OLD GUARD GROUP INC, S-1/A, 1996-12-23

OLD GUARD GROUP INC
S-1/A, 1996-12-23
FIRE, MARINE & CASUALTY INSURANCE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996
REGISTRATION NO. 333-12779
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
Amendment No. 3
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
OLD GUARD GROUP, INC.
(Exact name of registrant as specified in its charter)

<TABLE>

<S> <C> <C>
Pennsylvania 6331 23-2852984
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

------
<TABLE>
<CAPTION>

<S> <C>
2929 Lititz Pike David E. Hosler
Lancaster, Pennsylvania 17601 Chairman, President and Chief Executive Officer
(717) 569-5361 Old Guard Group, Inc.
(Address, including zip code, 2929 Lititz Pike
and telephone number, Lancaster, Pennsylvania 17601
including area code, of registrant's (717) 581-6700
principal executive offices) (Name, address, including zip code, and telephone number,
including area code, of agent for service)
</TABLE>
------

Copies to:
Jeffrey P. Waldron, Esquire John S. Chapman, Esquire
Stevens & Lee Richard A. Hemmings, Esquire
One Glenhardie Corporate Center Lord, Bissell & Brook
1275 Drummers Lane 115 South LaSalle Street
P.O. Box 236 Chicago, Illinois 60603
Wayne, Pennsylvania 19087 (312) 443-0700
(610) 293-4961
------

Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 of the Securities Act
of 1933, check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

<PAGE>

------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of each class of securities Amount to be offering price aggregate offering Amount of
to be registered registered per share price(1) registration fees
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 4,396,660
no par value per share ...... shares(2) $10.00 $43,966,000 $15,160.90
- --------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(d) and based on the maximum of the appraisal
valuation range of the Insurance Companies, as determined by an
independent appraiser, plus (i) 10% of such amount to reflect a possible
purchase by the registrant's employee stock ownership plan and (ii)
$1,500,000 which is equal to the outstanding principal balance of a
convertible surplus note to be converted into common stock.

(2) Represents maximum number of shares to be issued in the transactions
contemplated by this Registration Statement.

The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.

=============================================================================
<PAGE>

PROSPECTUS
[LOGO]
OLD GUARD GROUP, INC.
UP TO 3,860,600 SHARES OF COMMON STOCK

Old Guard Group, Inc. (the "Company"), a Pennsylvania corporation and the
proposed holding company for Old Guard Mutual Insurance Company ("Old Guard
Mutual"), Old Guard Mutual Fire Insurance Company ("Old Guard Fire") and
Goschenhoppen-Home Mutual Insurance Company ("Goschenhoppen" and collectively
with Old Guard Mutual and Old Guard Fire, the "Insurance Companies"), is
offering up to 3,860,600 shares, subject to adjustment, of its common stock,
no par value per share (the "Common Stock"), in a subscription offering (the
"Subscription Offering") pursuant to nontransferable subscription rights in
the following order of priority: (i) named insureds under policies of
insurance issued by the Insurance Companies and in force as of the close of
business on May 31, 1996 ("Eligible Policyholders"), (ii) a tax-qualified
employee stock ownership plan (the "ESOP"), and (iii) directors, officers and
employees of the Insurance Companies. Subscription rights received in any of
the foregoing categories will be subordinated to the subscription rights
received by those in a prior category. Subscription rights are not
transferable. Concurrently with the Subscription Offering, Common Stock will
be offered for sale to the general public in a community offering (the
"Community Offering"), giving preference to: (i) natural persons and trusts
of natural persons (including individual retirement and Keogh retirement
accounts) who reside in designated Pennsylvania counties, (ii) principals of
Eligible Policyholders in the case of an Eligible Policyholder that is not a
natural person, (iii) holders of policies of insurance originally issued
after May 31, 1996, (iv) licensed insurance agencies and their affiliates
that have been appointed by any of the Insurance Companies to market and
distribute policies of insurance, and (v) providers of goods or services to
any one or more of the Insurance Companies. Sales of Common Stock in the
Community Offering will be subject to the prior rights of holders of
subscription rights and the right of the Company, in its absolute discretion,
to reject orders in the Community Offering in whole or in part (the
Subscription Offering and the Community Offering shall be collectively
referred to herein as the "Offering").

It is anticipated that shares not subscribed for in the Offering, if any,
will be sold in a firm commitment underwritten public offering (the "Public
Offering") to be managed by Legg Mason Wood Walker, Incorporated ("Legg
Mason") and McDonald & Company Securities, Inc. ("McDonald") (collectively,
the "Underwriters"), or, if the number of remaining shares do not warrant a
public offering, in one or more other registered transactions. The offering
is being made in connection with the conversion of the Insurance Companies
from mutual to stock form and the simultaneous acquisition of the capital
stock of each of the Insurance Companies by the Company pursuant to a Joint
Plan of Conversion adopted by the Boards of Directors of the Insurance
Companies on May 31, 1996, as amended and restated on July 19, 1996 (the
"Plan"). The conversion of the Insurance Companies to stock form, the
issuance of capital stock of the Insurance Companies to the Company and the
offer and sale of the Common Stock by the Company are collectively referred
to herein as the "Conversion." The completion of the Conversion is contingent
upon the sale of a minimum of 2,853,500 shares of Common Stock in the
Offering and the Public Offering.

For more information, please call the Stock Information Center toll-free
at 1-888-262-7731.

Prospective investors should review and consider the discussion under
"Risk Factors" beginning on page 14.

THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE PENNSYLVANIA
DEPARTMENT OF INSURANCE, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, ANY
STATE SECURITIES COMMISSION OR THE PENNSYLVANIA DEPARTMENT OF INSURANCE
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Purchase Fees and Estimated Net
Price(1) Expenses(2) Proceeds(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share(4) ................ $10.00 $0.99 $9.01
- -------------------------------------------------------------------------------
Total Minimum ................ $28,535,000 $3,106,967 $25,428,033
- -------------------------------------------------------------------------------
Total Midpoint ............... $33,570,000 $3,328,759 $30,241,241
- -------------------------------------------------------------------------------
Total Maximum ................ $38,606,000 $3,550,594 $35,055,406
- -------------------------------------------------------------------------------
</TABLE>

<PAGE>

(1) The estimated aggregate purchase price of the Common Stock is based on an
independent appraisal by Berwind Financial Group, L.P. ("Berwind"), as of
August 19, 1996, of the pro forma market value of the Insurance
Companies, following the Conversion, as subsidiaries of the Company. As
of August 19, 1996, the estimated pro forma market value was $33,570,000,
which is the Total Midpoint in the above table. The resulting estimated
valuation range (the "Estimated Valuation Range") in Berwind's appraisal,
which extends 15% below and 15% above the appraisal of $33,570,000, is
from $28,535,000 (the "Total Minimum") to $38,606,000 (the "Total
Maximum"). Based on such appraisal, the Company has determined to offer
up to 3,860,600 shares, subject to adjustment, at a purchase price of
$10.00 per share (or, as permitted by the Plan, in the event the ESOP
purchases shares in excess of the maximum of the Estimated Valuation
Range in order to satisfy its 10% subscription, up to 4,246,660 shares).
The final appraised value will be determined at the time of closing of
the offering and is subject to change due to changing market conditions
and other factors. If a change in the final valuation is outside the
estimated valuation range, an appropriate adjustment will be made in the
number of shares being offered and subscribers will be resolicited. Such
upward or downward adjustment will have a corresponding effect on the
estimated net proceeds of the Conversion and the pro forma capitalization
and per share data of the Company. See "Use of Proceeds,"
"Capitalization" and "Pro Forma Data."

(2) Includes estimated registration fees, printing, postage, legal,
accounting, appraisal and miscellaneous expenses that will be incurred in
connection with the Conversion. Also includes estimated fees, sales
commissions and reimbursable expenses to be paid to Hopper Soliday & Co.,
Inc. ("Hopper Soliday") as manager of the Subscription Offering and
Community Offering and Legg Mason and McDonald as co-managers of the
Public Offering. For Hopper Soliday's services in the Offering, the
Company has paid Hopper Soliday a financial advisory fee equal to
$50,000. Upon completion of the Offering, Hopper Soliday will also
receive an advisory and administrative fee equal to 3% of the dollar
value of all stock sold in the Offering, except for sales to the ESOP,
shares sold to directors, officers and employees of the Company and the
Insurance Companies and the associates of such directors, officers and
employees, and certain designated providers of goods and services. Hopper
Soliday shall be reimbursed for its expenses, including its legal fees,
up to $40,000. For purposes of this estimate, the Company has assumed
that 50% of the shares offered hereby will be sold in the Subscription
and Community Offerings and 50% will be sold in the Public Offering. The
actual fees and expenses may vary from the estimates. See "Use of
Proceeds" and "Pro Forma Data" for the assumptions used to arrive at
these estimates. The Company and the Insurance Companies have agreed to
indemnify Hopper Soliday, Legg Mason and McDonald against certain
liabilities, including liabilities under the Securities Act of 1933. See
"The Conversion -- Marketing and Underwriting Arrangements for the
Offering" and "-- The Public Offering."

(3) Includes the expected purchase by the ESOP of 10% of the shares issued in
the Conversion with the proceeds of a loan. In accordance with generally
accepted accounting principles, the Company will report the loan to the
ESOP as a liability on the Company's combined balance sheet with a
corresponding charge to unearned ESOP compensation, a contra-equity
account. See "Use of Proceeds," for estimated net proceeds less the ESOP
debt. Does not reflect the conversion of an existing $1,500,000 surplus
note obligation of Old Guard Mutual into 150,000 shares of Common Stock.
See "Capitalization," "Pro Forma Data" and "The Conversion -- Surplus
Note."

(4) Based on the midpoint of the estimated valuation range. The estimated net
proceeds per share at the minimum and maximum are expected to be $8.91
and $9.08, respectively.

-------------------------------
HOPPER & SOLIDAY & CO., INC.
-------------------------------

The date of this Prospectus is , 1996

<PAGE>

The total number of shares to be issued in the Conversion may be increased
or decreased within the estimated valuation range without a resolicitation of
subscribers to reflect market and financial conditions and other factors just
prior to the completion of the Conversion. The aggregate purchase price of
all shares of Common Stock will be based on the estimated pro forma market
value of the Insurance Companies, following the Conversion, as determined by
Berwind's independent appraisal. All shares of Common Stock will be sold for
$10.00 per share (the "Purchase Price"). Except for the ESOP, which intends
to purchase 10% of the total number of shares of Common Stock issued in the
Conversion, no Eligible Policyholder, together with associates or persons
acting in concert with such Eligible Policyholder, may purchase more than
38,606 shares of Common Stock in the Subscription Offering (1% of the number
of shares equal to the maximum of the estimated valuation range divided by
the Purchase Price). In addition, no purchaser, together with associates or
persons acting in concert with such person, may purchase, in the aggregate,
more than 193,030 shares of Common Stock in the Conversion (5% of the number
of shares equal to the maximum of the estimated valuation range divided by
the Purchase Price). In addition, no person may purchase fewer than 25
shares. Directors and executive officers of the Company and the Insurance
Companies as a group (18 persons), including their associates, are expected
to purchase approximately 50,750 shares of the Common Stock to be issued in
the Conversion (1.5% at the midpoint of the estimated valuation range), not
including 10% of the Common Stock (335,700 shares at the midpoint) expected
to be purchased by the ESOP and excluding additional shares that are expected
to be issued (or issuable) following the Conversion, subject to shareholder
approval, in connection with the implementation of the Company's management
recognition plan and 1996 Stock Compensation Plan.

The Subscription Offering will terminate at 1:00 p.m., local time, on
, 1997, unless extended by the Company in its sole discretion for
up to an additional 10 days (the "Subscription Offering Termination Date").
Any shares not sold in the Subscription Offering may be sold in the Community
Offering, which is also expected to terminate at 1:00 p.m., local time on
, 1997, but may be extended up to an additional 45 days after the
Subscription Offering Termination Date in the sole discretion of the Company
(the "Community Offering Termination Date"). Subscribers may purchase shares
in the Offering by completing and returning to the Company a stock order
form, together with full payment for all Common Stock subscribed for at the
Purchase Price. An executed stock order form, once received by the Company,
may not be modified, amended or rescinded without the consent of the Company.
Subscriptions will be held in a separate escrow account at
established specifically for this purpose. If the Conversion is not completed
within 45 days after the last day of the Subscription Offering (which date
will be no later than , 1997) and if the Pennsylvania Department of
Insurance consents to an extension of time to complete the Conversion,
subscribers will be given the opportunity to (i) confirm their orders or (ii)
modify or cancel their subscriptions. If the Conversion is not completed
within such period or extended period, the Offering will be terminated and
all funds held will be promptly returned without interest. See "The
Conversion -- The Offering" and "-- Purchases in the Offering."

The Company and the Insurance Companies have engaged Hopper Soliday to
consult with and advise the Company and the Insurance Companies with respect
to the Offering, and Hopper Soliday has agreed to solicit subscriptions for
shares of Common Stock in the Offering. Neither Hopper Soliday nor any other
registered broker-dealer is obligated to purchase any shares of Common Stock
in the Offering. Hopper Soliday is a registered broker-dealer and a member of
the National Association of Securities Dealers, Inc. ("NASD").

The Common Stock has been approved for inclusion in the Nasdaq National
Market System ("Nasdaq NMS"), under the symbol "OGGI" upon completion of the
Conversion. Prior to the Conversion, there was no market for the Common
Stock, and there can be no assurance that an active and liquid trading market
for the Common Stock will develop, or if developed, will be maintained after
completion of the Conversion. Hopper Soliday, Legg Mason and McDonald each
has advised the Company that, upon completion of the Conversion, it intends
to act as a market maker in the Common Stock, subject to market conditions
and compliance with applicable laws and regulatory requirements.

THE CONVERSION IS CONTINGENT UPON APPROVAL OF THE PLAN BY ELIGIBLE
POLICYHOLDERS OF EACH OF THE INSURANCE COMPANIES AT SPECIAL MEETINGS OF
ELIGIBLE POLICYHOLDERS CALLED FOR THAT PURPOSE TO BE HELD ON FEBRUARY 11,
1997 (THE "SPECIAL MEETINGS") AND THE SALE OF THE MINIMUM NUMBER OF SHARES
OFFERED PURSUANT TO THE PLAN.

<PAGE>

IN CONNECTION WITH THE PUBLIC OFFERING, IF ANY, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE- COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.

FOR NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THE OFFERING, NOR HAS SUCH
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.

PENNSYLVANIA INSURANCE LAWS AND REGULATIONS PROVIDE THAT NO PERSON MAY
ACQUIRE CONTROL OF THE COMPANY, AND THUS INDIRECT CONTROL OF ITS INSURANCE
SUBSIDIARIES, UNLESS SUCH PERSON HAS OBTAINED THE PRIOR APPROVAL OF THE
PENNSYLVANIA INSURANCE COMMISSIONER. UNDER PENNSYLVANIA LAW, ANY PURCHASER OF
10% OR MORE OF THE VOTING STOCK OF AN INSURANCE HOLDING COMPANY IS PRESUMED
TO HAVE ACQUIRED CONTROL OF AFFILIATED OR SUBSIDIARY INSURERS.

===============================================================================

Organizational Structure Before The Conversion

Old Guard Mutual Old Guard Fire Grochenhoppen-Home

79% 15.4% 5.6%

Old Guard Investment Holding Company, Inc.

100% 100%

Commonwealth Insurance 2929 Service Corp. Comonwealth Insurance
Manager, Inc. Consultants, Inc.

===============================================================================

Organizational Structure After The Conversion

LOGO
Shareholders

Old Guard Group, Inc.

100% 100% 100% 100%

Old Guard Old Guard Grochenhoppen-Home Old Guard Investment
Mutual Fire Holding Company, Inc.

100% 100%

Commonwealth Insurance 2929 Service Corp.--30%-- Comonwealth Insurance
Manager, Inc. Consultants, Inc.

===============================================================================
<PAGE>

PROSPECTUS SUMMARY

The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and the Combined Financial
Statements and Notes thereto of the Insurance Companies appearing elsewhere
in this Prospectus.

Old Guard Group, Inc........... The Company was formed under Pennsylvania
law in May 1996 for the purpose of becoming
the holding company for the Insurance
Companies upon completion of the Conversion.
Prior to the Conversion, the Company will
not engage in any significant operations.
After the Conversion, the Company's primary
assets will be the outstanding capital stock
of the Insurance Companies and a portion of
the net proceeds of the Conversion.

The Insurance Companies........ Old Guard Mutual, Old Guard Fire and
Goschenhoppen are each Pennsylvania mutual
insurance companies that currently operate
as members of the Old Guard Insurance Group
(the "Group"), a group of mutual insurance
companies under common management. The Group
also includes Neffsville Mutual Fire
Insurance Company ("Neffsville"), which is
not a party to the Plan. Old Guard Mutual,
Old Guard Fire and Goschenhoppen began
operations in 1896, 1872, and 1843,
respectively. The Insurance Companies are
property and casualty insurers of farms,
small and medium-sized businesses and
residents primarily in rural and suburban
communities in Pennsylvania, Maryland and
Delaware. The Insurance Companies market
farmowners, homeowners and businessowners
policies, as well as personal and commercial
automobile, workers' compensation and
commercial multi-peril coverages through
approximately 1,600 independent agents.
For 1995, the Insurance Companies had
combined revenues of $72.4 million and a net
loss of $684,000. For the nine-month period
ended September 30, 1996, the Insurance
Companies had combined revenues of $45.0
million and a net loss of $2.5 million. The
losses for the year ended December 31, 1995
and the nine-month period ended September
30, 1996 resulted directly from insured
property losses associated with late-1995
wind storms and the severe winter weather
experienced in the Middle Atlantic states in
the first quarter of 1996. A January
blizzard in 1996 contributed to record
seasonal snowfalls for much of the Insurance
Companies' market area that resulted in
increased property loss claims. At September
30, 1996, the Insurance Companies had
combined assets of $137.5 million, total
equity of $37.7 million and over 139,000
property and casualty policies in force.
Effective January 1, 1996, the Insurance
Companies entered into a quota share
reinsurance treaty designed to lessen the
potential financial impact of catastrophic
or severe weather losses. Under this treaty,
the Insurance Companies cede 20% of their
liability remaining after cessions of excess
and catastrophic risks through other
reinsurance contracts in exchange for a
reinsurance premium equal to 20% of premiums
collected net of other reinsurance costs and
further reduced by a ceding allowance to the
Company equal to 35% of the reinsurance
premium. The treaty has a moderating effect
on the underwriting losses or gains
experienced

4
<PAGE>

by the Insurance Companies because
underwriting risk is shared with the
reinsurer. Accordingly, this reinsurance
treaty has had, and will continue to have, a
material effect on the financial condition
and results of operations of the Insurance
Companies. See "Business -- Reinsurance."
The principal strategies of the Company for
the future are to:
-- Achieve geographic diversification of
risk by acquisition of other insurance
companies or licensing of the Insurance
Companies in other jurisdictions with
reduced or different loss exposure;
-- Improve the mix of business by increasing
commercial writings and emphasizing
casualty coverages in order to enhance
profitability and lessen the impact of
property losses on overall results; and
-- Improve efficiency and maintain the high
level of personal service delivered to
agents and insureds through continued
enhancement of the Company's management
information systems (MIS).
Management has taken steps to implement each
of these strategies and views the Conversion
as a critical component of its strategic
plan. The additional capital generated by
the Conversion will permit the Insurance
Companies to accelerate implementation of
these strategies. The resulting holding
company structure will also provide needed
flexibility to achieve the Company's goals
by permitting the Company to use its Common
Stock and/or preferred stock to effect
future acquisitions or raise additional
capital. See "The Conversion -- Business
Purposes."

The Conversion ................ Pursuant to the Plan each Insurance Company
will (i) convert from a
Pennsylvania-chartered mutual insurance
company to a Pennsylvania-chartered stock
insurance company, and (ii) simultaneously
issue shares of its capital stock to the
Company in exchange for a portion of the net
proceeds from the sale of Common Stock in
the Conversion. The Conversion will be
accounted for as a simultaneous
reorganization, recapitalization and share
offering which will not change the
historical accounting basis of the Insurance
Companies' financial statements.

Background and Reasons For the
Converson.................... The Insurance Companies annually review and
adopt a strategic plan expressly predicated
upon company independence and capital
strength. The Insurance Companies have
considered various capital formation
alternatives and have elected to proceed
with the Conversion in accordance with the
provisions of the Pennsylvania Insurance
Company Mutual to Stock Conversion Act (the
"Act"). The Act was passed by the
Pennsylvania General Assembly in early
December 1995. On December 12, 1995,
management was directed by the Boards of
Directors of each Insurance Company to
explore the process and feasibility of
conversion under the Act. On January 12,
1996, the Boards of Directors authorized
further study and

5
<PAGE>

requested a presentation with respect to the
process at its meeting on March 31, 1996. At
a meeting of the Board of Directors of each
Insurance Company held on April 22, 1996,
management was directed to prepare the Plan
for consideration at a special meeting to be
held in May. Effective May 31, 1996, the
Board of Directors of each of the Insurance
Companies unanimously adopted the Plan,
subject to approval by the Department and
the policyholders of each of the Insurance
Companies. Each Board of Directors
unanimously adopted amendments to the Plan
on July 19, 1996. An application with
respect to the Conversion was filed by the
Insurance Companies with Pennsylvania
Department of Insurance (the "Department")
on August 21, 1996 and notice of the filing
and the opportunity to comment was
simultaneously mailed to all Eligible
Policyholders as required by law. The
Department informed the Insurance Companies
on November 27, 1996 that it did not intend
to hold any hearings regarding the
Conversion. The Plan was approved by the
Department on , 1996 and is subject
to the approval of Eligible Policyholders at
the Special Meetings. The Company also has
received approval of the Department to
acquire control of the Insurance Companies.
On November 19, 1996, the Company received
an unsolicited request from Donegal Group,
Inc., an insurance holding company located
in Marietta, Pennsylvania ("Donegal"), to
amend the Plan to provide for the merger of
the Company into Donegal in exchange for an
aggregate payment of $27.5 million to all
policyholders of the Insurance Companies, or
less than $200 per policyholder assuming
equal distribution to all policyholders.
Such amount was proposed to be payable
one-half in cash and one-half in a new class
of preferred stock of Donegal, the terms of
which were not specified. Because such a
transaction would not provide additional
capital to the Insurance Companies, would be
inconsistent with their strategic plan of
continued independence and would be
tantamount to a sale and liquidation of the
Insurance Companies, the Boards of Directors
of the Company and the Insurance Companies
determined that the request was contrary to
the best interests of the Insurance
Companies, including its policyholders,
agents, employees, suppliers and the
communities they serve, and further declined
to consider the request. Therefore, the
respective Boards of Directors affirmed
their course of independence and commitment
to the Plan.
An application to acquire the Company was
contemporaneously filed with the Department
by Donegal. The Department informed Donegal
that its application was both deficient and
premature and, as a result, the Department
informed Donegal that it is prohibited from
(i) making any public announcement of its
request to the Company to amend the Plan,
and (ii) soliciting policyholders of the
Insurance Companies in any way, including in
connection with the policyholder votes to be
held on the Plan at the Special Meetings. If
Eligible Policyholders do not approve the
Plan, the Boards of Directors of the
Insurance Companies intend to maintain their
current course of independence. See "The
Conversion -- Background and Reasons for the
Conversion."

6
<PAGE>

Organization Before and After
the Conversion............... Set forth on page 3 of the Prospectus is an
illustration of the organizational structure
of the Insurance Companies before the
Conversion and of the Company and the
Insurance Companies after the Conversion.
After completion of the Conversion, the
Insurance Companies intend to transfer all
of the capital stock of Old Guard Investment
Holding Company, Inc. ("Old Guard
Investment") to the Company and, as a
result, Old Guard Investment will become a
direct wholly-owned subsidiary of the
Company.

Stock Pricing and Number of
Shares to be Issued.......... Pennsylvania law requires that the aggregate
purchase price of the Common Stock to be
issued in the Conversion be consistent with
an independent appraisal of the estimated
pro forma market value of the Insurance
Companies as subsidiaries of the Company
following the Conversion. Berwind, a firm
experienced in corporate valuations, has
made an independent appraisal of the
estimated pro forma market value of the
Insurance Companies as subsidiaries of the
Company and has determined that, as of
August 19, 1996, such estimated pro forma
market value was $33,570,000. The resulting
valuation range in Berwind's appraisal,
which extends 15% below and 15% above the
estimated value, is from $28,535,000 to
$38,606,000 (the "Estimated Valuation
Range"). The Company, in consultation with
its advisors, has determined to offer the
shares in the Conversion at the Purchase
Price. Such appraisal is not intended to be,
and must not be construed as, a
recommendation of any kind as to the
advisability of purchasing Common Stock or
as assurance that, after the Conversion,
shares of Common Stock can be resold at or
above the Purchase Price. The appraisal will
be updated immediately prior to completion
of the Conversion. If the updated appraisal
is different from the appraisal as of August
19, 1996 but is within the Estimated
Valuation Range, the Company will not notify
subscribers of the updated appraisal and the
Conversion will be consummated. If the
updated appraisal is not within the
Estimated Valuation Range, then, in such
event, the Company, after consultation with
the Department, may cancel the Offering and
terminate the Plan, establish a new
Estimated Valuation Range, extend, reopen or
hold a new Offering or take such other
action as may be authorized by the
Department. Subscribers will be notified of
any such action by mail and, if a new
Estimated Valuation Range is established,
subscribers will be given an opportunity to
affirm, amend or cancel their subscriptions.
Subscription orders may not be withdrawn for
any reason if the updated appraisal is
within the Estimated Valuation Range.
The total number of shares to be issued in
the Conversion may be increased or decreased
within the Estimated Valuation Range without
a resolicitation of subscribers. Based on
the Purchase Price of $10.00 per share, the
total number of shares that may be issued
without a resolicitation of subscribers is
from 2,853,500 to 3,860,600 (or, as
permitted by the Plan, in the event the ESOP
purchases shares in excess of the maximum of
the Estimated Valuation

7
<PAGE>

Range in order to satisfy its 10%
subscription, up to 4,246,660 shares). For
further information, see "The Conversion --
Stock Pricing and Number of Shares to be
Issued."

The Subscription and
Community Offerings.......... The shares of Common Stock to be issued in
the Conversion are being offered at the
Purchase Price in the Subscription Offering
pursuant to nontransferable subscription
rights in the following order of priority:
(i) Eligible Policyholders, (ii) the ESOP,
and (iii) directors, officers and employees
of the Insurance Companies. Subscription
rights in any category will be subordinated
to subscription rights in a prior category.
Concurrently, and subject to the prior
rights of holders of subscription rights,
any shares of Common Stock not subscribed
for in the Subscription Offering are being
offered at the Purchase Price in the
Community Offering to members of the general
public. Preference will be given in the
Community Offering to (i) natural persons
and trusts of natural persons who are
permanent residents of Berks, Bucks,
Chester, Cumberland, Dauphin, Lancaster,
Lebanon, Lehigh, Montgomery, Northampton and
York Counties, Pennsylvania (the "Local
Community"), (ii) principals of Eligible
Policyholders in the case of an Eligible
Policyholder that is not a natural person,
(iii) licensed insurance agents that have
been appointed by any of the Insurance
Companies to market and distribute policies
of insurance, (iv) named insureds under
policies of insurance issued by the
Insurance Companies after May 31, 1996, and
(v) providers of goods and services to any
or all of the Insurance Companies.
Subscription rights will expire if not
exercised by 1:00 p.m., local time, on
, 1997, unless extended by the Company
in its sole discretion for up to an
additional 10 days. The Community Offering
will terminate on the Community Offering
Termination Date, unless extended by the
Company, in its sole discretion, for up to
an additional 45 days. The Company reserves
the absolute right to accept or reject any
orders in the Community Offering, in whole
or in part, either upon receipt of an order
or as soon as practicable following the
Community Offering Termination Date.
The Company and the Insurance Companies have
engaged Hopper Soliday to provide sales
assistance in connection with the Offering.
The sale of shares of Common Stock in the
Subscription Offering and the Community
Offering will be conducted by Hopper Soliday
on a best efforts basis.

How to Purchase Shares of
Common Stock................. The Company has established a Stock
Information Center to coordinate the
Offering, including tabulation of proxies
and orders and answering questions about the
Offering by telephone. The Stock Information
Center will be managed by Hopper Soliday.
All subscribers will be instructed to mail
payment directly to the Stock Information
Center. Payment for shares of Common Stock
may be made by cash (if delivered in
person), check or money order. Such funds
will not be released until the Conversion is
completed or ter-

8
<PAGE>

minated. For more information, please call
the Stock Information Center toll free at
1-888-262-7731. See "The Conversion --
Marketing and Underwriting Arrangements in
the Offering."

The Public Offering ........... All shares of Common Stock not purchased in
the Offering (if any) are expected to be
offered in a firm commitment public offering
(the "Public Offering") to be co-managed by
the Underwriters. The Public Offering will
commence as soon as practicable following
the later of the Subscription Offering
Termination Date or the Community Offering
Termination Date and must be completed
within 45 days after the Subscription
Offering Termination Date unless such period
is extended with the approval of the
Department. See "The Conversion -- Marketing
and Underwriting Arrangements in the
Offering and -- Public Offering."

Purchase Limitations .......... No person may purchase fewer than 25 shares
in the Offering. The ESOP may purchase up to
an aggregate of 10% of the shares of Common
Stock to be issued in the Conversion and is
expected to do so. With the exception of the
ESOP, no Eligible Policyholder may purchase
more than 38,606 shares of Common Stock in
the Subscription Offering (1% of the number
of shares equal to the maximum of the
Estimated Valuation Range divided by the
Purchase Price) and no person (including
Eligible Policyholders who elect to purchase
stock in the Conversion), together with
associates or persons acting in concert, may
purchase in the aggregate, more than 193,030
shares of Common Stock (5% of the number of
shares equal to the maximum of the Estimated
Valuation Range divided by the Purchase
Price). The Boards of Directors of the
Company and the Insurance Companies may
increase or decrease the purchase limitation
at any time, subject to any required
regulatory approval. In the event of an
oversubscription, shares will be allocated
as provided by the Plan. See "The Conversion
-- Limitations on Purchases of Shares."

Purchase of Common Stock by
Management................... The directors and executive officers of the
Company and the Insurance Companies,
together with their associates, propose to
purchase, in the aggregate, approximately
50,750 shares of Common Stock in the
Conversion, or 1.5% of the shares of Common
Stock issued in the Conversion, assuming an
offering at the midpoint of the Estimated
Valuation Range. See "The Conversion --
Proposed Management Purchases."

<PAGE>

shares sold in the Offering at an exercise
price equal to the Purchase Price. The
Company intends to submit the MRP and the
Stock Compensation Plan to shareholders for
approval at the Company's first annual
meeting, and no stock options will be
awarded under the Stock Compensation Plan
and no shares of restricted stock will be
awarded under the MRP in the first year
after the conclusion of the Offering unless
such plans are approved by a majority vote
of shareholders.

Use of Proceeds ............... Net proceeds from the Offering will depend
upon the total number of shares sold and the
expenses of the Conversion. As a result, net
proceeds from the Offering cannot be
determined until the Conversion is
completed. The Company anticipates that net
proceeds (less the debt incurred to purchase
the ESOP shares) will be between
approximately $22.6 million and $31.2
million if the aggregate purchase price is
within the Estimated Valuation Range. See
"Use of Proceeds" for the assumptions used
to arrive at these estimates.
The Company has received Department approval
to exchange $16.0 million of net proceeds
from the Offering for all of the capital
stock of Old Guard Mutual, Old Guard Fire
and Goschenhoppen to be issued in the
Conversion. Assuming net proceeds from the
Offering of between $22.6 million and $31.2
million, the Company would retain between
$8.1 and $16.7 million after acquiring the
stock of the Insurance Companies.
A portion of the net proceeds retained by
the Company will be used to repay
approximately $5.8 million in financing
incurred in connection with the pending
acquisition of First Delaware Insurance
Company, if completed as planned, and the
investment in New Castle Mutual Insurance
Company. The balance of the net proceeds
retained by the Company will be available
for a variety of corporate purposes,
including, but not limited to, additional
capital contributions to the Insurance
Companies, future acquisitions and
diversification within the property and
casualty insurance industry, dividends to
shareholders and future repurchases of
Common Stock to the extent permitted by
Pennsylvania law and the Department. With
the exception of the payment of dividends
and the pending acquisition of First
Delaware Insurance Company and the proposed
investment in New Castle Mutual Insurance
Company, the Company currently has no
specific plans, intentions, arrangements or
understandings regarding any of the
foregoing activities. See "Dividend Policy";
"The Company -- Acquisition of First
Delaware Insurance Company" and --
Investment in New Castle Mutual Insurance
Company."

Non-transferability of
Subscription Rights.......... The Plan provides that no person shall
transfer or enter into any agreement or
understanding to transfer the legal or
beneficial ownership of subscription rights
issued under the Plan or, prior to exercise
of the subscription rights, the shares of
Common Stock to be issued upon their
exercise. Persons violating such prohibition
will lose their right to purchase Common
Stock in the Conversion. Each person
exercising subscription rights will be
required to certify that

10
<PAGE>

his or her purchase of Common Stock is
solely for the purchaser's own account and
that there is no agreement or understanding
regarding the sale or transfer of such
shares.

Market for the Common Stock.... The Company has received approval to have
the Common Stock quoted on the Nasdaq NMS
under the symbol "OGGI" upon closing of the
Conversion. Hopper Soliday, Legg Mason and
McDonald have each advised the Company that,
upon completion of the Conversion, it
intends to act as a market maker in the
Common Stock, subject to market conditions
and compliance with applicable laws and
regulatory requirements. Prior to the
Offering, there was no public market for the
Common Stock and there can be no assurance
that an active and liquid market for the
Common Stock will develop in the foreseeable
future. Even if a market develops, there can
be no assurance that shareholders will be
able to sell their shares at or above the
Purchase Price after completion of the
Conversion. See "Market for the Common
Stock."

Dividends ..................... Declaration of dividends by the Board of
Directors of the Company will depend on a
number of factors, including the
requirements of applicable law and the
determination by the Board of Directors of
the Company that the net income, capital and
financial condition of the Company and the
Insurance Companies, industry trends,
general economic conditions and other
factors justify the payment of dividends.
The Company presently intends to pay an
annual dividend of $.10 per share, but no
assurance can be given that dividends in
such amount will ultimately be declared and
paid. See "Dividend Policy" and "Business --
Regulation."

Antitakeover Provisions ....... The Articles of Incorporation and Bylaws of
the Company, Pennsylvania statutory
provisions and employee benefit
arrangements, as well as certain other
provisions of state and federal law, may
have the effect of discouraging or
preventing a non-negotiated change in
control of the Company, as well as a proxy
contest for control of the Board of
Directors of the Company. For a detailed
discussion of those provisions, see
"Investment Considerations -- Articles of
Incorporation, Bylaw and Statutory
Provisions that could Discourage Hostile
Acquisitions of Control," "Management --
Certain Benefit Plans and Agreements,"
"Certain Restrictions on Acquisition of the
Company -- Pennsylvania Law" and -- "Certain
Anti-Takeover Provisions in the Articles of
Incorporation and Bylaws" and "Description
of Capital Stock."

11
<PAGE>

SELECTED COMBINED FINANCIAL DATA

The following table sets forth selected combined financial data for the
Insurance Companies prior to the Conversion at and for the periods indicated
and should be read in conjunction with the Combined Financial Statements, and
accompanying notes thereto and other financial information included elsewhere
herein, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations." See Note 3 in "Notes to Combined
Financial Statements" for a discussion of the principal differences between
generally accepted accounting principles ("GAAP") and statutory accounting
practices, and for a reconciliation of combined net income and equity, as
reported in conformity with GAAP, with combined statutory net income and
statutory surplus, as determined in accordance with statutory accounting
practices, as prescribed or permitted by the Department. The combined
statement of income data for the years ended December 31, 1991 and 1992 and
for the nine months ended September 30, 1995 and 1996 and the combined
balance sheet data at December 31, 1991, 1992 and 1993 and at September 30,
1995 and 1996 are derived from the unaudited combined financial statements of
the Insurance Companies. The Company believes that such unaudited financial
data fairly reflect the combined results of operations and the combined
financial condition of the Insurance Companies for such periods. For a
presentation of the pro forma effect of the Conversion and related
transactions on the Company, see "Pro Forma Data."

12
<PAGE>

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue Data:
Direct premiums written .................... $ 21,260 $ 19,776 $ 62,623 $ 59,729
Net premiums written(1) .................... 14,472 16,828 34,826 50,089
Statement of Income Data:
Net premiums earned(1) ................... 13,298 16,214 39,705 48,536
Net investment income .................... 1,502 1,101 3,434 3,408
Net realized investment gains ............ 383 310 1,328 650
Other income ............................. 224 60 484 172
----------- ---------- ----------- ----------
Total revenues(1) ..................... 15,057 17,685 44,951 52,766
----------- ---------- ----------- ----------
Losses and Expenses: .......................
Losses and loss adjustment expenses ...... 8,900 11,055 34,548 33,892
Other underwriting expenses .............. 5,560 6,071 14,159 17,706
Other expenses ........................... -- -- 250 --
----------- ---------- ----------- ----------
Total expenses ........................ 14,460 17,126 48,957 51,598
----------- ---------- ----------- ----------
Income (loss) before federal income taxes .. 597 559 (4,006) 1,168
Federal income tax expense (benefit) ....... 184 138 (1,458) 252
----------- ---------- ----------- ----------
Net income (loss)(2) ....................... $ 413 $ 421 $ (2,548) $ 916
=========== ========== =========== ==========
Selected Balance Sheet Data (at period end):
Total investments(3) ..................... $ 81,630 $ 91,951 $ 81,630 $ 91,951
Total assets ............................. 137,538 135,383 137,538 135,383
Subordinated debt ........................ 1,500 2,250 1,500 2,250
Total liabilities ........................ 99,869 92,736 99,869 92,736
Total equity(3) .......................... $ 37,669 $ 42,648 $ 37,669 $ 42,648
GAAP Ratios:(3)
Loss and loss adjustment expenses ratio(4) 66.4% 68.2% 87.0% 69.8%
Underwriting expense ratio(1)(5) ......... 41.5% 37.4% 35.7% 36.5%
Combined ratio(1)(6) ..................... 107.9% 105.6% 122.7% 106.3%
Statutory Data (at period end):
Statutory combined ratio(1) .............. 104.8% 104.3% 124.7% 107.4%
Industry combined ratio(7) ............... -- -- -- --
Statutory surplus ........................ $ 30,265 $ 31,563 $ 30,265 $ 31,563
Ratio of statutory net written premiums to
statutory surplus(1)(8) ............... 1.91x 2.13x 1.53x 2.12x

Pro Forma Data (9):
Net loss ................................. ($2,755)
Net income (loss) per share of common
stock ................................. ($1.00)
Weighted average number of shares of
common stock outstanding .............. 2,745,350
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ----------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenue Data:
Direct premiums written ....................$ 78,832 $ 78,730 $ 74,756 $ 71,287 $ 67,699
Net premiums written ....................... 67,115 65,649 63,355 55,424 53,876
Statement of Income Data:
Net premiums earned ...................... 66,663 63,465 60,986 54,013 53,050
Net investment income .................... 4,458 3,932 3,928 4,444 4,789
Net realized investment gains ............ 1,011 476 1,758 1,444 560
Other income ............................. 274 266 244 264 197
----------- ---------- ---------- ---------- ----------
Total revenues ........................ 72,406 68,139 66,916 60,165 58,596
----------- ---------- ---------- ---------- ----------
Losses and Expenses:
Losses and loss adjustment expenses ...... 50,509 46,440 42,154 38,096 36,527
Other underwriting expenses .............. 23,265 22,087 20,991 19,551 18,830
Other expenses ........................... -- -- -- -- --
----------- ---------- ---------- ---------- ----------
Total expenses ........................ 73,774 68,527 63,145 57,647 55,357
----------- ---------- ---------- ---------- ----------
Income (loss) before federal income taxes .. (1,368) (388) 3,771 2,518 3,239
Federal income tax expense (benefit) ....... (684) (532) 383 122 534
----------- ---------- ---------- ---------- ----------
Net income (loss)(2) ....................... $ (684) $ 144 $ 3,388 $ 2,396 $ 2,705
=========== ========== ========== ========== ==========
Selected Balance Sheet Data (at period end):
Total investments and cash(3) ............ $ 92,335 $ 82,879 $ 90,895 $ 80,826 $ 76,099
Total assets ............................. 134,853 127,831 140,213 136,979 142,764
Subordinated debt ........................ 2,250 3,000 3,750 4,500 5,250
Total liabilities ........................ 93,956 91,300 100,359 100,366 108,551
Total equity ............................. $ 40,897 $ 36,531 $ 39,854 $ 36,613 $ 34,212
GAAP Ratios:
Loss and loss adjustment expense ratio(4) 75.8% 73.2% 69.1% 70.5% 68.8%
Underwriting expense ratio(5) ............ 34.9% 34.8% 34.4% 36.2% 35.5%
Combined ratio(6) ........................ 110.7% 108.0% 103.5% 106.7% 104.3%
Statutory Data (at period end):
Statutory combined ratio ................. 107.9% 106.3% 99.5% 106.2% 105.0%
Industry combined ratio(7) ............... 106.4% 108.4% 106.9% 115.7% 108.8%
Statutory surplus ........................ $ 32,249 $ 31,097 $ 31,487 $ 27,936 $ 26,607
Ratio of statutory net written premiums to
statutory surplus(8) .................. 2.15x 2.16x 2.10x 2.00x 2.02x

Pro Forma Data(9):
Net loss ................................. ($959)
Net income (loss) per share of common
stock ................................. ($0.35)
Weighted average number of shares of
common stock outstanding .............. 2,727,850

</TABLE>

- ------
(1) Effective January 1, 1996, the Insurance Companies and American
Re-Insurance Company entered into a quota share reinsurance treaty
pursuant to which the Insurance Companies cede 20% of their liability

14
<PAGE>

remaining after cessions of excess and catastrophic risks through other
reinsurance contracts. Pro rata cessions of unearned premiums as of
January 1, 1996 and the transfer of premiums written during the three and
nine-month periods ended September 30, 1996 accounted, in part, for the
decline in net premiums written, net premiums earned and total revenues,
the increase in the underwriting expense ratio and the GAAP and statutory
combined ratios and the decrease in the ratio of statutory net written
premiums to statutory surplus, when the three and nine-month periods
ended September 30, 1996 are compared to the corresponding periods.

(2) Net income for the years ended December 31, 1994 and 1995 and the
nine-month period ended September 30, 1996 was adversely affected by the
frequency and severity of weather-related property losses. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."

(3) Due to the adoption by the Insurance Companies on January 1, 1994 of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," total investments and equity were adjusted to reflect
changes in market value, which resulted in a reduction of $4.2 million
and an increase of $1.5 million as of December 31, 1994 and 1995,
respectively, and an increase of $1.9 million and a decrease of $122,000
as of September 30, 1995 and 1996, respectively.

(4) Calculated by dividing losses and loss adjustment expenses by net
premiums earned.

(5) Calculated by dividing other underwriting expenses by net premiums
earned.

(6) The sum of the Loss and Loss Adjustment Expense Ratio and the
Underwriting Expense Ratio.

(7) As reported by A.M. Best Company, Inc., an independent insurance rating
organization. Data unavailable for the periods ended September 30, 1996
and September 30, 1995.

(8) Annualized for the periods ended September 30, 1996 and 1995.

(9) Information excerpted from unaudited Pro Forma Combined Statements of
Income for the nine months ended September 30, 1996 and the year end
December 31, 1995. See "Pro Forma Data".

15
<PAGE>

RISK FACTORS

Before investing in the Common Stock offered hereby, prospective investors
should carefully consider all of the information set forth in this prospectus
and, in particular, the matters presented below.

POSSIBLE ADVERSE IMPACT OF CATASTROPHE AND NATURAL PERIL LOSSES ON FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

In common with other property and casualty insurers, the Insurance
Companies are subject to claims arising from catastrophes that may have a
significant impact on their results of operations and financial condition.
The Insurance Companies have experienced, and can be expected to experience
in the future, catastrophe losses that may materially affect financial
condition and results of operations. Catastrophe losses can be caused by
various events, including snow storms, ice storms, freezing, hurricanes,
earthquakes, tornadoes, wind, hail and fires and their incidence and severity
are inherently unpredictable. The extent of net losses from catastrophes is a
function of three factors: the total amount of insured exposure in the area
affected by the event, the severity of the event and the amount of
reinsurance coverage.

The Insurance Companies' financial condition and results of operations
also are affected periodically by losses caused by natural perils, regardless
of whether such losses, because of their magnitude, qualify as
"catastrophes," as classified by the Property Claims Service Division of
American Insurance Services Group, Inc., an insurance industry body. Because
of the geographic concentration of their business, the Insurance Companies
may be more exposed to losses of this type than other property and casualty
insurers. A multiplicity of such events, all or some of which do not qualify
as catastrophes, in the aggregate, may materially affect the Company's
financial condition and results of operations. This is true, in part, because
losses from individual events may not permit recovery under the Insurance
Companies' catastrophe reinsurance coverage. The frequency and severity of
storms and freezes during 1994, 1995 and the first nine months of 1996 that
adversely affected the Insurance Companies' results for these periods are
examples of this phenomenon. See "-- Geographic Concentration of Business,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Reinsurance."

POSSIBLE ADVERSE IMPACT OF INADEQUATE LOSS RESERVES ON FINANCIAL CONDITION
AND RESULTS OF OPERATION

The Insurance Companies are required to maintain reserves to cover their
estimated ultimate liability for losses and loss adjustment expenses ("LAE")
with respect to reported and unreported claims incurred. Reserves are
estimates involving actuarial and statistical projections at a given time of
what the Insurance Companies expect to be the cost of the ultimate settlement
and administration of claims based on facts and circumstances then known,
predictions of future events, estimates of future trends in claims severity
and judicial theories of liability, legislative activity and other variable
factors, such as inflation. The Insurance Companies' overall reserve practice
provides for ongoing claims evaluation and adjustment (if necessary) based on
the development of related data and other relevant information pertaining to
such claims. Loss and LAE reserves, including reserves for claims that have
been incurred but not yet reported, are adjusted no less than monthly. The
uncertainties of estimating insurance reserves are greater for certain types
of property and casualty insurance lines written by the Insurance Companies,
particularly workers' compensation and other liability coverages, because a
longer period of time may elapse before a definitive determination of
ultimate liability may be made and because of the changing judicial and
political climates relating to these types of claims.

Management believes that the Insurance Companies' reserves for losses and
loss adjustment expenses are adequate and are in accordance with generally
accepted actuarial principles and practices. However, the establishment of
appropriate loss and loss adjustment expense reserves is an inherently
uncertain process and there can be no assurance that ultimate losses will not
exceed the Insurance Companies' loss reserves. To the extent that reserves
prove to be inadequate in the future, the Insurance Companies would have to
increase reserves which would adversely affect earnings in the period such
reserves are increased and could have a material adverse effect on the
Company's results of operations and financial condition. See "Business --
Loss and LAE Reserves."

16
<PAGE>

POSSIBLE SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS

The operating results of property and casualty insurers are subject to
significant fluctuation due to a number of factors, including extreme weather
conditions and natural disasters, regulation, competition, judicial trends,
changes in the investment and interest rate environment and general economic
conditions. The Company's operating results may also be affected by changes
in the supply of, and the pricing for, property and casualty insurance and
reinsurance, which historically have been highly cyclical. The
unpredictability of claims experience and competitive nature of the property
and casualty insurance industry has contributed historically to significant
quarter-to-quarter and year-to-year fluctuations in the underwriting results
and net earnings of the Insurance Companies. Because of these and other
factors, historic results of operations may not be indicative of future
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

POSSIBLE ADVERSE IMPACT DUE TO GEOGRAPHIC CONCENTRATION OF BUSINESS

All direct premiums written by the Insurance Companies are generated in
Pennsylvania, Maryland and Delaware. For the years ended December 31, 1993,
1994 and 1995 and for the nine months ended September 30, 1996, 94%, 94%, 93%
and 93%, respectively, of the Insurance Companies' direct premiums written
were derived from policies written in Pennsylvania. The revenues and
profitability of the Insurance Companies could be significantly affected by
legal and judicial trends and prevailing economic, regulatory, demographic
and other conditions in Pennsylvania as well as the impact of catastrophe and
natural peril losses in that state. See "-- Catastrophe and Natural Peril
Losses."

POSSIBLE ADVERSE OR INADEQUATE IMPACT OF ACQUISITION STRATEGY

The Company intends to pursue a strategy of growth through acquisition of
other insurance companies. The success of the Company's growth strategy will
depend largely upon its ability to identify suitable acquisition candidates
and effect acquisitions at a reasonable cost. No assurance can be given that
the Company will be successful in doing so. Moreover, this growth strategy
may present special risks, such as the risk that the Insurance Company will
not efficiently integrate an acquisition with present operations, the risk of
dilution of book value and earnings per share of the Company's Common Stock
as a result of an acquisition, the risk that the Company and the Insurance
Companies will not be able to attract and retain qualified personnel needed
for expanded operations, and the risk that internal monitoring and control
systems may prove inadequate. Purchasers of Common Stock should also be aware
that the Company, in many instances, may be able to make an acquisition
without any requirement under law or Nasdaq listing rules to seek shareholder
approval of the acquisition.

In January 1997, the Company expects to acquire 80% of the capital stock
of First Delaware Insurance Company for an acquisition price of approximately
$4.8 million. However, the Company has not yet executed a definitive
acquisition agreement with respect to such acquisition and there can be no
assurance that such acquisition can be consummated on the terms or within the
time frame currently contemplated. See "The Company -- First Delaware
Insurance Company Acquisition."

