• With respect <strong>to</strong> agents, Griffin noted that Nationwide Mutual was an A+ rated companyby A.M. Best, with a more extensive product suite than Harleysville, that should benefitHarleysville’s agents and insureds.In addition, Griffin discussed with Harleysville Mutual’s board of direc<strong>to</strong>rs various alternativetransactions, including <strong>the</strong> advantages and disadvantages of each. In particular, Griffin comp<strong>are</strong>d <strong>the</strong>content of <strong>the</strong> preliminary indication of interest submitted by Company B’s Chief Executive Officer <strong>to</strong>Harleysville on September 1, 2011, <strong>to</strong> <strong>the</strong> fully negotiated Nationwide Mutual transaction. Griffin notedthat <strong>the</strong> Company B preliminary indication of interest was provided at a time when, because of <strong>the</strong>exclusivity agreement restrictions, it could not be explored by Harleysville, was not binding on ei<strong>the</strong>rCompany B or Harleysville, would have been subject <strong>to</strong> extensive due diligence and negotiation ifpursued and, because of <strong>the</strong> corporate structure of Company B, would have been more complex andmore subject <strong>to</strong> risk of failure <strong>to</strong> close. Griffin also <strong>to</strong>ok note of <strong>the</strong> information provided <strong>to</strong>Harleysville Mutual’s board of direc<strong>to</strong>rs by Credit Suisse and Michael L. Browne with respect <strong>to</strong> <strong>the</strong>likely employee and location reductions that would occur in a transaction with Company B, asdescribed above.Following <strong>the</strong> Griffin presentation, Harleysville Mutual’s board of direc<strong>to</strong>rs next received apresentation from Stevens & Lee with respect <strong>to</strong> direc<strong>to</strong>rs’ fiduciary duties under Pennsylvania law.Stevens & Lee noted that, under Pennsylvania law, a direc<strong>to</strong>r’s duty is <strong>to</strong> <strong>the</strong> corporation only, and not<strong>to</strong> any particular constituency of <strong>the</strong> corporation, including policyholders. Stevens & Lee noted that <strong>the</strong>interests of Harleysville Mutual’s various constituencies may be considered but that <strong>the</strong>re was no duty<strong>to</strong> prioritize <strong>the</strong> interest of any specific constituency. Stevens & Lee indicated that it was prep<strong>are</strong>d <strong>to</strong>render an opinion <strong>to</strong> <strong>the</strong> foregoing effect when requested.Following <strong>the</strong> fiduciary duty presentation, Stevens & Lee also made a presentation with respect <strong>to</strong><strong>the</strong> due diligence performed on Nationwide Mutual. The firm advised Harleysville Mutual’s board ofdirec<strong>to</strong>rs that nothing came <strong>to</strong> its attention <strong>to</strong> suggest any concern regarding Nationwide Mutual.On September 28, 2011, <strong>the</strong> Special Transaction Committee of <strong>the</strong> Company’s board of direc<strong>to</strong>rsmet <strong>to</strong> review <strong>the</strong> final terms of <strong>the</strong> draft merger agreement. Also in <strong>attend</strong>ance were representativesof Credit Suisse, Fox Rothschild LLP, and KBW. In addition <strong>to</strong> <strong>the</strong> $60 price per sh<strong>are</strong> <strong>to</strong> be paid <strong>to</strong><strong>the</strong> Company’s public s<strong>to</strong>ckholders, <strong>the</strong> Special Transaction Committee members also discussed certainof <strong>the</strong> key provisions of <strong>the</strong> draft merger agreement, including covenants relating <strong>to</strong> retention ofemployees and maintenance of <strong>the</strong> Harleysville presence in Pennsylvania and commitment <strong>to</strong> <strong>the</strong>Harleysville community. The Special Transaction Committee also considered <strong>the</strong> proposed retentionpackages for executives. Representatives of KBW confirmed that KBW was prep<strong>are</strong>d <strong>to</strong> provide afairness opinion on <strong>the</strong> Merger. After fur<strong>the</strong>r discussion, <strong>the</strong> Special Transaction Committeedetermined <strong>to</strong> make a favorable recommendation <strong>to</strong> <strong>the</strong> Company’s full board of direc<strong>to</strong>rs with respect<strong>to</strong> <strong>the</strong> Merger.Also on September 28, 2011, <strong>the</strong> Special Committee of Harleysville Mutual’s board of direc<strong>to</strong>rsmet <strong>to</strong> review <strong>the</strong> final terms of <strong>the</strong> draft merger agreement. Also in <strong>attend</strong>ance were representativesof Credit Suisse, Ballard Spahr LLP, Stevens & Lee, and Griffin. The Special Committee membersdiscussed certain of <strong>the</strong> key provisions of <strong>the</strong> draft merger agreement, including <strong>the</strong> covenants relating<strong>to</strong> retention of employees and maintenance of <strong>the</strong> Harleysville presence in Pennsylvania and <strong>the</strong>commitment <strong>to</strong> <strong>the</strong> Harleysville community. The Special Committee also considered <strong>the</strong> proposedretention packages for executives. Representatives of Griffin confirmed that Griffin was prep<strong>are</strong>d <strong>to</strong>provide a fairness opinion on <strong>the</strong> P<strong>are</strong>nt Merger and representatives of Stevens & Lee indicated that<strong>the</strong>y were prep<strong>are</strong>d <strong>to</strong> provide an opinion that Harleysville Mutual’s board of direc<strong>to</strong>rs would havedischarged its fiduciary duties <strong>to</strong> Harleysville Mutual if it approved <strong>the</strong> P<strong>are</strong>nt Merger. After fur<strong>the</strong>rdiscussion, <strong>the</strong> Special Committee determined <strong>to</strong> make a favorable recommendation <strong>to</strong> HarleysvilleMutual’s full board of direc<strong>to</strong>rs with respect <strong>to</strong> <strong>the</strong> P<strong>are</strong>nt Merger.38
