AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: Pennsylvania Date: 10/15/2004
Industry: Insurance (Prop. and Casualty) Law Firm: Skadden, Arps, Slate, Meagher & Flom LLP;United National Group, Ltd;United National Insurance Company. Sector: Financial

AGREEMENT AND PLAN OF MERGER, Parties: united national group ltd , penn-america group inc.

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EXHIBIT 2.1

EXECUTION COPY

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AGREEMENT AND PLAN OF MERGER

DATED AS OF

OCTOBER 14, 2004

BY AND AMONG

PENN-AMERICA GROUP, INC.,

UNITED NATIONAL GROUP, LTD.,

U.N. HOLDINGS II, INC.

AND

CHELTENHAM ACQUISITION CORP.

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TABLE OF CONTENTS

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ARTICLE I DEFINITIONS................................................................................... 2

Section 1.1 Definitions....................................................................... 2

ARTICLE II THE MERGER................................................................................... 6

Section 2.1 The Merger........................................................................ 6

Section 2.2 Conversion of Shares.............................................................. 7

Section 2.3 Surrender and Payment............................................................. 8

Section 2.4 Stock Options and Other Equity Awards............................................. 10

Section 2.5 Adjustments....................................................................... 12

Section 2.6 Fractional Shares................................................................. 12

Section 2.7 Withholding Rights................................................................ 12

Section 2.8 Lost Certificates................................................................. 12

ARTICLE III CERTAIN GOVERNANCE MATTERS.................................................................. 13

Section 3.1 Articles of Incorporation of the Surviving Corporation............................ 13

Section 3.2 Bylaws of the Surviving Corporation............................................... 13

Section 3.3 Directors and Officers of the Surviving Corporation............................... 13

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................ 13

Section 4.1 Organization and Qualification.................................................... 13

Section 4.2 Capitalization.................................................................... 14

Section 4.3 Corporate Authorization; Enforceability; Board Action............................. 15

Section 4.4 Consents and Approvals; No Violations............................................. 16

Section 4.5 SEC Filings and Financial Statements.............................................. 17

Section 4.6 Absence of Certain Changes........................................................ 19

Section 4.7 Undisclosed Liabilities........................................................... 19

Section 4.8 Litigation........................................................................ 19

Section 4.9 Compliance with Laws.............................................................. 20

Section 4.10 Reserves.......................................................................... 21

Section 4.11 Actuarial Analyses................................................................ 21

Section 4.12 Investments....................................................................... 21

Section 4.13 Employee Benefit Plans............................................................ 22

Section 4.14 Employee Matters.................................................................. 23

Section 4.15 Taxes............................................................................. 24

Section 4.16 Certain Contracts................................................................. 26

Section 4.17 Intellectual Property............................................................. 27

Section 4.18 Properties and Assets............................................................. 29

Section 4.19 Environmental Matters............................................................. 30

Section 4.20 Transactions with Affiliates...................................................... 30

Section 4.21 Reinsurance....................................................................... 31

Section 4.22 Brokers and Agents................................................................ 31

Section 4.23 Producers......................................................................... 31

Section 4.24 Disclosure Documents.............................................................. 32

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Section 4.25 Opinion of Financial Advisor...................................................... 32

Section 4.26 Finders' or Advisors' Fees........................................................ 33

Section 4.27 Risk Management................................................................... 33

Section 4.28 Derivatives....................................................................... 33

ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, BUYER AND MERGER SUBSIDIARY........................ 33

Section 5.1 Organization and Qualification.................................................... 33

Section 5.2 Capitalization.................................................................... 34

Section 5.3 Corporate Authorization; Enforceability; Board Action............................. 35

Section 5.4 Consents and Approvals; No Violations............................................. 36

Section 5.5 SEC Filings and Financial Statements.............................................. 36

Section 5.6 Absence of Certain Changes........................................................ 38

Section 5.7 Undisclosed Liabilities........................................................... 38

Section 5.8 Litigation........................................................................ 39

Section 5.9 Compliance with Laws.............................................................. 39

Section 5.10 Reserves.......................................................................... 40

Section 5.11 Actuarial Analyses................................................................ 40

Section 5.12 Reinsurance....................................................................... 40

Section 5.13 Disclosure Documents.............................................................. 41

Section 5.14 Finders' or Advisors' Fees........................................................ 41

Section 5.15 Operations of Merger Subsidiary................................................... 41

Section 5.16 Capital Resources................................................................. 41

Section 5.17 Taxes............................................................................. 41

ARTICLE VI COVENANTS.................................................................................... 42

Section 6.1 Conduct of the Company............................................................ 42

Section 6.2 Conduct of Parent................................................................. 46

Section 6.3 Preparation of Proxy Statement; Shareholder Meetings.............................. 47

Section 6.4 Access to Information; Confidentiality............................................ 49

Section 6.5 No Solicitation; Unsolicited Proposals............................................ 49

Section 6.6 Board Recommendation.............................................................. 52

Section 6.7 Regulatory Filings; Reasonable Best Efforts....................................... 53

Section 6.8 Litigation........................................................................ 55

Section 6.9 Employee Benefits................................................................. 55

Section 6.10 Public Announcements.............................................................. 56

Section 6.11 Further Assurances................................................................ 56

Section 6.12 Notification of Certain Matters................................................... 56

Section 6.13 Director and Officer Liability.................................................... 57

Section 6.14 Affiliates........................................................................ 59

Section 6.15 Takeover Statutes................................................................. 59

Section 6.16 Comfort Letter.................................................................... 59

Section 6.17 Stock Market Quotation............................................................ 59

ARTICLE VII CONDITIONS TO THE MERGER.................................................................... 60

Section 7.1 Conditions to the Obligations of Each Party....................................... 60

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Section 7.2 Conditions to the Obligations of Parent, Buyer and Merger Subsidiary.............. 61

Section 7.3 Conditions to the Obligations of the Company...................................... 61

ARTICLE VIII TERMINATION AND EXPENSES................................................................... 62

Section 8.1 Termination....................................................................... 62

Section 8.2 Effect of Termination............................................................. 63

Section 8.3 Fees and Expenses................................................................. 63

ARTICLE IX MISCELLANEOUS................................................................................ 65

Section 9.1 Non-Survival of Representations and Warranties.................................... 65

Section 9.2 Amendments; No Waivers............................................................ 65

Section 9.3 Notices........................................................................... 65

Section 9.4 Successors and Assigns............................................................ 67

Section 9.5 Governing Law..................................................................... 67

Section 9.6 Jurisdiction...................................................................... 68

Section 9.7 Waiver of Jury Trial.............................................................. 68

Section 9.8 Counterparts; Effectiveness....................................................... 68

Section 9.9 Entire Agreement.................................................................. 68

Section 9.10 Third Party Beneficiaries......................................................... 68

Section 9.11 Severability...................................................................... 68

Section 9.12 Specific Performance.............................................................. 69

Section 9.13 Construction; Interpretation; Disclosure Letters.................................. 69

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EXHIBIT A FORM OF AFFILIATE LETTER

iii

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INDEX OF DEFINED TERMS

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A.M. Best.............................................................................................. 58

Acquisition Proposal................................................................................... 51

Action................................................................................................. 19

Actuarial Analyses..................................................................................... 21

Affected Employees..................................................................................... 55

affiliate.............................................................................................. 69

Agreement.............................................................................................. 1

Average Sales Price.................................................................................... 8

Bear Stearns........................................................................................... 32

Books and Records...................................................................................... 2

Burdensome Condition................................................................................... 54

Buyer.................................................................................................. 1

Certificate............................................................................................ 8

Closing................................................................................................ 7

Closing Date........................................................................................... 7

Code................................................................................................... 2

Company................................................................................................ 1

Company Balance Sheet.................................................................................. 3

Company Business Documents............................................................................. 20

Company Change in Recommendation....................................................................... 52

Company Common Stock................................................................................... 2

Company Contracts...................................................................................... 27

Company Disclosure Letter.............................................................................. 13

Company Employee Plans................................................................................. 22

Company Financial Statements........................................................................... 17

Company Independent Committee.......................................................................... 1

Company Intellectual Property.......................................................................... 28

Company Options........................................................................................ 10

Company Permits........................................................................................ 3

Company Recommendation................................................................................. 48

Company SEC Documents.................................................................................. 17

Company Shareholder Approval........................................................................... 16

Company Shareholder Meeting............................................................................ 48

Company Statutory Financial Statements................................................................. 18

Company Stock Option Plans............................................................................. 10

Company Subsidiary Convertible Security................................................................ 15

Company's Current Premium.............................................................................. 58

Confidentiality Agreement.............................................................................. 49

Contract............................................................................................... 3

Copyrights............................................................................................. 28

Effective Time......................................................................................... 6

End Date............................................................................................... 62

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Environmental Laws..................................................................................... 3

ERISA.................................................................................................. 22

ERISA Affiliate........................................................................................ 22

Exchange Act........................................................................................... 3

Exchange Agent......................................................................................... 8

Exchange Ratio......................................................................................... 8

Form S-4............................................................................................... 32