HIGHLY COMPETITIVE NATURE OF INSURANCE INDUSTRY

The property and casualty insurance market is highly competitive.
Competition is based on many factors, including perceived financial strength
of the insurer, premiums charged, policy terms and conditions, service,
reputation and experience. The Insurance Companies compete with stock
insurance companies, mutual companies, local cooperatives and other
underwriting organizations. Certain of these competitors have substantially
greater financial, technical and operating resources than the Insurance
Companies. Many of the lines of insurance written by the Insurance Companies
are subject to significant price competition. Some companies may offer
insurance at lower premium rates through the use of salaried personnel,
rather than the use of agents paid on a commission basis as the Insurance
Companies do, or other methods. See "Business -- Competition."

POSSIBLE ADVERSE IMPACT OF CHANGE IN A.M. BEST RATING

Ratings assigned by A.M. Best Company, Inc. ("A.M. Best") are an important
factor influencing the competitive position of insurance companies. A.M. Best
ratings are based upon factors of concern to policyholders

17
<PAGE>

and are not directed toward the protection of investors. As such, the
Company's A.M. Best rating should not be relied upon as a basis for an
investment decision to purchase Common Stock hereunder. A.M. Best affirmed an
"A-" (Excellent) rating (its fourth highest out of 15 rating categories) for
the Group in February 1996 based on year-end 1995 financial data. The
Insurance Companies had $3.7 million of net catastrophe losses directly
attributable to severe winter weather for the nine-month period ended
September 30, 1996. Accordingly, there can be no assurance that the Group
will be able to maintain its current rating. The Insurance Companies believe
that their business is sensitive to ratings and that a rating downgrade may
affect their ability to underwrite new business. As a result, if the Group
were to experience a rating downgrade, the Company's business and results of
operations could be materially adversely affected. See "Business -- A.M. Best
Rating."

POSSIBLE ADVERSE IMPACT OF REGULATORY CHANGES

The Insurance Companies are subject to substantial regulation by
government agencies in the states in which they do business. Such regulation
usually includes (i) regulating premium rates, policy forms, and lines of
business, (ii) setting minimum capital and surplus requirements, (iii)
imposing guaranty fund assessments and requiring residual market
participation, (iv) licensing companies and agents, (v) approving accounting
methods and methods of setting loss and expense reserves, (vi) setting
requirements for and limiting the types and amounts of investments, (vii)
establishing requirements for the filing of annual statements and other
financial reports, (viii) conducting periodic statutory examinations of the
affairs of insurance companies, (ix) approving proposed changes in control,
(x) limiting the amount of dividends that may be paid without prior
regulatory approval, (xi) regulating transactions with affiliates, and (xii)
regulating trade practices and market conduct. Such regulation and
supervision are primarily for the benefit and protection of policyholders and
not for the benefit of investors. The insurance regulatory structure has been
subject to increased scrutiny in recent years by federal and state
legislative bodies and state regulatory authorities.

In 1990, the National Association of Insurance Commissioners (the "NAIC")
began an accreditation program to ensure that states have adequate procedures
in place for effective insurance regulation, especially with respect to
financial solvency. The accreditation program requires that a state meet
specific minimum standards in over 5 regulatory areas to be considered for
accreditation. The accreditation program is an ongoing process and once
accredited, a state must enact any new or modified standards approved by the
NAIC within two years following adoption. As of September 30, 1996,
Pennsylvania, the state in which the Insurance Companies are domiciled, was
accredited.

The NAIC has adopted risk-based capital ("RBC") requirements that require
insurance companies to calculate and report information under a risk-based
formula that attempts to measure statutory capital and surplus needs based on
the risks in a company's mix of products and investment portfolio. The
formula is designed to allow state insurance regulators to identify weakly
capitalized companies. The RBC requirements provide for four different levels
of regulatory attention in the event of noncompliance with required capital
levels that range from a requirement to file a corrective plan of action to
mandatory seizure. The Insurance Companies have never failed to exceed the
required levels of capital. There can be no assurance that the capital
requirements applicable to the business of the Insurance Companies will not
increase in the future.

The NAIC has also developed a set of financial ratios, referred to as the
Insurance Regulatory Information System (IRIS), for use by state insurance
regulators in monitoring the financial condition of insurance companies. The
NAIC has established an acceptable range of values for each of the IRIS
financial ratios. Generally, an insurance company will become the subject of
increased scrutiny where four or more of its IRIS ratio results fall outside
the range deemed acceptable by the NAIC. During the last three years, each of
the Insurance Companies reported results outside the acceptable range for
certain IRIS tests. See "Business -- Regulation."

No assurance can be given that future legislation or regulatory changes
will not adversely affect the business and results of operations of the
Insurance Companies. See "Business -- Regulation."

Adverse legislative and regulatory activity constraining the Insurance
Companies' ability adequately to price automobile, workers' compensation and
other insurance coverages may occur in the future. In recent years, insurers
in certain states have been under pressure from regulators, legislatures and
special interest groups to reduce, freeze or set rates at levels that may not
correspond with current underlying costs. The Insurance Com-

18
<PAGE>

panies presently do not operate in such states and management of the Company
has no present intent to operate in such states absent favorable prospects
for approval of adequate rates. In addition, as a condition of their license
to do business, the Insurance Companies are required to participate in a
variety of mandatory residual market mechanisms (assigned risk plans and
mandatory pools) that provide certain insurance coverages (most notably
automobile insurance coverages) to consumers who are otherwise unable to
obtain such coverages from private insurers. Losses or assessments from
residual market mechanisms cannot be predicted with certainty and could have
a material adverse effect on the Company's business and results of
operations.

DEPENDENCE UPON DIVIDENDS FROM INSURANCE COMPANIES

Because the operations of the Company following the Conversion will be
conducted through its subsidiaries, the Insurance Companies, the Company will
be dependent upon dividends and other payments from the Insurance Companies
for funds to meet its obligations. Pennsylvania law regulates the
distribution of dividends and other payments by the Insurance Companies to
the Company. Such restrictions or any subsequently imposed restrictions may
in the future affect the Company's ability to pay debt, expenses and cash
dividends to its shareholders. See "Dividend Policy" and "Business --
Regulation."

AVAILABILITY AND ADEQUACY OF REINSURANCE

The Insurance Companies' insurance operations rely on the use of
reinsurance arrangements to limit and manage the amount of risk retained, to
stabilize underwriting results and increase underwriting capacity. The
availability and cost of reinsurance are subject to prevailing market
conditions and may vary significantly over time. No assurance can be given
that reinsurance will continue to be available to the Insurance Companies in
the future at commercially reasonable rates. While the Insurance Companies
seek to obtain reinsurance with coverage limits that they believe are
appropriate for the risk exposures assumed, there can be no assurance that
losses experienced by the Company will be within the coverage limits of the
Insurance Companies' reinsurance treaties and facultative arrangements. The
Insurance Companies also are subject to credit risk with respect to their
reinsurers because the ceding of risk to reinsurers does not relieve the
Insurance Companies of their liability to insureds. The insolvency or
inability of any reinsurer to meet its obligations may have a material
adverse effect on the business and results of operations of the Company. See
"Business -- Reinsurance."

RELIANCE ON EXISTING MANAGEMENT

The operations of the Company and the Insurance Companies to date have
been largely dependent on existing management. The loss to the Company or the
Insurance Companies of one or more of their existing executive officers could
have a material adverse effect on their business and results of operations.
The Company has entered into employment agreements with the executive
officers of the Company and the Insurance Companies. See "Management of the
Company -- Executive Officers," "-- Certain Benefit Plans and Agreements."

MANAGEMENT'S DISCRETION IN ALLOCATION OF PROCEEDS

The Company has received Department approval to exchange $16.0 million of
net proceeds from the Offering for all of the capital stock of Old Guard
Mutual, Old Guard Fire and Goschenhoppen to be issued in the Conversion. The
Company will retain the balance of the net proceeds. The net proceeds
retained by the Company will be available for a variety of corporate
purposes, including additional capital contributions, future acquisitions and
diversification of business, and dividends to shareholders. However,
management has discretion in determining the actual manner in which net
proceeds will be applied. The precise use, amounts and timing of the
application of proceeds will depend upon, among other things, the funding
requirements of the Insurance Companies, the availability of other funds, and
the existence of acquisition opportunities. See "Use of Proceeds."

POTENTIAL BENEFITS OF CONVERSION TO MANAGEMENT AND IMPACT OF PURCHASES BY
MANAGEMENT AND STOCK BENEFIT PLANS

It is currently expected that directors and executive officers of the
Insurance Companies and their associates will subscribe for approximately
50,750 shares of the Common Stock to be issued in the Conversion, or 1.5% at
the midpoint of the Estimated Valuation Range, and that the ESOP will
purchase 10% of the shares to

19
<PAGE>

be issued in the Conversion. In addition, following the Conversion, and
subject to shareholder approval, the Company will implement a management
recognition plan (the "MRP"), under which employees and directors would be
awarded (at no cost to them) an aggregate amount of Common Stock equal to 4%
of the shares issued in the Conversion and a stock compensation plan (the
"Compensation Plan"), under which employees and directors would be granted
(at no cost to them) options to purchase an aggregate amount of Common Stock
equal to 10% of the shares issued in the Conversion at an exercise price
equal to the Purchase Price. At the minimum, midpoint and maximum of the
Estimated Valuation Range, assuming all options granted under the
Compensation Plan were exercised and all shares issued pursuant to the
exercise of the options and all shares held by the MRP were newly issued
shares, such persons would receive, in the aggregate, 399,490, 469,980 and
540,484 shares, respectively, or in each case, 12.3% of the then outstanding
Common Stock. In addition to the possible financial benefits under the stock
benefit plans, management could benefit from certain statutory and regulatory
provisions, as well as certain provisions in the Company's Articles of
Incorporation and Bylaws, that may tend to promote the continuity of existing
management and discourage certain acquisition proposals.

As a result of the foregoing, management could acquire a substantial
interest in the Company and, if each member of management were to act
consistently with each other, could have significant influence over the
outcome of the election of directors and any shareholder vote, especially
matters requiring the approval of 80% of the Company's outstanding Common
Stock, such as certain business combinations. Management might thus have the
power to authorize actions that may be viewed as contrary to the best
interests of non-affiliated holders of Common Stock and might have
substantial power to block actions that such holders may deem to be in their
best interests. See "Pro Forma Data," "Management -- Certain Benefit Plans
and Agreements," "The Conversion -- Proposed Management Purchases," "Certain
Restrictions on Acquisition of the Company."

DILUTIVE EFFECT OF MRP AND STOCK OPTIONS

The Company has adopted the Compensation Plan and the MRP, both of which
will be subject to shareholder approval at the Company's first annual meeting
of shareholders after the Conversion. Under the MRP, employees and directors
would be awarded, at no cost to them, an aggregate amount of Common Stock
equal to 4% of the shares issued in the Conversion, and under the
Compensation Plan, employees and directors would be granted options to
purchase an aggregate amount of Common Stock equal to 10% of the shares
issued in the Conversion at the Purchase Price. Under the MRP, the shares
issued to directors and employees could be newly issued shares or shares
purchased in the open market. In the event the shares issued to the MRP and
pursuant to the exercise of options granted under the Compensation Plan
consist of newly issued shares of Common Stock, the interests of existing
shareholders would be diluted. See "Pro Forma Data" and "Management --
Certain Benefit Plans and Agreements -- Stock Compensation Plan" and "--
Management Recognition Plan."

RISK OF LEGAL CHALLENGE

To the knowledge of the Insurance Companies, the Conversion is the first
mutual to stock conversion of solvent mutual insurance companies under the
Act. Passage of the Act was supported by the Department. The Act is very
similar to laws enacted in Illinois and Michigan and is based upon federal
legislation governing mutual to stock conversions of savings and loans under
which several hundred conversion transactions have been successfully
completed. The Act eliminates any requirement to distribute surplus to
policyholders and instead authorizes the grant to policyholders of a first
priority right to purchase stock in a converting insurance company. No
significant opposition to the Act or the Conversion has arisen as of the date
hereof. However, under the Act, a legal challenge to the Conversion, which
could be based on procedural grounds or a constitutional challenge to the
Act, can be brought up to thirty (30) days after approval of the Plan by
Eligible Policyholders at the Special Meetings. The Conversion is expected to
close prior to expiration of this 30-day period regardless of whether any
legal challenge is mounted. The Company would vigorously oppose any such
legal challenge. However, if a legal challenge to the Conversion were
initiated, such challenge could have a material adverse effect on the market
price of the Common Stock pending resolution of the challenge and, if the
challenge were successful, there could be a material adverse effect on the
financial condition and results of operations of the Company.

20
<PAGE>

ARTICLES OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS THAT COULD
DISCOURAGE HOSTILE ACQUISITIONS OF CONTROL

The Company's Articles of Incorporation and Bylaws contain certain
provisions that may have the effect of discouraging a non-negotiated tender
or exchange offer for the Common Stock, a proxy contest for control of the
Company, the assumption of control of the Company by a holder of a large
block of Common Stock or the removal of the Company's management, all of
which certain shareholders might deem to be in their best interests. These
provisions include, among other things (i) the classification of the terms of
the members of the Board of Directors, (ii) supermajority provisions for the
approval of certain business combinations and amendment of the Articles of
Incorporation or Bylaws of the Company, (iii) elimination of cumulative
voting in the election of directors, and (iv) restrictions on the voting of
the Company's equity securities by any individual, entity or group owning
more than 10% of the Common Stock. The provisions in the Company's Articles
of Incorporation requiring a supermajority vote for the approval of certain
business combinations and containing restrictions on voting of the Company's
equity securities provide that the supermajority voting requirements and
voting restrictions do not apply to business combinations and acquisitions of
voting Common Stock meeting specified Board of Director approval
requirements. The Articles of Incorporation also authorize the issuance of
5,000,000 shares of preferred stock as well as additional shares of Common
Stock. These shares could be issued without shareholder approval on terms or
in circumstances that could deter a future takeover attempt.

In addition, the Pennsylvania Business Corporation Law (the "Pennsylvania
BCL") provides for certain restrictions on acquisition of the Company, and
Pennsylvania law contains various restrictions on acquisitions of control of
insurance holding companies.

The Articles of Incorporation, Bylaw and statutory provisions, as well as
certain other provisions of state and federal law, may have the effect of
discouraging or preventing a future takeover attempt not supported by the
Company's Board of Directors in which shareholders of the Company otherwise
might receive a substantial premium for their shares over then-current market
prices. For a detailed discussion of those provisions, see "Management --
Certain Benefit Plans and Agreements," "Certain Restrictions on Acquisition
of the Company," "Certain Anti-Takeover Provisions in the Articles of
Incorporation and Bylaws" and "Description of Capital Stock."

ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK

The Company has never issued capital stock, and consequently there is no
established market for the Common Stock. The Company has received preliminary
approval to have the Common Stock quoted on the Nasdaq NMS under the symbol
"OGGI," conditioned upon completion of the Conversion. Hopper Soliday, Legg
Mason and McDonald each have advised the Company that, upon completion of the
Conversion, it intends to act as a market maker in the Common Stock, subject
to market conditions and compliance with applicable laws and regulatory
requirements. There can be no assurance that an active and liquid trading
market for the Common Stock will develop or that, if one develops, it will
continue, nor is there any assurance that persons purchasing Common Stock
will be able to sell the Common Stock at or above the Purchase Price. See
"Market for the Common Stock."

21
<PAGE>

THE COMPANY

GENERAL

The Company was incorporated under the laws of the Commonwealth of
Pennsylvania in May 1996 for the purpose of serving as a holding company for
the Insurance Companies upon the acquisition of all of their capital stock in
connection with the Conversion. The Company has received approval from the
Department to acquire control of the Insurance Companies subject to
satisfaction of certain conditions. Prior to the Conversion, the Company has
not engaged and will not engage in any significant operations. Upon
completion of the Conversion, the Company's primary assets will be the
outstanding capital stock of the Insurance Companies and a portion of the net
proceeds of the Conversion.

Management believes that the holding company structure will permit the
Company to expand the services beyond those currently offered through the
Insurance Companies, although there are no definitive plans or arrangements
for such expansion at present. As a holding company, the Company will have
greater flexibility to diversify its business activities through existing or
newly formed subsidiaries or through the issuance of capital stock to
facilitate acquisitions or mergers or to obtain additional financing in the
future. See "First Delaware Insurance Company Acquisition" and "New Castle
Insurance Company Investment" below. The portion of the net proceeds from the
sale of Common Stock in the Conversion that the Company will contribute to
the Insurance Companies will substantially increase the Insurance Companies'
surplus which will, in turn, enhance policyholder protection and increase the
amount of funds available to support both current operations and future
growth. After the Conversion, the Company will be classified as a holding
company and will be subject to regulation by the Department.

The Company's executive offices are located at 2929 Lititz Pike,
Lancaster, Pennsylvania 17604, and its main telephone number is (717)
569-5361.

FIRST DELAWARE INSURANCE COMPANY ACQUISITION

Management expects that in January 1997, Old Guard Investment Holding
Company, Inc. ("Old Guard Investment"), a subsidiary of the Insurance
Companies (Old Guard, Old Guard Fire and Goschenhoppen own 79.0%, 15.4% and
5.6% of Old Guard Investment, respectively), will execute an agreement with
First Delaware Insurance Company ("First Delaware"), a Delaware insurance
company, and International Corporation ("IC"), First Delaware's sole
shareholder, pursuant to which Old Guard Investment will acquire 80% of the
capital stock of First Delaware. The acquisition will be made through a
combination of (i) a $3 million cash investment in First Delaware in exchange
for a number of shares of First Delaware common stock equal to $3 million
divided by 1.5 times the GAAP book value per share of First Delaware as of
the month end immediately preceding the closing date and (ii) the purchase
from IC for cash of a number of additional shares of First Delaware, at a
price per share equal to 1.5 times the GAAP book value per share of First
Delaware, such that Old Guard Investment will hold 80% of the stock of First
Delaware after closing. Management estimates that the total acquisition price
will equal approximately $4.8 million. Old Guard Investment expects to
finance the acquisition of the common stock of First Delaware by drawing on
an existing $7.0 million line of credit with Dauphin Deposit Bank and Trust
Company ("Dauphin") which provides for advances for terms not to exceed 60
months, an amortization schedule not to exceed 120 months, monthly payments
and an interest rate equal to either (i) Dauphin's floating base rate, less
1/2% or (ii) a fixed rate offered at Dauphin's sole discretion (the "Line of
Credit").

At closing, which is expected to occur in January 1997, Old Guard
Investment and IC will execute a shareholder agreement that, among other
things, will prohibit IC from transferring its remaining 20% interest in
First Delaware prior to December 31, 2003 to anyone other than Old Guard
Investment or an affiliate of Old Guard Investment. The shareholder agreement
also gives the parties certain "put" and "call" rights prior to December 31,
2003 during specified periods with respect to the remaining 20% of the common
stock of First Delaware held by IC at a purchase price of between 1 and 1.5
times then current GAAP book value per share. The exercise price of the put
or call varies depending upon the time period when the put or call is
exercised and is payable in cash or Common Stock at the election of the party
exercising the put or call right. In addition, after December 30, 1999, IC
can relinquish its put right and extinguish Old Guard Investment's call right
in exchange for a payment from Old Guard Investment to IC of 10% of the put
price.

22
<PAGE>

Upon closing, the First Delaware Board of Directors will consist of up to
five members, three of whom will be elected by Old Guard Investment. David E.
Hosler, the Chairman of the Company, will become Chairman of First Delaware.
First Delaware and Commonwealth Insurance Managers, Inc. ("CIMI"), a
subsidiary of Old Guard Investment, also will execute a management agreement
pursuant to which CIMI will provide management advice on actuarial services,
reinsurance purchasing, investment management, management information
systems, security custody services, independent accounting/auditing services,
human resource services and employee benefits. In order to retain the
services of the two principals of First Delaware, First Delaware will enter
into employment agreements acceptable to Old Guard Investment with such
principals.

The acquisition of First Delaware furthers the Company's strategic goals
of geographic and product line diversification because First Delaware's
business is principally commercial lines, including surety business in the
Delaware and Maryland markets. The Insurance Companies intend to renew their
current commercial writings in Delaware and the Eastern Shore of Maryland
with First Delaware and support a planned expansion of First Delaware into
Virginia. At September 30, 1996, First Delaware had $4.3 million in assets
and $1.8 million in equity. For the nine months ended September 30, 1996,
First Delaware had direct premiums written of $2.8 million and net income of
$120,000. For the year ended December 31, 1995, First Delaware had direct
premiums written of $3.3 million and net income of $150,000.

Notwithstanding the Company's expectations, no definitive agreement with
respect to such acquisition has yet been executed. Unless and until such
agreement has been executed, there can be no assurance that such acquisition
can be consummated within the time or on the terms presently contemplated.

NEW CASTLE INSURANCE COMPANY INVESTMENT

On December 23, 1996, Old Guard Investment executed an Investment
Agreement with New Castle Mutual Insurance Company ("New Castle"), a Delaware
insurance company that is licensed in Delaware and Pennsylvania and sells
primarily homeowners and other personal property and casualty lines through
independent agents. Pursuant to the Investment Agreement, Old Guard
Investment, or an affiliate designated by Old Guard Investment, purchased a
$1.0 million convertible surplus note. After the Conversion, Old Guard
Investment, or an affiliate designated by Old Guard Investment, will
purchase, from time to time, up to an additional $3.0 million of convertible
surplus notes based on cancellation of reinsurance or an increase in the
ratio of net premiums written to statutory surplus to an amount in excess of
2.9%. The surplus notes will bear interest payable monthly at a floating rate
equal to Dauphin's base rate with a maximum interest rate of 10%. All
principal amounts under the surplus notes will be due at maturity on January
1, 2007. Old Guard Investment expects to finance this investment by drawing
on the Line of Credit. The Investment Agreement contains customary
representations, warranties, covenants and conditions to closing.

The surplus notes will be convertible into common stock of New Castle if,
but only if, New Castle converts from mutual to stock form. The surplus notes
will be convertible into that number of shares of common stock of New Castle
equal to the greater of (i) the principal balance of the surplus notes
divided by (A) the price at which a share of common stock of New Castle is
offered and sold in a mutual to stock conversion of New Castle, if such an
offering is made, or (B) the value assigned to a share of New Castle common
stock distributed to New Castle policyholders in a mutual to stock conversion
of New Castle, if such a distribution is made, or (ii) the number of
authorized shares of common stock of New Castle multiplied by a fraction the
numerator of which is the principal amount of the surplus notes and the
denominator of which is the statutory surplus of New Castle on the last day
of the month immediately preceding a mutual to stock conversion of New
Castle. New Castle has covenanted to use its best efforts to convert from
mutual to stock form within three years from the date of the initial surplus
note purchase.

New Castle has also agreed that it will reconstitute its board to consist
of seven members with three members nominated for election as proposed by Old
Guard Investment. Subject to election, David E. Hosler will become Chairman
of New Castle. New Castle also will enter into a management contract with
CIMI pursuant to which CIMI will provide advice on actuarial services,
reinsurance purchasing, investment management, security custody services,
independent accounting/auditing services, human resource services and
employee benefits.

23
<PAGE>

The surplus note investment in New Castle furthers the Company's strategic
goal of geographic diversification because New Castle's business is
principally located in the Delaware market. At September 30, 1996, New Castle
had $5.2 million in assets on a statutory basis and $1.6 million in statutory
surplus. For the nine months ended September 30, 1996, New Castle had direct
premiums written of $7.6 million and statutory net loss of $215,000. For the
year ended December 31, 1995, New Castle had direct premiums written of $10.7
million and a statutory net loss of $749,000.

THE INSURANCE COMPANIES

Old Guard Mutual, Old Guard Fire and Goschenhoppen are each Pennsylvania
mutual insurance companies that currently operate as members of the Group.
The Group also includes Neffsville, which is not a party to the Plan. The
Insurance Companies are property and casualty insurers of farms, small and
medium-sized businesses and residents primarily in rural and suburban
communities in Pennsylvania, Maryland and Delaware. The Insurance Companies
market farmowners, homeowners and businessowners policies, as well as
personal and commercial automobile, workers' compensation and commercial
multi-peril coverages through approximately 1,600 independent agents.

The Insurance Companies operate under a reinsurance pooling agreement
pursuant to which all premium revenue, loss and loss adjustment expense are
ceded to Old Guard Mutual and a fixed percentage of those items is retroceded
by Old Guard Mutual to Old Guard Fire and Goschenhoppen. The allocation of
pooled revenue and expense is determined by the parties and is currently as
follows: Old Guard Mutual - 60%, Old Guard Fire - 29% and Goschenhoppen -
11%. Investment income and investment gains and losses are not pooled. In
addition, Neffsville reinsures 90% of its book of business with Old Guard
Mutual.

Old Guard Mutual. Old Guard Mutual was originally chartered in 1896. At
September 30, 1996, Old Guard Mutual had total assets of $116.1 million
(prior to the elimination of intercompany accounts in consolidation) and
equity of $22.5 million.

Old Guard Fire. Old Guard Fire was originally chartered in 1872. At
September 30, 1996, Old Guard Fire had total assets of $36.1 million (prior
to the elimination of intercompany accounts in consolidation) and equity of
$11.0 million.

Goschenhoppen. Goschenhoppen was originally chartered in 1843. At
September 30, 1996, Goschenhoppen had total assets of $23.4 million (prior to
the elimination of intercompany accounts in consolidation) and equity of $4.1
million.

The Insurance Companies are subject to examination and comprehensive
regulation by the Department. See "Business -- Regulation."

24
<PAGE>

USE OF PROCEEDS

The Company has received Department approval to exchange $16.0 million of
net proceeds from the Offering for all of the capital stock of Old Guard
Mutual, Old Guard Fire and Goschenhoppen to be issued in the Conversion.
Assuming net proceeds (less ESOP debt) of between $22.6 million and $31.2
million, the Company will retain between $8.1 million and $16.7 million after
acquiring the stock of the Insurance Companies.

The net proceeds retained by the Company will be available for a variety
of corporate purposes, including additional capital contributions, future
acquisitions and diversification of business and dividends to shareholders.
The Company expects to use approximately $5.8 million of the net proceeds to
repay Dauphin under the Line of Credit to be used by Old Guard Investment in
connection with the acquisition of First Delaware and the investment in New
Castle. In the event that the First Delaware acquisition is not completed,
those proceeds will be added to the Company's working capital. With the
exception of dividends and the pending acquisition of First Delaware and the
investment in New Castle, the Company currently has no specific plans,
arrangements or understandings regarding any of the foregoing activities. See
"Dividend Policy," "The Company -- Acquisition of First Delaware Insurance
Company" and -- Investment in New Castle Mutual Insurance Company."

The net proceeds used to effect the exchange of the stock of the Insurance
Companies will become part of their capital, thereby expanding underwriting
capacity and permitting diversification of their businesses. Any payment of
dividends to the Company will be limited by regulatory restrictions on
capital distributions by the Insurance Companies. See "Business --
Regulation."

The amount of proceeds from the sale of Common Stock in the Offering will
depend upon the total number of shares actually sold, the relative
percentages of Common Stock sold in the Subscription, Community and Public
Offerings and the actual expenses of the Conversion. As a result, the net
proceeds from the sale of Common Stock cannot be determined until the
Conversion is completed. Set forth below are the estimated net proceeds to
the Company, assuming the sale of Common Stock at the minimum, midpoint and
maximum of the Estimated Valuation Range, based upon the following
assumptions: (i) shares of Common Stock will be sold as follows: (a) 50% of
the shares will be sold in the Subscription and Community Offerings of which
(1) 38.5% of the shares will be sold to policyholders and the community with
respect to which the Company will pay a 3% commission to Hopper Soliday and
(2) 11.5% of the shares will be sold to the ESOP and directors, officers and
employees with respect to which no commission will be paid to Hopper Soliday,
and (b) 50% of the shares will be sold in the Public Offering with respect to
which the Underwriters will receive an underwriting discount of 6.5%; (ii)
the purchase of the shares sold to the ESOP will be financed with the
proceeds of a loan; and (iii) other Conversion expenses, not including sales
commissions, will be approximately $1.5 million. The foregoing assumptions
regarding estimated purchases in the Subscription, Community and Public
Offerings are illustrative only and are not based on comparable transactions.
The Company is not aware of any recent comparable transactions. Actual
expenses may vary from those estimated.

<TABLE>
<CAPTION>
Minimum of Midpoint of Maximum of
2,853,500 3,357,000 3,860,600
shares at shares at shares at
$10.00 $10.00 $10.00
per share per share per share
------------ ------------- ------------
(In thousands)
<S> <C> <C> <C>
Gross proceeds of Offering(1) ................. $28,535 $33,570 $38,606
Less estimated expenses, including
underwriting fees ........................ 3,107 3,329 3,551
------------ ------------- ------------
Estimated net proceeds ........................ 25,428 30,241 35,055
Less ESOP debt .............................. 2,854 3,357 3,861
------------ ------------- ------------
Estimated net proceeds less ESOP debt ....... $22,574 $26,884 $31,194
============ ============= ============

</TABLE>

(1) Does not include the conversion of the American Re Surplus Note because
such conversion results only in the conversion of debt to equity but no
additional proceeds.

25
<PAGE>

DIVIDEND POLICY

Payment of dividends on the Common Stock is subject to determination and
declaration by the Company's Board of Directors. Any dividend policy of the
Company will depend upon the financial condition, results of operations and
future prospects of the Company. At present, the Company intends to pay an
annual dividend of $.10 per share. However, there can be no assurance that
dividends will be paid or, if paid initially, that they will continue to be
paid in the future. In addition, because the Company initially will have no
significant source of income other than dividends from the Insurance
Companies and earnings from investment of the net proceeds of the Conversion
retained by the Company, the payment of dividends by the Company will depend
significantly upon receipt of dividends from the Insurance Companies, which
is subject to significant regulatory restrictions. See "Business --
Regulation."

Unlike the Insurance Companies, the Company is not subject to regulatory
restrictions on the payment of dividends to shareholders. The Company is
subject to the requirements of the Pennsylvania BCL, which generally permits
dividends or distributions to be paid as long as, after making the dividend
or distribution, the Company will be able to pay its debts in the ordinary
course of business and the Company's total assets will exceed its total
liabilities plus the amount that would be needed to satisfy the preferential
rights upon dissolution of holders of stock with senior liquidation rights if
the Company were to be dissolved at the time the dividend or distribution is
paid.

MARKET FOR THE COMMON STOCK

The Company has never issued any capital stock. Consequently, there is no
established market for the Common Stock. The Common Stock has been approved
for quotation on the Nasdaq NMS under the symbol "OGGI" upon completion of
the Conversion.

Hopper Soliday, Legg Mason and McDonald each have advised the Company
that, upon completion of the Conversion, it intends to act as a market maker
in the Common Stock, subject to market conditions and compliance with
applicable laws and regulatory requirements. The development of a public
market having the desirable characteristics of depth, liquidity and
orderliness, however, depends upon the presence in the marketplace of a
sufficient number of willing buyers and sellers at any given time, over which
neither the Company nor any market maker has any control. Accordingly, there
can be no assurance that an established and liquid market for the Common
Stock will develop, or if one develops, that it will continue. Furthermore,
there can be no assurance that purchasers will be able to resell their shares
of Common Stock at or above the Purchase Price after the Conversion.

26
<PAGE>

CAPITALIZATION

The following table sets forth information regarding the combined
historical capitalization of the Insurance Companies at September 30, 1996
and the pro forma consolidated capitalization of the Company giving effect to
the sale of Common Stock at the minimum, midpoint and maximum of the
Estimated Valuation Range based upon the assumptions set forth under "Use of
Proceeds." For additional financial information regarding the Insurance
Companies, see the Combined Financial Statements and related Notes appearing
elsewhere herein. Depending on market and financial conditions, the total
number of shares to be issued in the Conversion may be significantly
increased or decreased above or below the midpoint of the Estimated Valuation
Range. No resolicitation of subscribers and other purchasers will be made
unless the final appraised value of the Insurance Companies is below the
minimum or above the maximum of the Estimated Valuation Range. A change in
the number of shares to be issued in the Conversion may materially affect the
Company's pro forma capitalization. See "Use of Proceeds" and "The Conversion
- -- Stock Pricing and Number of Shares to be Issued."

<TABLE>
<CAPTION>
Pro Forma Consolidated
Capitalization of the Company
Based on the Sale of
----------------------------------------
Historical
Combined
Capitalization
of the
Insurance 2,853,500 3,357,000 3,860,600
Companies at shares at shares at shares at
September 30, $10.00 $10.00 $10.00
1996(1) per share per share per share
------------------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Long-term ESOP debt(2) ..................... $ -- $ 2,854 $ 3,357 $ 3,861
=========== =========== ===========
Subordinated debt(3) ....................... 1,500 -- -- --
Shareholders' equity(4): ==========
Common stock, no par value per share:
authorized -- 15,000,000 shares;
shares to be outstanding -- as shown(5) -- 26,928 31,741 36,555
Unearned Employee Stock Ownership Plan
compensation .......................... -- (2,854) (3,357) (3,861)
Retained earnings -- substantially
restricted ............................ 36,357 36,357 36,357 36,357
Unrealized gains ......................... 1,312 1,312 1,312 1,312
------------------- ----------- ----------- -----------
Total shareholders' equity ............... $39,169 $61,743 $66,053 $70,363
=================== =========== =========== ===========
</TABLE>

- ------
(1) Subsequent to September 30, 1996 and prior to completion of the
Conversion, Old Guard Investment expects to borrow an aggregate of
approximately $5.8 million under the Line of Credit in connection with
the acquisition of First Delaware and the investment in New Castle. See
"The Company -- First Delaware Insurance Company Acquisition" and "-- New
Castle Insurance Company Investment." The Company will repay the amount
borrowed by Old Guard Investment in connection with the New Castle
investment and, if completed, the First Delaware acquisition from
proceeds of the Offering. See "Use of Proceeds."

(2) Assumes that 10% of the shares of Common Stock to be sold in the
Conversion are purchased by the ESOP, and that the funds used to purchase
such shares are borrowed from an unaffiliated lender. Although repayment
of such debt will be secured solely by the shares purchased by the ESOP,
the Company expects to make discretionary contributions to the ESOP in an
amount at least equal to the principal and interest payments on the ESOP
debt. The approximate amount expected to be borrowed by the ESOP is
reflected in this table as borrowed funds. See "Management -- Certain
Benefit Plans and Agreements -- Employee Stock Ownership Plan" and "Pro
Forma Data."

(3) Subordinated debt consists of a surplus note payable by Old Guard Mutual
to American Re. This surplus note will be assigned to the Company in
exchange for 150,000 shares of Common Stock upon completion of the
Conversion.

(4) Pro forma shareholders' equity is not intended to represent the fair
market value of the Common Stock, the net fair market value of the
Company's assets and liabilities or the amounts, if any, that would be
available for distribution to shareholders in the event of liquidation.
Such pro forma data may be materially affected by a change in the number
of shares to be sold in the Conversion and by other factors.

27
<PAGE>

(5) Does not reflect additional shares of Common Stock that could be
purchased pursuant to the Compensation Plan, if implemented, under which
directors, executive officers and other employees of the Company would be
granted options to purchase an aggregate amount of Common Stock equal to
10% of the shares issued in the Conversion (335,700 shares at the
midpoint of the Estimated Valuation Range) at an exercise price equal to
the Purchase Price. Implementation of the Compensation Plan requires
shareholder approval. See "Management -- Certain Benefit Plans and
Agreements -- Stock Compensation Plan" and "Investment Considerations --
Dilutive Effect of MRP and Stock Options."

PRO FORMA DATA

The following pro forma condensed combined balance sheet as of September
30, 1996 gives effect to the Conversion and implementation of the ESOP as if
they had occurred as of September 30, 1996 and assumes that 2,853,500 shares
of Common Stock (the minimum number of such shares required to be sold) are
sold in the Offering and the Public Offering. The following pro forma
condensed combined statements of income for the year ended December 31, 1995
and the nine months ended September 30, 1996 present combined operating
results for the Insurance Companies as if the Conversion and implementation
of the ESOP had occurred as of January 1, 1995. The pro forma financial
statements combine the accounts of Old Guard Mutual, Old Guard Fire and
Goschenhoppen. Pursuant to the Plan, each of the Insurance Companies will
convert from a Pennsylvania-chartered mutual insurance company to a
Pennsylvania-chartered stock insurance company and simultaneously issue
shares of its capital stock to the Company in exchange for a portion of the
net proceeds from the sale of Common Stock in the Conversion. The Conversion
will be accounted for as a simultaneous reorganization, recapitalization and
share offering which will not change the historical accounting basis of the
Insurance Companies' financial statements. Completion of the Conversion is
contingent on the sale of a minimum of 2,853,500 shares of Common Stock. If
less than 2,853,500 shares of Common Stock are sold in the Offering, the
remaining shares, up to a maximum of 3,860,600 shares, will be sold in the
Public Offering.

The unaudited pro forma information does not purport to represent what the
Insurance Companies' financial position or results of operations actually
would have been had the Conversion and implementation of the ESOP occurred on
the dates indicated, or to project the Insurance Companies' financial
position or results of operations for any future date or period. The pro
forma adjustments are based on available information and certain assumptions
that the Insurance Companies believe are reasonable in the circumstances. The
unaudited pro forma combined financial information should be read in
conjunction with the accompanying notes thereto, and the other financial
information pertaining to the Insurance Companies included elsewhere in this
Prospectus.

The pro forma adjustments and pro forma combined amounts are provided for
information purposes only. The Insurance Companies' financial statements will
reflect the effects of the Conversion and implementation of the ESOP only
from the dates such events occur.

28
<PAGE>

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Combined Adjustments Combined(5)
------------ ------------- -----------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed income securities, available for sale, at fair
value ............................................... $ 69,786 $25,428 (1) $ 95,214
Preferred stocks, at fair value ........................ 5,100 5,100
Common stocks, at fair value ........................... 6,425 6,425
Other invested assets .................................. 318 318
------------ ------------- -----------
Total investments ...................................... 81,629 25,428 107,057
Cash and cash equivalents ................................ 3,737 3,737
Premiums receivable ...................................... 7,911 7,911
Reinsurance recoverables and unearned premiums ........... 25,659 25,659
Deferred policy acquisition costs, net ................... 5,934 5,834
Accrued investment income ................................ 1,103 1,103
Deferred income taxes, net ............................... 2,371 2,371
Property and equipment, net .............................. 6,164 6,164
Receivable from affiliate ................................ 413 413
Other assets ............................................. 2,717 2,717
------------ ------------- -----------
Total assets ............................................. $137,538 $25,428 $162,966
============ ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses ........ $ 56,799 $ 56,799
Unearned premiums ...................................... 35,774 35,774
Accrued expenses ....................................... 2,203 2,203
Subordinated debt ...................................... 1,500 $(1,500)(2) 0
Other liabilities ...................................... 3,593 2,854 (3) 6,447
------------ ------------- -----------
Total liabilities ...................................... 99,869 1,354 100,223
------------ ------------- -----------
Shareholders' equity:
Common stock ........................................... 26,928 (4) 26,928
Unearned Employee Stock Ownership Plan compensation .... (2,854)(3) (2,854)
Retained earnings ...................................... 36,357 36,357
Unrealized capital gains (losses) on securities, net of
deferred income taxes ............................... 1,312 1,312
------------ ------------- -----------
Total shareholders' equity ............................. 37,669 24,074 61,743
------------ ------------- -----------
Total liabilities and shareholders' equity ............... $137,538 $23,428 $162,966
============ ============= ===========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet

29
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) The pro forma adjustment to reflect the Conversion is as follows:

<TABLE>
<CAPTION>
<S> <C>
Issuance of 2,853,500 shares at $10/share $28,535
Estimated conversion expenses .................................. (3,107)
---------
Net proceeds from conversion ................................... $25,428
=========
</TABLE>

(2) Pro forma adjustment to effect the conversion of a $1,500 surplus note by
American Re into 150,000 shares of Common Stock at $10.00 per share.

(3) Upon completion of the Conversion, the Company will implement an ESOP for
the benefit of participating employees. The ESOP will borrow funds from
an unaffiliated lender in an amount sufficient to purchase 10% of the
Common Stock issued upon Conversion or $2,854. The ESOP loan is assumed
to bear interest at 8% per year and require monthly payments of
approximately $35 for a term of ten years. The ESOP will be accounted for
in accordance with Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public
Accounts. Accordingly, the Company will report the loan to the ESOP as a
liability on the Company's combined balance sheet with a corresponding
charge to unearned ESOP compensation, a contra-equity account.

(4) The effect of adjustments (1) and (2).

(5) The unaudited pro forma combined balance sheet, as prepared, gives effect
to the sale of Common Stock at the minimum of the Estimated Valuation
Range based upon the assumptions set forth under "Use of Proceeds." The
following table provides a comparison between the sale of Common Stock at
the minimum and maximum of the Estimated Valuation Range.

<TABLE>
<CAPTION>
Minimum Maximum
--------- ---------
<S> <C> <C>
Net proceeds from Conversion ............... $25,428 $35,055
Conversion of American-Re Subordinated debt $ 1,500 $ 1,500
ESOP loan .................................. $ 2,854 $ 3,861
</TABLE>

30
<PAGE>

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Combined Adjustments Combined(5)
------------ ------------- -------------
<S> <C> <C> <C>
Revenue:
Net premiums earned ............................ $66,663 $ 66,663
Investment income, net of expenses ............. 4,458 4,458
Net realized investment gains .................. 1,011 1,011
Other revenue .................................. 274 274
------------ ------------- -------------
Total revenue .................................. 72,406 0 72,406
------------ ------------- -------------
Expenses:
Losses and loss adjustment expenses ............ 50,509 50,509
Amortization of deferred policy acquisition
costs ....................................... 17,611 17,611
Operating expenses ............................. 5,655 194 (1) 5,849
Interest expense ............................... 222 (2) 222
------------ ------------- -------------
Total expenses ................................. 73,775 416 74,191
------------ ------------- -------------
Loss before income tax benefit ................... (1,369) (416) (1,785)
Income tax benefit ............................... (685) (141)(3) (826)
------------ ------------- -------------
Net loss ......................................... $ (684) $(275) $ (959)
============ ============= =============
Earnings per share data:
Net income (loss) per share of common stock .... $ (0.35)
=============
Weighted average number of shares of common
stock outstanding ........................... 2,727,850(4)
=============
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Statement of Income.

31
<PAGE>

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Combined Adjustments Combined(5)
------------ ------------- -------------
<S> <C> <C> <C>
Revenue:
Net premiums earned ........................... $39,705 $ 39,705
Investment income, net of expenses ............ 3,434 3,434
Net realized investment gains ................. 1,328 1,328
Other revenue ................................. 484 484
------------ ------------- -------------
Total revenue ................................. 44,951 0 44,951
------------ ------------- -------------
Expenses:
Losses and loss adjustment expenses ........... 34,548 34,548
Amortization of deferred policy acquisition
costs ...................................... 9,079 9,079
Operating expenses ............................ 5,330 156 (1) 5,486
Interest expense .............................. 157 (2) 157
------------ ------------- -------------
Total expenses ................................ 48,957 313 49,270
------------ ------------- -------------
Loss before income tax benefit ................ (4,006) (313) (4,319)
Income tax benefit ............................ (1,458) (106)(3) (1,564)
------------ ------------- -------------
Net loss ...................................... $(2,548) $(207) $ (2,755)
============ ============= =============
Earnings per share data:
Net income (loss) per share of common stock ... $ (1.00)
=============
Weighted average number of shares of common
stock outstanding .......................... 2,745,350(4)
=============
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Statement of Income

32
<PAGE>

NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) Pro forma adjustment to recognize compensation expense under ESOP for
shares committed to be released to participants as the ESOP loan is
repaid.

(2) Pro forma adjustment to recognize interest expense under the $2,854 ESOP
Loan at the assumed rate of 8% for 10 years (approximately $35 monthly).

(3) Adjustment to reflect the federal income tax effects of (1) and (2)
above.

(4) Calculation of weighted average number of shares outstanding:

<TABLE>
<CAPTION>
Total Shares Less: Encumbered Shares
Issued ESOP Shares Outstanding
-------------- ---------------- -------------
<S> <C> <C> <C>
January 1, 1995 ..... 3,003,500 (285,350) 2,718,150
ESOP shares released . 19,400 19,400
-------------- ---------------- -------------
December 31, 1995 ... 3,003,500 (265,950) 2,737,550
ESOP shares released . 15,600 15,600
-------------- ---------------- -------------
September 30, 1996 .. 3,003,500 (250,350) 2,753,150
============== ================ =============
</TABLE>

ESOP shares are released evenly throughout each of the periods and
therefore the weighted average number of shares outstanding is determined by
adding beginning of period and end of period shares outstanding and dividing
by two.

(5) The unaudited pro forma combined statements of income, as prepared, give
effect to the sale of Common Stock at the minimum of the Estimated
Valuation Range based upon the assumptions set forth under "Use of
Proceeds." The following table provides a comparison between the sale of
Common Stock at the minimum and maximum of the Estimated Valuation Range.

<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
-------------------------- -------------------------
Minimum Maximum Minimum Maximum
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Compensation expense ............................ $194 $ 263 $ 156 $ 211
Interest expense ................................ $222 $ 299 $ 157 $ 211
Net income (loss) ............................... ($959) ($1,055) ($2,755) ($2,827)
Net income (loss) per share of Common Stock ..... ($0.35) ($0.29) ($1.00) ($0.77)
Weighted average number of shares of Common Stock
outstanding .................................... 2,727,850 3,637,690 2,745,350 3,661,390
</TABLE>

33
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company has only recently been formed and, accordingly, has no results
of operations. As a result, this discussion relates to the Insurance
Companies.

This analysis of the Insurance Companies' combined financial condition and
results of operations should be read in conjunction with the Insurance
Companies' Combined Financial Statements and the other financial data
regarding the Insurance Companies found elsewhere in this Prospectus. The
discussion covers the Insurance Companies' combined financial condition and
results of operations for the three months and nine months ended September
30, 1996 and September 30, 1995 and for the three years ended December 31,
1995. The Insurance Companies' fiscal years end on December 31, and reference
herein to a particular year means, unless otherwise stated, the fiscal year
ended on December 31 of that year.

NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE
MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1995

Premiums. Direct premiums written increased 4.9% for the nine months ended
September 30, 1996, compared to the same period in 1995. Personal automobile,
commercial auto and workers' compensation all increased in excess of 11.0%
for the nine months ended September 30, 1996 compared to the corresponding
period in 1995, while all other lines were either relatively stable or
declined slightly from period to period. The continuing focus on liability
business is intended to balance the overall book of business between property
and liability exposures. The relatively stable premium volume in other lines
is attributable to premium rate increases that were offset by policyholders
replacing coverage with lower cost providers. The farmowners line also
increased, by 5.0%, during the nine months ended September 30, 1996 due to
premium rate increases and reacquiring business lost due to pricing
competition in 1994 and 1995. Personal automobile now represents 22.1% of the
total book of business, up from 20.8% at September 30, 1995, while homeowners
is down slightly to 26.2%.

Direct premiums written increased 7.5% for the three months ended
September 30, 1996 compared to the same period in 1995. Farmowners,
commercial multi-peril, personal automobile, commercial auto and workers'
compensation all increased in excess of 7.0% during the three months ended
September 30, 1996 compared to the corresponding period in 1995. All other
lines were either relatively stable or declined slightly from period to
period.

Written Premiums ceded to reinsurers increased $18.2 million to $27.9
million for the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995. The increase in premiums ceded was directly
attributable to the effects of instituting a quota share reinsurance treaty
between the Insurance Companies and American Re effective January 1, 1996.
Under the treaty, the Insurance Companies cede 20% of all premium revenue,
after all other reinsurance ceded, in exchange for American Re assuming 20%
of all losses and loss adjustment expense. The Insurance Companies receive a
35% ceding commission under the treaty. Ceded premiums written and ceded
premiums earned under the treaty amounted to $16.9 million and $10.1 million,
respectively, for the nine months ended September 30, 1996. This reinsurance
treaty is designed to lessen the potential financial impact of catastrophic
or severe weather-related losses and has had, and will continue to have, a
material effect on the financial condition and results of operations of the
Insurance Companies.

Written premiums ceded to reinsurers increased $4.2 million, or 131.9% for
the three months ended September 30, 1996 compared to the three months ended
September 30, 1995. The increase in premiums ceded was directly attributable
to the quota share reinsurance treaty. Ceded premiums written and ceded
premiums earned under the treaty amounted to $3.7 million and $3.9 million,
respectively, for the three months ended September 30, 1996.

Net premiums written decreased $15.3 million, or 30.5%, for the nine
months ended September 30, 1996 to $34.8 million from $50.1 million for the
nine months ended September 30, 1995. For the same comparative

34
<PAGE>

periods, net premiums earned decreased $8.8 million, or 18.1%, to $39.7
million from $48.5 million. The decreases in net premiums written and net
premiums earned were directly attributable to the effects of instituting the
quota share reinsurance treaty between the Insurance Companies and
American-Re.

Net premiums written decreased $2.3 million, or 14.0% for the three months
ended September 30, 1996, to $14.5 million from $16.8 million for the three
months ended September 30, 1995. For the same comparative periods, net
premiums earned decreased $2.8 million, or 17.4% to 13.4 million from $16.2
million. The decreases in net premiums written and net premiums earned were
directly attributable to the effects of instituting the quota share
reinsurance treaty between the Insurance Companies and American-Re.

