated hereby. Each of Nationwide and Allied acknowledge that certain actions may be necessary with respect to the foregoing in making notifications and obtaining clearances, consents, approvals, waivers or similar third party actions which are material to the consummation of the transactions contemplated hereby, and each of Nationwide and Allied agree to take such action as is reasonably necessary to complete such notifications and obtain such clearances, approvals, waivers or third party actions. 15 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ALLIED Except as otherwise disclosed to Nationwide and Sub in a letter delivered to it prior to the execution hereof (which letter contains appropriate references to identify the representations and warranties herein to which the information in such letter relates) (the "Allied Disclosure Letter"), Allied represents and warrants to Nationwide and Sub as follows: Section 4.1 Organization and Qualification. (a) Allied is a corporation ------------------------------ duly incorporated, validly existing and in good standing under the Laws of the State of Iowa and has full corporate power and authority to conduct its business as it is currently being conducted. Each of the Allied Subsidiaries is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation and has full power, authority and legal right to conduct its business as it is currently being conducted. Allied and each of the Allied Subsidiaries is duly qualified to do business, and is in good standing, in the respective jurisdictions where the nature of its business or the ownership or leasing of its properties makes such qualification necessary, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each of the Allied Subsidiaries is listed in the Allied Disclosure Letter. (b) Each Allied Insurer is listed in the Allied Disclosure Letter. Each Allied Insurer (i) possesses an Insurance License in each jurisdiction in which such Allied Insurer is required to possess an Insurance License and (ii) is duly authorized in its jurisdiction of incorporation and each other applicable jurisdiction to write each line of direct insurance being written in the Quarterly Statement for such Allied Insurer as of and for the quarter ended March 31, 1998, except where such insurance is written on an excess or surplus lines-basis and except where the failure to possess such Insurance License or to be so authorized would not reasonably be expected to have a Material Adverse Effect. All such Insurance Licenses are in full force and effect without amendment, limitation or restriction, other than as described in the Allied Disclosure Letter and except where the failure to be in full force and effect would not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect and to the Knowledge of Allied, there is no event, inquiry or Proceeding which is reasonably likely to 16 lead to the revocation, amendment, failure to renew, limitation, suspension or restriction of any such Insurance License. (c) Except for its Subsidiaries, Allied does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity that directly or indirectly conducts any activity which is material to Allied. Section 4.2 Capitalization of Allied. The authorized capital stock of ------------------------ Allied consists of 80,000,000 Common Shares and 7,500,000 Preferred Shares. At the close of business on June 2, 1998 (i) 30,114,827 Common Shares were issued and outstanding; (ii) no Common Shares were held as treasury stock; (iii) no Common Shares were held by Allied Subsidiaries; (iv) 5,174,437 Common Shares were reserved for issuance upon the exercise of options or other rights to purchase Common Shares under the Allied Plans (of which options or rights with respect to 1,113, 281 shares have been granted), and (v) 1,827,222 Preferred Shares were issued and outstanding. Except as disclosed in the SEC Documents, all outstanding shares of capital stock of Allied are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. No bonds, debentures, notes or other indebtedness of Allied having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which the shareholders of Allied may vote are issued or outstanding. Except under the Allied Plans or as set forth in the Allied Disclosure Letter, Allied does not have any outstanding option, warrant, subscription or other right, agreement or commitment which either obligates Allied to issue, sell or transfer, repurchase, redeem or otherwise issue, acquire or vote any shares of capital stock of Allied, or which restricts the transfer of Common Shares. Since May 29, 1998, no shares have been issued except subject on the exercise of options listed above and no options granted. Following the Effective Time, no Person shall have any right to acquire any securities of the Surviving Corporation. Except as described in this Section 4.2, no shares of capital stock, or any securities entitling any person to acquire such shares, are outstanding. Section 4.3 Subsidiaries. The Allied Disclosure Letter sets forth, as to ------------ each Allied Subsidiary, its authorized capital stock and the number of its issued and outstanding shares of capital stock. Except as set forth in the Allied Disclosure Letter or the SEC Documents, Allied 17 is, directly or indirectly, the record and beneficial owner of all of the outstanding shares of capital stock of each of the Allied Subsidiaries, and no capital stock of any Allied Subsidiary is or may become required to be issued by reason of any options, warrants, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable or exercisable for, shares of any capital stock of any Subsidiary, and there are no contracts, commitments, understandings or arrangements by which Allied or any Allied Subsidiary is or may be bound to issue, redeem, purchase or sell additional shares of capital stock of any Allied Subsidiary or securities convertible into or exchangeable or exercisable for any such shares. All of such shares so owned by Allied are validly issued, fully paid and nonassessable and are owned by it or by another wholly-owned Allied Subsidiary thereof free and clear of all liens, claims, encumbrances, restraints on alienation, or any other restrictions with respect to the transferability or assignability thereof (other than restrictions on transfer imposed by federal or state securities laws). Section 4.4 Authority Relative to this Agreement. (a) Allied has full ------------------------------------ corporate authority and legal right to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved and authorized by the Board of Directors of Allied. Except for the approval of this Agreement by the shareholders of Allied, no other corporate proceedings on the part of Allied are necessary to authorize this Agreement and the transactions contemplated hereby. The affirmative vote of at least the majority of the votes entitled to be cast by shareholders of Allied present or represented by a properly executed proxy at the meeting called pursuant to Section 3.2 hereof, if required under applicable law, is the only vote of shareholders of Allied necessary to approve this Agreement and the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by Allied and (assuming this Agreement is a legal, valid and binding obligation of Nationwide) constitutes a legal, valid and binding agreement of Allied enforceable against Allied in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 18 (c) Based upon the recommendation of a committee comprised of members of the Board of Directors of Allied who are not directors or otherwise affiliated with any of Allied's subsidiaries or affiliates (the "Special Committee") appointed by the Board of Directors of Allied in connection with the Offer and the Merger, the Board of Directors of Allied (i) has declared that this Agreement, the Offer, the Merger and the other transactions contemplated hereby and thereby are advisable and in the best interests of Allied and (ii) has authorized, approved and adopted in all respects this Agreement, the Shareholder Agreement, the Offer, the Merger and the other transactions contemplated hereby and thereby. The Special Committee and the Board of Directors of Allied have received the opinion of the Special Committee's financial advisor, Morgan Stanley & Co. Incorporated, to the effect that the consideration to be received by the shareholders in the Offer and Merger, taken together, is fair from a financial point of view to such shareholders (other than Nationwide and its Affiliates). It is agreed and understood that such opinion is for the benefit of the Special Committee and Allied's Board of Directors and may not be relied on by Nationwide. Section 4.5 No Violation; Governmental Filings. ---------------------------------- (a) Except as set forth in the Allied Disclosure Letter, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not (i) constitute a breach or violation of or default under the articles of incorporation or the by-laws (or similar organizational documents) of Allied or of any of the Allied Subsidiaries, (ii) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Lien upon any of the assets of Allied or of any of the Allied Subsidiaries under any of the terms, conditions or provisions of any Allied Contract or (iii) constitute a breach or violation of or default under any Environmental Permit, Law or License to which Allied or any of the Allied Subsidiaries is subject, other than, in the case of clauses (ii) and (iii), such violations, conflicts, breaches, defaults or events or other matters that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or to prevent or delay the consummation of the transactions contemplated hereby. 19 (b) Except for (i) the Governmental Approvals set forth in the Allied Disclosure Letter, (ii) the filing of this Agreement with and the approval of such by the Iowa Commissioner, the Iowa Attorney General, and the Arizona Director under the Iowa Insurance Law and the Arizona Insurance Law, respectively, and such other applications, registrations, declarations, filings, authorizations, Orders, consents and approvals as may be required under the Laws of other jurisdictions listed in the Allied Disclosure Letter, (iii) the approval of this Agreement by shareholders of Allied, if required by applicable law, (iv) the filings required under the HSR Act and the expiration or other termination of any waiting period applicable to the Offer and the Merger under such Act, (v) the filings pursuant to Section 2.3 hereof, (vi) the filing of appropriate documents with and such consents as may be required under the Investment Company Act and the Investment Advisers Act, (vii) the filing with the SEC of (x) a proxy statement relating to the approval by the shareholders of Allied of the Merger (the "Proxy Statement"), and (y) such reports under the Exchange Act, as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (viii) the filing of the certificate of merger with the Iowa Secretary of State and appropriate documents with the relevant authorities of other states in which Allied is qualified to do business and (ix) any consent or filing that is disclosed in the Allied Disclosure Letter or that would not otherwise be required to be disclosed pursuant to Section 4.5(a) hereof, no consent, approval, permit, notice, Order or authorization of, or registration, application, declaration or filing with (each a "Consent or Filing") any Governmental Entity is required with respect to Allied or any Allied Subsidiary in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, except for such Consents or Filings the failure of which to make or obtain would not, individually or in the aggregate, prevent or be a material impediment to the consummation of the transactions contemplated hereby or reasonably be expected to have a Material Adverse Effect or to prevent or delay the consummation of the transactions contemplated hereby. Section 4.6 SAP Statements. (a) "Allied SAP Statements" shall mean: -------------- (i) the Annual Statements for the Allied Insurers as of and for the years ended December 31, 1995, 1996 and 1997; 20 (ii) the Quarterly Statements for the Allied Insurers as of and for the calendar quarter ended March 31, 1998; (iii) any supplemental or separate statutory annual statements or quarterly statements for Allied Mutual and the Allied Insurers for any of the periods ended December 31, 1995, 1996 or 1997 or March 31, 1998, that are filed with any insurance Governmental Entity and that differ from the Annual Statements or the Quarterly Statements described in Section 4.6(i) or (ii) hereto; and (iv) the audited SAP balance sheets of each Allied Insurer as of December 31, 1995, 1996 and 1997 and the related audited summary of operations and statements of change in capital and surplus and cash flow of each Allied Insurer for each such years, together with the notes related thereto and the reports thereon of KPMG Peat Marwick, LLP. (b) Since December 31, 1997, each of the Allied Insurers has filed all SAP Statements required to be filed with or submitted to the appropriate regulatory authorities, except for such filings or submissions, the failure to so file or submit would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect. With respect to any Allied Insurer, each Allied SAP Statement complied (and, as to SAP Statements filed after the date of this Agreement, will comply) in all material respects with all applicable Laws when so filed, and all material deficiencies with respect to any such Allied SAP Statement have been cured or corrected, or are being contested in good faith by such Allied Insurer. With respect to any Allied Insurer, each Allied SAP Statement (and any notes related thereto) referred to in Section 4.6(a)(i), (ii), and (iv) hereof was prepared (and, as to Allied SAP Statements filed after the date of this Agreement, will be prepared) in accordance with SAP as in effect at the time of preparation and presents (and, as to Allied SAP Statements filed after the date of this Agreement, will present) fairly in all material respects the financial position of the Allied Insurers as of the respective dates thereof. With respect to any Allied Insurer, each Allied SAP Statement referred to in Section 4.6(c) hereof was prepared (or, in the case of similar Allied SAP Statements filed after the date of this Agreement, will be prepared) in accordance, in all material respects, with the statutory accounting practices required or permitted by the insurance Governmental Entity in the jurisdiction in which such statement was (or will be) filed. The parties agree that the 21 foregoing representations shall not be interpreted to apply to the actuarial reserves and other actuarial amounts held in respect of Liabilities with respect to insurance contracts of the Allied Insurers, as to which the only representations or warranties made in this Agreement are set forth in Section 4.8. Section 4.7 [Intentionally left blank.] Section 4.8 Reserves. To the Knowledge of Allied, the aggregate reserves -------- of the Allied Insurers as recorded in the Allied SAP Statements have been determined in accordance with generally accepted actuarial principles consistently applied (except as set forth therein). Except as disclosed in the SEC Reports or the Allied Disclosure Letter, the insurance reserving practices and policies of the Allied Insurers have not changed, in any material respect, since December 31, 1997, and the results of the application of such practices and policies are reflected in the Allied SAP Statements. All reserves of the Allied Insurers set forth in the Allied SAP Statements are, to the Knowledge of Allied, fairly stated in accordance with sound actuarial principles and meet the requirements of the insurance laws of the applicable insurance authority, except where the failure to so state such reserves or meet such requirements would not reasonably be expected to have a Material Adverse Effect. Section 4.9 SEC Documents. Allied has timely filed all required reports, ------------- schedules, forms, statements and other documents with the SEC since January 1, 1995 (such reports, schedules, forms, statements and other documents are hereinafter referred to as the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents as of such dates contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Allied included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim 22 financial statements, as permitted by Rule 10-01 of Regulation S-X) and fairly present, in all material respects, the consolidated financial position of Allied and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited interim financial statements, to normal year-end audit adjustments) in accordance with GAAP. The parties agree that the representations set forth in the previous sentence shall not be interpreted to apply to the actuarial reserves and other actuarial amounts held in respect of Liabilities with respect to insurance contracts of the Allied Insurers, as to which the only representations or warranties made in this Agreement are set forth in Section 4.8. Section 4.10 Absence of Certain Changes or Events. Except as set forth in ------------------------------------ the Allied Disclosure Letter, since March 31, 1998, there has been no event or condition which has had (or would reasonably be expected to result in) a Material Adverse Effect, and except as set forth in the Allied Disclosure Letter, Allied and the Allied Subsidiaries have in all material respects conducted their businesses in the ordinary course consistent with past practices and have not taken any of the actions contemplated by Section 6.1 hereto. Section 4.11 No Undisclosed Liabilities. Except as set forth in the -------------------------- Allied Disclosure Letter or the SEC Documents filed prior to the date hereof and for Liabilities arising since March 31, 1998 in the ordinary course of business and consistent with past practice, or in connection with the Offer or the transactions contemplated by this Agreement, neither Allied nor any of the Allied Subsidiaries has any Liabilities of a nature required by GAAP to be reflected in a consolidated balance sheet of Allied (or reflected in the notes thereto). The parties agree that the representations set forth in the previous sentence shall not be interpreted to apply to the actuarial reserves and other actuarial amounts held in respect of Liabilities with respect to Insurance Contracts of the Allied Insurers, as to which the only representations or warranties made in this Agreement are set forth in Section 4.8. Section 4.12 Takeover Statutes. Allied has taken all actions necessary ----------------- such that the provisions of Section 490.1110 of the IBCA and any applicable anti-takeover provision in the Restated Articles of Incorporation or By-laws of Allied is not, or at the Effective Time will not be, applicable to Allied, Nationwide, the Common Shares, the Offer, the Merger or any other 23 transactions contemplated by this Agreement and, to the Knowledge of Allied, no other restrictive provision of any "fair price," "moratorium," "control share acquisition," "interested shareholder" or other similar anti-takeover statute or regulation is so applicable. Section 4.13 Compliance with Law. Except as set forth in the Allied ------------------- Disclosure Letter or the SEC Documents filed prior to the date hereof, the businesses of Allied and the Allied Subsidiaries are not being conducted and since January 1, 1995 have not been conducted in violation of any applicable Law, except for violations that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Section 4.14 Assets. ------ (a) Except as set forth in the SEC Documents filed prior to the date hereof or the Allied Disclosure Letter, each of Allied and the Allied Subsidiaries (i) has good and valid title to all of its properties, assets and - other rights that do not constitute real property, free and clear of all Liens other than Permitted Liens, and (ii) owns, has valid leasehold interests in or -- valid contractual rights to use, all of the assets, tangible and intangible, used by, or necessary for the conduct of, its business, except where the failure to have such valid leasehold interests or such valid contractual rights would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) Except as set forth in the SEC Reports filed prior to the date hereof or the Allied Disclosure Letter, each of Allied and the Allied Subsidiaries: (i) represents that it does not own any real property; (ii) is in peaceful and undisturbed possession of the space and/or estate under each lease under which it is a tenant, and there are no material defaults by it as tenant thereunder; and (iii) has good and valid rights of ingress and egress to and from all the real property leased by such party from and to the public street systems for all usual street, road and utility purposes. 24 Section 4.15 Environmental Matters. Except as set forth in the Allied --------------------- Disclosure Letter or the SEC Reports, or as would not reasonably be expected to have a Material Adverse Effect: (a) Each of Allied and the Allied Subsidiaries and, to the Knowledge of Allied, all Allied Real Property (including all owners or operators thereof) is in substantial compliance in all material respects with all applicable Environmental Laws, which compliance includes, but is not limited to, the possession of all material Environmental Permits required under Environmental Laws and compliance with the terms and conditions thereof. Neither Allied nor any Allied Subsidiary has received any written communication, whether from a Governmental Entity, citizens' group, employee or otherwise, that alleges that Allied or any Allied Subsidiary or any Allied Real Property (including any owner or operator thereof) is not in such compliance, and, there are no circumstances that are reasonably likely to prevent or interfere with such compliance in the future. Neither Allied nor any Allied Subsidiary has been notified by any Governmental Entity that any such material Environmental Permit will be suspended or revoked or cannot be renewed in the ordinary course of business consistent with past practice. (b) There is no Environmental Claim pending or, to the Knowledge of Allied, threatened against Allied, any Allied Subsidiary, any Allied Real Property (including any owner or operator thereof) or any Person whose Liability for any Environmental Claims Allied or any Allied Subsidiary has or may have retained or assumed either contractually or, by operation of Law and, there are no facts existing on the date hereof which are reasonably likely to result in any such Environmental Claim. (c) There have been no releases, spills, leaks or discharges of Hazardous Substances at, from or to any Allied Real Property or any other property which required or is reasonably likely to require Allied or any Allied Subsidiary to undertake investigation, abatement, removal, remedial, corrective or other response action pursuant to applicable Environmental Laws. None of the Allied Real Property (i) is listed or proposed for listing on any list maintained by any Governmental Entity of sites that may require investigation, abatement, removal, remedial, corrective or other response action, including, but not limited to, the CERCLIS or the NPL or (ii) is the subject of any investigation, abatement, removal, remedial, corrective or other response action. 25 Section 4.16 Contracts. (a) The Allied Disclosure Letter contains a true --------- and complete list of all the following Contracts (true and complete copies of all such written Contracts having been made available to Nationwide), currently in force, to which Allied or any Allied Subsidiary is a party or by which any assets of Allied or any Allied Subsidiary are or may be bound, as such Contracts may have been amended to the date hereof: (i) has been entered into since March 31, 1998 and would be required to be filed by Allied as an exhibit to an SEC Document filed after such date under Item 10 of Rule 601 of Regulation S-K under the Exchange Act; (ii) is a reinsurance or retrocession contract which requires the payment of premiums by the Allied or the Allied Subsidiaries of amounts in excess of $500,000 per year; or (iii) contains covenants limiting the freedom of the Allied or any of the Allied Subsidiaries to engage in any line of business in any geographic area or to compete with any person or entity or restricting the ability of the Allied Subsidiaries to acquire equity securities of any person or entity; or (iv) is an employment or severance contract applicable to any employee, director or consultant of the Allied or the Allied Subsidiaries, including without limitation contracts to employ executive officers and other contracts with officers or directors of the Allied or any of the Allied Subsidiaries, other than agent contracts with insurance agents and any such contract which by its terms is terminable by the Allied or any of the Allied Subsidiaries on not more than 60 days' notice without material liability; or (v) is a contract for borrowed money in excess of $2,500,000; or (vi) is a contract providing for the payment or receipt of over $2,500,000 per year. 26 (b) As to all contracts with respect to which Allied or its Subsidiaries is bound, except as disclosed in the Allied Disclosure Letter or as would not, in the aggregate, reasonably be expected to have a Material Adverse Effect: (i) such contract is (assuming due power and authority of, and due execution and delivery by, the other party or parties thereto) valid and binding upon each party thereto and is in full force and effect; (ii) there is no default or claim of default on the part of Allied or the Allied Subsidiary party thereto or, to the Knowledge of Allied, by other parties thereto, and no event has occurred which, with the passage of time or the giving of notice (or both), would constitute such default thereunder. Section 4.17 [Intentionally left blank.] Section 4.18 Taxes and Tax Returns. Except as set forth in the Allied --------------------- Disclosure Letter or the SEC Documents: (a) All material Tax Returns required under applicable Law to be filed by Allied or any Allied Subsidiary have been timely filed; (b) Allied and each Allied Subsidiary have paid or made provision in accordance with GAAP (or there has been paid or provision has been made on its behalf) for the payment of all Taxes for all periods or portions thereof ending through the date hereof; (c) The federal income tax returns of Allied and each Allied Subsidiary have been examined by the Internal Revenue Service (or the applicable statutes of limitation for the assessment of federal income taxes have expired) for all periods through and including 1993; (d) No outstanding deficiencies, assessments or written proposals for the assessment of any Taxes have been proposed, asserted or assessed against Allied or any of the Allied 27 Subsidiaries which individually or in the aggregate would reasonably be expected to have a Material Adverse Effect; and (e) No audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of Allied or any Allied Subsidiary wherein an adverse determination or ruling in any one such proceeding or in all such proceedings in the aggregate would reasonably be expected to have a Material Adverse Effect. Section 4.19 Benefit Plans. The Allied Disclosure Letter sets forth a ------------- complete and correct list of all Benefit Plans (as defined below). Except as disclosed in the Allied Disclosure Letter or the SEC Documents: (a) Each "employee pension benefit plan" (as defined in Section 3(2) of ERISA) (hereinafter a "Pension Plan"), "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) (hereinafter a "Welfare Plan"), and each other material plan, program, arrangement or policy (written or oral) relating to bonuses, deferred compensation, performance compensation, compensation, stock purchases, stock options, stock appreciation, severance, salary continuation, vacation, sick leave, holiday pay, fringe benefits, reimbursement programs, incentive, insurance, welfare or other employee benefits, in each case maintained or contributed to, or required to be maintained or contributed to, by Allied and the Allied Subsidiaries for the benefit of any present or former officers, employees, agents, directors or independent contractors of Allied or the Allied Subsidiaries (all the foregoing being herein called "Benefit Plans") has been administered in accordance with its terms and all applicable laws and regulations except where the failure to be so administered would not reasonably be expected to result in a Material Adverse Effect. All required contributions to the Benefit Plans have been made or provided for, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect. Allied, the Allied Subsidiaries and all the Benefit Plans are in compliance with the applicable provisions of ERISA, the Code, all other applicable laws and all applicable collective bargaining agreements, except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect. Complete and correct copies of all current and prior documents, including all amendments thereto, with respect to each Benefit Plan have been delivered or made available to Nationwide. Copies of all summary plan descriptions, summary annual reports, IRS 28 determination letters, summaries of material modifications, other communications to employees concerning the Benefit Plans, and the three most recent Forms 5500 for each Benefit Plan have also been delivered or made available to Nationwide. (b) None of Allied or any other person or entity that together with Allied is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code (each a "Commonly Controlled Entity") has incurred any material liability to a Pension Plan covered by Title IV of ERISA (a "Title IV Plan") (other than for contributions not yet due) or to the Pension Benefit Guaranty Corporation (other than for the payment of premiums not yet due) which liability has not been fully paid as of the date hereof. No Commonly Controlled Entity has withdrawn from a Pension Plan covered by Title IV of ERISA (a "Title IV Plan") during a plan year in which it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA) where such withdrawal could result in liability of such substantial employer pursuant to Section 4062(e) or 4063 of ERISA that would reasonably be expected to result in a Material Adverse Effect. No Commonly Controlled Entity has filed a notice of intent to terminate any Title IV Plan or adopted any amendment to treat any such plan as terminated. The Pension Benefit Guarantee Corporation has not instituted proceedings to terminate any Title IV Plan in which a Commonly Controlled Entity participates. No accumulated funding deficiency, whether or not waived, exists with respect to any such plan, and no condition has occurred or exists which by the passage of time would be expected to result in an accumulated funding deficiency as of the last day of the current plan year of any such plan. No reportable event, as described in Section 4043 of ERISA, has occurred and is continuing with respect to Title IV Plan in which a Commonly Controlled Entity participates which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any such plan. No amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Title IV Plan. Since the last valuation date for each such plan, there has been no amendment or change to such plan that would increase materially the amount of benefits thereunder. In addition to the documents listed in subsection (a) above, Allied has delivered or made available to Nationwide, for each Title IV Plan in which a Commonly Controlled Entity participates, copies of the following documents: (i) the Form PBGC-1 filed in each of the most recent three plan years, and (ii) the actuarial report as of the 29 three most recent valuation dates and the retirement plan disclosures required under Financial Accounting Standard 87 for the most recent fiscal year. (c) No Commonly Controlled Entity is required to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or has withdrawn from any multiemployer plan where such withdrawal has resulted or would result in any "withdrawal liability" (within the meaning of Section 4201 of ERISA) that has not been fully paid. (d) There are no pending or threatened claims (other than routine benefit claims), lawsuits or arbitrations which have been asserted or instituted against any Benefit Plan, any of the fiduciaries thereof or Allied or the Allied Subsidiaries with respect to their duties under the Benefit Plans that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. (e) Neither Allied nor a Commonly Controlled Entity, nor to the Knowledge of Allied, any of their respective employees or directors, nor to the Knowledge of Allied, any fiduciary, has engaged in any transaction in violation of Section 406(a) or (b) of ERISA or which is a "prohibited transaction" (as defined in Section 4975(c)(i) of the Code) for which no exemption exists under Section 408(b) of ERISA or Section 4975(d) of the Code or for which no administrative exemption has been granted under Section 408(a) of ERISA. (f) The Benefit Plans and their related trusts intended to qualify under Section 401 of the Code received favorable determination letters from the IRS and to the Knowledge of Allied, such Plans and their related trusts continue to qualify and operate as designed. (g) Allied and the Allied Subsidiaries have no liability (contingent or otherwise) under Section 4069 of ERISA by reason of a transfer of any underfunded pension plan. (h) Complete and correct copies of the most recent actuarial reports (including for purposes of Financial Accounting Standards Board report nos. 87, 106 and 112) with respect to each Benefit Plan providing retiree medical or life insurance coverage for employees of Allied and the Allied Subsidiaries have been provided or made available to Nationwide. Except as 30 disclosed in the Allied Disclosure Letter, no current employee of Allied or the Allied Subsidiaries would be entitled if his or her employment with Allied and the Allied Subsidiaries is terminated to any retiree medical or insurance coverage. (i) No amount that could be received as a result of any of the transactions contemplated by this Agreement by any employee, officer or director of Allied or any of the Allied Subsidiaries under any employment, severance or termination agreement, other compensation arrangement or Benefit Plan currently in effect would be characterized as an "excess parachute payment" (as such term is defined in Section 280G of the Code). (j) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any employee (current, former or retired) of Allied and the Allied Subsidiaries, (ii) increase any benefits under any Benefit Plan or (iii) result in the acceleration of the time of payment of, vesting of or other rights with respect to any such benefits. Section 4.20 Labor Relations and Employment. (a) Except to the extent ------------------------------ set forth in the Allied Disclosure Letter or the SEC Documents, (i) there is no labor strike, material labor dispute, slowdown, stoppage or lockout actually pending, or to the Knowledge of Allied, threatened against or affecting Allied or any of the Allied Subsidiaries, and since January 1, 1998 there has not been any such action; (ii) to the Knowledge of Allied, no union claims to represent the employees of Allied or any of the Allied Subsidiaries, there are no current union organizing activities among the employees of Allied or of any of the Allied Subsidiaries and Allied has not received notice of any unfair labor practice complaint or charge against it pending before the National Labor Relations Board and (iii) neither Allied nor any of the Allied Subsidiaries is a party to or is bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association, applicable to employees of Allied or of any Allied Subsidiary. Section 4.21 Intellectual Property. Allied and each Allied Subsidiary --------------------- owns or otherwise has rights to use, free and clear of all Liens, all Intellectual Property used in their respective businesses as currently conducted except for any failure to have such right which would not, 31 individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. To the Knowledge of Allied, the use of such Intellectual Property does not infringe or otherwise violate the rights of any Person. Section 4.22 Transactions with Affiliates. Except as set forth in the ---------------------------- Allied Disclosure Letter or the SEC Documents, neither Allied nor any Allied Subsidiary has entered into any material transaction with an Affiliate in connection with which either Allied or an Allied Subsidiary has continuing obligations, in the ordinary course of business or otherwise, which is not on the terms at least as favorable to Allied or an Allied Subsidiary as would have been applicable if such transaction had been entered into on an arm's-length basis with an unaffiliated third party. Allied has not made or declared any dividend or distribution that was disproportionate in favor of any Affiliate. Section 4.23 Voting Requirements. The affirmative vote of the holders of ------------------- a majority of the voting power represented by the outstanding Common Shares and outstanding Preferred Shares voting together as one class and entitled to vote at the Shareholders Meeting is the only vote of the holders of Allied's capital stock necessary to approve this Agreement and the transactions contemplated by this Agreement. Section 4.24 Investment Company. None of the Allied Subsidiaries ------------------ maintains any separate accounts. Neither Allied nor any of its Subsidiaries conducts activities of or is otherwise deemed under applicable law to control an "investment advisor" as such term is defined in Section 2(a)(20) of the 1940 Act, whether or not registered under the Investment Advisers Act of 1940, as amended. Neither Allied nor any of its Subsidiaries is an "investment company" as defined under the 1940 Act, and neither Allied nor any of its Subsidiaries sponsors any Person that is such an investment company. 