GAAP................................................................................................... 18

Governmental Authority................................................................................. 3

Hazardous Material..................................................................................... 3

HSR Act................................................................................................ 16

including.............................................................................................. 69

Indemnified Parties.................................................................................... 58

Insurance Contract..................................................................................... 3

Insurance Filings...................................................................................... 54

Insurance Permit....................................................................................... 3

Insurance Products..................................................................................... 3

Insurance Subsidiaries................................................................................. 4

Intellectual Property.................................................................................. 27

Investment Assets...................................................................................... 4

IP Licenses............................................................................................ 28

Joint Proxy Statement/Prospectus....................................................................... 32

knowledge of Parent.................................................................................... 4

knowledge of the Company............................................................................... 4

Law.................................................................................................... 4

Leased Real Property................................................................................... 29

Leases................................................................................................. 26

Liability.............................................................................................. 4

Lien................................................................................................... 4

Material Adverse Effect................................................................................ 4

Material Contracts..................................................................................... 27

Measurement Period..................................................................................... 8

Merger................................................................................................. 1

Merger Consideration................................................................................... 8

Merger Subsidiary...................................................................................... 1

Merger Subsidiary Common Stock......................................................................... 7

Notice of Superior Proposal............................................................................ 52

NYSE................................................................................................... 16

Option Exchange Ratio.................................................................................. 11

P&C Business........................................................................................... 5

Parent................................................................................................. 1

Parent Actuarial Analyses.............................................................................. 40

Parent Business Documents.............................................................................. 40

Parent Class A Common Shares........................................................................... 8

Parent Disclosure Letter............................................................................... 33

Parent Financial Statements............................................................................ 37

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Parent Options......................................................................................... 34

Parent SEC Documents................................................................................... 36

Parent Share Issuance Approval......................................................................... 35

Parent Shareholder Meeting............................................................................. 49

Parent Shareholders.................................................................................... 1

Parent Statutory Financial Statements.................................................................. 37

Parent Warrants........................................................................................ 34

Patents................................................................................................ 27

PBCL................................................................................................... 6

Per Share Cash Amount.................................................................................. 8

Per Share Stock Amount................................................................................. 8

Permits................................................................................................ 5

Permitted Liens........................................................................................ 5

Person................................................................................................. 5

PIC.................................................................................................... 2

PIC Shareholders....................................................................................... 2

Producer Agreements.................................................................................... 32

Qualifying Amendment................................................................................... 5

Release................................................................................................ 5

Representative......................................................................................... 5

Requisite Regulatory Approvals......................................................................... 60

Reserves............................................................................................... 21

SAP.................................................................................................... 5

Sarbanes-Oxley Act..................................................................................... 18

SEC.................................................................................................... 5

Securities Act......................................................................................... 6

Significant Agents..................................................................................... 31

Software............................................................................................... 28

Stock Purchase Agreement............................................................................... 2

Subsidiary............................................................................................. 6

Substitute Option...................................................................................... 10

Superior Proposal...................................................................................... 51

Surviving Corporation.................................................................................. 7

Tax.................................................................................................... 6

Tax Return............................................................................................. 6

Taxes.................................................................................................. 6

Termination Fee........................................................................................ 64

Third Party............................................................................................ 6

Trade Secrets.......................................................................................... 28

Trademarks............................................................................................. 27

UNIC................................................................................................... 2

Voting Debt............................................................................................ 14

WARN Act............................................................................................... 24

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of

October 14, 2004, is entered into by and among Penn-America Group, Inc., a

Pennsylvania corporation (the "Company"), United National Group, Ltd., an

exempted company formed with limited liability under the laws of the Cayman

Islands ("Parent"), U.N. Holdings II, Inc., a Delaware corporation and an

indirect, wholly-owned subsidiary of Parent ("Buyer"), and Cheltenham

Acquisition Corp., a newly-formed Pennsylvania corporation and a wholly-owned

subsidiary of Buyer ("Merger Subsidiary").

WITNESSETH:

WHEREAS, a committee of the Board of Directors of the Company

consisting solely of independent directors (the "Company Independent Committee")

has determined that the merger of Merger Subsidiary with and into the Company on

the terms and conditions set forth in this Agreement (the "Merger") is advisable

and in the best interests of the Company and has recommended that the Board of

Directors of the Company approve and adopt this Agreement and recommend that the

Company's shareholders vote for the adoption of this Agreement;

WHEREAS, the Board of Directors of the Company has determined that

the Merger is advisable and in the best interests of the Company and has

approved and adopted this Agreement and has resolved to recommend that the

Company's shareholders vote for the adoption of this Agreement;

WHEREAS, the Board of Directors of Buyer has determined that the

Merger is advisable and in the best interests of Buyer and its shareholder;

WHEREAS, the Board of Directors of Parent has determined that the

Merger is advisable and in the best interests of Parent and Parent's

shareholders, has approved and adopted this Agreement and has recommended that

Parent's shareholders vote for the approval of the issuance of Parent Class A

Common Shares (as defined below) in the Merger;

WHEREAS, as a condition and further inducement to the Company to

enter into this Agreement, U.N. Holdings (Cayman), Ltd., U.N. Co-Investment Fund

I (Cayman), L.P., U.N. Co-Investment Fund II (Cayman), L.P., U.N. Co-Investment

Fund III (Cayman), L.P., U.N. Co-Investment Fund IV (Cayman), L.P., U.N.

Co-Investment Fund V (Cayman), L.P., U.N. Co- Investment Fund VI (Cayman), L.P.,

U.N. Co-Investment Fund (Cayman) VII, L.P., U.N. Co-Investment Fund VIII

(Cayman), L.P., and U.N. Co-Investment Fund IX (Cayman), L.P. (the "Parent

Shareholders") have entered into a voting agreement with the Company pursuant to

which the Parent Shareholders have agreed to vote all of their Parent Class A

Common Shares and Parent Class B Common Shares (as defined below) affirmatively

in connection with the Parent Share Issuance Approval (as defined in Section

5.3(a));

WHEREAS, the Board of Directors of Merger Subsidiary has determined

that the Merger is advisable and in the best interests of Merger Subsidiary and

its

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shareholder, has approved and adopted this Agreement and has resolved to

recommend that Merger Subsidiary's shareholder vote for the adoption of this

Agreement;

WHEREAS, for United States federal income tax purposes, it is

intended that the Merger be treated as a taxable acquisition by Buyer of the

common stock, par value $0.01 per share, of the Company ("Company Common

Stock"), other than Company Common Stock held by a Subsidiary of PIC (as defined

below); and

WHEREAS, the shareholders of Penn Independent Corporation ("PIC")

have entered into a Stock Purchase Agreement (the "Stock Purchase Agreement"),

dated as of the date hereof, by and among Parent, United National Insurance

Company ("UNIC"), PIC and the shareholders of PIC (the "PIC Shareholders"),

pursuant to which the PIC Shareholders have agreed, among other things, to sell

their shares of PIC to a subsidiary of Parent, upon the terms and subject to the

conditions set forth therein immediately prior to the Effective Time.

NOW, THEREFORE, in consideration of the representations, warranties,

covenants and agreements contained in this Agreement, the adequacy of which is

hereby acknowledged, and intending to be legally bound hereby, the parties

hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. When used in this Agreement, the following

terms shall have the respective meanings specified therefore below:

"Books and Records" shall mean, with regard to any Person, without

limitation, the originals or copies of any customer lists, lists of agents and

brokers, administrative and pricing manuals, records (including, without

limitation, claims records, sales records, underwriting records, financial

records, compliance records, customer complaint logs and other customers

complaint records, and tax records), corporate minute books and other materials

relating, directly or indirectly, to the businesses of such Person and its

Subsidiaries, whether or not in the possession of such Person, its Subsidiaries

or its affiliates or their respective Representatives or stored in hardcopy form

or on magnetic, optical or other media.

"Code" means the Internal Revenue Code of 1986, as amended, and the

rules and regulations promulgated thereunder.

"Company Balance Sheet" means the audited consolidated balance sheet

of the Company as of December 31, 2003 set forth in the Annual Report on Form

10-K filed by the Company with the SEC on March 11, 2004.

"Company Permits" means all Permits required for any business

operated or services furnished by the Company or its Subsidiaries, including

Insurance Permits.

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"Contract" means, with respect to any Person, any agreement,

arrangement, undertaking, contract, commitment, obligation, promise, indenture,

deed of trust or other instrument or agreement (whether written or oral and

whether express or implied) by which that Person is bound or subject.

"Environmental Laws" means federal, state, local and foreign

statutes, Laws, judicial decisions, regulations, ordinances, rules, judgments,

orders, codes, injunctions, permits and governmental agreements relating to the

environment, or the protection of human health as it relates to the environment

including, but not limited to, those relating to the management or Release of

Hazardous Materials.

"Exchange Act" means the Securities Exchange Act of 1934, as

amended, and the rules and regulations promulgated thereunder.