Net Investment Income. Cash and invested assets decreased $13.0 million,
or 13.2%, to $85.4 million as of September 30, 1996 compared to $98.4 million
as of September 30, 1995. The yield on the average cash and invested assets
remained stable at 4.9% for the nine months ended September 30, 1996 and
1995. Although the September 30, 1996 cash and invested asset balance
declined substantially in comparison to September 30, 1995, the average cash
and invested balance for each of the nine month periods remained relatively
level. The level average invested asset balance and stable yields resulted in
less than a 1.0% increase in net investment income to $3.4 million for the
nine month period ended September 30, 1996. Additionally, interest income of
$53,000 in 1996 was generated from funds advanced to Neffsville. These
advances were necessary due to the abnormal claim activity and the method of
billing premiums employed by Neffsville.

Net investment income of $1.05 million for the three months ended
September 30, 1996 was $48,000 less than the comparable period in 1995. The
decrease was attributable to the significant cash outflows experienced during
the third quarter of 1996. These outflows included settlement of the quota
share cessions from the first quarter, repayment of $750,000 of principal on
the American Re Surplus Note and continuing settlement of winter storm
claims. Cash and invested assets were down by $13.0 million compared to
September 30, 1995.

Net Realized Investment Gains. Net realized investment gains were $1.3
million for the nine months ended September 30, 1996 compared to $650,000 for
the same period in 1995. The adverse claims experience of the first half of
1996 placed a severe burden on the Insurance Companies' cash flow and,
accordingly, certain investments in bonds and preferred stocks were
liquidated to meet cash needs. In addition, certain investment portfolio
restructurings took place during the first nine months of 1996. Interest rate
and general economic conditions in 1996 also created capital gains
opportunities. For the three months ended September 30, 1996 and 1995 net
realized investment gains were at comparable levels.

Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
increased by $657,000, or 1.9%, to $34.5 million for the nine months ended
September 30, 1996 from $33.9 million for the nine months ended September 30,
1995. Net losses and loss adjustment expenses increased during 1996 due to
substantial numbers of insurance claims arising out of abnormally severe
winter storms during January 1996. Net catastrophic losses arising directly
out of these storms amounted to $3.7 million. In addition, non-storm related
losses and loss adjustment expenses increased by $7.1 million for the nine
months ended September 30, 1996 compared to the nine months ended September
30, 1995 primarily because of increases in winter, fire and wind related
claims. The magnitude of the difference in non-storm related losses and loss
adjustment expenses between the nine months ended September 30, 1996 and the
nine months ended September 30, 1995 was accentuated by exceptionally
favorable experience during the first nine months of 1995. These net losses
and loss adjustment expenses for the nine months ended September 30, 1996,
totalling $10.8 million, were reduced by implementation of the 20% quota
share reinsurance treaty effective January 1, 1996 pursuant to which the
Insurance Companies ceded $9.0 million of losses and loss adjustment expenses
during the nine months ended September 30, 1996. Also, the Insurance
Companies recovered reinsurance of $2.5 million from their aggregate excess
of loss reinsurer. Loss and loss adjustment expenses were 87.0% of net
premiums earned for the nine months ended September 30, 1996, compared to
69.8% of net premiums earned in the same period in 1995.

For the three months ended September 30, 1996 net losses and loss
adjustment expenses were $8.9 million. This represents a decrease of $2.1
million or 19.5% compared to net losses and loss adjustment expenses for the
three months ended September 30, 1995. This decrease is attributable to the
quota share reinsurance treaty which

35
<PAGE>

reduced losses by $2.3 million for the three months ended September 30, 1996.
Losses and loss adjustment expenses were 66.4% of net premiums earned for the
three months ended September 30, 1996 compared to 68.2% of net earned
premiums earned for the same period in 1995.

Underwriting Expenses. Underwriting expenses were $14.2 million for the
nine months ended September 30, 1996, a decrease of $3.5 million, or 20.0%,
compared to the same period in 1995. The reduction is primarily due to a $3.7
million reduction in amortization of policy acquisition costs arising out of
the implementation of the quota share reinsurance treaty offset by a $185,000
increase in operating expenses. Expenses for the three months ended September
30, 1996 were $500,000 lower than the comparable period in 1995 for the
reasons stated above.

Other Expenses. A nonrecurring expense incurred in the first nine months
of 1996 was the writeoff of a $250,000 surplus note investment in an
unaffiliated Missouri insurance company whose surplus is impaired. Old Guard
Mutual had an agreement to acquire this company but the agreement was
terminated by Old Guard Mutual because of a deterioration in the financial
condition of that company. See Note 15 to the Combined Financial Statements.

Federal Income Tax Expense (Benefit). The federal income tax benefit for
the nine months ended September 30, 1996, was $1.5 million compared to an
expense of $252,000 for the nine months ended September 30, 1995. The
decrease in the Insurance Companies' effective federal income tax rate was
attributable to the loss for the nine months ended September 30, 1996. For
the comparable three month periods federal income tax expense was consistent
with operating results.

Net Income. The Insurance Companies had a net loss of $2.5 million for the
nine months ended September 30, 1996 compared to net income of $916,000 for
the nine months ended September 30, 1995, primarily as a result of the
foregoing factors. Net income for the third quarter was $400,000 for both
1996 and 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Premiums. The Insurance Companies experienced a slight increase in direct
premiums written in 1995 of $102,000 that was concentrated in personal
automobile, which grew 5.5%, and homeowners, which grew 3.2%. Farmowners and
workers' compensation direct premiums declined by 3.6% and 2.4%,
respectively. The increases in personal lines premiums were the result of new
business as well as modest rate increases. Farmowners writings declined due
to competitive rate pressures and workers' compensation writings declined due
to rate decreases arising out of improvements in loss experience attributable
to legislative initiatives in 1993.

Premiums ceded to reinsurers decreased $1.4 million for the year ended
December 31, 1995 compared to the year ended December 31, 1994. The decrease
in premiums ceded in 1995 arose from: (i) a $1.5 million reduction in
catastrophe reinsurance premiums due primarily to charges in 1994 for
reinstatements of coverage as well as a mid-term placement of an additional
cover in 1994, both of which arose directly as a result of 1994 winter storm
events, and (ii) a redetermination of the expected ultimate premium rate for
retrospectively rated casualty excess of loss reinsurance coverage. This
result was offset slightly by an increase in certain pro rata cessions on
farmowners business due to revisions in the manner in which such business is
classified for reinsurance coverage purposes.

Net premiums written increased $1.5 million, or 2.2%, for the year ended
December 31, 1995 to $67.1 million from $65.6 million in 1995. For the same
comparative periods, net premiums earned increased by $3.2 million, or 5.2%,
to $66.7 million from $63.5 million. The increase in net premiums earned was
the result of the previously discussed increase in direct premiums written,
the decrease in premiums ceded to reinsurers and an increase in the change in
unearned premiums of $1.7 million.

Net Investment Income. Cash and invested assets increased $10.3 million,
or 11.4%, to $100.5 million for the year ended December 31, 1995 from $90.2
million for the year ended December 31, 1994. For the year ended December 31,
1995, the yield on invested assets was 4.7% compared to 4.1% for the year
ended December 31, 1994. The net result of these changes was that net
investment income increased $526,000, or 15.4%, to $4.5 million for the year
ended December 31, 1995 from $3.9 million in 1994. Components of the increase
in net investment income arose from an increase in gross income from fixed
income securities of $785,000, or 21.4%,

36
<PAGE>

a decrease in income from the preferred stock portfolio of $431,000 and a
decrease in investment expenses of $101,000. Income from the common stock
portfolio increased $134,000, and income from short-term and other
investments decreased by $63,000 accounting for the balance of the increase
in net investment income.

The increase in income from fixed income securities was attributable to a
shift in the portfolio from collateralized mortgage obligations ("CMOs") to
corporate obligations. The corporate obligations provided slightly higher
yields on a level investment base. The CMOs experienced an increase in the
rate of principal repayment as interest rates fell during 1995 and therefore
became a less attractive utilization of investment capital.

Limited cash flow in 1994 and early 1995, as well as declines in
short-term interest rates, caused short-term investment income to decline by
$74,000 in 1995 as compared to 1994.

The common stock portfolio, comprised primarily of growth stocks,
experienced an increase in dividend income due to the favorable results of
the equities comprising the portfolio. The composition of the portfolio and
general increases in dividend rates provided the Insurance Companies with the
aforementioned increase in investment income from this segment of the
portfolio.

Net Realized Investment Gains. Net realized investment gains were $1.0
million for the year ended December 31, 1995 compared to $476,000 in 1994.
The increase in investment gains occurred as part of the previously discussed
portfolio restructuring; a similar shift in the composition of the portfolio
did not occur in 1994 and far fewer securities were sold.

Underwriting Results. For the year ended December 31, 1995 the Insurance
Companies had an underwriting loss of $7.1 million and a combined ratio of
110.7% compared to an underwriting loss of $5.1 million and a combined ratio
of 108.0% for the year ended December 31, 1994. In both years the
underwriting loss was primarily attributable to severe weather in the
Insurance Companies' territory.

Losses and Loss Adjustment Expenses. Net losses and loss adjustment
expenses incurred increased by $4.1 million, or 8.8%, to $50.5 million for
the year ended December 31, 1995 from $46.4 million in 1994. Loss and loss
adjustment expenses were 75.8% of net premiums earned for the year ended
December 31, 1995 compared to 73.2% in 1994.

Affecting losses and loss adjustment expenses in both 1995 and 1994 were
several significant weather events that individually resulted in increased
property loss claims. In 1995 a series of localized wind storms produced $3.2
million of net claims. Because none of these events met the definition of a
catastrophe under the Insurance Companies' catastrophe reinsurance programs,
no catastrophe reinsurance recovery was made in 1995. The year 1994 produced
the single most significant claim event in the Insurance Companies' history.
Winter snow and ice storms produced nearly $19.2 million in gross claims.
After recoveries under catastrophe reinsurance programs, the Insurance
Companies incurred $3.1 million of net losses and loss adjustment expenses
from these winter storms. The respective impact of these storms on the loss
ratio was 4.8 percentage points and 4.9 percentage points for 1995 and 1994,
respectively. For the five year period preceding 1994 the Insurance Companies
never had a single event resulting in claims in excess of $2.7 million. The
1996 catastrophe reinsurance retention limit is $3.5 million.

Adjustments to loss reserves are made when analysis shows that reserve
levels were estimated higher or lower than is necessary. Any adjustment to
reserves is reflected as a charge or addition to income in the period in
which it is made. The increase in net losses and loss adjustment expenses
incurred in 1995 was attributable to the adverse development of prior year
losses and loss adjustment expense reserves of $2.4 million; favorable loss
reserve development occurred in 1994 and reduced losses and loss adjustment
expenses by $5.5 million. The effect of the adverse development in 1995
increased the loss and loss adjustment expense ratio by 3.7 percentage points
while the favorable development in 1994 decreased the ratio by 8.7 percentage
points. On an accident year basis the loss and loss adjustment expense ratio
was 72.1% in 1995 and 81.9% in 1994.

Underwriting Expenses. Underwriting expenses increased by $1.2 million, or
5.3%, for the year ended December 31, 1995 to $23.3 million from $22.1
million for 1994. This 5.3% increase in underwriting expenses is attributable
to increased policy acquisition costs and closely parallels the associated
5.2% increase in net premiums earned for the year ended December 31, 1995
compared to the year ended December 31, 1994. For the year ended December 31,
1995 the Insurance Companies had an underwriting expense ratio of 34.9%
compared to 34.8% for the year ended December 31, 1994.

37
<PAGE>

Federal Income Tax Expense. Federal income tax expense decreased $152,000,
resulting in a tax benefit of $684,000 in 1995 compared to a $532,000 tax
benefit in 1994. The decrease in federal income tax expense is attributable
to the decrease in taxable income in 1995 compared to 1994 offset by a
decrease in tax exempt income of $644,000 for 1995 compared to 1994.

Net Income. Net income decreased $828,000 to a $684,000 loss in 1995 from
net income of $144,000 in 1994 primarily as a result of the foregoing
factors.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Premiums. Direct premiums written increased $4.0 million, or 5.3% for the
year ended December 31, 1994 to $78.8 million from $74.8 million for the year
ended December 31, 1993. This increase in direct premiums written was
concentrated in personal lines of business as homeowners and automobile
writings increased in 1994 by 7.6% and 19.1%, respectively. These increases
were the result of new business, as well as modest rate increases. The
workers' compensation line of business experienced an 11.9% decline in direct
premiums written in 1994 due primarily to legislative action in Pennsylvania
that required a roll back in premium rates. These roll backs were deemed
appropriate due to corresponding legislation intended to assist in
controlling insurers' costs associated with workers' compensation claims.

Premiums ceded to reinsurers increased $1.7 million in 1994. This increase
in premiums ceded arose primarily due to an increase in the Insurance
Companies' catastrophe reinsurance premiums in 1994 arising out of
reinstatement charges that were required to be paid and management's decision
to purchase additional mid-year coverages. The additional premiums were the
result of severe winter weather in early 1994 that resulted in substantial
claim activity and ultimately in recoveries of losses under the catastrophe
reinsurance program.

Net premiums written increased $2.2 million, or 3.5%, for the year ended
December 31, 1994 to $65.6 million from $63.4 million in 1993. For the same
comparative periods, net premiums earned increased $2.5 million, or 4.1%, to
$63.5 million from $61.0 million. The increase in net premiums earned was
comprised of the $4.0 million increase in direct premiums written and an
increase in the change in unearned premiums of $200,000, offset by a $1.7
million increase in premiums ceded to reinsurers. The increase in net
unearned premiums arose from the increase in direct writings as well as the
restructuring of the Goschenhoppen reinsurance program from a pro rata
program to an excess of loss program.

Net Investment Income. Cash and invested assets decreased $9.5 million, or
9.5%, to $90.2 million for the year ended December 31, 1994 from $99.7
million for the year ended December 31, 1993. Although the 1994 year end
balance in cash and invested assets declined significantly, the average cash
and invested assets balance and the yield on cash and invested assets for
1994 of $94.9 million and 4.1%, respectively, were substantially unchanged
compared to 1993. The net result of these changes was that net investment
income was essentially flat, totaling $3.9 million for the years ended
December 31, 1994 and 1993. This was primarily due to demands on cash flow
associated with the severe winter in 1994 that did not permit the Insurance
Companies to significantly add to the average balance of investment
securities. Changes did occur, however, in the components of net investment
income. Investment income from investments in fixed income securities, cash
and cash equivalents and other investments increased $150,000 or 3.7% and
investment expenses decreased $11,000, or 0.8%, in 1994, while investment
income from investments in preferred and common stock decreased $157,000, or
12.2%, from 1993 to 1994. The shift in the mix of securities comprising the
portfolio resulted in the aforementioned shift in the composition of
investment income. During 1994, preferred stocks were de-emphasized and the
focus shifted to U.S. Government and corporate bonds. The primary motivation
for this shift arose from income tax considerations.

Net Realized Investment Gains. Net realized investment gains were $476,000
for the year ended December 31, 1994 compared to $1.8 million in 1993, a
decline of $1.3 million or 72.2%. The decrease in net realized investment
gains was attributable to a marked decline in the sale of available-for-sale
securities in 1994 compared to 1993 because sales in 1994 would have
generated losses due to higher interest rates during the period.

Underwriting Results. For the year ended December 31, 1994 the Insurance
Companies had an underwriting loss of $5.1 million and a combined ratio of
108.0% compared to an underwriting loss of $2.2 million and a combined ratio
of 103.5% for the year ended December 31, 1993.

38
<PAGE>

Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
increased $4.3 million, or 10.0%, to $46.4 million for the year ended
December 31, 1994 from $42.2 million in 1993. Losses and loss adjustment
expenses were 73.2% of premium revenue for the year ended December 31, 1994
compared to 69.1% for 1993. The majority of the aforementioned increase was
attributable to severe winter weather in early 1994. Snow, ice and water
damage claims produced record levels of loss activity. After recovery from
catastrophe reinsurers the net increase in losses and loss adjustment
expenses was $3.1 million, or 4.9%, of net premiums earned in 1994.

Underwriting Expenses. Underwriting expenses increased $1.1 million, or
5.2%, to $22.1 million for the year ended December 31, 1994 from $21.0
million in 1993. This 5.2% increase in underwriting expenses reflected an
increase in policy acquisition costs associated with the 4.1% increase in net
premiums earned for the year ended December 31, 1994 compared to the year
ended December 31, 1993 as well as additional costs attributable to the
restructuring of Goschenhoppen's reinsurance program in 1994. For 1994, the
underwriting expense ratio was 34.8% compared to an underwriting expense
ratio of 34.4% in 1993.

Federal Income Tax Expense. The Insurance Companies received a $533,000
federal income tax benefit for the year ended December 31, 1994 compared to
income tax expense of $383,000 for 1993. The decrease in federal income tax
expense in 1994 was attributable to the decrease in net income offset by a
reduction in tax exempt income of $1.2 million from amounts earned in 1993.

Net Income. The Insurance Companies had net income of $144,000 for the
year ended December 31, 1994 compared to net income of $3.4 million in 1993,
primarily as a result of the foregoing factors.

EFFECT OF PENDING TRANSACTIONS ON THE COMPANY'S FUTURE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The future financial condition and results of operations of the Company
will be affected by the Conversion and related transactions, the acquisition
of First Delaware and the investment in New Castle.

The Conversion. Upon completion of the Conversion, the Company's capital
will increase by between $24.1 million and $32.7 million, an increase of
approximately 63.9% to 86.8% over the combined capital of the Insurance
Companies at September 30, 1996. See "Use of Proceeds," "Capitalization" and
"Pro Form Data." This increased capitalization should permit the Company to
(i) further its business strategy of geographic diversification through
acquisitions, including the use of capital stock to effect such acquisitions,
(ii) increase direct premium volume to the extent competitive conditions
permit, (iii) increase net premium volume by decreasing the use of
reinsurance, and (iv) enhance investment income.

The Conversion will be accounted for as a simultaneous reorganization,
recapitalization and share offering which will not change the historical
accounting basis of the Insurance Companies' financial statements.

In connection with the Conversion, the ESOP intends to finance the
purchase of 10% of the Common Stock with a loan and the Company will make
annual contributions to the ESOP sufficient to repay the loan which the
Company estimates will total between $2.9 million and $3.9 million on a
pre-tax basis.

Acquisition of First Delaware. Old Guard Investment expects to acquire 80%
of the common stock of First Delaware through the purchase of shares directly
from First Delaware for $3.0 million and the purchase of additional shares
from the sole shareholder of First Delaware for approximately $1.8 million
for an aggregate investment of $4.8 million.

Old Guard Investment will finance this acquisition by drawing on the Line
of Credit which will be repaid from the proceeds of the Offering and the
Public Offering. Accordingly, the Company does not expect the acquisition
will have any future material impact on liquidity.

Although the acquisition of First Delaware is not a material transaction
to the Company on a consolidated basis, the Company believes that it
represents an important step in its strategic plan to grow and diversify
geographically through acquisitions. In addition, substantially all of First
Delaware's book of business is in commercial lines, including businessowners
and commercial multi-peril products and surety products, which are
distributed through independent agents. This furthers the Company's goal of
achieving a greater balance between personal and commercial lines. The $3.0
million infusion of additional capital also should permit First Delaware

39
<PAGE>

to increase writings. Finally, underwriting results for First Delaware have
been good. For the nine months ended September 30, 1996, First Delaware had a
combined ratio of 95.8% on net premiums earned of $1.2 million. For the year
ended December 31, 1995, First Delaware had a combined ratio of 90.0% on net
premium earned of $1.4 million. The Company has not yet executed a definitive
acquisition agreement with respect to the acquisition and accordingly there
can be no assurance that such acquisition will be consummated on the terms or
within the time frame currently contemplated.

Investment in New Castle. Old Guard Investment will initially purchase a
$1.0 million convertible surplus note from New Castle and will have a
commitment to purchase an additional $3.0 million of convertible surplus
notes, subject to certain conditions. The initial $1.0 million investment
will be financed by drawing on the Line of Credit which will be repaid with
the proceeds of the Offering and the Public Offering. Initially, because New
Castle will not be consolidated with the Company and no present plan exists
to include New Castle in the Insurance Companies' intercompany pooling
arrangement, the Company does not expect the investment to have any effect on
its financial condition, results of operation or liquidity. If New Castle
elects to convert from mutual to stock form, Old Guard Investment elects to
convert the surplus notes, and such conversion results in the indirect
control of New Castle by the Company, the result would be a material increase
in assets and direct premiums written.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the principal sources of the Insurance Companies' cash flow
have been premiums, investment income, maturing investments and proceeds from
sales of invested assets. In addition to the need for cash flow to meet
operating expenses, the liquidity requirements of the Insurance Companies
relate primarily to the payment of losses and loss adjustment expenses. The
short- and long-term liquidity requirements of the Insurance Companies vary
because of the uncertainties regarding the settlement dates for liabilities
for unpaid claims and because of the potential for large losses, either
individually or in the aggregate.

The Insurance Companies and their subsidiaries have in place unsecured
lines of credit with local financial institutions under which they may borrow
up to an aggregate of $9.2 million. At September 30, 1996, no amounts were
outstanding on these lines of credit, which has an annual interest rate equal
to the lending institutions' prime rate. Old Guard Investment intends to
borrow $1 million under one of these credit lines to finance its initial
investment in New Castle. See "The Company -- New Castle Insurance Company
Investment." In addition, at September 30, 1996, Old Guard Mutual had a $1.5
million surplus note outstanding. The holder has elected to exchange the $1.5
million balance of the surplus note for 150,000 shares of Common Stock of the
Company upon completion of the Conversion. See "The Conversion -- Surplus
Note."

Net cash provided by (used in) operating activities was $(14.5) million
during the nine months ended September 30, 1996 and was $4.9 million, ($2.9)
million and $8.4 million during the years ended December 31, 1995, 1994, and
1993, respectively. The decrease in net cash provided by operating activities
during the nine months ended September 30, 1996 was primarily attributable to
the net loss for the period and an increase in reinsurance recoverable. The
increase in net cash provided by operating activities in 1995 was primarily
attributable to the increase in net income and a decrease in reinsurance
recoverable. The increase in net cash used in operating activities in 1994
was primarily attributable to a net operating loss and an increase in
reserves for losses and loss adjustment expenses during 1994 compared to
1993, offset by an increase in deferred policy acquisition costs.

Net cash provided by investing activities was $9.5 million during the nine
months ended September 30, 1996. Net cash provided by investing activities
was ($3.3) million, $2.2 million, and ($9.5) million during the years ended
December 31, 1995, 1994 and 1993, respectively. The increase in net cash
provided by investing activities during the nine months ended September 30,
1996 primarily resulted from a decrease in the Insurance Companies'
fixed-income securities. The increase in net cash used in investing
activities in 1995 as compared to 1994 resulted primarily from the net
increase in cash available from the Company's operations during 1995. The
increase in net cash provided by investing activities in 1994 as compared to
1993 resulted primarily from the sale of fixed income and equity securities
materially exceeding the purchase of such securities.

In February 1996, Old Guard Investment and American Technologies, Inc., a
California based software lessor, entered into a lease financing agreement in
connection with the acquisition by the Insurance Companies of a new policy
processing software system for approximately $2.5 million. See "Business --
Strategy." The terms

40
<PAGE>

of the lease financing agreement provide for an aggregate lease facility up
to $1.5 million. The implied interest rate under the lease is 9.5%. As of
September 30, 1996, the lease facility was fully utilized. Under the terms of
the lease financing agreement, Old Guard Investment is required to make
payments of approximately $57,000 per month for 24 months.

The principal source of liquidity for the Company will be dividend
payments and other fees received from the Insurance Companies. The Company's
insurance subsidiaries, including the Insurance Companies, will be restricted
by the insurance laws of the state of domicile as to the amount of dividends
or other distributions they may pay to the Company without the prior approval
of the state regulatory authority. Under Pennsylvania law, the maximum amount
that may be paid by each of the Insurance Companies during any twelve-month
period after notice to, but without prior approval of, the Department cannot
exceed the greater of 10% of the Insurance Company's statutory surplus as
reported on the most recent annual statement filed with the Department, or
the net income of the Insurance Company for the period covered by such annual
statement. As of December 31, 1995, amounts available for payment of
dividends in 1996 without the prior approval of the Department would have
been approximately $2.0 million, $879,000 and $494,000 from Old Guard Mutual,
from Old Guard Fire and from Goschenhoppen, respectively. Such restrictions
or any subsequently imposed restrictions may in the future affect the
Company's liquidity.

The ESOP intends to borrow funds from an unaffiliated lender in an amount
sufficient to purchase 10% of the Common Stock issued in the Conversion.
Although the ESOP has not yet received a commitment from a lender with
respect to such a loan, based on preliminary discussions with potential
lenders the Company expects that the loan will bear an 8% interest rate, and
will require the ESOP to make monthly payments of approximately $35,000 for a
term of 10 years. The loan will be secured by the shares of Common Stock
purchased and earnings thereon. Shares purchased with such loan proceeds will
be held in a suspense account for allocation among participants as the loan
is repaid. The Company expects to contribute sufficient funds to the ESOP to
repay such loan, plus such other amounts as the Company's Board of Directors
may determine in its discretion.

EFFECTS OF INFLATION

The effects of inflation on the Insurance Companies are implicitly
considered in estimating reserves for unpaid losses and loss adjustment
expenses, and in the premium rate-making process. The actual effects of
inflation on the Insurance Companies' results of operations cannot be
accurately known until the ultimate settlement of claims. However, based upon
the actual results reported to date, it is management's opinion that the
Insurance Companies' loss reserves, including reserves for losses that have
been incurred but not yet reported, make adequate provision for the effects
of inflation.

41
<PAGE>

BUSINESS

GENERAL

The Company was organized at the direction of the Boards of Directors of
the Insurance Companies for the purpose of becoming a holding company for all
of the outstanding capital stock of the Insurance Companies. Upon Conversion,
the Insurance Companies will become wholly-owned subsidiaries of the Company.

The Insurance Companies underwrite property and casualty insurance,
concentrating on providing insurance to farms, small to medium-sized
businesses and residents primarily in rural and suburban communities in
Pennsylvania, Maryland and Delaware. Pennsylvania accounted for in excess of
93% of the direct premiums written for the nine-month period ended September
30, 1996 and for each of the years in the three-year period ended December
31, 1995. The Insurance Companies market farmowners, homeowners and
businessowners policies, as well as personal and commercial automobile,
workers' compensation and commercial multi-peril coverages through
approximately 1,600 independent agents located primarily in rural and
suburban communities. As of September 30, 1996, the Insurance Companies had
over 139,000 property and casualty policies in force.

Old Guard Mutual, Old Guard Fire and Goschenhoppen have underwritten
property and casualty insurance since 1896, 1872 and 1843, respectively. Old
Guard Mutual and Old Guard Fire are licensed to underwrite property and
casualty insurance in Delaware, Maryland and Pennsylvania. Goschenhoppen is
licensed only in Pennsylvania. At September 30, 1996, the consolidated assets
of the Insurance Companies were $137.5 million.

STRATEGY

The Company's principal strategies for the future are to:

-- Achieve geographic diversification of risk by acquisition of other
insurance companies or licensing of the Insurance Companies in other
jurisdictions with reduced or different loss exposure;

-- Improve the mix of business by increasing commercial writings and
emphasizing casualty coverages in order to enhance profitability and
lessen the impact of property losses on overall results; and

-- Improve efficiency and maintain the high level of personal service
delivered to agents and insureds through continued enhancement of the
Company's management information systems (MIS).

Management has taken steps to implement each of these strategies and views
the Conversion as a critical component of its strategic plan. The additional
capital generated by the Conversion will permit the Insurance Companies to
accelerate implementation of these strategies and the resulting holding
company structure will provide needed flexibility to achieve the Company's
goals.

Geographic Diversification. The Company's goal is to achieve geographic
diversification of risk outside Pennsylvania to areas with reduced or
different catastrophic loss exposure and in which management believes
insurers generally have been permitted to manage risk selection and pricing
without undue regulatory interference. Concentration of property insurance in
Pennsylvania has caused the Insurance Companies to be susceptible to
localized catastrophic events primarily related to severe weather. The
Company expects to accomplish geographic diversification principally through
acquisition but expects also to seek authority for the Insurance Companies to
do business in additional jurisdictions. The acquisition of an 80% interest
in First Delaware, if and when completed, and the investment in New Castle
represent initial steps to diversify geographically. See "The Company --
Acquisition of First Delaware Insurance Company" and "-- Investment in New
Castle Insurance Company."

Upon completion of the Conversion, the Company plans to seek additional
acquisitions outside Pennsylvania. The Company is currently targeting for
acquisitions companies located in jurisdictions adjacent to its current
markets and in the upper Midwest. Completion of the conversion will provide
funds for cash acquisitions and the holding company structure will facilitate
the use of capital stock for acquisitions as well. Insurance companies
acquired may be added to the existing reinsurance pool among the Insurance
Companies.

The determination whether to add acquired companies to the Insurance
Companies' intercompany reinsurance pooling arrangement will be made on a
case by case basis as acquisitions are completed. Some of the fac-

42
<PAGE>

tors considered in evaluating an acquired company for possible inclusion in
the reinsurance pool will include the acquired company's capital position,
the quality of the book of business, reserves for losses and loss adjustment
expenses, settlement practices, the lines of business written, existing
reinsurance relationships, the level of control which management of the
Insurance Companies will have over the operations of the acquired company,
and rating considerations.

Neither the Company nor Old Guard Investment will control New Castle after
purchase of the surplus notes and there are no present plans to add New
Castle to the intercompany pooling arrangement. Management of the Insurance
Companies has not yet determined whether First Delaware will be added to the
reinsurance pool in the event Old Guard Investment successfully completes the
acquisition of First Delaware. If First Delaware and/or New Castle are added
to the reinsurance pool, there will be no retroactive coverage.

Diversification of Lines of Business. The Insurance Companies have taken,
and will continue to take, steps to increase commercial and casualty premium
volume, both to reduce property loss exposure and to provide greater product
diversification from personal into commercial lines that may provide a
countercyclical balance to personal lines.

One such initiative is the introduction in the third quarter of 1996 of
new commercial multi-peril packages tailored to specific business and
industry segments chosen based on the experience of the underwriting staff
and market opportunities available to existing agents. These packages should
permit the Insurance Companies to serve larger commercial accounts as well as
to sell accompanying workers' compensation and commercial automobile
coverages. Another initiative is the introduction of tiered pricing for
workers' compensation coverage through a policy with more attractive pricing
and the opportunity for dividends. The acquisition of First Delaware
Insurance Company, which has a commercial book of business, will further the
goal of diversification into commercial lines.

Management believes that it has the opportunity to increase the volume of
casualty business by focused marketing to existing agents, many of whom have
traditionally associated the Insurance Companies with farm- related property
insurance and may not identify and choose the Insurance Companies for their
customers as providers of casualty line products. For example, currently less
than 20% of the Insurance Companies' farm and homeowner customers purchase
auto policies from the Insurance Companies. Management believes an increasing
share of this market is desirable and attainable given the existing
relationships among the Insurance Companies, its agents and its insureds.

Completion of the Conversion will supply the additional surplus necessary
to support substantially increased commercial and casualty premium volume.

Service Capabilities. Management believes the Insurance Companies have a
strong reputation for personal attention to agents and insureds. The
Insurance Companies have undertaken a program to enhance their MIS
capabilities, with the goal of improving efficiency, internal reporting and
service to agents and insureds, as well as facilitating acquisitions. The
Insurance Companies have been actively involved in the search, review,
selection, customization and testing of a new policy processing software
system since the second quarter of 1994. The licensing rights for the new
software system were acquired from Strategic Data Systems, Inc., an insurance
industry software specialty company. The software system is a personal
computer database system designed to eliminate most paperwork required in
traditional systems. Claims, billing and accounting functions are also fully
integrated in the new software system. The ability to operate multiple
companies, maintain on-line remote offices and enhancements in the quality
and timeliness of management information are additional benefits of the new
software system. Personal automobile is the first line of business being
phased into the new software system, and it is expected to begin processing
policies in early 1997. By 1999, management of the Insurance Companies
expects to integrate homeowners, farmowners and commercial lines of business
into the new software system. This new MIS environment should permit a
greater volume of business to be processed by the same or fewer number of
staff. It will also allow direct agent interface to enhance service to agents
and insureds and build upon the Insurance Companies' strong reputation in
this area.

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<PAGE>

PRODUCTS

The Insurance Companies offer a variety of property and casualty insurance
products primarily designed to meet the insurance needs of the rural and
suburban communities in which the Insurance Companies do business, including
their agricultural clients. The following tables set forth the direct
premiums written, net premiums earned, net loss ratios, expense ratios and
combined ratios by product line of the Insurance Companies for the periods
indicated:
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
------------------------------------------ --------------------------------------------------------------
% of % of % of % of % of
1996 Total 1995 Total 1995 Total 1994 Total 1993 Total
---------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Direct Premiums
Written:
Farmowners .... $12,663 20.2% $12,046 20.2% $15,494 19.7% $16,080 20.4% $15,319 20.5%
Homeowners .... 16,411 26.2 15,995 26.8 21,157 26.8 20,509 26.1 19,067 25.5
Businessowners
and
commercial
multi-peril . 8,409 13.4 8,307 13.9 11,083 14.1 10,587 13.4 10,367 13.9
Personal
automobile .. 13,864 22.2 12,401 20.7 16,810 21.3 15,928 20.2 13,376 17.9
Commercial
automobile .. 714 1.1 638 1.1 776 0.9 815 1.0 807 1.0
Workers'
compensation . 4,901 7.8 4,398 7.4 5,432 6.9 5,563 7.1 6,312 8.4
Fire, allied,
inland marine . 4,604 7.4 4,921 8.2 6,763 8.6 7,917 10.1 8,192 11.0
Other liability . 1,057 1.7 1,023 1.7 1,317 1.7 1,331 1.7 1,316 1.8
---------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Total .... $62,623 100.0% $58,729 100.0% $78,832 100.0% $78,730 100.0% $74,756 100.0%
========== ======== ========= ======== ========= ======== ========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
----------------------------------------- --------------------------------------------------------------
% of % of % of % of % of
1996(1) Total 1995(1) Total 1995 Total 1994 Total 1993 Total
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Premiums
Earned
Farmowners .... $ 7,375 18.6% $ 9,888 20.4% $13,413 20.1% $13,315 21.0% $13,368 21.9%
Homeowners .... 11,080 27.9 13,714 28.3 18,391 27.6 16,755 26.4 14,622 24.0
Businessowners
and
commercial
multi-peril . 5,230 13.2 6,362 13.1 8,828 13.2 8,387 13.2 8,548 14.0
Personal
automobile .. 9,405 23.7 10,336 21.3 14,459 21.7 12,521 19.8 11,402 18.7
Commercial
automobile .. 407 1.0 501 1.0 769 1.2 717 1.1 675 1.1
Workers'
compensation . 2,660 6.7 3,075 6.3 4,233 6.4 4,266 6.7 4,394 7.2
Fire, allied,
inland marine . 3,347 8.4 4,401 9.1 6,294 9.4 6,930 10.9 7,465 12.3
Other liability . 201 0.5 259 0.5 276 0.4 574 0.9 512 0.8
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Total .... $39,705 100.0% $48,536 100.0% $66,663 100.0% $63,465 100.0% $60,986 100.0%
========= ======== ========= ======== ========= ======== ========= ======== ========= ========
Net Loss Ratio
Farmowners .... 93.0% 77.8% 78.7% 78.8% 71.2%
Homeowners .... 103.0 81.1 80.8 98.0 83.3
Businessowners
and
commercial
multi-peril . 92.0 54.3 62.2 47.8 51.6
Personal
automobile .. 73.5 68.9 90.4 70.9 73.2
Commercial
automobile .. 75.7 63.7 70.9 53.8 35.1
Workers'
compensation 57.2 38.3 43.0 58.3 74.3
Fire, allied,
inland marine 75.6 48.5 53.4 49.7 50.1
Other liability . 55.2 327.2 326.3 49.9 83.9
Total .... 87.0% 69.8% 75.8% 73.2% 69.1%

44
<PAGE>
Nine Months
Ended September 30, Year Ended December 31,
----------------------------------------- --------------------------------------------------------------
% of % of % of % of % of
1996(1) Total 1995(1) Total 1995 Total 1994 Total 1993 Total
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
Expense Ratios
Farmowners .... 40.0% 39.4% 36.6% 34.1% 34.3%
Homeowners .... 32.1 34.3 39.0 39.7 39.3
Businessowners
and
commercial
multiple
peril ....... 44.1 43.7 41.2 36.4 36.1
Personal
automobile .. 20.5 24.1 22.6 24.0 24.5
Commercial
automobile .. 33.2 32.6 24.9 27.3 32.5
Workers'
compensation 20.6 26.2 23.6 25.7 29.1
Fire, allied,
inland marine 76.4 65.3 47.2 49.6 42.0
Other liability . 41.4 39.5 46.9 25.2 33.3
Total .... 35.7% 36.5% 34.9% 34.8% 34.4%
Combined
Ratios(2)
Farmowners .... 133.0% 117.2% 115.2% 112.8% 105.5%
Homeowners .... 135.1 115.4 119.7 137.7 122.6
Businessowners
and
commercial
multiple
peril ....... 136.1 97.9 103.4 84.1 87.7
Personal
automobile .. 94.1 92.9 113.1 94.8 97.7
Commercial
automobile .. 108.9 96.4 95.8 81.2 67.6
Workers'
compensation 77.8 64.6 66.7 84.1 103.4
Fire, allied,
inland marine 152.0 113.9 100.6 99.2 92.1
Other liability . 96.6 366.8 373.2 75.1 117.2
Total .... 122.7% 106.2% 110.7% 108.0% 103.5%
Industry
Combined
Ratio ....... -- -- 106.4% 108.4% 106.9%
</TABLE>

- ------
(1) Effective January 1, 1996, the Insurance Companies and American Re
entered into a quota share reinsurance treaty pursuant to which the
Insurance Companies cede 20% of their liability remaining after cessions
of excess and catastrophic risks through other reinsurance contracts. Pro
rata cessions of unearned premiums as of January 1, 1996 and the transfer
of premiums written during the nine months ended September 30, 1996
accounts, in part, for the decline in net premiums earned when the nine
months ended September 30, 1996 is compared to the nine months ended
September 30, 1995.

(2) A combined ratio over 100% means that an insurer's underwriting
operations are not profitable.

<PAGE>

FARMOWNERS POLICY.

The farmowners policy, developed in 1975, is a flexible, multi-line
package of insurance coverages. As a result of its flexible features, this
product can be adapted to meet the needs of a variety of agricultural and
related businesses, including a package designed for farmers with large dairy
operations. The farmowners policy combines property and liability insurance
for the farm owner, as well as owners of other agricultural related
businesses, such as nurseries and greenhouses. The largest numbers of
farmowners policies written by the Insurance Companies are for dairy, beef,
horse and crop farming risks. In general, standing crops are not insured
except under limited circumstances but harvested and stored crops generally
are insured. Policyholders may select property damage coverages for specific
peril groups, such as basic perils that include fire and allied lines,
extended coverage and vandalism or broad form and special perils. Personal
liability coverage insures policyholders against third party liability from
accidents occurring on their premises or arising out of their operations or
from their products. The farmowners policy contains a limited liability
extension of pollution-type coverage for damages caused to third persons or
their crops resulting from above-ground, off-premises contamination, such as
overspray of fertilizers and pesticides. As of September 30, 1996, the
Insurance Companies had approximately 11,500 farmowner policies in force.

HOMEOWNERS POLICY.

The Insurance Companies' homeowners policy, introduced in 1963, is a
multi-peril policy providing property and liability coverages and optional
inland marine coverage. The homeowners policy is sold to provide coverage for
the insured's principal residence. As of September 30, 1996, the Insurance
Companies had approximately 71,000 homeowners policies in force.

45
<PAGE>

BUSINESSOWNERS AND COMMERCIAL MULTI-PERIL.

Businessowners. The Insurance Companies introduced a businessowners policy
in 1983 that provides property and liability coverages to small businesses
within its rural and suburban markets. This product is marketed to six
distinct groups: (i) apartment owners with relatively small property-based
risks; (ii) condominium owners; (iii) landlords with dwelling properties of
up to four family units; (iv) mercantile businessowners, such as florists,
gift shops and antique dealers, with property-based risks; (v) offices with
owner and/or tenant occupancies; and (vi) religious institutions consisting
of smaller, rural properties. As of September 30, 1996, approximately 6,700
businessowners policies were in force.

Commercial Multi-Peril. The Insurance Companies also issue a number of
commercial multi-peril policies providing property and liability coverage to
accounts that, because of their larger size, do not meet the eligibility
requirements for the businessowners product. As of September 30, 1996,
approximately 1600 such policies were in force. The Insurance Companies are
working to increase market penetration for this product because it includes
commercial liability risks that help to diversify exposures and lessen the
impact of property losses on overall results. One such marketing initiative
is the promotion of commercial multi-peril packages targeted to the following
businesses: (i) food processing, (ii) retailing, (iii) manufacturing, (iv)
metal working, (v) offices, and (vi) service operations. These packages are
being written using existing policy forms and were chosen based on the
experience of the underwriting staff and market opportunities available to
existing agents. The packages are of a type generally written by larger
companies and should permit the Insurance Companies to sell commercial
packages as well as accompanying workers' compensation and commercial
automobile coverages to larger accounts.

PERSONAL AUTOMOBILE.

The Insurance Companies' personal automobile policy insures individuals
against claims resulting from injury and property damage and can be marketed
in conjunction with the Insurance Companies' other products, such as the
farmowners policy, the businessowners policy or the homeowners policy. As of
September 30, 1996, the Insurance Companies had approximately 20,000 personal
automobile policies in force.

COMMERCIAL AUTOMOBILE.

The Insurance Companies' commercial automobile policies are generally
marketed in conjunction with farmowners, businessowners or commercial
multi-peril policies. Commercial automobile is one of the Insurance
Companies' lower volume products. As of September 30, 1996, the Insurance
Companies had approximately 1,000 commercial automobile insurance policies in
force.

WORKERS' COMPENSATION.

The Insurance Companies generally write workers' compensation policies in
conjunction with farmowners policies, businessowners policies or other
commercial packages. However, the Insurance Companies may write stand-alone
workers' compensation policies. A recent initiative is tiered pricing for
workers' compensation coverage with the introduction of a policy with more
attractive pricing and the opportunity for dividends. As of September 30,
1996, approximately 80% of the Insurance Companies' in force workers'
compensation policies were written in connection with farmowners,
businessowners, or commercial multi-peril policies.

FIRE, ALLIED, INLAND MARINE.

Fire and allied lines insurance generally covers fire, lightning and
extended coverage. Inland marine coverage insures merchandise or cargo in
transit and business and personal property. The Insurance Companies offer
fire, allied and inland marine insurance coverage only as endorsements
available under the Insurance Companies' other insurance products.

OTHER LIABILITY.

Umbrella Liability. The Insurance Companies write commercial and personal
line excess liability policies covering business, farm and personal
liabilities in excess of amounts covered under the farmowners, homeowners,
businessowners, commercial multi-peril and automobile policies. Such policies
are available generally with

46
<PAGE>

limits of $1 million to $5 million. The Insurance Companies do not generally
market excess liability policies to individuals and farmowners unless they
also write an underlying liability policy. However, the Insurance Companies
may write excess liability coverage for commercial accounts without all
underlying liability coverages.

Commercial General Liability. The Insurance Companies write a stand-alone
commercial general liability policy for certain business situations that do
not meet the criteria for liability coverage under a farmowners,
businessowners or commercial multi-peril policy. The policy insures
businesses against third party liability from accidents occurring on their
premises or arising out of their operations or products. Most of the
Insurance Companies' products liability line is written as part of the
commercial general liability product.

MARKETING

The Insurance Companies market their property and casualty insurance
products in Pennsylvania, Maryland and Delaware through approximately 483
independent agencies: 454 in Pennsylvania, 27 in Maryland and 2 in Delaware.
These agencies collectively employ a force of 1,600 agents. The Insurance
Companies manage their agents through quarterly business reviews (with
underwriter participation) and establishment of benchmarks/goals for premium
volume. The Insurance Companies have managed a decline in the number of
agencies in recent years to eliminate low volume agencies and reduce
concentration in southern Pennsylvania. Most of the Insurance Companies'
independent agents represent multiple carriers and are established residents
of the rural and suburban communities in which they operate. The Insurance
Companies' independent agents generally market and write the full range of
the Insurance Companies' products. The Insurance Companies consider their
relationships with agents to be good.

As of September 30, 1996, no agency accounted for over 5% of direct
premiums written, with the top 10 agencies accounting for 18% of direct
premiums written. Average volume per agency is $163,000, with the largest
agency generating approximately $3.0 million in premium revenue for the
Insurance Companies.

The Insurance Companies emphasize personal contact between their agents
and the policyholders. The Insurance Companies believe that their name
recognition, policyholder loyalty and policyholder satisfaction with agent
and claims relationships are the principal sources of new customer referrals,
cross-selling of additional insurance products and policyholder retention.

The Insurance Companies' policies are marketed exclusively through their
network of independent agents. The Insurance Companies depend upon their
agency force to produce new business and to provide customer service. The
network of independent agents also serves as an important source of
information about the needs of the communities served by the Insurance
Companies. This information is utilized by the Insurance Companies to develop
new products and new product features.

Agency compensation is based on one of three compensation plans. Each
agency may elect: fixed base commission only, fixed base commission with some
opportunity for bonus commission based on the agency's loss experience, or
floating base commission based on the agency's three year loss ratio with
some opportunity to earn bonus commission depending on the agency's one-year
loss experience.

The Insurance Companies' independent agencies are supervised and supported
by agent representatives, who are employees of the Insurance Companies and
who have principal responsibility for recruiting agencies and training new
agents. To support its marketing efforts, the Insurance Companies develop and
produce print and radio advertising and hold seminars for agents. Agencies
are then able to purchase advertising (using prepared materials) in local
markets. The Insurance Companies and agent representatives conduct training
programs that provide both technical training about products and sales
training on how to market insurance products.

The Insurance Companies provide personal computer software to agencies
that allows them to quote rates on homeowners, farmowners, businessowners and
personal auto. In addition, a home page has been established on the Internet
for the public that is periodically updated with pertinent information about
the Insurance Companies and their products.

UNDERWRITING

The Insurance Companies seek to write their commercial and personal lines
by evaluating each risk with consistently applied standards. The Insurance
Companies maintain information on all aspects of their business

47
<PAGE>

that is regularly reviewed to determine product line profitability. The
Insurance Companies' staff of 24 underwriters generally specializes in farm,
personal or commercial lines. Specific information is monitored with regard
to individual insureds that is used to assist the Insurance Companies in
making decisions about policy renewals or modifications. The Insurance
Companies' underwriters have an average of over 14 years of experience as
underwriters. The Insurance Companies believe their extensive knowledge of
local markets is a key underwriting advantage.

The Insurance Companies rely on information provided by their independent
agents, who, subject to certain guidelines, also act as field underwriters
and pre-screen policy applicants. The independent agents have the authority
to sell and bind insurance coverages in accordance with pre-established
guidelines. Agents' underwriting results are monitored and on occasion agents
with historically poor loss ratios have had their binding authority removed
until more profitable underwriting results were achieved.

CLAIMS

Claims on insurance policies written by the Insurance Companies are
usually investigated and settled by one of the Insurance Companies' staff
claims representatives who work in teams led by a supervisor. Supervisors
report to the claims manager. As of September 30, 1996, the Insurance
Companies' claim staff included 29 claims representatives and 5 supervisors.
The Insurance Companies' claims philosophy emphasizes timely investigation,
evaluation and fair settlement of claims, while maintaining adequate case
reserves and controlling claim adjustment expenses. The claims philosophy is
designed to support the Insurance Companies marketing efforts by providing
prompt service and making the claims process a positive experience for agents
and policyholders.

Claims settlement authority levels are established for each representative
and claims manager based upon their level of experience. Claims are typically
reported by the agents. Multi-line teams exist to handle all claims.
Subrogation is centralized in the Lancaster, Pennsylvania office. The claims
department is responsible for reviewing all claims, obtaining necessary
documentation, estimating the loss reserves and resolving the claims. The
Insurance Companies engage independent appraisers and adjusters to evaluate
and settle claims as claims volume or specialized needs require.

The Insurance Companies attempt to minimize claims costs by encouraging
the use of alternative dispute resolution procedures. Less than 3% of all
claims result in litigation. Litigated claims are assigned to outside
counsel, who then work closely as a team with a staff claims representative.
Outside counsel must comply with a formal litigation management plan and all
bills are audited.

REINSURANCE

REINSURANCE CEDED

In accordance with insurance industry practice, the Insurance Companies
reinsure a portion of their exposure and pay to the reinsurers a portion of
the premiums received on all policies reinsured. Insurance is ceded
principally to reduce net liability on individual risks, to mitigate the
effect of individual loss occurrences (including catastrophic losses), to
stabilize underwriting results and to increase the Insurance Companies'
underwriting capacity.

Reinsurance can be facultative reinsurance or treaty reinsurance. Under
facultative reinsurance, each risk or portion of a risk is reinsured
individually. Under treaty reinsurance, an agreed-upon portion of business
written is automatically reinsured. Reinsurance can also be classified as
quota share reinsurance or excess of loss reinsurance. Under quota share
reinsurance, the ceding company cedes a percentage of its insurance liability
to the reinsurer in exchange for a like percentage of premiums less a ceding
commission, and in turn will recover from the reinsurer the reinsurer's share
of all losses and loss adjustment expenses incurred on those risks. Under
excess reinsurance, an insurer limits its liability to all or a particular
portion of the amount in excess of a predetermined deductible or retention.
Regardless of type, reinsurance does not legally discharge the ceding insurer
from primary liability for the full amount due under the reinsured policies.
However, the assuming reinsurer is obligated to reimburse the ceding company
to the extent of the coverage ceded. The Company generally places all of its
reinsurance directly without the use of brokers.