32 ARTICLE V REPRESENTATIONS AND WARRANTIES OF NATIONWIDE AND SUB Nationwide and Sub jointly and severally represent and warrant to Allied as follows: Section 5.1 Organization and Qualification. Nationwide is a mutual ------------------------------ insurance company and Sub is a corporation duly organized, validly existing and in good standing under the Laws of the State of Ohio and has full corporate power, authority and legal right to conduct its Business as it is currently being conducted. Each of Nationwide and Sub is duly qualified to do business, and is in good standing, in the respective jurisdictions where the character of its assets owned or leased or the nature of its Business makes such qualification necessary, except for failures to be so qualified or in good standing which are not, individually or in the aggregate, reasonably likely to have a material adverse effect on Nationwide. Nationwide possesses an Insurance License in each jurisdiction in which Nationwide is required to possess an Insurance License. All such Insurance Licenses are in full force and effect without amendment, limitation or restriction, and Nationwide does not have Knowledge of any event, inquiry or Proceeding which is reasonably likely to lead to the revocation, amendment, failure to renew, limitation, suspension or restriction of any such Insurance License. Section 5.2 Authority Relative to this Agreement. (a) Nationwide and Sub ------------------------------------ have full power, authority and legal right to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved and authorized by the Board of Directors of Nationwide and by the Board of Directors of Sub. No other corporate proceedings on the part of Nationwide or Sub are necessary to authorize this Agreement and the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by Nationwide and Sub and (assuming this Agreement is a legal, valid and binding obligation of Allied) constitutes a legal, valid and binding agreement of Nationwide and Sub enforceable against Nationwide and Sub in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 33 Section 5.3 No Violation. (a) The execution, delivery and performance of ------------ this Agreement and the consummation of the transactions contemplated hereby will not (i) constitute a breach or violation of or default under the articles of incorporation or the by-laws of Nationwide or under the articles of incorporation or the by-laws of Sub, (ii) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Lien upon any of the assets of Nationwide, Sub or any Nationwide Subsidiary under, any of the terms, conditions or provisions of any Contract to which Nationwide, Sub or any Nationwide Subsidiary is a party or to which it or any of its assets may be subject or (iii) constitute a breach or violation of or default under any Environmental Permit, Law or License to which Nationwide, Sub or any Nationwide Subsidiary is subject other than, in the case of clauses (ii) and (iii), events or other matters that are not, individually or in the aggregate, reasonably likely to have a material adverse effect on Nationwide or to prevent or delay the consummation of the transactions contemplated hereby. (b) Except for (i) the filing of this Agreement with and the approval of such by the Ohio Superintendent under the Ohio Insurance Law, the Iowa Commissioner under the Iowa Insurance Law and the Arizona Commissioner under the Arizona Insurance Law, (ii) the filings required under the HSR Act and the expiration or other termination of any waiting period applicable to the Merger under such act, and (iii) any Consent or Filing that would not otherwise be required to be disclosed pursuant to Section 5.3(a) hereof, no Consent or Filing of or with any Person is required with respect to Nationwide, Sub or any Nationwide Subsidiary or any Nationwide Affiliate in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, except for such Consents or Filings the failure of which to make or obtain would not, individually or in the aggregate, prevent or be a material impediment to the consummation of the transactions contemplated hereby or have a material adverse effect on the business, operations or financial condition of Nationwide or any of its Subsidiaries, taken as a whole, or that would prevent Nationwide or Sub from consummating the transactions contemplated by this Agreement. 34 Section 5.4 Litigation. There is no action, proceeding, investigation or ---------- inquiry pending or threatened against Nationwide and Sub which questions the validity of this Agreement or the Offer or any action taken or to be taken pursuant hereto or pursuant to the Offer. Section 5.5 Financial Ability to Perform. Nationwide and Sub at the ---------------------------- expiration of the Offer and at the Effective Time will have cash funds sufficient to pay all cash payments for Common Shares in the Offer and the Merger, and to pay all related fees and expenses. ARTICLE VI CERTAIN COVENANTS Section 6.1 Allied Conduct of Business Pending the Merger. From the date --------------------------------------------- hereof until the Effective Time, unless Nationwide shall otherwise agree in writing, or except as set forth in the Allied Disclosure Letter or as otherwise contemplated by this Agreement, Allied and the Allied Subsidiaries shall conduct their respective businesses in the ordinary course consistent with past practice and shall use all reasonable efforts to preserve intact their business organizations and relationships with third parties (including but not limited to their respective relationships with policyholders, insureds, agents, underwriters, brokers and investment customers) and to keep available the services of their present officers and key employees, subject to the terms of this Agreement. Except as set forth in the Allied Disclosure Letter or as otherwise provided in this Agreement, from the date hereof until the Effective Time, without the prior written consent of Nationwide: (i) Allied shall not adopt or propose any change in its Restated Articles of Incorporation or Bylaws; (ii) Allied shall not declare, set aside or pay any dividend or other distribution with respect to any shares of capital stock of Allied (except for regular quarterly dividends payable in an amount no greater than $0.14 per share on the Common Shares and the regular quarterly dividends per share on the Preferred Shares), or split, combine or reclassify any of Allied's capital stock, and Allied and the Allied Subsidiaries shall not 35 repurchase, redeem or otherwise acquire any shares of capital stock or other securities of, or other ownership interests in, Allied; (iii) Allied shall not, and shall not permit any Allied Subsidiary to, merge or consolidate with any other person or (except in the ordinary course of business) acquire a material amount of assets of any other person; (iv) Allied shall not, and shall not permit any Allied Subsidiary to, sell, lease, license or otherwise surrender, relinquish or dispose of (i) any material facility owned or leased by Allied or any Allied Subsidiary or (ii) any assets or property which are material to Allied and the Allied Subsidiaries taken as a whole, except pursuant to existing contracts or commitments listed in Section 6.1(iv) of the Allied Disclosure Letter (the terms of which have been disclosed to Nationwide prior to the date hereof), or in the ordinary course of business consistent with past practice; (v) Allied shall not, and shall not permit any Allied Subsidiary to, settle any material audit, make or change any material Tax election or file materially amended Tax Returns; (vi) Allied and the Allied Subsidiaries shall not issue any capital stock or other securities or enter into any amendment of any material term of any outstanding security, and Allied and the Allied Subsidiaries shall not incur any material indebtedness except in the ordinary course of business pursuant to existing credit facilities or arrangements, amend or otherwise increase, accelerate the payment or vesting of the amounts payable or to become payable under or fail to make any required contribution to, any Benefit Plan (as hereinafter defined) or materially increase any non-salary benefits payable to any employee or former employee, except in the ordinary course of business consistent with past practice or as otherwise permitted by this Agreement; (vii) Allied shall not, and shall not permit any Allied Subsidiary to, grant any increase in the compensation or benefits of directors, officers, employees, consultants or 36 agents of Allied or any Allied Subsidiary other than increases in the ordinary course of business consistent with past practice; (viii) Allied shall not, and shall not permit any Allied Subsidiary to, enter into or amend any employment agreement or other employment arrangement with any employee of Allied or any Allied Subsidiary, except in the ordinary course of business consistent with past practices (which past practices shall not be deemed to include actions taken in connection with the Merger); (ix) Allied shall not change any method of accounting or accounting practice by Allied or any Allied Subsidiary, except for any such required change in GAAP or SAP; (x) Allied shall not permit any Allied Insurer to conduct transactions in Allied Investments except in compliance with the investment policies of such Allied Insurer in effect on the date hereof and all applicable insurance laws and regulations; (xi) Allied shall not, and shall not permit any Allied Subsidiary to, enter into any agreement to purchase, or to lease for a term in excess of one year, any real property, provided that Allied, or any Allied Subsidiary, (i) may as a tenant, or a landlord, renew any existing lease for a term not to exceed eighteen months and (ii) nothing herein shall prevent the Allied, in its capacity as a landlord, from renewing any lease pursuant to an option granted prior to the date hereof; (xii) amend any agreement with Allied Mutual, Allied Life or any of their affiliates; (xiii) Allied shall not, and shall not permit any Allied Subsidiary to, agree or commit to do any of the foregoing; (xiv) except to the extent necessary to comply with the requirements of applicable laws and regulations, Allied shall not, and shall not permit any Allied 37 Subsidiary to, (i) take, or agree or commit to take, any action - that would make any representation and warranty of Allied hereunder inaccurate in any material respect at, or as of any time prior to, the Effective Time, (ii) omit, or agree or commit to omit, to take any action -- necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time, provided however, that Allied shall be permitted to take or omit to take such action which (without any uncertainty) can be cured, and in fact is cured, at or prior to the Effective Time or (iii) take, or agree or commit to take, any action --- that would result in, or is reasonably likely to result in, any of the conditions of the Merger set forth in Article VIII not being satisfied; and (xv) none of the Allied Insurers shall make any material change in its underwriting, claims management or reserving practices. Section 6.2 Disposition of Litigation. From and after the date hereof and ------------------------- until the Effective Time, Nationwide shall cease, in any and all respects, the prosecution of any litigation against Allied or any Affiliates thereof. Immediately following the Effective Time, Nationwide shall dismiss, with prejudice, any and all litigation brought by Nationwide against Allied or any Affiliates thereof. Section 6.3 Reasonable Best Efforts. Upon the terms and subject to the ----------------------- conditions herein provided, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken all action, to do, or cause to be done, and to assist and cooperate with the other party hereto in doing or causing to be done, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including, but not limited to, (i) the actions set forth in Article I, II and III hereof, (ii) the obtaining of all Governmental Approvals, and all other necessary actions or nonactions, waivers, consents and approvals from all appropriate Governmental Entities and other Persons and the making of all necessary registrations and filings, (iii) the obtaining of the opinions and other documents referred to in Article VII hereof, (iv) the resolution of all organizational and human resources issues relating to the transactions contemplated hereby, (v) the obtaining or making of all Consents, Environmental Permits, Filings or Licenses necessary or desirable to ensure that the business of the Surviving Corporation may be conducted without disruption consistent with the past practice of each of the 38 Constituent Companies and (vi) the defending of any Proceedings challenging this Agreement or the consummation of the transactions contemplated hereby, the defense of which shall, at the request of either Allied or Nationwide, be conducted jointly by Nationwide and Allied on a basis that is satisfactory to both Allied and Nationwide. Allied hereby grants Nationwide the right to decide for purposes of the Form A regulatory hearings whether to submit regulatory applications for Allied, Allied Life and Allied Mutual concurrently or separately, and whether to conduct the regulatory hearing and approval proceedings concurrently or separately for each of Allied, Allied Life and Allied Mutual. Both Allied and Nationwide agree to use their reasonable best efforts to coordinate and cooperate during the regulatory approval process. Section 6.4 [Intentionally left blank.] Section 6.5 Access and Information. Subject to provisions of applicable ---------------------- law, Allied shall (a) afford to Nationwide's and Sub's accountants, legal counsel and other advisors ("Representatives") full access during normal business hours through the period immediately prior to the Effective Time to all of its and the Allied Subsidiaries' assets, books, Contracts, commitments and records (including, but not limited to, Tax Returns), and (b) during such period, Allied shall furnish promptly to Nationwide and Sub all such information concerning its business, assets and personnel or those of any of its Affiliates, in either clause (a) or (b), as Nationwide or Sub may reasonably request. Unless otherwise required by law, Nationwide and Sub will, and will cause their Representatives to, hold any such information in confidence until such time as such information otherwise becomes publicly available through no wrongful act of Nationwide, Sub or their Representatives. In the event of the termination of this Agreement for any reason, Nationwide will, and will cause Sub and their Representatives to, return to Allied all copies of written information furnished by Allied, Sub or their Representatives to Nationwide, Sub or their Representatives and destroy all memoranda, notes and other writings prepared by Nationwide, Sub or their Representatives based upon or including the information furnished by Allied or any of its Representatives to Nationwide, Sub or their Representatives (and Nationwide will certify to Allied that such destruction has occurred) and neither Nationwide nor Sub shall use any such information for any purpose. Prior to the completion of the Offer and, if this Agreement is terminated, during the two-year period following the date of termination, Nationwide will not (and will not assist or encourage others, including its Subsidiaries, to) solicit 39 the services, as employee, consultant or otherwise, of any employee of Allied, provided, that nothing in this Agreement shall be deemed to prohibit general - -------- solicitations of employment of persons in Nationwide's ordinary course of business not directed specifically toward employees of Allied, solicitations through executive recruiting firms not directed specifically toward employees of Allied or employees that make contact with Nationwide. Section 6.6 Notice of Proceedings. Each of Nationwide and Allied shall --------------------- promptly notify the other of, and provide to the other all information relating to, any Proceedings or investigations commenced or, to the Knowledge of Allied, threatened against, relating to or involving or otherwise affecting Nationwide or Allied or any of their respective Subsidiaries which relate to the execution of this Agreement or the consummation of the transactions contemplated hereby. Section 6.7 Notification of Certain Other Matters. Each party shall ------------------------------------- promptly notify the other of any change or other event which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, including, but not limited to, any of the following: (a) any written notice from or to any Person alleging that the consent of such Person is or may be required in connection with the execution of this Agreement or the consummation of the transactions contemplated hereby, and where the failure to obtain such a consent would reasonably be expected to have a Material Adverse Effect; (b) any written notice from or to any Governmental Entity in connection with this Agreement or the transactions contemplated hereby; and (c) any matter hereafter arising or discovered which, if existing or known at the date hereof, would have been required to be set forth or described in the Nationwide Disclosure Letter or the Allied Disclosure Letter, as the case may be; provided, however, that no such supplemental or amended disclosure by any -------- ------- party shall be deemed to cure any breach of a representation or warranty made as of the date hereof. 40 In furtherance of the foregoing, to the fullest extent permitted under applicable Law, each party shall provide the other with copies (or, to the extent written materials are not involved, oral notice) of proposed notices, applications or any other communications to any Governmental Entity or rating agency in connection with this Agreement or the transactions contemplated hereby, including, but not limited to, in respect of the Governmental Approvals, in each case at least three (3) Business Days prior to dispatch of written materials (or, to the extent written materials are not involved, prior to initiation) and neither Nationwide nor Allied will dispatch (or, to the extent written materials are not involved, initiate) such notice, application or communication without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed. Section 6.8 Indemnification; Directors' and Officers' Insurance. (a) In --------------------------------------------------- the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action, suit, proceeding or investigation by or in the right of Allied or any of its Subsidiaries, in which any of the present officers or directors (the "Indemnified Parties") of Allied or any of its Subsidiaries is, or is threatened to be, made a party by reason of the fact that he or she is or was a director, officer, employee or agent of Allied or any of its Subsidiaries, or is or was serving at the request of Allied or any of its Subsidiaries as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether before or after the Effective Time, the parties hereto agree to cooperate and use their reasonable best efforts to defend against and respond thereto. It is understood and agreed that Allied shall indemnify and hold harmless, and after the Effective Time the Surviving Corporation and Nationwide, jointly and severally, shall indemnify and hold harmless, as and to the full extent permitted by applicable Law, each such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorneys, fees and expenses), judgments, fines and amounts paid in settlement in connection with any such claim, action, suit, proceeding or investigation, and in the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Time), (i) the Indemnified Parties may retain one - counsel satisfactory to them unless there are conflicts under applicable professional standards, and Allied, or the Surviving Corporation and Nationwide after the Effective Time, shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received and (ii) Allied and the -- 41 Surviving Corporation and Nationwide will use their respective reasonable best efforts to assist in the vigorous defense of any such matter; provided, that -------- neither Allied nor the Surviving Corporation nor Nationwide shall be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld); and provided further that the Surviving -------- ------- Corporation and Nationwide shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and non-appealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. Any Indemnified Party wishing to claim indemnification under this Section 6.8, upon learning of any such claim, action, suit, proceeding or investigation, shall notify Allied and, after the Effective Time, the Surviving Corporation and Nationwide, thereof. (b) Nationwide shall cause the Surviving Corporation to keep in effect in its By-Laws a provision for a period of not less than six years from the Effective Time (or, in the case of matters occurring prior to the Effective Time which have not been resolved prior to the sixth anniversary of the Effective Time, until such matters are finally resolved) which provides for indemnification of the Indemnified Parties to the full extent permitted by applicable law. (c) Nationwide shall cause to be maintained in effect for not less than six years from the Effective Time the current policies of the directors' and officers' liability insurance maintained by Allied (provided that Nationwide may substitute therefor policies of at least the same coverage containing terms and conditions which are no less advantageous) with respect to matters occurring prior to the Effective Time; provided, however, that if the aggregate annual -------- ------- premiums for such insurance at any time during such period shall exceed 200% of the per annum rate of premium currently paid by Allied and its Subsidiaries for such insurance on the date of this Agreement, then Nationwide shall cause Allied (or the Surviving Corporation if after the Effective Time) to, and Allied (or the Surviving Corporation if after the Effective Time) shall, provide the maximum coverage that shall then be available at an annual premium equal to 200% of such rate, and Nationwide, in addition to the indemnification provided above in this Section 6.8, shall indemnify the Indemnified Parties for the balance of such insurance coverage on the same terms and conditions as though Nationwide were the insurer under those policies. 42 Section 6.9 [Intentionally Omitted.] Section 6.10 Acquisition Proposals. Allied will not, and will not permit --------------------- or cause any of its Subsidiaries or any of the officers or directors of it or its Subsidiaries to, and shall direct its and its Subsidiaries' employees, agents and representatives (including any investment banker, attorney or accountant retained by it or any of its Subsidiaries) not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries or the making of any proposal or offer with respect to a merger, reorganization, share exchange, consolidation or similar transaction involving, or any purchase of 20 percent or more of the assets or any equity securities of, Allied or any Allied Subsidiaries (other than as set forth in Section 6.10 of the Allied Disclosure Letter), or any other business combination (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal"). Allied will not, and will not permit or cause any of its Subsidiaries or any of the officers and directors of it or its Subsidiaries to and shall direct its and its Subsidiaries' employees, agents and representatives (including any investment banker, attorney or accountant retained by it or any of its Subsidiaries) not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any Person relating to an Acquisition Proposal, whether made before or after the date of this Agreement, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that nothing contained in -------- ------- this Agreement shall prevent Allied or its Board of Directors from (i) complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal or (ii) at any time prior to the payment for Common Shares pursuant to the Offer (A) providing information in response to a request therefor by a Person who has made an unsolicited bona fide written Acquisition Proposal if the Board of Directors receives from the Person so requesting such information an executed confidentiality agreement on customary terms; (B) engaging in any negotiations or discussions with any Person who has made an unsolicited bona fide written Acquisition Proposal; or (C) recommending such an Acquisition Proposal to the shareholders of Allied, if and only to the extent that, (i) in each such case referred to in clause (A), (B) or (C) above, the Board of Directors of Allied determines in good faith after consultation with outside legal counsel that such action is reasonably likely to be necessary in order for its directors to comply with their respective fiduciary duties under applicable law and (ii) in the case referred to in clause (C) above, the Board of Directors of Allied determines in good faith (after consultation 43 with its financial advisor) that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the Person making the proposal and would, if consummated, result in a more favorable transaction than the transaction contemplated by this Agreement, taking into account the long-term prospects and interests of Allied and its shareholders. Allied will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. Allied agrees that it will take the necessary steps to promptly inform the individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 6.10. Allied will notify Nationwide immediately if any such inquiries, proposals or offers are received by, any such information is requested from, or any such discussions or negotiations are sought to be initiated or continued with, any of its representatives indicating, in connection with such notice, the name of such Person and the material terms and conditions of any proposals or offers and thereafter shall keep Nationwide informed, on a reasonably current basis, on the status and terms of any such proposals or offers and the status of any such negotiations or discussions. Section 6.11 Maintenance of Benefits. For a period of at least one year ----------------------- following the Effective Time, Nationwide shall provide each employee or former employee of Allied or any of its Subsidiaries with (i) the same basic - compensation (including base salary, wages or commissions) and annual incentive opportunity, to the extent applicable, and (ii) benefits which, not individually -- but in the aggregate, are substantially comparable, in each case to the compensation and benefits that were provided to such employee or former employee by Allied or any of its Subsidiaries (including, but not limited to any Allied Benefit Plan) as of immediately prior to the Effective Time provided that the foregoing items (i) and (ii) shall not be deemed to require Nationwide to offer an employee stock ownership plan or other equity related arrangement. Nothing in this Section shall require Nationwide to continue any such employee's employment following the Effective Time, provided however that, in the event --------------------- that any such employee is terminated involuntarily following the Effective Time and prior to the first anniversary thereof by action of Nationwide or any of its Subsidiaries, such Employee shall receive at least the same severance and termination benefits as he or she would have received under the terms of the applicable Allied Benefit Plan, as in effect immediately prior to the Effective Time. From and after the Effective Time, for purposes of determining eligibility, but 44 not for purposes of benefit accrual under the Nationwide defined benefit plan, and for purposes of determining entitlement to vacation, severance and other benefits for employees under any compensation, severance, welfare, pension (but not for purposes of benefit accrual), benefit, savings or other plan of Nationwide or any of its Subsidiaries in which employees of Allied or any of its Subsidiaries become eligible to participate, service with Allied or any of its Subsidiaries shall be credited as if such service had been rendered to Nationwide or such Nationwide Subsidiary provided that Nationwide may, in lieu of providing retiree medical coverage under Nationwide's retiree medical plan, cause Allied to continue to offer its retiree medical plan to its current and former employees as currently in effect. For purposes of each outstanding Allied short-term, mid-term, and long-term incentive award held by any Allied employee that is based in whole or in part on the achievement of any performance or other similar criteria, such award shall be adjusted, as determined in consultation with Allied, to reflect factors that adversely impact the opportunity of such Allied employee to achieve such performance or other criteria and which shall include financial advisory, legal and other expenses incurred in connection with the Offer and the transactions contemplated by this Agreement. ARTICLE VII CONDITIONS Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. ---------------------------------------------------------- The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) the Offer shall have been successfully completed; (b) if required by applicable Law, this Agreement and the Merger shall have been approved and adopted by the vote of the shareholders of Allied at the Shareholders Meeting called for such purpose; and (c) no Order entered or Law promulgated or enacted by any Governmental Entity shall be in effect which would prevent the consummation of the Merger or any other material transactions completed hereby, and no Proceeding brought by a Governmental Entity shall have 45 been commenced and be pending which seeks to restrain, enjoin, prevent, or materially delay or restructure the Merger or any other material transactions contemplated hereby. ARTICLE VIII TERMINATION Section 8.1 Termination. This Agreement may be terminated and the Merger ----------- abandoned at any time prior to the Effective Time, whether before or after approval of the Merger by the shareholders of Nationwide or of Allied: (a) by mutual consent of Nationwide and Allied; (b) by Nationwide if the Board of Directors of Allied withdraws its recommendation to the Allied shareholders to approve the Merger; (c) by Nationwide or Allied if consummation of the Merger is barred by a permanent injunction which is final and non-appealable; (d) by Allied, if, prior to the purchase of Shares pursuant to the Offer, there is an Acquisition Proposal which the Board of Directors determines represents a more favorable transaction to Allied and its shareholders than the transactions contemplated by this Agreement, and if the Board of Directors, after consultation with outside counsel, shall have determined that failure to terminate the Agreement is reasonably likely to be inconsistent with the fiduciary duties of the Board of Directors under applicable Law and Allied has given Nationwide three Business Days notice of the terms of such Acquisition Proposal and has paid Nationwide the fee contemplated by Section 8.2(b); (e) by Allied prior to the completion of the Offer, upon a material breach of any representation or warranty of Nationwide or Nationwide's failure to comply in any material respect with any of its covenants or agreements, or if any representation or warranty of Nationwide or Sub shall be or become untrue in any material respect, which breach or failure to comply or untruth is not curable or, if curable, is not cured within 30 Business Days after written 46 notice thereof has been given to Nationwide (materiality being construed in light of the transactions contemplated by this Agreement); (f) by Nationwide prior to the completion of the Offer, (i) upon a material breach of any representation, or warranty of Allied or if any representation or warranty of Allied shall be or become untrue in any material respect, (ii) or Allied's failure to comply in any material respect with any of its covenants or agreements, which breach or failure to comply or untruth is not curable or, if curable, is not cured within 30 Business Days after written notice thereof has been given to Allied, (materiality being construed in light of the transactions contemplated by this Agreement); or (g) by Nationwide or by Allied, if Common Shares shall not have been purchased pursuant to the Offer by December 31, 1998, provided that the right to terminate this Agreement pursuant to this clause (g) shall not be available to a party whose failure to fulfill any obligation under this Agreement has been the cause of the failure of such purchase to occur by such date. Section 8.2 Effect of Termination. (a) In the event of the termination --------------------- of this Agreement by either Nationwide or Allied, as provided above, this Agreement shall thereafter become void provided, that the obligations of the -------- parties pursuant to Section 6.5 shall survive any termination of this Agreement and, except as provided in Section 8.2(b) and Section 9.2 hereof, there shall be no Liability on the part of either party hereto against the other party hereto, or on the part of its directors, officers, employees, shareholders or agents (or those of any of the Allied Subsidiaries or Affiliates), except that any such termination shall be without prejudice to the rights of either party hereto (or any of the Allied Subsidiaries or Affiliates) arising out of the willful breach by the other party (or any of the Allied Subsidiaries or Affiliates) of any representation or warranty or any covenant or agreement contained in this Agreement. (b) In the event of termination of this Agreement (x) by Allied pursuant to Section 8.1(d), (y) by Nationwide pursuant to Section 8.1(b) (other than if the recommendation is withdrawn because the conditions to the consummation of the Offer can not be fulfilled other than due to a breach by Allied) or (z) following the making of an Acquisition Proposal by a third party, by Nationwide pursuant to Section 8.1(f)(ii) or (g) or by Allied pursuant to Section 8.1(g) 47 then Allied shall, immediately prior to any such termination (or, in the case of (z), immediately following the execution of a definitive agreement implementing any Acquisition Proposal, provided such execution occurs within one year of termination), pay a termination fee in the amount of $30 million in immediately available funds by wire transfer to a bank account designated by Nationwide. In the event of termination of this Agreement by Nationwide pursuant to Section 8.1(f)(i) as a result of a willful breach of a representation or warranty, Allied shall pay Nationwide $10,000,000 in immediately available funds by wire transfer to a bank account designated by Nationwide. ARTICLE IX MISCELLANEOUS Section 9.1 Survival of Representations and Warranties. None of the ------------------------------------------ representations, warranties and agreements