"Governmental Authority" means any nation or government, any state

or other political subdivision thereof, including any domestic (federal, state

or local), foreign or supranational governmental or regulatory authority,

agency, department, board, commission, administration or instrumentality, any

court, tribunal or arbitrator or any self-regulatory organization (including but

not limited to state departments or divisions of insurance).

"Hazardous Material" means all substances or materials regulated as

hazardous, toxic, explosive, dangerous, flammable or radioactive under any

Environmental Law including (i) petroleum, asbestos or polychlorinated

biphenyls, and (ii) in the United States, all substances defined as Hazardous

Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous

Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5.

"Insurance Contract" means any of the insurance policies, Contracts

of insurance, policy endorsements, certificates of insurance and application

forms pertaining to the Insurance Products underwritten by the Company or any of

its Subsidiaries, but not including those insurance contracts listed in Section

1.1 of the Company Disclosure Letter.

"Insurance Permit" means any Company Permit in any jurisdiction to

issue, underwrite, assume, place or otherwise transact the business of

insurance.

"Insurance Products" means any of the insurance coverage

underwritten in whole or in part by the Company or any of its Subsidiaries.

"Insurance Subsidiaries" means Penn-America Insurance Company and

Penn-Star Insurance Company.

"Investment Assets" means, with respect to any Person, all bonds,

stocks, mortgage loans and other investments, together with all bonds, stocks,

mortgage loans and other investments that are carried on the Books and Records

of such Person and its Subsidiaries as of the most recent balance sheet of such

Person included in its SEC filings

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or that are acquired by such Person and its Subsidiaries between June 30, 2004

and the Closing Date.

"knowledge of the Company" means the actual knowledge, after

reasonable investigation and inquiry, of the officers of the Company listed on

Section 1.1 of the Company Disclosure Letter.

"knowledge of Parent" means the actual knowledge, after reasonable

investigation and inquiry, of the officers of Parent listed on Section 1.1 of

the Parent Disclosure Letter.

"Law" means any law (including common law), ordinance, writ,

directive, judgment, order, decree, injunction, statute, treaty, rule,

regulation, regulatory requirement or determination of (or an agreement with) a

Governmental Authority.

"Liability" means any debt, liability, commitment, claim or

obligation of any kind whatsoever, whether due or to become due, known or

unknown, accrued or fixed, or absolute or contingent.

"Lien" means any and all liens, charges, security interests,

options, claims, mortgages, pledges or restrictions on title or transfer of any

nature whatsoever.

"Material Adverse Effect" means, with respect to any Person, any

fact, event, circumstance, change, condition or effect that individually or

together with other facts, events, circumstances, changes, conditions or effects

has been or would reasonably be expected to be material and adverse to the

business, assets, properties, liabilities, financial condition or results of

operations of such Person and its Subsidiaries, taken as a whole; provided,

however, that (i) the following shall be deemed not to be a Material Adverse

Effect: a change or effect (A) resulting from changes or effects to the U.S. or

global economy in general, (B) resulting from changes or effects to the P&C

Business except to the extent of any disproportionate effect on such Person or

its Subsidiaries taken as a whole (relative to most participants in the P&C

Business), (C) with respect to the Company, resulting primarily from the

identities of the Buyer and its affiliates or statements or other actions by

them taken or made without the prior written consent of the Company, or (D)

resulting from changes in GAAP or SAP after the date hereof, and (ii) a decrease

in the trading or market prices of an entity's capital stock shall not be

considered, by itself, to constitute a Material Adverse Effect (it being

understood that the foregoing shall not prevent any party from asserting that

any fact, event, circumstance, change, condition or effect that may have

contributed to such reduction independently constitutes a Material Adverse

Effect).

"P&C Business" means the business of writing in the United States

excess and surplus primary property and casualty insurance through general

agents.

"Permits" means any licenses, franchises, permits, certificates,

approvals, accreditations or other similar authorizations from any Governmental

Authority.

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"Permitted Liens" means, collectively, (i) Liens for Taxes not yet

payable or the validity of which are being contested in good faith by

appropriate proceedings and for which adequate reserves are reflected in the

Company SEC Reports, (ii) mechanics', workmen's, repairmen's, warehousemen's,

landlord's, carrier's, materialmen's or other like Liens, including all

statutory Liens arising or incurred in the ordinary course of business

consistent with past practice, which would not reasonably be expected to

materially interfere with the operation of the business of the Company or its

Subsidiaries, (iii) any minor imperfection of title or similar Lien which does

not and would not reasonably be expected to impair in any material respect the

operations of the business of the Company or its Subsidiaries, (iv) Liens to

secure capital lease obligations to the extent the incurrence of such

obligations does not violate this Agreement, (v) any Liens created to secure

purchase money indebtedness, (vi) any Liens incurred pursuant to equipment

leases in the ordinary course of business and (vii) Liens incurred pursuant to

actions of Parent or any of its Affiliates.

"Person" means and includes an individual, a partnership, a joint

venture, a corporation, a limited liability company, a trust, an association, an

unincorporated organization, a Governmental Authority and any other entity or

group (as defined in the Exchange Act).

"Qualifying Amendment" means an amendment or supplement to the Joint

Proxy Statement/Prospectus or Form S-4 (including by incorporation by reference)

to the extent it contains only (a) a Company Change in Recommendation, (b) a

statement of the reasons of the Board of Directors of the Company for making

such Company Change in Recommendation, and (c) additional information reasonably

related to the foregoing.

"Release" means any release, spill, emission, discharge, leaking,

pumping, injection, deposit, disposal, dispersal, leaching or migration into the

indoor or outdoor environment (including ambient air, surface water,

groundwater, and surface or subsurface strata) or into or out of any property.

"Representative" means, with respect to any Person, (a) its

Subsidiaries and affiliates, and (b) its, and its Subsidiaries' and affiliates'

respective officers, directors, employees, auditors, financial advisors,

attorneys, accountants, consultants, agents, advisors or representatives.

"SAP" means, with respect to any Person, the statutory accounting

principles and practices prescribed or permitted by the state or states in which

the relevant Person conducts business.

"SEC" means the United States Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended, and

the rules and regulations promulgated thereunder.

"Subsidiary" when used with respect to any Person means another

Person, an amount of the voting securities, other voting ownership or voting

partnership interests of which is sufficient to elect at least a majority of its

board of directors or similar

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governing body (or if there are no such voting interests, 50% or more of the

equity interest of which) is owned directly or indirectly by such first Person

or by another Subsidiary of such Person.

"Tax Return" means any return, report or similar statement

(including any attachment or supplements thereto) supplied to or required to be

supplied to any taxing authority, including, any information return, claim for

refund, amended return or declaration of estimated Tax.

"Tax" or "Taxes" means any and all federal, state, local, foreign or

other taxes of any kind (together with any and all interest, penalties,

additions to tax and additional amounts imposed with respect thereto) imposed by

any taxing authority, including, taxes, fees, duties, levies, customs, tariffs,

imposts, assessments, obligations or other similar charges of any kind on or

with respect to income, franchises, premiums, windfall or other profits, gross

receipts, property, sales, use, transfer, capital stock, payroll, employment,

social security, workers' compensation, unemployment compensation or net worth,

and taxes or other similar charges of any kind in the nature of excise,

withholding, ad valorem or value added.

"Third Party" means any Person (or group of Persons) other than

Parent and its Subsidiaries.

ARTICLE II

THE MERGER

Section 2.1 The Merger.

(a) As soon as reasonably practicable on the Closing Date, the

Company and Merger Subsidiary shall execute and file articles of merger with the

Secretary of State of the Commonwealth of Pennsylvania and make all other

filings or recordings required by the Business Corporation Law of the

Commonwealth of Pennsylvania (the "PBCL") to be made in connection with the

Merger. The Merger shall become effective at such time as articles of merger are

duly filed with the Secretary of State of the Commonwealth of Pennsylvania or,

if agreed to by the Company and Parent, at such later time as is specified in

the articles of merger (such time, the "Effective Time").

(b) Upon the terms and subject to the conditions set forth in this

Agreement, at the Effective Time, Merger Subsidiary shall be merged with and

into the Company in accordance with the requirements of the PBCL, whereupon the

separate existence of Merger Subsidiary shall cease. The Company shall be the

surviving corporation in the Merger (the "Surviving Corporation").

including, without limitation, the effects set forth in Section 1929 of the

PBCL. Without limiting the generality of the foregoing, and subject thereto,

from and after the Effective Time, the Surviving Corporation shall possess all

the rights, privileges, immunities, powers and

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purposes and assume and be liable for all the liabilities, obligations and

penalties of the Company and Merger Subsidiary.

(d) The closing of the transactions contemplated hereby (the

"Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher &

Flom LLP, Four Times Square, New York, NY 10036, at 10:00 a.m. local time, as

soon as reasonably practicable, but in any event within two (2) business days,

after the satisfaction or waiver of the conditions set forth in Article VII

(other than those conditions that are to be satisfied at the Closing) (the

actual time and date of the Closing being referred to herein as the "Closing

Date").

Section 2.2 Conversion of Shares.