48
<PAGE>

The Insurance Companies determine the amount and scope of reinsurance
coverage to purchase each year based upon their evaluation of the risks
accepted, consultations with reinsurance representatives and a review of
market conditions, including the availability and pricing of reinsurance. For
the year ended December 31, 1995, the Insurance Companies ceded to reinsurers
$9.4 million of earned premiums. For the nine months ended September 30,
1996, the Insurance Companies ceded earned premiums of $20.6 million. The
significant increase in ceded premiums in the nine-month period ended
September 30, 1996 reflects the effect of a new quota share reinsurance
treaty that was effective as of January 1, 1996 and which is described
herein.

The Insurance Companies' reinsurance arrangements are placed with
non-affiliated reinsurers, principally American Re, and are generally
renegotiated annually. Coverages described herein are generally for the year
ended December 31, 1996.

Except for certain excluded classes of property and losses due to flood,
the largest exposure retained by the Insurance Companies on any one
individual property risk is $150,000. Excess reinsurance is provided on a
treaty basis in layers as follows: Individual property risks in excess of
$150,000 are covered on an excess of loss basis up to $500,000 per risk
pursuant to a reinsurance treaty with American Re and Munich-American
Reinsurance Company ("Munich Re"). Except for certain excluded classes of
property and losses due to flood and auto physical damage, per risk property
losses in excess of $500,000 but less than $2.0 million are reinsured on a
proportional treaty basis by American Re and Munich Re. Facultative coverage
also is available for certain property risks in excess of $2.0 million per
risk.

Individual casualty risks for most lines of business, excluding umbrella
liability, that are in excess of $100,000 are covered on an excess of loss
basis, up to $2.0 million per occurrence pursuant to a reinsurance treaty
with American Re. In addition, casualty losses arising from workers'
compensation claims are reinsured on a per occurrence and per person treaty
basis by various reinsurers up to $10.0 million. Umbrella liability losses
are reinsured by American Re on a 95% quota share basis up to $1.0 million
and a 100% quota share basis in excess of $2.0 million up to $5.0 million
with a ceding commission of 27.5%.

Catastrophic reinsurance protects the ceding insurer from significant
aggregate loss exposure arising from a single event such as windstorm, hail,
tornado, hurricane, earthquake, riot, blizzard, freezing temperatures or
other extraordinary events. The Insurance Companies have purchased layers of
excess treaty reinsurance for catastrophic property losses for 1996, under
which the Insurance Companies reinsure 97.5% of losses per occurrence over
$3.5 million up to a maximum of $10 million and 100% of the losses between
$13.5 million and $30 million per occurrence. The Insurance Companies also
have an underlying catastrophe and aggregate excess of loss treaty
reinsurance agreement with American Re designed to protect against multiple
events each of which is below the $3.5 million retention under the primary
catastrophe reinsurance treaty. Under this agreement, losses are reinsured to
the extent of (i) (A) 95% of $1.5 million in excess of $3.5 million on
property catastrophe losses or (B) aggregate net losses exceeding a 75% loss
ratio in any accident year up to the lesser of a 78.33% loss ratio or $3.0
million, and (ii) 100% of losses in excess of $2.0 million for winter storm
losses during specified periods, up to a maximum of $3.0 million. The
Insurance Companies recovered under this latter coverage provision for losses
attributable to the January 1996 blizzard.

Effective January 1, 1996, the Insurance Companies and American Re entered
into a quota share reinsurance treaty. Under the terms of the treaty, the
Insurance Companies cede 20% of their liability remaining after cessions of
excess and catastrophic risks through other reinsurance contracts. The result
of the new quota share treaty is a pro rata sharing of risk (80% of losses
and loss adjustment expenses are borne by the Insurance Companies and 20% by
American Re) with both the Insurance Companies and American Re benefiting
from other excess and catastrophe reinsurance. This treaty protects the
Insurance Companies' surplus from high frequency and low severity type
losses. The Insurance Companies pay American Re a reinsurance premium equal
to 20% of premiums collected net of other reinsurance costs. Reinsurance
premiums due American Re on the quota share treaty are reduced by a ceding
allowance equal to 35% of the reinsurance premium. This reinsurance treaty is
designed to stabilize underwriting results.

Quota share reinsurance may be used to moderate the adverse impact of
underwriting losses to the ceding company but also decreases underwriting
profits which would otherwise be retained by the ceding company. The quota
share reinsurance treaty entered into by the Insurance Companies with
American Re has had, and will have, a material effect on the financial
condition and results of operations of the Insurance Companies during the
term of the reinsurance treaty.

49
<PAGE>

The insolvency or inability of any reinsurer to meet its obligations to
the Insurance Companies could have a material adverse effect on the results
of operations or financial condition of the Insurance Companies. American Re
and Munich Re are the Insurance Companies' major reinsurers, providing
approximately 64.2% of ceded reinsurance written. American Re and Munich Re
are both rated A+ (superior) by A.M. Best. The A+ rating is the second
highest of A.M. Best's fifteen ratings. For the year ended December 31, 1995
and for the nine months ended September 30, 1996, the Insurance Companies
paid reinsurance premiums in an aggregate amount of approximately $6.9
million and $17.2 million to American Re, respectively, and $847,000 and
$657,000 to Munich Re, respectively. The Insurance Companies monitor the
solvency of reinsurers through regular review of their financial statements
and A.M. Best ratings. The Insurance Companies have experienced no
significant difficulties collecting amounts due from reinsurers.

LOSS AND LAE RESERVES

Property and Casualty Reserves. The Insurance Companies are required by
applicable insurance laws and regulations to maintain reserves for payment of
losses and loss adjustment expenses ("LAE") for both reported claims and for
claims incurred but not reported ("IBNR"), arising from the policies they
have issued. These laws and regulations require that provision be made for
the ultimate cost of those claims without regard to how long it takes to
settle them or the time value of money. The determination of reserves
involves actuarial and statistical projections of what the Insurance
Companies expect to be the cost of the ultimate settlement and administration
of such claims based on facts and circumstances then known, estimates of
future trends in claims severity, and other variable factors such as
inflation and changing judicial theories of liability.

The estimation of ultimate liability for losses and LAE is an inherently
uncertain process and does not represent an exact calculation of that
liability. The Insurance Companies' reserve policy recognizes this
uncertainty by maintaining reserves at a level providing for the possibility
of adverse development relative to the estimation process. The Insurance
Companies do not discount their reserves to recognize the time value of
money.

When a claim is reported to the Insurance Companies, claims personnel
establish a "case reserve" for the estimated amount of the ultimate payment.
This estimate reflects an informed judgment based upon general insurance
reserving practices and on the experience and knowledge of the estimator
regarding the nature and value of the specific claim, the severity of injury
or damage, and the policy provisions relating to the type of loss. Case
reserves are adjusted by the Insurance Companies' claims staff as more
information becomes available. It is the Insurance Companies' policy to
settle each claim as expeditiously as possible.

The Insurance Companies maintain IBNR reserves to provide for future
reporting of already incurred claims and developments on reported claims. The
IBNR reserve is determined by estimating the Insurance Companies' ultimate
net liability for both reported and IBNR claims and then subtracting the case
reserves for reported claims.

Each month, the Insurance Companies compute their estimated ultimate
liability using principles and procedures applicable to the lines of business
written. Such reserves are also considered annually by the Insurance
Companies' independent auditors in connection with their audit of the
Insurance Companies' combined financial statements. However, because the
establishment of loss reserves is an inherently uncertain process, there can
be no assurance that ultimate losses will not exceed the Insurance Companies'
loss reserves. Adjustments in aggregate reserves, if any, are reflected in
the operating results of the period during which such adjustments are made.
As required by insurance regulatory authorities, the Insurance Companies
submit to the various jurisdictions in which they are licensed a statement of
opinion by its appointed actuary concerning the adequacy of statutory
reserves. The results of these actuarial studies have consistently indicated
that reserves are adequate. Management of the Insurance Companies does not
believe the Insurance Companies are subject to any material potential
asbestos or environmental liability claims.

Based on actuarial studies, the IBNR reserve provision was increased at
December 31, 1995 by $1.8 million and at December 31, 1994 it was decreased
by $2.3 million. Prior to 1995, the Insurance Companies had consistently
shown loss reserve redundancies. This led to the decrease in the IBNR reserve
at December 31, 1994. At December 31, 1995, it was determined that the
December 31, 1994 reserves were deficient. This deficiency was primarily due
to a change in the methodology for case reserving for liability claims. The
change was

50
<PAGE>

to reserve cases at expected settlement value rather than at ultimate
exposure amounts. The 1995 actuarial study indicated that the reduction in
IBNR reserves coupled with the changes in case reserving methodology may have
been overstated. The majority of the December 31, 1995 IBNR reserve
strengthening was to correct potential deficiencies in the reserves for the
1994 accident year.

The following table provides a reconciliation of beginning and ending loss
and LAE reserve balances of the Insurance Companies for the years ended
December 31, 1993, 1994 and 1995 and for the nine months ended September 30,
1996 and 1995 as prepared in accordance with GAAP.

RECONCILIATION OF RESERVE FOR LOSSES
AND LOSS ADJUSTMENT EXPENSES

<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Reserves for losses and loss adjustment
expenses at the beginning of period ... $52,091 $51,309 $51,309 $59,057 $59,629
Less: Reinsurance recoverables and
receivables ........................... 16,000 18,499 18,499 22,175 24,963
--------- --------- --------- --------- ---------
Net reserves for losses and loss
adjustment expenses at beginning of
period ................................ 36,091 32,810 32,810 36,882 34,666
--------- --------- --------- --------- ---------
Add: Provision for losses and loss
adjustment expenses for claims
occurring in:
The current year .................. 35,719 33,861 48,067 51,959 44,950
Prior years ....................... (1,171) 31 2,442 (5,519) (2,796)
--------- --------- --------- --------- ---------
Total incurred losses and loss
adjustment expenses ............. 34,548 33,892 50,509 46,440 42,154
--------- --------- --------- --------- ---------
Less: Loss and loss adjustment expenses
payments for claims occurring in:
The current year .................. 23,978 20,307 29,970 35,196 25,952
Prior years ....................... 14,302 14,069 17,258 15,316 13,986
--------- --------- --------- --------- ---------
Total losses and loss adjustment
expenses ........................ 38,280 34,376 47,228 50,512 39,938
--------- --------- --------- --------- ---------
Net reserves for losses and loss
adjustment expenses at end of period . 32,359 32,326 36,091 32,810 36,882
Add: Reinsurance recoverables and
receivables .......................... 24,440 18,967 16,000 18,499 22,175
--------- --------- --------- --------- ---------
Reserves for losses and loss adjustment
expenses at end of period ............ $56,799 $51,293 $52,091 $51,309 $59,057
========= ========= ========= ========= =========
</TABLE>

51
<PAGE>

The following table shows the development of the reserves for unpaid
losses and LAE from 1985 through 1995 for the Insurance Companies on a GAAP
basis. The top line of the table shows the liabilities at the balance sheet
date, including losses incurred but not yet reported. The upper portion of
the table shows the cumulative amounts subsequently paid as of successive
years with respect to the liability. The lower portion of the table shows the
reestimated amount of the previously recorded liability based on experience
as of the end of each succeeding year. The estimates change as more
information becomes known about the frequency and severity of claims for
individual years. The redundancy (deficiency) exists when the reestimated
liability at each December 31 is less (greater) than the prior liability
estimate. The "cumulative redundancy (deficiency)" depicted in the table, for
any particular calendar year, represents the aggregate change in the initial
estimates over all subsequent calendar years.

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1985 1986 1987 1988 1989
-------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Liability for unpaid losses and LAE net of
reinsurance recoverable ................. $8,496 $10,115 $12,273 $15,921 $22,118
Cumulative amount of liability paid
through:
One year later ......................... 3,568 4,165 5,162 7,770 10,435
Two years later ........................ 4,418 5,540 8,158 10,783 14,097
Three years later ...................... 6,202 7,187 9,890 12,881 16,594
Four years later ....................... 6,712 7,866 10,946 13,924 18,165
Five years later ....................... 7,137 8,354 11,363 14,808 18,810
Six years later ........................ 7,392 8,566 11,864 15,203 18,965
Seven years later ...................... 7,646 8,853 12,014 15,575
Eight years later ...................... 7,901 8,890 12,107
Nine years later ....................... 7,972 8,913
Ten years later ........................ 8,073
Liability estimated as of:
Calendar year end ......................... 8,496 10,115 12,273 15,921 22,118
One year later ......................... 7,900 8,956 11,615 17,436 21,910
Two years later ........................ 7,558 8,951 13,206 17,474 22,113
Three years later ...................... 7,294 9,473 13,274 17,590 21,824
Four years later ....................... 7,246 9,679 13,306 17,554 21,924
Five years later ....................... 7,215 9,828 13,200 17,512 21,080
Six years later ........................ 7,255 9,627 13,057 17,387 20,878
Seven years later ...................... 7,179 9,618 13,264 17,262
Eight years later ...................... 7,208 9,890 13,125
Nine years later ....................... 7,204 9,798
Ten years later ........................ 7,281
Cumulative total redundancy (deficiency) . 1,215 317 (852) (1,341) 1,240
Gross liability -- end of year ...........
Reinsurance recoverables .................
Net liability -- end of year .............
Gross reestimated liability -- latest ....
Reestimated reinsurance recoverables --
latest .................................
Net reestimated liability -- latest ......
Gross cumulative (deficiency) redundancy .
</TABLE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ---------

<S> <C> <C> <C> <C> <C> <C>
Liability for unpaid losses and LAE net of
reinsurance recoverable ................. $25,568 $29,107 $34,666 $36,882 $32,810 $36,091
Cumulative amount of liability paid
through:
One year later ......................... 11,052 11,063 13,986 15,316 17,258 --
Two years later ........................ 15,417 16,394 21,572 22,195
Three years later ...................... 18,827 21,110 23,665
Four years later ....................... 20,501 22,165
Five years later ....................... 21,646
Six years later ........................
Seven years later ......................
Eight years later ......................
Nine years later .......................
Ten years later ........................
Liability estimated as of:
Calendar year end 25,568 29,107 34,666 36,882 32,810 36,091
One year later ......................... 25,454 28,517 31,870 31,363 35,252 --
Two years later ........................ 25,774 28,044 28,716 32,359
Three years later ...................... 25,523 26,172 27,916
Four years later ....................... 24,191 25,352
Five years later ....................... 24,019
Six years later ........................
Seven years later ......................
Eight years later ......................
Nine years later .......................
Ten years later ........................
Cumulative total redundancy (deficiency) . 1,549 3,755 6,750 4,523 (2,442) --
Gross liability -- end of year ........... 59,057 51,309 52,091
Reinsurance recoverables ................. 22,175 18,499 16,000
--------- --------- ---------
Net liability -- end of year ............. $36,882 $32,810 $36,091
========= ========= =========
Gross reestimated liability -- latest .... 49,964 58,022
Reestimated reinsurance recoverables --
latest ................................. 17,605 22,770
--------- ---------
Net reestimated liability -- latest ...... 32,359 35,252
========= =========
Gross cumulative (deficiency) redundancy . 9,093 (6,713)
========= =========
</TABLE>

52
<PAGE>

The following table is derived from the preceding table and summarizes the
effect of reserve reestimates, net of reinsurance, on calendar year
operations for the same ten-year period ended December 31, 1995. The total of
each column details the amount of reserve reestimates made in the indicated
calendar year and shows the accident years to which the reestimates are
applicable. The amounts in the total accident year column on the far right
represent the cumulative reserve reestimates for the indicated accident
year(s).

<TABLE>
<CAPTION>
Effect of Reserve Reestimates on Calendar Year
Operations
--------------------------------------------------
Increase (Decrease) in Reserves for Calendar Year
--------------------------------------------------
1986 1987 1988 1989 1990
------- --------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Accident Years
1985 .................... (596) (342) (264) (48) (31)
1986 .................... (817) 259 570 237
1987 .................... (653) 1,069 (138)
1988 .................... (76) (30)
1989 .................... (246)
1990 ....................
1991 ....................
1992 ....................
1993 ....................
1994 ....................
Total calendar year effect (596) (1,159) (658) 1,515 (208)
</TABLE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
Cumulative
Deficiency
(Redundancy)
from
Reestimates
for
Each
1991 1992 1993 1994 1995 Accident Year
------- ------- --------- --------- ------- ---------------

<S> <C> <C> <C> <C> <C> <C>
Accident Years
1985 .................... 40 (76) 29 (4) 77 (1,215)
1986 .................... 109 (125) (38) 276 (169) 302
1987 .................... (117) 95 (134) (65) (47) 10
1988 .................... 84 70 101 (332) 14 (169)
1989 .................... 87 (253) 142 (719) (77) (1,066)
1990 .................... (317) 609 (351) (488) 30 (517)
1991 .................... (910) (222) (540) (648) (2,320)
1992 .................... (2,323) (1,282) 20 (3,585)
1993 .................... (2,365) 1,796 (569)
1994 .................... 1,446 1,446
Total calendar year effect (114) (590) (2,796) (5,519) 2,442 (7,683)
</TABLE>

53
<PAGE>

INVESTMENTS

All of the Insurance Companies' investment securities are classified as
available for sale in accordance with SFAS No. 115.

An important component of the operating results of the Insurance Companies
has been the return on invested assets. The Insurance Companies' investment
objective is to maximize current yield while maintaining safety of capital
together with adequate liquidity for its insurance operations. The Insurance
Companies' investments are managed by outside investment advisors.

The following table sets forth certain combined information concerning the
Insurance Companies' investments.

<TABLE>
<CAPTION>
At September 30, 1996 At December 31, 1995 At December 31, 1994
---------------------- ----------------------- ----------------------
Market Market Market
Cost(2) Value Cost(2) Value Cost(2) Value
--------- --------- --------- ---------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed income securities(1)
United States government and government
agencies and authorities ........... $28,803 $28,304 $33,419 $33,380 $33,270 $30,382
Obligations of states, municipalities and
political subdivisions ............. 60 60 1,553 1,566 3,687 3,666
Corporate obligations ................. 30,865 31,211 25,868 27,015 16,155 15,414
Collateralized mortgage obligations ... 5,862 5,932 9,564 9,840 17,916 17,364
Other obligations .................. 4,317 4,279 6,626 6,727 3,356 3,334
--------- --------- --------- ---------- --------- ---------
Total fixed income securities ...... 69,907 69,786 77,030 78,528 74,384 70,160
Equity securities ....................... 9,307 11,526 12,031 13,579 12,930 12,528
Other invested assets ................... 325 318 242 228 191 191
--------- --------- --------- ---------- --------- ---------
Total .............................. $79,539 $81,630 $89,303 $92,335 $87,505 $82,879
========= ========= ========= ========== ========= =========
</TABLE>

- ------
(1) In the combined financial statements of the Insurance Companies,
investments are carried at fair value as established by quoted market
prices on secondary markets.

(2) Original cost of equity securities; original cost of fixed income
securities adjusted for amortization of premium and accretion of
discount.

The table below contains information concerning the investment ratings of
the Insurance Companies' fixed maturity investments at September 30, 1996.

<TABLE>
<CAPTION>
Type/Ratings of Amortized Market
Investment(1) Cost Value Percentages(2)
- ---------------- ----------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
U.S. Government and agencies $28,802 $28,304 40.6%
AAA ........................ 21,531 21,521 30.8
AA ......................... 5,674 5,668 8.1
A .......................... 9,117 9,298 13.3
BBB ........................ 4,548 4,674 6.7
----------- --------- --------------
Total BBB or Better ....... $69,672 $69,465 99.5%
BB ......................... 235 321 0.5
----------- --------- --------------
Total ..................... $69,907 $69,786 100.0%
=========== ========= ==============
</TABLE>

- ------
(1) The ratings set forth in this table are based on the ratings, if any,
assigned by Standard & Poor's Corporation ("S&P"). If S&P's ratings were
unavailable, the equivalent ratings supplied by Moody's Investors
Services, Inc., Fitch Investors Service, Inc. or the NAIC were used where
available.

(2) Represents percent of market value for classification as a percent of
total for each portfolio.

54
<PAGE>
The table below sets forth the maturity profile of the Insurance
Companies' combined fixed maturity investments as of September 30, 1996
(substituting average life for mortgage-backed securities):

<TABLE>
<CAPTION>
Amortized Market
Maturity Cost(1) Value Percentages(2)
- ---------- ----------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
1 year or less .............................. $ 5,896 $ 5,853 8.4%
More than 1 year through 5 years ............ 17,114 17,075 24.5
More than 5 years through 10 years .......... 4,342 4,547 6.5
More than 10 years .......................... 9,567 9,558 13.7
Collateralized and asset backed securities(3) 32,988 32,753 46.9
----------- --------- --------------
Total ..................................... $69,907 $69,786 100.0%
=========== ========= ==============
</TABLE>
- ------
(1) Fixed maturities are carried at market value in the combined financial
statements of the Insurance Companies.

(2) Represents percent of market value for classification as a percent of
total for each portfolio.

(3) Collateralized and asset backed securities consist of mortgage
pass-through holdings and securities backed by credit card receivables,
auto loans and home equity loans. These securities follow a structured
principal repayment schedule and are of high credit quality rated "AA" or
better by Standard & Poor's. These securities are presented separately in
the maturity schedule due to the inherent risk associated with prepayment
or early authorization. The average duration of this portfolio is 3.9
years.

The average duration of the Insurance Companies' fixed maturity
investments, excluding collateralized and asset backed securities which are
subject to paydown, as of September 30, 1996 was approximately 2.7 years. As
a result, the market value of the Company's investments may fluctuate
significantly in response to changes in interest rates. In addition, the
Company may experience investment losses to the extent its liquidity needs
require the disposition of fixed maturity securities in unfavorable interest
rate environments.

The Insurance Companies' net investment income, average cash and invested
assets and return on average cash and invested assets for the three years
ended December 31, 1993, 1994 and 1995 and the nine months ended September
30, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
---------------------- ----------------------------------
(Dollars In thousands)
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average cash and invested assets . $92,928 $94,302 $95,323 $94,891 $95,530
Net investment income ............ 3,434 3,409 4,458 3,932 3,928
Return on average cash and
invested assets ................. 4.9% 4.8% 4.7% 4.1% 4.1%
</TABLE>
A.M. BEST RATING

A.M. Best, which rates insurance companies based on factors of concern to
policyholders, currently assigns an "A-" (Excellent) rating (its fourth
highest rating category out of 15 categories) to the Insurance Companies as a
group. A.M. Best assigns "A" or "A-" ratings to companies which, in its
opinion, have demonstrated excellent overall performance when compared to the
standards established by A.M. Best. Companies rated "A" and "A-" have a
strong ability to meet their obligations to policyholders over a long period
of time. In evaluating a company's financial and operating performance, A.M.
Best reviews the company's profitability, leverage and liquidity, as well as
the company's book of business, the adequacy and soundness of its
reinsurance, the quality and estimated market value of its assets, the
adequacy of its loss reserves, the adequacy of its surplus, its capital
structure, the experience and competency of its management and its market
presence. No assurance can be given that A.M. Best will not reduce the
Insurance Companies' current rating in the future. See "Investment
Considerations -- A.M. Best Rating."

COMPETITION

55
<PAGE>

of these competitors have substantially greater financial, technical and
operating resources than the Insurance Companies. The Insurance Companies'
ability to compete successfully in their principal markets is dependent upon
a number of factors, many of which (including market and competitive
conditions) are outside the Insurance Companies' control. Many of the lines
of insurance written by the Insurance Companies are subject to significant
price competition. Some companies may offer insurance at lower premium rates
through the use of salaried personnel or other methods, rather than through
independent agents paid on a commission basis, as the Insurance Companies do.
In addition to price, competition in the lines of business written by the
Insurance Companies is based on quality of the products, quality and speed of
service (including claims service), financial strength, ratings, distribution
systems and technical expertise.

REGULATION

Insurance companies are subject to supervision and regulation in the
states in which they transact business. Such supervision and regulation
relates to numerous aspects of an insurance company's business and financial
condition. The primary purpose of such supervision and regulation is the
protection of policyholders. The extent of such regulation varies, but
generally derives from state statutes which delegate regulatory, supervisory
and administrative authority to state insurance departments. Accordingly, the
authority of the state insurance departments includes the establishment of
standards of solvency which must be met and maintained by insurers, the
licensing to do business of insurers and agents, the nature of and
limitations on investments, premium rates for property and casualty
insurance, the provisions which insurers must make for current losses and
future liabilities, the deposit of securities for the benefit of
policyholders, the approval of policy forms, notice requirements for the
cancellation of policies and the approval of certain changes in control.
State insurance departments also conduct periodic examinations of the affairs
of insurance companies and require the filing of annual and other reports
relating to the financial condition of insurance companies.

Examinations are regularly conducted by the Department every three to five
years. The Department's last examinations of Old Guard Mutual and Old Guard
Fire Company were as of December 31, 1991. The Department's last examination
of Goschenhoppen was as of December 31, 1994. These examinations did not
result in any adjustments to the financial position of any of the Insurance
Companies. In addition, there were no substantive qualitative matters
indicated in the examination reports that had a material adverse impact on
the operations of the Insurance Companies.

In addition to state-imposed insurance laws and regulations, the NAIC has
adopted risk-based capital ("RBC") requirements that require insurance
companies to calculate and report information under a risk-based formula that
attempts to measure statutory capital and surplus needs based on the risks in
a company's mix of products and investment portfolio. Under the formula, a
company first determines its Authorized Control Level risk-based capital
("ACL") by taking into account (i) the risk with respect to the insurer's
assets; (ii) the risk of adverse insurance experience with respect to the
insurer's liabilities and obligations, (iii) the interest rate risk with
respect to the insurer's business; and (iv) all other business risks and such
other relevant risks as are set forth in the RBC instructions. A company's
"Total Adjusted Capital" is the sum of statutory capital and surplus and such
other items as the RBC instructions may provide. The formula is designed to
allow state insurance regulators to identify potential weakly capitalized
companies.

The requirements provide for four different levels of regulatory
attention. The "Company Action Level" is triggered if a company's Total
Adjusted Capital is less than 2.0 times its ACL but greater than or equal to
1.5 times its ACL. At the Company Action Level, the company must submit a
comprehensive plan to the regulatory authority which discusses proposed
corrective actions to improve the capital position. The "Regulatory Action
Level" is triggered if a company's Total Adjust Capital is less than 1.5
times but greater than or equal to 1.0 times its ACL. At the Regulatory
Action Level, the regulatory authority will perform a special examination of
the company and issue an order specifying corrective actions that must be
followed. The "Authorized Control Level" is triggered if a company's Total
Adjusted Capital is than 1.0 times but greater than or equal to 0.7 times its
ACL, and the regulatory authority may take action it deems necessary,
including placing the company under regulatory control. The "Mandatory
Control Level" is triggered if a company's Total Adjusted Capital is less
than 0.7 times its ACL, and the regulatory authority is mandated to place the
company under its control. The Insurance Companies have never failed to
exceed the required levels of capital. There can be no assurance that the
capital requirements applicable to the business of the Insurance Companies
will not increase in the future.

56
<PAGE>

The NAIC has also developed a set of financial ratios, referred to as the
Insurance Regulatory Information System (IRIS), for use by state insurance
regulators in monitoring the financial condition of insurance companies. The
NAIC has established an acceptable range of values for each of the IRIS
financial ratios. Generally, an insurance company will become the subject of
increased scrutiny where four or more of its IRIS ratio results fall outside
the range deemed acceptable by the NAIC. The nature of increased regulatory
scrutiny resulting from IRIS ratio results outside the acceptable range is
subject to the judgment of the applicable state insurance department.

During the last three years, each of the Insurance Companies reported
results outside the acceptable range for certain IRIS tests including the
two-year overall operating ratio, investment yield, and the estimated current
reserve deficiency to surplus. The two-year overall operating ratio is a
measure of company profitability which combines three ratios: the loss ratio,
plus the expense ratio, minus the investment income ratio. A ratio result
below 100% indicates a profit, and a ratio result above 100% indicates a
loss. The investment yield calculation provides a measure of investment
performance. The investment yield expresses net investment income as a
percentage of the average cash and invested assets during the year. The
estimated current reserve deficiency to surplus ratio provides an estimate of
the adequacy of current reserves. The ratio is calculated as the difference
between estimated and reported reserves divided by policyholders surplus. The
table below sets forth IRIS ratios outside the acceptable range for the
Insurance Companies during 1993, 1994 and 1995:

<TABLE>
<CAPTION>
Insurance
Values
Equal to or Old Guard Mutual Old Guard Fire Goschenhoppen
----------------- ------------------------- ------------------------- -------------------------
Ratio Name/Description Over Under 1995 1994 1993 1995 1994 1993 1995 1994 1993
------------------------- ------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Two-Year Overall
Operating Ratio ........ 100 101 104 106 N/A
Investment Yield ........ 100 4.5 4.3 4.5 4.2 N/A
Estimated Current Reserve
Deficiency to Surplus .. 25 74 82 N/A

</TABLE>

For Old Guard Mutual, the 1994 and 1993 investment yields were outside the
acceptable range. This was attributable to substantial investments in
tax-exempt fixed income securities with reduced before tax investment yields.

For Old Guard Fire, the 1995 two-year overall operating ratio was outside
the acceptable range. For 1995 and 1994, operating results were adversely
impacted by winter storms and wind storms which resulted in significant
losses.

For Goschenhoppen, the 1995 and 1994 two-year overall operating ratio, the
1994 investment yield and the 1995 and 1994 estimated current reserve
deficiency to surplus were outside the acceptable range. The 1995 and 1994
two-year overall operating ratios were negatively impacted by poor
underwriting performance stemming from winter storm and wind storm activity
and adverse development on prior year losses. The 1994 investment yield was
adversely affected by substantial investments in tax-exempt fixed income
securities with lower before tax yields. For 1995 and 1994 the estimated
current reserve deficiency to surplus ratio was adversely affected by the
merger of Home Mutual Insurance Company into Goschenhoppen Mutual Insurance
Company to form Goschenhoppen-Home Mutual Insurance Company on December 31,
1993. The amounts upon which the projected deficiency were computed did not
reflect the combined entity. After considering such data, the ratio was
within NAIC limits. All 1993 ratios are not available for Goschenhoppen-Home
because the combined entity was not formed until December 31, 1993.

In 1996, the Pennsylvania Workers' Compensation Act was amended to create
a more favorable business environment for employers and insurers. The
amendments to the Workers' Compensation Act provides employers and insurers
greater ability to control costs by (i) reducing wage loss benefits by
amounts of income received through other sources; (ii) requiring claimants to
submit to the employer's medical provider for 90 days following the first
visit after an injury; and (iii) requiring claimants to submit to a medical
examination after 104 weeks of disability.

<PAGE>

under the emergency regulation. Under the emergency regulation, all insurers
licensed in Maryland will be required to file an annual report containing
fraud related information. This report is similar to a report currently filed
in Pennsylvania and will be filed by Old Guard Mutual and Old Guard Fire on
or before March 31, 1997 as required under the Maryland emergency regulation.
Failure to comply with the emergency regulation could result in regulatory
sanctions, including monetary penalties.

The states in which the Insurance Companies do business (Pennsylvania,
Maryland and Delaware), have guaranty fund laws under which insurers doing
business in such states can be assessed on the basis of premiums written by
the insurer in that state in order to fund policyholder liabilities of
insolvent insurance companies. Under these laws in general, an insurer is
subject to assessment, depending upon its market share of a given line of
business, to assist in the payment of policyholder claims against insolvent
insurers. The Insurance Companies make accruals for their portion of
assessments related to such insolvencies when notified of assessments by the
guaranty associations.

The property and casualty insurance industry has recently received a
considerable amount of publicity because of rising insurance costs and the
unavailability of insurance. New regulations and legislation are being
proposed to limit damage awards, to control plaintiffs' counsel fees, to
bring the industry under regulation by the federal government and to control
premiums, policy terminations and other policy terms. It is not possible to
predict whether, in what form or in what jurisdictions any of these proposals
might be adopted or the effect, if any, on the Insurance Companies.

Most states have enacted legislation that regulates insurance holding
company systems. Each insurance company in a holding company system is
required to register with the insurance supervisory agency of its state of
domicile and furnish information concerning the operations of companies
within the holding company system that may materially affect the operations,
management or financial condition of the insurers within the system. Pursuant
to these laws, the respective insurance departments may examine the Insurance
Companies, the Company and their respective insurance subsidiaries at any
time, require disclosure of material transactions by the Insurance Companies
and the Company and require prior approval of certain transactions, such as
"extraordinary dividends" from the Insurance Companies to the Company.

All transactions within the holding company system affecting the Insurance
Companies, the Company and their respective subsidiaries must be fair and
equitable. Approval of the applicable insurance commissioner is required
prior to consummation of transactions affecting the control of an insurer. In
some states, including Pennsylvania, the acquisition of 10% or more of the
outstanding capital stock of an insurer or its holding company is presumed to
be a change in control. These laws also require notice to the applicable
insurance commissioner of certain material transactions between an insurer
and any person in its holding company system and, in some states, certain of
such transactions cannot be consummated without the prior approval of the
applicable insurance commissioner.

The Company's insurance subsidiaries, including the Insurance Companies,
will be restricted by the insurance laws of the state of domicile as to the
amount of dividends or other distributions they may pay to the Company
without the prior approval of the state regulatory authority. Under
Pennsylvania law, the maximum amount that may be paid by each of the
Insurance Companies during any twelve-month period after notice to, but
without prior approval of, the Department cannot exceed the greater of 10% of
the Insurance Company's statutory surplus as reported on the most recent
annual statement filed with the Department, or the net income of the
Insurance Company for the period covered by such annual statement. As of
December 31, 1995, amounts available for payment of dividends in 1996 without
the prior approval of the Department would have been approximately $2.0
million, $879,000 and $494,000 from Old Guard Mutual, from Old Guard Fire and
from Goschenhoppen, respectively.

LEGAL PROCEEDINGS

The Insurance Companies are parties to litigation in the normal course of
business. Based upon information presently available to them, the Insurance
Companies' do not consider any threatened or pending litigation to be
material. However, given the uncertainties attendant to litigation, there can
be no assurance that the Insurance Companies' results of operations and
financial condition will not be materially adversely affected by any
threatened or pending litigation.

58
<PAGE>

SUBSIDIARIES

The Insurance Companies jointly own all the capital stock of Old Guard
Investment Holding Company, Inc. ("Old Guard Investment"), a Delaware
corporation (Old Guard, Old Guard Fire and Goschenhoppen own 79.0%, 15.4% and
5.6% of Old Guard Investment, respectively). Old Guard Investment owns all of
the capital stock of Commonwealth Insurance Managers, Inc., a Pennsylvania
corporation ("CIMI"). CIMI is a management company that employs and pays
senior management of the Insurance Companies. CIMI derives all its revenues
from management agreements with the Insurance Companies. Old Guard Investment
also owns 2929 Service Corp., a licensed insurance agency that distributes
products of the Insurance Companies to customers whose agents are no longer
in business or no longer an agent for the Insurance Companies. 2929 Service
Corp. owns a 30% interest in Commonwealth Insurance Consultants, Inc.
("CIC"). CIC provides certain consulting services to other insurance
companies, but its financial condition and results of operations are
immaterial to the Insurance Companies.

After completion of the Conversion, the Insurance Companies intend to
transfer all of the capital stock of Old Guard Investment to the Company and,
as a result, Old Guard Investment will become a direct wholly- owned
subsidiary of the Company and CIMI and 2929 Service Corp. will become a
second tier subsidiary of the Company. The Company will also indirectly own a
30% interest in CIC through the Company's ownership of Old Guard Investment.

PROPERTIES

The Company's and Insurance Companies' main offices are located at 2929
Lititz Pike, Lancaster, Pennsylvania in a 33,000 square foot facility owned
by Old Guard Mutual. Old Guard Fire owns a 25,000 square foot office facility
near the main office at 147 West Airport Road in Lancaster. Goschenhoppen
leases 7,500 square feet of office space in Quakertown, Pennsylvania.

Old Guard Investment has entered into an agreement to purchase a 21,507
square foot facility situated on 8.07 acres of land adjacent to the Company's
headquarters. The purchase price is expected to be $1.1 million. The parcel
of land will allow expansion to include an additional 50,000 square foot
facility. The Company has received an $880,000 mortgage loan commitment from
Dauphin for the purchase of such property. The mortgage loan will be for a
term of 15 years, carry a 20-year amortization schedule and bear interest at
an annual rate equal to the federal funds rate, plus 1.90% per annum. The
Mortgage loan will be repaid in 180 consecutive monthly payments of principal
and interest. The mortgage loan will be secured by the purchased property.
Old Guard Fire has listed the Airport Road facility for sale.

EMPLOYEES

As of September 30, 1996, the total number of full-time equivalent
employees of the Insurance Companies was 193. None of these employees are
covered by a collective bargaining agreement and the Insurance Companies
believe that employee relations are good.

59
<PAGE>

MANAGEMENT OF THE COMPANY

DIRECTORS

The Board of Directors of the Company consists of James W. Appel, John E.
Barry, Luther R. Campbell, Jr., M. Scott Clemens, David E. Hosler, Richard B.
Neiley, Jr., G. Arthur Weaver and Robert Wechter, each of whom presently
serves as a director of one or more of the Insurance Companies. The Board is
divided into three classes with directors serving for three-year terms with
approximately one-third of the directors being elected at each annual meeting
of shareholders, beginning with the first annual meeting of shareholders
following the Conversion. Messrs. Campbell and Wechter have terms of office
expiring at the first annual meeting, Messrs. Appel, Clemens, and Weaver have
terms of office expiring at the annual meeting to be held one year
thereafter, and Messrs. Barry, Hosler, and Neiley have terms of office
expiring at the annual meeting to be held two years thereafter.

The following table sets forth certain information regarding the directors
of the Company.

<TABLE>
<CAPTION>
Age at Business Experience
September 30, Director for the Last Five Years;
1996 Since(1) Other Directorships
--------------- ---------- -----------------------------------------------------------
<S> <C> <C> <C>
James W. Appel ......... 52 1980 Director, the Company and the Insurance Companies; Partner, Appel
& Yost LLP (law firm); Vice President, Aardvark Abstracting,
Inc. (title insurance agency).
John E. Barry .......... 70 1971 Director, the Company and Old Guard Fire; Retired Representative,
Hopper Soliday & Co., Inc. (investment banking and brokerage
firm); prior thereto, Registered Representative, Hopper Soliday
& Co., Inc.
Luther R. Campbell, Jr. 68 1992 Director, the Company, Old Guard Mutual and Goschenhoppen; Partner,
Campbell Rappold & Yurasits LLP (C.P.A. firm); Director, Piel
& Egan P.C. (law firm); Member, First Union North Advisory Board
and First Union Lehigh Valley Advisory Board; prior thereto,
Director, First Fidelity Bancorporation.
M. Scott Clemens ....... 49 1994(1) Director, the Company and Old Guard Mutual; President/Owner,
John T. Fretz Insurance Agency, Inc.; prior thereto, Insurance
Agent, P/C Insurance Agency.
David E. Hosler ........ 45 1985(1) Chairman, President, Chief Executive Officer and Director, the
Company; Director and Chairman, the Insurance Companies; President
and Chief Executive Officer, Old Guard Mutual and Old Guard Fire;
Chief Executive Officer, Goschenhoppen.
Richard B. Neiley , Jr. 70 1991(1) Director, the Company, Old Guard Mutual, Old Guard Fire and
Goschenhoppen; Retired Insurance Executive, Harleysville
Insurance Group; prior thereto Independent Insurance Consultant.
G. Arthur Weaver ....... 63 1966(1) Director, Old Guard Mutual and Old Guard Fire; Insurance and
Real Estate Agent, George A. Weaver, Inc.; also, Director of
Sovereign Bancorp, Inc. and Sovereign Bank, F.S.B.
Robert L. Wechter ...... 67 1956(1) Director, the Company, Old Guard Mutual and Old Guard Fire; Owner,
Robert L. Wechter Insurance Agency; prior thereto, Vice-President,
Claims Department, Old Guard Mutual.
</TABLE>

- ------
(1) Indicates year first elected as a director of one or more of the
Insurance Companies. All members of the Board of Directors of the Company
have served as directors of the Company since its incorporation.

60
<PAGE>

Following the Conversion, directors will be paid an annual retainer of
$10,000. Directors who are employees of the Company will not be paid an
annual retainer fee or other additional compensation for services performed
in their capacity as directors. No director of the Company has received any
remuneration from the Company since its formation. Directors of Old Guard
Mutual, Old Guard Fire and Goschenhoppen receive an annual retainer of
$5,400, $2,400 and $900, respectively, and each director is entitled to
receive a minimum annual retainer of $2,600 regardless of the number of
boards on which he serves. Directors also receive up to $150 for each
committee meeting attended. Directors of the Insurance Companies who receive
a salary from the Insurance Companies or their affiliates are not entitled to
receive an annual retainer or other additional compensation for services
rendered as directors or committee members.

EXECUTIVE OFFICERS

The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal by the Board of Directors of the Company.

The following table sets forth certain information regarding the executive
officers of the Company.

<TABLE>
<CAPTION>
Age at Executive
September 30, Officer Business Experience
Name 1996 Since(1) Title For the Last Five Years
------------------ --------------- ----------- ----------------------- -----------------------------------
<S> <C> <C> <C> <C>
David E. Hosler .. 45 1980 Chairman of the Board, Chairman, President, Chief Executive
President and Chief Officer and Director, the Company;
Executive Officer Chairman; President, Chief Executive
Officer and Director, the Insurance
Companies.
Mark J. Keyser ... 43 1991 Chief Financial Officer Chief Financial Officer and Treasurer,
and Treasurer the Company and the Insurance Companies.
Steven D. Dyer ... 39 1991 Secretary and General Secretary and General Counsel, the
Counsel Company and the Insurance Companies.
Scott A. Orndorff 40 1993 Executive Vice Executive Vice President of Operations,
President the Company and the Insurance Companies;
Vice President of Claims, the Insurance
Companies; prior thereto, Vice
President of Claim Operations, Gulf
Insurance Group.
Donald W. Manley . 43 1986 Vice President Vice President of Underwriting, the
Company and the Insurance Companies.
</TABLE>

- ------
(1) Indicates year first appointed as an executive officer of one or more of
the Insurance Companies. Each executive officer of the Company was first
appointed on May 24, 1996.

61
<PAGE>

EXECUTIVE COMPENSATION

The executive officers of the Company have received no compensation from
the Company since its formation. The following table sets forth information
regarding the compensation of the Chief Executive Officer, the Chief
Financial Officer and the Executive Vice President of the Company for each of
the fiscal years ended December 31, 1993, 1994 and 1995. The amounts below
represent the aggregate compensation paid in 1994 and 1995 to such executive
officers by CIMI pursuant to CIMI's management agreements with the Insurance
Companies. Amounts paid in 1993 were paid by Old Guard Mutual. No other
executive officer of the Company received compensation in excess of $100,000
for the fiscal year ended December 31, 1995.

<TABLE>
<CAPTION>
Other All Other
Name and Annual Compen-
Principal Salary Compen- sation
Position Year (1) Bonus sation(2) (3)(4)
--------------------- ------ ---------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
David E. Hosler 1995 $174,769 $10,501 $ 0 $16,370(5)
Chairman, President 1994 163,192 15,000 0 16,053(5)
and Chief Executive 1993 136,269 18,500 0 18,208(5)(8)
Officer
Mark J. Keyser, 1995 101,539 8,000 0 8,540
Chief Financial 1994 95,962 15,000 0 8,040
Officer and Treasurer 1993 84,554 15,600 0 7,565
Scott A. Orndorff, 1995 85,777 10,000 0 7,466
Executive Vice 1994 77,731 6,000 0 8,552(6)
President 1993 46,792 -- -- 10,557(7)(8)
</TABLE>

- ------
(1) Includes amounts which were deferred pursuant to Old Guard Mutual's
401(k) plan. Under the 401(k) plan, employees who elect to participate
may elect to have earnings reduced and to cause the amount of such
reduction to be contributed to the 401(k) plan's related trust in an
amount up to 12% of earnings. Any employee who has completed 1 year of
service and has worked 1,000 hours in a plan year is eligible to
participate in the 401(k) plan.

(2) CIMI provided other benefits to the executive officers in connection with
their employment. The value of such personal benefits, which is not
directly related to job performance, is not included in the table above
because the value of such benefits does not exceed the lesser of $50,000
or 10% of the salary and bonus paid to any executive officer.

(3) Includes amounts contributed under a 401(k) plan for the benefit of the
executive officer. Old Guard Mutual will make a matching contribution
equal to 100% of the employee's salary reduction up to a maximum of 3% of
the employee's salary.

(4) Includes amounts contributed under a Profit Sharing Plan for the benefit
of the executive officer.

(5) Includes the amount of insurance premiums paid by the Insurance Companies
with respect to a split dollar term life insurance policy.

(6) Includes fair rental value of residential property owned by Old Guard
Mutual.

(7) The amount includes the amount of moving expenses paid by the Insurance
Companies.

(8) Includes the value of unused vacation purchased from the executive
officer under a one-time exception to customary policy.

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<PAGE>

CERTAIN BENEFIT PLANS AND AGREEMENTS

In connection with the Conversion, the Company's Board of Directors has
approved certain stock incentive plans and employment agreements with the
executive officers of the Company. In addition, Old Guard Mutual has an
existing 401(k) plan and profit sharing plan in which the executive officers
of the Company will be eligible to participate after the Conversion.
Implementation of certain of these stock incentive plans requires shareholder
approval.

Stock Compensation Plan.

On ___________ 1996, the Company's Board of Directors adopted the Stock
Compensation Plan (the "Compensation Plan"), subject to receipt of
shareholder approval at the Company's first annual meeting of shareholders
after the Conversion.

The purpose of the Compensation Plan is to provide additional incentive to
directors and employees of the Company and the Insurance Companies by
facilitating their purchase of stock in the Company. The Compensation Plan
will have a term of ten years from the date of its approval by the Company's
shareholders (unless the plan is earlier terminated by the Board of Directors
of the Company) after which no awards may be made. Pursuant to the
Compensation Plan, a number of shares equal to 10% of the shares of Common
Stock that are issued in the Conversion would be reserved for future issuance
by the Company, in the form of newly-issued or treasury shares, upon exercise
of stock options ("Options") or stock appreciation rights ("SARs"), or the
grant of restricted stock ("Restricted Stock"). Options, SARs, and Restricted
Stock are collectively referred to herein as "Awards." If Awards should
expire, become unexercisable or be forfeited for any reason without having
been exercised or without becoming vested in full, the shares of Common Stock
subject to such Awards would, unless the Compensation Plan shall have been
terminated, be available for the grant of additional Awards under the
Compensation Plan.

The Compensation Plan will be administered by a committee of at least
three directors of the Company who are designated by the Board of Directors
and who are "non-employee directors" within the meaning of the federal
securities laws (the "Compensation Committee"). It is expected that the
Compensation Committee will initially consist of Directors James W. Appel,
Luther R. Campbell, Jr., and Richard B. Neiley, Jr. The Compensation
Committee will select the employees to whom Awards are to be granted, the
number of shares to be subject to such Awards, and the terms and conditions
of such Awards (provided that any discretion exercised by the Compensation
Committee must be consistent with the terms of the Compensation Plan).

It is intended that Options granted under the Compensation Plan will
constitute both incentive stock options (options that afford favorable tax
treatment to recipients upon compliance with certain restrictions pursuant to
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and that do not result in tax deductions to the Company unless participants
fail to comply with Section 422 of the Code) ("ISOs") and options that do not
so qualify ("Non-ISOs"). The exercise price for Options will be the price at
which the Common Stock is sold in the Offering. The Compensation Plan permits
the Compensation Committee to impose transfer restrictions, such as a right
of first refusal, on the Common Stock that optionees may purchase. It is
possible that the Compensation Committee will impose transfer restrictions on
shares subject to options granted on the Compensation Plan's effective date.
No Option shall be exercisable after the expiration of ten years from the
date it is granted; provided, however, that in the case of any employee who
owns more than 10% of the outstanding Common Stock at the time an ISO is
granted, the option price for the ISO shall not be less than 110% of the
price at which the Common Stock is sold in the Offering, and the ISO shall
not be exercisable after the expiration of five years from the date it is
granted. An otherwise unexpired Option, unless otherwise determined by the
Compensation Committee, shall cease to be exercisable upon (i) an employee's
termination of employment for "just cause" (as defined in the Compensation
Plan), (ii) the date three months after an employee terminates service for a
reason other than just cause, death, or disability, (iii) the date one year
after an employee terminates service due to disability, or (iv) the date two
years after termination of such service due to the employee's death. Options
granted to non-employee directors will automatically expire one year after
termination of service on the Board of Directors (two years in the event of
death). Options granted at the time of the implementation of the Compensation
Plan are expected to be exercisable six months after the date such options
are granted.

63
<PAGE>

A SAR may be granted in tandem with all or any part of any Option or
without any relationship to any Option. Whether or not a SAR is granted in
tandem with an Option, exercise of the SAR will entitle the optionee to
receive, as the Compensation Committee prescribes in the grant, all or a
percentage of the excess of the then fair market value of the shares of
Common Stock subject to the SAR at the time of its exercise, over the
aggregate exercise price of the shares subject to the SAR. Payment to the
optionee may be made in cash or shares of Common Stock, as determined by the
Compensation Committee.