in this Agreement shall survive the Effective Time except as otherwise provided in this Agreement and except for the agreements contained in Article II and Section 6.8, which shall survive until expressly provided therein or, if not so expressly provided, indefinitely. Section 9.2 Fees and Expenses. Subject to Section 8.2(b) hereof, if the ----------------- Merger is not consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses, except for expenses incurred in connection with the printing, mailing and solicitation of proxies from shareholders and all filing fees and related expenses which shall be borne equally by Nationwide and Allied. Section 9.3 Notices. All notices and other communications hereunder shall ------- be in writing and shall be deemed to have been duly given, upon receipt, if mailed by registered or certified mail, postage prepaid, return receipt requested, overnight delivery, confirmed facsimile transmission or hand delivery, as follows: 48 (i) If to Nationwide, to: Nationwide Mutual Insurance Company One Nationwide Plaza Columbus, Ohio 43215 Attention: David A. Diamond, Vice President-Enterprise Controller Facsimile No.: (614) 249-4462 with a copy to: Nationwide Mutual Insurance Company One Nationwide Plaza Columbus, Ohio 43215 Attention: Mark B. Koogler; Roger A. Craig Facsimile No.: (614) 249-7254 (ii) If to Allied, to: Allied Group, Inc. 701 Fifth Avenue Des Moines, IA 50391-2000 Attention: Douglas L. Andersen Facsimile No.: (515) 280-4399 with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attention: Steven Ostner Facsimile No.: (212) 909-6836 or to such other address as the Person to whom notice is given may have previously furnished to the other party in writing in accordance herewith. Section 9.4 Amendments. This Agreement may be amended by the parties ---------- hereto at any time before or after the approval of this Agreement by the shareholders of Allied, but after such approval no amendment or modification shall be made which in any way materially adversely affects the rights of such shareholders without the further approval of such shareholders. This Agreement may not be amended, modified or supplemented except by written agreement of the parties hereto. Section 9.5 No Waiver. Nothing contained in this Agreement shall cause --------- the failure of either party to insist upon strict compliance with any covenant, obligation, condition or 49 agreement contained herein to operate as a waiver of, or estoppel with respect to, any such covenant, obligation, condition or agreement by the party entitled to the benefit thereof. Section 9.6 Brokers. Allied represents and warrants that no broker, ------- finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Allied, except for Allied's financial advisor, Morgan Stanley & Co. Incorporated, whose fees shall be paid by Allied. Nationwide represents and warrants that no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Nationwide, except for Nationwide's financial advisor, Credit Suisse First Boston, whose fees shall be paid by Nationwide. Section 9.7 Publicity. So long as this Agreement is in effect, each of --------- the parties hereto (i) shall not, and shall cause its Affiliates not to, issue or cause the publication of any press release or other announcement to any Person with respect to this Agreement or the transactions contemplated hereby without the consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, however, that nothing contained herein shall (A) -------- ------- limit the right of each of the parties hereto and their Affiliates to make a legally required filing or communication, provided that, to the extent possible, -------- such party shall consult with the other party before making such filing or communication, or responding to any communications initiated by any non- affiliated Person, including, but not limited to, any rating agency or Governmental Entity, (B) prohibit either party hereto (or its Affiliates) from initiating communications with, and making presentations to, any rating agency or Governmental Entity relating to the transactions contemplated hereby if such party gives prior notice thereof to the other party hereto, or (C) prohibit Nationwide or Allied or any of their respective Affiliates from communicating to any third party information in any way relating to the Merger that has been made known to the general public, other than in violation of this Agreement, prior to the time of such communication, (ii) shall cooperate fully with the other party hereto with respect to issuing or publishing any press release, or other announcement or other written communication to any non-affiliated Person and preparing written and oral communications to the employees and agents of each party hereto with the purpose of effectuating the Merger in the best interests of the 50 respective shareholders of Nationwide and Allied and (iii) shall promptly notify the other party of any announcements which are made to affiliated Persons and any communications received from and responses provided to non-affiliated Persons, in either case, with respect to this Agreement or the transactions contemplated hereby. Section 9.8 Headings. The headings contained in this Agreement are for -------- reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 9.9 Nonassignability. This Agreement shall not be assigned by ---------------- either party hereto by operation of Law or otherwise without the prior written consent of the other party hereto. Section 9.10 Beneficiaries. This Agreement shall be binding upon and ------------- inure solely to the benefit of the parties hereto and their permitted assigns, and nothing in this Agreement, expressed or implied, is intended to confer upon any other Person (including, but not limited to, any policyholder or employee of Allied, Nationwide or their Subsidiaries) any rights or remedies of any nature under or by reason of this Agreement, except as expressly provided in Sections 6.8 hereof. Section 9.11 Duplicates; Counterparts. This Agreement shall be executed ------------------------ in duplicate and may be executed in counterparts each of which shall be deemed to constitute an original and constitute one and the same instrument. Section 9.12 Governing Law; Jurisdiction. This Agreement shall be --------------------------- governed by and construed and enforced in accordance with the laws of the State of Ohio (except to the extent that the Iowa Insurance Law and the Iowa Corporation Law shall be held to govern the terms of the Merger) without regard to its conflict of laws rules. Section 9.13 Entire Agreement. This Agreement and the Confidentiality ---------------- Agreement constitute the entire agreement between the parties hereto and supersede all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof and thereof. 51 Section 9.14 Severability. If any provisions hereof shall be held invalid ------------ or unenforceable by any court of competent jurisdiction or as a result of future legislative action, such holding or action shall be strictly construed and shall not affect the validity or effect of any other provision hereof; provided, -------- however, that the parties shall use reasonable efforts, including, but not - ------- limited to, the amendment of this Agreement, to ensure that this Agreement shall reflect as closely as practicable the intent of the parties hereto. Section 9.15 Specific Performance. Each of the parties hereto -------------------- acknowledges and agrees that the other party hereto would be irreparably damaged in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties hereto agrees that they each shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions thereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction, in addition to any other remedy to which Nationwide or Allied may be entitled, at law or in equity. Section 9.16 Survival of Certain Covenants. The provisions of Section 6.8 ----------------------------- and 6.11 hereof shall survive the Effective Time. Section 9.17 Counting. If the date for any action to be taken under this -------- Agreement (including, but not limited to, the delivery of notices) is not a Business Day, then such action shall be considered timely taken if performed on or prior to the next Business Day following such due date ARTICLE X DEFINITIONS Section 10.1 Definitions. When used in this Agreement, the following ----------- words or phrases have the following meanings: "Acquisition Proposal" shall have the meaning set forth in Section 6.10 -------------------- hereof. 52 "Affiliate" shall mean a Person that directly, or indirectly through one or --------- more intermediaries, controls, is controlled by or is under common control with another Person or beneficially owns or has the power to vote or direct the vote of ten percent (10%) or more of the voting stock (or of any other form of general partnership, limited partnership or voting equity interest in the case of a Person that is not a corporation) of such other Person. For purposes of this definition, "control", including the terms "controlling" and "controlled", means the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or credit arrangement, as trustee, partner or executor or otherwise. "Agreement" shall mean this Agreement and Plan of Merger, including all --------- Exhibits. "Allied" shall have the meaning set forth in the preamble to this ------ Agreement. "Allied Contracts" shall have the meaning set forth in Section 4.16(a). ---------------- "Allied Disclosure Letter" shall mean the disclosure letter delivered by ------------------------ Allied to Nationwide, dated the date hereof. "Allied Group" shall mean Allied and the Allied Subsidiaries. ------------ "Allied Insurer" shall mean Allied and each Allied Subsidiary that -------------- transacts or is authorized to transact an insurance or reinsurance business. "Allied Life" shall mean Allied Life Financial Corporation. ----------- "Allied Mutual" shall have the meaning set forth in the preamble to this ------------- Agreement. "Allied Real Property" shall have the meaning set forth in Section 4.14(b) -------------------- "Allied SAP Statements" shall have the meaning set forth in Section 4.6(iv) --------------------- hereof. 53 "Allied Subsidiary" or "Allied Subsidiaries" shall mean the Subsidiaries of ------------------------------------------ Allied that are "significant subsidiaries" within the meaning of Rule 1-02d of Regulation S-X promulgated by the SEC. References in this Agreement to Subsidiaries of Allied shall include all of the Allied Subsidiaries. "Annual Statements" shall mean, with respect to any Person, the annual ----------------- statements of such Person filed with or submitted to the insurance regulatory body in the jurisdiction in which such Person is domiciled on forms prescribed or permitted by such regulatory body. "Arizona Insurance Law" shall mean Title 20 of the Arizona Revised --------------------- Statutes, as amended, and the rules and regulations promulgated thereunder. "Articles of Merger" shall mean the articles of merger in such form as ------------------ required by, and executed and acknowledged in accordance, with the IBCA. "Benefit Plans" shall have the meaning set forth in Section 4.21 hereof. ------------- "Business Day" shall means any day other than Saturday, Sunday or any other ------------ day in which commercial banks in Columbus, Ohio are required to or permitted to be closed. "CERCLIS" shall mean the Comprehensive Environmental Response, ------- Compensation, and Liability Information System. "Certificate of Merger" shall mean a certificate of merger in such form as --------------------- required by, and executed and acknowledged in accordance with, Section 1701.81 of the Ohio General Corporation Law. "Closing" shall have the meaning set forth in Section 2.2 hereof. ------- "Closing Date" shall have the meaning set forth in Section 2.2 hereof. ------------ 54 "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- "Commonly Controlled Entity" shall have the meaning set forth in Section -------------------------- 4.21(b) hereof. "Common Shares" shall have the meaning set forth in the preamble to this ------------- Agreement. "Computer Software" shall mean any and all computer software consisting of ----------------- sets of statements or instructions to be used, directly or indirectly, in a computer, including, but not limited to, the following: (i) all source code, object code and natural language code therefor and all component modules thereof, (ii) all versions thereof, (iii) all screen displays and designs thereof and (iv) all user, technical, training and other documentation relating to any of the foregoing. "Consent or Filing" shall have the meaning set forth in Section 4.5(b) ----------------- hereof. "Contract" or "Contracts" shall mean a contract, agreement, commitment, -------- --------- indenture, note, bond, mortgage, license, lease, assignment, arrangement or understanding, whether written or oral. "Dissenting Shares" shall have the meaning set forth in Section 2.9 hereof. ----------------- "Effective Time" shall have the meaning set forth in Section 2.3 hereof. -------------- "Environmental Claim" shall mean any investigation, notice of violation, ------------------- demand, allegation, action, suit, injunction, judgment, order, consent decree, penalty, fine, lien, proceeding, or claim (whether administrative, judicial or private in nature) arising: (A) pursuant to, or in connection with, an actual or alleged violation of any Environmental Law; (B) in connection with any Hazardous Substances or actual or alleged activity associated with any Hazardous Substances; (C) from any abatement, removal, remedial, corrective or other response action in connection with any Hazardous Substances, Environmental Law or other order or directive of any federal, state or local governmental authority; or (D) from any actual or alleged 55 damage, injury, threat or harm to health, safety, natural resources or the environment. Environmental Claim shall not include claims for coverage by an insured. "Environmental Law" shall mean any local, state or federal statute, rule, ----------------- regulation, order, code, directive or ordinance and any binding judicial or administrative interpretation thereof or requirements thereunder pertaining to: (A) the regulation and protection of health, safety and the indoor or outdoor environment; (B) the conservation, management, development, control and/or use of land (including zoning laws and ordinances), natural resources and wildlife; (C) the protection or use of surface water and ground water; (D) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, release, threatened release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Substances; or (E) pollution (including any release into air, land, surface water and ground water); and includes without limitation the following federal statutes (and their implementing regulations and the analogous state statutes and regulations): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977. "Environmental Permit" shall mean any permit, license, variance, -------------------- certificate, consent, letter, clearance, closure, exemption, authorization, decision or action or approval required to be obtained from any federal, state or local governmental authority with jurisdiction over and pursuant to any Environmental Law. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as ----- amended. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations of the SEC promulgated thereunder. "Existing Offer" shall have the meaning set forth in the preamble to this -------------- Agreement. 56 "GAAP" shall mean generally accepted accounting principles applied on a ---- consistent basis. "Governmental Approvals" shall mean the Consents or Filings identified or ---------------------- described in the Allied Disclosure Letter or the Nationwide Disclosure Schedule. "Governmental Entity" or "Governmental Entities" shall mean a court, ------------------- --------------------- executive office, legislature, governmental agency, commission or administrative, regulatory or self-regulatory authority or instrumentality, domestic or foreign. "Hazardous Substances" shall mean chemicals, products, compounds, by- -------------------- products, pollutants, contaminants, hazardous wastes or toxic or hazardous substances regulated under any Environmental Law, including, but not limited to, asbestos or asbestos-containing materials, polychlorinated biphenyls, pesticides and oils, petroleum and petroleum products. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of ------- 1976, as amended, and the rules and regulations promulgated thereunder. "IBCA" shall mean the Iowa Business Corporation Act. ---- "Indemnified Parties" shall have the meaning set forth in Section 6.8 ------------------- hereof. "Insurance License" shall mean a License granted by a Governmental Entity ----------------- to transact an insurance or reinsurance business, issue fixed or variable annuity contracts or products, or issue life insurance contracts. "Intellectual Property" shall mean: trademarks, service marks, brand names, --------------------- certification marks, trade dress, assumed names, trade names and other indications of origin, good will associated with the foregoing and registrations in any extension, modification or renewal of any such registration or application; inventions, discoveries and ideas, whether patentable or not in any jurisdiction; patents, applications for patents (including but not limited to divisions, 57 continuations, continuations in part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic information, trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any Person; writings and other works, whether copyrightable or not in any jurisdiction, and any renewals or extensions thereof; and any similar intellectual property or proprietary rights; provided, that Intellectual Property shall include Computer Software. "Investment Advisers Act" shall mean the Investment Advisers Act of 1940, ----------------------- as amended, and the rules and regulations of the SEC promulgated thereunder. "Investment Assets" shall mean bonds, notes, debentures, mortgage loans, ----------------- collateral loans and all other instruments of indebtedness, stocks, partnership or joint venture interests and all other equity interests (including, but not limited to, equity interests in Subsidiaries or other Affiliates), real estate and leasehold and other interests therein, certificates issued by or interests in trusts, cash on hand and on deposit, personal property and interests therein and all other assets acquired for investment purposes. "Investment Company Act" shall mean the Investment Company Act of 1940, as ---------------------- amended, and the rules and regulations of the SEC promulgated thereunder. "Iowa Attorney General" shall mean the Attorney General of the State of --------------------- Iowa. "Iowa Commissioner" shall mean the Commissioner of Insurance of the State ----------------- of Iowa. "Iowa Corporation Law" shall mean Chapters 490 and 491 of the Iowa Code, as -------------------- amended, and the rules and regulations promulgated thereunder. "Iowa Insurance Law" shall mean Chapters 505 through 523I of the Iowa Code, ------------------ as amended, and the rules and regulations promulgated thereunder. "IRS" shall mean the Internal Revenue Service or any successor agency. --- 58 "Knowledge of Allied" shall mean the actual knowledge of the officers of ------------------- Allied set forth in Section 10.1 of the Allied Disclosure Letter. "Law" shall mean a law, statute, ordinance, rule or regulation enacted or --- promulgated, or Order issued or rendered, by any Governmental Entity. "Liability" shall mean a liability, obligation, claim or cause of action --------- (of any kind or nature whatsoever, whether absolute, accrued, contingent or other, and whether known or unknown), including, but not limited to, any liability, obligation, claim or cause of action arising pursuant to or as a result of an Insurance Contract or pursuant to any Environmental Claim. "License" shall mean a license, certificate of authority, permit or other ------- authorization to transact an activity or business, whether granted by a Governmental Entity or by any other Person. "Lien" shall mean a lien, mortgage, deed of trust, deed to secure debt, ---- pledge, assessment, security interest, lease, sublease, charge, claim, levy or other encumbrance of any kind. "Losses" shall mean all losses, claims, damages, costs, expenses, ------ liabilities and judgments, including, but not limited to, court costs and attorneys' fees. "Material Adverse Effect" shall mean any change in or effect on the ----------------------- business, operations, or financial condition of Allied or any of its Subsidiaries that is materially adverse to Allied and its Subsidiaries taken as a whole except for (i) any change or effect resulting from general economic, financial or market conditions, (ii) any change or effect resulting from conditions or circumstances generally affecting the property and casualty insurance industry, (iii) any change or effect resulting from the actions of Allied Mutual or of Allied Life Financial Corporation ("Allied Life"), including but not limited to the termination of any agreements between or among, Allied, Allied Mutual and/or Allied Life and (iv) any change or effect resulting from the announcement of the Offer or of this Agreement, including but not limited to the termination by any agents of their affiliation with Allied. 59 "Merger" shall have the meaning set forth in the preamble to this ------ Agreement. "Merger Consideration" shall mean the amount of cash which holders of -------------------- Common Shares shall have the right to receive in exchange for their Common Shares as set forth in Section 2.7 hereof. "Mutual Merger" shall have the meaning set forth in the preamble to this ------------- Agreement. "NAIC" shall mean the National Association of Insurance Commissioners. ---- "Nationwide" shall have the meaning set forth in the preamble to this ---------- Agreement. "Nationwide Subsidiaries" shall mean the Subsidiaries of Nationwide. ----------------------- "NPL" shall mean the National Priority List. --- "Offer" shall have the meaning set forth in the preamble to this Agreement. ----- "Offer Conditions" shall have the meaning set forth in Section 1.1(a). ---------------- "Offer Documents" shall have the meaning set forth in Section 1.1 (b) --------------- thereof. "Offer Price" shall have the meaning set forth in the preamble to this ----------- Agreement. "Ohio Insurance Law" shall mean Title 39 of the Ohio Revised Code, as ------------------ amended, and the rules and regulations promulgated thereunder. "Ohio Superintendent" shall mean the Superintendent of Insurance of the ------------------- State of Ohio. "Order" shall mean an order, writ, ruling, judgment, directive, injunction ----- or decree of any arbitrator or Governmental Entity. 60 "Pension Plan" shall have the meaning set forth in Section 4.21(a) hereof. ------------ "Permitted Liens" shall mean, as to a party hereto, (a) those Liens set --------------- forth in the Allied Disclosure Letter, or otherwise approved in writing by the other party, (b) any Lien that is set forth in the public records or in title reports or title insurance binders that have been made available to the other party relating to any interest in the real property set forth in the Allied Disclosure Letter, (c) Liens for water and sewer charges and current Taxes not yet due and payable or being contested in good faith, (d) Liens arising from securities lending activities undertaken in the ordinary course of business of a Person, (e) other Liens (including, but not limited to, mechanic's, courier's, worker's, repairer's, materialman's, warehouseman's and other similar Liens) arising or incurred in the ordinary course of business as would not, individually or in the aggregate, materially adversely affect the value of, or materially adversely interfere with the use of, the property subject thereto or otherwise reasonably be expected to have a Material Adverse Effect, and (f) Liens arising or resulting from any action taken by the other party hereto or any of its respective Subsidiaries (but not including the execution, delivery or performance of this Agreement or the Merger). "Person" shall mean an individual, corporation, partnership, association, ------ joint stock company, limited liability company, Governmental Entity, business trust, unincorporated organization or other legal entity. "Preferred Share" shall have the meaning set forth in the preamble to this --------------- Agreement. "Proceedings" shall mean civil, criminal or administrative actions, suits, ----------- hearings, claims, investigations and other similar proceedings. "Proxy Statement" shall have the meaning set forth in Section 4.5(b) --------------- hereof. "Quarterly Statements" shall mean, with respect to any Person, the -------------------- quarterly statements of such Person filed with or submitted to the insurance regulatory body in the jurisdiction in which such Person is domiciled on forms prescribed or permitted by such regulatory body. 61 "SAP" shall mean statutory accounting practices prescribed by the NAIC and --- prescribed or permitted by the applicable insurance regulatory body applied on a consistent basis. "Schedule 14D-1" shall have the meaning set forth in Section 1.1(b) hereof. -------------- "Schedule 14D-9" shall have the meaning set forth in Section 1.2(b) hereof. -------------- "SEC" shall have the meaning set forth in Section 1.1(a) hereof. --- "SEC Documents" shall have the meaning set forth in Section 4.9 hereof. ------------- "Shareholder Agreement" shall have the meaning set forth in the preamble of --------------------- this Agreement. "Shareholders Meeting" shall mean a meeting set forth in Section 3.2 -------------------- hereof. "Special Committee" shall have the meaning set forth in Section 4.4(c) ----------------- hereof. "Sub" shall have the meaning set forth in the preamble to this Agreement. --- "Subsidiary" of a Person shall mean an Affiliate of such Person more than ---------- fifty percent of any class of voting stock (or of any other form of voting equity interest in the case of a Person that is not a corporation) of which is beneficially owned by the Person directly or indirectly through one or more other Persons. "Surviving Corporation" shall have the meaning set forth in Section 2.1 --------------------- hereof. "Tax or Taxes" shall mean all federal, state, local and foreign taxes, and ------------ other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto. 62 "Tax Return" shall mean all federal, state, local and foreign tax returns, ---------- declarations, statements, reports, schedules, forms and information returns and any amendments to any of the foregoing relating to Taxes. "Title IV Plan" shall have the meaning set forth in Section 4.21(b) hereof. ------------- "Treasury Regulation" shall mean the regulations promulgated by the U.S. ------------------- Department of the Treasury pursuant to the Code. "Welfare Plan" shall have the meaning set forth in Section 4.19(a) hereof. ------------ [SIGNATURE PAGE TO FOLLOW] 63 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of Nationwide, of Sub and of Allied as of the date first above written. NATIONWIDE MUTUAL INSURANCE COMPANY By /s/ David A. Diamond ----------------------------------- Name: David A. Diamond Title: Vice President-Enterprise Controller NATIONWIDE GROUP ACQUISITION CORPORATION By /s/ David A. Diamond ----------------------------------- Name: David A. Diamond Title: Vice President-Enterprise Controller ALLIED GROUP, INC. By /s/ Douglas L. Andersen ----------------------------------- Name: Douglas L. Andersen Title: President and Chief Executive Officer Exhibit A Conditions to the Offer. Notwithstanding any other provision of the ----------------------- Offer, Sub shall not be required to accept for payment, or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Sub's obligation to pay for or return tendered Common Shares after the termination or withdrawal of the Offer), to pay for any Common Shares not theretofore accepted for payment or paid for (i) unless (A) there are - - validly tendered and not properly withdrawn prior to the expiration of the Offer that number of Common Shares which represent a majority of the Common Shares on a fully-diluted basis (the "Minimum Condition"), and (B) all insurance - regulatory approvals necessary for Nationwide and Sub's acquisition of control of Allied and its Subsidiaries are obtained on terms and conditions reasonably satisfactory to Nationwide and such regulatory approval shall have become final and non-appealable (the "Insurance Regulatory Condition") and any waiting period applicable to the consummation of the Offer and the Merger under the HSR Act shall have expired or been terminated, or (ii) if at any time on or after the -- date of the Merger Agreement and at or before the time that the particular Common Shares are accepted for payment (whether or not any other Common Shares shall theretofore have been accepted for payment or paid for pursuant to the Offer) any of the following conditions exists: (a) there shall have occurred and be continuing (i) any general suspension of, or limitation on prices for, trading in securities on the New York Stock Exchange, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, or (iii) a commencement of a war, armed hostilities or other international or national calamity directly involving the United States which has a material adverse effect on the general economic conditions in the United States; A-1 (b) any statute, rule, regulation, a temporary, preliminary or permanent order or injunction shall be promulgated, enacted, entered, enforced or deemed applicable to the Offer, the Merger or performance under this Agreement, by any state, federal or foreign government or governmental authority or court or governmental agency of competent jurisdiction that (i) prohibits the consummation of the Offer or the Merger or (ii) imposes material limitations on the ability of Sub effectively to exercise full rights of ownership with respect to the Common Shares, including, without limitation, the right to vote any Common Shares purchased by it on all matters properly presented to the stockholders of Allied or to operate a material portion of the business of Allied and its subsidiaries; provided that the Nationwide and Sub shall have used their reasonable best efforts to have any such decree, order or injunction vacated or reversed; (c) Allied shall have entered into an agreement obligating Allied to enter into an Acquisition Transaction with a person other than Nationwide, Sub or an affiliate of either; (d) (i) Allied shall have breached or failed to perform in any material respect any of its material obligations, covenants or agreements under the Agreement (materially being construed in light of the transactions contemplated by the Merger Agreement), (ii) the representations and warranties of Allied contained in the Agreement shall not be true and correct as of the date of the Agreement or as of the scheduled or extended expiration of the Offer, as if made as of such dates (provided that representations and warranties made as of a specified date prior to the date of the Agreement, need only be true as of such date), unless the failure to be so true and correct (without regard to any materiality qualifiers) would not, in the aggregate, be reasonably likely to have a Material Adverse A-2 Effect or (iii) the representations and warranties of Allied contained in Sections 4.2 or 4.4 shall not be true and correct in all material respects; (e) the Allied Board shall have withdrawn its recommendation or modified its recommendation in a manner adverse to Nationwide or Sub; or (f) the failure to obtain any Governmental Approvals, which failure, in the aggregate, would reasonably be expected to have a Material Adverse Effect. The foregoing conditions are for the sole benefit of Sub and may be asserted by Sub regardless of the circumstances giving rise to any such condition or may be waived by Sub in whole or in part at any time and from time to time in its sole discretion (subject to the terms of the Merger Agreement). The failure by Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. The capitalized terms used in this Exhibit A shall have the meanings set forth in the Merger Agreement. A-3 EXHIBIT B SHAREHOLDER AGREEMENT SHAREHOLDER AGREEMENT, dated as of June 3, 1998, between Nationwide Mutual Insurance Company, an Ohio mutual insurance company ("Nationwide"), and Allied Mutual Insurance Company, an Iowa mutual insurance company (the "Securityholder"). WHEREAS, Nationwide, Nationwide Group Acquisition Corporation, an Ohio corporation and wholly-owned subsidiary of Nationwide ("Sub"), and Allied Group, Inc., an Iowa corporation (the "Company"), propose to enter into an Agree ment and Plan of Merger, dated the date hereof (as the same may be amended or supplemented, the "Merger Agreement"), which provides for a cash tender offer by Sub (as such tender offer may hereafter be amended from time to time, the "Offer") to purchase all shares of common stock, no par value, of the Company (the "Com mon Shares") and, following the consummation of the Offer, the merger of Sub with the Company (the "Merger"); WHEREAS, the Securityholder is the record and beneficial owner of the number of (i) Common Shares, and (ii) shares of 6 3/4% Series Preferred Stock, no par value, of the Company and (collectively, the "Preferred Shares") set forth on Schedule A hereto; such securities, as they may be adjusted by stock dividend, stock split, recapitalization, combination or exchange of shares, merger, consolidation, reorganization or other change or transaction of or by the Company, together with securities that may be acquired after the date hereof by the Securityholder, including Common Shares issuable upon the exercise of options to purchase Common Shares (as the same may be adjusted as aforesaid), being collectively referred to herein as the "Securities"; and WHEREAS, as a condition to their willingness to enter into the Merger Agreement, Nationwide has requested that the Securityholder enter into this Agreement (capitalized terms not otherwise defined herein shall have the meanings set forth in the Merger Agreement); NOW, THEREFORE, to induce Nationwide to enter into, and in consideration of it entering into, the Merger Agreement, and in consideration of the premises and the representations, warranties and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Tender of Common Shares. The Securityholder agrees to tender (or ----------------------- cause the record owner thereof to tender), pursuant to and in accordance with the terms of the Offer, and not to withdraw, all Securities which are Common Shares. Stockholder hereby acknowledges and agrees that Nationwide's and Sub's obligation to accept for payment and pay for Common Shares in the Offer, including any Securities tendered by Securityholder, is subject to the terms and conditions of the Offer. The parties agree that the Securityholder will, for all Common Shares tendered by Securityholder in the Offer and accepted for payment and paid for by Sub, receive the same per share consideration paid to other shareholders who have tendered into the Offer. 