(a) At the Effective Time, by virtue of the Merger and without any

action on the part of the holder thereof:

(i) each share of Company Common Stock held by the Company

as treasury stock or held by Parent or any of its Subsidiaries (other than

Buyer, UNIC, PIC and PIC's Subsidiaries) immediately prior to the

Effective Time shall be canceled, and no payment shall be made with

respect thereto; provided, that shares of Company Common Stock held by the

Company, Parent or any of their Subsidiaries in trust accounts, managed

accounts, investment accounts and the like shall not be cancelled and

shall be treated in accordance with Section 2.2(a)(iv);

(ii) each share of common stock, par value $0.01 per share,

of Merger Subsidiary ("Merger Subsidiary Common Stock") outstanding

immediately prior to the Effective Time shall be converted into and become

one share of common stock of the Surviving Corporation with the same

rights, powers and privileges as the share so converted and the shares so

converted, together with the shares remaining outstanding pursuant to

Section 2.2(a)(iii), shall constitute the only outstanding shares of

capital stock of the Surviving Corporation;

(iii) each share of Company Common Stock held by Buyer, UNIC,

PIC or any of PIC's Subsidiaries shall remain outstanding and shall be

unaffected by the Merger and shall represent shares of common stock of the

Surviving Corporation; provided, that shares of Company Common Stock held

by PIC or any of its Subsidiaries in trust accounts, managed accounts,

investment accounts and the like shall not remain outstanding and shall be

treated in accordance with Section 2.2(a)(iv); and

(iv) each share of Company Common Stock outstanding

immediately prior to the Effective Time shall, except as otherwise

provided in Sections 2.2(a)(i) and 2.2(a)(iii), be converted into the

right to receive (A) an amount of Class A common shares, $0.0001 par value

per share, of Parent ("Parent Class A Common Shares") equal to the

Exchange Ratio (the "Per Share Stock Amount") and (B) an amount in cash

equal to $1.50 (the "Per Share Cash

<PAGE>

Amount"), issuable and payable, without interest, upon surrender of the

certificate that formerly evidenced such share of Company Common Stock (a

"Certificate") in the manner provided in Section 2.3. For the purposes of

this Agreement, the "Exchange Ratio" shall be equal to the result obtained

by dividing $13.875 by the Average Sales Price. For the purposes of this

Agreement, the "Average Sales Price" shall be the volume weighted average

sales price of a Parent Class A Common Share, as reported on the Nasdaq

Stock Market by The Wall Street Journal (or in the absence thereof, by

another authoritative source) during the twenty (20) consecutive trading

days ending on and including the trading day immediately preceding the

date of the Effective Time (the "Measurement Period")). For the purposes

of this Agreement, the "Merger Consideration" means the right to receive

the Per Share Stock Amount and the Per Share Cash Amount pursuant to the

Merger with respect to each share of Company Common Stock (together with

any cash in lieu of fractional shares as specified in Section 2.6 below).

(b) From and after the Effective Time, all shares of Company

Common Stock canceled pursuant to Section 2.2(a)(i) and all shares of Company

Common Stock converted in accordance with Section 2.2(a)(iv) shall no longer be

outstanding and shall automatically be canceled and retired and shall cease to

exist, and each holder of a Certificate shall cease to have any rights with

respect thereto, except, in the case of shares of Company Common Stock canceled

pursuant to Section 2.2(a)(iv), the right to receive the Merger Consideration to

which such holder is entitled and any dividends payable pursuant to Section

2.3(f) with respect to the shares of Company Common Stock represented by the

Certificate(s) surrendered by such holder pursuant to Section 2.3(b). From and

after the Effective Time, all certificates representing Merger Subsidiary Common

Stock shall be deemed for all purposes to represent only the number of shares of

common stock of the Surviving Corporation into which they were converted in

accordance with Section 2.2(a)(ii).

Section 2.3 Surrender and Payment.

(a) Prior to the Effective Time, Buyer shall appoint an exchange

agent (the "Exchange Agent") for the purpose of exchanging Certificates for the

Merger Consideration. At or promptly following the Effective Time, Buyer shall

deposit, or cause to be deposited, with the Exchange Agent (i) certificates

representing the Parent Class A Common Shares issuable pursuant to Section

2.2(a)(iv), (ii) cash sufficient to make the cash payments payable pursuant to

Section 2.2(a)(iv), and (iii) from time to time as needed, cash sufficient to

pay cash in lieu of fractional shares to the extent required by Section 2.6.

Promptly after the Effective Time, Buyer will send, or cause the Exchange Agent

to send, to each holder of record of shares of Company Common Stock as of the

Effective Time, a letter of transmittal for use in such exchange (which shall

specify that the delivery shall be effected, and risk of loss and title shall

pass, only upon proper delivery of the Certificates to the Exchange Agent),

which letter shall be in such form as the Company and Buyer may reasonably agree

to use in effecting delivery of shares of Company Common Stock to the Exchange

Agent.

<PAGE>

(b) Each holder of shares of Company Common Stock that have been

converted into the right to receive the Merger Consideration as provided herein

will be entitled to receive the Merger Consideration in respect of the shares of

Company Common Stock represented by such Certificate only upon surrender to the

Exchange Agent of such Certificate, together with a properly completed letter of

transmittal. Until so surrendered, each such Certificate so converted shall,

after the Effective Time, represent for all purposes only the right to receive

such Merger Consideration. No interest will be paid or accrued on any cash

payable as part of the Merger Consideration or in lieu of fractional shares

pursuant to Section 2.6.

in or paid to the name of a Person other than the Person in whose name the

applicable surrendered Certificate is registered, it shall be a condition to the

registration or payment of such Merger Consideration that (i) the surrendered

Certificate shall be properly endorsed or otherwise be in proper form for

transfer, and (ii) the Person requesting such registration or payment of the

Merger Consideration shall (A) pay to the Exchange Agent any transfer or other

Taxes required as a result of such registration or payment in the name of a

Person other than the registered holder of such Certificate, or (B) establish to

the satisfaction of Parent that such Tax either has been paid or is not payable.

(d) After the Effective Time, there shall be no further

registration of transfers of shares of capital stock of the Company on the stock

records of, or relating to, the Company. If, after the Effective Time,

Certificates are presented to the Exchange Agent, the Surviving Corporation or

Buyer, they shall be canceled and, if applicable, exchanged for the Merger

Consideration provided for, and in accordance with the procedures and

limitations set forth, in this Article II.

(e) Any portion of the Merger Consideration made available to the

Exchange Agent pursuant to Section 2.3(a) that remains unclaimed by the holders

of shares of Company Common Stock twelve (12) months after the Effective Time

shall be returned to Buyer and any such holder who has not exchanged such

holder's shares of Company Common Stock for the Merger Consideration in

accordance with this Section 2.3 prior to that time shall thereafter look only

to Buyer for delivery of the Merger Consideration in respect of such holder's

shares without any interest thereon. Notwithstanding the foregoing, Buyer shall

not be liable to any Person for any Merger Consideration delivered to a public

official pursuant to applicable abandoned property, escheat or similar Laws. If

any Certificate shall not have been surrendered immediately prior to such date

on which any Merger Consideration, any dividends or distributions payable to the

holder of such Certificate or any cash payable to the holder of such Certificate

pursuant to this Section 2.3 would otherwise escheat to or become the property

of any Governmental Authority, any such Merger Consideration, dividends or

distributions in respect of such Certificate or such cash shall, to the extent

permitted by applicable Law, become the property of the Surviving Corporation,

free and clear of all claims or interests of any Person previously entitled

thereto.

(f) No dividends or other distributions with respect to Parent

Class A Common Shares shall be paid to the holder of any unsurrendered

Certificates until such

<PAGE>

Certificates are surrendered as provided in this Section 2.3. Subject to the

effect of applicable Laws, following such surrender, there shall be paid,

without interest, to the record holder of the Parent Class A Common Shares

issued in exchange therefor (i) at the time of such surrender, all dividends and

other distributions payable in respect of such Parent Class A Common Shares with

a record date after the Effective Time and a payment date on or prior to the

date of such surrender and not previously paid, and (ii) at the appropriate

payment date, the dividends or other distributions payable with respect to such

Parent Class A Common Shares with a record date after the Effective Time but

with a payment date subsequent to such surrender. For purposes of dividends or

other distributions in respect of Parent Class A Common Shares, all Parent Class

A Common Shares to be issued pursuant to the Merger shall be entitled to

dividends pursuant to the immediately preceding sentence as if issued and

outstanding as of the Effective Time.

(g) The Exchange Agent shall invest any cash made available to the

Exchange Agent pursuant to Section 2.3(a) as directed by Buyer on a daily basis.

Any interest and other income resulting from such investments shall promptly be

paid to Buyer.

Section 2.4 Stock Options and Other Equity Awards.