In addition, on September 28, 2011, <strong>the</strong> Boards met jointly for <strong>the</strong> purpose of considering <strong>the</strong> draftmerger agreement and <strong>the</strong> draft voting agreement with Nationwide Mutual. In addition <strong>to</strong> <strong>the</strong> membersof <strong>the</strong> Boards and senior management, in <strong>attend</strong>ance were representatives of Credit Suisse, Griffin,KBW, Ballard Spahr LLP, Fox Rothschild LLP, and Stevens & Lee.Credit Suisse described <strong>the</strong> dividend restriction covenant in <strong>the</strong> draft merger agreement, whichpermits <strong>the</strong> payment of a dividend for <strong>the</strong> third quarter, but provided that no fur<strong>the</strong>r dividends wouldbe payable without <strong>the</strong> consent of Nationwide Mutual. Fox Rothschild LLP and Ballard Spahr LLPhighlighted some of <strong>the</strong> changes <strong>to</strong> <strong>the</strong> draft merger agreement since <strong>the</strong> last discussion with <strong>the</strong>Boards, including in respect of Nationwide Mutual’s post-closing commitments.Mr. Browne reminded <strong>the</strong> Boards of his interest in <strong>the</strong> P<strong>are</strong>nt Merger and <strong>the</strong> Merger by virtue ofhis anticipated retention agreement with Nationwide Mutual. The Boards were also aw<strong>are</strong> of <strong>the</strong>interests of <strong>the</strong> o<strong>the</strong>r direc<strong>to</strong>rs and executive officers in <strong>the</strong> Mergers.The Company’s board of direc<strong>to</strong>rs <strong>the</strong>n commenced its <strong>meeting</strong>. KBW delivered its opinion <strong>to</strong> <strong>the</strong>Company’s board of direc<strong>to</strong>rs that <strong>the</strong> consideration <strong>to</strong> be received in <strong>the</strong> Merger was fair, from afinancial point of view, <strong>to</strong> <strong>the</strong> public s<strong>to</strong>ckholders of <strong>the</strong> Company (o<strong>the</strong>r than Harleysville Mutual orits successors).The Special Transaction Committee of <strong>the</strong> Company’s board of direc<strong>to</strong>rs recommended <strong>to</strong> <strong>the</strong>Company’s board of direc<strong>to</strong>rs that it approve <strong>the</strong> Merger. Following discussion, <strong>the</strong> Company’s board ofdirec<strong>to</strong>rs approved (with Mr. Browne abstaining) <strong>the</strong> Merger, including approving and adopting <strong>the</strong>merger agreement and approval of <strong>the</strong> voting agreement, and resolved <strong>to</strong> recommend <strong>to</strong> itss<strong>to</strong>ckholders that <strong>the</strong>y vote <strong>the</strong>ir sh<strong>are</strong>s of <strong>the</strong> Company in favor of <strong>the</strong> adoption of <strong>the</strong> mergeragreement.Harleysville Mutual’s board of direc<strong>to</strong>rs <strong>the</strong>n commenced a <strong>meeting</strong>. Griffin delivered its fairnessopinion, and Stevens & Lee delivered its legal opinion regarding <strong>the</strong> discharge of fiduciary duties ofHarleysville Mutual’s board of direc<strong>to</strong>rs, both <strong>to</strong> Harleysville Mutual’s board of direc<strong>to</strong>rs. BallardSpahr LLP indicated that it concurred with <strong>the</strong> Stevens & Lee opinion with respect <strong>to</strong> fiduciary duties.Credit Suisse was not requested <strong>to</strong> and did not render a fairness opinion <strong>to</strong> ei<strong>the</strong>r <strong>the</strong> Company orHarleysville Mutual.The Special Committee of Harleysville Mutual’s board of direc<strong>to</strong>rs recommended <strong>to</strong> HarleysvilleMutual’s board of direc<strong>to</strong>rs that it approve <strong>the</strong> P<strong>are</strong>nt Merger. Following discussion, HarleysvilleMutual’s board of direc<strong>to</strong>rs approved (with Mr. Browne abstaining) <strong>the</strong> P<strong>are</strong>nt Merger, includingapproving and adopting <strong>the</strong> merger agreement and <strong>the</strong> voting agreement, and resolved <strong>to</strong> recommend<strong>to</strong> its policyholders that <strong>the</strong>y approve <strong>the</strong> P<strong>are</strong>nt Merger.On <strong>the</strong> evening of September 28, 2011, <strong>the</strong> parties executed <strong>the</strong> Merger Agreement and <strong>the</strong> VotingAgreement, and issued a joint press release on September 29, 2011.Reasons for <strong>the</strong> MergerThe board of direc<strong>to</strong>rs of each of <strong>the</strong> Company and Harleysville Mutual, referred <strong>to</strong> collectively inthis section as <strong>the</strong> Boards, held joint <strong>meeting</strong>s on September 27, 2011 and September 28, 2011, andalso met separately on September 27, 2011. At those <strong>meeting</strong>s, <strong>the</strong> Boards considered <strong>the</strong> terms of <strong>the</strong>Merger Agreement and <strong>the</strong> transactions contemplated <strong>the</strong>reby, including <strong>the</strong> Mergers. HarleysvilleMutual’s