2. Covenants of the Securityholder. The Securityholder agrees as ------------------------------- follows: (a) The Securityholder shall not, except as contemplated by the terms of this Agreement, (i) sell, transfer, pledge, assign or otherwise dispose of, or enter into any Contract (as defined below), option or other arrangement (including any profit sharing arrangement) or understanding with respect to the sale, transfer, pledge, assignment or other disposition of, the Securities to any person other than Nationwide or Nationwide's designee, or (ii enter into any voting arrangement, whether by proxy, voting agreement, voting trust, power-of- attorney or otherwise, with respect to the Securities. (b) The Securityholder shall not, nor shall the Securityholder permit any investment banker, financial adviser, attorney, accountant or other representative or agent of the Securityholder to, directly or indirectly (i) solicit, initiate or knowingly encourage (including by way of furnishing information), or knowingly facilitate any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Acquisition Proposal or (ii participate in any discussions or negotiations regarding any Acquisition Proposal. (c) At any meeting of shareholders of the Company called to vote upon the Merger and the Merger Agreement or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval (including by written consent) with respect to the Merger and the Merger Agreement is sought, the Securityholder shall, including by initiating a written consent solicitation if requested by Nationwide, vote (or cause to be voted) such Securityholder's Securities in favor of the Merger, the adoption of the Merger Agreement and the approval of the other transactions contemplated by the Merger Agreement. At any meeting of shareholders 2 of the Company or at any adjournment thereof or in any other circumstances upon which the Securityholder's vote, consent or other approval is sought, the Securityholder shall vote (or cause to be voted) the Securityholder's Securities against (i) any merger (other than the Merger), consolidation, combination, sale of substantial assets, reorganization, recapitalization, dissolution, liquidation or winding up of or by the Company or any other Acquisition Proposal (collectively, "Alterna tive Transactions") or (ii any amendment of the Company's Certificate of Incorpora tion or by-laws or other proposal or transaction involving the Company or any of its subsidiaries, which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify, the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement including any consent to the treatment of any Securities in or in connection with such transaction (collectively, "Frustrating Transactions"). 3. Grant of Irrevocable Proxy Coupled with an Interest; Appoint ment ----------------------------------------------------------------- of Proxy. - -------- (a) Subject to governmental approvals, the Securityholder hereby irrevocably grants to, and appoints, any individual who shall be designated by Nationwide as the Securityholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of the Securityholder, to vote the Securityholder's Securities, or grant a consent or approval in respect of such Securi ties, at any meeting of shareholders of the Company or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, (i) in favor of the Merger, the adoption by the Company of the Merger Agreement and the approval of the other transactions contemplated by the Merger Agreement, and (ii against any Alternative Transaction or Frustrating Transaction. (b) The Securityholder represents that any proxies heretofore given in respect of the Securityholder's Securities are not irrevocable, and that any such proxies are hereby revoked. (c) THE SECURITYHOLDER HEREBY AFFIRMS THAT THE PROXY SET FORTH IN THIS SECTION 3 IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE UNTIL SUCH TIME AS THIS AGREEMENT TERMINATES IN ACCORDANCE WITH ITS TERMS. The Securityholder hereby further affirms that the irrevocable proxy is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Securityholder under this Agreement. 3 The Securityholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. 4. Acquisition Proposals. --------------------- (a) Notwithstanding anything to the contrary contained in this Agreement, during any period of time that the Company is not prohibited by the Merger Agreement from (A) providing information in response to a request therefor by a Person who has made an unsolicited bona fide written Acquisition Proposal; (B) engaging in any negotiations or discussions with any Person who has made an unsolicited bona fide written Acquisition Proposal; or (C) recommending an Acquisi tion Proposal to the shareholders of the Company, the Securityholder's obligations under Sections 1, 2 and 3 of this Agreement shall be deemed inoperative. (b) Notwithstanding anything to the contrary contained in this Agreement, during any period of time that the Securityholder is not prohibited by the Agreement and Plan of Merger, dated as of the date hereof, by and between Securityholder and Nationwide (the "Allied Mutual Merger Agreement") from (A) providing information in response to a request therefor by a Person who has made an unsolicited bona fide written Acquisition Proposal; (B) engaging in any negotiations or discussions with any Person who has made an unsolicited bona fide written Acquisition Proposal; or (C) recommending an Acquisition Proposal to the policy holders of the Securityholder, the Securityholder's obligations under Sections 1, 2 and 3 of this Agreement shall be deemed inoperative. For purposes of this Section 4(b), "Acquisition Proposal" shall have the meaning ascribed thereto in the Allied Mutual Merger Agreement. 5. Representations and Warranties of the Securityholder. The ---------------------------------------------------- Securityholder hereby represents and warrants to Nationwide as follows: (a) Authority. The Securityholder has all requisite corporate power --------- and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Securityholder. This Agreement has been duly executed and delivered by the Securityholder and, assuming this Agreement constitutes a valid and binding obligation of Nationwide, constitutes a valid and binding obligation of the Securityholder enforceable against the Securityholder in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganzation, 4 moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) the remedy of specific performance and injunctive relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Except for the informational filings with the Securities and Exchange Commission and except for any state insurance department approvals or filings, neither the execution, delivery or performance of this Agreement by the Securityholder nor the consummation by the Securityholder of the transactions contemplated hereby will (i) require any filing with, or permit, authorization, consent or approval (collectively, "Governmental Approvals") of, any federal, state, local or municipal foreign or other government or subdivision, branch, department or agency thereof or any governmental or quasi-governmental authority of any nature, including any court or other tribunal, (a "Governmental Entity"), except where the failure to obtain any such Governmental Approvals would not be reasonably likely to adversely affect the transactions contemplated hereby, (ii result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default under, or give rise to any right of termination, amendment, cancellation or acceleration under, or result in the creation of any lien upon any of the properties or assets of the Securityholder under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, permit, concession, franchise, contract, agreement or other instrument or obligation (a "Contract") to which the Securityholder is a party or by which the Securityholder or any of the Securityholder's properties or assets, including the Securityholder's Securities, may be bound, except for such violations, breaches, defaults, rights of termination, amendment, cancellation and acceleration and liens which would not be reasonably likely to adversely affect the transactions contemplated hereby or (ii violate any judgment, order, writ, preliminary or permanent injunction or decree (an "Order") or any statute, law, ordinance, rule or regulation of any Governmental Entity (a "Law") applicable to the Securityholder or any of the Securityholder's properties or assets, including the Securityholder's Securities, except for such violations which would not be reasonably likely to adversely affect the transactions contemplated hereby (b) The Securities. The Securityholder's Securities and the -------------- certificates representing such Securities are now, and at all times during the term hereof will be, held by such Securityholder, or by a nominee or custodian for the benefit of such Securityholder, and the Securityholder has good and marketable title to such Securities, free and-clear of any liens, proxies, voting trusts or agreements, understandings or arrangements, except for any such liens or proxies arising hereun der and the agreements made hereby. The Securityholder owns of record or beneficially no securities of the Company, or any options, warrants or rights exercisable for 5 securities of the Company, other than such Securityholder's Securities, as set forth on Schedule A hereto. (c) Brokers. Except as provided in the Allied Mutual Merger ------- Agreement, no broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commis sion in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Securityholder. (d) Merger Agreement. The Securityholder understands and acknowledges ---------------- that Nationwide is entering into the Merger Agreement in reliance upon the Securityholder's execution and delivery of this Agreement. 6. Representations and Warranties of Nationwide. Nationwide hereby -------------------------------------------- represents and warrants to the Securityholder as follows: (a) Authority. Nationwide has the requisite corporate power and --------- authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by Nationwide and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Nationwide. This Agreement has been duly executed and delivered by Nationwide and, assuming this Agreement constitutes a valid and binding obligation of the Securityholder, constitutes a valid and binding obligation of Nationwide enforceable in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) the remedy of specific perfor mance and injunctive relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (b) Securities Act. The Securities will be acquired in compliance -------------- with, and Nationwide will not offer to sell or otherwise dispose of any Securities so acquired by it in violation of any of, the Securities Exchange Act of 1934, as amended, or the registration requirements of the Securities Act of 1933, as amended. 7. Further Assurances. Except as otherwise provided in Sections ------------------ 4(a) and 4(b), the Securityholder will, from time to time, execute and deliver, or cause to be executed and delivered, such additional or further transfers, assignments, endorsements, consents and other instruments as Nationwide may reasonably request 6 for the purpose of effectively carrying out the transactions contemplated by this Agreement and to vest the power to vote the Securityholder's Securities as contem plated by Section 3. Nationwide agrees to use its best efforts to take, or cause to be taken, all actions necessary to comply promptly with all legal requirements that may be imposed with respect to the transactions contemplated by this Agreement. 8. Termination. This Agreement, and all rights and obligations of ----------- the parties hereunder, shall terminate on the earlier of the termination of the Merger Agreement in accordance with its terms and the termination of the Allied Mutual Merger Agreement. Nothing in this Section 8 shall relieve any party from liability for willful breach of this Agreement. 9. General Provisions. ------------------ (a) Assignment; Binding Effect. Neither this Agreement nor any of the -------------------------- rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns. (b) Amendments. This Agreement may not be amended except by an ---------- instrument in writing signed by each of the parties hereto. (c) Notice. All notices, consents, requests, approvals, authoriza ------ tions and other communications (collectively, "Notices") required or permitted to be given hereunder by one party to another shall only be effective if in writing. All Notices shall be sent (i) by registered or certified mail (with return receipt requested), postage prepaid, or (ii) by Federal Express, U.S. Post Office Express Mail, Airborne or similar overnight courier which delivers, if requested, only upon signed receipt of the addressee (with such signed receipt being requested), or (iii) by facsimile transmission, and addressed or transmitted as follows or at such other address or facsimile number, and to the attention of such other person, as the parties shall give notice as herein provided: If to Nationwide, to: Nationwide Mutual Insurance Company One Nationwide Plaza 7 Columbus, Ohio 43215 Attention: David A. Diamond, Vice President -- Enterprise Controller Facsimile: (614) 249-4462 with a copy to: Nationwide Mutual Insurance Company One Nationwide Plaza Columbus, Ohio 43215 Attention: Mark B. Koogler, Vice President and Associate General Counsel Roger A. Craig, Counsel Facsimile: (614) 249-7254 and if to the Securityholder, to: Allied Mutual Insurance Company 701 Fifth Avenue Des Moines, Iowa 50391-2000 Attention: John E. Evans, Chairman of the Board Douglas L. Andersen, President and Chief Executive Officer Facsimile No.: 515-280-4399 with copies to: Nyemaster, Goode, Voigts, West, Hansell & O'Brien A Professional Corporation 700 Walnut Street, Suite 1600 Des Moines, Iowa 50309-3899 Attention: Mark C. Dickinson, Esq. 8 Facsimile No.: 515-283-3108 and Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022-3897 Attention: Jeffrey W. Tindell, Esq. Facsimile No.: 212-451-7321 A Notice shall be effective upon receipt and shall be deemed to be received, if sent by registered or certified mail, U.S. Post Office Express Mail, Federal Express, Airborne or similar overnight courier, on the date of receipt by the recipient as shown on the return receipt card, or if sent by facsimile, upon receipt by the sender of an acknowledgment or transmission report generated by the machine from which the facsimile was sent indicating that the facsimile was sent in its entirety to the recipi ent's facsimile number; provided that if a Notice is received by facsimile on a day which is not a Business Day, or after 5:00 p.m. on any Business Day at the ad dressee's location, such Notice shall be deemed to be received by the recipient at 9:00 a.m. on the first Business Day thereafter. Rejection or other refusal to accept or the inability to deliver because of changed address of which no Notice was given shall be deemed to be receipt of the Notice as of the date of such rejection, refusal or inability to deliver. (d) Interpretation. When a reference is made in this Agreement to a -------------- Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Wherever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof", "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The plural of any defined term shall have a meaning correlative to such defined term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. A reference to any party to this Agreement or any other agreement or document shall include such party's successors and permitted assigns. A reference to any legislation or to any provision of any legislation shall include any modification or re-enactment thereof, any 9 legislative provision substituted therefor and all regulations and statutory instruments issued thereunder or pursuant thereto. For purposes of this Agreement, "Person" shall mean an individual, corporation, partnership, association, joint stock company, limited liability company, Governmental Entity, trust, joint venture, labor union, estate, unincorporated organization or other entity. (e) Counterparts. This Agreement shall be executed in duplicate and ------------ may be executed in counterparts each of which shall be deemed to constitute an original and constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. (f) Entire Agreement. This Agreement (including the documents and ---------------- instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. (g) No Third-Party Beneficiaries. Notwithstanding anything contained ------------------------------ in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. (h) Governing Law. This Agreement shall be governed and construed in ------------- accordance with the laws of the State of Iowa without regard to any conflicts or choice of law provisions thereof or of any other jurisdiction. (i) Enforcement. The parties agree that irreparable damage would ----------- occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in a court of the United States. This being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto waives any right to trial by jury with respect to any claim or proceeding related to or arising out of this Agreement or any of the transactions contemplated hereby. 10 IN WITNESS WHEREOF, each of Nationwide and Securityholder has caused this Agreement to be signed by its officer thereunto duly authorized, as of the date first written above. NATIONWIDE MUTUAL INSURANCE COMPANY By: ------------------------------------------ Name: Mark B. Koogler Title: Vice President and Associate General Counsel ALLIED MUTUAL INSURANCE COMPANY By: ------------------------------------------ Name: George T. Oleson Title: Vice President and Corporate Counsel 11 SCHEDULE A Common Preferred Name and Address Shares Shares Warrants Options - --------------------------------- ------- --------- -------- ------- Allied Mutual Insurance Company 498,236 1,827,222 - - 12 EXHIBIT 36 AGREEMENT AND PLAN OF MERGER BY AND BETWEEN NATIONWIDE MUTUAL INSURANCE COMPANY AND ALLIED MUTUAL INSURANCE COMPANY DATED AS OF JUNE 3, 1998 TABLE OF CONTENTS ----------------- Page ---- ARTICLE I DEFINITIONS.................................. 1 Section 1.1 Definitions................................................. 1 ARTICLE II THE MERGER................................... 11 Section 2.1 The Merger.................................................. 11 Section 2.2 Closing..................................................... 12 Section 2.3 Effective Time.............................................. 12 Section 2.4 Articles of Incorporation and By-Laws of the Surviving Company..................................................... 13 Section 2.5 Board of Directors and Officers............................. 13 Section 2.6 Effect of Merger on Allied Members.......................... 13 Section 2.7 Policyholder Dividend....................................... 13 ARTICLE III RELATED MATTERS.............................. 14 Section 3.1 Member Approvals............................................ 14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ALLIED.................. 15 Section 4.1 Organization and Qualification.............................. 15 Section 4.2 Capitalization of Allied Subsidiaries....................... 16 Section 4.3 Authority Relative to this Agreement........................ 17 Section 4.4 No Violation; Governmental Filings.......................... 17 Section 4.5 SAP Statements.............................................. 18 Section 4.6 Reserves.................................................... 19 Section 4.7 Absence of Certain Changes or Events........................ 19 Section 4.8 No Undisclosed Liabilities.................................. 20 Section 4.9 Litigation.................................................. 20 Section 4.10 Compliance with Law......................................... 20 Section 4.11 Assets...................................................... 21 Section 4.12 Environmental Matters....................................... 22 Section 4.13 Contracts................................................... 23 Section 4.14 Insurance Issued by Allied.................................. 25 i Page ---- Section 4.15 Cancellations............................................... 27 Section 4.16 Operations Insurance........................................ 27 Section 4.17 Taxes and Tax Returns....................................... 27 Section 4.18 Employees and Benefit Plans................................. 29 Section 4.19 Intellectual Property....................................... 29 Section 4.20 Rating Agencies............................................. 29 Section 4.21 Investment Company.......................................... 29 Section 4.22 Brokers or Finders.......................................... 30 Section 4.23 No Other Representations or Warranties...................... 30 Section 4.24 Limitation on Nationwide's Representations.................. 30 ARTICLE V REPRESENTATIONS AND WARRANTIES OF NATIONWIDE............... 30 Section 5.1 Organization and Qualification.............................. 30 Section 5.2 Authority Relative to this Agreement........................ 31 Section 5.3 No Violation; Government Filings............................ 31 Section 5.4 SAP Statements.............................................. 32 Section 5.5 GAAP Statements............................................. 33 Section 5.6 Absence of Certain Changes or Events........................ 33 Section 5.7 No Undisclosed Liabilities.................................. 34 Section 5.8 Litigation.................................................. 34 Section 5.9 Compliance with Law......................................... 34 Section 5.10 Insurance Issued by Nationwide Insurers..................... 35 ARTICLE VI CERTAIN COVENANTS................................ 35 Section 6.1 Allied Conduct of Business Pending the Merger............... 35 Section 6.2 Nationwide Conduct of Business Pending the Merger........... 40 Section 6.3 Reasonable Efforts.......................................... 41 Section 6.4 Access and Information...................................... 42 Section 6.5 Notice of Proceedings....................................... 42 Section 6.6 Notification of Certain Other Matters....................... 42 Section 6.7 Indemnification............................................. 43 Section 6.8 Transfer Taxes.............................................. 44 Section 6.9 Acquisition Proposals....................................... 44 Section 6.10 Litigation.................................................. 45 Section 6.11 HSR Act..................................................... 45 Section 6.12 Tax Treatment............................................... 45 ii Page ---- ARTICLE VII CONDITIONS................................... 45 Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.. 45 Section 7.2 Conditions to Obligation of Allied to Effect the Merger..... 46 Section 7.3 Conditions to Obligation of Nationwide to Effect the Merger. 46 Section 7.4 Frustration of Closing Conditions........................... 47 ARTICLE VIII TERMINATION.................................. 47 Section 8.1 Termination................................................. 47 Section 8.2 Effect of Termination....................................... 48 ARTICLE IX MISCELLANEOUS................................ 49 Section 9.1 Survival of Representations and Warranties.................. 49 Section 9.2 Fees and Expenses........................................... 49 Section 9.3 Notices..................................................... 49 Section 9.4 Amendments.................................................. 51 Section 9.5 Extension; Waiver........................................... 51 Section 9.6 Publicity................................................... 51 Section 9.7 Headings.................................................... 52 Section 9.8 Nonassignability............................................ 52 Section 9.9 Beneficiaries............................................... 52 Section 9.10 Duplicates; Counterparts.................................... 52 Section 9.11 Governing Law; Jurisdiction................................. 52 Section 9.12 Entire Agreement............................................ 52 Section 9.13 Severability................................................ 52 Section 9.14 Specific Performance........................................ 53 Section 9.15 Survival of Certain Covenants............................... 53 Section 9.16 Counting.................................................... 53 Section 9.17 Service of Process.......................................... 53 Section 9.18 Interpretation.............................................. 53 Section 9.19 Schedules................................................... 54 iii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of June 3, 1998 by and between NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio mutual insurance company ("Nationwide"), and ALLIED MUTUAL INSURANCE COMPANY, an Iowa mutual insurance company ("Allied") (Nationwide and Allied being hereinafter sometimes collectively referred to as the "parties"). WHEREAS, the Board of Directors of Nationwide and the Board of Directors of Allied deem it advisable and in the best interests of the policyholders of their respective companies to effect the Merger of Allied with and into Nationwide (the "Merger") upon the terms and subject to the conditions set forth herein; and WHEREAS, the Board of Directors of Nationwide and the Board of Directors of Allied have approved the Merger and this Agreement; and WHEREAS, Nationwide and Allied desire to make certain representations, warranties, covenants and agreements in connection with such Merger; and WHEREAS, the parties intend that the Merger qualify, for federal income tax purposes, as a reorganization under Section 368(a) of the Code (as defined in Section 1.1 hereof); and WHEREAS, concurrently with the execution of this Agreement, Nationwide is also entering into agreements with respect to the acquisition of Allied Group (as defined in Section 1.1 hereof) and Allied Life (as defined in Section 1.1 hereof); and NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, Nationwide and Allied, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. When used in this Agreement, the following ----------- words or phrases have the following meanings: "Acquisition Proposal" shall mean any bona fide proposal or offer, -------------------- whether in writing or otherwise, from any Person other than a party hereto or any affiliates thereof (a "Third Party") to acquire a party or all or a material portion of the assets of a party and its Subsidiaries, taken as whole, pursuant to a merger, consolidation, conversion, demutualization, reorganization or other method of business combination, sale of assets or similar transaction with respect to such party, including any single or multi-step transaction or series of related transactions, which is structured to permit such Third Party to acquire a party or a material portion of the assets of a party and its Subsidiaries, taken as a whole. "Affiliate" shall have the meaning set forth in Rule 12b-2 of the --------- Exchange Act; provided that, for purposes of this Agreement none of Allied Group, Allied Life and any Subsidiary thereof shall be considered an Affiliate of Allied. "Agreement" shall mean this Agreement and Plan of Merger, including --------- all Exhibits. "Allied" shall have the meaning set forth in the preamble to this ------ Agreement. "Allied Disclosure Schedule" shall mean the disclosure schedule -------------------------- delivered by Allied to Nationwide, dated the date hereof. "Allied Group" shall mean Allied Group, Inc., an Iowa corporation. ------------ "Allied Group SEC Documents" shall mean all reports, proxy statements, -------------------------- forms, and other documents required to be filed by Allied Group with the SEC under the Securities Act of 1933, as amended, or the Exchange Act. "Allied Life" shall mean Allied Life Financial Corporation, an Iowa ----------- corporation. "Allied Life SEC Documents" shall mean all reports, proxy statements, ------------------------- forms, and other documents required to be filed by Allied Life with the SEC under the Securities Act of 1933, as amended, or the Exchange Act. "Allied Proxy Statement" shall have the meaning set forth in Section ---------------------- 3.1(c) hereof. "Allied Real Property" shall mean any real property in which Allied or -------------------- any of its Affiliates holds a Lien or owns an interest, or in the management of which Allied or an Affiliate of Allied actively participates. "Allied SAP Statements" shall have the meaning set forth in Section --------------------- 4.5(d) hereof. "Allied Subsidiary" or "Allied Subsidiaries" shall mean the ----------------- ------------------- Subsidiaries of Allied and, without limiting the generality of the foregoing, shall include any Affiliate or Subsidiary of Allied as to which Allied or an Allied Subsidiary has guaranteed any obligations or owns any interest; provided that neither Allied Group nor Allied Life (nor any of their respective 2 Subsidiaries) shall be included within the definition of Allied Subsidiary. References in this Agreement to Subsidiaries of Allied shall mean all of the Allied Subsidiaries. "Annual Statements" shall mean, with respect to any Person, the annual ----------------- statements of such Person filed with or submitted to the insurance regulatory body in the jurisdiction in which such Person is domiciled on forms prescribed or permitted by such regulatory body. "Antitrust Division" shall mean the Antitrust Division of the United ------------------ States Department of Justice. "Articles of Merger" shall mean the articles of merger in such form as ------------------ required by, and executed and acknowledged in accordance with the relevant provisions of the Iowa Insurance Law. "Assets" shall mean, as to a Person, all rights, titles, franchises ------ and interests in and to every species of property, real, personal and mixed, and choses in action thereunto belonging, including, but not limited to, Environmental Permits, Investment Assets, Intellectual Property, Contracts, Licenses, privileges and all other assets whatsoever, tangible or intangible, of such Person. "Business" shall mean, as to a Person, the business, operations, -------- activities and affairs of such Person. "Business Day" shall mean any day other than Saturday, Sunday or any ------------ other day in which commercial banks in Des Moines, Iowa or Columbus, Ohio are required to or permitted to be closed. "CERCLIS" shall mean the Comprehensive Environmental Response, ------- Compensation, and Liability Information System. "Certificate of Merger" shall mean a certificate of merger in such --------------------- form as required by, and executed and acknowledged in accordance with, Section 1701.81 of the Ohio Revised Code. "Closing" shall have the meaning set forth in Section 2.2 hereof. ------- "Closing Agreement" shall mean a written and legally binding agreement ----------------- with a taxing authority relating to Taxes. "Closing Date" shall have the meaning set forth in Section 2.2 hereof. ------------ "Code" shall mean the Internal Revenue Code of 1986, as amended, or ---- any 3 successor law, and the rules and regulations issued by the IRS pursuant to the Code or any successor law. "Computer Software" shall mean any and all computer software ----------------- consisting of sets of statements or instructions to be used, directly or indirectly, in a computer, including, but not limited to, the following: (i) all source code, object code and natural language code therefor and all component modules thereof, (ii) all versions thereof, (iii) all screen displays and designs thereof and (iv) all user, technical, training and other documentation relating to any of the foregoing. "Confidential Information" shall mean all information about a party ------------------------ furnished by a party or its Representatives to the other party or its Representatives, whether furnished before or after the date hereof, regardless of the manner in which it is furnished, together with all analyses, compilations, studies or other documents prepared by the other party or its Representatives which reflect or are generated from such information. Confidential Information does not include, however, information about a party which (a) is or becomes generally available to the public other than as a result of a disclosure by the other party or its Representatives, (b) was available to the other party on a nonconfidential basis prior to its disclosure by the party supplying the information or its Representatives or (c) becomes available to the other party on a nonconfidential basis from a Person who is not otherwise bound by a confidentiality agreement with respect to the information, or is not otherwise prohibited from transmitting the information to the other party. "Consent or Filing" shall have the meaning set forth in Section 4.4(b) ----------------- hereof. "Contract" shall mean any written contract, agreement, commitment, -------- indenture, note, bond, mortgage, license, lease or assignment. "Effective Time" shall have the meaning set forth in Section 2.3 -------------- hereof. "Environmental Claim" shall mean any investigation, notice of ------------------- violation, demand, allegation, action, suit, injunction, judgment, order, consent decree, penalty, fine, lien, proceeding, or claim (whether administrative, judicial or private in nature) arising: (A) pursuant to, or in connection with, an actual or alleged violation of any Environmental Law; (B) in connection with any Hazardous Substances or actual or alleged activity associated with any Hazardous Substances; (C) from any abatement, removal, remedial, corrective or other response action in connection with any Hazardous Substances, Environmental Law or other order or directive of any federal, state or local governmental authority; or (D) from any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. Environmental Claim shall not include claims for coverage by an insured. "Environmental Law" shall mean any applicable local, state or federal ----------------- statute, rule, regulation, order, code, directive or ordinance and any binding judicial or administrative 4 interpretation thereof or requirements thereunder pertaining to: (A) the regulation and protection of human health and safety and the outdoor environment; (B) the protection or use of surface water and ground water; (C) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, release, threatened release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Substances; or (D) pollution (including any release into air, land, surface water and ground water); and includes without limitation the following federal statutes (and their implementing regulations and the analogous state statutes and regulations): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984; and the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977. "Environmental Permit" shall mean any permit, license, variance, -------------------- certificate, consent, letter, clearance, closure, exemption, authorization, decision or action or approval required to be obtained from any federal, state or local governmental authority with jurisdiction over and pursuant to any Environmental Law. "ERISA" shall mean the Employee Retirement Income Security Act of ----- 1974, as amended, and any successor Act and the rules and regulations thereunder or under any successor Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any successor law, and the rules and regulations of the SEC promulgated thereunder or under any successor law. "FTC" shall mean the United States Federal Trade Commission or any --- successor agency. "Financial Statements" shall mean balance sheets, statements of income -------------------- and statements of cash flows, including, but not limited to, all notes, schedules, exhibits and other attachments thereto, whether consolidated, combined or separate or audited or unaudited or prepared in accordance with SAP or GAAP. "GAAP" shall mean United States generally accepted accounting ---- principles. "GAAP Financial Statements" shall mean Financial Statements prepared ------------------------- in accordance with GAAP. "Governmental Approvals" shall mean the Consents or Filings identified ---------------------- or described in the Allied Disclosure Schedule. "Governmental Entity" shall mean any (i) nation, state, county, city, ------------------- town, village, 5 district, or other jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or other government; (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); or (iv) body exercising, or entitled to exercise any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature, including any arbitral tribunal. "Hazardous Substances" shall mean chemicals, products, compounds, by- -------------------- products, pollutants, contaminants, hazardous wastes or toxic or hazardous substances regulated under any Environmental Law, including, but not limited to, asbestos or asbestos-containing materials, polychlorinated biphenyls, pesticides and oils, petroleum and petroleum products. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act ------- of 1976, as amended, or any successor law, and the rules and regulations promulgated thereunder or under any successor law. "Indemnitees" shall have the meaning set forth in Section 6.7 hereof. ----------- "Insurance Contract" shall mean any Contract of insurance, including, ------------------ but not limited to, reinsurance contracts, variable annuity and fixed annuity contracts or products, life insurance contracts, and funding agreements. "Insurance License" shall mean any License granted by a Governmental ----------------- Entity to transact an insurance or reinsurance business, issue fixed or variable annuity contracts or products, or issue life insurance contracts. "Intellectual Property" shall mean: trademarks, service marks, brand --------------------- names, certification marks, trade dress, assumed names, trade names and other indications of origin, good will associated with the foregoing and registrations in any extension, modification or renewal of any such registration or application; inventions, discoveries and ideas, whether patentable or not in any jurisdiction; patents, applications for patents (including but not limited to divisions, continuations, continuations in part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic information, trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any Person; writings and other works, whether copyrightable or not in any jurisdiction, and any renewals or extensions thereof; and any similar intellectual property or proprietary rights; provided, that Intellectual Property shall include Computer Software. "Investment Advisers Act" shall mean the Investment Advisers Act of ----------------------- 1940, as amended, or any successor law, and the rules and regulations of the SEC promulgated thereunder or under any successor law. "Investment Assets" shall mean bonds, notes, debentures, mortgage ----------------- loans, collateral loans and all other instruments of indebtedness, stocks, partnership or joint venture 6 interests and all other equity interests (including, but not limited to, equity interests in Subsidiaries or other Affiliates), real estate and leasehold and other interests therein, certificates issued by or interests in trusts, cash on hand and on deposit, personal property and interests therein and all other assets acquired for investment purposes. "Investment Company Act" shall mean the Investment Company Act of ---------------------- 1940, as amended, or any successor law, and the rules and regulations of the SEC promulgated thereunder or under any successor law. "Iowa Attorney General" shall mean the Attorney General of the State --------------------- of Iowa. "Iowa Commissioner" shall mean the Commissioner of Insurance of the ----------------- State of Iowa. "Iowa Insurance Law" shall mean Chapters 505 through 523I of the Iowa ------------------ Code, as amended, and the rules and regulations promulgated thereunder. "Iowa Secretary of State" shall mean the Secretary of State of the ----------------------- State of Iowa. "IRS" shall mean the United States Internal Revenue Service or any --- successor agency, and, to the extent relevant, the United States Department of the Treasury. "Knowledge" shall mean, (i) as to Allied or any Allied Subsidiary, the --------- actual knowledge of the following individuals: John E. Evans, Douglas L. Andersen, Jamie H. Shaffer, Stephen S. Rasmussen, George T. Oleson and Cheryl M. Citrelli; and (ii) as to Nationwide or any Nationwide Subsidiary, the actual knowledge of Dimon R. McFerson, Richard D. Crabtree, Robert A. Oakley, Robert J. Woodward, Jr. and W. Sidney Druen. "Law" shall mean any applicable Order, constitution, law, ordinance, --- principle of common law, rule, regulation, statute, treaty, judgment enacted, promulgated, issued, enforced or entered by any Governmental Entity. "Liability" shall mean a liability, obligation, claim or cause of --------- action (of any kind or nature whatsoever, whether absolute, accrued, contingent or other, and whether known or unknown), including, but not limited to, any liability, obligation, claim or cause of action arising pursuant to or as a result of an Insurance Contract or pursuant to any Environmental Claim. "License" shall mean a license, certificate of authority, franchise, ------- permit or other authorization to transact an activity or business, whether granted by a Governmental Entity or by any other Person. "Lien" shall mean a lien, mortgage, hypothecation, deed of trust, deed ---- to secure debt, pledge, security interest, charge, claim, levy or other encumbrance of any kind. 7 "Losses" shall mean all losses, claims, damages, costs, expenses, ------ liabilities and judgments, including, but not limited to, court costs and attorneys' fees. "Material Adverse Effect" shall mean a material adverse effect on the ----------------------- business, assets, liabilities, results of operations or financial condition of any party or any of its Subsidiaries, taken as a whole, or on the ability of such party to consummate the transactions contemplated by this Agreement, provided, however, that, the effects of changes that are gener ally applicable ------- to (i) the insurance industry and the markets for insurance and insurance- related products and the other industries and markets in which a party and its Subsidiaries operate or (ii) the United States securities markets shall be excluded from the determination of a Material Adverse Effect; and provided, -------- further, that any adverse effect on a party and its Subsidiaries re sulting from - ------- the announcement of Nationwide's proposal to acquire Allied, the execution of this Agreement and the announcement of this Agreement and the transactions contemplated hereby shall also be excluded from the determination of a Material Adverse Effect. "Maximum Premium" shall have the meaning set forth in Section 6.7 --------------- hereof. "Meeting Notices" shall have the meaning set forth in Section 3.1(b) --------------- hereof. "Member" shall mean, as to Nationwide, each policyholder of Nationwide ------ entitled to vote upon this Agreement as provided in Section 3941.07 of the Ohio Insurance Law, and, as to Allied, each policyholder who is a member as provided in Section 515.15 of the Iowa Insurance Law. "Merger" shall have the meaning set forth in the preamble to this ------ Agreement. "NAIC" shall mean the National Association of Insurance Commissioners. ---- "Nationwide" shall have the meaning set forth in the preamble to this ---------- Agreement. "Nationwide GAAP Financial Statements" shall have the meaning set ------------------------------------ forth in Section 5.5 hereof. "Nationwide Insurer" shall mean Nationwide and each Nationwide ------------------ Subsidiary that transacts or is authorized to transact property and casualty insurance or reinsurance business. "Nationwide Proxy Statement" shall have the meaning set forth in -------------------------- Section 3.1(d) hereof. "Nationwide SAP Statements" shall have the meaning set forth in ------------------------- Section 5.4(d) hereof. 8 "Nationwide Subsidiaries" shall mean the Subsidiaries of Nationwide. ----------------------- "Notices" shall have the meaning set forth in Section 9.3 hereof. ------- "NPL" shall mean the National Priority List. --- "Ohio Insurance Law" shall mean Title 39 of the Ohio Revised Code, as ------------------ amended, and the rules and regulations promulgated thereunder. "Ohio Superintendent" shall mean the Superintendent of Insurance of ------------------- the State of Ohio. "Order" shall mean an order, writ, ruling, decision, award, verdict, ----- judgment, directive, injunction or decree of any arbitrator or Governmental Entity. "Permitted Liens" shall mean, as to a party hereto, (a) those Liens --------------- set forth in the Nationwide Disclosure Schedule or the Allied Disclosure Schedule, or otherwise approved in writing by the other party, (b) any Lien that is set forth in the public records or in title reports or title insurance binders that have been made available to the other party relating to any interest in the real property set forth in the Nationwide Disclosure Schedule or the Allied Disclosure Schedule, (c) Liens for water and sewer charges and current Taxes not yet due and payable or being contested in good faith, (d) Liens arising from securities lending activities undertaken in the ordinary course of business of a Person, (e) mortgages or security interests shown in any of the party's SAP Statements or any of the party's GAAP Statements as securing specified liabilities or obligations, (f) mortgages or security interests incurred in connection with the purchase of property or assets in the ordinary course of business after the date of any of the party's SAP Statements or any of the party's GAAP Statements (such mortgages and security interests being limited to the property or assets so acquired), (g) minor imperfections of title, if any, none of which is substantial in amount or materially detracts from the value or impairs the use of the property subject thereto, (h) zoning laws and other land use restrictions that do not materially impair the present or anticipated use of the property subject thereto, (i) other Liens (including, but not limited to, mechanic's, courier's, worker's, repairer's, materialman's, warehouseman's and other similar Liens) arising or incurred in the ordinary course of business as would not, individually or in the aggregate, materially adversely affect the value of, or materially adversely interfere with the use of, the property subject thereto, and (j) Liens arising or resulting from any action taken by the other party hereto or any of its respective Subsidiaries (but not including the execution, delivery or performance of this Agreement or the Merger). "Person" shall mean an individual, corporation, partnership, ------ association, joint stock company, limited liability company, Governmental Entity, trust, joint venture, labor union, estate, unincorporated organization or other entity. "Policyholder Dividend" shall have the meaning set forth in Section --------------------- 2.7 hereof. 9 "Pooling Agreement" shall mean that certain January 1, 1993 Pooling ----------------- Agreement, as amended, between Allied and Allied Group. "Proceedings" shall mean any action, arbitration, audit, hearing, ----------- investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Entity, other than any of the foregoing which relate to claims made pursuant to any Insurance Contract. "Proxy Statements" shall have the meaning set forth in Section 3.1(d) ---------------- hereof. "Quarterly Statements" shall mean, with respect to any Person, the -------------------- quarterly statements of such Person filed with or submitted to the insurance regulatory body in the jurisdiction in which such Person is domiciled on forms prescribed or permitted by such regulatory body. "Rabbi Trust" shall have the meaning set forth in Section 4.17 hereof ----------- "Rating Agencies" shall have the meaning set forth in Section 4.19 --------------- hereof. "Representative" shall mean, with respect to any Person, such Person's -------------- officers, directors, employees, agents and representatives (including any investment banker, financial advisor, accountant, legal counsel, agent, representative or expert retained by or acting on behalf of such Person or its Subsidiaries). "SAP" shall mean statutory accounting practices prescribed by the NAIC --- and prescribed or permitted by the applicable insurance regulatory body applied on a consistent basis. "SAP Statements" shall mean Annual Statements and Quarterly -------------- Statements. "SEC" shall mean the United States Securities and Exchange Commission --- or any successor agency. "Subsidiary" of a Person shall mean an Affiliate of such Person more ---------- than fifty percent of any class of voting stock (or of any other form of voting equity interest in the case of a Person that is not a corporation) of which is beneficially owned by the Person directly or indirectly through one or more other Persons. "Superior Proposal" shall mean an Acquisition Proposal which, if ----------------- accepted by a party, is reasonably capable of being consummated, taking into account all legal, financial and regulatory aspects of the proposal and the Person making the proposal and which, if consummated, would be reasonably likely, in the view of the board of directors of the party which is the subject to the Acquisition Proposal, to result in a more favorable transaction than the transaction contemplated by this Agreement, taking into account the long-term prospects and 10 interests of such party and its Members. "Surviving Company" shall have the meaning set forth in Section 2.1 ----------------- hereof. "Tax" shall mean any federal, state, county, local or foreign taxes, --- charges, fees, levies or other assessments, including all net income, gross income, premiums, sales and use, ad valorem, transfer, gains, profits, windfall profits, excise, franchise, real and personal property, gross receipts, capital stock, production, business and occupation, employment, disability, payroll, license, estimated, stamp, custom duties, severance or withholding taxes, other taxes or similar charges of any kind whatsoever imposed by any Governmental Entity and includes any interest and penalties (civil or criminal) on or additions to any such taxes. "Tax Return" shall mean a report, return, statement or other ---------- information required under any applicable Law to be filed or provided to any taxing authority with respect to Taxes including, where permitted or required, combined or consolidated returns for any group of entities that includes Nationwide or any Nationwide Subsidiary on the one hand, or Allied or any Allied Subsidiary on the other hand and any unitary or similar return, information return, claim for refund, amended return or declaration of estimated Tax. "Tax Ruling" shall mean a written ruling of a taxing authority ---------- relating to Taxes. "Third Party" shall have the meaning set forth in Section 1.1 hereof. ----------- "Third Party Administrator" shall mean any third party administrator ------------------------- of either Nationwide or Allied. "Treasury Regulation" shall mean the regulations promulgated by the ------------------- U.S. Department of the Treasury pursuant to the Code. ARTICLE II THE MERGER Section 2.1 The Merger. Upon the terms of this Agreement and ---------- subject to the satisfaction of the conditions set forth herein, at the Effective Time Allied shall be merged with and into Nationwide in accordance with the applicable provisions of the Laws of the States of Ohio and Section 521.12 et. seq. of the Iowa Insurance Law and the separate corporate existence of Allied shall thereupon cease, and Nationwide, which shall be the surviving company (hereinafter sometimes referred to as the "Surviving Company"), shall continue its corporate existence under the Law of the State of Ohio under the name "Nationwide Mutual Insurance Company." The Merger shall have the effects provided in Section 3941.42 of the Ohio Insurance Law and Section 521.12 of the Iowa Insurance Law, and, from and after the Effective Time, the 11 Surviving Company shall possess all the rights, authority, privileges, immunities, powers, licenses, permits and franchises, or a public or private nature, of Allied, and shall be subject to all the duties, liabilities and obligations of Allied, and all the rights, authority, privileges, immunities, powers, licences, permits and franchises of Allied, and all property, real, personal and mixed, and all debts due to Allied on whatever account and all other choses in action and every other interest of or belonging to Allied shall vest in the Surviving Company; and all property, rights, authority, privileges, immunities, powers, licenses, permits and franchises and every other interest shall be thereafter the property of the Surviving Company as they were of Allied; and the title to any real estate or any interest therein, vested by deed or otherwise in Allied, shall not revert or be in any way impaired by reason of the Merger; but all rights of creditors and all liens upon any property of Allied shall be preserved unimpaired; and all debts, duties, liabilities and obligations of Allied shall thenceforth attach to the Surviving Company, and may be enforced against it to the same extent as if said debts, duties, liabilities and obligations had been incurred or contracted by it. Section 2.2 Closing. Unless this Agreement shall have been ------- terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 8.1, and subject to the satisfaction or waiver of the conditions set forth in Article VII, the closing of the Merger (the "Closing") will take place at 10:00 a.m., New York City time, on the second business day following the date on which the last of the conditions set forth in Article VII shall be fulfilled or waived in accordance with this Agreement (the "Closing Date"), at the offices of Holleb & Coff, 55 E. Monroe Street, Chicago, Illinois 60603, unless another date, time or place is agreed to in writing by the parties hereto. Section 2.3 Effective Time. As soon as is practicable following -------------- the execution of this Agreement, the parties shall cause this Agreement to be provided to the Ohio Superintendent in accordance with Section 3941.38(A) of the Ohio Insurance Law and the regulations promulgated thereunder, and to the Iowa Commissioner in accordance with Section 521A.3 of the Iowa Insurance Law and the regulations promulgated thereunder and the Iowa Commissioner and the Iowa Attorney General in accordance with Section 521.12 of the Iowa Insurance Law, in each case together with all other documents as may be required by applicable Law. Subject to the conditions set forth in Article VII of this Agreement, on the Closing Date, the parties shall cause a Certificate of Merger to be filed with the Ohio Secretary of State and the Articles of Merger shall be filed with the Iowa Secretary of State, and the Merger shall become effective (the "Effective Time") upon the last to occur of (a) the filing of the Certificate of Merger with the Ohio Secretary of State, (b) the filing of the Articles of Merger with the Iowa Secretary of State, and (c) such later time as the parties may agree to designate in such filings; provided, however, the Effective Time -------- ------- shall not be more than one year from the date of approval of the Merger by the Ohio Superintendent or 31 days after the filing and recording of the Articles of Merger as described herein. Upon the terms and subject to the conditions of this Agreement, the parties hereto will use all reasonable efforts to assure that the filings contemplated hereby are made, and the Effective Time occurs, as soon as is practicable. 12 Section 2.4 Articles of Incorporation and By-Laws of the Surviving ------------------------------------------------------ Company. Following the Effective Time, the Articles of Incorporation of - ------- Nationwide, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Company until thereafter changed or amended as provided therein or by Law. The Amended and Restated Code of By-Laws of Nationwide, as in effect immediately prior to the Effective Time, shall be the Amended and Restated Code of By-Laws of the Surviving Company until thereafter changed or amended as provided therein, by the Articles of Incorporation of the Surviving Company or by Law. A copy of Nationwide's Articles of Incorporation and Amended and Restated Code of By-Laws, as in effect on the date hereof, has been made available to Allied. Section 2.5 Board of Directors and Officers. The directors of ------------------------------- Nationwide immediately prior to the Effective Time shall be the directors of the Surviving Company immediately following the Effective Time, each of such directors to hold office, subject to the applicable provisions of the Articles of Incorporation and Amended and Restated Code of By-Laws of the Surviving Company, until his or her successor is duly elected and qualified, or his or her earlier death, resignation or removal. The officers of Nationwide immediately prior to the Effective Time shall be the officers of the Surviving Company at and immediately following the Effective Time, each of such officers to hold their respective offices, subject to the applicable provisions of the Articles of Incorporation and Amended and Restated Code of By-Laws of the Surviving Company, until his or her successor is duly elected and qualified, or his or her earlier death, resignation or removal in accordance with the Articles of Incorporation and Amended and Restated Code of By-Laws of the Surviving Company. Section 2.6 Effect of Merger on Allied Members. From and after the ---------------------------------- Effective Time, the policyholders of Allied will become policyholders of Nationwide or a Nationwide Insurer, in full satisfaction of all rights pertaining to the policies of Allied. In addition, each policyholder of Allied will be granted a certificate of membership, substantially in the form attached hereto as Exhibit A. Section 2.7 Policyholder Dividend. Prior to the Closing Date, Allied --------------------- shall declare an extraordinary dividend to its policyholders in the amount of $110 million (the "Policyholder Dividend") and the Policyholder Dividend shall be payable on or about the Closing Date. The allocation of the Policyholder Dividend among Allied's policyholders shall be determined in accordance with the ratio which the net earned premiums that an Allied policyholder has properly and timely paid to Allied on insurance policies in effect during the three years immediately preceding the date hereof bears to the total earned premiums received by Allied from its policyholders during that three-year period. 13 ARTICLE III RELATED MATTERS Section 3.1 Member Approvals. ---------------- (a) Nationwide and Allied shall each take all actions necessary in accordance with applicable Law and its articles of incorporation and by-laws to convene a meeting of its Members as promptly as practicable to consider and vote upon this Agreement. Nationwide and Allied shall jointly determine a mutually satisfactory means of satisfying the notice, meeting and other Member approval requirements of applicable Law. Subject to their duties under applicable Law, each of the Board of Directors of Nationwide and the Board of Directors of Allied shall recommend that the Members of its respective company vote in favor of this Agreement and each of Nationwide and Allied shall use its best efforts to solicit proxies or ballots, as the case may be, from its Members in favor of this Agreement and shall take all other actions reasonably necessary or advisable to secure the votes of its Members which are required in order to approve this Agreement and effect the Merger. Notwithstanding anything in this Agreement to the contrary, the Board of Directors of Allied may withdraw, modify or change its recommendation that its Members vote in favor of this Agreement to the extent that (A) such Board of Directors determines in good faith that a third party has submitted to Allied an Acquisition Proposal which is a Superior Proposal, or (B) such Board of Directors determines in good faith that the failure to withdraw, modify or change such recommendation is reasonably likely to result in a breach of such Board of Director's fiduciary duties under applicable Law. (b) As soon as practicable after the date hereof, Nationwide and Allied shall each prepare, and each of Nationwide and Allied shall use its best efforts to have the Ohio Superintendent and the Iowa Commissioner approve, their respective notices of meetings (the "Meeting Notices") setting forth the time, place and purpose of the Members' meetings called for the purpose of approving the Merger, which Meeting Notices shall include a copy of this Agreement and a summary thereof, if required. Promptly after receipt of approval by the Ohio Superintendent and the Iowa Commissioner of the applicable Meeting Notice, (i) Nationwide shall, as soon as practicable after the date hereof, comply with the provisions of Section 3941.37 of the Ohio Insurance Law, (ii) Allied shall, as soon as practicable after the date hereof, comply with the provisions of Section 521.12 et. seq. of the Iowa Insurance Law, and (iii) both parties shall promptly comply with all other applicable Laws with respect to the publication or mailing to their respective Members of the applicable Meeting Notice. (c) As soon as practicable after the date hereof, Allied shall prepare a proxy or information statement (together with all amendments, schedules, and exhibits thereto, the "Allied Proxy Statement") relating to the solicitation of its Members' approval of the Merger, and shall use its best efforts to respond promptly to any comments made by any Governmental Entity with respect to the Allied Proxy Statement and to cause the Allied Proxy Statement to be mailed to its Members. 14 (d) If required, as soon as practicable after the date hereof, Nationwide shall prepare a proxy or information statement (together with all amendments, schedules, and exhibits thereto, the "Nationwide Proxy Statement") relating to the solicitation of its Members' approval of the Merger, and shall use its best efforts to respond promptly to any comments made by any Governmental Entity with respect to the Nationwide Proxy Statement and to cause the Nationwide Proxy Statement to be mailed to its Members. The Allied Proxy Statement and the Nationwide Proxy Statement are collectively referred to herein as the "Proxy Statements." (e) Nationwide and Allied shall furnish all information concerning it as is reasonably requested to be included in the Meeting Notices and the Proxy Statements. Each of Allied and Nationwide agrees that the written information provided by it specifically for inclu sion in any Meeting Notice or the Proxy Statements will not, at the time such Meeting Notice and/or the Proxy Statements are published or mailed to the Members of each of Allied and Nationwide and on the date of the meeting relating thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ALLIED Allied represents and warrants to Nationwide as follows: Section 4.1 Organization and Qualification. ------------------------------ (a) Allied is a mutual insurance company duly organized, validly existing and in good standing under the Laws of the State of Iowa and has the requisite corporate power and authority to conduct its Business as it is currently being conducted. Each of the Allied Subsidiaries is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation and has the requisite power and authority to conduct its Business as it is currently being conducted. Each of Allied and of the Allied Subsidiaries is duly qualified to do business, and is in good standing, in the respective jurisdictions where the nature of its business makes such qualification necessary, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. Each of the Allied Subsidiaries is listed in the Allied Disclosure Schedule. (b) Allied (i) possesses an Insurance License in each jurisdiction in which Allied is required to possess an Insurance License and (ii) is duly authorized in its jurisdiction of incorporation and each other applicable jurisdiction to write each line of business 15 reported as being written in the Allied SAP Statements. All such Insurance Licenses, including, but not limited to, authorizations to transact reinsurance are in full force and effect without amendment, limitation or restriction, other than as described in the Allied Disclosure Schedule, and Allied has no Knowledge of any event, inquiry or Proceeding which is reasonably likely to lead to the revocation, amendment, failure to renew, limitation, suspension or restriction of any such Insurance License. (c) Copies of the Articles of Incorporation and By-laws of Allied have heretofore been made available to Nationwide and copies of the Articles of Incorporation and By-laws (and other comparable organizational documents, if any) of each of the Allied Subsidiaries have heretofore been made available to Nationwide, and such copies are accurate and complete as of the date hereof. (d) Allied does not directly or indirectly beneficially own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity that directly or indirectly conducts any activity which is material to Allied, other than (i) the Allied Subsidiaries, (ii) as disclosed on the Allied Disclosure Schedule and (iii) investments in publicly traded securities constituting less than five percent of the outstanding equity of the issuing entity. Section 4.2 Capitalization of Allied Subsidiaries. All of the ------------------------------------- outstanding shares of capital stock (or of any other form of equity interest in the case of an Allied Subsidiary that is not a corporation) of each of the Allied Subsidiaries have been validly issued and are fully paid and, except as set forth in the Allied Disclosure Schedule, are owned by either Allied or another of the Allied Subsidiaries, free and clear of all Liens. Except as set forth in the Allied Disclosure Schedule, there are no outstanding subscriptions, options, warrants, calls, rights, convertible securities, obligations to make capital contributions or advances, or voting trust arrangements, shareholders' agreements or other agreements, commitments or undertakings of any character to which Allied or any Allied Subsidiary is a party or by which any of them is bound relating to the issued or unissued capital stock (or of any other form of equity interest in the case of an Allied Subsidiary that is not a corporation) of any of the Allied Subsidiaries or securities convertible into, exchangeable for or evidencing the right to subscribe for any shares of such capital stock (or of any other form of equity interest in the case of an Allied Subsidiary that is not a corporation), which obligates Allied or any such Allied Subsidiary to issue, transfer, deliver or sell, or cause to be issued, transferred, delivered or sold, any such capital stock (or any such other form of equity interest in the case of an Allied Subsidiary that is not a corporation) or other securities or obligating Allied or any of the Allied Subsidiaries to issue, grant, extend or enter into any such subscription, option, warrant, call, right, security, contribution, advance, arrangement, agreement, commitment or undertaking. The name and percentage (if less than 100%) of outstanding capital stock (or of any other form of equity interest in the case of an Allied Subsidiary that is not a corporation) owned, directly or indirectly, by Allied are set forth in the Allied Disclosure Schedule with respect to each Allied Subsidiary. 16 Section 4.3 Authority Relative to this Agreement. ------------------------------------ (a) Allied has the requisite corporate power and authority to execute and deliver this Agreement and, subject to approval of this Agreement by the Board and Members of Allied, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Allied and the consummation by Allied of the transactions contemplated hereby have been duly approved and authorized by the Board of Directors of Allied. Except for the approval of this Agreement by the Members of Allied, no other corporate proceedings on the part of Allied are necessary to authorize this Agreement and the transactions contemplated hereby. The requisite affirmative vote of Members of Allied at the meeting called pursuant to Section 3.1(a) hereof is the only vote of Members of Allied necessary to approve and adopt this Agreement and the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by Allied and (assuming this Agreement is a valid and binding obligation of Nationwide) constitutes a valid and binding agreement of Allied enforceable against Allied in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and (ii) the remedy of specific performance and injunctive relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) The Board of Directors of Allied has received the opinion of Allied's financial advisor, Donaldson, Lufkin & Jenrette Securities Corporation, to the effect that the aggregate consideration to be received by the policyholders of Allied pursuant to this Agreement is fair to such policyholders, as a group, from a financial point of view. It is agreed and understood that such opinion is for the benefit of Allied's Board of Directors and may not be relied upon by Nationwide or any Members or Affiliates thereof. Section 4.4 No Violation; Governmental Filings. ---------------------------------- (a) Except as set forth in the Allied Disclosure Schedule, the execution, delivery and performance of this Agreement by Allied and the consummation by Allied of the transactions contemplated hereby will not (i) constitute a breach or violation of or default under the articles of incorporation or the by-laws (or similar organizational documents) of Allied or of any of the Allied Subsidiaries, (ii) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Lien upon any of the Assets of Allied or of any of the Allied Subsidiaries under, any of the terms, conditions or provisions of any Contract to which Allied or any Allied Subsidiary is a party or to which it or any of its Assets may be subject or (iii) constitute a breach or violation 17 of or default under any Environmental Permit, Law or License to which Allied or any of the Allied Subsidiaries is subject, other than, in the case of clauses (ii) and (iii), for any such breaches, violations, conflicts, terminations, defaults, accelerations or Liens that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. (b) Except for (i) the Governmental Approvals set forth in the Allied Disclosure Schedule, (ii) the submission of this Agreement with and the approval of the Merger by the Iowa Commissioner and the Iowa Attorney General under the Iowa Insurance Law and such other applications, registrations, declarations, filings, authorizations, Orders, consents and approvals as may be required under the Laws of other jurisdictions, (iii) the approval of the Meeting Notice, as contemplated by Section 3.1(b) hereof, (iv) the approval of this Agreement by the Members of Allied, as contemplated by Section 3.1(a) hereof, (v) the filings required under the HSR Act and the expiration or earlier termination of any waiting period applicable to the Merger under such Act, (vi) the filings pursuant to Section 2.3 hereof, (vii) the filing of appropriate documents with and such consents as may be required under the Investment Company Act and the Investment Advisers Act, (viii) any consent or filing that is disclosed in the Allied Disclosure Schedule or that would not otherwise be required to be disclosed pursuant to Section 4.4(a) hereof, (ix) such Consents and Filings as may be required by any applicable state securities or "blue sky" Laws, and (x) such other such Consents or Filings the failure of which to make or obtain would not, individually or in the aggregate, be reasonably likely to prevent or be a material impediment to the consummation of the transactions contemplated hereby or be reasonably likely to have a Material Adverse Effect, no consent, approval, permit, notice, Order or authorization of, or registration, application, declaration or filing with (each a "Consent or Filing") any Person is required with respect to Allied or any Allied Subsidiary in connection with the execution and delivery of this Agreement by Allied and the consummation by Allied of the transactions contemplated hereby. Section 4.5 SAP Statements. Allied has previously made available -------------- to Nationwide true and complete copies of the following: (a) the Annual Statements for Allied as of and for the years ended December 31, 1995, 1996 and 1997; (b) the Quarterly Statement for Allied as of and for the calendar quarter ended March 31, 1998; (c) any supplemental or separate statutory annual statements or quarterly statements for Allied for any of the periods ended December 31, 1995, 1996 or 1997 or March 31, 1998 that are filed with any insurance Governmental Entity and that differ from the Annual Statements or the Quarterly Statements described in Section 4.5(a) or (b) hereto; and (d) the audited SAP balance sheets of Allied as of December 31, 1995, 1996 and 1997 and the related audited summary of operations and statements of change in capital 18 and surplus and cash flows of Allied for each such years, together with the notes related thereto and the reports thereon of KPMG Peat Marwick, LLP (collectively with the items described in Section 4.5(a), (b) and (c), the "Allied SAP Statements"). Since December 31, 1997, Allied has filed all SAP Statements required to be filed with or submitted to the appropriate