(a) All options to acquire Company Common Stock (the "Company

Options") outstanding, whether or not exercisable and whether or not vested, at

the Effective Time under the Company's 1993 Stock Incentive Plan and the

Company's 2002 Stock Incentive Plan, each as amended (collectively, the "Company

Stock Option Plans"), shall remain outstanding following the Effective Time

notwithstanding anything to the contrary set forth in the Company Stock Option

Plans. At the Effective Time, all of the Company Options shall, by virtue of the

Merger and without any further action on the part of the Company or the holder

thereof, be assumed in full by Parent, and, solely to the extent provided for in

the applicable Company Stock Option Plan and/or the related Company Option

agreements, shall vest and become fully exercisable. Parent, Buyer and the

Company acknowledge that the Merger constitutes a "Change of Control" pursuant

to each of the Company Stock Option Plans. From and after the Effective Time,

all references to the Company in the Company Stock Option Plans and the

applicable stock option agreements issued thereunder shall be deemed to refer to

Parent, which shall have assumed the Company Stock Option Plans as of the

Effective Time by virtue of this Agreement and without any further action by

Parent. Each Company Option assumed by Parent (each, a "Substitute Option")

shall be converted automatically into options to purchase Parent Class A Common

Shares upon the same terms and conditions as are in effect immediately prior to

the Effective Time with respect to such Company Option, except that (A) each

such Substitute Option shall be exercisable for, and represent the right to

acquire, that whole number of Parent Class A Common Shares (rounded to the

nearest whole share) equal to the number of shares of Company Common Stock

subject to such Company Option multiplied by a fraction, the numerator of which

is 15.375 and the denominator of which is the Average Sales Price (without

reference to the dollar sign) (such fraction, the "Option Exchange Ratio") and

(B) the exercise price per Parent Class A Common Share under each Substitute

Option shall be an amount equal to the exercise price per share of Company

Common Stock subject to the related Company Option in

<PAGE>

effect immediately prior to the Effective Time divided by Option Exchange Ratio

(the exercise price per share, as so determined, being rounded to the nearest

full cent). Except as set forth above, such Substitute Option shall otherwise be

subject to the same terms and conditions as such Company Option. Section 2.4(a)

of the Company Disclosure Letter (as defined below) sets forth a list of all

Company Options as of the date hereof, including the name of the holder and date

of grant of each such Company Option, the number of shares of Company Common

Stock subject thereto and the exercise price thereof.

(b) As soon as practicable after the Effective Time, Parent shall

deliver, or cause to be delivered, to each holder of a Substitute Option an

appropriate notice setting forth such holder's rights pursuant thereto, and such

Substitute Option shall continue in effect on the same terms and conditions,

subject to the adjustments required by this Section 2.4 after giving effect to

the Merger. Parent shall comply with the terms of all such Substitute Options

and ensure that the conversion and assumption provided in this Section 2.4 with

respect to any Company Option that qualifies as an "incentive stock option" (as

defined in Section 422 of the Code) shall be effected in a manner consistent

with the requirements of Section 424(a) of the Code. The Company has heretofore

taken or shall take all actions with respect to the Company Stock Option Plans

and the Company Options that are necessary to implement the provisions of this

Section 2.4. Parent has heretofore taken or shall take all actions with respect

to the Company Stock Option Plans and the Company Options that are necessary to

implement the provisions of this Section 2.4, including, without limitation, all

corporate action necessary to reserve for issuance a sufficient number of Parent

Class A Common Shares for delivery upon exercise of Substitute Options pursuant

to the terms set forth in this Section 2.4. As soon as practicable, but in no

event later than ten (10) business days after the Effective Time, Parent shall

file an effective Registration Statement on Form S-8 (or any successor or other

appropriate forms) with respect to the Parent Class A Common Shares subject to

the Substitute Options and use its reasonable best efforts to maintain the

effectiveness of such registration statement or registration statements (and

maintain the current status of the prospectus or prospectuses associated

therewith) for so long as such Substitute Options remain outstanding.

Effective Time, each of Parent and the Company shall take all reasonable and

customary actions requested by the Company to seek that, with respect to each

member of the Board of Directors of the Company and each employee of the Company

(including each such person who will become a director or officer of Parent) who

is subject to Section 16 of the Exchange Act, the acquisition by such person of

Parent Class A Common Shares or Substitute Options pursuant to the transactions

contemplated by this Agreement and the disposition by any such person of Company

Common Stock or Company Options pursuant to the transactions contemplated by

this Agreement be exempt from the short-swing profit liability rules of Section

16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder. Such

requested actions shall be consistent with all current applicable interpretation

and guidance of the SEC, including, but not limited to, the No-Action Letter

dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate,

<PAGE>

Meagher & Flom LLP. The parties acknowledge that all such above referenced

dispositions and acquisitions are compensatory in nature.

Section 2.5 Adjustments. If, at any time during the period between

the date of this Agreement and the Effective Time, any change in the outstanding

shares of capital stock of Parent or the Company shall occur by reason of any

reclassification, recapitalization, stock split or combination, exchange or

readjustment of shares, or any similar transaction, or any stock dividend

thereon with a record date during such period, the Merger Consideration shall be

appropriately adjusted to provide the holders of shares of Company Common Stock

or Company Options the same economic effect, in the aggregate, as contemplated

by this Agreement prior to such event.

Section 2.6 Fractional Shares.

(a) No fractional Parent Class A Common Shares shall be issued in

connection with the Merger and no dividend or distribution with respect to

Parent Class A Common Shares shall be payable on or with respect to any

fractional share, and such fractional share interests shall not entitle the

owner thereof to any rights as a shareholder of Parent.

(b) Buyer shall pay to the Exchange Agent an amount in cash

sufficient for the Exchange Agent to pay each holder of Company Common Stock an

amount in cash equal to the product of (A) the fractional share interest of a

Parent Class A Common Share to which such holder otherwise would be entitled

(after taking into account all shares of Company Common Stock held at the

Effective Time by such holder) multiplied by (B) the Average Sales Price.

of cash, if any, to be paid to holders of Company Common Stock with respect to

any fractional share interests, the Exchange Agent shall promptly request such

amount from Parent and promptly upon receipt thereof pay such amounts to such

holders of Company Common Stock.

Section 2.7 Withholding Rights. Each of the Surviving Corporation,

Parent, Buyer and Exchange Agent shall be entitled to deduct and withhold from

the consideration otherwise payable to any Person pursuant to this Article II

such amounts as it is required to deduct and withhold with respect to the making

of such payment under any provision of federal, state, local or foreign Tax Law

including any withholding from any payment that is treated as wages or

compensation for the performance of services. To the extent that amounts are so

withheld, such withheld amounts shall be treated for all purposes of this

Agreement as having been paid to the Person in respect of which such deduction

and withholding was made.

Section 2.8 Lost Certificates. If any Certificate shall have been

lost, stolen or destroyed, upon the making of an affidavit of that fact by the

Person claiming the Certificate to be lost, stolen or destroyed and, if required

by Parent or the Surviving Corporation, the posting by that Person of a bond, in

such reasonable amount as Parent or

<PAGE>

the Surviving Corporation may direct, as indemnity against any claim that may be

made against it with respect to such Certificate, the Exchange Agent shall issue

in exchange for such lost, stolen or destroyed Certificate the Merger

Consideration to be paid in respect of the shares represented by such

Certificate as contemplated by this Article II.

ARTICLE III

CERTAIN GOVERNANCE MATTERS

Section 3.1 Articles of Incorporation of the Surviving Corporation.

The articles of incorporation of the Company in effect immediately prior to the

Effective Time shall become the articles of incorporation of the Surviving

Corporation (until amended in accordance with applicable Law).

Section 3.2 Bylaws of the Surviving Corporation. The bylaws of the

Company in effect immediately prior to the Effective Time shall become the

bylaws of the Surviving Corporation (until amended in accordance with applicable

Law).

Section 3.3 Directors and Officers of the Surviving Corporation.

From and after the Effective Time, until successors are duly elected or

appointed and qualified in accordance with the bylaws and applicable Law, (a)

the directors of Merger Subsidiary immediately prior to the Effective Time shall

become the directors of the Surviving Corporation, and (b) the officers of the

Company immediately prior to the Effective Time shall be the officers of the

Surviving Corporation.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as expressly disclosed in the most recent Annual Report on

Form 10-K and Quarterly Reports on Form 10-Q since such Annual Report on Form

10-K (including, in each case, to the extent included in any document filed or

incorporated by reference as an exhibit thereto), in each case included in the

Company SEC Documents filed and publicly available prior to the date hereof (it

being understood that express disclosure requires specific disclosure of the

individual matter or item in question and is not satisfied by any form of

generalized, boiler-plate or other generic disclosure) and except as set forth

in the disclosure letter delivered by the Company to Parent simultaneously with

the execution of this Agreement (the "Company Disclosure Letter"), the Company

represents and warrants to Parent, Buyer and Merger Subsidiary as follows:

Section 4.1 Organization and Qualification. Each of the Company and

its Subsidiaries is duly organized, validly existing and in good standing under

the Laws of its jurisdiction of incorporation or organization. Each of the

Company and its Subsidiaries has the requisite power and authority and any

necessary Company Permit to own, operate and lease the properties that it

purports to own, operate or lease and to carry on its business as it is now

being conducted, and is duly qualified as a foreign entity to do business, and

is in good standing in each jurisdiction where the character of its properties

<PAGE>

owned, operated or leased or the nature of its activities makes such

qualification necessary, except for such failures to be so qualified and in good

standing that have not had, and would not reasonably be expected to, have,

individually or in the aggregate, a Material Adverse Effect on the Company.