Restricted Stock is Common Stock which is nontransferable and forfeitable
until a grantee's interest vests. Nevertheless, the grantee is entitled to
vote the Restricted Stock and to receive dividends and other distributions
made with respect to the Restricted Stock. To the extent that a grantee
becomes vested in his Restricted Stock at any time during the "Restriction
Period" (as defined in the Compensation Plan) and has satisfied applicable
income tax withholding obligations, the Company may deliver unrestricted
shares of Common Stock to the grantee. Vesting of Restricted Stock may be
accelerated at the discretion of the Compensation Committee. At the end of
the Restriction Period, the grantee will forfeit to the Company any shares of
Restricted Stock as to which he did not earn a vested interest during the
Restriction Period.

The Company will receive no monetary consideration for the granting of
Awards under the Compensation Plan, and will receive no monetary
consideration other than the Option exercise price for each share issued to
optionees upon the exercise of Options. The Option exercise price may be paid
in cash or Common Stock. The exercise of Options and SARs and the conditions
under which Restricted Stock vests will be subject to such terms and
conditions established by the Compensation Committee as are set forth in a
written agreement between the Compensation Committee and the optionee (to be
entered into at the time an Award is granted). In the event that the fair
market value per share of the Common Stock falls below the option price of
previously granted Options or SARs, the Compensation Committee will have the
authority, with the consent of the optionee, to cancel outstanding Options or
SARs and to reissue new Options or SARs at the then current fair market price
per share of the Common Stock.

Although directors and officers of the Company generally would be
prohibited under the federal securities laws from profiting from certain
purchases and sales of shares of Common Stock within any six-month period,
they generally will not be prohibited by such laws from exercising options
and immediately selling the shares they receive. As a result, the Company's
directors and officers generally will be permitted to benefit in the event
the market price for the shares exceeds the exercise price of their Options,
without being subject to loss in the event the market price falls below the
exercise price.

Notwithstanding the provisions of any Award that provides for its exercise
or vesting in installments, all shares of Restricted Stock shall become fully
vested upon a "change in control" (as defined in the Compensation Plan) and,
for a period of 60 days beginning on the date of such change in control, all
Options and SARs shall be immediately exercisable and fully vested. In the
event of a change in control, the Compensation Committee may permit the
holders of exercisable Options to surrender their Options in exchange for
cash in an amount equal to the excess of the fair market value of the Common
Stock subject to the Options over their exercise price. No Award is
assignable or transferable except by will or the laws of descent and
distribution, or pursuant to the terms of a "qualified domestic relations
order" (within the meaning of Section 414(p) of the Code and the regulations
and rulings thereunder).

The initial grant of Options under the Compensation Plan is expected to
take place on the date of the receipt of shareholder and regulatory approval
of the Compensation Plan, and the Option exercise price would be the price at
which the Common Stock is sold in the Offering. No decisions concerning the
number of options to be granted to any director or officer have been made at
this time. No SARs or Restricted Stock Awards are expected to be granted when
the Compensation Plan becomes effective, and no Awards would be made prior to
the receipt of shareholder approval of the Compensation Plan.

Employee Stock Ownership Plan.

In connection with the Conversion, the Company's Board of Directors has
adopted the Company's Employee Stock Ownership Plan (the "ESOP") for the
exclusive benefit of participating employees, to be implemented upon the
completion of the Conversion. Participating employees are all employees of
the Company and

64
<PAGE>

its subsidiaries who have attained age 21 and completed one year of service
with the Company or its subsidiaries. The Company will submit to the IRS an
application for a letter of determination as to the tax-qualified status of
the ESOP. Although no assurances can be given, the Company expects that the
ESOP will receive a favorable letter of determination from the IRS.

The ESOP intends to borrow funds from an unaffiliated lender in an amount
sufficient to purchase 10% of the Common Stock issued in the Conversion.
Although the ESOP has not yet received a commitment from a lender with
respect to such a loan, based on preliminary discussions with potential
lenders, the Company expects that the loan will bear an 8% interest rate, and
will require the ESOP to make monthly payments of approximately $35,000 for a
term of 10 years. The loan will be secured by the shares of Common Stock
purchased and earnings thereon. Shares purchased with such loan proceeds will
be held in a suspense account for allocation among participants as the loan
is repaid. The Company expects to contribute sufficient funds to the ESOP to
repay such loan, plus such other amounts as the Company's Board of Directors
may determine in its discretion.

Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of their annual wages
subject to federal income tax withholding, plus any amounts withheld under a
plan qualified under Sections 125 or 401(k) of the Code and sponsored by the
Company or an affiliate of the Company. Participants must be employed at
least 500 hours in a calendar year in order to receive an allocation. A
participant becomes 100% vested in his or her right to ESOP benefits only
after completing 5 years of service. For vesting purposes, a year of service
means any year in which an employee completes at least 1,000 hours of
service. Vesting will be accelerated to 100% upon a participant's attainment
of age 65, death, or disability or a change in control of the Company.
Forfeitures will be reallocated to participants on the same basis as other
contributions. Benefits are payable upon a participant's retirement, death,
disability, or separation from service, and will be paid in a lump sum or
whole shares of Common Stock (with cash paid in lieu of fractional shares).
Dividends paid on allocated shares are expected to be credited to participant
accounts within the ESOP or paid to participants, and dividends on
unallocated shares are expected to be used to repay the ESOP loan.

The Company will administer the ESOP, and an unaffiliated bank or trust
company will be appointed as trustee of the ESOP (the "ESOP Trustee"). The
ESOP Trustee must vote all allocated shares held in the ESOP in accordance
with the instructions of the participants. Unallocated shares and allocated
shares for which no timely direction is received will be voted by the ESOP
Trustee in the same proportion as the participant-directed voting of
allocated shares.

Management Recognition Plan.

On _________________, 1996, the Company's Board of Directors adopted a
management recognition plan (the "MRP") subject to receipt of shareholder
approval at the Company's first annual meeting of shareholders after the
Conversion.

The objective of the MRP is to enable the Company to reward and retain key
personnel. Those eligible to receive benefits under the MRP will be directors
and executive officers of the Company and the Insurance Companies who are
selected by members of the Compensation Committee.

The MRP will be managed through a separate trust (the "MRP Trust"). The
Trustees of the MRP Trust (the "MRP Trustees"), who are expected to be the
members of the Compensation Committee, have the responsibility to invest all
funds contributed to the MRP Trust. The Company will contribute sufficient
funds to the MRP Trust so that the MRP Trust can purchase, from the Company,
up to an aggregate number of shares equal to 4% of the shares of the Common
Stock that were issued in the Conversion. Because the MRP will be acquiring
additional authorized but unissued shares after the Conversion, the interests
of existing shareholders will be diluted. It is possible that the Company's
Board of Directors will impose certain transfer restrictions on the shares of
Common Stock that the Company sells to the MRP, and that these restrictions
will reduce their value, for financial reporting purposes, to a price below
the fair market value of freely transferable shares as of the date of such
sale.

It is anticipated that all shares of Common Stock purchased by the MRP
Trust will be granted to eligible directors and executive officers at no cost
to them pursuant to the terms of the MRP. Unless the Compensation Committee
decides to the contrary (which is not expected to occur in the case of awards
made on the MRP's

65
<PAGE>

effective date), vesting will occur at the rate of 20% per year of service
following the award date. Unvested shares held in the MRP Trust shall be
voted by the MRP Trustees in the same proportion as the trustee of the
Company's ESOP trust votes Common Stock held therein, and shall be
distributed as the award vests. Dividends on unvested shares will be held in
the MRP Trust for payment as vesting occurs. At the election of the
participant, but subject to approval by the Compensation Committee, unvested
shares that would otherwise be held by the MRP Trust may be distributed to
the participant in the form of restricted stock subject to forfeiture. A
participant who has received restricted stock may vote such shares, will
receive any dividends paid thereon (subject to the same vesting rules
applicable to the restricted stock), and will be able to exchange restricted
shares for unrestricted shares as vesting occurs.

If an employee terminates employment for reasons other than retirement at
or after age 65 death, or disability, he or she forfeits all rights to the
allocated shares under restriction. If the employee's termination is caused
by retirement at or after age 65 death, or disability, all restrictions
expire and all shares allocated become vested and, consequently,
unrestricted. The same vesting rules apply to directors except that the
director retirement age is 70. The MRP provides that in the event of a change
in control of the Company, all shares of the Common Stock subject to
outstanding awards will be immediately payable to the holders of the awards.

Participants will recognize compensation income when their interests vest,
or at such earlier date pursuant to a participant's election to accelerate
income recognition pursuant to Section 83(b) of the Code.

The Company's Board of Directors intends to seek shareholder approval of
the MRP at the first annual meeting of shareholders following completion of
the Conversion and can terminate the MRP at any time, and, if it does so, any
shares not allocated will revert to the Company. No decisions have been made
concerning the number of MRP awards to be granted to any director or officer.
Assuming shares are sold equal to the maximum of the Estimated Valuation
Range in the Conversion, and further assuming that share awards of restricted
stock have a value of $10 per share, the maximum aggregate value of MRP
awards to employees and non-employee directors upon the MRP's receipt of
shareholder approval would be $1.5 million. No awards will be made prior to
shareholder approval of the MRP.

Employment Agreements.

Chief Executive Officer. As of June 1, 1996, Mr. David E. Hosler entered
into an Employment Agreement with the Company and Commonwealth Insurance
Managers, Inc. ("CIMI"). The Employment Agreement has an initial three-year
term and provides for automatic annual one-year extensions commencing on June
1, 1997 and continuing on each June 1 thereafter unless the Company or Mr.
Hosler gives prior written notice of nonrenewal. Under the Employment
Agreement, Mr. Hosler is entitled to receive an annual base salary of not
less than $180,000. In addition, Mr. Hosler is entitled to participate in any
other incentive compensation and employee benefit plans that the Company
maintains.

In the event the Company terminates Mr. Hosler's employment for "Cause" as
defined in the Employment Agreement, Mr. Hosler would be entitled to receive
his accrued but unpaid base salary and an amount for all accumulated but
unused leave time.

In the event the Company terminates Mr. Hosler's employment without Cause,
Mr. Hosler would be entitled to receive an annual amount equal to the greater
of (i) his highest base salary received during one of the two years
immediately preceding the year in which he is terminated, or (ii) his base
salary in effect immediately prior to his termination for the remainder of
the term of the Employment Agreement. In addition, Mr. Hosler would be
entitled to continuation annually during the remaining term of the Employment
Agreement, of (i) an amount equal to the higher of the aggregate bonuses paid
to him in one of the two years immediately preceding the year in which he is
terminated and (ii) an amount equal to the sum of the highest annual
contribution made on his behalf (other than his own salary reduction
contributions) to each of the Company's tax qualified and non- qualified
defined contribution plans (as such term is defined in Section 3(35) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") in the
year in which he is terminated or in one of the two years immediately
preceding such year. Mr. Hosler would also be entitled to certain retirement,
health and welfare benefits.

In the event Mr. Hosler terminates his employment with the Company with
"Good Reason," as defined in the Employment Agreement, Mr. Hosler would be
entitled to receive the same amounts and benefits he would

66
<PAGE>

receive if terminated without Cause. In the event Mr. Hosler terminates his
employment with the Company without Good Reason, Mr. Hosler would be entitled
to receive his accrued but unpaid base salary until the date of termination
and an amount for all accumulated but unused leave time.

In the event of Mr. Hosler's death or disability during the term of his
Employment, Mr. Hosler and his eligible dependents or his spouse and her
eligible dependents, as the case may be, would be entitled to receive certain
cash amounts and certain health and welfare benefits.

In the event that Mr. Hosler is required to pay any excise tax imposed
under Section 4999 of the Code (or any similar tax imposed under federal,
state or local law) as a result of any compensation and benefits received
under the Employment Agreement in connection with a change in control, the
Company will pay to Mr. Hosler an additional amount such that the net amount
retained by him, after the payment of such excise taxes (and any additional
income tax resulting from such payment by the Company), equals the amount he
would have received but for the imposition of such taxes.

The Employment Agreement further provides that in the event Mr. Hosler's
employment is terminated for Cause or without Good Reason prior to a "Change
in Control," as defined in the Employment Agreement, Mr. Hosler may not, for
a period of twelve months after the date of termination, without the prior
written consent of the Company's Board of Directors, become an officer,
director or a shareholder or equity owner of 4.9% or more of any entity
engaged in the property and casualty insurance business with its corporate
headquarters located within fifty miles of Lancaster, Pennsylvania. In
addition, during Mr. Hosler's employment and for a period of 12 months
following the termination of his employment, except following a Change in
Control, Mr. Hosler may not solicit, endeavor to entice away from the
Company, its subsidiaries or affiliates, or otherwise interfere with the
relationship of the Company or its subsidiaries or affiliates with any person
who is, or was within the then most recent 12-month period, an employee or
associate of the Company or any of its subsidiaries or affiliates.

Other Named Executive Officers. As of June 1, 1996, Mr. Mark J. Keyser,
Steven D. Dyer, Scott A. Orndorff and Donald W. Manley entered into
Employment Agreements with the Company and CIMI. The Employment Agreements
have an initial three-year term and provide for automatic annual one-year
extensions commencing on June 1, 1997 and continuing on each June 1
thereafter. Under the Employment Agreements, Messrs. Keyser, Dyer, Orndorff
and Manley are entitled to receive annual base salaries of not less than
$106,080, $87,200, $94,000 and $86,400, respectively.

In the event the Company terminates an Executive Officer's employment for
"Cause," as defined in the Employment Agreement, the executive would be
entitled to receive his accrued but unpaid base salary and an amount for all
accumulated but unused leave time.

In the event the Company terminates an Executive Officer's employment
without Cause, the Executive Officer would be entitled to receive an amount
equal to the greater of (i) his highest base salary received during one of
the two years immediately preceding the year in which he is terminated, or
(ii) his base salary in effect immediately prior to his termination for the
two-year period, beginning with the date of termination. In addition, the
Executive Officer would be entitled to continuation, for two years, of (i) an
amount equal to the higher of the aggregate bonuses paid to him in one of the
two years immediately preceding the year in which he is terminated and (ii)
an amount equal to the sum of the highest annual contribution made on his
behalf (other than his own salary reduction contributions) to each of the
Company's tax qualified and non-qualified defined contribution plans (as such
term is defined in Section 3(35) of ERISA), in the year in which he is
terminated or in one of the two years immediately preceding such year. The
Executive Officer would also be entitled to certain retirement, health and
welfare benefits.

In the event the Executive Officer terminates his employment with the
Company with "Good Reason," as defined in the Employment Agreement, the
Executive Officer would be entitled to receive the same amounts and benefits
he would receive if terminated without Cause. In the event the Executive
Officer terminates his employment with the Company without Good Reason, the
Executive Officer would be entitled to receive his accrued but unpaid base
salary and an amount for all accumulated but unused leave time.

In the event of the Executive Officer's death or disability during the
term of the Employment Agreement, the Executive Officer and his eligible
dependents or his spouse and her eligible dependents, as the case may be,
would be entitled to receive certain cash amounts and certain health and
welfare benefits.

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<PAGE>

In the event that the Executive Officer is required to pay any excise tax
imposed under Section 4999 of the Code (or any similar tax imposed under
federal, state or local law) as a result of any compensation and benefits
received under his Employment Agreement in connection with a change in
control, the Company will pay to the Executive Officer an additional amount
such that the net amount retained by him, after the payment of such excise
taxes (and any additional tax resulting from such payment by the Company),
equals the amount he would have received but for the imposition of such
taxes.

The Employment Agreement for each Executive Officer further provides that
in the event the Executive Officer's employment is terminated for Cause or he
voluntarily terminates his employment prior to a "Change in Control," as
defined in the Employment Agreement, the Executive Officer may not for a
period of twelve months after the date of termination, without the prior
written consent of the Company's Board of Directors, become an officer,
director or a shareholder or equity owner of 4.9% or more of any entity
engaged in the property and casualty insurance business with its corporate
headquarters located within fifty miles of Lancaster, Pennsylvania. In
addition, during the Executive Officer's employment and for a period of 12
months following the termination of his employment, except following a Change
in Control, the Executive Officer may not solicit, endeavor to entice away
from the Company, its subsidiaries or affiliates, or otherwise interfere with
the relationship of the Company or its subsidiaries or affiliates with any
person who is, or was within the most recent 12-month period, an employee or
associate of the Company or any of its subsidiaries or affiliates.

THE CONVERSION

The Plan has been approved by the Department, subject to the Plan's
approval by the policyholders of the Insurance Companies entitled to vote and
the satisfaction of certain other conditions imposed by the Department in its
approval. Approval by the Department does not constitute a recommendation or
endorsement of the Plan.

BACKGROUND AND REASONS FOR THE CONVERSIONS

The Insurance Companies annually review and adopt a strategic plan whose
goals, by their terms, have been expressly predicated upon company
independence and capital strength. The Insurance Companies have considered
various capital formation alternatives in the past, such as the issuance of
surplus notes or a stock offering by a subsidiary company. Surplus notes were
used in the past to enhance statutory capital and a subsidiary company
offering was actively considered in prior years. However, each was limited;
surplus notes do not provide either GAAP capital or permanent statutory
capital and a subsidiary offering may not yield the amount of capital the
Insurance Companies would like to obtain to fully implement their strategic
plan, which the Insurance Companies estimated to be $20 million.

As a result of the inadequate avenues for capital formation by mutual
insurance companies, the Insurance Companies were active supporters of the
Pennsylvania Insurance Company Mutual to Stock Conversion Act (the "Act"),
which is designed to encourage capital formation by changing the manner in
which Pennsylvania mutual insurance companies convert from mutual to stock
form. Under the Act, distribution of surplus to policyholders upon conversion
is not required. Instead, policyholders are given a first priority right to
purchase the stock of a converting company.

The Act was passed by the Pennsylvania General Assembly in early December
1995. On December 12, 1995, management was directed by the Boards of
Directors of each Insurance Company to explore the process and feasibility of
conversion under the Act. On January 12, 1996, the Boards of Directors
authorized further study and requested a presentation with respect to the
process at its meeting on March 31, 1996. At the March 31, 1996 meeting,
counsel for the Insurance Companies made a presentation regarding conversion
under the Act, including the process, advantages and disadvantages of
conversion and public company status, tax considerations, the financial
impact of conversion and the costs of conversion. No decision regarding
conversion was made at this meeting. At a meeting of the Board of Directors
of each Insurance Company held on April 22, 1996, management was directed to
prepare the Plan for consideration at a special meeting to be held in May.
Effective May 31, 1996, the Board of Directors of each of the Insurance
Companies unanimously adopted, subject to approval by the Department and the
policyholders of each of the Insurance Companies, the Plan, pursuant to which
each of the Insurance Companies will convert from a Pennsylvania mutual
insurance company to a Penn-

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sylvania stock insurance company and become a wholly-owned subsidiary of the
Company. The Insurance Companies did not engage a financial adviser in
connection with their decision to adopt the Plan. Each Board of Directors
unanimously adopted amendments to the Plan on July 19, 1996. An application
with respect to the Conversion was filed by the Insurance Companies on August
21, 1996 and notice of the filing and the opportunity to comment was
simultaneously mailed to all Eligible Policyholders as required by law. The
Insurance Companies know of no significant opposition to the Conversion from
the Insurance Companies' policyholders. The Department informed the Insurance
Companies on November 27, 1996 that it did not intend to hold any hearings
regarding the Conversion.

The Department has approved the Plan subject to its approval by the
policyholders of each of the Insurance Companies at their respective Special
Meetings called for that purpose to be held on ___________, 1997.

On November 19, 1996, the Company received an unsolicited request from
Donegal Group, Inc., an insurance holding company located in Marietta,
Pennsylvania ("Donegal") to amend the Plan to provide for the merger of the
Company into Donegal in exchange for an aggregate payment of $27.5 million to
all policyholders of the Insurance Companies, or less than $200 per
policyholder assuming equal distribution to all policyholders. Such amount
was proposed to be payable one-half in cash and one-half in a new class of
preferred stock of Donegal, the terms of which were not specified. The Boards
of Directors of the Company and the Insurance Companies met on November 22,
1996. Because such a transaction would not provide additional capital to the
Insurance Companies, would be inconsistent with their strategic plan of
continued independence and would be tantamount to a sale and liquidation of
the Insurance Companies, the Boards of Directors of the Company and the
Insurance Companies determined that the request was contrary to the best
interests of the Insurance Companies, including its policyholders, agents,
employees, suppliers and the communities they serve, and further declined to
consider the request. Therefore, the respective Boards of Directors affirmed
their course of independence and commitment to the Plan.

An application to acquire the Company was contemporaneously filed with the
Department by Donegal. In response to the application, the Department
informed Donegal that its application was both deficient and premature
because no stock of the Company is outstanding. Pending cure of these
deficiencies and approval of the application by the Department, the
Department informed Donegal that it is prohibited from (i) making any public
announcement of its request to the Company to amend the Plan, and (ii)
soliciting policyholders of the Insurance Companies in any way, including in
connection with the policyholder votes to be held on the Plan at the Special
Meetings. The Company believes Donegal will be unable to cure the
deficiencies in its application and secure Department approval, on a timely
basis, if at all. If Eligible Policyholders do not approve the Plan, the
Boards of Directors of the Insurance Companies intend to maintain their
current course of independence.

GENERAL

The Conversion will be accomplished through the filing with the Department
of State of the Commonwealth of Pennsylvania amended and restated Articles of
Incorporation of each of the Insurance Companies. The Company has received
Department approval to exchange $16.0 million of the net proceeds of the
Offering for all of the capital stock of Old Guard Mutual, Old Guard Fire and
Goschenhoppen to be issued in the Conversion. See "Use of Proceeds." Upon
issuance of the shares of capital stock of the Insurance Companies to the
Company, the Insurance Companies will become wholly-owned subsidiaries of the
Company. The Conversion will be effected only upon completion of the sale of
at least the minimum number of shares of Common Stock required to be sold by
the Company pursuant to the Plan. The Conversion will be accounted for as a
simultaneous reorganization, recapitalization and share offering which will
not change the historical accounting basis of the Insurance Companies'
financial statements.

The aggregate purchase price of the Common Stock to be issued in the
Conversion will be within the Estimated Valuation Range of between
$28,535,000 and $38,606,000, based upon an independent appraisal of the
estimated pro forma market value of the Common Stock prepared by Berwind
Financial Group, L.P. ("Berwind"), a Pennsylvania limited partnership. All
shares of Common Stock to be issued and sold in the Conversion will be sold
at the same price of $10.00 per share. The independent appraisal will be
updated, if necessary, and the final aggregate purchase price of the shares
of Common Stock will be determined at the completion of the Offering, and, if
necessary, the Public Offering. Berwind is a consulting firm experienced in
corporate valuations. For additional information, see "Stock Pricing and
Number of Shares to be Issued" herein.

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The following is a summary of certain aspects of the Conversion. The
summary is qualified in its entirety by reference to the provisions of the
Plan, a copy of which is attached to the proxy statements prepared by the
Insurance Companies in connection with the Special Meetings. A copy of the
Plan is available for inspection at the Company's principal executive offices
located at 2929 Lititz Pike, Lancaster, Pennsylvania. The Plan is also filed
as an exhibit to the Registration Statement of which this Prospectus is a
part, copies of which may be obtained from the SEC. See "Additional
Information."

OFFERING OF COMMON STOCK

Under the Plan, the Company is offering shares of Common Stock in a
subscription offering (the "Subscription Offering") first to the Eligible
Policyholders, second to the ESOP, and third to the directors, officers and
employees of the Insurance Companies. Subscription rights received in any of
the foregoing categories will be subordinated to the subscription rights
received by those in a prior category, except that the ESOP may purchase up
to 10% of the shares of Common Stock issued in the Conversion. The Company is
also concurrently offering Common Stock to the general public in a Community
Offering (the "Community Offering"). The Subscription Offering and the
Community Offering are collectively referred to herein as the "Offering." See
"The Offering" herein. The Offering will be managed by Hopper Soliday.

It is anticipated that all shares not purchased in the Offering will be
sold to a syndicate of underwriters to be managed by Legg Mason and McDonald
(collectively, the "Underwriters") for resale to the general public in a
Public Offering. See "Public Offering" herein. The Plan provides that in the
event a Public Offering does not appear feasible, the Company will consult
with the Department to determine the most practical alternative available to
complete the Conversion, including the sale of the remaining shares of Common
Stock in other registered transactions or a reduction in the Estimated
Valuation Range. Should no viable alternative exist, the Company may
discontinue the Conversion and terminate the Plan in accordance with the
provisions of the Plan.

The completion of the Offering and the Public Offering are subject to
market conditions and other factors beyond the Company's control. No
assurance can be given as to the length of time that will be required to
complete the sale of Common Stock to be offered in the Conversion after
approval of the Plan by Eligible Policyholders at the Special Meetings. If
delays are experienced, significant changes may occur in the estimated pro
forma market value of the Company, together with corresponding changes in the
offering price and the net proceeds realized by the Company from the sale of
the Common Stock. The Insurance Companies would also incur substantial
additional legal, accounting and other expenses in completing the Conversion.
In the event that the Conversion is not completed, the Insurance Companies
will remain as mutual insurance companies and all subscription funds will be
promptly returned to subscribers without interest. In addition, the Insurance
Companies would be required to charge all Conversion expenses against current
income.

BUSINESS PURPOSES

The Company was formed to serve as the holding company for all of the
issued and outstanding capital stock of the Insurance Companies upon
completion of the Conversion. The portion of the net proceeds from the sale
of Common Stock in the Conversion that the Company will contribute to the
Insurance Companies will substantially increase the Insurance Companies'
surplus which will, in turn, enhance policyholder protection and increase the
amount of funds available to support both current operations and future
growth. The holding company structure also will provide greater flexibility
for diversification of business activities and geographic operations.
Management believes that this increased capital and operating flexibility
will enable the Company and the Insurance Companies to compete more
effectively with other insurance companies. In addition, the Conversion will
enhance the future access of the Company and the Insurance Companies to the
capital markets.

After completion of the Conversion, the unissued Common Stock and
preferred stock authorized by the Company's Articles of Incorporation will
permit the Company to raise additional equity capital through further sales
of securities and to issue securities in connection with possible
acquisitions. At the present time, the Company has no plans with respect to
additional offerings of securities following the Conversion, other than the
proposed issuance of additional shares under the MRP and Compensation Plan,
if implemented. Following completion of Conversion, the Company also will be
able to use stock-related incentive programs to attract, motivate and retain
highly qualified employees for itself and its subsidiaries. See "Management
of the Company."

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EFFECT OF CONVERSION ON POLICYHOLDERS

General.

Each policyholder in a mutual insurance company, including each
policyholder of the Insurance Companies, has certain interests in its policy
issuing insurance company in addition to the contractual right to insurance
coverage afforded by the policyholder's policy of insurance. These interests
are (i) the right to vote with respect to the election of directors of the
company and certain other fundamental corporate transactions, such as an
amendment to the articles of incorporation of the company or a merger of the
company, (ii) the right to receive dividends if, as and when declared by the
board of directors of the company (the Insurance Companies have never
declared a policyholder dividend and have no intention of doing so in the
future), and (iii) in the unlikely event of a solvent dissolution of the
company, the right to receive a pro rata distribution of any surplus
remaining after the satisfaction of all claims and other liabilities of the
company. However, these interests are incident to, and contingent upon the
existence of, the underlying insurance policy. These interests have no
tangible market value separate from such insurance policy and a policyholder
who terminates his policy automatically forfeits the interests in the company
described above. Policyholder interests other than contract rights under
policies of insurance will be terminated as a result of the Conversion.

If the Plan is not approved by the Eligible Policyholders or if the
Conversion fails to be completed for any other reason, the Insurance
Companies will continue their existence as mutual insurance companies and
Eligible Policyholders will retain the rights described above.

Continuity of Insurance Coverage and Business Operations.

The Conversion will not affect the contractual rights of policyholders to
insurance protection under their individual insurance policies with the
Insurance Companies. During and after the Conversion, the normal business of
the Insurance Companies of issuing insurance policies in exchange for premium
payments and processing and paying claims will continue without change or
interruption. After the Conversion, the Insurance Companies will continue to
provide services for policyholders under current policies and by its present
management and staff.

The Board of Directors of each of the Insurance Companies at the time of
the Conversion will continue to serve as the Boards of Directors of the
Insurance Companies after the Conversion. The Board of Directors of the
Company will consist of the following persons, each of whom is an existing
director of one or more of the Insurance Companies: James W. Appel, John E.
Barry, Luther R. Campbell, Jr., M. Scott Clemens, David E. Hosler, Richard B.
Neiley, Jr., G. Arthur Weaver and Robert Wechter. See "Management of the
Company -- Directors." All officers of each of the Insurance Companies at the
time of the Conversion will retain their positions with the Insurance
Companies after the Conversion.

Voting Rights.

Upon completion of the Conversion, the voting rights of all policyholders
in each Insurance Company will terminate and policyholders will no longer
have the right to elect the directors of such Insurance Company or approve
transactions involving the Insurance Company. Instead, voting rights in the
Insurance Companies will be vested exclusively in the Company, which will own
all the capital stock of the Insurance Companies. Voting rights in the
Company will be vested exclusively in the shareholders of the Company,
including Eligible Policyholders who purchase shares of Common Stock in the
Subscription Offering. Each holder of Common Stock shall be entitled to vote
on any matter to be considered by the shareholders of the Company, subject to
the terms of the Company's Articles of Incorporation, Bylaws and to the
provisions of Pennsylvania and federal law. See "Description of Capital Stock
- -- Common Stock."

Dividends.

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doing so in the future, whether or not the Insurance Companies convert to
stock form. Shareholders of the Company, including eligible policyholders who
purchase shares of Common Stock in the Subscription Offering, will have the
exclusive right to receive dividends paid by the Company, if any. See
"Description of Capital Stock -- Common Stock." Rights Upon Dissolution.

After the Conversion, policyholders will no longer have the right to
receive a pro rata distribution of any remaining surplus in the unlikely
occurrence of a solvent dissolution of the Insurance Companies. Instead, this
right will vest in the Company as the sole shareholder of the Insurance
Companies. In the event of a liquidation, dissolution or winding up of the
Company, shareholders of the Company, including Eligible Policyholders who
purchase shares of Common Stock in the Subscription Offering, would be
entitled to receive, after payment of all debts and liabilities of the
Company, a pro rata portion of all assets of the Company. See "Description of
Capital Stock -- Common Stock."

THE OFFERING

Subscription Offering.

Nontransferable subscription rights to purchase shares of Common Stock are
being issued to all persons entitled to purchase stock in the Subscription
Offering at no cost to such persons. The amount of Common Stock that these
parties may purchase will be determined, in part, by the total number of
shares of Common Stock to be issued and the availability of Common Stock for
purchase under the categories set forth in the Plan.

Preference categories have been established for the allocation of Common
Stock to the extent that shares are available. These categories are as
follows:

Subscription Category No. 1 is reserved for Eligible Policyholders of the
Insurance Companies, i.e., those persons who are named insureds at the close
of business on May 31, 1996 (the "Eligibility Record Date") under an existing
insurance policy issued by any of the Insurance Companies. Each Eligible
Policyholder will receive, without payment, subscription rights to purchase
up to one percent (1%) of that number of shares of Common Stock equal to the
maximum of the Estimated Valuation Range divided by the Purchase Price;
provided, however, that the maximum number of shares that may be purchased by
Eligible Policyholders in the aggregate shall be equal to the maximum of the
Estimated Valuation Range divided by $10.00. In the event of an
oversubscription, shares of Common Stock will be allocated among subscribing
Eligible Policyholders, as follows. First, shares of Common Stock will be
allocated among subscribing Eligible Policyholders so as to permit each such
Eligible Policyholder, to the extent possible, to purchase the lesser of (i)
100 shares, or (ii) the number of shares for which such Eligible Policyholder
has subscribed. Second, any shares of Common Stock remaining after such
initial allocation will be allocated among the subscribing Eligible
Policyholders whose subscriptions remain unsatisfied in the proportion in
which the aggregate premiums payable to the Insurance Companies by each such
Eligible Policyholder in respect of all policies issued to such Eligible
Policyholder and in force on the Eligibility Record Date, bears to the
aggregate premiums payable to the Insurance Companies in respect of all
policies issued to all such Eligible Policyholders and in force on the
Eligibility Record Date; provided, however, that no fractional shares of
Common Stock shall be issued. To ensure a proper allocation of Common Stock,
each Eligible Account Holder must list on his Stock Order Form all policies
issued by the Insurance Companies under which he is the named insured as of
the close of business on May 31, 1996. Failure to list a policy could result
in fewer shares being allocated than if all policies had been disclosed.

Subscription Category No. 2 is reserved for the Company's tax-qualified
employee stock benefit plans, i.e., the ESOP, which shall receive, without
payment, nontransferable subscription rights to purchase, in the aggregate,
up to 10% of the shares of Common Stock to be issued in the Conversion. The
ESOP is expected to purchase 10% of the Common Stock issued in the
Conversion.

Subscription Category No. 3 is reserved for directors, officers and
employees of the Insurance Companies. Each director, officer and employee of
each Insurance Company will receive, without payment, subscription rights to
purchase up to 1% of that number of shares of Common Stock equal to the
maximum of the Estimated Valuation Range divided by $10.00; provided,
however, that such subscription rights shall be subordinated to the
subscription rights received by the Eligible Policyholders and the ESOP and
may be exercised only to the extent that there are shares of Common Stock
that could have been purchased by Eligible Policyholders, but which

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remain unsold after satisfying the subscriptions of all Eligible
Policyholders. In the event of an oversubscription among the directors,
officers and employees, shares of Common Stock shall be allocated among them
on the basis of a point system under which one point will be assigned for
each year of service to each Insurance Company, one point for each then
current annual salary increment of $5,000, and one point for each office held
in each Insurance Company. If any director, officer or employee does not
subscribe for his full allocation of shares, the shares not subscribed for
shall be allocated among the directors, officers and employees whose
subscriptions remain unsatisfied in proportion to their respective
subscriptions. A director, officer or employee of an Insurance Company who
subscribes to purchase shares of Common Stock and who is also eligible to
purchase shares of Common Stock as an Eligible Policyholder will be deemed to
purchase Common Stock first in his or her capacity as an Eligible
Policyholder.

The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons entitled to
subscribe for Common Stock pursuant to the Plan reside. However, no person
will be offered or allowed to purchase any Common Stock under the Plan if he
or she resides in a foreign country or in a state of the United States with
respect to which any or all of the following apply: (i) a small number of
persons otherwise eligible to subscribe for shares under the Plan reside in
such state or foreign country; (ii) the granting of subscription rights or
the offer or sale of shares of Common Stock to such persons would require the
Company or the Insurance Companies or their employees to register, under the
securities laws of such state, as a broker, dealer, salesman or agent or to
register or otherwise qualify its securities for sale in such state or
foreign country; or (iii) such registration or qualification would be
impracticable for reasons of cost or otherwise. No payments will be made in
lieu of the granting of subscription rights to any such person.

Community Offering.

Concurrently with the Subscription Offering, the Company is offering
shares of the Common Stock to the general public in a Community Offering.
Preference in the Community Offering will be given to (i) natural persons and
trusts of natural persons who are permanent residents of Berks, Bucks,
Chester, Cumberland, Dauphin, Lancaster, Lebanon, Lehigh, Montgomery,
Northampton and York Counties, Pennsylvania (the "Local Community"), (ii)
principals of Eligible Policyholders in the case of an Eligible Policyholder
that is a corporation, partnership, limited liability company or other
entity, (iii) licensed insurance agents who have been appointed by any of the
Insurance Companies to market and distribute insurance products, (iv) named
insureds under policies of insurance issued by any Insurance Company after
May 31, 1996, and (v) providers of goods or services to any one or more of
the Insurance Companies. The term "resident," as used in relation to the
preference afforded natural persons in the Local Community, means any natural
person who occupies a dwelling within the Local Community, has an intention
to remain within the Local Community for a period of time (manifested by
establishing a physical, ongoing, non-transitory presence within one of the
counties in the Local Community) and continues to reside in the Local
Community at the time of the Community Offering. The Company may utilize
policyholder records or such other evidence provided to it to make the
determination whether a person is a resident of the Local Community. In the
case of a corporation or other business entity, such entity shall be deemed
to be a resident of the Local Community only if its principal place of
business or headquarters is located within the Local Community. All
determinations as to the status of a person as a resident of the Local
Community shall be made by the Insurance Companies in their sole and absolute
discretion. Subscriptions for Common Stock received from members of the
general public in the Community Offering will be subject to the availability
of shares of Common Stock after satisfaction of all subscriptions in the
Subscription Offering, as well as the maximum and minimum purchase
limitations set forth in the Plan. The Community Offering will terminate on
the Community Offering Termination Date, which is expected to coincide with
the Subscription Offering Termination Date, unless extended by the Company,
in its sole discretion, for up to an additional 45 days. The sale of shares
of Common Stock in the Subscription Offering and the Community Offering will
be conducted by Hopper Soliday on a best efforts basis. Furthermore, the
right of any person to purchase shares in the Community Offering, including
the preferred subscribers described in clauses (i)-(v) above, is subject to
the absolute right of the Company to accept or reject such purchases in whole
or in part. The Company presently intends to terminate the Community Offering
when it has received orders for at least the minimum number of shares
available for purchase in the Conversion.

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STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED

The Plan requires that the purchase price of the Common Stock be based on
the appraised pro forma market value of the Insurance Companies as
subsidiaries of the Company, as determined on the basis of an independent
valuation by an appraiser who is experienced in corporate valuation. The
Company has retained Berwind to prepare such appraisal. Berwind, as part of
its investment banking business, is engaged regularly in the valuation of
assets, securities and companies in connection with various types of asset
and security transactions, including mergers, acquisitions, private
placements, and valuations for various other purposes and in the
determination of adequate consideration in such transactions. Berwind will
receive a fee of approximately $75,000 for its appraisal.

Berwind has determined that, as of August 19, 1996, the estimated pro
forma market value of the Insurance Companies as subsidiaries of the Company
was $33,570,000. Under the Plan, the aggregate purchase price of the common
Stock to be offered in the Conversion must equal the pro forma market value
of the Insurance Companies as subsidiaries of the Company. The Company, in
consultation with its advisors, has determined to offer the shares in the
Conversion at a price of $10.00 per share, and by dividing the price per
share into the Estimated Valuation Range, initially plans to issue between
2,853,500 and 3,860,600 shares (exclusive of purchases by the ESOP) of the
Common Stock, at the midpoint of the Estimated Valuation Range, in the
Conversion.

The Plan requires that an appraiser establish a valuation range (the
"Estimated Valuation Range") consisting of a midpoint valuation, a valuation
15 percent (15%) above the midpoint valuation (the "Maximum of the Valuation
Range") and a valuation 15 percent (15%) below the midpoint valuation (the
"Minimum of the Valuation Range"). Accordingly, Berwind has established a
range of value from $28,535,000 to $38,606,000. Upon completion of the
Offering, after taking into account factors similar to those involved in its
prior appraisal, Berwind will submit to the Company and to the Department its
updated estimate of the pro forma fair market value of the Insurance
Companies as subsidiaries of the Company as of the last day of the Offering.
If such updated estimated valuation does not fall within the Estimated
Valuation Range, then, in such event, the Company, after consultation with
the Department, may cancel the Offering and terminate the Plan, establish a
new Estimated Valuation Range, extend, reopen or hold a new Offering or take
such other action as may be authorized by the Department. Subscribers will be
notified of any such action by mail and, if a new Estimated Valuation Range
is established, subscribers will be given an opportunity to affirm, amend or
cancel their subscriptions. Subscription orders may not be withdrawn for any
reason, if the updated appraisal is within the Estimated Valuation Range.

If the updated estimated valuation Berwind submits to the Company and the
Department upon completion of the Offering falls within the Estimated
Valuation Range, the following steps will be taken:

Subscription Offering Meets or Exceeds Maximum.

If, upon conclusion of the Subscription Offering and the Community
Offering, the number of shares subscribed for by participants in the
Subscription Offering multiplied by the Purchase Price is equal to or greater
than the Maximum of the Valuation Range, then in such event the Conversion
shall be promptly consummated and the Company shall on the effective date of
the Conversion (the "Effective Date") issue shares of Common Stock to the
subscribing participants; provided, however, that the number of shares of
Common Stock issued shall not exceed the number of shares of Common Stock
offered in the Offering. In the event of an oversubscription in the
Subscription Offering, shares of Common Stock shall be allocated among the
subscribing participants in the priorities set forth in the Plan; provided,
however, that no fractional shares of Common Stock shall be issued. See "--
Subscription Offering," herein.

Subscription Offering Meets or Exceeds Minimum.

If, upon conclusion of the Subscription Offering and the Community
Offering, the number of shares of Common Stock subscribed for by participants
in the Subscription Offering multiplied by the Purchase Price is equal to or
greater than the Minimum of the Valuation Range, but less than the Maximum of
the Valuation Range, then in such event the Conversion shall be promptly
consummated and the Company shall on the Effective Date issue to the
subscribing participants shares of Common Stock in an amount sufficient to
satisfy the subscriptions of such participants in full. To the extent that
shares of Common Stock remain unsold after the

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subscriptions of all participants in the Subscription Offering have been
satisfied in full, the Company shall have the right in its absolute
discretion to accept, in whole or in part, subscriptions received from any or
all subscribers in the Community Offering and/or to sell shares of Common
Stock to purchasers in a Public Offering or in one or more other registered
transactions; provided, however, that the number of shares of Common Stock
issued shall not exceed the number of shares of Common Stock offered in the
Offering; and, provided further, that no fractional shares of Common Stock
shall be issued.

Subscription Offering Does Not Meet Minimum.

If, upon conclusion of the Subscription Offering and the Community
Offering, the number of shares of Common Stock subscribed for by participants
in the Subscription Offering multiplied by the Purchase Price is less than
the Minimum of the Valuation Range, then in such event the Company shall
accept subscriptions received from subscribers in the Community Offering
and/or sell shares of Common Stock to purchasers in a Public Offering or in
one or more other registered transactions. If the aggregate number of shares
of Common Stock subscribed for in the Subscription Offering, the Community
Offering and in any Public Offering or other registered transaction
multiplied by the Purchase Price is equal to or greater than the Minimum of
the Valuation Range, then in such event the Conversion shall be consummated
promptly and the Company shall on the Effective Date: (i) issue to
subscribing participants in the Subscription Offering shares of Common Stock
in an amount sufficient to satisfy the subscriptions of such participants in
full, and (ii) issue to subscribers in the Community Offering and/or to
purchasers in any Public Offering or other registered transaction such
additional number of shares of Common Stock such that the aggregate number of
shares of Common Stock to be issued to subscribing participants, to
subscribers in the Community Offering and/or to purchasers in any Public
Offering or other registered transaction multiplied by the Purchase Price
shall be equal to the Minimum of the Valuation Range; provided, however, that
no fractional shares of Common Stock shall be issued. The Company may in its
absolute discretion elect to issue shares of Common Stock to subscribers in
the Community Offering and/or to purchasers in any Public Offering in excess
of the number determined by reference to clause (ii) of the preceding
sentence; provided, however, that the number of shares of Common Stock issued
shall not exceed the number of shares of Common Stock offered in the
Offering.

Offering Does Not Meet Minimum.

If the aggregate number of shares of Common Stock subscribed for in the
Subscription Offering, the Community Offering and in any Public Offering or
in one or more other registered transactions multiplied by the Purchase Price
is less than the Minimum of the Estimated Valuation Range, then in such event
the Company, in consultation with the Department, may cancel the Offering and
terminate the Plan, establish a new Estimated Valuation Range, extend, reopen
or hold a new Offering or take such other action as may be authorized by the
Department.

If, following a reduction in the Valuation Range approved by the
Department, the aggregate number of shares of Common Stock subscribed for in
the Offering multiplied by the Purchase Price is equal to or greater than the
Minimum of the Valuation Range (as such Estimated Valuation Range has been
reduced), then in such event the Conversion shall be promptly consummated.
The Company shall on the Effective Date: (i) issue shares of Common Stock to
participants in the Subscription Offering in an amount sufficient to satisfy
the subscriptions of such subscribers in full, and (ii) issue to subscribers
in the Community Offering and/or to purchasers in any Public Offering or
other registered transaction such additional number of shares of Common Stock
such that the aggregate number of shares of Common Stock to be issued
multiplied by the purchase price shall be equal to the Minimum of the
Valuation Range (as such Estimated Valuation Range has been reduced).

Notwithstanding anything to the contrary set forth in the Plan, the
Company shall have the right in its absolute discretion and without liability
to any subscriber, purchaser, underwriter or any other person: (i) to
determine which subscriptions, if any, to accept in the Community Offering
and to accept or reject any such subscription in whole or in part for any
reason or for no reason, and (ii) to determine whether and to what extent
shares of Common Stock are to be sold in a Public Offering or one or more
registered transactions.

An increase in the number of shares to be issued in the Conversion
(assuming no change in the per share Purchase Price) would decrease both a
subscriber's ownership interest and the Company's pro forma net income and
shareholders' equity on a per share basis, while increasing pro forma net
income and shareholders' equity

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on an aggregate basis. A decrease in the number of shares to be issued in the
Conversion (assuming no change in the Purchase Price) would increase both a
subscriber's ownership interest and the Company's pro forma net income and
shareholders' equity on a per share basis, while decreasing pro forma net
income and shareholders' equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."

Under the Act, the Company is permitted to require a minimum subscription
of 25 shares of Common Stock provided that any required minimum subscription
amount established cannot exceed $500. Based on these minimum subscription
parameters, the maximum price at which the Company could offer shares of
Common Stock in the Conversion is $20 per share. However, at a purchase price
of $20 per share the maximum number of shares of Common Stock that could be
offered in the Conversion would be 1,930,300 compared to a maximum of
3,860,600 at $10 per share. Therefore, the Company determined to offer the
Common Stock in the Conversion at the price of $10.00 per share to increase
the number of shares available for purchase by policyholders. There were no
other factors considered by the Board of Directors of the Company in
determining to offer shares of Common Stock at $10.00 per share in the
Conversion.

The appraisal is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing Common Stock.
In preparing the valuation, Berwind has relied upon and assumed the accuracy
and completeness of financial and statistical information provided by the
Company and the Insurance Companies. Berwind did not independently verify the
financial statements and other information provided by the Company and the
Insurance Companies, and Berwind did not value independently the assets and
liabilities of the Company and the Insurance Companies. The valuation
considers the Company and the Insurance Companies only as a going concern and
should not be considered as an indication of the liquidation value of the
Company and the Insurance Companies. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of matters, all
of which are subject to change from time to time, no assurance can be given
that persons purchasing Common Stock will thereafter be able to sell such
shares at or above the initial purchase price. Copies of the appraisal report
of Berwind setting forth the method and assumptions for such appraisal are on
file and available for inspection at the principal executive offices of the
Company. Any subsequent updated appraisal report of Berwind also will be
available for inspection.

Promptly after completion of the sale of all of the Common Stock, Berwind
will confirm to the Department, if such is the case, that, to the best of its
knowledge and judgment, nothing of a material nature has occurred (taking
into account all of the relevant factors including those that would be
involved in a cancellation of the Subscription and Community Offerings and
Public Offering, if any) that would cause it to conclude that the aggregate
dollar amount of shares ordered in the Conversion was incompatible with its
estimate of the consolidated pro forma market value of the Insurance
Companies as subsidiaries of the Company. If, however, the facts do not
justify such a statement, the Subscription and Community Offerings or other
sale may be cancelled, a new Estimated Valuation Range set, and a
resolicitation of subscribers and other purchasers held.

TAX EFFECTS.

General.

The Insurance Companies have obtained from the Internal Revenue Service
(the "IRS") a private letter ruling (the "PLR") concerning the material tax
effects of the Conversion and the Subscription Offering to the Insurance
Companies, Eligible Policyholders, and certain other participants in the
Subscription Offering. The PLR confirms, among other things, that the
Conversion of each of the Insurance Companies from a mutual to stock form of
corporation will constitute a reorganization within the meaning of Section
368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that, for federal income tax purposes: (i) no gain or loss will be
recognized by any of the Insurance Companies as a result of the Conversion;
(ii) each Insurance Company's basis in its assets, holding period for its
assets, net operating loss carryforward, if any, capital loss carryforward,
if any, earnings and profits and accounting methods will not be changed by
reason of the Conversion; (iii) as discussed below, Eligible Policyholders
will be required to recognize gain upon the receipt of subscription rights if
and to the extent that the subscription rights that are allocated to an
Eligible Policyholder are determined to have fair market value; (iv) the
basis of the Common Stock purchased by an Eligible Policyholder pursuant to
the exercise of subscription rights will equal the sum of the purchase price
of such stock, plus the gain, if any, recognized by the Eligible Policyholder
on the subscription rights that are exercised by the Eligible Poli-

76
<PAGE>

cyholder; and (v) the holding period of the Common Stock purchased by an
Eligible Policyholder pursuant to the exercise of subscription rights will
begin on the date on which the subscription rights are exercised. In all
other cases, the holding period of Common Stock purchased by an Eligible
Policyholder will begin on the date following the date on which the stock is
purchased.

Subscription Rights.