regulatory authorities, except for such filings or submissions, the failure to so file or submit is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. Each Allied SAP Statement complied (and, as to SAP Statements filed after the date of this Agreement, will comply) in all material respects with all applicable Laws when so filed, and all material deficiencies with respect to any such Allied SAP Statement, of which Allied has Knowledge, have been cured or corrected. Each Allied SAP Statement (and the notes related thereto) referred to in Section 4.5(a), (b), and (d) hereof was prepared (and, as to SAP Statements filed after the date of this Agreement, will be prepared) in accordance with SAP and presents (and, as to SAP Statements filed after the date of this Agreement, will present) fairly, in all material respects, the financial position of Allied as of the respective dates thereof and the related summaries of operations and changes in capital and surplus and cash flows of Allied for the respective periods covered thereby. To the Knowledge of Allied, each Allied SAP Statement (including the notes related thereto) referred to in Section 4.5(c) hereof was prepared (or, in the case of similar SAP Statements filed after the date of this Agreement, will be prepared) in accordance with the statutory accounting practices required by the insurance Governmental Entity in the jurisdiction in which such statement was (or will be) filed. Section 4.6 Reserves. The aggregate actuarial reserves and other -------- actuarial amounts held in respect of Liabilities with respect to Insurance Contracts of Allied as established or reflected in its December 31, 1997 Annual Statement or in the March 31, 1998 Quarterly Statement (the "Allied 1998 Quarterly Statement"): (a)(i) were determined in accordance with generally accepted actuarial standards consistently applied, (ii) were fairly stated, in all material respects, in accordance with sound actuarial principles and (iii) were based on actuarial assumptions that are in accordance with or are more conservative than those specified in the related Insurance Contracts; and (b) complied with, in all material respects, the requirements of the Iowa Insurance Law and all other applicable jurisdictions. Allied owns Assets that qualify as admitted assets under applicable insurance Laws in an amount at least equal to the sum of its statutory reserves and other similar amounts. Section 4.7 Absence of Certain Changes or Events. Except as set ------------------------------------ forth in the Allied Disclosure Schedule or as disclosed in the Allied SAP Statements, since December 31, 1997, each of Allied and the Allied Subsidiaries has conducted its Business only in the ordinary course of business, consistent with past practice, and there has not occurred (i) a Material Adverse Effect, or any event or events which, individually or in the aggregate, are reasonably likely to have a Material Adverse Effect; (ii) except as required by SAP or applicable Law, any material change by Allied in its accounting principles, practices or methods; (iii) any material 19 addition or, to the Knowledge of Allied, any development involving a prospective material addition to Allied's consolidated reserves for future policy benefits or other policy claims and benefits other than as a result of activities and events in the ordinary course of business; or (iv) except as required by SAP or applicable Law, any material change in the accounting, actuarial, investment, reserving, underwriting or claims administration policies, practices, procedures, methods, assumptions or principles of Allied. Except as set forth in the Allied Disclosure Schedule, since December 31, 1997, there has not been any increase in the compensation payable or that could become payable by Allied or any of the Allied Subsidiaries to officers or key employees or any amendment of any of the compensation and benefit plans other than increases or amendments in the ordinary course or as required by applicable Law. Section 4.8 No Undisclosed Liabilities. Except as disclosed in the -------------------------- Allied SAP Statements or as set forth in the Allied Disclosure Schedule, neither Allied nor any of the Allied Subsidiaries has any Liabilities required by SAP to be set forth on a balance sheet of Allied or any Allied Subsidiaries, other than Liabilities arising since the date of the applicable Financial Statement in the ordinary course of business and consistent with past practice that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect. Section 4.9 Litigation. Except (i) as set forth in the Allied ---------- Disclosure Schedule or as disclosed in the Allied SAP Statements and (ii) for any Proceeding which is not reasonably likely to give rise to a Liability in excess of $250,000, there are no Proceedings pending or, to the Knowledge of Allied or any of the Allied Subsidiaries, threatened against Allied or any Allied Subsidiary before any Governmental Entity or arbitrator which, individually or in the aggregate, are reasonably likely to have a Material Adverse Effect. Neither Allied nor any Allied Subsidiary is subject to any Order, except for Orders which, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect. Section 4.10 Compliance with Law. ------------------- (a) Except as set forth in the Allied Disclosure Schedule, to the Knowledge of Allied, neither Allied nor any Allied Subsidiary is in violation (or, with notice or lapse of time or both, would be in violation) of any term or provision of any Law applicable to it or any of its Assets, the violation of which is, individually or in the aggregate with all other such violations, reasonably likely to have a Material Adverse Effect. Allied has made available to Nationwide all reports (including draft reports) of examinations of the affairs of Allied (including market conduct examinations) issued by insurance Governmental Entities for any period ending on a date on or after January 1, 1993; except as set forth in the Allied Disclosure Schedule, all deficiencies or violations in such reports for any prior period have been resolved. Except as set forth in the Allied Disclosure Schedule, all outstanding Insurance Contracts issued or assumed by Allied are, to the extent required by Law, on forms and at rates approved by the insurance regulatory authorities of the jurisdictions where issued or have been filed with and not objected to by such authorities within the periods provided for objection, except where a Material Adverse Effect would not result. 20 (b) Except as set forth in the Allied Disclosure Schedule, neither Allied nor any Allied Subsidiary is a party to any Contract with or other undertaking to, or is subject to any Order by, or is a recipient of any supervisory letter or other written communication of any kind from, any Governmental Entity which (i) is reasonably likely to have a Material Adverse Effect, or (ii) has been received since January 1, 1993 and relates to its reserve adequacy or its marketing, sales, trade or underwriting practices or policies and which is reasonably likely to be materially adverse to Allied, nor, to the Knowledge of Allied, has Allied or any of the Allied Subsidiaries been notified in writing by any Governmental Entity that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such Order, Contract, undertaking, letter or other written communication. (c) Allied has implemented procedures and programs which are designed to provide reasonable assurance that Allied and its agents and employees are in compliance in all material respects with all applicable Laws, including, but not limited to, advertising, licensing and sales Laws, except where noncompliance would not be reasonably likely to have a Material Adverse Effect. Section 4.11 Assets. ------ (a) Except as set forth in the Allied Disclosure Schedule and except for Assets disposed of since December 31, 1997 in the ordinary course of business and consistent with past practice (i) Allied and each of the Allied Subsidiaries owns all Assets that are disclosed or otherwise reflected in its December 31, 1997 Annual Statement and all Assets acquired thereafter, and all such Assets are owned by such Persons, free and clear of all Liens other than Permitted Liens; (ii) (A) to Allied's Knowledge, Allied and each Allied Subsidiary owns good and indefeasible, marketable fee simple title to, or has a valid leasehold interest in, all real property used in the conduct of its Business or of a type which would be required to be specifically disclosed by Allied in Schedule A of its Annual Statement, free and clear of all Liens other than Permitted Liens; and (B) in the aggregate, all real property, other than unimproved land, is, in all material respects, suitable for its current uses; (iii) Allied and each Allied Subsidiary owns, or has a valid leasehold interest in or has a valid right under Contract to use, all personal property that is presently used in and is material to the conduct of its Business, free and clear of all Liens other than Permitted Liens; and (iv) Allied and each Allied Subsidiary owns, free and clear of all Liens other than Permitted Liens, or is licensed or otherwise possesses legally enforceable rights to use, all Intellectual Property that is material to the conduct of its Business; and neither Allied nor any Allied Subsidiary is in material conflict with or material violation or material infringement of, nor has Allied or any Allied Subsidiary received any written notice of any such conflict with or violation or infringement of, any asserted rights of any other Person with respect to any Intellectual Property, except for such conflicts and violations which would not be reasonably likely to have a Material Adverse Effect. 21 Section 4.12 Environmental Matters. --------------------- (a) Except as set forth in the Allied Disclosure Schedule, each of Allied and the Allied Subsidiaries and, to the Knowledge of Allied, all Allied Real Property (including all owners or operators thereof) is in substantial compliance in all material respects with all applicable Environmental Laws, which compliance includes, but is not limited to, the possession of all Environmental Permits required under Environmental Laws and compliance with the terms and conditions thereof, other than such Allied Real Property in respect of which the failure to comply with applicable Environmental Laws is not reasonably likely to have a Material Adverse Effect. Except as set forth in the Allied Disclosure Schedule, to the Knowledge of Allied, neither Allied nor any Allied Subsidiary has received any written communication whether from a Governmental Entity, citizens' group, employee or otherwise, that alleges that Allied or any Allied Subsidiary or any Allied Real Property (including any owner or operator thereof) is not in such compliance, and, to the Knowledge of Allied, there are no circumstances that are reasonably likely to prevent or interfere with such compliance in the future, except to the extent that such noncompliance is not reasonably likely to have a Material Adverse Effect. To the Knowledge of Allied, neither Allied nor any Allied Subsidiary has been notified in writing by any Governmental Entity that any such Environmental Permit will be modified, suspended or revoked or cannot be renewed or transferred in the ordinary course of business consistent with past practice or in connection with the Merger, except where any such modification, suspension or revocation or the failure to be renewed or transferred is not reasonably likely to have a Material Adverse Effect. (b) Except as set forth in the Allied Disclosure Schedule, there is no Environmental Claim pending or, to the Knowledge of Allied, threatened against Allied, any Allied Subsidiary, any Allied Real Property (including any owner or operator thereof) or any Person whose Liability for any Environmental Claims Allied or any Allied Subsidiary has retained or assumed either contractually or by operation of Law that is reasonably likely to have a Material Adverse Effect. (c) To the Knowledge of Allied, there have been no releases, spills, leaks or discharges of Hazardous Substances at, from or to any Allied Real Property (other than those properties set forth in the Allied Disclosure Schedule) or any other property which is reasonably likely to require Allied or any Allied Subsidiary to undertake investigation, abatement, removal, remedial, corrective or other response action pursuant to applicable Environmental Laws which investigation, abatement, removal, remediation, corrective or other response action is reasonably likely to result in a Material Adverse Effect. To the Knowledge of Allied, none of the Allied Real Property (i) is listed or proposed for listing on any list maintained by any Governmental Entity of sites that may require investigation, abatement, removal, remedial, corrective or other response action pursuant to applicable Environmental Laws, including, but not limited to, the CERCLIS or the NPL or (ii) other than those properties set forth in the Allied Disclosure Schedule, is the subject of any investigation, abatement, 22 removal, remedial, corrective or other response action pursuant to applicable Environmental Laws. (d) Except as set forth in the Allied Disclosure Schedule, to the Knowledge of Allied, no Hazardous Substances were manufactured, generated, stored, treated, transported from or otherwise managed at any Allied Real Property, nor were Hazardous Substances from any Allied Real Property disposed of by Allied at any other property. Section 4.13 Contracts. Allied has made available to Nationwide true --------- and complete copies of the following Contracts, which are currently in force, to which Allied or any Allied Subsidiary is a party or by which any Assets of Allied or any Allied Subsidiary are or may be bound, as such Contracts may have been amended to the date hereof: (a) all employment, consultation, retirement, termination, sign-on, buy-out or other Contracts with any present or former officer, director, trustee, employee, agent, broker or independent contractor of Allied or any Allied Subsidiary (including, but not limited to, loans or advances to any such Person or any Affiliate of such Person) providing for annual compensation of $100,000 or more or for compensation over the term of the Contract, and any renewal thereof, of $200,000 or more (including, but not limited to, base salary, bonus and incentive payments and other payments or fees, whether or not any portion thereof is deferred); (b) all Contracts (other than, with respect to Investment Assets, Contracts containing customary restrictions on the ability to own or operate competing real property in a specified geographic area) with any Person including, but not limited to, any Governmental Entity, containing any provision or covenant (i) limiting the ability of Allied or any Allied Subsidiary to engage in any line of business, to compete with any Person, to do business with any Person or in any location or to employ any Person or (ii) limiting the ability of any Person to compete with or obtain products or services from Allied or any Allied Subsidiary, which, in the case of any such Contract described in clauses (i) and (ii) is, individually or together with other such Contracts, reasonably likely to have a Material Adverse Effect; (c) all Contracts relating to the borrowing of money in excess of $1,000,000 by Allied or any Allied Subsidiary or the direct or indirect guarantee by Allied or any Allied Subsidiary of any obligation of any Person for borrowed money or other financial obligation of any Person in excess of $1,000,000 (other than indebtedness in respect of Investment Assets), or any other Liability of Allied or any Allied Subsidiary in respect of indebtedness for borrowed money or other financial obligation of any Person in excess of $1,000,000 (other than indebtedness in respect of Investment Assets), including, but not limited to, any Contract relating to or containing provisions with respect to (i) the maintenance of compensating balances that are not terminable by Allied or any Allied Subsidiary without penalty upon not more than ninety (90) days' notice, (ii) any lines of credit or similar facilities, (iii) the payment for property, products or services of any other Person even if such property, 23 products or services are not conveyed, delivered or rendered or (iv) any obligation to satisfy any financial obligation or covenants, including, but not limited to, take-or-pay, keep-well, make-whole or maintenance of working capital, capital or earnings levels or financial ratios or to satisfy similar requirements; (d) all Contracts (other than Insurance Contracts and other Contracts entered into in the ordinary course of business) with any Person containing any provision or covenant relating to the indemnification or holding harmless by Allied or any Allied Subsidiary of any Person which is reasonably likely to result in a Liability to Allied or any of the Allied Subsidiaries of $1,000,000 or more; (e) all leases or subleases of real property used in the conduct of the Business of Allied or any Allied Subsidiary and all other leases, subleases or rental or use Contracts providing for annual rental payments to be paid by or on behalf of Allied or any Allied Subsidiary, involving, in the case of each of the foregoing, annual payments in excess of $250,000; (f) all Contracts relating to the future disposition (including, but not limited to, restrictions on transfer or rights of first refusal) or future acquisition of any interest in any business enterprise, and all Contracts relating to the future disposition of a material portion of the Assets of Allied or any Allied Subsidiary other than in each case any Investment Asset or interest in any business enterprise or Assets to be acquired or disposed of in the ordinary course of business; (g) all Insurance Contracts (including, but not limited to, any Contract pursuant to which Allied receives or has received surplus relief) including, with respect to each such Contract, the ceding and assuming Person, the business reinsured and the amount of the Liability reinsured; (h) all other Contracts (other than (i) Insurance Contracts, (ii) Contracts relating to Investment Assets entered into in the ordinary course of business, (iii) employment Contracts that are not otherwise required to be set forth in the Allied Disclosure Schedule, (iv) Contracts solely between Allied or any Allied Subsidiary, on the one hand, and any Allied Subsidiary, on the other hand, and (v) other Contracts which are expressly excluded under any other subsection of this Section 4.14) that involve or are reasonably likely to involve the payment pursuant to the terms of such Contracts by or to Allied of $500,000 or more other than Contracts with insurance agents or brokers or the termination of which is reasonably likely to have a Material Adverse Effect. (i) all Contracts or arrangements (including, but not limited to, those relating to allocations of expenses, personnel, services or facilities) between or among Allied and any Subsidiary or Affiliate of Allied, other than those Contracts disclosed in the Allied Life SEC Documents or the Allied Group SEC Documents; 24 (j) all outstanding proxies (other than routine proxies in connection with annual meetings), powers of attorney or similar delegations of authority of Allied or any Allied Subsidiary to an unrelated Person, other than those entered into in the ordinary course of business in connection with Investment Assets; and (k) all Contracts the terms of which provide that the Merger will give rise to a severance Liability for Allied, any Allied Subsidiary or the Surviving Company. Each of the Contracts made available pursuant to this Section 4.13 is in full force and effect and constitutes a valid and binding obligation of each of Allied and the Allied Subsidiaries to the extent that it is a party thereto. Except as set forth in the Allied Disclosure Schedule, neither Allied nor any Allied Subsidiary is in material violation, breach or default of any such Contract or, with or without notice or lapse of time or both, would be in material violation, breach or default of any such Contract, except for any violation, breach or default which, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect. Section 4.14 Insurance Issued by Allied. Except as set forth in -------------------------- the Allied Disclosure Schedule: (a) All material contracts, arrangements, treaties and agreements to which Allied is a party with respect to reinsurance applicable to insurance in force on the date of this Agreement, and all material contracts, arrangements, treaties and agreements under which Allied has any obligation to cede insurance, are valid, binding and in full force and effect in accordance with their terms. Allied is not in material default of any such material contract, arrangement, treaty or agreement, except for any default which, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect. (b) Each insurance policy or certificate form, as well as any related application form, written advertising material and rate or rule currently marketed by Allied, the use or issuance of which requires filing or approval, has been appropriately filed, and if required, approved by the insurance regulatory authorities of any state in which such policies and forms are required to be filed, except where the failure to make any such filing or receive any such approval would not be reasonably expected to have a Material Adverse Effect. To the Knowledge of Allied, all such policies and certificates, forms, applications, advertising materials and rates or rules are in compliance in all material respects with all applicable Laws; (c) Since January 1, 1994, all claims and benefits claimed by any Person under any Insurance Contract of Allied have or will have in all material respects been paid (or provision for payment thereof has been made) in accordance with the terms of the Contracts under which they arose, and such payments were not materially delinquent and were paid without fines or penalties, except for any such claims or claim for benefits of less than 25 $500,000 for which Allied reasonably believes there is a reasonable basis to contest payment and is taking (or is preparing to take) such action; (d) Except as set forth in the SAP Statements referred to in Section 4.5 and except as provided by applicable Law, no provision in any policy in force gives policyholders the right to receive dividends or distributions on their policies (other than accruals of interest on cash values or as claim benefits) or otherwise share in the benefits, revenue or profits of Allied, provided that the practice in certain instances of making dividends based upon policyholder loss experience or favorable earnings experience shall not violate the representation contained in this sentence. Except as incurred in the ordinary course of business, Allied is not liable to pay commissions upon the renewal of any insurance policy nor is it a party to any agreement providing for the collection of insurance premiums payable to Allied by any other Person; (e) Allied has made available to Nationwide a copy of all written investment policies and procedures for Allied; (f) Except as set forth in the Allied Disclosure Schedule, no Allied Subsidiary is engaged in any activity that would require registration by Allied or any Allied Subsidiary as an investment company, broker-dealer, investment advisor or fund administrator under any state or Federal Law, including the Exchange Act, the Investment Company Act and the Investment Advisers Act. Neither Allied nor any Allied Subsidiary maintains or manages any open-end management investment company or portfolio; (g) Neither Allied nor any Allied Subsidiary is engaged in the business of serving as a custodian or transfer agent; (h) Allied has duly and validly filed or caused to be filed all material reports, statements, documents, registrations, filings or submissions that were required by applicable insurance Laws to be filed, except where the failure to make any such filing would not be reasonably likely to have a Material Adverse Effect; all such filings complied with all applicable Laws in all material respects when filed, and no material deficiencies have been asserted with respect to any such filings which have not been satisfied in all material respects. All outstanding insurance policies, annuity contracts and assumption certificates issued by Allied and now in force are, to the extent required under applicable Laws, on forms approved by the insurance regulatory authority of the jurisdiction where issued and utilize premium rates which if required to be filed with or approved by insurance regulatory authorities have been so filed or approved, except where the failure to file or obtain the approval of such premium rates would not be reasonably likely to have a Material Adverse Effect, and the premiums charged conform thereto, except where the failure to conform would not have a Material Adverse Effect; (i) To Allied's Knowledge, no other party to any reinsurance, coinsurance or other similar agreement with Allied is in default thereunder, except for such 26 defaults that would not reasonably be expected to have a Material Adverse Effect. (j) To Allied's Knowledge, (i) each insurance agent or broker, at the time such agent or broker wrote, sold or produced business for Allied, was duly licensed as an insurance agent or broker (for the type of business written, sold or produced by such insurance agent or broker) in the particular jurisdiction in which such agent or broker wrote, sold or produced such business for Allied, and (ii) no such insurance agent or broker violated (or with notice or lapse of time or both would have violated) any term or provision of any Law or Order applicable to any aspect (including, but not limited to, the marketing, writing, sale or production) of the Business of Allied. Section 4.15 Cancellations. Except as set forth in the Allied ------------- Disclosure Schedule, between December 31, 1997 and the date of this Agreement, no Person or group of Persons acting in concert writing, selling or producing insurance business, which in the aggregate accounted for one percent (1%) or more of the gross premium income of Allied for the year ended December 31, 1997, has terminated or substantially reduced, or threatened to terminate or substantially reduce, its relationship with Allied. Section 4.16 Operations Insurance. Allied has made available to -------------------- Nationwide copies of all liability, property, workers compensation, directors and officers liability, and other similar Insurance Contracts that insure the Business or properties of Allied or any Allied Subsidiary or affect or relate to the ownership, use, or operations of any Assets of Allied or any Allied Subsidiary and that have been issued to Allied or any Allied Subsidiary. To the Knowledge of Allied, all such insurance is in full force and effect and is with financially sound and reputable insurers. To the Knowledge of Allied or any of the Allied Subsidiaries, all notices of reportable incidents with respect to such insurance occurring during the last five years have been given in writing to appropriate carriers on a basis sufficiently timely to preserve the right of recovery of such insurance, except where the failure for such incident to be covered by insurance would not be reasonably likely to have a Material Adverse Effect. Except as set forth in the Allied Disclosure Schedule, to the Knowledge of Allied or of any of the Allied Subsidiaries, no party to any Insurance Contract has stated an intent or threatened to terminate or materially increase the premium in respect of any such Insurance Contract. Section 4.17 Taxes and Tax Returns. Except as set forth in the --------------------- Allied Disclosure Schedule: (a) All income Tax Returns and all other material Tax Returns required under applicable Law to be filed with or provided to any Person by Allied or any Allied Subsidiary have been (and, as to Tax Returns not filed as of the date hereof, will be) timely filed and such Tax Returns were true, complete and correct in all material respects; (b) Allied and each Allied Subsidiary have within the time and in the manner prescribed by Law paid all material Taxes due and payable except for those contested 27 in good faith and for which adequate reserves have been taken. To the Knowledge of Allied, no claim has ever been made by an authority in a jurisdiction where Allied or any Allied Subsidiary does not file Tax Returns that Allied or any Allied Subsidiary may be subject to taxation by that jurisdiction, except where any Taxes that would be owed to such jurisdiction would not be reasonably likely to be material in amount; (c) Allied and each Allied Subsidiary have established (and until the Effective Time will maintain) on their books and records (i) reserves adequate to pay all Taxes not yet due and payable and all deficiencies asserted, proposed or threatened, in writing, against Allied or any Allied Subsidiary and (ii) reserves for deferred Taxes, in each case, in accordance with SAP or GAAP, as the case may be; (d) Neither Allied nor any Allied Subsidiary has requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed; (e) Neither Allied nor any Allied Subsidiary has executed any waivers, extensions or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. (f) No outstanding deficiencies, assessments or written proposals for the assessment of any Taxes have been proposed, asserted or assessed in writing against Allied or any of the Allied Subsidiaries by any taxing authority; (g) No Proceedings are presently pending with regard to any Taxes or Tax Returns of Allied or any Allied Subsidiary. Allied has no Knowledge of any threatened Proceeding with respect to any such Taxes or Tax Returns. (h) No power of attorney currently in force has been granted by Allied or any Allied Subsidiary with respect to any matter relating to Taxes; (i) Neither Allied nor any Allied Subsidiary has received a Tax Ruling or entered into a Closing Agreement with any taxing authority that would have a continuing adverse effect after the Effective Time; (j) Allied and the Allied Subsidiaries have made available to Nationwide complete and accurate copies of (i) all Federal income Tax Returns, and any amendments thereto, filed by or on behalf of Allied and each Allied Subsidiary for all taxable years since 1994 and (ii) all audit reports received from any taxing authority relating to any Tax Return filed by Allied or any Allied Subsidiary; (k) None of Allied or any Allied Subsidiary is a party to any Tax allocation or sharing agreement with any Person. None of Allied or any Allied Subsidiary has 28 any liability for Taxes of any Person other than Allied or an Allied Subsidiary under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor, by Contract or otherwise; (l) Neither Allied nor any Allied Subsidiary is a party to any Contract or arrangement that, separately or in the aggregate, could, by reason of the transactions contemplated by this Agreement, give rise to the payment of any "excess parachute payment" within the meaning of Section 280G of the Code; (m) Neither Allied nor any Allied Subsidiary has taken any action or has any Knowledge of any fact or circumstance relating to Allied or any Allied Subsidiary that is reasonably likely to adversely affect the status of the Merger as a reorganization under Section 368 of the Code; and (n) Neither Allied nor any Allied Subsidiary has entered into a records retention agreement with any taxing authority. Section 4.18 Employees and Benefit Plans. During the last 5 full --------------------------- fiscal years, Allied has had no employees and no "employee pension benefit plan" (as defined in Section 3(2) of ERISA), and no "employee welfare benefit plan" (as defined in Section 3(1) of ERISA), or any other similar or related plan, program, arrangement or policy (written or oral), except (i) as set forth in the Allied Disclosure Schedule and (ii) the Amendment and Settlement of Excess Benefit Plan, dated February 13, 1990, and the Amended and Restated Excess Benefit Plan Trust, dated as of March 1, 1990, created thereunder (the "Rabbi Trust"), and of which John E. Evans and James D. Kirkpatrick are participants. Section 4.19 Intellectual Property. Allied and each Allied --------------------- Subsidiary owns or otherwise has rights to use, free and clear of all Liens, all Intellectual Property used in their respective businesses as currently conducted; and the consummation of this transaction will not result in the loss of any rights. The use of the Intellectual Property will not infringe or otherwise violate the rights of any Person and no Person is challenging, infringing on or otherwise violating any right with respect to the Intellectual Property. Section 4.20 Rating Agencies. Except as disclosed in the Allied --------------- Disclosure Schedule, since December 31, 1997, none of A.M. Best and Company, Standard & Poor's Corporation or Moody's Investor Services, Inc. (collectively, the "Rating Agencies") has, other than as a result of the announcement of the Merger or the transactions contemplated hereby (a) imposed conditions (financial or otherwise) on retaining any currently held rating assigned to Allied or (b) indicated to Allied that it is considering the downgrade of any rating assigned to Allied. Section 4.21 Investment Company. None of the Allied Subsidiaries ------------------ maintains any separate accounts. Neither Allied nor any of its Subsidiaries conducts activities of or is 29 otherwise deemed under applicable law to control an "investment advisor" as such term is defined in Section 2(a)(20) of the 1940 Act, whether or not registered under the Investment Advisers Act of 1940, as amended. Neither Allied nor any of its Subsidiaries is an "investment company" as defined under the 1940 Act, and neither Allied nor any of its Subsidiaries sponsors any Person that is such an investment company. Section 4.22 Brokers or Finders. No broker, investment banker, ------------------ financial advi sor or other Person other than Allied's financial advisor, Donaldson, Lufkin & Jenrette Securities Corporation, whose fees and expenses shall be paid by Allied in accordance with Allied's agree ment with such firm, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Allied. Section 4.23 No Other Representations or Warranties. Except for -------------------------------------- the representations and warranties contained in this Agreement, neither Allied nor any other Person makes any other express or implied representation or warranty on behalf of Allied including, without limitation, any financial information, whether historical or projected, delivered or made available to Nationwide or its Representatives. Section 4.24 Limitation on Nationwide's Representations. Allied ------------------------------------------ acknowledges that in entering into this Agreement it has not relied on any representations or warranties of Nationwide or on any materials given to or made available to Allied or its Representatives by Nationwide or its Representatives other than the representations and warranties of Nationwide set forth in this Agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES OF NATIONWIDE Nationwide represents and warrants to Allied as follows: Section 5.1 Organization and Qualification. Nationwide is a mutual ------------------------------ insurance company duly organized, validly existing and in good standing under the Laws of the State of Ohio and has the requisite corporate power and authority to conduct its Business as it is currently being conducted. Each of the Nationwide Subsidiaries is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or formation and has the requisite corporate power and authority to conduct its Business as it is currently being conducted. Each of Nationwide and the Nationwide Subsidiaries is duly qualified to do business, and is in good standing, in the respective jurisdictions where the character of its Assets owned or leased or the nature of its Business makes such qualification necessary, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. Nationwide possesses an Insurance License in Iowa and in 30 each jurisdiction in which Nationwide is required to possess an Insurance License. All such Insurance Licenses, including, but not limited to, authorizations to transact reinsurance, are in full force and effect without amendment, limitation or restriction, and Nationwide does not have