Section 4.1 of the Company Disclosure Letter sets forth a complete list of the

Company's Subsidiaries and for each such Subsidiary indicates its ownership and

the jurisdictions in which it is organized and qualified to do business as a

foreign corporation. Except for the Subsidiaries set forth in Section 4.1 of the

Company Disclosure Letter, neither the Company nor any of its Subsidiaries is

the record or beneficial owner, directly or indirectly, of any capital stock or

other equity ownership interest of any kind whatsoever in any other Person.

Section 4.2 Capitalization.

(a) The authorized capital stock of the Company consists of (i)

30,000,000 shares of Company Common Stock, of which, as of October 8, 2004,

14,778,504 shares (including shares of restricted stock) were issued and

outstanding, and (ii) 2,000,000 shares of preferred stock, par value $0.01 per

share, none of which, as of October 8, 2004, are issued and outstanding. As of

October 8, 2004, there were no shares of Company Common Stock held in treasury.

As of October 8, 2004, (I) Company Options to purchase in the aggregate 624,548

shares of Company Common Stock are outstanding, all of which were granted under

Company Stock Option Plans, and (II) there are 20,000 shares of restricted stock

granted pursuant to Company Stock Option Plans. All the outstanding shares of

the Company's capital stock are, and all shares that may be issued pursuant to

the exercise of outstanding Company Options or pursuant to the Company Stock

Option Plans will be when issued in accordance with the respective terms

thereof, duly authorized, validly issued, fully paid and non-assessable. There

are no bonds, debentures, notes or other indebtedness having voting rights (or

convertible into securities having such rights) ("Voting Debt") of the Company

or any of its Subsidiaries issued and outstanding. Except as set forth above or

in Section 4.2(a) of the Company Disclosure Letter and except for the

transactions provided for in this Agreement, as of the date hereof, (i) there

are no shares of capital stock of the Company authorized, issued or outstanding,

and (ii) there are no existing options, warrants, calls, pre-emptive rights,

subscriptions or other rights, convertible securities, agreements, arrangements

or commitments of any character, relating to the issued or unissued capital

stock of the Company or any of its Subsidiaries, obligating the Company or any

of its Subsidiaries to issue, transfer or sell or cause to be issued,

transferred or sold any shares of capital stock or Voting Debt of, or other

equity interest in, the Company or any of its Subsidiaries or securities

convertible into or exchangeable for such shares or equity interests or

obligations of the Company or any of its Subsidiaries to grant, extend or enter

into any such option, warrant, call, subscription or other right, convertible

security, agreement, arrangement or commitment. There are no outstanding

contractual obligations of the Company or any of its Subsidiaries to repurchase,

redeem or otherwise acquire any Company Common Stock or other capital stock of

the Company or any of its Subsidiaries or affiliates of the Company or to

provide funds to make any investment (in the form of a loan, capital

contribution or otherwise) in any of its Subsidiaries or any other entity nor

has the Company or any of its Subsidiaries granted or agreed to grant to any

Person any stock appreciation rights or similar equity-based rights. Except as

<PAGE>

permitted by this Agreement, following the Merger, neither the Company nor any

of its Subsidiaries will have any obligation to issue, transfer or sell any

shares of its capital stock pursuant to any employee benefit plan or otherwise.

(b) Except as set forth in Section 4.2(b) of the Company

Disclosure Letter, all of the outstanding capital stock of, or other ownership

interests in, each Subsidiary of the Company is, directly or indirectly, owned

by the Company, and all such capital stock has been validly issued and is fully

paid and nonassessable and owned by either the Company or one of its

Subsidiaries free and clear of all Liens (other than Permitted Liens) and free

of any other limitation or restriction (including any restriction on the right

to vote, sell or otherwise dispose of such capital stock or other ownership

interests) other than any restrictions imposed under applicable federal and

state securities Laws. There are no outstanding options, warrants or other

rights to acquire from the Company or any of its Subsidiaries, and no preemptive

or similar rights, subscriptions or other rights, or convertible or exchangeable

securities, agreements, arrangements or commitments of any character, relating

to the capital stock of any Subsidiary of the Company, obligating the Company or

any of its Subsidiaries to issue, transfer or sell, any capital stock, voting

securities or other ownership interests in, or any securities convertible into

or exchangeable for any capital stock, voting securities or ownership interests

in, any Subsidiary of the Company or obligating the Company or any Subsidiary of

the Company to grant, extend or enter into any such option, warrant,

subscription or other right, convertible or exchangeable security, agreement,

arrangement or commitment (each of the foregoing, a "Company Subsidiary

Convertible Security"). There are no outstanding obligations of the Company or

any of its Subsidiaries to repurchase, redeem or otherwise acquire from any

Person (other than the Company or a wholly-owned Subsidiary of the Company) any

outstanding shares of capital stock of any Subsidiary of the Company or any

Company Subsidiary Convertible Securities. No Subsidiary of the Company owns,

either directly or indirectly, any shares of capital stock of the Company.

Disclosure Letter, there are no voting trusts or other agreements or

understandings to which the Company or any of its Subsidiaries is a party with

respect to the voting of the capital stock of the Company or any of its

Subsidiaries. None of the Company or its Subsidiaries is required to redeem,

repurchase or otherwise acquire shares of capital stock of the Company, or any

of its Subsidiaries, respectively, as a result of the transactions contemplated

by this Agreement.

Section 4.3 Corporate Authorization; Enforceability; Board Action.

(a) The Company has the requisite corporate power and authority to

enter into this Agreement and to consummate the transactions contemplated hereby

(including the Merger). The execution and delivery of this Agreement and the

consummation of the transactions contemplated hereby have been duly authorized

by all necessary corporate action on the part of the Company and no other

corporate proceedings on the part of the Company are necessary to authorize the

execution and delivery of this Agreement or to consummate the Merger and the

other transactions contemplated hereby, subject in the case of the consummation

of the Merger to the

<PAGE>

affirmative vote of a majority of the votes cast by all shareholders of the

Company entitled to vote thereon in favor of the adoption of this Agreement in

accordance with the PBCL (the "Company Shareholder Approval"). This Agreement

has been duly executed and delivered by the Company and, assuming due

authorization, execution and delivery of this Agreement by the other parties

hereto, constitutes a valid and binding agreement of the Company enforceable

against the Company in accordance with its terms, except to the extent that such

enforcement may be subject to applicable bankruptcy, insolvency, reorganization,

fraudulent conveyance, moratorium or other similar Laws, now or hereafter in

effect, affecting creditors' rights generally, and to general equity principles.

(b) The Company Independent Committee, at a meeting duly called

and held on October 14, 2004, unanimously (i) determined that this Agreement and

the transactions contemplated hereby (including the Merger) are advisable and in

the best interests of the Company, and (ii) recommended that the Board of

Directors of the Company approve and adopt this Agreement, and, subject to

Section 6.6, recommended that the holders of Company Common Stock vote for

adoption of this Agreement.

called and held on October 14, 2004, (i) determined that this Agreement and the

transactions contemplated hereby (including the Merger) are advisable and in the

best interests of the Company, (ii) approved and adopted this Agreement, and

(iii) resolved, subject to Section 6.6, to recommend that the holders of Company

Common Stock vote for the adoption of this Agreement. The Company has furnished

to Parent a certified copy of the aforementioned resolutions of the Board of

Directors of the Company.

(d) No restrictive provision of any "fair price," "merger

moratorium," "control share acquisition" or other similar anti-takeover statute

or regulation (including the provisions of Subchapters E, F, G and H of Chapter

25 of the PBCL) applies to this Agreement, the Merger or the other transactions

contemplated hereby.

Section 4.4 Consents and Approvals; No Violations.

(a) The execution, delivery and performance by the Company of this

Agreement and the consummation by the Company and its Subsidiaries of the

transactions contemplated hereby (including the Merger) require no action by or

in respect of, or notice to or filing with, any Governmental Authority

(including with respect to any Subsidiary of the Company) other than (i) the

filing of articles of merger in connection with the Merger in accordance with

the PBCL, (ii) compliance with any applicable requirements of the

Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR

Act"), (iii) compliance with any applicable requirements of the Exchange Act and

the rules and regulations promulgated thereunder, (iv) compliance with any

applicable requirements of the Securities Act, (v) compliance with the rules and

regulations of the New York Stock Exchange ("NYSE"), (vi) those set forth in

Section 4.4(a) of the Company Disclosure Letter that are required under federal

and state Laws governing insurance and insurance companies, (vii) consents,

approvals, authorizations, declarations, filings and registrations required

solely by the nature of the business or ownership of Parent and Buyer, and

(viii) any other approvals the absence of which

<PAGE>

would not reasonably be expected to be, individually or in the aggregate,

material to the business of the Company or Parent after giving effect to the

consummation of the transactions contemplated hereby.