board of direc<strong>to</strong>rs also separately considered <strong>the</strong> requirements that would need <strong>to</strong> be met <strong>to</strong>obtain approval of <strong>the</strong> contemplated transactions by <strong>the</strong> Pennsylvania Insurance Department under <strong>the</strong>Pennsylvania Insurance Holding Companies Act, and determined that <strong>the</strong> proposed P<strong>are</strong>nt Merger isnot unfair or unreasonable <strong>to</strong> <strong>the</strong> policyholders of Harleysville Mutual, and did confer benefits <strong>to</strong> <strong>the</strong>policyholders of Harleysville Mutual. Following such determination, Harleysville Mutual’s board ofdirec<strong>to</strong>rs deemed it advisable and in <strong>the</strong> best interests of Harleysville Mutual <strong>to</strong> effect <strong>the</strong> P<strong>are</strong>nt39
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affecting investment assets of us o
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e made pursuant to existing contrac
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No Solicitations by the CompanyUnde
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defined in the Merger Agreement) to
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• between the date of the Merger
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Termination Fee if the Mergers Are
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MARKET PRICE OF THE SHARES OF THE C
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SHAREHOLDINGS OF DIRECTORS AND MANA
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If you have questions about the Spe
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TABLE OF CONTENTSARTICLE I DEFINITI
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Section 7.12 Retention of Executive
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membership interests, by contract,
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‘‘Delaware Certificate of Merge
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avoidance of doubt, Harleysville De
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‘‘IRCA’’ means the Immigrat
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‘‘Order’’ means an order, i
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corporation) of which is beneficial
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Nationwide Mutual and will have the
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Section 3.2 HGI Stock Options and R
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(e) Promptly following the date tha
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have been made available to Nationw
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execution and delivery of this Agre
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Person the right to enjoin or resci
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listing on any list maintained by a
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accordance with their terms. Harley
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facility or assigned risk pool. To
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Section 4.20 Intellectual Property.
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ARTICLE VREPRESENTATIONS AND WARRAN
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are set forth in Section 5.2(b) of
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development involving a prospective
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(b) Except as set forth in Section
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extent that it is a party thereto,
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Section 5.15 Cancellations. Except
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(d) Except as set forth in Section
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agreements, information on the basi
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Section 5.21 Rating Agencies. Excep
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Agreement, the Mergers, the Voting
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Agreement with and the approval of
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Producers wrote, sold or produced s
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(o) Brokers or Finders. No broker,
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ARTICLE VIICOVENANTSSection 7.1 Har
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(i) Except as set forth in Section
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(w) Neither of the Harleysville Par
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Notwithstanding anything to the con
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(c) the receipt by such Party of an
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of any nature whatsoever and, speci
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Section 8.2 Stockholder Meeting and
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Section 9.2 Conditions to Obligatio
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(c) by any of the Harleysville Part
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or related to the authorization, pr
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allow the other Parties a reasonabl
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IN WITNESS WHEREOF, Nationwide Mutu
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In connection with this opinion, we
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APPENDIX CGENERAL CORPORATION LAW O
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either notice that such notice has