Knowledge of any event, inquiry or Proceeding which is reasonably likely to lead to the revocation, amendment, failure to renew, limitation, suspension or restriction of any such Insurance License. Section 5.2 Authority Relative to this Agreement. ------------------------------------ (a) Nationwide has the requisite power and authority to execute and deliver this Agreement and, subject to approval of this Agreement by the Members of Nationwide, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved and authorized by the Board of Directors of Nationwide. Except for the approval and adoption of this Agreement by the Members of Nationwide, no other corporate proceedings on the part of Nationwide are necessary to authorize this Agreement and the transactions contemplated hereby. The affirmative vote of at least two-thirds of the Members of Nationwide voting, in person or by properly executed proxy, at the meeting called pursuant to Section 3.1 is the only vote of Members of Nationwide necessary to approve and adopt this Agreement and the transactions contemplated hereby. (b) This Agreement has been duly and validly executed and delivered by Nationwide and (assuming this Agreement is a valid and binding obligation of Allied) constitutes a valid and binding agreement of Nationwide enforceable against Nationwide in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and (ii) the remedy of specific performance and injunctive relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) The Board of Directors of Nationwide has received the opinion of Nationwide's financial advisor, Credit Suisse First Boston Corporation, to the effect that the Merger is fair to the policyholders of Nationwide, taken as a group, from a financial point of view. It is agreed and understood that such opinion is for the benefit of Nationwide's Board of Directors and may not be relied on by Allied or any Members or Affiliates thereof. Section 5.3 No Violation; Government Filings. -------------------------------- (a) The execution, delivery and performance of this Agreement by Nationwide and the consummation by Nationwide of the transactions contemplated hereby will not (i) constitute a breach or violation of or default under the articles of incorporation or the by-laws (or similar organizational documents) of Nationwide or any Nationwide Subsidiary, (ii) violate, conflict with, or result in a breach of any provisions of, or constitute a default (or an 31 event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any Lien upon any of the Assets of Nationwide or any Nationwide Subsidiary under, any of the terms, conditions or provisions of any Contract to which Nationwide or any Nationwide Subsidiary is a party or to which it or any of its Assets may be subject or (iii) constitute a breach or violation of or default under any Environmental Permit, Law or License to which Nationwide or any Nationwide Subsidiary is subject other than, in the case of clauses (ii) and (iii), for any such breaches, violations, conflicts, terminations, defaults, accelerations or Liens that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect. (b) Except for (i) the approval of the Meeting Notice by the Ohio Superintendent as contemplated by Section 3.1(b) hereof, (ii) the approval of this Agreement by the Board of Nationwide as contemplated by Section 3.1(a) hereof, (iii) the filing of this Agreement with and the approval of such by the Ohio Superintendent under the Ohio Insurance Law and the Iowa Commissioner and the Iowa Attorney General under the Iowa Insurance Law and such other applications, registrations, declarations, filings, authorizations, Orders, consents and approvals as may be required under the Laws of other jurisdictions, (iv) the filings required under the HSR Act and the expiration or earlier termination of any waiting period applicable to the Merger under such Act, (v) the filings pursuant to Section 2.3 hereof, (vi) the filing of appropriate documents with and such consents as may be required under the Investment Company Act and the Investment Advisers Act, (vii) such Consents and Filings as may be required by any applicable state securities or "blue sky" Laws, and (viii) such other such Consents or Filings the failure of which to make or obtain would not, individually or in the aggregate, be reasonably likely to prevent or be a material impediment to the consummation of the transactions contemplated hereby or be reasonably likely to have a Material Adverse Effect. No Consent or Filing of or with any Person is required with respect to Nationwide or any Nationwide Subsidiary or any Nationwide Affiliate in connection with the execution and delivery of this Agreement by Nationwide and the consummation by Nationwide of the transactions contemplated hereby. Section 5.4 SAP Statements. Nationwide has previously made available -------------- to Allied true and complete copies of the following: (a) the Annual Statements for each Nationwide Insurer as of and for the years ended December 31, 1995, 1996 and 1997; (b) the Quarterly Statements for each Nationwide Insurer as of and for the calendar quarters ended March 31, 1998; (c) any supplemental or separate statutory annual statements or quarterly statements for each Nationwide Insurer for any of the periods ended December 31, 1995, 1996 or 1997 or March 31, 1998 that are filed with any insurance Governmental Entity and 32 that differ from the Annual Statements or the Quarterly Statements described in Section 5.4(a) or (b) hereto; and (d) the audited SAP balance sheets of each Nationwide Insurer as of December 31, 1995, 1996 and 1997 and the related audited summary of operations and statements of change in capital and surplus and cash flow of such Nationwide Insurer for each such year, together with the notes related thereto and the reports thereon of KPMG Peat Marwick, LLP (collectively with the items described in Section 5.4(a), (b) and (c), the "Nationwide SAP Statements"). Each Nationwide SAP Statement complied (and, as to SAP Statements filed after the date of this Agreement, will comply) in all material respects with all applicable Laws when so filed, and all material deficiencies with respect to any such Nationwide SAP Statement, of which Nationwide has Knowledge, have been cured or corrected. Each Nationwide SAP Statement (and the notes related thereto) referred to in Section 5.4(a), (b), and (d) hereof was prepared (and, as to SAP Statements filed after the date of this Agreement, will be prepared) in accordance with SAP and presents (and, as to SAP Statements filed after the date of this Agreement, will present) fairly, in all material respects, the financial position of the respective Nationwide Insurers as of the respective dates thereof and the related summaries of operations and changes in capital and surplus and cash flow of the respective Nationwide Insurers for the respective periods covered thereby. To the Knowledge of Nationwide, each Nationwide SAP Statement (including the notes related thereto) referred to in Section 5.4(c) hereof was prepared (or, in the case of similar SAP Statements filed after the date of this Agreement, will be prepared) in accordance with the statutory accounting practices required by the insurance Governmental Entity in the jurisdiction in which such statement was (or will be) filed. Section 5.5 GAAP Statements. Nationwide has previously made --------------- available to Allied true and complete copies of the (i) audited GAAP Financial Statements for each of the Nationwide Subsidiaries, other than Nationwide Insurers, for the years ended December 31, 1995, 1996 and 1997 and (ii) unaudited GAAP Financial Statements for each of the Nationwide Subsidiaries, other than Nationwide Insurers, for the three months ended March 31, 1998 (collectively, the "Nationwide GAAP Financial Statements"). Each Nationwide GAAP Financial Statement was prepared in accordance with GAAP (except as may be indicated in the notes thereto, or, in the case of unaudited financial statements, subject to normal year-end audit adjustments and the absence of notes to such financial statements) and presents fairly, in all material respects, the financial position of the Nationwide Subsidiaries as to which such Nationwide GAAP Financial Statements have been provided as of the respective dates thereof and the related results of operations and cash flows of such Nationwide Subsidiaries for the respective periods covered thereby (subject, in the case of unaudited financial statements, to normal year-end audit adjustments and the absence of notes to such financial statements). Section 5.6 Absence of Certain Changes or Events. Except as ------------------------------------ disclosed in the Nationwide GAAP Financial Statements or the Nationwide SAP Statements, since December 33 31, 1997, each of Nationwide and the Nationwide Subsidiaries has conducted its Business only in the ordinary course of business, consistent with past practice, and there has not occurred (i) a Material Adverse Effect, or any event or events which, individually or in the aggregate, are reasonably likely to have a Material Adverse Effect; (ii) except as required by SAP, GAAP or applicable Law, any material change by Nationwide in its accounting principles, practices or methods; or (iii) except as required by SAP, GAAP or applicable Law, any material change in the accounting, actuarial, investment, reserving, underwriting or claims administration policies, practices, procedures, methods, assumptions or principles of Nationwide. Section 5.7 No Undisclosed Liabilities. Except as disclosed in the -------------------------- Nationwide GAAP Financial Statements or the Nationwide SAP Statements, neither Nationwide nor any of the Nationwide Subsidiaries has any Liabilities required by SAP or GAAP to be set forth on a balance sheet of Nationwide or any Nationwide Subsidiaries, other than Liabilities arising since the date of the applicable Financial Statement in the ordinary course of business and consistent with past practice that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect. Section 5.8 Litigation. Except as disclosed in the Nationwide GAAP ---------- Financial Statements or the Nationwide SAP Statements, there are no Proceedings pending or, to the Knowledge of Nationwide or any of the Nationwide Subsidiaries, threatened against Nationwide or any Nationwide Subsidiary before any Governmental Entity or arbitrator which, individually or in the aggregate, are reasonably likely to have a Material Adverse Effect. Neither Nationwide nor any Nationwide Subsidiary is subject to any Order, except for Orders which, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect. Section 5.9 Compliance with Law. ------------------- (a) To the Knowledge of Nationwide, neither Nationwide nor any Nationwide Subsidiary is in violation (or, with notice or lapse of time or both, would be in violation) of any term or provision of any Law applicable to it or any of its Assets, the violation of which is, individually or in the aggregate with all other such violations, reasonably likely to have a Material Adverse Effect. Nationwide has made available to Allied a list of all reports (including, but not limited to, draft reports) of examinations of the affairs of each Nationwide Insurer (including, but not limited to, market conduct examinations) issued by insurance regulatory authorities for any period ending on a date on or after January 1, 1993; all material deficiencies or violations in such reports for any prior period have been resolved. All outstanding Insurance Contracts issued or assumed by any Nationwide Insurer are, to the extent required by Law, on forms and at rates approved by the insurance regulatory authorities of the jurisdictions where issued or have been filed with and not objected to by such authorities within the periods provided for objection. (b) Neither Nationwide nor any Nationwide Subsidiary is a party to any Contract with or other undertaking to, or is subject to any Order by, or is a recipient of any 34 supervisory letter or other written communication of any kind from, any Governmental Entity which (i) is reasonably likely to have a Material Adverse Effect, or (ii) has been received since January 1, 1993 and relates to its reserve adequacy or its marketing, sales, trade or underwriting practices or policies which is materially adverse to Nationwide, nor, to the Knowledge of Nationwide or of any of the Nationwide Subsidiaries, has Nationwide or any of the Nationwide Subsidiaries been notified by any Governmental Entity that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such Order, Contract, undertaking, letter or other written communication. (c) Nationwide has implemented procedures and programs which are designed to provide reasonable assurance that Nationwide and its agents and employees are in compliance in all material respects with all applicable Laws, including, but not limited to, advertising, licensing and sales Laws, except where noncompliance would not be reasonably likely to have a Material Adverse Effect. Section 5.10 Insurance Issued by Nationwide Insurers. --------------------------------------- (a) Since January 1, 1994, all claims and benefits claimed by any Person under any Nationwide Insurance Contract have or will have in all material respects been paid (or provision for payment thereof has been made) in accordance with the terms of the Contracts under which they arose, and such payments were not materially delinquent and were paid without fines or penalties, except for any such claims or claim for benefits of less than $500,000 for which the affected Nationwide Insurer reasonably believes there is a reasonable basis to contest payment and is taking (or is preparing to take) such action; and (b) to the Knowledge of Nationwide, (i) each insurance agent or broker, at the time such agent or broker wrote, sold or produced business for Nationwide, was duly licensed as an insurance agent or broker (for the type of business written, sold or produced by such insurance agent or broker) in the particular jurisdiction in which such agent or broker wrote, sold or produced such business for Nationwide, and (ii) no such insurance agent or broker violated (or with notice or lapse of time or both would have violated) any term or provision of any Law or Order applicable to any aspect (including, but not limited to, the marketing, writing, sale or production) of the Business of Nationwide. ARTICLE VI CERTAIN COVENANTS Section 6.1 Allied Conduct of Business Pending the Merger. Allied --------------------------------------------- covenants and agrees as to itself and the Allied Subsidiaries that, at all times up to and including the Effective Time, unless Nationwide shall otherwise consent in writing which consent shall not be unreasonably withheld (Nationwide agreeing that it will use its best efforts to respond to any 35 request received from Allied arising under this Article VI within 2 Business Days, or sooner as circumstances may require, after receipt of such request), or as otherwise expressly permitted or contemplated by this Agreement or as set forth on the Allied Disclosure Schedule: (a) Allied shall, and shall cause each Allied Subsidiary to, conduct its Business only in the ordinary course and in substantially the same manner as heretofore conducted since December 31, 1997, and Allied and each Allied Subsidiary shall use all reasonable efforts to preserve intact its present business organization and preserve its regular services to, and maintain its relationships with, policyholders, insurers, agents, sales and distribution organizations, underwriters, investment customers, brokers, suppliers and all others having business dealings with it to the end that its goodwill and ongoing Business shall not be impaired in any material respect at the Effective Time; (b) Except as contemplated by this Agreement, Allied shall not, and shall not permit any Allied Subsidiary to, make or propose to make any change in its dividend practices or policies or in its underwriting, pricing, claims, risk retention, investment, reinsurance practices or policies in any material respect; and Allied agrees that it will notify Nationwide and provide Nationwide with information in reasonable detail regarding any material transactions (excluding investment transactions in the ordinary course of business consistent with past practice, but including transactions involving the securitization of Assets of Allied or of any Allied Subsidiary and transactions involving derivative securities), whether involving a purchase or sale, that it or any Allied Subsidiary is seriously considering; (c) Allied shall not make any material change in accounting methods or practices, including without limitation any change with respect to establishment of reserves for unearned premiums, losses (including without limitation incurred but not reported losses) and loss adjustment expenses, or any change in depreciation or amortization policies or rates adopted by it, except as required by Law, GAAP or SAP; (d) Allied shall not, and shall not permit any Allied Subsidiary to, (i) amend its charter or by-laws (unless contemplated hereby), (ii) incur any individual Liability or series of related Liabilities in excess of $1,000,000 other than in the ordinary course of business consistent with past practice, (iii) incur any indebtedness for money borrowed in the aggregate for Allied and the Allied Subsidiaries in excess of $10,000,000 for any such indebtedness having a maturity of 90 days or less or $1,000,000 for any such indebtedness having a maturity of more than 90 days, (iii) agree to any Merger, consolidation, demutualization, acquisition, redomestication, sale of all or a substantial portion of its Assets, bulk or assumption reinsurance arrangement or other similar reorganization, arrangement or business combination, (iv) prior to notifying Nationwide, enter into any material partnership, joint venture or profit sharing Contract, other than as envisioned by the Statement of Operating Principles, (v) enter into any Contract limiting the ability of Allied or of any Allied Subsidiary to engage in any Business, to compete with any Person, to do business with any Person or in any location or to employ any Person or limiting the ability of any Person to compete with such party 36 or any of its Subsidiaries, (vi) enter into any Contract relating to the direct or indirect guarantee of any obligation of any Person in respect of indebtedness for borrowed money or other financial obligation of any Person other than in the ordinary course of business consistent with past practice, (vii) enter into any Contract that could materially and adversely affect the consummation of the transactions contemplated hereby, (viii) violate any of its covenants under the Pooling Agreement, or (ix) modify any Contract with respect to the subject of any of the foregoing clauses; (e) Allied shall not permit any Allied Subsidiary to issue or sell any shares of or interests in, or rights of any kind to acquire any shares of or interests in, or to receive any payment based on the value of, the capital stock of or other equity interests in or any securities convertible into shares of any capital stock of or other equity interests in any Allied Subsidiary; (f) Except (x) as set forth in the Allied Disclosure Schedule, (y) in the ordinary course of business consistent with past practice, or (z) as required by the terms of agreements or plans already in effect, applicable Law or as envisioned in the Statement of Operating Principles, Allied shall not, and shall not permit any Allied Subsidiary to (i) adopt or implement, or commit to adopt or implement, or materially amend, any collective bargaining, compensation, employment, consulting, pension, profit sharing, bonus, incentive, group insurance, termination, retirement or other employee benefit Contract, plan or policy, (ii) enter into or materially amend any severance Contract, (iii) increase in any manner the compensation of, or enter into any Contract relating to the borrowing of money by, its directors, officers or other employees, except pursuant to the terms of agreements or plans as currently in effect provided that in no event shall any such individual increase in annual compensation exceed $400,000 per year, (iv) increase by more than 10% the aggregate number of its employees, (v) pay or agree to pay any pension, retirement allowance or other employee benefit not required by the current terms of any existing plan, agreement or arrangement to any director, officer or other employee, whether past or present, (vi) voluntarily recognize, or involuntarily become subject to, any labor organization or any other Person as a collective bargaining representative of one or more bargaining units comprising a material number of employees, or (vii) other than obligations that arise by operation of law or under the by-laws of a party as they exist on the date of this Agreement, or as contemplated by this Agreement, enter into, adopt or increase any indemnification or hold harmless arrangements with any directors, officers or other employees or agents of such party or any of its Subsidiaries or any other Person; provided that Allied may amend the terms of the Rabbi Trust to provide for specified investment guidelines with respect to the assets of the Rabbi Trust; (g) Other than in the ordinary course of business consistent with past practice, Allied shall not, and shall not permit any Allied Subsidiary to, make any capital expenditures or expenditures or commitments for expenditures for the purchase or lease of any products or services or group of products or services (other than with respect to Investment Assets) which in one or a series of related transactions exceed $1,000,000 or which in the 37 aggregate for Allied and the Allied Subsidiaries taken as a whole exceed $2,500,000, except for expenditures relating to this Agreement and the consummation of the transactions contemplated hereby, and expenditures required to be made pursuant to existing Contracts to which Allied or any Allied Subsidiary is a party; (h) Other than in the ordinary course of business consistent with past practice or in connection with the redemption of outstanding guaranteed investment contracts in the exercise of Allied's reasonable judgment, Allied shall not, and shall not permit any Allied Subsidiary to, waive any rights with a value in excess of $500,000 or any other rights which are material to any Contract or make any payment, direct or indirect, of any Liability in excess of $500,000 before the same comes due in accordance with its terms, in each case, including, but not limited to, any provision of any Insurance Contract to permit a cash-out thereof; (i) Allied shall not, and shall not permit any Allied Subsidiary to, other than pursuant to the operation of separate accounts in the ordinary course of business, consistent with existing strategies, (i) sell, lease, mortgage, encumber or otherwise grant any interest in or dispose of any of its Assets which, individually or in the aggregate, are material to the financial condition of Allied or of Allied and the Allied Subsidiaries taken as a whole, and, in addition, in the case of Liens, for Permitted Liens and Liens not individually in excess of $500,000 and not aggregating in excess of $2,000,000 or (ii) restructure, amend, modify or otherwise affect any Investment Asset or any Contract relating thereto which is material to the financial condition of Allied or of Allied and the Allied Subsidiaries taken as a whole, and, in either case described in clauses (i) and (ii), only in accordance with the statement of investment policy set forth in the Allied Disclosure Schedule attached hereto; and Allied shall furnish to Nationwide a monthly report, in detail reasonably acceptable to Nationwide, of all such transactions or other changes (other than changes in market values or ordinary course changes such as interest payments, maturities, etc.) affecting Investment Assets of Allied or any Allied Subsidiary which took place since the last such report; (j) Allied agrees that it shall not, nor shall it permit any Allied Subsidiary to, other than pursuant to the operation of separate accounts involved in real estate in the ordinary course, consistent with existing strategies, make any equity real estate investments (other than through restructuring or foreclosure or pursuant to commitments existing at the date hereof or to protect the value of existing investments in the exercise of reasonable business judgment) and that neither Allied nor any Allied Subsidiary shall take any action, other than in the exercise of reasonable business judgment and following discussion with Nationwide, which results, individually or in the aggregate, in (i) the realization of any gross capital loss or losses in an amount of $10,000,000 or more or (ii) an adverse impact on the surplus of Allied or of an Allied Subsidiary in an amount of $10,000,000 or more; (k) Other than in the ordinary course of business consistent with past practice, Allied shall not, and shall not permit any Allied Subsidiary to, enter into any material Contract or amend or waive any material provision of any material Contract which would 38 involve the payment by Allied or any Allied Subsidiary of $1,000,000 or more; (l) Other than in the ordinary course of business consistent with past practice, Allied shall not, and shall not permit any Allied Subsidiary to, settle or compromise any claim in any action, proceeding or investigation which could result in an expenditure for Allied and the Allied Subsidiaries in excess of $2,000,000; (m) Allied shall not, and shall not permit any Allied Subsidiary to, purchase or otherwise acquire, except pursuant to a Contract in effect on the date of this Agreement, (i) any controlling equity interest in any Person (other than Investment Assets), (ii) any non-publicly traded securities in excess of $5,000,000 per transaction or $5,000,000 per issuer or credit, (iii) any investments in fixed income securities rated in NAIC Class 4, 5 or 6, non- publicly traded equity securities or Assets required to be shown on Schedule BA of a Person's Annual Statement in excess of $5,000,000 per transaction or $5,000,000 per issuer or credit, or (iv) any real property or mortgage investments except in the ordinary course of managing the existing portfolio of real property and mortgage investments, including foreclosing purchase money mortgages, extensions and refinancings; (n) Allied shall not, and shall not permit any Allied Subsidiary to, enter into any new, or materially amend any existing, reinsurance Contracts or arrangements, except in accordance with existing reinsurance agreements or in the ordinary course of business and consistent with past practice; (o) Allied shall, and shall cause each Allied Subsidiary to, maintain uninterrupted its existing insurance coverage of all types in effect or procure substantially similar substitute insurance policies with financially sound and reputable insurance companies in at least such amounts and against such risks as are currently covered by such policies if such coverage is available, except for insurance coverage the failure to so keep would not have a Material Adverse Effect; (p) Allied shall deliver to Nationwide as promptly as practicable after preparation thereof, unaudited or audited, as the case may be, SAP Statements filed by or on behalf of Allied after the date hereof; (q) Allied shall not, nor shall Allied permit any Allied Subsidiary to, take any actions that would be reasonably likely to adversely affect the status of the Merger as a reorganization under Section 368 of the Code; (r) Neither Allied nor any Allied Subsidiary shall (i) make or rescind any material express or deemed election relating to Taxes, (ii) make a request for a Tax Ruling or enter into a Closing Agreement, settlement or compromise with respect to any material Tax matter or (iii) with respect to any material Tax matter, change any of its methods of reporting income or deductions for Federal income Tax purposes from those employed in the preparation 39 of its Federal income Tax Return for the Taxable year ending December 31, 1997, except as may be required by Law; (s) Other than in the ordinary course of Business and consistent with past practice, neither Allied nor any Allied Subsidiary shall declare, set aside or pay any dividends or distributions (whether in cash, stock or property) in respect of any capital stock of any Allied Subsidiary or redeem, purchase or otherwise acquire any of such Allied Subsidiary's capital stock; (t) Neither Allied nor any Allied Subsidiary shall settle pending or threatened litigation in an amount exceeding $1,000,000, other than settlement of pending or threatened litigation with respect to claims arising under contracts of insurance or reinsurance underwritten, ceded or assumed by any Allied Subsidiary which settlement will not have a Material Adverse Effect; (u) Allied shall not amend any agreement with Allied Group, Allied Life or any Subsidiaries thereof; and (v) Neither Allied nor any Allied Subsidiary shall agree, in writing or otherwise, to take any of the actions prohibited by the foregoing clauses (a) through (u). Section 6.2 Nationwide Conduct of Business Pending the Merger. ------------------------------------------------- Nationwide covenants and agrees that, at all times up to and including the Effective Time, unless Allied shall otherwise consent in writing which consent shall not be unreasonably withheld (Allied agreeing that it will use its best efforts to respond to any request received from Nationwide arising under this Article VI within 2 Business Days after the receipt of such request), or as otherwise expressly permitted or contemplated by this Agreement: (a) Nationwide shall use all reasonable efforts to preserve intact its present business organization and preserve its regular services to, and maintain its significant business relationships with, policyholders, insureds, agents, underwriters, brokers, investment customers, suppliers and all others having business dealings with it to the end that its goodwill and ongoing Business shall not be impaired in any material respect; (b) Nationwide shall not (i) amend its articles of incorporation or by-laws in a manner which would be inconsistent with the consummation of the transactions contemplated hereby, (ii) agree to any Merger in which it is not the surviving entity or any consolidation, demutualization, redomestication, sale of all or substantially all of its Assets or any other similar reorganization, arrangement or business combination or (iii) enter into or modify any Contract in a manner that will or is reasonably likely to materially and adversely affect the consummation of the transactions contemplated hereby; 40 (c) Nationwide shall maintain uninterrupted its existing insurance coverage of all types in effect or procure substantially similar substitute insurance policies with financially sound and reputable insurance companies in at least such amounts and against such risks as are currently covered by such policies if such insurance coverage is available, except for insurance coverage the failure to so keep in effect would not have a Material Adverse Effect; (d) Nationwide shall not, nor shall Nationwide permit any Nationwide Subsidiary to, take any actions that would be reasonably likely to adversely affect the status of the Merger as a reorganization under Section 368 of the Code; and (e) Nationwide shall not agree, in writing or otherwise, to take any of the actions prohibited by the foregoing clauses (a) through (d). Section 6.3 Reasonable Efforts. ------------------ (a) Upon the terms and subject to the conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action to do, or cause to be done, and to assist and cooperate with the other party hereto in doing or causing to be done, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including, but not limited to, (i) the actions set forth in Article III hereof, (ii) the obtaining of all Governmental Approvals, and all other necessary actions or nonactions, waivers, consents and approvals from all appropriate Governmental Entities and other Persons and the making of all necessary registrations and filings, (iii) the resolution of all organizational and human resources issues relating to the transactions contemplated hereby, (iv) the obtaining or making of all Consents, Environmental Permits, Filings or Licenses necessary or desirable to ensure that the Business of the Surviving Company may be conducted without disruption consistent with the past practice of each of the parties and (v) the defending of any Proceedings challenging this Agreement or the consummation of the transactions contemplated hereby, the defense of which shall, at the request of either Allied or Nationwide, be conducted jointly by Nationwide and Allied on a basis that is reasonably satisfactory to both Allied and Nationwide. Nothing set forth in this Section 6.3 shall limit or affect actions permitted to be taken pursuant to Section 6.9. (b) Nationwide covenants that it will submit the Form A regulatory applications for Allied, Allied Group and Allied Life simultaneously, and will amend its current Form A filing for Allied Group to include supplemental Form A filings for Allied and Allied Life, shall use its reasonable best efforts to (i) conduct the regulatory hearing and approval process concurrently for each of Allied, Allied Group and Allied Life, (ii) seek concurrent regulatory approvals for Nationwide's transactions with each of Allied, Allied Group and Allied Life, and (iii) conduct the regulatory approval process in a manner so as to protect the policyholder interests of each of Allied and Nationwide. Both Allied and Nationwide agree to use their respective reasonable best efforts to coordinate and cooperate during the regulatory approval process. 41 Section 6.4 Access and Information. ---------------------- (a) Subject to the terms of Section 6.4(b), each of Nationwide and Allied shall (i) afford to the other and the Representatives of the other, including environmental consultants, reasonable access during normal business hours through the period commencing on the date hereof and continuing until immediately prior to the Effective Time to all of its and its Subsidiaries' Assets, books, Tax Returns, Contracts, commitments and records, including for purposes of environmental assessments and other environmental due diligence, and (ii) during such period, each of Nationwide and Allied shall furnish promptly to the other all such information concerning its Business, Assets and personnel or those of any of its Affiliates, in either clause (i) or (ii), as the other may reasonably request. (b) Unless otherwise agreed in writing by the parties, each of the parties agree (a) except as required by law, to keep all Confidential Information confidential and not to disclose or reveal any Confidential Information to any person other than those Persons employed by it or on its behalf who are actively and directly participating in the planning, negotiation and implementation of the transactions contemplated hereby or who otherwise need to know the Confidential Information and to cause those persons to observe the terms of this Section 6.4(b) and (b) not to use the Confidential Information for any purpose other than in connection with the planning, negotiation and implementation of the transactions contemplated hereby. In the event of the termination of this Agreement for any reason, each of the parties agrees to return, and cause its Representatives to return, to the other all copies of written Confidential Information relating to the other and to destroy all memoranda, notes and other writings prepared based upon or including Confidential Information supplied by the other party and neither party shall use Confidential Information supplied by the other for any purpose. Section 6.5 Notice of Proceedings. Each of Nationwide and Allied --------------------- shall promptly notify the other of, and provide to the other all information relating to, any Proceedings or investigations commenced or, to the best of its Knowledge, threatened which relate to the execution of this agreement or the consummation of the transactions contemplated hereby. Section 6.6 Notification of Certain Other Matters. Each party shall ------------------------------------- promptly notify the other of any of the following events should any such events occur subsequent to the date hereof: (a) the receipt by such party of any written notice from any Person alleging that the consent of such Person is or may be required in connection with the execution of this Agreement or the consummation of the transactions contemplated hereby, and where the failure to obtain such a consent is reasonably likely to have a Material Adverse Effect; and (b) the receipt by such party of any written notice from or to any Governmental Entity in connection with this Agreement or the transactions contemplated hereby. 