(b) Except as set forth in Section 4.4(b) of the Company

Disclosure Letter, neither the execution, delivery or performance by the Company

of this Agreement nor the consummation by the Company and its Subsidiaries of

the transactions contemplated hereby (including the Merger) nor compliance by

the Company with any of the provisions hereof will (i) conflict with or result

in any breach of any provisions of the articles of incorporation or bylaws of

the Company or the similar organizational and governing documents of any of its

Subsidiaries, (ii) assuming compliance with the matters referred to in Section

4.4(a), conflict with or result in any violation of any provision of any Law

binding upon or applicable to the Company or any of its Subsidiaries, (iii)

require the consent, approval or authorization of, or notice to or filing with,

any Third Party with respect to, result in any violation or breach of, or

constitute (with or without due notice or lapse of time or both) a default (or

give rise to any right of termination, cancellation, amendment, or acceleration

of any right or obligation of the Company or any of its Subsidiaries or to a

loss of any benefit to which the Company or any of its Subsidiaries is entitled)

under, any provision of any Contract by which any of the Company and its

Subsidiaries is bound or subject or any Company Permit, or (iv) result in the

creation or imposition of any Lien (other than Permitted Liens) on any asset of

the Company or any of its Subsidiaries, except in the case of (ii), (iii) and

(iv) for such conflicts, violations, breaches, defaults, rights or losses, or

the failure to obtain any such consents or approvals or to provide such notices

or make such filings, that would not reasonably be expected to have,

individually or in the aggregate, a Material Adverse Effect on the Company.

Section 4.5 SEC Filings and Financial Statements.

(a) The Company has filed with the SEC all forms, reports,

schedules, statements and other documents required to be filed or furnished by

it and its Subsidiaries since January 1, 2001 under the Exchange Act or the

Securities Act (as such documents have been amended since the time of their

filing prior to the date hereof, collectively, the "Company SEC Documents"). As

of their respective dates or, if amended prior to the date hereof, as of the

date of the last such amendment, the Company SEC Documents, including any

financial statements or schedules included therein (i) did not contain any

untrue statement of a material fact or omit 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, and (ii)

complied in all material respects with the applicable requirements of the

Exchange Act and the Securities Act, as the case may be, and the applicable

rules and regulations of the SEC thereunder. Each of the consolidated financial

statements included in the Company SEC Documents (the "Company Financial

Statements") has been prepared in accordance with United States generally

accepted accounting principles ("GAAP") applied on a consistent basis during the

periods involved (except as may be indicated in the notes thereto) and fairly

presents in all material respects, as applicable, the consolidated financial

position and the consolidated results of operations and cash flows (and changes

in financial position, if

<PAGE>

any) of the Company and its consolidated Subsidiaries as at the dates thereof or

for the periods presented therein (subject, in the case of any unaudited interim

financial statements, to normal year-end adjustments and for the absence of

footnotes).

(b) The audited balance sheets of the Company's Subsidiaries as of

December 31, 2003 and the related audited statements of income and cash flows

for each of the years ended December 31, 2003 and December 31, 2002, and the

unaudited interim balance sheet as of June 30, 2004 and the related unaudited

interim statements of income and cash flows for the six months ended June 30,

2004, and their respective annual statements for the fiscal years ended December

31, 2003 and December 31, 2002 filed with the insurance regulatory authorities

(or other comparable state regulatory agencies), copies of which have been

delivered to Parent prior to the date hereof present each such Subsidiary's

respective statutory financial conditions as of the dates thereof and their

respective results of operations and cash flows for the periods then ended in

conformity with SAP. The other information contained in such annual statements

presents the information required to be contained therein in conformity with SAP

consistently applied. The balance sheets of the Company's Subsidiaries in

respect of any period ending after June 30, 2004 but before the date of this

Agreement, and the related statements of income and cash flows, which have been

filed with insurance regulatory authorities (or other comparable state

regulatory agencies), copies of which have been delivered to Parent prior to the

date hereof, fairly present in all material respects each such Subsidiary's

respective statutory financial conditions as of the dates thereof and their

respective results of operations and cash flows for the periods then ended in

conformity with SAP consistently applied. The financial statements referred to

in this Section 4.5(b) are the "Company Statutory Financial Statements."

and procedures (as such term is defined in Rule 13a-15(e) under the Exchange

Act), as required by Rule 13a-15(a) under the Exchange Act. The Company is in

compliance in all material respects with the Sarbanes-Oxley Act of 2002 (the

"Sarbanes-Oxley Act"). The Company and each of its Subsidiaries maintains a

system of internal accounting controls sufficient to comply with all legal and

accounting requirements applicable to the Company and such Subsidiary and has

previously disclosed to Parent its work plan, budget and timetable for

compliance with the SEC rules promulgated under Section 404 of the

Sarbanes-Oxley Act. The Company has disclosed in the Company SEC Documents,

based on its most recent evaluation thereof, any significant deficiencies in its

internal accounting controls which would reasonably be expected to adversely

affect in any material respect the Company's ability to record, process,

summarize and report financial data.

(d) To the knowledge of the Company, neither the Company nor any

of its Subsidiaries nor any Representative of the Company or any of its

Subsidiaries has received or otherwise had or obtained knowledge of any material

complaint, allegation, assertion or claim, whether written or oral, regarding

the accounting or auditing practices, procedures, methodologies or methods of

the Company or any of its Subsidiaries or their respective internal accounting

controls, including any material complaint, allegation,

<PAGE>

assertion or claim that the Company or any of its Subsidiaries has engaged in

questionable accounting or auditing practices.

Section 4.6 Absence of Certain Changes. Except (x) as set forth in

Section 4.6 of the Company Disclosure Letter, (y) as disclosed in the Company

SEC Documents filed prior to the date hereof, or (z) for actions or inactions

after the date hereof in compliance with Section 6.1, (1) since December 31,

2003, the Company and its Subsidiaries have conducted their respective

businesses and operations consistent with past practice only in the ordinary and

usual course thereof and there has not occurred (i) any fact, event,

circumstance, change, condition or effect (including the incurrence of any

Liabilities of any nature, whether or not accrued, contingent or otherwise) that

has had, or would reasonably be expected to have, individually or in the

aggregate, a Material Adverse Effect on the Company, (ii) any declaration or

payment of any dividend or other distribution (whether in cash, stock or

property) with respect to the equity interests of the Company or of any of its

Subsidiaries other than regular quarterly cash dividends and dividends paid to

the Company or any of its wholly-owned Subsidiaries by a wholly-owned

Subsidiary, or (iii) any material change by the Company or any of its

Subsidiaries in accounting principles or methods other than those required by

Law, GAAP or SAP; and (2) since June 30, 2004, neither the Company nor any of

its Subsidiaries has taken any action or made any omission that, if taken or

made after the date of this Agreement, would be prohibited by Section 6.1

Section 4.7 Undisclosed Liabilities. Except for Liabilities (a) set

forth in Section 4.7 of the Company Disclosure Letter or reflected, disclosed or

reserved for in the Company Financial Statements (including the footnotes

thereto) included in the Company SEC Documents filed prior to the date of this

Agreement, (b) incurred (i) in the ordinary course of business and consistent

with past practice, (ii) pursuant to policies written by the Company's

Subsidiaries, or (iii) pursuant to this Agreement, or (c) which are not,

individually or in the aggregate, material to the Company and its Subsidiaries

taken as a whole, neither the Company nor any of its Subsidiaries has incurred

any Liabilities of any nature that would be required to be reflected or reserved

against on a consolidated balance sheet of the Company and its Subsidiaries

(including the notes thereto) prepared in accordance with GAAP as applied in

preparing the Company Balance Sheet or that have had or would reasonably be

expected to have, individually or in the aggregate, a Material Adverse Effect on

the Company.

Section 4.8 Litigation.

(a) As of the date hereof, (i) there is no litigation, suit,

action, claim, charge or other proceeding (each, an "Action") by or before any

Governmental Authority pending or, to the knowledge of the Company, threatened,

against, by or affecting the Company or any of its Subsidiaries (other than

insurance claims litigation in the ordinary course of business for which claims

reserves that are adequate in the aggregate have been established), except for

such Actions as have not and would not reasonably be expected to have,

individually or in the aggregate, a Material Adverse Effect on the Company, and

(ii) no investigation or inquiry by or before any Governmental Authority is

pending or, to

<PAGE>

the knowledge of the Company, threatened against the Company or any of its

Subsidiaries.

(b) Except as set forth in Section 4.8(b) of the Company

Disclosure Letter or in the Company SEC Documents filed prior to the date of

this Agreement, there are no judgments, injunctions, writs, orders or decrees

binding on the Company or any of its Subsidiaries that (i) have had, or would

reasonably be expected to have, individually or in the aggregate, a Material

Adverse Effect on the Company, or (ii) would be binding upon Parent or any of

its Subsidiaries (other than the Company and its Subsidiaries) following

consummation of the Merger.

Section 4.9 Compliance with Laws.