Generally, the federal income tax consequences of the receipt, exercise
and lapse of subscription rights are uncertain. They present novel issues of
tax law which are not addressed by any direct authorities. Nevertheless, the
IRS has ruled in the PLR that any gain realized by an Eligible Policyholder
as a result of the receipt of subscription rights with a fair market value
must be recognized, whether or not such rights are exercised. The amount of
gain recognized by each Eligible Policyholder will equal the fair market
value of subscription rights received by the Eligible Policyholder. If an
Eligible Policyholder is required to recognize gain on the receipt of
subscription rights and does not exercise some or all of such subscription
rights, such Eligible Policyholder should recognize a corresponding loss upon
the expiration or lapse of such Eligible Policyholder's unexercised
subscription rights. The amount of such loss should equal the gain previously
recognized upon receipt of such unexercised subscription rights, although
such loss may not have the same character as the corresponding gain. Although
not free from doubt, provided the subscription rights are capital assets in
the hands of an Eligible Policyholder, any gain resulting from the receipt of
the subscription rights should constitute a capital gain, and provided the
Common Stock that an Eligible Policyholder would have received upon exercise
of the lapsed subscription rights would have constituted a capital asset, the
resulting loss upon expiration of such subscription rights should constitute
a capital loss. For purposes of determining gain, it is unclear how the
subscription rights should be valued or how to determine the number of
subscription rights that may be allocated to each Eligible Policyholder
during the Subscription Offering.

In the opinion of Berwind, the subscription rights do not have any fair
market value, inasmuch as such rights are nontransferable, personal rights of
short duration, that are provided to Eligible Policyholders and other
participants in the Subscription Offering without charge, and afford the
holder only the right to purchase shares of Common Stock in the Subscription
Offering at a price equal to its estimated fair market value, which is the
same price at which such stock will be sold to purchasers in the Community
Offering or the Public Offering, if any. Nevertheless, Eligible Policyholders
are encouraged to consult with their tax advisors about the tax consequences
of the Conversion and the Subscription Offering.

THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT PURPORT TO
CONSIDER ALL ASPECTS OF FEDERAL INCOME TAXATION WHICH MAY BE RELEVANT TO EACH
ELIGIBLE POLICYHOLDER THAT MAY BE SUBJECT TO SPECIAL TREATMENT UNDER THE
CODE, SUCH AS TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT
PLANS, INSURANCE COMPANIES, AND ELIGIBLE POLICYHOLDERS WHO ARE EMPLOYEES OF
AN INSURANCE COMPANY OR WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH ELIGIBLE
POLICYHOLDER IS URGED TO CONSULT HIS OR HER TAX AND FINANCIAL ADVISOR AS TO
THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER OWN
PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING THE RECEIPT AND EXERCISE OF
SUBSCRIPTION RIGHTS, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE CONVERSION.

PURCHASES IN THE OFFERING.

Termination Dates.

The Subscription Offering will expire at __:__ _.m., local time, on
___________, 1996, unless extended by the Board of Directors of the Company
with regulatory approval for up to an additional ________ days (the
"Subscription Offering Termination Date"). Subscription rights not exercised
prior to the Subscription Offering Termination Date will be void. The
Community Offering will terminate on the Subscription Offering Termination
Date, unless extended by the Board of Directors of the Company for up to an
additional ___ days (the "Community Offering Termination Date").

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<PAGE>

Orders will not be executed by the Company until at least the minimum
number of shares of Common Stock offered have been subscribed for or sold. If
at least the minimum number of shares of Common Stock offered have not been
subscribed for or sold within 45 days of the end of the Subscription Offering
(unless such period is extended with consent of the Department), all funds
delivered to the Company pursuant to the Subscription Offering will be
promptly returned to subscribers.

Use of Order Forms.

Rights to subscribe may be exercised only by completion of a Stock Order
Form. Any person who desires to subscribe for shares of Common Stock must do
so prior to the Subscription Offering Termination Date or Community Offering
Termination Date, as the case may be, by delivering (by mail or in person) to
the Company's principal executive offices located at 2929 Lititz Pike,
Lancaster, Pennsylvania 17601 a properly executed and completed Stock Order
Form, together with full payment for all shares for which the subscription is
made. All checks or money orders must be made payable to
"______________________________." All subscription rights under the Plan will
expire on the Subscription Offering Termination Date whether or not the
Company has been able to locate each person entitled to such subscription
rights. Once tendered, orders to purchase Common Stock in the Offering cannot
be revoked. In order to ensure that Eligible Policyholders are properly
identified as to their stock purchase priorities, such persons must list all
of their insurance policies with the Insurance Companies on the Stock Order
Form.

To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Subscription Offering Termination Date in accordance with Rule
15c2-8 under the Exchange Act, no Prospectus will be mailed any later than
five days prior to such date or hand delivered any later than two days prior
to such date. Execution of the Stock Order Form will confirm receipt or
delivery in accordance with Rule 15c2-8. Stock Order Forms will be
distributed only with a Prospectus. Photocopies and facsimile copies of Stock
Order Forms will not be accepted. Payment by cash, check or money order must
accompany the Stock Order Form. No wire transfers will be accepted.

Each subscription right may be exercised only by the Eligible Policyholder
to whom it is issued and only for his or her own account. The subscription
rights granted under the Plan are nontransferable. Each Eligible Policyholder
subscribing for shares of Common Stock is required to represent to the
Company that such Eligible Policyholder is purchasing such shares for such
Eligible Policyholder's own account and that such Eligible Policyholder has
no agreement or understanding with any other person for the sale or transfer
of such shares.

In the event a Stock Order Form (i) is not delivered and is returned to
the sender by the United States Postal Service or the Company is unable to
locate the addressee, (ii) is not returned or is received after the
Subscription Offering Termination Date or Community Offering Termination
Date, as the case may be, (iii) is defectively completed or executed, or (iv)
is not accompanied by payment in full for the shares of Common Stock
subscribed for, the subscription rights of the Eligible Policyholder to whom
such rights have been granted will not be honored or the subscriber
participating in the Community Offering, as the case may be, will be treated
as having failed to return the completed Stock Order Form within the time
period specified therein. Alternatively, the Company may (but will not be
required to) waive any irregularity relating to any Stock Order Form or
require the submission of a corrected Stock Order Form or the remittance of
full payment for the shares of Common Stock subscribed for by such date as
the Company may specify. Subscription orders, once tendered, may not be
revoked. The Company's interpretations of the terms and conditions of the
Plan and determinations with respect to the acceptability of the Stock Order
Forms will be final, conclusive and binding upon all persons and neither the
Company nor any Insurance Company (or the directors, officers, employees and
agents of any of them) shall be liable to any person in connection with any
such interpretation or determination.

Payment for Shares.

Payment in full for all subscribed shares of Common Stock is required to
accompany all completed Stock Order Forms for subscriptions to be considered
complete. Payment for subscribed shares of Common Stock may be made by cash,
check or money order in U.S. Dollars. Payments made by cash, check or money
order will be placed in an Escrow Account at ______________________________.
The Escrow Account will be administered by ______________________________
(the "Escrow Agent"). An executed Stock Order Form, once received

78
<PAGE>

by the Company, may not be modified, amended or rescinded without the consent
of the Company, unless the Conversion is not completed within 45 days of the
termination of the Subscription Offering or Community Offering, as the case
may be. Payments accompanying such Stock Order Forms will not be available to
subscribers for such 45-day period, and may not be available for an
additional period of time if an extension of the period of time for
completion of the Conversion is approved by the Department and subscribers
affirm or modify but do not rescind their orders after the initial 45-day
period. If an extension of the period of time to complete the Conversion is
approved by the Department, subscribers will be resolicited and must confirm
their orders prior to the expiration of the extension granted by the
Department. Subscribers who do not confirm their orders upon resolicitation
during an extension period granted by the Department will be deemed to have
cancelled their subscriptions and their subscription funds will be promptly
refunded. During an extension period granted by the Department, subscribers
may also modify or cancel their subscriptions. No interest will be paid on
such funds during the 45-day period or any approved extension period.

The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but may pay for such shares upon completion of the
Offering.

Delivery of Certificates.

Certificates representing shares of the Common Stock will be delivered to
subscribers promptly after completion of the Offering and the Public
Offering. Until certificates for the Common Stock are available and delivered
to subscribers, subscribers may not be able to sell the shares of Common
Stock for which they subscribed even though trading of the Common Stock will
have commenced.

MARKETING ARRANGEMENTS IN THE OFFERING

The Company has engaged Hopper Soliday to serve as financial advisor to
the Company and the Insurance Companies with respect to the Offering. Hopper
Soliday is a registered broker- dealer and is a member of the NASD. Hopper
Soliday will assist the Company and the Insurance Companies in the Conversion
by, among other things, (i) developing marketing materials; (ii) targeting
potential investors in the Subscription Offering and other investors eligible
to participate in the Community Offering; (iii) soliciting potential
investors by phone or in person; (iv) training management and staff to
perform tasks in connection with the Conversion; (v) establishing and
managing the Stock Information Center; and (vi) managing the subscription
campaign.

Subject to the limitations described below, for Hopper Soliday's services
in the Offering, the Company has paid Hopper Soliday a financial advisory fee
equal to $50,000. Upon completion of the Offering, Hopper Soliday will also
receive an advisory and administrative fee equal to 3% of the dollar value of
all stock sold in the Offering, except for sales to the ESOP, shares sold to
directors, officers and employees of the Company and the Insurance Companies
and the associates of such directors, officers and employees, and certain
designated providers of goods and services. Hopper Soliday shall be
reimbursed for its expenses, including its legal fees, up to $40,000. The
Company will reimburse Hopper Soliday for any expenses in excess of $40,000
if Hopper Soliday incurred such expenses with the written consent of the
Company. If the Conversion is not completed, Hopper Soliday will be entitled
to retain the $50,000 financial advisory fee and will be reimbursed for all
out-of- pocket expenses. The Company has also agreed to indemnify Hopper
Soliday against certain liabilities arising in connection with the Conversion
and the Offering. See "Public Offering" herein.

DESCRIPTION OF SALES ACTIVITIES IN THE OFFERING

The Common Stock will be offered in the Offering principally by the
distribution of this Prospectus and through activities conducted at the Stock
Information Center, which is expected to operate during normal business hours
throughout the Offering. Employees of Hopper Soliday will manage the Stock
Information Center and will have overall responsibility for mailing materials
relating to the Offering, responding to questions regarding the Conversion
and processing proxies and stock order forms. It is anticipated that certain
employees of the Insurance Companies will be present in the Stock Information
Center to assist employees of Hopper Soliday with administrative matters and
proxy and stock order solicitation.

In addition to the activity in the Stock Information Center, certain
officers of the Insurance Companies will participate in marketing the
Offering and may contact potential offerees. It is also expected that the
President of the Company and members of the Company's Board of Directors may
contact potential offerees to discuss the Offering.

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<PAGE>

During the Offering, officers of the Company and the Insurance Companies
will be available to answer questions about the Offering and also may hold
informational meetings for interested persons. Such officers will not be
permitted to make statements about the Insurance Companies unless such
information is also set forth in the Prospectus, nor may they render
investment advice. None of the Insurance Companies' employees or directors
who participate in marketing the Offering, either in the Stock Information
Center or otherwise, will receive any special compensation or other
remuneration for such activities.

None of the Company's or Insurance Companies' personnel participating in
marketing the Offering are registered or licensed as a broker or dealer or an
agent of a broker or dealer. Personnel of the Company and the Insurance
Companies will assist in the above-described sales activities pursuant to an
exemption from registration as a broker or dealer provided by Rule 3a4-1
("Rule 3a4-1") promulgated under the Exchange Act. Rule 3a4-1 generally
provides that an "associated person of an issuer" of securities shall not be
deemed a broker solely by reason of participation in the sale of securities
of such issuer if the associated person meets certain conditions. Such
conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection therewith at the time of participation, that such person not be
associated with a broker or dealer and that such person observe certain
limitations on his or her participation in the sale of securities. For
purposes of this exemption, "associated person of an issuer" is defined to
include any person who is a director, officer or employee of the issuer or a
company that controls, is controlled by or is under common control with the
issuer.

PUBLIC OFFERING

As a final step in the sale of shares of Common Stock to be issued in the
Conversion, all shares of Common Stock not purchased in the Offering may be
sold to a syndicate of underwriters to be managed by the Underwriters for
resale in a firm commitment Public Offering. It is anticipated that the
Underwriters will purchase shares not subscribed for in the Offering at the
Purchase Price less an underwriting discount. An underwriting agreement
between the Company and the Underwriters, as representatives for the
syndicate, will not be entered into until immediately prior to the Public
Offering. Pursuant to the underwriting agreement, the Underwriters will be
obligated, subject to certain conditions, to purchase all shares of Common
Stock that have not been subscribed for in the Offering. In the event shares
of Common Stock are sold in the Public Offering, the Underwriters will be
paid an underwriters' discount (gross spread) of 6.5% of the aggregate
purchase price of all shares sold in the Public Offering (including the
underwriting discount on shares sold pursuant to the exercise of the
Underwriters' overallotment option of 15% of the shares sold in the Offering
and the Public Offering), subject to the Underwriters' right to receive a
minimum payment of $300,000, regardless of the number of shares of Common
Stock sold in the Public Offering.

In the event no shares of Common Stock are available for sale after
completion of the Offering, the Company will pay the Underwriters $150,000.
In the event the Conversion is abandoned for any reason other than as a
result of the Underwriters' refusal to proceed, without cause, or the
Conversion is not completed by March 31, 1997, the Underwriters will be
reimbursed for their expenses up to $150,000, including any portion of such
expenses allocable to Hopper Soliday.

The number of shares offered in the Public Offering and the amount of the
overallotment option, if any, will be determined if and when a Public
Offering occurs. If an underwriting agreement is entered into in connection
with the Public Offering, it also is expected to contain provisions under
which the Company will indemnify the Underwriters.

The Public Offering will commence as soon as practicable following the
later of the Subscription Offering Termination Date or Community Offering
Termination Date and must be completed within 45 days after the Subscription
Offering Termination Date, unless such period is extended with the approval
of the Department. In the event such an extension is approved by the
Department, subscribers would be given the opportunity to increase, decrease
or rescind their subscriptions. The commencement and completion of the Public
Offering will be subject to market conditions and other factors beyond the
Company's control. Accordingly, no assurance can be given that the Public
Offering will commence immediately after the Subscription Offering
Termination Date or as to the length of time that will be required to
complete the sale of all shares of Common Stock offered in the Conversion. If
delays are experienced in the commencement or completion of the Public
Offering, signifi-

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<PAGE>

cant changes may occur in the estimated pro forma market value of the Common
Stock, together with corresponding changes in the offering price, the number
of shares being offered and the net proceeds realized from the sale of the
Common Stock. In such event, additional printing, legal and accounting
expenses may be incurred by the Company to complete the Conversion.

SURPLUS NOTE

Pursuant to the terms of a $6,000,000 promissory note, dated December 20,
1989, as amended (the "Surplus Note"), payable by Old Guard Mutual to
American Re, American Re has the right upon completion of the Conversion to
convert the outstanding principal balance of the Surplus Note into that
number of shares of Common Stock equal to the outstanding principal balance
divided by the Purchase Price. The outstanding principal balance of the
Surplus Note was $1.5 million at September 30, 1996. American Re has elected
to convert the Surplus Note into 150,000 shares of Common Stock by assigning
the Surplus Note to the Company in exchange for 150,000 shares of Common
Stock upon completion of the Conversion. These shares are in addition to the
shares of Common Stock offered and sold in the Offering. Any accrued interest
outstanding at the time of conversion of the Surplus Note will be paid in
cash (accrued interest on the Surplus Note at September 30, 1996 was
approximately $140,000). See "Pro Forma Data."

LIMITATIONS ON PURCHASES OF COMMON STOCK

The Plan provides for certain limitations upon the purchase of shares in
the Conversion. No person may purchase fewer than 25 shares of Common Stock
in the Conversion. Except for the ESOP, which intends to purchase 10% of the
total number of shares of Common Stock issued in the Conversion, no Eligible
Policyholder, together with associates or persons acting in concert with such
Eligible Policyholder, may purchase more than 38,606 shares of Common Stock
in the Subscription Offering (1% of the number of shares equal to the maximum
of the Estimated Valuation Range divided by the Purchase Price). In addition,
no purchaser (including any Eligible Policyholders who elect to purchase
stock in the Conversion), together with such person's affiliates and
associates (as defined in the Plan) or a group acting in concert (as defined
in the Plan), may purchase more than 193,030 shares of Common Stock in the
Conversion (5% of the number of shares equal to the maximum of the Estimated
Valuation Range divided by the Purchase Price). Shares of Common Stock to be
held by the ESOP and attributable to a participant thereunder shall not be
aggregated with shares of Common Stock purchased by such participant or any
other purchaser of Common Stock in the Conversion. Officers and directors of
the Insurance Companies and the Company, together with their associates, may
not purchase, in the aggregate, more than thirty-four percent (34%) of the
shares of Common Stock. Directors of the Company and of the Insurance
Companies shall not be deemed to be associates of one another or a group
acting in concert with other directors solely as a result of membership on
the Board of Directors of the Company or the Board of Directors of any
Insurance Company or any subsidiary of an Insurance Company. Subject to any
required regulatory approval and the requirements of applicable law, the
Company may increase or decrease any of the purchase limitations at any time.
In the event that the individual purchase limitation is increased after
commencement of the Subscription Offering and the Community Offering, the
Company shall permit any person who subscribed for the maximum number of
shares of Common Stock to purchase an additional number of shares, such that
such person shall be permitted to subscribe for the then maximum number of
shares permitted to be subscribed for by such person, subject to the rights
and preferences of any person who has priority subscription rights. In the
event that either the individual purchase limitation or the number of shares
of Common Stock to be sold in the Conversion is decreased after commencement
of the Subscription Offering and the Community Offering, the order of any
person who subscribed for the maximum number of shares of Common Stock shall
be decreased by the minimum amount necessary so that such person shall be in
compliance with the then maximum number of shares permitted to be subscribed
for by such person.

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<PAGE>

excess shares have been sold by such person, to receive the difference
between the aggregate Purchase Price paid for such excess shares and the
proceeds received by such person from the sale of such excess shares. This
right of the Company to purchase such excess shares shall be assignable by
the Company.

PROPOSED MANAGEMENT PURCHASES

The following table sets forth information regarding the approximate
number of shares of Common Stock intended to be purchased by each of the
directors and executive officers of the Company and the Insurance Companies,
including each such person's associates, and by all directors, trustees and
executive officers as a group, including all of their associates, and other
related information. For purposes of the following table, it has been assumed
that 3,357,000 shares of the Common Stock will be sold at $10 per share, the
midpoint of the Estimated Valuation Range (see "The Conversion -- Stock
Pricing and Number of Shares to be Issued") and that sufficient shares will
be available to satisfy subscriptions in all categories.

<TABLE>
<CAPTION>
Total
Name Shares(1)(2)(3)
--------------------------- -----------
<S> <C>
Robert C. Alderfer (4) ...................................... 500
James W. Appel (5) .......................................... 1,000
John E. Barry (5) ........................................... 1,000
Luther R. Campbell, Jr. (6) ................................. 3,000
M. Scott Clemens (6) ........................................ 2,500
Steven D. Dyer (7) .......................................... 6,500
Stanley E. Honig (8) ........................................ 5,000
David E. Hosler (9) ......................................... 12,000
William S. Huber (8) ........................................ 1,000
Mark J. Keyser (10) ......................................... 8,000
Noah W. Kreider, Jr. (11) ................................... 500
C. Donald Lechner (4) ....................................... 500
Donald W. Manley (12) ....................................... 5,000
Richard B. Neiley, Jr. (5) .................................. 2,500
Scott A. Orndorff (12) ...................................... 6,000
Robert L. Spanninger (4) .................................... 500
G. Arthur Weaver (13) ....................................... 500
Robert L. Wechter (13) ...................................... 250
-----------
Total 56,250

</TABLE>

- ------
(1) Does not include shares that could be allocated to participants in the
ESOP, under which officers and other employees would be allocated, in the
aggregate, 10% of the Common Stock issued in the Conversion.

(2) Does not include shares that would be awarded to participants in the MRP,
if implemented, under which directors, officers and other employees would
be awarded, at no cost to them, an aggregate number of newly issued
shares equal to 4% of the Common Stock issued in the Conversion (134,280
shares at the midpoint of the Estimated Valuation Range). The dollar
amount of the Common Stock to be purchased by the MRP is based on the
purchase price in the Conversion and does not reflect possible increases
or decreases in the value of such stock relative to the price per share
in the Conversion. Implementation of the MRP requires shareholder
approval.

(3) Does not include shares that would be purchased by participants in the
Compensation Plan, if implemented, under which directors, executive
officers and other employees would be granted options to purchase an
aggregate amount of Common Stock equal to 10% of the shares issued in the
Conversion (335,700 shares at the midpoint of the Estimated Valuation
Range) at exercise prices equal to the price at which the Common Stock is
sold in the Offering. Shares issued pursuant to the exercise of options
could be from treasury stock or newly issued shares. Implementation of
the Compensation Plan requires shareholder approval.

(4) Director of Goschenhoppen.

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<PAGE>

(5) Director of the Company and the Insurance Companies.

(6) Director of the Company and Old Guard Mutual.

(7) Secretary and General Counsel of the Company.

(8) Director of Old Guard Fire.

(9) Chairman of the Board and Chief Executive Officer of the Company and the
Insurance Companies and President of the Company, Old Guard Mutual and
Old Guard Fire.

(10) Treasurer and Chief Financial Officer of the Company and the Insurance
Companies.

(11) Director of Old Guard Mutual and Old Guard Fire.

(12) Vice President of the Company and the Insurance Companies.

(13) Director of the Company, Old Guard Mutual and Old Guard Fire.

LIMITATIONS ON RESALES

The Common Stock issued in the Conversion will be freely transferable
under the Securities Act of 1933, as amended (the "1933 Act"); provided,
however that (i) shares issued in a Private Placement, if any, would be
subject to transfer restrictions under Rule 144 of the 1933 Act, and (ii)
shares issued to directors and officers of any of the Insurance Companies or
of the Company would be restricted as to transfer for a period of one year
from the Effective Date pursuant to the provisions of the Conversion Act and
would be subject to additional resale restrictions under Rule 144 of the 1933
Act. Shares of Common Stock issued to directors and officers will bear a
legend giving appropriate notice of these restrictions and the Company will
give instructions to the transfer agent for the Common Stock with respect to
these transfer restrictions. Any shares issued to directors and officers as a
stock dividend, stock split or otherwise with respect to restricted stock
shall be subject to the same restrictions. Shares acquired by directors and
officers other than in the Conversion will not be subject to certain
restrictions.

In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with subscription rights and to certain reporting
requirements upon purchase of such securities.

INTERPRETATION AND AMENDMENT OF THE PLAN OF CONVERSION

To the extent permitted by law, all interpretations of the Plan by the
Board of Directors of each Insurance Company and the Board of Directors of
the Company will be final. The Plan may be amended at any time before it is
approved by the Department by the affirmative vote of two-thirds of the
directors of the Company and each Insurance Company. The Plan similarly may
be amended at any time after it is approved by the Department, subject to the
Department's approval of such amendment. The Plan may be amended at any time
after it is approved by the Eligible Policyholders of each Insurance Company
and prior to the Effective Date by the affirmative vote of two-thirds of the
directors of the Company and of each Insurance Company then in office;
provided, however, that any such amendment shall be subject to approval by
the Department; and provided further, that, if such amendment is determined
by the Department to be material, such amendment shall be subject to approval
by the affirmative vote of at least two-thirds of the votes cast at a meeting
of Eligible Policyholders called for that purpose. In the event Eligible
Policyholders are required to approve an amendment to the Plan, the Company
will send an a Proxy Statement to each Eligible Policyholder as soon as
practical after the amendment is approved by the directors of the Company and
each Insurance Company and, if required, the Department.

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<PAGE>

contain optional provisions, the Plan may be amended to conform to any such
optional provision at any time before such Effective Date by the affirmative
vote of two-thirds of the directors of the Company and of each Insurance
Company, and no resolicitation of proxies or further approval by Eligible
Policyholders shall be required.

TERMINATION

The Plan may be terminated at any time before it is approved by the
Department by the affirmative vote of two-thirds of the directors of the
Company and of each Insurance Company. The Plan may be terminated at any time
after it is approved by the Department by the affirmative vote of two-thirds
of the directors of the Company and of each Insurance Company. The Plan may
be terminated at any time after it is approved by Eligible Policyholders and
prior to the Effective Date by the affirmative vote of two-thirds of the
directors of the Company and of each Insurance Company; provided, however,
that any such termination shall be subject to approval by the Department.

CONDITIONS

As required by the Plan, the Plan has been approved by the Department and
the Board of Directors of the Company and each of the Insurance Companies.
Completion of the Conversion also requires approval of the Plan by the
affirmative vote of at least two-thirds of the votes cast by Eligible
Policyholders of each of the Insurance Companies. If the Eligible
Policyholders do not approve the Plan, the Plan will be terminated, and the
Insurance Companies will continue to conduct business as mutual insurance
companies.

CERTAIN RESTRICTIONS ON ACQUISITION
OF THE COMPANY

PENNSYLVANIA LAW

The Pennsylvania BCL contains certain provisions applicable to the Company
that may have the effect of impeding a change in control of the Company.
These provisions, among other things, (a) require that, following any
acquisition by any person or group of 20% of a public corporation's voting
power, the remaining shareholders have the right to receive payment for their
shares, in cash, from such person or group in an amount equal to the "fair
value" of their shares, including an increment representing a proportion of
any value payable for acquisition of control of the corporation; and (b)
prohibit, for five years after an interested shareholder's acquisition date,
a "business combination" (which includes a merger or consolidation of the
corporation or a sale, lease or exchange of assets having a minimum specified
aggregate value or representing a minimum specified percentage earning power
or net income of the corporation) with a shareholder or group of shareholders
beneficially owning 20% or more of a public corporation's voting power.

In 1990, the Pennsylvania legislature further amended the Pennsylvania BCL
to expand the antitakeover protections afforded by Pennsylvania law by
redefining the fiduciary duty of directors and adopting disgorgement and
control-share acquisition statutes. To the extent applicable to the Company
at the present time, this legislation generally (a) expands the factors and
groups (including shareholders) that the Board of Directors can consider in
determining whether a certain action is in the best interests of the
corporation; (b) provides that the Board of Directors need not consider the
interests of any particular group as dominant or controlling; (c) provides
that directors, in order to satisfy the presumption that they have acted in
the best interests of the corporation, need not satisfy any greater
obligation or higher burden of proof with respect to actions relating to an
acquisition or potential acquisition of control; (d) provides that actions
relating to acquisitions of control that are approved by a majority of
"disinterested directors" are presumed to satisfy the directors' standard
unless it is proven by clear and convincing evidence that the directors did
not assent to such action in good faith after reasonable investigation; and
(e) provides that the fiduciary duty of directors is solely to the
corporation and may be enforced by the corporation or by a shareholder in a
derivative action, but not by a shareholder directly. The 1990 amendments to
the BCL explicitly provide that the fiduciary duty of directors shall not be
deemed to require directors (a) to redeem any rights under, or to modify or
render inapplicable, any shareholder rights plan; (b) to render inapplicable,
or make determinations under, provisions of the BCL relating to control
transactions,

84
<PAGE>

business combinations, control-share acquisitions or disgorgement by certain
controlling shareholders following attempts to acquire control; or (c) to act
as the board of directors, a committee of the board or an individual director
solely because of the effect such action might have on an acquisition or
potential or proposed acquisition of control of the corporation or the
consideration that might be offered or paid to shareholders in such an
acquisition. One of the effects of these fiduciary duty provisions may be to
make it more difficult for a shareholder to successfully challenge the
actions of the Company's Board of Directors in a potential change in control
context. Pennsylvania case law appears to provide that the fiduciary duty
standard under the 1990 amendment to the BCL grants directors the statutory
authority to reject or refuse to consider any potential or proposed
acquisition of the corporation.

Under the Pennsylvania control-share acquisition statute, a person or
group is entitled to voting rights with respect to "control shares" only
after shareholders (both disinterested shareholders and all shareholders)
have approved the granting of such voting rights at a meeting of
shareholders. "Control shares" are shares acquired since January 1, 1988,
that upon acquisition of voting power by an "acquiring person," would result
in a "control-share acquisition." ("Control shares" also include voting
shares where beneficial ownership was acquired by the "acquiring person"
within 180 days of the control-share acquisition or with the intention of
making a control-share acquisition.) An "acquiring person" is a person or
group who makes or proposes to make a "control-share acquisition." A
"control-share acquisition" is an acquisition, directly or indirectly, of
voting power over voting shares that would, when added to all voting power of
the person over other voting shares, entitle the person to cast or direct the
casting of such percentage of votes for the first time with respect to any of
the following ranges that all shareholders would be entitled to cast in an
election of directors: (a) at least 20% but less than 33-1/3%; (b) at least
33-1/3 but less than 50%; or (c) 50% or more. The effect of these provisions
is to require a new shareholder vote when each threshold is exceeded. In the
event shareholders do not approve the granting of voting rights, voting
rights are lost only with respect to "control shares."

A special meeting of shareholders is required to be called to establish
voting rights of control shares if an acquiring person (a) files with the
corporation an information statement containing specified information, (b)
makes a written request for a special meeting at the time of delivery of the
information statement, (c) makes a control-share acquisition or a bona fide
written offer to make a control-share acquisition, and (d) provides a written
undertaking at the time of delivery of the information statement to pay or
reimburse the corporation for meeting expenses. If the information statement
is filed and a control-share acquisition is made or proposed to be made, but
no request for a special meeting is made or no written undertaking to pay
expenses is provided, the issue of voting rights will be submitted to
shareholders at the next annual or special meeting of shareholders of the
corporation.

A corporation may redeem all "control shares" at the average of the high
and low sales price, as reported on a national securities exchange or
national quotation system or similar quotation system, on the date the
corporation provides notice of redemption (a) at any time within 24 months
after the date on which the control- share acquisition occurs if the
acquiring person does not, within 30 days after the completion of the
control-share acquisition, properly request that shareholders consider the
issue of voting rights to be accorded to control shares and (b) at any time
within 24 months after the issue of voting rights is submitted to
shareholders and such voting rights either are not accorded or are accorded
and subsequently lapse. Voting rights accorded to control shares by a vote of
shareholders lapse and are lost if any proposed control-share acquisition is
not consummated within 90 days after shareholder approval is obtained.

A person will not be considered an "acquiring person" if the person holds
voting power within any of the ranges specified in the definition of
"control-share acquisition" as a result of a solicitation of revocable
proxies if such proxies (a) are given without consideration in response to a
proxy or consent solicitation made in accordance with the Exchange Act and
(b) do not empower the holder to vote the shares except on the specific
matters described in the proxy and in accordance with the instructions of the
giver of the proxy.

The statute does not apply to certain control-share acquisitions effected
pursuant to a gift or laws of inheritance, in connection with certain family
trusts or pursuant to a merger, consolidation or plan of share exchange if
the corporation is a party to the agreement.

The effect of this statutory provision is to deter the accumulation of a
substantial block of Common Stock, including accumulation with a view to
effecting a non-negotiated tender or exchange offer for Common Stock.

85
<PAGE>

Under the disgorgement provisions of the Pennsylvania BCL, any profit
realized by any person or group who is or was a "controlling person or group"
from the disposition of any equity security of a corporation shall belong to
and be recoverable by the corporation where the profit is realized (i) within
18 months after the person becomes a "controlling person or group" and (ii)
the equity security had been acquired by the "controlling person or group"
within 24 months prior to or 18 months after obtaining the status of a
"controlling person or group."

A "controlling person or group" is a person or group who (a) has acquired,
offered to acquire or, directly or indirectly, publicly disclosed the
intention of acquiring 20% voting power of the corporation or (b) publicly
disclosed that it may seek to acquire control of the corporation.

A person will not be deemed a "controlling person or group" if the person
holds voting power as a result of a solicitation of revocable proxies if,
among other things, such proxies (a) are given without consideration in
response to a proxy or consent solicitation made in accordance with the
Exchange Act and (b) do not empower the holder to vote the shares except on
the specific matters described in the proxy and in accordance with the
instructions of the giver of the proxy. This exception does not apply to
proxy contests in connection with or as a means toward acquiring control of
the Company.

The effect of this statutory provision is to deter the accumulation of a
substantial block of Common Stock with a view to putting the Company "in
play" and then selling shares at a profit (whether to the Company, in the
market or in connection with an acquisition of the Company).

CERTAIN ANTI-TAKEOVER PROVISIONS IN THE ARTICLES OF INCORPORATION AND BYLAWS

While the Board of Directors of the Company is not aware of any effort
that might be made to obtain control of the Company after Conversion, the
Board believes that it is appropriate to include certain provisions as part
of the Company's Articles of Incorporation to protect the interests of the
Company and its shareholders from hostile takeovers that the Board might
conclude are not in the best interests of the Company or the Company's
shareholders. These provisions may have the effect of discouraging a future
takeover attempt that is not approved by the Board but which individual
shareholders may deem to be in their best interests or in which shareholders
may receive a substantial premium for their shares over the then current
market price. As a result, shareholders who might desire to participate in
such a transaction may not have an opportunity to do so. Such provisions will
also render the removal of the Company's current Board of Directors or
management more difficult.

The following discussion is a general summary of certain provisions of the
Articles of Incorporation and Bylaws of the Company that may be deemed to
have such an "anti-takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to the Articles
of Incorporation and Bylaws of the Company. For information regarding how to
obtain a copy of these documents without charge, see "Additional
Information."

Classified Board of Directors and Related Provisions

The Company's Articles of Incorporation provide that the Board of
Directors is to be divided into three classes which shall be as nearly equal
in number as possible. The directors in each class will hold office following
their initial appointment to office for terms of one year, two years and
three years, respectively, and, upon reelection, will serve for terms of
three years thereafter. Each director will serve until his or her successor
is elected and qualified. The Articles of Incorporation provide that a
director may be removed by shareholders only upon the affirmative vote of at
least a majority of the votes which all shareholders would be entitled to
cast. The Articles of Incorporation further provide that any vacancy
occurring in the Board of Directors, including a vacancy created by an
increase in the number of directors, shall be filled for the remainder of the
unexpired term by a majority vote of the directors then in office.

A classified board of directors could make it more difficult for
shareholders, including those holding a majority of the outstanding shares,
to force an immediate change in the composition of a majority of the Board of
Directors. Because the terms of only one-third of the incumbent directors
expire each year, it requires at least two annual elections for the
shareholders to change a majority, whereas a majority of a non-classified
board may be changed in one year. In the absence of the provisions of the
Articles of Incorporation classifying the Board, all of the directors would
be elected each year.

86
<PAGE>

Management of the Company believes that the staggered election of
directors tends to promote continuity of management because only one-third of
the Board of Directors is subject to election each year. Staggered terms
guarantee that in the ordinary course approximately two-thirds of the
Directors, or more, at any one time have had at least one year's experience
as directors of the Company, and moderate the pace of change in the
composition of the Board of Directors by extending the minimum time required
to elect a majority of Directors from one to two years.

Other Antitakeover Provisions

The Company's Articles of Incorporation and Bylaws contain certain other
provisions that may also have the effect of deterring or discouraging, among
other things, a non-negotiated tender or exchange offer for the Common Stock,
a proxy contest for control of the Company, the assumption of control of the
Company by a holder of a large block of the Common Stock and the removal of
the Company's management. These provisions: (1) empower the Board of
Directors, without shareholder approval, to issue preferred stock, the terms
of which, including voting power, are set by the Board; (2) restrict the
ability of shareholders to remove directors; (3) require that shares with at
least 80% of total voting power approve mergers and other similar
transactions with a person or entity holding Common Stock with more than 5%
of the Company's voting power, if the transaction is not approved, in
advance, by the Board of Directors; (4) prohibit shareholders' actions
without a meeting; (5) require that shares with at least 80%, or in certain
instances a majority, of total voting power approve the repeal or amendment
of the Articles of Incorporation; (6) require any person who acquires stock
of the Company with voting power of 25% or more to offer to purchase for cash
all remaining shares of the Company's voting stock at the highest price paid
by such person for shares of the Company's voting stock during the preceding
year; (7) limit the right of a person or entity to vote more than 10% of the
Company's voting stock; (8) eliminate cumulative voting in elections of
directors; and (9) require that shares with at least 66-2/3% of total voting
power approve, repeal or amend the Bylaws.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company is authorized to issue 15,000,000 shares of Common Stock,
without par value, and 5,000,000 shares of preferred stock, having such par
value as the Board of Directors of the Company shall fix and determine. The
Company currently expects to issue between 2,853,450 and 3,860,000 shares
(or, as permitted by the Plan, in the event the ESOP purchases shares in
excess of the maximum of the Estimated Valuation Range in order to satisfy
its 10% subscription, up to 4,246,660 shares), subject to adjustment, of the
Common Stock and no shares of preferred stock in the Conversion. The Company
has reserved for future issuance under the Compensation Plan and MRP an
amount of authorized but unissued shares of Common Stock equal to 10% and 4%,
respectively, of the shares to be issued in the Conversion.

COMMON STOCK

Voting Rights

Each share of the Common Stock will have the same relative rights and will
be identical in all respects with every other share of the Common Stock. The
holders of the Common Stock will possess exclusive voting rights in the
Company, except to the extent that shares of preferred stock issued in the
future may have voting rights, if any. Each holder of shares of the Common
Stock will be entitled to one vote for each share held of record on all
matters submitted to a vote of holders of shares of the Common Stock. Holders
of Common Stock will not be entitled to cumulate their votes for election of
directors.

Dividends

The Company may, from time to time, declare dividends to the holders of
Common Stock, who will be entitled to share equally in any such dividends.
For additional information as to cash dividends, see "Dividend Policy."

Liquidation

87
<PAGE>

In the event of any liquidation, dissolution or winding up of any or all
of the Insurance Companies, the Company, as holder of all of the capital
stock of the Insurance Companies, would be entitled to receive all assets of
the Insurance Companies after payment of all debts and liabilities of the
Insurance Companies. In the event of a liquidation, dissolution or winding up
of the Company, each holder of shares of Common Stock would be entitled to
receive, after payment of all debts and liabilities of the Company, a pro
rata portion of all assets of the Company available for distribution to
holders of Common Stock. If any preferred stock is issued, the holders
thereof may have a priority in liquidation or dissolution over the holders of
the Common Stock.

Other Characteristics

Holders of the Common Stock will not have preemptive rights with respect
to any additional shares of Common Stock that may be issued. The Common Stock
is not subject to call for redemption, and the outstanding shares of Common
Stock, when issued and upon receipt by the Company of the full purchase price
therefor, will be fully paid and nonassessable.

PREFERRED STOCK

None of the 5,000,000 authorized shares of preferred stock of the Company
will be issued in the Conversion. After the Conversion is completed, the
Board of Directors of the Company will be authorized, without shareholder
approval, to issue preferred stock and to fix and state voting powers,
designations, preferences or other special rights of such shares and the
qualifications, limitations and restrictions thereof. The preferred stock may
rank prior to the Common Stock as to dividend rights or liquidation
preferences, or both, and may have full or limited voting rights. The Board
of Directors has no present intention to issue any of the preferred stock.
Should the Board of Directors of the Company subsequently issue preferred
stock, no holder of any such stock shall have any preemptive right to
subscribe for or purchase any stock or any other securities of the Company
other than such, if any, as the Board of Directors, in its sole discretion,
may determine and at such price or prices and upon such other terms as the
Board of Directors, in its sole discretion, may fix.

REGISTRATION REQUIREMENTS

The Company will register its Common Stock with the SEC pursuant to the
Exchange Act upon completion of the Conversion and will not deregister said
shares for a period of at least three years following completion of the
Conversion. Upon such registration, the proxy and tender offer rules, insider
trading reporting and restrictions, annual and periodic reporting and other
requirements of the Exchange Act will be applicable.

LEGAL OPINIONS

The legality of the Common Stock will be passed upon for the Company by
Stevens & Lee, Reading, Pennsylvania. Stevens & Lee has consented to the
reference herein to its opinion. Certain legal matters will be passed upon
for Hopper Soliday and the Underwriters by Lord, Bissell & Brook, Chicago,
Illinois.

EXPERTS

The combined financial statements of the Insurance Companies as of
December 31, 1995 and 1994, and the combined statements of income, changes in
surplus and cash flows for each of the years in the three-year period ended
December 31, 1995 have been included in this prospectus in reliance upon the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

Berwind has consented to the publication herein of the summary of its
opinion as to the estimated pro forma aggregate market value of the Common
Stock to be issued in the Conversion and the value of subscription rights to
purchase the Common Stock and to the use of its name and statements with
respect to it appearing herein.

88
<PAGE>

GLOSSARY OF SELECTED INSURANCE TERMS

<TABLE>
<CAPTION>
<S> <C>
Acquisition costs ................. Agents' or brokers' commissions, premium taxes, marketing, and certain underwriting
expenses associated with the production of business.

Assumed reinsurance ............... Insurance or reinsurance transferred from another insurance or reinsurance entity.

Automobile Liability and Automobile
Physical Damage .................. Automobile liability coverage insures individuals and businesses against claims
resulting from bodily injury and property damage. Automobile physical damage coverage
insures individuals and businesses against claims resulting from property damage
to an insured's vehicle.

Cede .............................. To transfer to an insurer or a reinsurer all or a part of the insurance or reinsurance
written by an insurance or reinsurance entity.

Combined ratio .................... The sum of the expense ratio and the loss ratio, determined either in accordance
with statutory accounting practices or GAAP. A combined ratio under 100% generally
indicates an underwriting profit and a combined ratio over 100% generally indicates
an underwriting loss. The extent by which the combined ratio deviates from 100%
indicates relative underwriting profit or loss.

Commercial Multi-peril ............ Commercial multi-peril coverage insures against losses to businesses and business
personal property, such as those caused by fire, wind, hail, water damage, theft
and vandalism, as well as comprehensive general liability for injuries to others.
Optional coverages written include inland marine, crime and boiler and machinery.

Direct written premiums ........... Total premiums written by an insurer other than premiums for reinsurance assumed
by an insurer.

Earned premiums ................... The portion of net written premiums applicable to the expired period of policies.

Expense ratio ..................... Under statutory accounting practices, the ratio of underwriting expenses to net
written premiums.

Fire & Allied Lines ............... Fire and allied lines insurance generally covers fire, lightning, and removal and
extended coverage.

Gross premiums .................... Total premiums for insurance written and reinsurance assumed during a given period.

Homeowners ........................ Homeowners coverage insures individuals for losses to their residences and personal
property, such as those caused by fire, wind, hail, water damage, theft and vandalism,
and against third party liability claims.

Incurred losses ................... The sum of losses paid plus the change in the estimated liability for claims which
have been reported but which have not been settled and claims which have occurred
but have not yet been reported to the insurer.

Inland marine ..................... Inland marine coverage insures merchandise or cargo in transit and business and
personal property. It is also written as an endorsement to a homeowner's policy
to provide coverage for scheduled property, such as antiques, fine art, sports
equipment, boats, firearms, jewelry and camera equipment.

89
<PAGE>

Loss adjustment expenses .......... The expenses of settling claims, including legal and other fees and the general
expenses of administering the claims adjustment process.

Loss and LAE ratio ................ Under statutory accounting practices, the ratio of incurred losses and loss adjustment
expenses to earned premiums.

Net earned premiums ............... The portion of written premiums that is recognized for accounting purposes as revenue
during a period.

Net premiums ...................... Gross premiums written less premiums ceded to reinsurers.

Net written premiums .............. Gross premiums written and insured by an insurer less premiums ceded to reinsurers.

Reinsurance ....................... A procedure whereby an insurer remits or cedes a portion of the premiums to another
insurer or reinsurer as payment to that insurer or reinsurer for assuming a portion
of the related risk.

Residual market ................... The market consisting of those persons (most frequently drivers seeking automobile
insurance) who are unable to obtain insurance coverage in the voluntary market.

Statutory accounting practices .... Recording transactions and preparing financial statements in accordance with the
rules and procedures prescribed or permitted by statute or regulatory authorities,
generally reflecting a liquidating, rather than a going concern, concept of accounting.
The principal differences between statutory accounting practices ("SAP") and GAAP
for property and casualty insurance companies, are: (a) under SAP, certain assets
that are not admitted assets are eliminated from the balance sheet; (b) under SAP,
policy acquisition costs are expenses as incurred, while under GAAP, they are deferred
and amortized over the term of the policies; (c) under SAP, no provision is made
for deferred income taxes; (d) under SAP, certain reserves are recognized that
are not recognized under GAAP; and (e) under SAP, fixed income securities (bonds,
redeemable preferred stocks and mortgage-backed securities) and equity securities
are carried at cost, while under GAAP, they are carried at market value.

Statutory surplus ................. The sum remaining after all liabilities are subtracted from all assets, applying
statutory accounting practices. This sum is regarded as financial protection to
policyholders in the event an insurance company suffers unexpected or catastrophic
losses.

Underwriting ...................... The process whereby an insurer reviews applications submitted for insurance coverage
and determines whether it will accept all or part of the coverage being requested
and what the applicable premiums should be. Underwriting also includes an ongoing
review of existing policies and their pricing.

Underwriting expenses ............. The aggregate of policy acquisition costs and the portion of administrative, general
and other expenses attributable to underwriting operations.

Underwriting profit (loss) ........ The excess (deficiency), determined under statutory accounting practices, resulting
from the difference between earned premiums and the sum of incurred losses, loss
adjustment expenses and underwriting expenses.

Voluntary market .................. The market consisting of those persons who insurance companies voluntarily choose
to insure because such companies believe that they can do so profitably at competitive
rates.

Workers' Compensation ............. Workers' compensation coverage insures employers against employee medical and
indemnity claims resulting from injuries related to work as well as third party
employer's liability.
</TABLE>

90
<PAGE>

INDEX TO COMBINED FINANCIAL STATEMENTS
OF THE INSURANCE COMPANIES

<TABLE>
<CAPTION>
Page
--------
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS .......................................... F-2
FINANCIAL STATEMENTS
COMBINED BALANCE SHEETS
(As of December 31, 1995 and 1994) .................................. F-3
COMBINED STATEMENTS OF INCOME
(For the years ended December 31, 1995, 1994 and 1993) .............. F-4
COMBINED STATEMENTS OF CHANGES IN SURPLUS
(For the years ended December 31, 1995, 1994 and 1993) .............. F-5
COMBINED STATEMENTS OF CASH FLOWS
(For the years ended December 31, 1995, 1994 and 1993) .............. F-6
NOTES TO COMBINED FINANCIAL STATEMENTS ................................ F-7
FINANCIAL STATEMENTS (Unaudited)
COMBINED BALANCE SHEETS (Unaudited)
(As of September 30, 1996 and December 31, 1995) .................... F-20
COMBINED STATEMENTS OF INCOME (Unaudited)
(For the nine months and three months ended September 30, 1996 and
1995) ............................................................... F-21
COMBINED STATEMENTS OF CHANGES IN SURPLUS (Unaudited)
(For the nine months and three months ended September 30, 1996 and
1995) ............................................................... F-22
COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
(For the nine months and three months ended September 30, 1996 and
1995) ............................................................... F-23
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Unaudited) ............ F-24
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Boards of Directors and Policyholders
Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary:

We have audited the accompanying combined balance sheets of Old Guard
Mutual Insurance Company, Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company and subsidiary (the Group) as of
December 31, 1995 and 1994, and the related combined statements of income,
changes in surplus and cash flows for the years ended December 31, 1995, 1994
and 1993. These combined financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
the Group as of December 31, 1995 and 1994, and the combined results of their
operations and their cash flows for the years ended December 31, 1995, 1994
and 1993 in conformity with generally accepted accounting principles.

As discussed in Note 1 to the combined financial statements, the Group
changed its method of accounting for investments in 1994.
/s/ Coopers & Lybrand L.L.P.
One South Market Square
Harrisburg, Pennsylvania
July 19, 1996, except for
Notes 15 E and F which are
dated as of December 5, 1996

F-2
<PAGE>

OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY, AND
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY

COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
ASSETS
Investments:
Fixed income securities, available for sale, at fair value ......... $ 78,527,888 $ 70,160,387
Preferred stocks, at fair value .................................... 9,230,609 8,601,126
Common stocks, at fair value ....................................... 4,348,463 3,926,543
Other invested assets .............................................. 228,304 191,028
-------------- --------------
Total investments ............................................... 92,335,264 82,879,084
Cash and cash equivalents ............................................ 8,153,125 7,279,176
Premiums receivable .................................................. 6,313,635 6,505,566
Reinsurance recoverables and unearned premiums ....................... 10,274,527 14,041,030
Deferred policy acquisition costs, net ............................... 7,180,779 7,103,411
Accrued investment income ............................................ 1,033,140 1,045,869
Deferred income taxes, net ........................................... 1,234,685 3,181,157
Property and equipment, net .......................................... 5,656,074 3,970,478
Receivable from affiliate ............................................ 214,582 385,465
Other assets ......................................................... 2,457,554 1,439,818
-------------- --------------
Total assets .................................................... $134,853,365 $127,831,054
============== ==============
LIABILITIES AND SURPLUS
Liabilities:
Reserve for losses and loss adjustment expenses .................... 52,091,497 51,309,427
Unearned premiums .................................................. 33,329,250 32,646,969
Accrued expenses ................................................... 3,153,110 2,816,979
Subordinated debt .................................................. 2,250,000 3,000,000
Other liabilities .................................................. 3,132,194 1,526,233
-------------- --------------
Total liabilities ............................................... 93,956,051 91,299,608
-------------- --------------
Commitments and contingent liabilities (Notes 9 and 12)
Surplus:
Unassigned surplus ................................................. 38,905,128 39,588,699
Unrealized capital gains (losses) of securities, net of deferred
income taxes .................................................... 1,992,186 (3,057,253)
-------------- --------------
Total surplus ................................................... 40,897,314 36,531,446
-------------- --------------
Total liabilities and surplus ................................... $134,853,365 $127,831,054
============== ==============
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-3
<PAGE>

OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY, AND
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY

COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Net premiums written ........................... $67,114,947 $65,648,812 $63,354,790
Change in unearned premiums .................... (451,523) (2,184,227) (2,369,214)
------------- ------------- -------------
Net premiums earned ......................... 66,663,424 63,464,585 60,985,576
Investment income, net of expenses .......... 4,458,438 3,932,458 3,927,852
Net realized investment gains ............... 1,010,993 476,257 1,758,352
Other revenue ............................... 273,575 265,645 244,188
------------- ------------- -------------
Total revenue ............................... 72,406,430 68,138,945 66,915,968
------------- ------------- -------------
Expenses:
Losses and loss adjustment expenses incurred ... 50,509,295 46,439,908 42,153,837
Amortization of deferred policy acquisition
costs ....................................... 17,610,525 17,036,383 15,358,089
Operating expenses ............................. 5,654,712 5,051,112 5,632,637
------------- ------------- -------------
Total expenses .............................. 73,774,532 68,527,403 63,144,563
------------- ------------- -------------
Income (loss) before provision for income taxes .. (1,368,102) (388,458) 3,771,405
Income tax expense (benefit) ..................... (684,531) (532,750) 383,048
------------- ------------- -------------
Net income (loss) ........................... $ (683,571) $ 144,292 $ 3,388,357
============= ============= =============
</TABLE>

The accompanying notes are an integral part of the
combined financial statements.