42 In furtherance of the foregoing, to the fullest extent permitted under applicable Law, each party shall make available to the other with copies (or, to the extent written materials are not involved, oral notice) of proposed notices, applications or any other communications to any Governmental Entity or rating agency in connection with this Agreement or the transactions contemplated hereby, including, but not limited to, in respect of the Governmental Approvals, in each case at least three (3) Business Days prior to dispatch of written materials (or, to the extent written materials are not involved, prior to initiation) and neither Nationwide nor Allied will dispatch (or, to the extent written materials are not involved, initiate) such notice, application or communication without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed. Section 6.7 Indemnification. --------------- (a) Nationwide agrees that all rights to indemnification now existing in favor of any of the current or former employees, directors, agents or officers of Allied or any of the Allied Subsidiaries (the "Indemnitees"), with respect to any Losses (including, but not limited to, Losses arising out of any litigation or threatened litigation) based on, arising, in whole or in part, out of, or otherwise in respect of, any action which is taken, or matter existing or occurring on or prior to the Effective Time, as provided in Allied's articles of incorporation or by-laws or any indemnification agreements by and between any of the Indemnitees and Allied or otherwise existing to the fullest extent under Law on the date hereof shall survive the Merger. (b) From and after the Effective Time, Nationwide agrees that it will indemnify and hold harmless each of the Indemnitees from and against any and all Losses (including, but not limited to, Losses arising out of any litigation or threatened litigation) based on, arising, in whole or in part, out of, or otherwise in respect of, any action which is taken, or matter existing or occurring on or prior to the Effective Time. Nothing contained herein, however, shall require Nationwide to indemnify any Indemnitee if a court of competent jurisdiction shall have determined that such indemnification is unenforceable or void as a matter of public policy, and such determination shall have become final and nonappealable. (c) For a period of six years after the Effective Time, Nationwide shall maintain in effect directors' and officers' liability insurance covering those persons who are currently covered by Allied's directors' and officers' liability insurance policy on terms (including the amounts of coverage and the amounts of deductibles, if any) that are comparable to the terms now applicable to directors and officers of Nationwide, or, if more favorable to Allied's directors and officers, the terms now applicable to them under Allied's current policies; provided, however, that in no event shall Nationwide be required to expend in excess of the greater of 200% of the annual premium currently paid by Allied for such coverage and the annual premium paid by Nationwide for its current directors' and officers' liability insurance coverage (the "Maximum Premium"); and provided further, that if the premium for such coverage exceeds the Maximum Premium, Nationwide shall purchase a policy with the greatest coverage available for 43 the Maximum Premium. (d) In the event that Nationwide or any of its successors or assigns (i) consolidates with or merges into any other Person and is not the continuing or surviving corpora tion or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of Nationwide assume the obligations set forth in this Section 6.7. (e) The provisions of this Section 6.7 shall survive the consummation of the Merger at the Effective Time and are intended to be for the benefit of, and shall be en forceable by, each Indemnitee, his or her heirs and his or her representatives and are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such Person may have under the articles of incorporation or by-laws of the Surviving Company or any of its Subsidiaries, under any contract, under applicable Law or otherwise. Section 6.8 Transfer Taxes. The Surviving Company shall pay or -------------- cause to be paid any real property transfer and similar Taxes to which the Allied policyholders may be subject as a result of the Merger and the transactions contemplated hereby, and the Surviving Company shall file or cause to be filed all Tax Returns relating to such transfer Taxes which are due. Section 6.9 Acquisition Proposals. Allied will not, and will not --------------------- permit or cause any of its Subsidiaries or any of the officers or directors of it or its Subsidiaries to, and shall direct its and its Subsidiaries' Representatives not to, directly or indirectly, initiate, solicit, knowingly encourage or otherwise knowingly facilitate the making of any Acquisition Proposal. Allied will not, and will not permit or cause any of its Subsidiaries or any of the officers and directors of it or its Subsidiaries to and shall direct its and its Subsidiaries' employees, agents and Representatives not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any Person relating to an Acquisition Proposal, whether made before or after the date of this Agreement, or otherwise knowingly facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that nothing contained in this Agreement shall prevent Allied or its Board of Directors from (A) providing information in response to a request therefor by a Person who has made an unsolicited bona fide written Acquisition Proposal; (B) engaging in any negotiations or discussions with any Person who has made an unsolicited bona fide written Acquisition Proposal; or (C) recommending such an Acquisition Proposal to the Members of Allied, if and only to the extent that, (i) in each such case referred to in clause (A), (B) or (C) above, the Board of Directors of Allied determines in good faith that the failure to take such action is reasonably likely to result in a breach of such Board's fiduciary duties under, or otherwise violate, applicable Law; and (ii) in each case referred to in clause (B) or (C) above, the Board of Directors of Allied determines in good faith that such Acquisition Proposal may be a Superior Proposal. Allied will immediately cease and cause to be terminated any existing activities, discussions or negotiations 44 with any parties conducted heretofore with respect to any of the foregoing. Allied agrees that it will take the necessary steps to promptly inform the individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 6.9. Section 6.10 Litigation. From and after the date hereof and until ---------- the Effective Time, Nationwide shall cease, in any and all respects, the prosecution of any pending litigation against Allied or any Affiliates thereof. Immediately following the Effective Time, Nationwide shall dismiss, with prejudice, any and all litigation brought by Nationwide against Allied or any Affiliates thereof. Section 6.11 HSR Act. Nationwide and Allied shall take all actions ------- necessary to file as soon as practicable after the date hereof all notifications, filings and other documents required under the HSR Act, and to respond as promptly as practicable to any inquiries received from the FTC, the Antitrust Division and any other Governmental Entity for additional informa tion or documentation and to respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other Governmental Entity in connection therewith. Section 6.12 Tax Treatment. The parties intend the Merger to ------------- qualify as a reor ganization under Section 368(a) of the Code; each party and its affiliates shall use its best efforts to cause the Merger to so qualify. Each of the parties agrees that neither it nor any of its Affiliates shall take any action, including any transfer or other disposition of assets or any interest in Allied after the Closing, that would cause the Merger not to qualify as a reorganization under Section 368(a) of the Code. Nationwide shall report the Merger for income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and any comparable state or local tax statute. ARTICLE VII CONDITIONS Section 7.1 Conditions to Each Party's Obligation to Effect the --------------------------------------------------- Merger. The respective obligations of each party to effect the Merger shall be - ------ subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) this Agreement and the Merger shall have been approved and adopted by the requisite votes of the respective Members of Nationwide and Allied at a special meeting of the Members of Nationwide and Allied called for such purpose; (b) the waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been earlier terminated and, other than the filings provided for in subclauses (a) and (b) of the second sentence of Section 2.3, all Governmental Approvals and other Consents or Filings which are required to be obtained prior to the Effective 45 Time (other than those Governmental Approvals for which the failure to obtain would not be reasonably likely to have a Material Adverse Effect) shall have been obtained and not rescinded or adversely modified or limited or, if merely required to be filed, such filings shall have been made and accepted, and all waiting periods prescribed by applicable Law shall have expired or been terminated in accordance with applicable Law; provided that no such Governmental Approval or other Consent or Filing shall contain any conditions or limitations that impose or seek to impose any limitation on the ability of the Surviving Company and its Subsidiaries, taken as a whole, to conduct its Business or own its Assets after the Effective Time in substantially the same manner as the parties and their respective Subsidiaries presently conduct their Business or own their Assets and which conditions and limitations would have a Material Adverse Effect on the Surviving Company and its Subsidiaries, taken as a whole; and (c) no Order entered or Law promulgated or enacted by any Governmental Entity shall be in effect which would prevent the consummation of the Merger or any other material transactions completed hereby, and no Proceeding brought by a Governmental Entity shall have been commenced and be pending which seeks to restrain, enjoin, prevent, or materially delay or restructure the Merger or any other material transactions contemplated hereby. Section 7.2 Conditions to Obligation of Allied to Effect the ------------------------------------------------ Merger. The obligations of Allied to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions, any one or more of which may be waived by Allied, but only to the extent permitted by Law and subject to Section 9.5 hereof: (a) The representations and warranties of Nationwide contained in this Agreement shall be true and correct on the date hereof and on and as of the Closing Date as though made on the Closing Date (other than those representations and warranties that expressly address matters only as of a particular date or only with respect to a specific period of time which need only be true and correct as of such date or with respect to such period), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "material adverse effect" set forth therein), does not have, and is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on Nationwide; and (b) Nationwide shall have performed and complied in all material respects with all obligations, covenants and agreements required to be performed and complied with by it under this Agreement at or prior to Closing Date. Section 7.3 Conditions to Obligation of Nationwide to Effect the ---------------------------------------------------- Merger. The obligations of Nationwide to effect the Merger shall be subject to - ------ the fulfillment at or prior to the Closing Date of the following conditions, any one or more of which may be waived by Nationwide, but only to the extent permitted by Law and subject to Section 9.5 hereof: 46 (a) The representations and warranties of Allied contained in this Agreement shall be true and correct on the date hereof and on and as of the Closing Date as though made on the Closing Date (other than those representations and warranties that expressly address matters only as of a particular date or only with respect to a specific period of time which need only be true and correct as of such date or with respect to such period), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "material adverse effect" set forth therein), does not have, and is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on Allied; and (b) Allied shall have performed and complied in all material respects with all obligations, covenants and agreements required to be performed and complied with by it under this Agreement at or prior to the Closing Date. Section 7.4 Frustration of Closing Conditions. Neither Allied nor --------------------------------- Nationwide may rely on the failure of any condition set forth in Section 7.1, 7.2 or 7.3, as the case may be, to be satisfied if such failure was caused by such party's failure to use its best efforts to consummate the Merger and the other transactions contemplated by this Agreement. ARTICLE VIII TERMINATION Section 8.1 Termination. This Agreement may be terminated and the ----------- Merger abandoned at any time prior to the Effective Time, whether before or after approval of the Merger by the Members of Nationwide or of Allied: (a) by the mutual written agreement of the parties hereto duly authorized by action taken by or on behalf of their respective Boards of Directors; or (b) by Nationwide or Allied if the Merger shall not have occurred on or before June 30, 1999; or (c) by Nationwide if the number of votes in favor of this Agreement cast by the Members of Nationwide required for the consummation of the Merger shall not have been obtained at the meeting of its Members or at any adjournment thereof duly held for such purpose; or (d) by Allied if the number of votes in favor of this Agreement cast by the Members of Allied required for the consummation of the Merger shall not have been obtained at the meeting of its Members or at any adjournment thereof duly held for such purpose; or 47 (e) by Allied if Nationwide (x) breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained herein or (y) breaches its representations and warranties in any material respect and such breach would have, or is reasonably likely to have, a Material Adverse Effect on Nationwide, in each case such that the conditions set forth in Section 7.1 or Section 7.2 would not be satisfied; provided, however, -------- ------- that if any such breach is curable by Nationwide through the exercise of its best efforts and for so long as Nationwide shall be so using its best efforts to cure such breach, Allied may not terminate this Agreement pursuant to this Section 8.1(e); or (f) by Nationwide if Allied (x) breaches or fails in any material respect to perform or comply with any of its material covenants and agreements contained herein or (y) breaches its representations and warranties in any material respect and such breach would have, or is reasonably likely to have, a Material Adverse Effect on Allied, in each case such that the conditions set forth in Section 7.1 or Section 7.3 would not be satisfied; provided, however, -------- ------- that if any such breach is curable by Allied through the exercise of its best efforts and for so long as Allied shall be so using its best efforts to cure such breach, Nationwide may not terminate this Agreement pursuant to this Section 8.1(f); or (g) by Allied, if the Board of Directors of Allied (or any committee thereof) shall have withdrawn or modified or changed in a manner adverse to Nationwide its ap proval or recommendation of this Agreement or the Merger in order to approve and permit Allied to execute a definitive agreement with a Third Party relating to an Superior Proposal; or (h) by Nationwide, if the Board of Directors of Allied (or any committee thereof) shall have withdrawn or modified or changed in a manner adverse to Nationwide its approval or recommendation of this Agreement or the Merger or shall have recommended an Superior Proposal, or Allied shall have entered into a definitive agreement pro viding for an Superior Proposal with a Third Party. Section 8.2 Effect of Termination. --------------------- In the event of the termination of this Agreement by either Nationwide or Allied, as provided in Section 8.1, written notice thereof shall forthwith be given to the other party specifying the provision hereof pursuant to which such termination is made, this Agreement shall thereafter become void and there shall be no Liability on the part of either party hereto against the other party hereto, or on the part of its directors, officers, employees, policyholders, shareholders or agents (or those of any of its Subsidiaries or Affiliates), except that (i) any such termination shall be without prejudice to the rights of either party hereto (or any of its Subsidiaries or Affiliates) arising out of the willful breach by the other party of any covenant or agreement contained in this Agreement, and (ii) with respect to Nationwide and Allied, the obli gations pursuant to this Section 8.2, Section 6.4(b) and Section 9.2 shall survive termination. 48 ARTICLE IX MISCELLANEOUS Section 9.1 Survival of Representations and Warranties. None of the ------------------------------------------ representations and warranties in this Agreement or in any schedule, instrument or other document delivered pursuant to this Agreement shall survive the Effective Time or the termination of this Agreement. Section 9.2 Fees and Expenses. Whether or not the Merger is ----------------- consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses, except for expenses incurred in connection with the printing, mailing and solicitation of proxies from policyholders which shall be borne by Nationwide and Allied in proportion to the number of Members thereof. Section 9.3 Notices. All notices, consents, requests, approvals, ------- authorizations and other communications (collectively, "Notices") required or permitted to be given hereunder by one party to another shall only be effective if in writing. All Notices shall be sent (i) by registered or certified mail (with return receipt requested), postage prepaid, or (ii) by Federal Express, U.S. Post Office Express Mail, Airborne or similar overnight courier which delivers, if requested, only upon signed receipt of the addressee (with such signed receipt being requested), or (iii) by facsimile transmission, and addressed or transmitted as follows or at such other address or facsimile number, and to the attention of such other person, as the parties shall give notice as herein provided: If to Nationwide, to: Nationwide Mutual Insurance Company One Nationwide Plaza Columbus, Ohio 43215 Attention: David A. Diamond, Vice President-Enterprise Controller Facsimile No.: (614) 249-4462 with a copy to: Nationwide Mutual Insurance Company One Nationwide Plaza Columbus, Ohio 43215 Attention: Mark B. Koogler, Vice President and Associate General Counsel Roger A. Craig, Counsel Facsimile No.: (614) 249-7254 49 with a copy to: Holleb & Coff 55 E. Monroe Chicago, Illinois 60603 Attention: Eric M. Fogel, Esq. Facsimile No.: (312) 807-3900 If to Allied, to: Allied Mutual Insurance Company 701 Fifth Avenue Des Moines, Iowa 50391-2000 Attention: John E. Evans, Chairman of the Board Douglas L. Andersen, President and Chief Executive Officer Facsimile No.: 515-280-4399 with copies to: Nyemaster, Goode, Voigts, West, Hansell & O'Brien A Professional Corporation 700 Walnut Street, Suite 1600 Des Moines, Iowa 50309-3899 Attention: Mark C. Dickinson, Esq. Facsimile No.: 515-283-3108 and Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, New York 10022-3897 Attention: Jeffrey W. Tindell, Esq. Facsimile No.: 212-451-7321 A Notice shall be effective upon receipt and shall be deemed to be received, if sent by registered or certified mail, U.S. Post Office Express Mail, Federal Express, Airborne or similar overnight courier, on the date of receipt by the recipient as shown on the return receipt card, or if sent by facsimile, upon receipt by the sender of an acknowledgment or transmission report generated by the machine from which the facsimile was sent indicating that the facsimile was sent in its entirety to the recipient's facsimile number; provided that if a Notice is received by facsimile on a day which is not a Business Day, or after 5:00 p.m. on any Business Day at the addressee's location, such Notice shall be deemed to be received by the recipient at 9:00 a.m. on the first Business Day thereafter. Rejection or other refusal to accept or the inability to deliver 50 because of changed address of which no Notice was given shall be deemed to be receipt of the Notice as of the date of such rejection, refusal or inability to deliver. Section 9.4 Amendments. Subject to applicable Law, this Agreement ---------- may be amended by the parties hereto at any time before or after the approval of this Agreement by the Members of Nationwide or of Allied, but after such approval no amendment or modification shall be made which in any way materially adversely affects the rights of such Members without the further approval of such Members. Any amendment, modification or material waiver of this Agreement shall be subject to the approval of the Ohio Superintendent, the Iowa Commissioner and the Iowa Attorney General. This Agreement may not be amended, modified or supplemented except by written agreement of the parties hereto. Section 9.5 Extension; Waiver. At any time prior to the Effective ----------------- Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered pursuant to this Agreement or (c) except as provided by Section 9.4, waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Nothing contained in this Agreement shall cause the failure of either party to insist upon strict compliance with any covenant, obligation, condition or agreement contained herein to operate as a waiver of, or estoppel with respect to, any such covenant, obligation, condition or agreement by the party entitled to the benefit thereof. Section 9.6 Publicity. So long as this Agreement is in effect, --------- each of the parties hereto (i) shall not, and shall cause its Affiliates not to, issue or cause the publication of any press release or other announcement to any Person with respect to this Agreement or the transactions contemplated hereby without the consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, however, that nothing contained in this Agreement -------- ------- shall (A) limit the right of each of the parties hereto and their Affiliates to make a legally required filing or communication, provided that, to the extent -------- possible, such party shall consult with the other party before making such filing or communication, or responding to any communications initiated by any non-affiliated Person, including, but not limited to, any rating agency or Governmental Entity, (B)prohibit either party hereto (or its Affiliates) from initiating communications with, and making presentations to, any rating agency or Governmental Entity relating to the transactions contemplated hereby if such party gives prior notice thereof to the other party hereto, or (C)prohibit Nationwide or Allied or any of their respective Affiliates from communicating to any third party information in any way relating to the Merger that has been made known to the general public, other than in violation of this Agreement, prior to the time of such communication, (ii) shall cooperate fully with the other party hereto with respect to issuing or publishing any press release, or other announcement or other written communication to any non-affiliated Person and preparing written and oral communications to the employees and agents of each party hereto with the purpose of effectuating the Merger in the best interests 51 of the respective Members of Nationwide and Allied and (iii) shall promptly notify the other party of any communications received from and responses provided to non-affiliated Persons, in either case, with respect to this Agreement or the transactions contemplated hereby. Section 9.7 Headings. The headings contained in this Agreement are -------- for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 9.8 Nonassignability. Neither this Agreement nor any of ---------------- the rights, interests or obligations hereunder shall be assigned by either party hereto by operation of Law or otherwise without the prior written consent of the other party hereto. Section 9.9 Beneficiaries. This Agreement shall be binding upon ------------- and inure solely to the benefit of the parties hereto and their permitted assigns, and nothing in this Agreement, expressed or implied, is intended to confer upon any other Person (including, but not limited to, any policyholder, shareholder or employee of Allied, Nationwide or their Subsidiaries) any rights or remedies of any nature under or by reason of this Agreement, except as expressly provided in Section 2.6, Section 2.7, Section 6.7, Section 6.8, Section 6.10 and Section 6.12 hereof. Section 9.10 Duplicates; Counterparts. This Agreement shall be ------------------------ executed in duplicate and may be executed in counterparts, each of which shall be deemed to constitute an original and constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be as effective as delivery of a manually executed counterpart of this Agreement. In proving this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. Section 9.11 Governing Law; Jurisdiction. This Agreement shall be --------------------------- governed by and construed and enforced in accordance with the laws of the State of Iowa without regard to the conflict or choice of laws rules thereof or of any other jurisdiction. Section 9.12 Entire Agreement. This Agreement constitutes the ---------------- entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof and thereof. Section 9.13 Severability. If any provisions hereof shall be held ------------ invalid or unenforceable by any court of competent jurisdiction or as a result of future legislative action, such holding or action shall be strictly construed and shall not affect the validity or effect of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction or other authority declares that any term or provision hereof is invalid, void or unenforceable, the parties agree that the court making such determination shall have the 52 power to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any invalid, void or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision; provided, however, that the parties shall use -------- ------- reasonable efforts, including, but not limited to, the amendment of this Agreement, to ensure that this Agreement shall reflect as closely as practicable the intent of the parties hereto. Section 9.14 Specific Performance. Each of the parties hereto -------------------- acknowledges and agrees that the other party hereto would be irreparably damaged in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties hereto agrees that each shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions thereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction, in addition to any other remedy to which Nationwide or Allied may be entitled, at law, in equity or pursuant to this Agreement. Section 9.15 Survival of Certain Covenants. The provisions of ----------------------------- Section 2.6, Section 2.7, Section 6.7, Section 6.8, Section 6.9, Section 6.10 and Section 6.12 hereof shall survive the Effective Time. Section 9.16 Counting. If the due date for any action to be taken -------- under this Agreement (including, but not limited to, the delivery of notices) is not a Business Day, then such action shall be considered timely taken if performed on or prior to the next Business Day following such due date. Section 9.17 Service of Process. Each party irrevocably consents ------------------ to the service of process in any action or proceeding by mailing copies thereof by registered United States mail, postage prepaid, return receipt requested, to its address as specified in or pursuant to Section 9.3 hereof. However, the foregoing shall not limit the right of a party to effect service of process on the other party by any other legally available method. Section 9.18 Interpretation. -------------- (a) When a reference is made in this Agreement to a section or article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. (b) Whenever the words "include", "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." (c) The words "hereof", "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not 53 to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. (d) The plural of any defined term shall have a meaning correlative to such defined term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (e) A reference to any party to this Agreement or any other agreement or document shall include such party's successors and permitted assigns. (f) A reference to any legislation or to any provision of any legislation shall include any modification or re-enactment thereof, any legislative provision substituted therefor and all regulations and statutory instruments issued thereunder or pursuant thereto. (g) All references to "$" and dollars shall be deemed to refer to United States currency unless otherwise specifically provided. (h) The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such informa tion is to be made available. Section 9.19 Schedules. The Allied Disclosure Schedule and the --------- Nationwide Disclosure Schedule shall each be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Any matter disclosed pursuant to the Allied Disclosure Schedule or the Nationwide Disclosure Schedule shall be deemed to be disclosed for all purposes under this Agreement but such disclosure shall not be deemed to be an admission or representation as to the materiality of the item so disclosed. 54 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of Nationwide and of Allied as of the date first above written. NATIONWIDE MUTUAL INSURANCE COMPANY /s/ Mark B. Koogler By------------------------------------------------ Name: Mark B. Koogler Title: Vice President and Associate General Counsel ALLIED MUTUAL INSURANCE COMPANY /s/ Douglas L. Andersen By------------------------------------------------ Name: Douglas L. Andersen Title: President and Chief Executive Officer EXHIBIT A NATIONWIDE MUTUAL INSURANCE COMPANY CERTIFICATE OF ASSUMPTION, MEMBERSHIP AND PARTICIPATION You are hereby notified that Allied Mutual Insurance Company ("Allied") has, effective as of ___________ (the "Effective Time"), merged (the "Merger") with and into Nationwide Mutual Insurance Company ("Nationwide"). From and after the Effective Time, all references in your policy with Allied are hereby changed to Nationwide. Nationwide has initially assumed all rights and duties under your policy. Nationwide is one insurance company in a large group of affiliated insurance companies called the Nationwide Insurance Enterprise (the "Enterprise"). Nationwide agrees that for as long as your policy remains continuously in force (including renewals or replacements thereof) from and after the Effective Time with an insurance company within the Enterprise that is authorized to transact property and casualty insurance or reinsurance business: A. Your policy shall have those voting rights within Nationwide as if it were a policy issued by Nationwide, as and to the extent provided under the Ohio Insurance Law and Nationwide's Articles of Incorporation; B. Your policy shall have those rights in the event of the liquidation, merger, consolidation, mutual holding company reorganization, demutualization or similar extraordinary transaction of Nationwide as if your policy had been continuously with Nationwide since the date of its initial issuance by Allied. Such rights shall not be reduced by reason of any policyholder dividend paid in respect of your policy in connection with the Merger. This Certificate shall continue in effect as long as your policy has been renewed or replaced, without a lapse in coverage, by any insurance company within the Enterprise that is authorized to transact property and casualty insurance or reinsurance business. This Certificate, as of the Effective Time, forms a part of and should be attached to your policy. IN WITNESS WHEREOF, Nationwide Mutual Insurance Company has caused this Certificate of Assumption, Membership and Participation to be duly signed and issued. ____________________ _________________________ Secretary President AGREEMENT AND PLAN OF MERGER by and among NATIONWIDE MUTUAL INSURANCE COMPANY NATIONWIDE LIFE ACQUISITION CORPORATION and ALLIED LIFE FINANCIAL CORPORATION Dated as of June 3, 1998 TABLE OF CONTENTS ----------------- ARTICLE I THE OFFER......................................................... 2 Section 1.2 Allied Actions.................................................... 4 Section 1.3 Directors......................................................... 6 ARTICLE II THE MERGER........................................................ 7 Section 2.1 The Merger........................................................ 7 Section 2.2 Closing........................................................... 8 Section 2.3 Effective Time.................................................... 8 Section 2.4 Articles of Incorporation and By-Laws of the Surviving Corporation 9 Section 2.5 Board of Directors and Officers................................... 9 Section 2.6 Effect of Merger on Sub Capital Stock............................. 9 Section 2.7 Conversion of Allied Stock........................................ 10 Section 2.8 Exchange of Certificates and Related Matters...................... 10 Section 2.9 Dissenting Shares................................................. 13 Section 2.10 Adjustments to Prevent Dilution................................... 14 Section 2.11 Options........................................................... 14 ARTICLE III ADDITIONAL AGREEMENTS............................................. 14 Section 3.1 Preparation of Proxy Statement; Information Supplied.............. 14 Section 3.2 Meeting of Shareholders........................................... 15 Section 3.3 Filings; Other Action............................................. 16 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ALLIED.......................... 17 Section 4.1 Organization and Qualification.................................... 17 Section 4.2 Capitalization of Allied.......................................... 18 Section 4.3 Subsidiaries...................................................... 19 Section 4.4 Authority Relative to this Agreement.............................. 20 Section 4.5 No Violation; Governmental Filings................................ 21 Section 4.6 SAP Statements.................................................... 23 Section 4.7 GAAP Statements................................................... 24 Section 4.8 Reserves.......................................................... 24 Section 4.9 SEC Documents..................................................... 25 Section 4.10 Absence of Certain Changes or Events.............................. 26 Section 4.11 No Undisclosed Liabilities........................................ 26 Section 4.12 Takeover Statutes................................................. 27 Section 4.13 Compliance with Law............................................... 27 Section 4.14 Assets............................................................ 29 Section 4.15 Environmental Matters............................................. 31 Section 4.16 Contracts......................................................... 33 Section 4.17 Insurance Issued by Allied Insurers............................... 37 Section 4.18 Cancellations..................................................... 41 i Section 4.19 Operations Insurance.............................................. 41 Section 4.20 Taxes and Ta