(a) Except as set forth in Section 4.9(a) of the Company

Disclosure Letter, the Company and each of its Subsidiaries are, and since

January 1, 2001 have been, in compliance in all material respects with all

applicable Laws.

(b) Except as set forth in Section 4.9(b) of the Company

Disclosure Letter , (i) all material Company Permits are valid and in full force

and effect, and (ii) the business of the Company and each of its Subsidiaries is

being conducted in compliance in all material respects with the terms of all

applicable Company Permits.

Disclosure Letter or as would not reasonably be expected to result in a Material

Adverse Effect on the Company, since January 1, 2001, (i) neither the Company

nor any of its Subsidiaries nor, to the knowledge of the Company, any Third

Party service provider acting on behalf of the Company, has received, nor

otherwise has any knowledge of, any written or oral notice from any Governmental

Authority that (x) alleges any noncompliance (or that the Company or any of its

Subsidiaries or any such Third Party service provider is under investigation or

the subject of an inquiry by any such Governmental Authority for such alleged

noncompliance) with any applicable Law, or (y) would reasonably be expected to

result in a fine or assessment, or a cease and desist order, or the suspension,

revocation or limitation or restriction of any Company Permit, and (ii) neither

the Company nor any of its Subsidiaries has entered into any agreement or

settlement with any Governmental Authority with respect to its non-compliance

with, or violation of, any applicable Law.

(d) Except as set forth in Section 4.9(d) of the Company

Disclosure Letter or as would not reasonably be expected to result in a Material

Adverse Effect on the Company, since January 1, 2001, the Company and each of

its Subsidiaries has timely filed all regulatory reports, schedules, statements,

documents, filings, submissions, forms, registrations and other documents,

together with any amendments required to be made with respect thereto, that was

required to be filed with any Governmental Authority (the "Company Business

Documents"), including state insurance regulatory authorities and any applicable

federal regulatory authorities, and have timely paid all fees due and payable in

connection therewith. All Company Business Documents were true, correct and

complete in all material respects when filed, complied in all material respects

with applicable Law in effect when filed, and no material deficiencies have been

asserted by

<PAGE>

any such Governmental Authority with respect to Company Business Documents that

have not been satisfied. There is no material unresolved violation or exception

by any such Governmental Authority with respect to any of the Company Business

Documents. The Company has delivered or made available to Parent a true and

complete copy of each material Company Business Document.

(e) Except as set forth in Section 4.9(e) of the Company

Disclosure Letter or as has not and would not reasonably be expected to have,

individually or in the aggregate, a Material Adverse Effect on the Company, all

premium rates, rating plans and policy terms established or used by the Company

or any of its Subsidiaries that are required to be filed with or approved by

Governmental Authorities have been so filed or approved, the premiums charged

conform to the premiums so filed or approved and comply in all material respects

with the insurance Laws applicable thereto, and to the Company's knowledge, no

such premiums are subject to any review or investigation by any insurance

regulatory authority.

Section 4.10 Reserves. All reserves ("Reserves") carried on the

Company Statutory Financial Statements (a) were determined, to the knowledge of

the Company, in all material respects in accordance with generally accepted

actuarial principles (except as set forth therein), consistently applied, (b)

comply in all material respects with the requirements of applicable Law and (c)

were made with the good faith intention and belief that they made reasonable

provision in the aggregate to cover the total amount of Liabilities under

outstanding policies and contracts of insurance of the Company and its

Subsidiaries as of the dates of such Company Statutory Financial Statements (it

being understood that no representation or warranty is made in this Agreement to

the effect that such Reserves were or will be in fact adequate to cover the

actual amount of such Liabilities that are eventually paid after the date

thereof).

Section 4.11 Actuarial Analyses. Section 4.11 of the Company

Disclosure Letter sets forth a list of all Third Party actuarial reports with

respect to the Company or any of its Subsidiaries relied upon by the Company or

any of its Subsidiaries or provided by the Company or any of its Subsidiaries to

any Governmental Authority since December 31, 2002, and all attachments,

addenda, supplements and modifications thereto (copies of which the Company has

made available to Parent) (the "Actuarial Analyses"). To the knowledge of the

Company, the information and data furnished by the Company or any of its

Subsidiaries to its independent actuaries in connection with the preparation of

the Actuarial Analyses were, at the time furnished, accurate in all material

respects for the periods covered in the Actuarial Analyses. Furthermore, to the

knowledge of the Company, each Actuarial Analysis was, at the relevant time of

preparation, prepared using appropriate modeling procedures accurately applied

and in conformity with generally accepted actuarial principles consistently

applied and was properly prepared in accordance with the assumptions stated

therein. To the knowledge of the Company, the assumptions used in making the

projections contained in the Actuarial Analyses were arrived at in good faith

and were reasonable when made.

Section 4.12 Investments. The Company has provided Parent with a

correct and complete list of all Investment Assets that are carried on the Books

and

<PAGE>

Records of the Company and its Subsidiaries as of June 30, 2004. Except as set

forth in Section 4.12 of the Company Disclosure Letter and except for Investment

Assets sold in the ordinary course of business consistent with past practice or

as contemplated by this Agreement, each of the Company and its Subsidiaries, as

applicable, has good and marketable title to all of the Investment Assets it

purports to own, free and clear of all Liens (other than Liens imposed by

securities Laws).

Section 4.13 Employee Benefit Plans.

(a) Section 4.13(a) of the Company Disclosure Letter sets forth a

true and complete list of each deferred compensation and each bonus or other

incentive compensation, stock purchase, stock option or other equity

compensation plan, program, agreement or arrangement, each severance or

termination pay, medical, surgical, hospitalization, life insurance or other

"welfare" plan, fund or program (within the meaning of Section 3(1) of the

Employee Retirement Income Security Act of 1974, as amended ("ERISA")); each

profit-sharing, stock bonus or other "pension" plan, fund or program (within the

meaning of Section 3(2) of ERISA); each employment, termination or severance

agreement; and each other employee benefit plan, fund, program, agreement or

arrangement, in each case, that is sponsored, maintained or contributed to or

required to be contributed to by the Company or by any trade or business,

whether or not incorporated (an "ERISA Affiliate"), that together with the

Company would be deemed a "single employer" within the meaning of Section

4001(b) of ERISA, or to which the Company or an ERISA Affiliate is party,

whether written or oral, for the benefit of any current or former employee,

consultant or director of the Company or any Subsidiary (the "Company Employee

Plans").

(b) With respect to each Company Employee Plan, the Company has

heretofore made available to Parent complete copies of the Company Employee Plan

and any amendments thereto (or if the Company Employee Plan is not a written

plan, a description thereof), any related trust or other funding vehicle, any

reports or summaries required under ERISA or the Code and the most recent

determination letter received from the Internal Revenue Service with respect to

each Company Employee Plan intended to qualify under Section 401 of the Code.

Except as set forth in Section 4.13(b) of the Company Disclosure Letter, since

December 31, 2003, there have not been any amendments, modifications,

terminations or any other changes to any Company Employee Plans as in effect on

such date.

reasonably be expected to have, individually or in the aggregate, result in a

Material Adverse Effect on the Company:

(i) No liability under Title IV or Section 302 of ERISA has

been incurred by the Company or any ERISA Affiliate that has not been

satisfied in full, no condition exists that presents a risk to the Company

or any ERISA Affiliate of incurring any such liability, and neither the

Company nor any ERISA Affiliates made, or was required to make,

contributions to any plan subject to

<PAGE>

Title IV of ERISA during the six (6) year period ending on the last day of

the most recent fiscal year ended prior to the Closing Date for any such

plan.

(ii) Each Company Employee Plan has been operated and

administered in accordance with its terms and applicable Law, including

ERISA and the Code.

(d) Each Company Employee Plan intended to be "qualified" within

the meaning of Section 401(a) of the Code is so qualified and the trusts

maintained thereunder are exempt from taxation under Section 501(a) of the Code.

(e) Except as set forth in Section 4.13(e) of the Company

Disclosures Letter, no Company Employee Plan provides medical, surgical,

hospitalization, death or similar benefits (whether or not insured) for periods

extending beyond retirement or other termination of service, other than (i)

coverage mandated by applicable Law, (ii) death benefits under any "pension

plan," or (iii) benefits the full cost of which is borne by the current or

former participant (or his beneficiary).

(f) Except as set forth in Section 4.13(f) of the Company

Disclosure Letter (which sets forth a list and quantification of all such

payments, benefits, accelerations or increases under Company Employee Plans),

the consummation of the transactions contemplated by this Agreement will not,

either alone or in combination with another event, (i) entitle any current or

former employee, officer, director or consultant of the Company or any ERISA

Affiliate to severance pay, unemployment compensation or any other payment or

benefit, or (ii) accelerate the time of payment or vesting, or increase the

amount of compensation or benefits due any such employee or officer. No amounts

payable under the Company Employee Plans will fail to be deductible for federal

income tax purposes by virtue of Section 280G of the Code.

(g) There are no pending, nor to the knowledge of the Company,

threatened or anticipated claims by or on behalf of any Company Employee Pl

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