F-4
<PAGE>

OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY, AND
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY

COMBINED STATEMENTS OF CHANGES IN SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Unassigned surplus:
Balance, beginning of year ............................. $39,588,699 $39,444,407 $36,056,050
Net income (loss) ...................................... (683,571) 144,292 3,388,357
-------------- -------------- -------------
Balance, end of year ................................... $38,905,128 $39,588,699 $39,444,407
============== ============== =============
Unrealized capital gains (losses) of securities, net of
deferred income taxes:
Balance, beginning of year ............................. $(3,057,253) $ 409,152 $ 557,390
Cumulative effect of classifying fixed income securities
as available for sale .................................. 629,225
Change in unrealized capital gains (losses) of securities 5,049,439 (4,095,630) (148,238)
-------------- -------------- -------------
Balance, end of year ..................................... $ 1,992,186 $(3,057,253) $ 409,152
============== ============== =============
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

F-5
<PAGE>

OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY, AND
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY

COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ (683,571) $ 144,292 $ 3,388,357
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of property and equipment ................ 629,858 563,325 598,788
Amortization of premium ............................... 396,224 647,935 498,887
Net realized investment gain .......................... (1,010,993) (476,257) (1,758,352)
Net realized (gain) loss on sale of property and
equipment ........................................... 21,285 381 (5,080)
Deferred income tax provision (benefit) ............... (661,728) (594,747) (440,616)
(Increase) decrease in assets:
Premiums receivable ................................. 191,931 350,611 619,140
Reinsurance receivable .............................. 3,766,503 5,913,152 5,763,312
Deferred policy acquisition costs ................... (77,368) (644,443) (530,014)
Accrued investment income ........................... 12,729 155,889 38,738
Other assets, excluding receivable for sale of
security ......................................... 9,260 (134,883) (523,159)
Receivable from affiliate ........................... 170,883 (385,465)
Increase (decrease) in liabilities:
Reserve for losses and loss adjustment expenses ..... 782,070 (7,747,121) (572,056)
Unearned premium .................................... 682,281 582,396 (127,060)
Accrued expenses .................................... 336,131 (1,016,647) 611,250
Other liabilities, excluding payable for purchase of
security ......................................... 310,174 (284,262) 831,365
-------------- -------------- --------------
Net cash provided by (used in) operating
activities ..................................... 4,875,669 (2,925,844) 8,393,500
-------------- -------------- --------------
Cash flows from investing activities:
Cost of purchases of fixed income securities, available
for sale .............................................. (35,935,523) (27,873,564) (48,548,987)
Proceeds from sales of fixed income securities, available
for sale .............................................. 32,594,494 19,345,631 41,598,495
Proceeds from maturities of fixed income securities,
available for sale .................................... 865,000 1,475,000 1,075,000
Cost of equity securities acquired ....................... (4,772,358) (1,235,743) (10,818,455)
Proceeds from sales of equity securities ................. 5,800,281 11,074,709 7,469,958
Change in receivable/payable for securities .............. 268,009 155,759
Cost of purchases of other invested assets ............... (50,000) (242,979)
Proceeds from sale of other invested assets .............. 190,000 53,921 198,526
Cost of purchase of property and equipment ............... (2,405,430) (526,356) (593,261)
Proceeds from sale of property and equipment ............. 193,807 550 91,984
-------------- -------------- --------------
Net cash provided by (used in) investing
activities ..................................... (3,251,720) 2,226,928 (9,526,740)
-------------- -------------- --------------
Cash flows from financing activities:
Repayment of subordinated debt ........................... (750,000) (750,000) (750,000)
-------------- -------------- --------------
Net cash used in financing activities ............ (750,000) (750,000) (750,000)
-------------- -------------- --------------
Net increase (decrease) in cash and cash
equivalents .................................... 873,949 (1,448,916) (1,883,240)
Cash and cash equivalents at beginning of year ............. 7,279,176 8,728,092 10,611,332
-------------- -------------- --------------
Cash and cash equivalents at end of year ................... $ 8,153,125 $ 7,279,176 $ 8,728,092
============== ============== ==============
Cash paid during the year for:
Interest ................................................. $ 265,861 $ 309,254 $ 376,931
Income taxes ............................................. $ 203,674 $ 691,785 $ 258,700
</TABLE>

The accompanying notes are an integral part of the
combined financial statements.

F-6
<PAGE>

OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY, AND
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY

NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Combination:

The combined financial statements include the accounts of Old Guard Mutual
Insurance Company (OGM), Old Guard Mutual Fire Insurance Company (OGF) and
Goschenhoppen-Home Mutual Insurance Company (GHM) and their subsidiary Old
Guard Investment Holding Company, Inc. (OGIHC). 2929 Service Corporation and
Commonwealth Insurance Managers, Inc. (CIMI) are wholly-owned subsidiaries of
OGIHC. The companies operate collectively as the Old Guard Insurance Group
(the Group). Management believes that presentation of combined financial
statements is the most meaningful given the pending transaction described in
footnote 15 B, "Demutualization," and since the companies operate under
common management and, through a pooling agreement, share in the premiums
written and the loss experience of each company.

Each of the insurance company members of the Group, as described above, is
a party to a joint application for approval to convert from mutual to stock
form of organization which will be filed with the Insurance Department of the
Commonwealth of Pennsylvania (Insurance Department). The application requests
regulatory approval of the formation of an insurance holding company,
incorporated in Pennsylvania, to purchase all of the authorized stock of OGM,
OGF and GHM, which will convert from the mutual to the stock form of
organization. Until completion of the conversion, the insurance holding
company will not engage in any significant operations and has no assets or
liabilities (see Note 15 B).

The accompanying combined financial statements have been prepared in
conformity with generally accepted accounting principles. All significant
intercompany transactions have been eliminated in combination.

Description of Business:

The Group sells personal, farm and commercial property and casualty
insurance in Pennsylvania, Delaware and Maryland, with Pennsylvania
comprising in excess of 95% of the direct premiums written. The principal
lines of business are homeowners, farmowners, personal automobile and
commercial multi-peril which represent approximately 27%, 18%, 23% and 14%,
respectively, of the net premiums written.

Cash and Cash Equivalents:

Cash and cash equivalents are carried at cost which approximates market
value. The Group considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Investments:

Effective January 1, 1994, the Group adopted Financial Accounting
Standards Board Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115). Under SFAS 115 debt and marketable
equity securities must be classified as held-to-maturity, trading, or
available-for-sale. Due to periodic shifts in the portfolio arising out of
income tax and asset-liability matching, as well as securities markets and
economic factors, management considers the entire portfolio of fixed income
securities as available-for-sale. Each new security is evaluated at the time
of purchase and reevaluated at each balance sheet date. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses,
net of deferred income tax, reported as a separate component of surplus. The
cumulative effect as of January 1, 1994 of adopting SFAS 115, representing
the unrealized gains on fixed income securities classified as
available-for-sale, net of deferred income tax, was to increase surplus by
$629,225.

Equity securities for all periods are stated at fair value with changes in
fair value, net of deferred income tax, reflected in surplus. Realized gains
and losses are calculated on the specific identification basis.

The fair value of all investments is subject to various market
fluctuations which include changes in equity markets, interest rate
environment and general economic conditions. Interest on fixed maturities and
short-term investments is credited to income as it accrues on the principal
amounts outstanding, adjusted for amortization of premiums and accretion of
discounts computed utilizing the effective interest rate method.

F-7
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

1. Summary of Significant Accounting Policies: - (Continued)

Deferred Policy Acquisition Costs, Net:

Acquisition costs such as commissions, premium taxes and certain other
expenses which vary with and are directly related to the production of
business, are deferred and amortized over the effective period of the related
insurance policies. The method followed in computing deferred policy
acquisition costs limits the amount of such deferred costs to their estimated
realizable value, which gives effect to premiums to be earned, related
investment income, loss and loss adjustment expenses and certain other
maintenance costs expected to be incurred as the premiums are earned. To the
extent that deferred policy acquisition costs are not realizable, the
deficiency is charged to income currently.

Property and Equipment, Net:

Property and equipment are carried at cost less accumulated depreciation.
Property is depreciated on a straight-line basis over the useful lives
ranging from fifteen to fifty years. Equipment is depreciated on a
straight-line basis with useful lives of five to ten years. Computer software
is amortized on a straight-line basis over a useful life of five years.

Premiums:

Premiums written are earned on a pro rata basis over the terms of the
respective policies. Unearned premiums represent the unexpired portion of the
policies in-force.

Losses and Loss Adjustment Expenses:

Reserves for losses and loss adjustment expenses include amounts
determined on the basis of claims adjusters' evaluations, other estimates and
estimates of losses incurred but not reported, calculated using historical
experience. Any adjustments resulting from changes in estimates are reflected
in current operating results. Estimated amounts of salvage and subrogation
recoverable on paid and unpaid losses are reflected as a reduction of
reserves for losses and loss adjustment expenses.

Income Taxes:

In accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes", deferred income taxes are accounted for using
the liability method, wherein deferred tax assets or liabilities are
calculated on the differences between the bases of assets and liabilities for
financial statement purposes versus tax purposes (temporary differences)
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Tax expense in the combined statements of income is
equal to the sum of taxes currently payable, including the effect of the
alternative minimum tax, if any, plus an amount necessary to adjust deferred
tax assets and liabilities to an amount equal to period-end temporary
differences at prevailing tax rates.

The Group members file individual federal income tax returns.

Reinsurance:

The Group cedes insurance to, and assumes insurance from, unrelated
insurers to limit its maximum loss exposure through risk diversification.

In accordance with Financial Accounting Standards Board Statement No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts", reinsurance receivables and unearned premiums are reported as
assets, and reserve liabilities are reported gross of reinsurance credits.

Certain reinsurance contracts provide for retrospective rate adjustments
based on experience. Management estimates the ultimate ceded premium based
upon historical experience. Any adjustments resulting from changes in
estimates are reflected in current operating results.

F-8
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

1. Summary of Significant Accounting Policies: - (Continued)
Assessments:

The Group's insurance members are subject to assessments in the states in
which each insurance company is licensed. Assessments consist primarily of
charges from the residual markets and guaranty fund associations. The expense
is recognized upon notification.

Use of Estimates:

The preparation of the accompanying combined financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities and disclosure of contingent assets and liabilities at
the date of the combined financial statements and the results of their
operations during the period. The combined financial statements include
estimates the most significant of which are reserve for losses and loss
adjustment expenses, deferred policy acquisition costs and reinsurance.
Actual results may differ from those estimates.

2. STATUTORY INFORMATION:

The Group's insurance companies which are domiciled in the Commonwealth of
Pennsylvania, prepare their statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Insurance
Department. Prescribed statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners (NAIC).
Permitted statutory accounting practices encompass all accounting practices
that are not prescribed; such practices differ from state to state, may
differ from company to company within a state, and may change in the future.
Furthermore, the NAIC has a project to codify statutory accounting practices,
the result of which is expected to constitute the only source of "prescribed"
statutory accounting practices. Accordingly, that project will likely change
the definitions of what comprise prescribed versus permitted statutory
accounting practices, and may result in changes to the accounting policies
that insurance enterprises use to prepare their statutory financial
statements. The effects of any such changes are not presently determinable
and will not likely affect financial statements prepared under generally
accepted accounting principles.

Risk based capital is designed to measure the acceptable amount of capital
an insurer should have based on the inherent risks of the insurer's business.
Insurers failing to meet adequate capital levels may be subject to insurance
department scrutiny and ultimately rehabilitation or liquidation. Based on
established standards, OGM, OGF and GHM maintain surplus in excess of
prescribed risk based capital requirements.

3. STATUTORY SURPLUS:

Statutory surplus and net income (loss), determined in accordance with
accounting practices prescribed or permitted by the Insurance Department for
the Group, are as follows:

<TABLE>
<CAPTION>
Statutory Statutory
Surplus Net Income (Loss)
------------------------------ ------------------------------------------
1995 1994 1995 1994 1993
------------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
OGM .... $19,973,068 $18,951,633 $(128,349) $ 822,297 $2,865,961
OGF .... 8,786,985 9,100,592 (265,828) (207,295) 1,753,945
GHM .... 3,489,304 3,044,383 494,455 (344,470) (253,167)
Other .. 20,503 21,136 1,564
------------- ------------- ------------ ----------- ------------
$32,249,357 $31,096,608 $ 120,781 $ 291,668 $4,368,303
============= ============= ============ =========== ============

</TABLE>

F-9
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

3. Statutory Surplus: - (Continued)

A reconciliation of the Group's statutory net income and surplus to the
Group's net income and surplus, under generally accepted accounting
principles (GAAP), is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net income:
Statutory net income .......................... $ 120,781 $ 291,668 $ 4,368,303
GAAP adjustments:
Increase (decrease) in deferred policy
acquisition costs ........................ 77,368 644,443 530,014
Provision for deferred income taxes ........ 661,728 594,747 444,217
Recognition of salvage and subrogation ..... (276,600)
Other ...................................... (1,543,448) (1,386,566) (1,677,577)
------------- ------------- -------------
GAAP net income (loss) ................... $ (683,571) $ 144,292 $ 3,388,357
============= ============= =============
Policyholders' surplus:
Statutory surplus ............................. $32,249,357 $31,096,608
GAAP adjustments:
Deferred policy acquisition costs .......... 7,180,779 7,103,411
Deferred income taxes ...................... 1,234,685 3,181,157
Restoration of nonadmitted assets .......... 463,246 464,648
Unrealized gain (loss) on securities ....... 1,722,410 (4,316,013)
Elimination of excess of statutory over
statement reserves liability ............. 657,158 127,173
Elimination of statutory unauthorized
reinsurance .............................. 77,800
Reclassification of subordinated debt ...... (2,250,000) (3,000,000)
Other ...................................... (360,321) 1,796,662
------------- -------------
GAAP surplus ............................. $40,897,314 $36,531,446
============= =============

</TABLE>

Other includes adjustments as to the period of recognition of income or
expense items between statutory and GAAP accounting.

At December 31, 1993, the Group changed its statutory method of accounting
for the reserve for losses and loss adjustment expenses to include the effect
of anticipated salvage and subrogation. Previously, the reserve was reported
without consideration for salvage and subrogation.

The Group is required to maintain a minimum aggregate surplus balance of
$9,825,000 on a statutory basis of accounting to satisfy regulatory
requirements.

F-10
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

4. INVESTMENTS:

Net investment income, net realized investment gains and change in
unrealized capital gains (losses) on investment securities are as follows for
each of the three years ended December 31:

NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS:

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Investment income:
Fixed income securities .................. $4,457,884 $3,672,544 $3,615,180
Preferred stocks ......................... 623,396 1,054,803 1,194,867
Common stocks ............................ 211,545 77,895 94,669
Cash and cash equivalents ................ 334,747 408,821 360,780
Other .................................... 116,899 105,847 60,961
------------ ------------ -------------
Gross investment income ............... 5,744,471 5,319,910 5,326,457
------------ ------------ -------------
Less investment expenses ................... 1,286,033 1,387,452 1,398,605
------------ ------------ -------------
Net investment income ...................... 4,458,438 3,932,458 3,927,852
------------ ------------ -------------
Realized gains (losses):
Fixed income securities .................. 543,696 204,493 1,492,697
Preferred stocks ......................... 73,156 131,509 205,860
Common stocks ............................ 268,080 140,255 59,795
Other .................................... 126,061
------------ ------------ -------------
Net realized investment gains ......... 1,010,993 476,257 1,758,352
------------ ------------ -------------
Net investment income and net realized
investment gains .................... $5,469,431 $4,408,715 $5,686,204
============ ============ =============

</TABLE>

CHANGE IN UNREALIZED CAPITAL GAINS (LOSSES) OF SECURITIES:

<TABLE>
<CAPTION>
1995 1994 1993
------------- -------------- ------------
<S> <C> <C> <C>
Fixed income securities ............... $ 5,722,298 $(5,199,848) $
Preferred stocks ...................... 853,101 (736,763) 22,448
Common stocks ......................... 1,096,943 (264,265) 106,367
Other invested assets ................. (14,703) (344,553)
Cumulative effect of accounting change 953,371
------------- -------------- ------------
7,657,639 (5,247,505) (215,738)
Tax effect ....................... (2,608,200) 1,781,100 67,500
------------- -------------- ------------
$ 5,049,439 $(3,466,405) $(148,238)
============= ============== ============

</TABLE>

F-11
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

4. Investments: - (Continued)

The cost and estimated fair value of available-for-sale investment
securities at December 31, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
1995 Cost(1) Appreciation Depreciation Fair Value
---------------------------------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Fixed income securities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies ......... $33,419,508 $ 155,894 $195,038 $33,380,364
Obligations of states and political
subdivisions ...................... 1,552,670 13,421 1,566,091
Corporate obligations ................ 25,867,568 1,293,989 147,123 27,014,434
Collateralized mortgage obligations .. 9,564,068 280,348 4,904 9,839,512
Other obligations .................... 6,625,805 101,682 6,727,487
------------- -------------- -------------- -------------
Total fixed income securities 77,029,619 1,845,334 347,065 78,527,888
Equity securities:
Preferred stocks ..................... 8,992,192 348,611 110,194 9,230,609
Common stocks ........................ 3,038,960 1,392,647 83,144 4,348,463
------------- -------------- -------------- -------------
Total available-for-sale ..... $89,060,771 $3,586,592 $540,403 $92,106,960
============= ============== ============== =============

</TABLE>

(1) Original cost of equity securities; original cost of fixed income
securities adjusted for amortization of premium and accretion of discount.

<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
1994 Cost(1) Appreciation Depreciation Fair Value
---------------------------------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Fixed income securities:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies ......... $33,270,002 $ 429 $2,888,262 $30,382,169
Obligations of states and political
subdivisions ...................... 3,686,569 5,961 26,169 3,666,361
Corporate obligations ................ 16,155,078 89,445 830,269 15,414,254
Collateralized mortgage obligations .. 17,916,000 34,849 587,463 17,363,386
Other obligations .................... 3,356,767 28,647 51,197 3,334,217
------------- -------------- -------------- -------------
Total fixed income securities 74,384,416 159,331 4,383,360 70,160,387
Equity securities:
Preferred stock ...................... 9,215,810 19,054 633,738 8,601,126
Common stock ......................... 3,713,983 680,760 468,200 3,926,543
------------- -------------- -------------- -------------
Total available-for-sale ..... $87,314,209 $859,145 $5,485,298 $82,688,056
============= ============== ============== =============

</TABLE>

(1) Original cost of equity securities; original cost of fixed income
securities adjusted for amortization of premium and accretion of
discount.

F-12
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

4. Investments: - (Continued)

The amortized cost and estimated fair value of fixed income securities at
December 31, 1995 by contractual maturity are shown below:

<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------- -------------
<S> <C> <C>
Due in one year or less ................... $ 4,995,869 $ 4,978,017
Due after one year through five years ..... 26,141,961 26,384,195
Due after five years through ten years .... 4,104,017 4,437,992
Due after ten years ....................... 2,950,428 3,095,279
Collateralized and asset backed securities 38,837,344 39,632,405
------------- -------------
$77,029,619 $78,527,888
============= =============

</TABLE>

Actual maturities may differ from contractual and anticipated maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

Collateralized and asset-backed securities consist of mortgage
pass-through holdings and securities backed by credit card receivables, auto
loans and home equity loans. These securities follow a structured principal
repayment schedule and are of high credit quality rated "AA" or better by
Standard & Poor's. These securities are presented separately in the maturity
schedule due to the inherent risk associated with prepayment on early
authorization. The average duration of this portfolio is 3.9 years.

The gross realized gains and losses on investment securities for each of
the years ended December 31, are as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------------- ----------- ------------
<S> <C> <C> <C>
Gross realized gains $ 2,995,584 $ 886,774 $2,157,599
Gross realized losses (1,984,591) (410,517) (399,247)
------------- ----------- ------------
Net realized gains .. $ 1,010,993 $ 476,257 $1,758,352
============= =========== ============

</TABLE>

Insurance laws require that certain amounts be deposited with various
state insurance departments for the benefit and protection of policyholders.
The amortized cost of fixed income securities on deposit with governmental
authorities was $501,095 and $452,371 at December 31, 1995 and 1994,
respectively.

F-13
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

5. LOSSES AND LOSS ADJUSTMENT EXPENSES:

Activity in the reserve for losses and loss adjustment expenses is
summarized as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Balance as of January 1 ...... $51,309,427 $59,056,548 $59,628,604
Less reinsurance recoverables 18,499,642 22,175,358 24,962,955
------------- ------------- -------------
Net balance at January 1 ..... 32,809,785 36,881,190 34,665,649
------------- ------------- -------------
Incurred related to:
Current year ............... 48,067,295 51,958,607 44,949,599
Prior years ................ 2,442,000 (5,518,699) (2,795,762)
------------- ------------- -------------
Total incurred .......... 50,509,295 46,439,908 42,153,837
------------- ------------- -------------
Paid related to:
Current year ............... 29,970,071 35,196,027 25,952,565
Prior years ................ 17,258,165 15,315,286 13,985,731
------------- ------------- -------------
Total paid .............. 47,228,236 50,511,313 39,938,296
------------- ------------- -------------
Net balance as of December 31 36,090,844 32,809,785 36,881,190
Plus reinsurance recoverables 16,000,653 18,499,642 22,175,358
------------- ------------- -------------
Balance at December 31 ....... $52,091,497 $51,309,427 $59,056,548
============= ============= =============

</TABLE>

The changes in the reserve estimates for prior years are primarily
attributable to the paid and incurred loss development experience across all
lines of business.

The reserve for losses and loss adjustment expenses reflect management's
best estimate of future amounts needed to pay claims and related settlement
costs with respect to insured events which have occurred, including events
that have not been reported to the Group. In many cases, significant periods
of time, ranging up to several years, may elapse between the occurrence of an
insured loss, the reporting of the loss, and the payment of that loss. As
part of the process in determining these amounts, historical data is reviewed
and consideration is given to the impact of various factors, such as legal
developments, changes in social attitudes, and economic conditions.

Management believes that its reserve for losses and loss adjustment
expenses are fairly stated, in accordance with generally accepted actuarial
principles and practices. However, estimating the ultimate claims liability
is a complex and judgmental process inasmuch as the amounts are based on
management's informed estimates and judgments using data currently available.
As additional experience and data become available regarding claim payments
and reporting patterns, legislative developments, and economic conditions,
the estimates are revised accordingly and the impact is reflected currently
in the Group's combined financial statements.

F-14
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

6. PROPERTY AND EQUIPMENT, NET:

Property and equipment consisted of the following at December 31, 1995 and
1994:

<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Land ......................................... $ 287,407 $ 287,407
Buildings and improvements ................... 4,089,767 3,753,677
Furniture, fixtures and equipment ............ 4,684,460 4,540,148
------------- -------------
Total property and equipment ............ 9,061,634 8,581,232
Less accumulated depreciation and amortization (4,493,992) (4,610,754)
------------- -------------
4,567,642 3,970,478
Computer software ............................ 1,088,432
------------- -------------
Property and equipment, net .................. $ 5,656,074 $ 3,970,478
============= =============

</TABLE>

7. REINSURANCE:

The Group maintains reinsurance agreements, which include coverage for
excess of loss and catastrophe loss. These reinsurance programs mitigate loss
exposure from individually large losses and an aggregation of losses arising
from a single loss event. The Group is contingently liable for reinsured
claims if the assuming reinsurers cannot meet their obligations under the
reinsurance agreements.

The following amounts represent the Group's reinsurance activity with
unrelated insurers for each of the three years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Ceded:
Premiums earned ........................... $9,362,861 $12,543,855 $12,217,139
Unearned premiums ......................... $1,469,316 $ 1,238,558 $ 2,836,257
Losses and loss adjustment expenses
incurred ............................... $6,897,673 $19,217,783 $ 9,283,057
Assumed:
Premiums earned ........................... $ 114,395 $ (11,610) $ 1,949,850
Unearned premiums ......................... $ 22,431 $ 22,870 $ 631,362
Losses and loss adjustment expenses
incurred ............................... $ 384,762 $ 83,347 $ 620,893

</TABLE>

The Group performs credit reviews of its reinsurers, focusing on financial
stability and commitment to the reinsurance business. At December 31, 1995,
the Group had a reinsurance recoverable of $8,630,000 due from its principal
reinsurer, American Re-Insurance Company with an A.M. Best rating of A+.

The ultimate ceded premium estimated by management for retrospective
contracts were $2,000,000, $1,400,000 and $1,300,000 for 1995, 1994 and 1993,
respectively. No material adjustments from amounts originally estimated have
been recorded.

8. SUBORDINATED DEBT:

During 1989, OGM received an advance to surplus for statutory purposes
from a third party. Repayment of principal began in April 1991 and continues
annually through 1998 in the amount of $750,000 per year. Interest, at 9%, is
to be paid each December. Such repayments of principal and payments of
interest are subject to certain notification and approval requirements of the
Insurance Department. Amounts not paid in accordance

F-15
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

8. Subordinated Debt: - (Continued)
with the aforementioned schedule will accrue interest at 9%. Certain
additional terms related to liquidation, merger or demutualization of the
Company provide for the principal to become due and payable. OGM paid
interest of $224,877, $309,025 and $376,705 under the obligation in 1995,
1994 and 1993, respectively.

9. LINES OF CREDIT:

The insurance companies of the Group jointly maintain cash management
programs with a local financial institution. The programs provide for draws
by any member of the Group against a line of credit in the event of
overdrafts. The line of credit is subject to a maximum of $2,250,000 and
bears interest at the prime rate. The Group must maintain zero balances on
the lines for one thirty-day period each year and must meet certain demand
deposit requirements. No borrowings were outstanding under these arrangements
during the years or at December 31, 1995 and 1994.

During 1995, the insurance companies of the Group obtained a $7,000,000
credit facility which provides for a five-year term borrowing capacity at the
prime interest rate less 1/4%. The credit facility is expected to be used in
connection with future acquisitions. During the year or at December 31, 1995,
there were no borrowings under this credit facility.

10. INCOME TAXES:

The tax effect of significant temporary differences that give rise to the
Group's net deferred tax asset as of December 31, is as follows:

<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Unearned premium .......................................... $1,815,247 $1,657,771
Reserve for losses and loss adjustment expenses ........... 2,166,680 2,135,772
Unrealized loss on investment securities available-for-sale 1,568,900
Alternative minimum tax credit carryforward ............... 324,356 220,558
Net operating loss carryforward ........................... 536,254 698,056
Other ..................................................... 211,823 389,979
------------ ------------
Deferred tax asset ................................... 5,054,360 6,671,036
------------ ------------
Deferred policy acquisition costs ......................... 2,441,465 2,415,159
Unrealized gain on investment securities .................. 1,039,300
Depreciation and other .................................... 338,910 1,074,720
------------ ------------
Deferred tax liability ............................... 3,819,675 3,489,879
------------ ------------
Net deferred tax asset ............................... $1,234,685 $3,181,157
============ ============

</TABLE>

The net deferred tax asset has not been reduced by a valuation allowance
because management believes that, while it is not assured, it is more likely
than not that it will generate sufficient future taxable income to utilize
these net excess tax deductions. The amount of the deferred tax asset
considered realizable, however, could be materially reduced in the near term
if estimates of future taxable income in the years in which the differences
are expected to reverse are not realized.

F-16
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

10. Income Taxes: - (Continued)

Actual income tax expense (benefit) differed from expected tax expense
(benefit), computed by applying the United States federal corporate tax rate
of 34% to income before income taxes, for each of the three years ended
December 31 as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- ------------
<S> <C> <C> <C>
Expected tax expense (benefit) $(465,155) $ (132,076) $1,282,278
Tax-exempt interest ........... (61,558) (227,249) (620,080)
Dividends received deduction .. (161,764) (215,139) (236,902)
Other ......................... 3,946 41,714 (42,248)
------------ ------------- ------------
Income tax expense (benefit) .. $(684,531) $ (532,750) $ 383,048
============ ============= ============

</TABLE>

The components of the provision (benefit) for income taxes for each of the
three years ended December 31 are as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Current federal income tax expense (benefit) $ (22,803) $ 61,997 $ 827,265
Deferred federal income tax (benefit) ....... (661,728) (594,747) (444,217)
------------ ------------ -----------
Income tax expense (benefit) ................ $(684,531) $(532,750) $ 383,048
============ ============ ===========

</TABLE>

GHM has a net operating loss carryforward at December 31, 1995, of
approximately $1,577,000. GHM utilized approximately $476,000 of net
operating loss carryforwards in 1995 to offset current taxable income. GHM's
net operating loss carryforwards expire $243,000 in 2007, $554,000 in 2008
and $780,000 in 2009.

As of December 31, 1995, OGM had alternative minimum tax credit
carryforwards of approximately $324,000 available to offset future tax
liability.

11. RETIREMENT PROGRAMS:

The Group has a discretionary noncontributory profit sharing plan covering
eligible employees. The Group's contribution to the plan amounted to
$262,945, $233,214, and $208,734 for the years ended December 31, 1995, 1994,
and 1993, respectively.

The Group also maintains a voluntary defined contribution savings plan
covering substantially all full-time employees. The Group matches employee
contributions up to 3% of compensation. The Group's contribution to this plan
amounted to $144,367, $136,121, and $107,567 for the years ended December 31,
1995, 1994, and 1993, respectively.

12. COMMITMENTS AND CONTINGENCIES:

In the event a property and casualty insurer, operating in a jurisdiction
where the Group also operated becomes or is declared insolvent, state
insurance regulations provide for the assessment of other insurers to fund
any capital deficiency of the insolvent insurer. Generally, this assessment
is based upon the ratio of an insurer's voluntary written premiums to total
written premiums for all insurers in that particular state. The Group charges
these assessments to income in the period in which it is notified. The Group
is not aware of any material assessments which have not been recorded at
December 31, 1995.

13. FAIR VALUES OF FINANCIAL INSTRUMENTS:

The carrying amounts of cash and cash equivalents, short-term investments
and subordinated debt approximate their fair value.

F-17
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

13. Fair Values of Financial Instruments: - (Continued)

Fixed income securities, preferred stocks and common stocks are reported
at fair value as established by quoted market prices on secondary markets as
of the balance sheet dates.

14. RELATED PARTY TRANSACTIONS:

Neffsville Mutual Fire Insurance Company (NMF) is affiliated with the
Group through common management and reinsurance programs.

NMF is provided senior management services by CIMI for a fee as determined
under the management agreement. Management fees recognized by CIMI during
1995 and 1994 were approximately $45,000 and $10,900, respectively.

NMF maintains a quota share reinsurance agreement with OGF whereby 90% and
100% of NMF's business is assumed by OGF during 1995 and 1994, respectively.
There was no quota share agreement with NMF in 1993. The following summarizes
the business ceded under the intercompany reinsurance agreement as of and for
each of the years ended December 31:

<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Premiums written ............................... $2,094,759 $ 844,487
------------ -----------
Premiums earned ........................... 2,094,759 844,487
Losses and loss adjustment expenses ............ (860,823) (332,965)
Commissions .................................... (837,904) (337,795)
------------ -----------
$ 396,032 $ 173,727
============ ===========
Reserve for losses and loss adjustment expenses $ 328,590 $ 199,167
Receivable from affiliate ...................... $ 214,582 $ 385,465

</TABLE>

15. SUBSEQUENT EVENTS:
A. REINSURANCE TREATY:

Effective January 1, 1996 the Group executed a 20% quota share reinsurance
treaty with its primary reinsurer. The treaty provides for a 35% flat ceding
commission and is on the net business written by the Group. This treaty is
intended to protect the Group from high frequency and low severity type
losses.

B. DEMUTUALIZATION:

In May 1996 the Group's Boards of Directors approved a plan of conversion
for changing the corporate form of OGM, OGF and GHM from the mutual form to
the stock form (demutualization). Under the plan, policyholders and other
targeted groups will have the opportunity to acquire stock in a newly formed
holding company, Old Guard Group, Inc. (OGGI).

OGGI will in turn acquire all of the newly issued stock of OGM, OGF and
GHM upon conversion. Prior to the conversion, OGGI will not engage in any
significant operations and will have no assets or liabilities. The
demutualization plan is subject to approval from the Insurance Department and
ultimately receipt of sufficient stock subscriptions to effect the
transaction. The Group has received a ruling from the Internal Revenue
Service regarding the tax treatment of the demutualization as a tax-free
reorganization. In the event that the plan is executed, the converted
companies will be subject to certain insurance laws and regulations specific
to stock insurance companies as well as regulations of the Securities and
Exchange Commission. Limitations on the payment of dividends and Insurance
Holding Company regulations are among the types of regulatory requirements
with which the Group will have to comply. Assuming the conversion were
complete as of December 31, 1995, dividends and other distributions in 1996
to OGGI would be limited to approximately $2,000,000 for OGM, $879,000 for
OGF and $494,000 for GHM without prior approval of the Insurance Department.

F-18
<PAGE>

Old Guard Mutual Insurance Company,
Old Guard Mutual Fire Insurance Company, and
Goschenhoppen-Home Mutual Insurance Company
and Subsidiary

Notes to Combined Financial Statements - (Continued)

B. Demutualization: - (Continued)

NMF is not eligible for inclusion in the plan for demutualization under
the laws of the Insurance Department of the Commonwealth of Pennsylvania and
therefore is excluded from these combined financial statements.

C. PROPOSED PLAN OF AFFILIATION:

In January 1996, OGM made a loan of $250,000 to a Missouri domiciled
property and casualty insurance exchange (Exchange). The loan represented the
initial phase of a proposed plan of affiliation with the Exchange. In June,
1996 OGM withdrew from the plan of affiliation in accordance with the terms
of the controlling letter of intent. Recovery of the loan is highly doubtful
and accordingly the Group charged the advance against earnings in 1996.

D. LETTER OF UNDERSTANDING:

In July 1996, OGIHC executed a letter of understanding with a Delaware
domiciled property and casualty insurance company. The letter provides for
the Delaware insurance company to secure insurance management services from
CIMI and pursue mutual to stock conversion and for the Group to purchase a
$1.0 million convertible surplus note and at its discretion to purchase up to
an additional $3.0 million of convertible surplus notes. The agreement is
subject to satisfactory completion of due diligence investigations by
management and regulatory approval and is expected to be completed by
December 31, 1995.

E. LETTER OF UNDERSTANDING:

In October 1996, OGIHC executed a letter of understanding with a Delaware
domiciled property and casualty insurance company and its sole shareholder to
acquire 80% of the stock of the insurance company for approximately $4.8
million. The letter also provides for the insurance company to secure
insurance management services from CIMI. The agreement is subject to
satisfactory completion of due diligence investigations by management and
regulatory approval.

F. OPERATING RESULTS (UNAUDITED):

Severe winter weather in January and February 1996 in the geographic areas
in which the Group writes business has produced adverse operating results
through September 1996. Management believes that such results are consistent
with those of similar carriers in the same region. The Group expects to
report a net loss of approximately $2.5 million through September 1996.

F-19
<PAGE>

OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY,
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY

COMBINED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995

<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed income securities, available for sale, at fair value ....... $ 69,785,634 $ 78,527,888
Preferred stocks at fair value ................................... 5,100,434 9,230,609
Common stocks at fair value ...................................... 6,425,351 4,348,463
Other invested assets ............................................ 318,434 228,304
------------------ -----------------
Total investments ........................................ 81,629,853 92,335,264
Cash and cash equivalents .......................................... 3,737,536 8,153,125
Premiums receivable ................................................ 7,910,672 6,313,635
Reinsurance recoverables and unearned premiums ..................... 25,659,185 10,274,527
Deferred policy acquisition costs, net ............................. 5,833,960 7,180,779
Accrued investment income .......................................... 1,102,600 1,033,140
Deferred income taxes, net ......................................... 2,370,641 1,234,685
Property and equipment, net ........................................ 6,164,008 5,656,074
Receivable from affiliate .......................................... 412,836 214,582
Other assets ....................................................... 2,716,623 2,457,554
------------------ -----------------
Total assets ............................................. $137,537,914 $134,853,365
================== =================
LIABILITIES & SURPLUS
Liabilities:
Reserve for losses and loss adjustment expenses .................. $ 56,798,586 52,091,497
Unearned premiums ................................................ 35,773,725 33,329,250
Accrued expenses ................................................. 2,203,007 3,153,110
Capital lease obligations ........................................ 1,848,492 509,194
Subordinated debt ................................................ 1,500,000 2,250,000
Other liabilities ................................................ 1,744,703 2,623,000
------------------ -----------------
Total liabilities ........................................ 99,868,513 93,956,051
Surplus: ...........................................................
Unassigned surplus ............................................... 36,356,971 38,905,128
Unrealized capital gains of securities, net of deferred income
taxes ......................................................... 1,312,430 1,992,186
------------------ -----------------
Total surplus ............................................ 37,669,401 40,897,314
------------------ -----------------
Total liabilities and surplus ............................ $137,537,914 $134,853,365
================== =================
</TABLE>

F-20
<PAGE>

OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY,
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY
COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995

<TABLE>
<CAPTION>
Nine Months Three Months Ended
Ended September 30, September 30,
------------------------------- ------------------------------
1996 1995 1996 1995
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Net premiums written ....................... $34,825,650 $50,089,488 $14,471,741 $16,828,120
Change in unearned premiums ................ 4,878,988 (1,553,794) (1,073,352) (613,766)
-------------- ------------- ------------- -------------
Net premiums earned ................ 39,704,638 48,535,694 13,398,389 16,214,354
Investment income, net of expenses ......... 3,434,066 3,408,538 1,052,583 1,100,442
Net realized investment gains .............. 1,328,217 649,546 382,822 309,526
Other revenue .............................. 483,986 172,055 223,599 60,359
-------------- ------------- ------------- -------------
Total revenue ...................... 44,950,907 52,655,843 15,057,393 17,684,681
-------------- ------------- ------------- -------------
Expenses:
Losses and loss adjustment expenses incurred 34,548,664 33,891,881 8,900,172 11,055,047
Amortization of deferred policy acquisition
costs ................................... 9,078,515 12,811,109 3,396,480 4,099,778
Operating expenses ......................... 5,330,300 4,894,626 2,163,594 1,971,222
-------------- ------------- ------------- -------------
Total expenses ..................... 48,957,479 51,597,616 14,460,246 17,126,047
-------------- ------------- ------------- -------------
Income (loss) before provision for income tax (4,006,572) 1,168,227 597,147 558,634
Income tax expense (benefit) ................. (1,458,415) 252,112 184,189 137,880
-------------- ------------- ------------- -------------
Net income (loss) ............................ ($ 2,548,157) $ 916,115 $ 412,958 $ 420,754
============== ============= ============= =============
</TABLE>

F-21
<PAGE>

OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY,
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY
COMBINED STATEMENTS OF CHANGES IN SURPLUS
FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995

<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
------------------------------- ------------------------------
1996 1995 1996 1995
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Unassigned surplus:
Balance, beginning of year .................. $38,905,128 $39,588,699 $35,944,013 $40,084,060
Net income .................................. (2,548,157) 916,115 412,958 420,754
------------- -------------- ------------- -------------
Balance, end of period ...................... $36,356,971 $40,504,814 $36,356,971 $40,504,814
============= ============== ============= =============
Unrealized capital gains (losses) of
securities, net of deferred income taxes:
Balance, beginning of period .................. $ 1,992,186 $(3,057,253) $ 1,097,228 $ 1,666,267
Net increase (decrease) in unrealized capital
gains of securities available for sale ...... (679,756) 5,307,648 215,202 584,128
------------- -------------- ------------- -------------
Balance, end of period ........................ $ 1,312,430 $ 2,250,395 $ 1,312,430 $ 2,250,395
============= ============== ============= =============
</TABLE>

F-22
<PAGE>
OLD GUARD MUTUAL INSURANCE COMPANY,
OLD GUARD MUTUAL FIRE INSURANCE COMPANY,
GOSCHENHOPPEN-HOME MUTUAL INSURANCE COMPANY
AND SUBSIDIARY
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995

<TABLE>
<CAPTION>
Nine Months Three Months Ended
Ended September 30, September 30,
-------------------------------- ------------------------------
-------------------------------
1996 1995 1996 1995
-------------- -------------- ------------- ------------

<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................... ($ 2,548,157) $ 916,115 $ 412,958 $ 420,754
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Depreciation of property and equipment ................... 462,432 381,240 264,618 187,674
Amortization of discount/accretion of premium ............ 240,855 305,430 72,734 106,293
Net realized investment gain ............................. (1,328,215) (649,546) (382,819) (309,526)
Net realized gain on sale of property and equipment ...... (11,400) (8,977) 0 (8,977)
Deferred income tax provision (benefit) .................. (887,851) 226,586 124,138 157,243
(Increase) decrease in assets:
Premiums receivable .................................... (1,597,037) (1,300,133) (669,064) 315,137
Reinsurance recoverable ................................ (15,384,658) 568,514 (4,626,468) (2,437,853)
Deferred policy acquisition costs ...................... 1,346,819 (373,095) 74,551 (85,142)
Accrued investment income .............................. (69,460) (241) (104,198) (24,832)
Other assets, excluding receivable from sale of security . (1,286,065) (209,554) (611,651) (79,617)
Receivable from affiliate .............................. (198,254) 641,269 1,095,930 1,327,390
Increase (decrease) in liabilities:
Reserve for losses and loss adjustment expenses ........ 4,707,089 (16,879) (2,142,686) 1,655,105
Unearned premium ....................................... 2,444,475 1,743,805 1,366,584 720,661
Accrued expenses ....................................... (950,103) (371,039) 587,782 529,641
Other liabilities, excluding payable for purchase of
security ............................................ 572,467 270,146 (96,283) 54,859
-------------- -------------- ------------- --------------
Net cash used by operating activities ............... (14,487,063) 2,123,641 (4,633,874) 2,528,810
-------------- -------------- ------------- --------------
Cash flows from investing activities:
Cost of purchases of fixed income securities, available
for sale (19,283,725) (29,008,791) (6,846,570) (15,734,768)
Proceeds from sales of fixed income securities, available
for sale 25,377,279 26,582,882 8,749,146 11,015,596
Proceeds from maturities of fixed income securities, available
for sale ................................................. 1,700,000 865,000 200,000 250,000
Cost of equity securities acquired .......................... (3,200,300) (1,966,538) (850,427) (445,314)
Proceeds from sales of equity securities .................... 6,358,616 2,567,857 1,260,344 689,529
Change in receivable/payable for securities ................. (423,768) 0 0 155,759
Cost of purchases of other invested assets .................. (86,959) (30,000) (27,883) 0
Proceeds from sale of other invested assets ................. 0 190,000 0 190,000
Cost of purchase of property and equipment .................. (970,367) (1,433,875) (513,462) (710,939)
Proceeds from sale of property and equipment ................ 11,400 169,813 0 169,813
-------------- -------------- ------------- --------------
Net cash provided by investing activities ........... 9,482,176 (2,063,652) 1,971,148 (4,420,324)
-------------- -------------- ------------- --------------
Cash flows from financing activities:
Payments on principal of capital lease ...................... (159,730) (93,498) (159,730) (93,498)
Proceeds from capital lease funding ......................... 1,499,028 0 344,277 0
Repayment of subordinated debt .............................. (750,000) (750,000) (750,000) 0
-------------- -------------- ------------- -------------
Net cash provided by (used in) financing activities . 589,298 (843,498) (565,453) (93,498)
-------------- -------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ........ (4,415,589) (783,509) (3,228,179) (1,985,012)
Cash and cash equivalents at beginning of year ................ 8,153,125 7,279,176 6,965,715 8,480,679
-------------- -------------- ------------- -------------
Cash and cash equivalents at end of nine months ............... $ 3,737,536 6,495,667 3,737,536 6,495,667
-------------- -------------- ------------- -------------
Additional Disclosures:
Cash paid (received) during the nine months for:
Interest .................................................... $ 29,638 $ 28,761 $ 29,638 $ 28,761
Income taxes ................................................ $ (45,843) $ 252,949 $ 0 $ 80,949
</TABLE>

F-23
<PAGE>

NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES:

The unaudited interim combined financial statements, which reflect all
adjustments (consisting only of normal recurring items) that management
believes necessary to present fairly results of interim operations, should be
read in conjunction with the Notes to Combined Financial Statements
(including the Summary of Significant Accounting policies) included in the
Insurance Companies and subsidiary audited combined financial statements for
the years ended December 31, 1995, 1994 and 1993.

The accounting policies of the Insurance Companies and Subsidiary, as
applied in the combined interim financial statements presented herein, are
consistent with those applied in the audited financial statements for the
years ended December 31, 1995, 1994 and 1993.

2. REINSURANCE:

Effective January 1, 1996, the Insurance Companies and American
Re-Insurance Company entered into a quota share reinsurance treaty pursuant
to which the Insurance Companies cede 20% of their liability remaining after
cessions of excess and catastrophic risks through other reinsurance
contracts. Pro rata cessions of unearned premiums as of January 1, 1996 and
the transfer of premiums written during the six months ended June 30, 1996
accounted, in part, for the decline in net premiums written, net premiums
earned and total revenues.

3. PROPOSED TRANSACTIONS:

First Delaware Insurance Company Acquisition

Management expects that in January 1997, Old Guard Investment Holding
Company, Inc. a subsidiary of the Insurance Companies (Old Guard Investment)
will execute an agreement with First Delaware Insurance Company (First
Delaware), a Delaware insurance company, and International Corporation (IC),
First Delaware's sole shareholder, pursuant to which Old Guard Investment
will acquire 80% of the capital stock of First Delaware. The acquisition will
be made through a combination of (i) a $3 million cash investment in First
Delaware in exchange for a number of shares of First Delaware common stock
equal to $3 million divided by 1.5 times the GAAP book value per share of
First Delaware as of the month end immediately preceding the closing date and
(ii) the purchase from IC for cash of a number of additional shares of First
Delaware, at a price per share equal to 1.5 times the GAAP book value per
share of First Delaware, such that Old Guard Investment will hold 80% of the
stock of First Delaware after closing. Management estimates that the total
acquisition price will equal approximately $4.8 million. Old Guard Investment
expects to finance the acquisition of the common stock of First Delaware by
drawing down on an existing $7.0 million line of credit.

New Castle Insurance Company Investment

Management expects that in November 1996, Old Guard Investment will
execute an Investment Agreement with New Castle Mutual Insurance Company (New
Castle), a Delaware insurance company that is licensed in Delaware and
Pennsylvania and sells primarily homeowners and other personal property and
casualty lines through independent agents. Pursuant to the Investment
Agreement, Old Guard Investment, or an affiliate designated by Old Guard
Investment, will purchase a $1.0 million convertible surplus note and, from
time to time, at its discretion, will purchase up to an additional $3.0
million of convertible surplus notes based on cancellation of reinsurance or
an increase in the ratio of net premiums written to statutory surplus to an
amount in excess of 2.9% Old Guard Investment expects to finance this
investment by drawing on an existing $7.0 million line of credit.

4. TERMINATION OF A PROPOSED PLAN OF AFFILIATION:

A nonrecurring expense incurred for the six month period ended June 30,
1996 was the write off of a $250,000 surplus note investment in an
unaffiliated Missouri insurance company whose surplus is impaired. Old Guard
Mutual had an agreement to affiliate with this company but the agreement was
terminated because of a deterioration in the financial condition of that
company. See Note 15 to the Combined Financial Statements.

F-24
<PAGE>

=============================================================================

No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or
made, such information shall not be relied upon as having been authorized by
the Company, the Insurance Companies, or Hopper Soliday & Co., Inc. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby to any person in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so, or to any person
to whom it is unlawful. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company or the Insurance Companies,
since the date as of which information is furnished herein or since the date
hereof.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary .............................. 4
Selected Financial Information and Other Data ... 12
Risk Factors .................................... 15
The Company ..................................... 20
The Insurance Companies ......................... 22
Use of Proceeds ................................. 23
Dividend Policy ................................. 24
Market for the Common Stock ..................... 24
Capitalization .................................. 25
Pro Forma Data .................................. 26
Management's Discussion and Analysis of Financial
Condition and Results of
Operations ..................................... 32
Business ........................................ 40
Management of the Company ....................... 58
The Conversion .................................. 66
Certain Restrictions on Acquisition of the
Company ........................................ 82
Description of Capital Stock .................... 85
Registration Requirements ....................... 86
Legal Opinions .................................. 86
Experts ......................................... 86
Index to Combined Financial Statements .......... F-1

</TABLE>

Until __________, 1997, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may
be required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.

=============================================================================

<PAGE>

=============================================================================

OLD GUARD GROUP, INC.

UP TO

3,860,600 SHARES

COMMON STOCK

------
PROSPECTUS
------

HOPPER SOLIDAY & CO., INC.

__________, 1996

==============================================================================

<PAGE>

The following pages Constitute the Public Offering Prospectus

<PAGE>

PROSPECTUS
[LOGO]
OLD GUARD GROUP, INC.
SHARES OF COMMON STOCK

The shares offered hereby (the "Public Offering") constitute a portion of the
shares of common stock, no par value per share (the "Common Stock") to be issued
by Old Guard Group, Inc. (the "Company"), a Pennsylvania corporation and the
proposed holding company for Old Guard Mutual Insurance Company ("Old Guard
Mutual"), Old Guard Mutual Fire Insurance Company ("Old Guard Fire") and
Goschenhoppen-Home Mutual Insurance Company ("Goschenhoppen" and collectively
with Old Guard Mutual and Old Guard Fire, the "Insurance Companies"). shares of
Common Stock have been subscribed for in a subscription offering (the
"Subscription Offering") by: (i) certain named insureds under policies of
insurance issued by the Insurance Companies and in force as of the close of
business on May 31, 1996 ("Eligible Policyholders"), (ii) a tax-qualified
employee stock ownership plan (the "ESOP"), and (iii) certain directors,
officers and employees of the Insurance Companies and in a community offering to
the general public (the "Community Offering").

The Public offering is being made in connection with the conversion of the
Insurance Companies from mutual to stock form and the simultaneous acquisition
of the capital stock of each of the Insurance Companies by the Company pursuant
to a Joint Plan of Conversion adopted by the Boards of Directors of the
Insurance Companies on May 31, 1996, as amended and restated on July 19, 1996
(the "Plan"). The conversion of the Insurance Companies to stock form, the
issuance of capital stock of the Insurance Companies to the Company and the
offer and sale of the Common Stock by the Company are collectively referred to
herein as the "Conversion." The completion of the Conversion is contingent upon
the sale of a minimum of 2,853,500 shares of Common Stock in the Subscription
Offering, the Community Offering and this Public Offering.

Prospective investors should review and consider the discussion under
"Risk Factors" beginning on page 15.

================================================================================
Purchase Fees and Estimated Net
Price Expenses(1) Proceeds
- --------------------------------------------------------------------------------
Per Share ..................... $10.00 $ $
- --------------------------------------------------------------------------------
Total ......................... $ $ $
================================================================================

(1) Includes estimated registration fees, printing, postage, legal,
accounting, appraisal and miscellaneous expenses that will be incurred in
connection with the Conversion. Also includes estimated fees, sales
commissions and reimbursable expenses to be paid to Hopper Soliday & Co.,
Inc. ("Hopper Soliday") as manager of the Subscription Offering and
Community Offering and Legg Mason Wood Walker, Incorporated ("Legg
Mason") and McDonald & Company Securities, Inc. ("McDonald" and together
with Legg Mason, the "Underwriters") as co-managers of the Public
Offering. See "The Conversion -- Marketing and Underwriting Arrangements
for the Offering" and "-- The Public Offering."

The shares are offered by the Underwriters when, as and if issued by the
Company and accepted by the Underwriters and subject to their right to reject
orders in whole or in part. It is expected that the shares will be ready for
delivery on or about , 1997.

LEGG MASON WOOD WALKER, MCDONALD & COMPANY
INCORPORATED SECURITIES, INC.

The date of this Prospectus is , 1997

<PAGE>

The aggregate purchase price of all shares of Common Stock sold in the
Subscription, Community and Public Offerings is based on the estimated pro
forma market value of the Insurance Companies, following the Conversion, as
determined by an independent appraisal performed by Berwind Financial Group,
L.P. ("Berwind") as of August 19, 1996. All shares of Common Stock will be
sold for $10.00 per share (the "Purchase Price"). Except for the ESOP, which
subscribed for 10% of the total number of shares of Common Stock issued in
the Conversion, no purchaser, together with associates or persons acting in
concert with such person, may purchase, in the aggregate, more than 193,030
shares of Common Stock in the Conversion (5% of the number of shares equal to
the maximum of the estimated valuation range divided by the Purchase Price).
In addition, no person may purchase fewer than 25 shares. Directors and
executive officers of the Company and the Insurance Companies as a group (18
persons), including their associates, are expected to purchase approximately
50,750 shares of the Common Stock to be issued in the Conversion (1.5% at the
midpoint of the estimated valuation range), not including 10% of the Common
Stock (335,700 shares at the midpoint) expected to be purchased by the ESOP
and excluding additional shares that are expected to be issued (or issuable)
following the Conversion, subject to shareholder approval, in connection with
the implementation of the Company's management recognition plan and 1996
Stock Compensation Plan.

IN CONNECTION WITH THE PUBLIC OFFERING, IF ANY, THE UNDERWRITERS MAY OVER-
ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.

<PAGE>

===============================================================================

Organizational Structure Before The Conversion

Old Guard Mutual Old Guard Fire Grochenhoppen-Home

79% 15.4% 5.6%

Old Guard Investment Holding Company, Inc.

100% 100%

Commonwealth Insurance 2929 Service Corp. Comonwealth Insurance
Manager, Inc. Consultants, Inc.

===============================================================================

Organizational Structure After The Conversion

LOGO
Shareholders

Old Guard Group, Inc.

100% 100% 100% 100%

Old Guard Old Guard Grochenhoppen-Home Old Guard Investment
Mutual Fire Holding Company, Inc.

100% 100%

Commonwealth Insurance 2929 Service Corp.--30%-- Comonwealth Insurance
Manager, Inc. Consultants, Inc.

===============================================================================

<PAGE>

PROSPECTUS SUMMARY

4
<PAGE>

5
<PAGE>
requested a presentation with respect to the
process at its meeting on March 31, 1996. At
a meeting of the Board of Directors of each
Insurance Company held on April 22, 1996,
management was directed to prepare the Plan
for consideration at a special meeting to be
held in May. Effective May 31, 1996, the
Board of Directors of each of the Insurance
Companies unanimously adopted the Plan,
subject to approval by the Department and
the policyholders of each of the Insurance
Companies. Each Board of Directors
unanimously adopted amendments to the Plan
on July 19, 1996. An application with
respect to the Conversion was filed by the
Insurance Companies with Pennsylvania
Department of Insurance (the "Department")
on August 21, 1996 and notice of the filing
and the opportunity to comment was
simultaneously mailed to all Eligible
Policyholders as required by law. The
Department informed the Insurance Companies
on November 27, 1996 that it did not intend
to hold any hearings regarding the
Conversion. The Plan was approved by the
Department on , 1996 and is subject
to the approval of Eligible Policyholders at
the Special Meetings. The Company also has
received approval of the Department to
acquire control of the Insurance Companies.
On November 19, 1996, the Company received
an unsolicited request from Donegal Group,
Inc., an insurance holding company located
in Marietta, Pennsylvania ("Donegal"), to
amend the Plan to provide for the merger of
the Company into Donegal in exchange for an
aggregate payment of $27.5 million to all
policyholders of the Insurance Companies, or
less than $200 per policyholder assuming
equal distribution to all policyholders.
Such amount was proposed to be payable
one-half in cash and one-half in a new class
of preferred stock of Donegal, the terms of
which were not specified. Because such a
transaction would not provide additional
capital to the Insurance Companies, would be
inconsistent with their strategic plan of
continued independence and would be
tantamount to a sale and liquidation of the
Insurance Companies, the Boards of Directors
of the Company and the Insurance Companies
determined that the request was contrary to
the best interests of the Insurance
Companies, including its policyholders,
agents, employees, suppliers and the
communities they serve, and further declined
to consider the request. Therefore, the
respective Boards of Directors affirmed
their course of independence and commitment
to the Plan.
An application to acquire the Company was
contemporaneously filed with the Department
by Donegal. The Department informed Donegal
that its application was both deficient and
premature and, as a result, the Department
informed Donegal that it is prohibited from
(i) making any public announcement of its
request to the Company to amend the Plan,
and (ii) soliciting policyholders of the
Insurance Companies in any way, including in
connection with the policyholder votes to be
held on the Plan at the Special Meetings. If
Eligible Policyholders do not approve the
Plan, the Boards of Directors of the
Insurance Companies intend to maintain their
current course of independence. See "The
Conversion -- Background and Reasons for the
Conversion."

6
<PAGE>

Stock Pricing and Number of
Shares to be Issued.......... Pennsylvania law requires that the aggregate
purchase price of the Common Stock to be
issued in the Conversion be consistent with
an independent appraisal of the estimated
pro forma market value of the Insurance
Companies as subsidiaries of the Company
following the Conversion. Berwind, a firm
experienced in corporate valuations, has
made an independent appraisal of the
estimated pro forma market value of the
Insurance Companies as subsidiaries of the
Company and has determined that, as of
August 19, 1996, such estimated pro forma
market value was $33,570,000. The resulting
valuation range in Berwind's appraisal,
which extends 15% below and 15% above the
estimated value, is from $28,535,000 to
$38,606,000 (the "Estimated Valuation
Range"). The Company, in consultation with
its advisors, has determined to offer the
shares in the Conversion at the Purchase
Price. Such appraisal is not intended to be,
and must not be construed as, a
recommendation of any kind as to the
advisability of purchasing Common Stock or
as assurance that, after the Conversion,
shares of Common Stock can be resold at or
above the Purchase Price. The appraisal will
be updated immediately prior to completion
of the Conversion. If the updated appraisal
is different from the appraisal as of August
19, 1996 but is within the Estimated
Valuation Range, the Conversion will be
consummated. If the updated appraisal is not
within the Estimated Valuation Range, then,
in such event, the Company, after
consultation with the Department, may
terminate the Plan, establish a new
Estimated Valuation Range, extend, reopen or
hold a new offering or take such other
action as may be authorized by the
Department. Subscribers will be notified of
any such action by mail and, if a new
Estimated Valuation Range is established,
subscribers will be given an opportunity to
affirm, amend or cancel their subscriptions.

The Subscription and
Community Offerings.......... shares of Common Stock were subscribed
for at the Purchase Price in the
Subscription Offering pursuant to
nontransferable subscription rights by: (i)
certain Eligible Policyholders, (ii) the
ESOP, and (iii) certain directors, officers
and employees of the Insurance Companies and
shares of Common Stock were subscribed
for in the Community Offering by members of
the general public. The Subscription
Offering and the Community Offering
terminated on , 1997.

The Public Offering ........... Common Stock being offered in a firm
commitment public offering (the "Public
Offering") to be co-managed by the
Underwriters. See "Underwriting."

7
<PAGE>

Purchase Limitations .......... No person may purchase fewer than 25 shares
in the Offering. The ESOP may purchase up to
an aggregate of 10% of the shares of Common
Stock to be issued in the Conversion and is
expected to do so. With the exception of the
ESOP, no person (including Eligible
Policyholders who elect to purchase stock in
the Conversion), together with associates or
persons acting in concert, may purchase in
the aggregate, more than 193,030 shares of
Common Stock (5% of the number of shares
equal to the maximum of the Estimated
Valuation Range divided by the Purchase
Price). The Boards of Directors of the
Company and the Insurance Companies may
increase or decrease the purchase limitation
at any time, subject to any required
regulatory approval. See "The Conversion --
Limitations on Purchases of Shares."

Benefits to Management......... The Company's ESOP is expected to purchase
10% of the shares of Common Stock sold in
the Offering, which will be awarded to
substantially all employees without payment
by such persons of cash consideration. In
addition, the Company adopted a Management
Recognition Plan (the "MRP") pursuant to
which the Company intends to award to
employees and directors of the Company a
number of shares of Common Stock equal to up
to 4% of the number of shares sold in the
Offering without payment by such persons of
cash consideration, and a Stock Compensation
Plan pursuant to which the Company intends
to award options to purchase a number of
shares of Common Stock equal to up to 10% of
the number of shares sold in the Offering at
an exercise price equal to the Purchase
Price. The Company intends to submit the MRP
and the Stock Compensation Plan to
shareholders for approval at the Company's
first annual meeting, and no stock options
will be awarded under the Stock Compensation
Plan and no shares of restricted stock will
be awarded under the MRP in the first year
after the conclusion of the Offering unless
such plans are approved by a majority vote
of shareholders.

Use of Proceeds ............... Net proceeds from the Conversion will depend
upon the total number of shares sold and the
expenses of the Conversion. As a result, net
proceeds cannot be determined until the
Conversion is completed. The Company
anticipates that net proceeds (less the debt
incurred to purchase the ESOP shares) will
be approximately $ million if the
aggregate purchase price is within the
Estimated Valuation Range. See "Use of
Proceeds" for the assumptions used to arrive
at these estimates.
The Company has received Department approval
to exchange $16.0 million of net proceeds
from the Offering for all of the capital
stock

8
<PAGE>

of Old Guard Mutual, Old Guard Fire and
Goschenhoppen to be issued in the
Conversion. Assuming net proceeds from the
Offering of approximately $ million, the
Company would retain approximately $
million after acquiring the stock of the
Insurance Companies.
A portion of the net proceeds retained by
the Company will be used to repay
approximately $5.8 million in financing
incurred in connection with the pending
acquisition of First Delaware Insurance
Company, if completed as planned, and the
investment in New Castle Mutual Insurance
Company. The balance of the net proceeds
retained by the Company will be available
for a variety of corporate purposes,
including, but not limited to, additional
capital contributions to the Insurance
Companies, future acquisitions and
diversification within the property and
casualty insurance industry, dividends to
shareholders and future repurchases of
Common Stock to the extent permitted by
Pennsylvania law and the Department. With
the exception of the payment of dividends
and the pending acquisition of First
Delaware Insurance Company and the proposed
investment in New Castle Mutual Insurance
Company, the Company currently has no
specific plans, intentions, arrangements or
understandings regarding any of the
foregoing activities. See "Dividend Policy";
"The Company -- Acquisition of First
Delaware Insurance Company" and --
Investment in New Castle Mutual Insurance
Company."

Market for the Common Stock.... The Company has received approval to have
the Common Stock quoted on the Nasdaq NMS
under the symbol "OGGI" upon closing of the
Conversion. Hopper Soliday, Legg Mason and
McDonald have each advised the Company that,
upon completion of the Conversion, it
intends to act as a market maker in the
Common Stock, subject to market conditions
and compliance with applicable laws and
regulatory requirements. Prior to the Public
Offering, there was no public market for the
Common Stock and there can be no assurance
that an active and liquid market for the
Common Stock will develop in the foreseeable
future. Even if a market develops, there can
be no assurance that shareholders will be
able to sell their shares at or above the
Purchase Price after completion of the
Conversion. See "Market for the Common
Stock."

9
<PAGE>

the effect of discouraging or preventing a
non-negotiated change in control of the
Company, as well as a proxy contest for
control of the Board of Directors of the
Company. For a detailed discussion of those
provisions, see "Investment Considerations
-- Articles of Incorporation, Bylaw and
Statutory Provisions that could Discourage
Hostile Acquisitions of Control,"
"Management -- Certain Benefit Plans and
Agreements," "Certain Restrictions on
Acquisition of the Company -- Pennsylvania
Law" and -- "Certain Anti-Takeover
Provisions in the Articles of Incorporation
and Bylaws" and "Description of Capital
Stock."

10
<PAGE>

SELECTED COMBINED FINANCIAL DATA

11
<PAGE>

<TABLE>
<CAPTION>
hree Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenue Data:
Direct premiums written .................... $21,260 $ 19,776 $ 62,623 $ 59,729
Net premiums written(1) .................... 14,472 16,828 34,826 50,089
Statement of Income Data:
Net premiums earned(1) ................... 13,298 16,214 39,705 48,536
Net investment income .................... 1,502 1,101 3,434 3,408
Net realized investment gains ............ 383 310 1,328 650
Other income ............................. 224 60 484 172
----------- ---------- ----------- ----------
Total revenues(1) ..................... 15,057 17,685 44,951 52,766
----------- ---------- ----------- ----------
Losses and Expenses: .......................
Losses and loss adjustment expenses ...... 8,900 11,055 34,548 33,892
Other underwriting expenses .............. 5,560 6,071 14,159 17,706
Other expenses ........................... -- -- 250 --
----------- ---------- ----------- ----------
Total expenses ........................ 14,460 17,126 48,957 51,598
----------- ---------- ----------- ----------
Income (loss) before federal income taxes .. 597 559 (4,006) 1,168
Federal income tax expense (benefit) ....... 184 138 (1,458) 252
----------- ---------- ----------- ----------
Net income (loss)(2) ....................... $413 $ 421 $ (2,548) $ 916
=========== ========== =========== ==========
Selected Balance Sheet Data (at period end):
Total investments(3) ..................... $85,367 $ 98,477 $ 81,630 $ 91,951
Total assets ............................. 137,538 135,383 137,538 135,383
Subordinated debt ........................ 1,500 2,250 1,500 2,250
Total liabilities ........................ 99,869 92,736 99,869 92,736
Total equity(3) .......................... $37,041 $ 42,648 $ 37,669 $ 42,648
GAAP Ratios:(3)
Loss and loss adjustment expenses ratio(4) 66.4% 68.2% 87.0% 69.8%
Underwriting expense ratio(1)(5) ......... 41.5% 37.4% 35.7% 36.5%
Combined ratio(1)(6) ..................... 107.9% 105.6% 122.7% 106.3%
Statutory Data (at period end):
Statutory combined ratio(1) .............. 104.8% 104.3% 124.7% 107.4%
Industry combined ratio(7) ............... -- -- -- --
Statutory surplus ........................ $30,265 $ 31,563 $ 30,265 $ 31,563
Ratio of statutory net written premiums to
statutory surplus(1)(8) ............... 1.91x 2.13x 1.53x 2.12x

</TABLE>

12
<PAGE>

</TABLE>

13
<PAGE>

(4) Calculated by dividing losses and loss adjustment expenses by net
premiums earned.

(5) Calculated by dividing other underwriting expenses by net premiums
earned.

(6) The sum of the Loss and Loss Adjustment Expense Ratio and the
Underwriting Expense Ratio.

(7) As reported by A.M. Best Company, Inc., an independent insurance rating
organization. Data unavailable for the periods ended September 30, 1996
and September 30, 1995.

(8) Annualized for the periods ended September 30, 1996 and 1995.

(9) Information excerpted from unaudited Pro Forma Combined Statements of
Income for the nine months ended September 30, 1996 and the year end
December 31, 1995. See "Pro Forma Data".

14
<PAGE>

RISK FACTORS

POSSIBLE ADVERSE IMPACT OF CATASTROPHE AND NATURAL PERIL LOSSES ON FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

POSSIBLE ADVERSE IMPACT OF INADEQUATE LOSS RESERVES ON FINANCIAL CONDITION
AND RESULTS OF OPERATION

15
<PAGE>

POSSIBLE SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS

POSSIBLE ADVERSE IMPACT DUE TO GEOGRAPHIC CONCENTRATION OF BUSINESS

POSSIBLE ADVERSE OR INADEQUATE IMPACT OF ACQUISITION STRATEGY

HIGHLY COMPETITIVE NATURE OF INSURANCE INDUSTRY

POSSIBLE ADVERSE IMPACT OF CHANGE IN A.M. BEST RATING

16
<PAGE>

POSSIBLE ADVERSE IMPACT OF REGULATORY CHANGES

No assurance can be given that future legislation or regulatory changes
will not adversely affect the business and results of operations of the
Insurance Companies. See "Business -- Regulation."

17
<PAGE>

DEPENDENCE UPON DIVIDENDS FROM INSURANCE COMPANIES

AVAILABILITY AND ADEQUACY OF REINSURANCE

RELIANCE ON EXISTING MANAGEMENT

MANAGEMENT'S DISCRETION IN ALLOCATION OF PROCEEDS

POTENTIAL BENEFITS OF CONVERSION TO MANAGEMENT AND IMPACT OF PURCHASES BY
MANAGEMENT AND STOCK BENEFIT PLANS

18
<PAGE>

DILUTIVE EFFECT OF MRP AND STOCK OPTIONS

RISK OF LEGAL CHALLENGE

19
<PAGE>

ARTICLES OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS THAT COULD
DISCOURAGE HOSTILE ACQUISITIONS OF CONTROL

ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK

20
<PAGE>

THE COMPANY

GENERAL

The Company's executive offices are located at 2929 Lititz Pike,
Lancaster, Pennsylvania 17604, and its main telephone number is (717)
569-5361.

FIRST DELAWARE INSURANCE COMPANY ACQUISITION

21
<PAGE>

NEW CASTLE INSURANCE COMPANY INVESTMENT

22
<PAGE>

THE INSURANCE COMPANIES

The Insurance Companies are subject to examination and comprehensive
regulation by the Department. See "Business -- Regulation."

23
<PAGE>

USE OF PROCEEDS

The Company estimates that it will receive net proceeds of $ . The
Company has received Department approval to exchange $16.0 million of net
proceeds for all of the capital stock of Old Guard Mutual, Old Guard Fire and
Goschenhoppen to be issued in the Conversion. The Company will retain
approximately $ million after acquiring the stock of the Insurance
Companies.

24
<PAGE>

DIVIDEND POLICY

MARKET FOR THE COMMON STOCK

25
<PAGE>

CAPITALIZATION

Pro Forma
Consolidated
Capitalization
Historical of the
Combined Company Based
Capitalization on the
of the Sale of
Insurance --
Companies at shares at
September 30, $10.00
1996(1) per share
------------------ --------------
<S> <C> <C>
Long-term ESOP debt(2) ....................... $ -- $
Subordinated debt(3) ......................... 1,500 --
Shareholders' equity(4):
Common stock, no par value per share:
authorized -- 15,000,000 shares;
shares to be outstanding -- as shown(5) . --
Unearned Employee Stock Ownership Plan
compensation ............................ --
Retained earnings -- substantially
restricted .............................. 36,357 36,357
Unrealized gains ........................... 1,312 1,312
------------------ --------------
Total shareholders' equity ................. $39,169 $
================== ==============
</TABLE>

26
<PAGE>

PRO FORMA DATA

The following pro forma condensed combined balance sheet as of September
30, 1996 gives effect to the Conversion and implementation of the ESOP as if
they had occurred as of September 30, 1996 and assumes that 2,853,500 shares
of Common Stock (the minimum number of such shares required to be sold) are
sold in the Subscription, Community and Public Offerings. The following pro
forma condensed combined statements of income for the year ended December 31,
1995 and the nine months ended September 30, 1996 present combined operating
results for the Insurance Companies as if the Conversion and implementation
of the ESOP had occurred as of January 1, 1995. The pro forma financial
statements combine the accounts of Old Guard Mutual, Old Guard Fire and
Goschenhoppen. Pursuant to the Plan, each of the Insurance Companies will
convert from a Pennsylvania-chartered mutual insurance company to a
Pennsylvania-chartered stock insurance company and simultaneously issue
shares of its capital stock to the Company in exchange for a portion of the
net proceeds from the sale of Common Stock in the Conversion. The Conversion
will be accounted for as a simultaneous reorganization, recapitalization and
share offering which will not change the historical accounting basis of the
Insurance Companies' financial statements. Completion of the Conversion is
contingent on the sale of a minimum of 2,853,500 shares of Common Stock.

27
<PAGE>

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Combined Adjustments Combined
------------ ------------- -----------
<S> <C> <C> <C>
ASSETS
Investments:
Fixed income securities, available for sale, at fair
value ............................................... $ 69,786 $25,428 (1) $ 95,214
Preferred stocks, at fair value ........................ 5,100 5,100
Common stocks, at fair value ........................... 6,425 6,425
Other invested assets .................................. 318 318
------------ ------------- -----------
Total investments ...................................... 81,629 25,428 107,057
Cash and cash equivalents ................................ 3,737 3,737
Premiums receivable ...................................... 7,911 7,911
Reinsurance recoverables and unearned premiums ........... 25,659 25,659
Deferred policy acquisition costs, net ................... 5,934 5,834
Accrued investment income ................................ 1,103 1,103
Deferred income taxes, net ............................... 2,371 2,371
Property and equipment, net .............................. 6,164 6,164
Receivable from affiliate ................................ 413 413
Other assets ............................................. 2,717 2,717
------------ ------------- -----------
Total assets ............................................. $137,538 $25,428 $162,966
============ ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses ........ $ 56,799 $ 56,799
Unearned premiums ...................................... 35,774 35,774
Accrued expenses ....................................... 2,203 2,203
Subordinated debt ...................................... 1,500 $(1,500)(2) 0
Other liabilities ...................................... 3,593 2,854 (3) 6,447
------------ ------------- -----------
Total liabilities ...................................... 99,869 1,354 100,223
------------ ------------- -----------
Shareholders' equity:
Common stock ........................................... 26,928 (4) 26,928
Unearned Employee Stock Ownership Plan compensation .... (2,854)(3) (2,854)
Retained earnings ...................................... 36,357 36,357
Unrealized capital gains (losses) on securities, net of
deferred income taxes ............................... 1,312 1,312
------------ ------------- -----------
Total shareholders' equity ............................. 37,669 24,074 61,743
------------ ------------- -----------
Total liabilities and shareholders' equity ............... $137,538 $23,428 $162,966
============ ============= ===========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet

28
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) The pro forma adjustment to reflect the Conversion is as follows:

<TABLE>
<CAPTION>
<S> <C>
Issuance of 2,853,500 shares at $10/share ...................... $28,535
Estimated conversion expenses ................................. (3,107)
---------
Net proceeds from conversion .................................. $25,428
=========
</TABLE>

(2) Pro forma adjustment to effect the conversion of a $1,500 surplus note by
American Re into 150,000 shares of Common Stock at $10.00 per share.

(4) The effect of adjustments (1) and (2).

29
<PAGE>

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Combined Adjustments Combined
------------ ------------- -------------
<S> <C> <C> <C>
Revenue:
Net premiums earned ............................ $66,663 $ 66,663
Investment income, net of expenses ............. 4,458 4,458
Net realized investment gains .................. 1,011 1,011
Other revenue .................................. 274 274
------------ ------------- -------------
Total revenue .................................. 72,406 0 72,406
------------ ------------- -------------
Expenses:
Losses and loss adjustment expenses ............ 50,509 50,509
Amortization of deferred policy acquisition
costs ....................................... 17,611 17,611
Operating expenses ............................. 5,655 194 (1) 5,849
Interest expense ............................... 222 (2) 222
------------ ------------- -------------
Total expenses ................................. 73,775 416 74,191
------------ ------------- -------------
Loss before income tax benefit ................... (1,369) (416) (1,785)
Income tax benefit ............................... (685) (141)(3) (826)
------------ ------------- -------------
Net loss ......................................... $ (684) $(275) $ (959)
============ ============= =============
Earnings per share data:
Net income (loss) per share of common stock .... $ (0.35)
=============
Weighted average number of shares of common
stock outstanding ........................... 2,727,850(4)
=============
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Statement of Income.

30
<PAGE>

UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Combined Adjustments Combined
------------ ------------- -------------
<S> <C> <C> <C>
Revenue:
Net premiums earned ........................... $39,705 $ 39,705
Investment income, net of expenses ............ 3,434 3,434
Net realized investment gains ................. 1,328 1,328
Other revenue ................................. 484 484
------------ ------------- -------------
Total revenue ................................. 44,951 0 44,951
------------ ------------- -------------
Expenses:
Losses and loss adjustment expenses ........... 34,548 34,548
Amortization of deferred policy acquisition
costs ...................................... 9,079 9,079
Operating expenses ............................ 5,330 156 (1) 5,486
Interest expense .............................. 157 (2) 157
------------ ------------- -------------
Total expenses ................................ 48,957 313 49,270
------------ ------------- -------------
Loss before income tax benefit ................ (4,006) (313) (4,319)
Income tax benefit ............................ (1,458) (106)(3) (1,564)
------------ ------------- -------------
Net loss ...................................... $(2,548) $(207) $ (2,755)
============ ============= =============
Earnings per share data:
Net income (loss) per share of common stock ... $ (1.00)
=============
Weighted average number of shares of common
stock outstanding .......................... 2,745,350(4)
=============
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combined Statement of Income

31
<PAGE>

NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(1) Pro forma adjustment to recognize compensation expense under ESOP for
shares committed to be released to participants as the ESOP loan is
repaid.

(2) Pro forma adjustment to recognize interest expense under the $2,854 ESOP
Loan at the assumed rate of 8% for 10 years (approximately $35 monthly).

(3) Adjustment to reflect the federal income tax effects of (1) and (2)
above.

(4) Calculation of weighted average number of shares outstanding:

32
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company has only recently been formed and, accordingly, has no results
of operations. As a result, this discussion relates to the Insurance
Companies.

NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE
MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1995

33
<PAGE>

34
<PAGE>

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

35
<PAGE>

Limited cash flow in 1994 and early 1995, as well as declines in
short-term interest rates, caused short-term investment income to decline by
$74,000 in 1995 as compared to 1994.

36
<PAGE>

Net Income. Net income decreased $828,000 to a $684,000 loss in 1995 from
net income of $144,000 in 1994 primarily as a result of the foregoing
factors.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

37
<PAGE>

Net Income. The Insurance Companies had net income of $144,000 for the
year ended December 31, 1994 compared to net income of $3.4 million in 1993,
primarily as a result of the foregoing factors.

EFFECT OF PENDING TRANSACTIONS ON THE COMPANY'S FUTURE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The Conversion. Upon completion of the Conversion, the Company's capital
will increase by approximately $ million, an increase of approximately %
over the combined capital of the Insurance Companies at September 30, 1996.
See "Use of Proceeds," "Capitalization" and "Pro Form Data." This increased
capitalization should permit the Company to (i) further its business strategy
of geographic diversification through acquisitions, including the use of
capital stock to effect such acquisitions, (ii) increase direct premium
volume to the extent competitive conditions permit, (iii) increase net
premium volume by decreasing the use of reinsurance, and (iv) enhance
investment income.

38
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

39
<PAGE>

EFFECTS OF INFLATION

40
<PAGE>

BUSINESS

GENERAL

STRATEGY

The Company's principal strategies for the future are to:

-- Achieve geographic diversification of risk by acquisition of other
insurance companies or licensing of the Insurance Companies in other
jurisdictions with reduced or different loss exposure;

-- Improve the mix of business by increasing commercial writings and
emphasizing casualty coverages in order to enhance profitability and
lessen the impact of property losses on overall results; and

-- Improve efficiency and maintain the high level of personal service
delivered to agents and insureds through continued enhancement of the
Company's management information systems (MIS).

41
<PAGE>

Management believes that it has the opportunity to increase the volume of
casualty business by focused marketing to existing agents, many of whom have
traditionally associated the Insurance Companies with farm-related property
insurance and may not identify and choose the Insurance Companies for their
customers as providers of casualty line products. For example, currently less
than 20% of the Insurance Companies' farm and homeowner customers purchase
auto policies from the Insurance Companies. Management believes an increasing
share of this market is desirable and attainable given the existing
relationships among the Insurance Companies, its agents and its insureds.

Completion of the Conversion will supply the additional surplus necessary
to support substantially increased commercial and casualty premium volume.

42
<PAGE>

PRODUCTS

<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
------------------------------------------ --------------------------------------------------------------
% of % of % of % of % of
1996 Total 1995 Total 1995 Total 1994 Total 1993 Total
---------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Direct Premiums
Written:
Farmowners ........ $12,663 20.2% $12,046 20.2% $15,494 19.7% $16,080 20.4% $15,319 20.5%
Homeowners ........ 16,411 26.2 15,995 26.8 21,157 26.8 20,509 26.1 19,067 25.5
Businessowners and
commercial
multi-peril ...... 8,409 13.4 8,307 13.9 11,083 14.1 10,587 13.4 10,367 13.9
Personal automobile . 13,864 22.2 12,401 20.7 16,810 21.3 15,928 20.2 13,376 17.9
Commercial
automobile ....... 714 1.1 638 1.1 776 0.9 815 1.0 807 1.0
Workers'
compensation ..... 4,901 7.8 4,398 7.4 5,432 6.9 5,563 7.1 6,312 8.4
Fire, allied, inland
marine ........... 4,604 7.4 4,921 8.2 6,763 8.6 7,917 10.1 8,192 11.0
Other liability ... 1,057 1.7 1,023 1.7 1,317 1.7 1,331 1.7 1,316 1.8
---------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Total ........ $62,623 100.0% $58,729 100.0% $78,832 100.0% $78,730 100.0% $74,756 100.0%
========== ======== ========= ======== ========= ======== ========= ======== ========= ========

</TABLE>

<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
----------------------------------------- --------------------------------------------------------------
% of % of % of % of % of
1996(1) Total 1995(1) Total 1995 Total 1994 Total 1993 Total
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Premiums Earned
Farmowners ........ $ 7,375 18.6% $ 9,888 20.4% $13,413 20.1% $13,315 21.0% $13,368 21.9%
Homeowners ........ 11,080 27.9 13,714 28.3 18,391 27.6 16,755 26.4 14,622 24.0
Businessowners and
commercial
multi-peril ...... 5,230 13.2 6,362 13.1 8,828 13.2 8,387 13.2 8,548 14.0
Personal automobile . 9,405 23.7 10,336 21.3 14,459 21.7 12,521 19.8 11,402 18.7
Commercial
automobile ....... 407 1.0 501 1.0 769 1.2 717 1.1 675 1.1
Workers'
compensation ..... 2,660 6.7 3,075 6.3 4,233 6.4 4,266 6.7 4,394 7.2
Fire, allied, inland
marine ........... 3,347 8.4 4,401 9.1 6,294 9.4 6,930 10.9 7,465 12.3
Other liability ... 201 0.5 259 0.5 276 0.4 574 0.9 512 0.8
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Total ........ $39,705 100.0% $48,536 100.0% $66,663 100.0% $63,465 100.0% $60,986 100.0%
========= ======== ========= ======== ========= ======== ========= ======== ========= ========
Net Loss Ratio
Farmowners ........ 93.0% 77.8% 78.7% 78.8% 71.2%
Homeowners ........ 103.0 81.1 80.8 98.0 83.3
Businessowners and
commercial
multi-peril ..... 92.0 54.3 62.2 47.8 51.6
Personal automobile . 73.5 68.9 90.4 70.9 73.2
Commercial
automobile ...... 75.7 63.7 70.9 53.8 35.1
Workers'
compensation .... 57.2 38.3 43.0 58.3 74.3
Fire, allied, inland
marine .......... 75.6 48.5 53.4 49.7 50.1
Other liability ... 55.2 327.2 326.3 49.9 83.9
Total ........ 87.0% 69.8% 75.8% 73.2% 69.1%

43
<PAGE>

Nine Months
Ended September 30, Year Ended December 31,
----------------------------------------- --------------------------------------------------------------
% of % of % of % of % of
1996(1) Total 1995(1) Total 1995 Total 1994 Total 1993 Total
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(Dollars in thousands)
Expense Ratios
Farmowners ........ 40.0% 39.4% 36.6% 34.1% 34.3%
Homeowners ........ 32.1 34.3 39.0 39.7 39.3
Businessowners and
commercial
multiple peril .. 44.1 43.7 41.2 36.4 36.1
Personal automobile . 20.5 24.1 22.6 24.0 24.5
Commercial
automobile ...... 33.2 32.6 24.9 27.3 32.5
Workers'
compensation .... 20.6 26.2 23.6 25.7 29.1
Fire, allied, inland
marine .......... 76.4 65.3 47.2 49.6 42.0
Other liability ... 41.4 39.5 46.9 25.2 33.3
Total ........ 35.7% 36.5% 34.9% 34.8% 34.4%
Combined Ratios(2)
Farmowners ........ 133.0% 117.2% 115.2% 112.8% 105.5%
Homeowners ........ 135.1 115.4 119.7 137.7 122.6
Businessowners and
commercial
multiple peril .. 136.1 97.9 103.4 84.1 87.7
Personal automobile . 94.1 92.9 113.1 94.8 97.7
Commercial
automobile ...... 108.9 96.4 95.8 81.2 67.6
Workers'
compensation .... 77.8 64.6 66.7 84.1 103.4
Fire, allied, inland
marine .......... 152.0 113.9 100.6 99.2 92.1
Other liability ... 96.6 366.8 373.2 75.1 117.2
Total ........ 122.7% 106.2% 110.7% 108.0% 103.5%
Industry Combined
Ratio ........... -- -- 106.4% 108.4% 106.9%
</TABLE>

(2) A combined ratio over 100% means that an insurer's underwriting
operations are not profitable.

FARMOWNERS POLICY.

HOMEOWNERS POLICY.

44
<PAGE>

BUSINESSOWNERS AND COMMERCIAL MULTI-PERIL.

PERSONAL AUTOMOBILE.

COMMERCIAL AUTOMOBILE.

WORKERS' COMPENSATION.

FIRE, ALLIED, INLAND MARINE.

OTHER LIABILITY.

45
<PAGE>

MARKETING

UNDERWRITING

46
<PAGE>

CLAIMS

REINSURANCE

REINSURANCE CEDED

47
<PAGE>

48
<PAGE>

LOSS AND LAE RESERVES

49
<PAGE>

RECONCILIATION OF RESERVE FOR LOSSES
AND LOSS ADJUSTMENT EXPENSES

50
<PAGE>

<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ---------

<S> <C> <C> <C> <C> <C> <C>
Liability for unpaid losses and LAE net of
reinsurance recoverable ................. $25,568 $29,107 $34,666 $36,882 $32,810 $36,091
Cumulative amount of liability paid
through:
One year later ......................... 11,052 11,063 13,986 15,316 17,258 --
Two years later ........................ 15,417 16,394 21,572 22,195
Three years later ...................... 18,827 21,110 23,665
Four years later ....................... 20,501 22,165
Five years later ....................... 21,646
Six years later ........................
Seven years later ......................
Eight years later ......................
Nine years later .......................
Ten years later ........................
Liability estimated as of:
Calendar year end ......................... 25,568 29,107 34,666 36,882 32,810 36,091
One year later ......................... 25,454 28,517 31,870 31,363 35,252 --
Two years later ........................ 25,774 28,044 28,716 32,359
Three years later ...................... 25,523 26,172 27,916
Four years later ....................... 24,191 25,352
Five years later ....................... 24,019
Six years later ........................
Seven years later ......................
Eight years later ......................
Nine years later .......................
Ten years later ........................
Cumulative total redundancy (deficiency) . 1,549 3,755 6,750 4,523 (2,442) --
Gross liability -- end of year ........... 59,057 51,309 52,091
Reinsurance recoverables ................. 22,175 18,499 16,000
--------- --------- ---------
Net liability -- end of year ............. $36,882 $32,810 $36,091
========= ========= =========
Gross reestimated liability -- latest .... 49,964 58,022
Reestimated reinsurance recoverables --
latest ................................. 17,605 22,770
--------- ---------
Net reestimated liability -- latest ...... 32,359 35,252
========= =========
Gross cumulative (deficiency) redundancy . 9,093 (6,713)
========= =========
</TABLE>

51
<PAGE>

(RESTUBBED TABLE CONTINUED FROM ABOVE)

<TABLE>
<CAPTION>
Cumulative
Deficiency
(Redundancy)
from
Reestimates
for
Each
1991 1992 1993 1994 1995 Accident Year
------- ------- --------- --------- ------- ---------------

52
<PAGE>

INVESTMENTS

All of the Insurance Companies' investment securities are classified as
available for sale in accordance with SFAS No. 115.

The following table sets forth certain combined information concerning the
Insurance Companies' investments.

- ------
(1) In the combined financial statements of the Insurance Companies,
investments are carried at fair value as established by quoted market
prices on secondary markets.

(2) Original cost of equity securities; original cost of fixed income
securities adjusted for amortization of premium and accretion of
discount.

The table below contains information concerning the investment ratings of
the Insurance Companies' fixed maturity investments at September 30, 1996.

<TABLE>
<CAPTION>
Type/Ratings of Amortized Market
Investment(1) Cost Value Percentages(2)
---------------------------- ----------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
U.S. Government and agencies $28,802 $28,304 40.6%
AAA ........................ 21,531 21,521 30.8
AA ......................... 5,674 5,668 8.1
A .......................... 9,117 9,298 13.3
BBB ........................ 4,548 4,674 6.7
----------- --------- --------------
Total BBB or Better ....... $69,672 $69,465 99.5%
BB ......................... 235 321 0.5
----------- --------- --------------
Total ..................... $69,907 $69,786 100.0%
=========== ========= ==============
</TABLE>

(2) Represents percent of market value for classification as a percent of
total for each portfolio.

53
<PAGE>

The table below sets forth the maturity profile of the Insurance
Companies' combined fixed maturity investments as of September 30, 1996
(substituting average life for mortgage-backed securities):

<TABLE>
<CAPTION>
Amortized Market
Maturity Cost(1) Value Percentages(2)
--------------------------------------------- ----------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
1 year or less .............................. $ 5,896 $ 5,853 8.4%
More than 1 year through 5 years ............ 17,114 17,075 24.5
More than 5 years through 10 years .......... 4,342 4,547 6.5
More than 10 years .......................... 9,567 9,558 13.7
Collateralized and asset backed securities(3) 32,988 32,753 46.9
----------- --------- --------------
Total ..................................... $69,907 $69,786 100.0%
=========== ========= ==============
</TABLE>

- ------
(1) Fixed maturities are carried at market value in the combined financial
statements of the Insurance Companies.

(2) Represents percent of market value for classification as a percent of
total for each portfolio.

<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
---------------------- ----------------------------------
(Dollars In thousands)
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average cash and invested assets . $92,928 $94,302 $95,323 $94,891 $95,530
Net investment income ............ 3,434 3,409 4,458 3,932 3,928
Return on average cash and
invested assets ................. 4.9% 4.8% 4.7% 4.1% 4.1%

</TABLE>

A.M. BEST RATING

54
<PAGE>

COMPETITION

The property and casualty insurance market is highly competitive. The
Insurance Companies compete with stock insurance companies, mutual companies,
local cooperatives and other underwriting organizations. Certain of these
competitors have substantially greater financial, technical and operating
resources than the Insurance Companies. The Insurance Companies' ability to
compete successfully in their principal markets is dependent upon a number of
factors, many of which (including market and competitive conditions) are
outside the Insurance Companies' control. Many of the lines of insurance
written by the Insurance Companies are subject to significant price
competition. Some companies may offer insurance at lower premium rates
through the use of salaried personnel or other methods, rather than through
independent agents paid on a commission basis, as the Insurance Companies do.
In addition to price, competition in the lines of business written by the
Insurance Companies is based on quality of the products, quality and speed of
service (including claims service), financial strength, ratings, distribution
systems and technical expertise.

REGULATION

55
<PAGE>

regulatory control. The "Mandatory Control Level" is triggered if a company's
Total Adjusted Capital is less than 0.7 times its ACL, and the regulatory
authority is mandated to place the company under its control. The Insurance
Companies have never failed to exceed the required levels of capital. There
can be no assurance that the capital requirements applicable to the business
of the Insurance Companies will not increase in the future.

The NAIC has also developed a set of financial ratios, referred to as the
Insurance Regulatory Information System (IRIS), for use by state insurance
regulators in monitoring the financial condition of insurance companies. The
NAIC has established an acceptable range of values for each of the IRIS
financial ratios. Generally, an insurance company will become the subject of
increased scrutiny where four or more of its IRIS ratio results fall outside
the range deemed acceptable by the NAIC. The nature of increased regulatory
scrutiny resulting from IRIS ratio results outside the acceptable range is
subject to the judgment of the applicable state insurance department.

</TABLE>

56
<PAGE>

ers and insurers greater ability to control costs by (i) reducing wage loss
benefits by amounts of income received through other sources; (ii) requiring
claimants to submit to the employer's medical provider for 90 days following
the first visit after an injury; and (iii) requiring claimants to submit to a
medical examination after 104 weeks of disability.

Recently, an emergency regulation was promulgated in Maryland concerning
the content of antifraud plans of insurers. Old Guard Mutual and Old Guard
Fire are not required to supplement their existing antifraud plans under the
emergency regulation. Under the emergency regulation, all insurers licensed
in Maryland will be required to file an annual report containing fraud
related information. This report is similar to a report currently filed in
Pennsylvania and will be filed by Old Guard Mutual and Old Guard Fire on or
before March 31, 1997 as required under the Maryland emergency regulation.
Failure to comply with the emergency regulation could result in regulatory
sanctions, including monetary penalties.

57
<PAGE>

LEGAL PROCEEDINGS

SUBSIDIARIES

After completion of the Conversion, the Insurance Companies intend to
transfer all of the capital stock of Old Guard Investment to the Company and,
as a result, Old Guard Investment will become a direct wholly-owned
subsidiary of the Company and CIMI and 2929 Service Corp. will become a
second tier subsidiary of the Company. The Company will also indirectly own a
30% interest in CIC through the Company's ownership of Old Guard Investment.

PROPERTIES

EMPLOYEES

58
<PAGE>

MANAGEMENT OF THE COMPANY

DIRECTORS

The following table sets forth certain information regarding the directors
of the Company.

59
<PAGE>

EXECUTIVE OFFICERS

The following table sets forth certain information regarding the executive
officers of the Company.

- ------
(1) Indicates year first appointed as an executive officer of one or more of
the Insurance Companies. Each executive officer of the Company was first
appointed on May 24, 1996.

60
<PAGE>

EXECUTIVE COMPENSATION

(4) Includes amounts contributed under a Profit Sharing Plan for the benefit
of the executive officer.

(5) Includes the amount of insurance premiums paid by the Insurance Companies
with respect to a split dollar term life insurance policy.

(6) Includes fair rental value of residential property owned by Old Guard
Mutual.

(7) The amount includes the amount of moving expenses paid by the Insurance
Companies.

(8) Includes the value of unused vacation purchased from the executive
officer under a one-time exception to customary policy.

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CERTAIN BENEFIT PLANS AND AGREEMENTS

Stock Compensation Plan.

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Employee Stock Ownership Plan.

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The ESOP intends to borrow funds from an unaffiliated lender in an amount
sufficient to purchase 10% of the Common Stock issued in the Conversion.
Although the ESOP has not yet received a commitment from a lender with
respect to such a loan, based on preliminary discussions with potential
lenders, the Company expects that the loan will bear an 8% interest rate, and
will require the ESOP to make monthly payments of approximately $35,000 for a
term of 10 years. The loan will be secured by the shares of Common Stock
purchased and earnings thereon. Shares purchased with such loan proceeds will
be held in a suspense account for allocation among participants as the loan
is repaid. The Company expects to contribute sufficient funds to the ESOP to
repay such loan, plus such other amounts as the Company's Board of Directors
may determine in its discretion.

Management Recognition Plan.

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Employment Agreements.

In the event the Company terminates Mr. Hosler's employment without Cause,
Mr. Hosler would be entitled to receive an annual amount equal to the greater
of (i) his highest base salary received during one of the two years
immediately preceding the year in which he is terminated, or (ii) his base
salary in effect immediately prior to his termination for the remainder of
the term of the Employment Agreement. In addition, Mr. Hosler would be
entitled to continuation annually during the remaining term of the Employment
Agreement, of (i) an amount equal to the higher of the aggregate bonuses paid
to him in one of the two years immediately preceding the year in which he is
terminated and (ii) an amount equal to the sum of the highest annual
contribution made on his behalf (other than his own salary reduction
contributions) to each of the Company's tax qualified and non-qualified
defined contribution plans (as such term is defined in Section 3(35) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") in the
year in which he is terminated or in one of the two years immediately
preceding such year. Mr. Hosler would also be entitled to certain retirement,
health and welfare benefits.

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THE CONVERSION

BACKGROUND AND REASONS FOR THE CONVERSIONS

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GENERAL

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Insurance Companies in connection with the Special Meetings. A copy of the
Plan is available for inspection at the Company's principal executive offices
located at 2929 Lititz Pike, Lancaster, Pennsylvania. The Plan is also filed
as an exhibit to the Registration Statement of which this Prospectus is a
part, copies of which may be obtained from the SEC. See "Additional
Information."

OFFERING OF COMMON STOCK

Under the Plan, the Company offered shares of Common Stock in a
subscription offering (the "Subscription Offering") first to the Eligible
Policyholders, second to the ESOP, and third to the directors, officers and
employees of the Insurance Companies. Subscription rights received in any of
the foregoing categories were subordinated to the subscription rights
received by those in a prior category, except that the ESOP will purchase 10%
of the shares of Common Stock issued in the Conversion. The Company
concurrently offered Common Stock to the general public in a Community
Offering (the "Community Offering").

All shares not purchased in the Subscription and Community Offerings are
being sold to a syndicate of underwriters to be managed by Legg Mason and
McDonald (collectively, the "Underwriters") for resale to the general public
in the Public Offering.

The completion of the Subscription, Community and Public Offerings are
subject to market conditions and other factors beyond the Company's control.
No assurance can be given as to the length of time that will be required to
complete the sale of Common Stock to be offered in the Conversion after
approval of the Plan by Eligible Policyholders at the Special Meetings. If
delays are experienced, significant changes may occur in the estimated pro
forma market value of the Company, together with corresponding changes in the
offering price and the net proceeds realized by the Company from the sale of
the Common Stock. The Insurance Companies would also incur substantial
additional legal, accounting and other expenses in completing the Conversion.
In the event that the Conversion is not completed, the Insurance Companies
will remain as mutual insurance companies and all subscription funds will be
promptly returned to subscribers without interest. In addition, the Insurance
Companies would be required to charge all Conversion expenses against current
income.

BUSINESS PURPOSES

EFFECT OF CONVERSION ON POLICYHOLDERS

General.

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receive dividends if, as and when declared by the board of directors of the
company (the Insurance Companies have never declared a policyholder dividend
and have no intention of doing so in the future), and (iii) in the unlikely
event of a solvent dissolution of the company, the right to receive a pro
rata distribution of any surplus remaining after the satisfaction of all
claims and other liabilities of the company. However, these interests are
incident to, and contingent upon the existence of, the underlying insurance
policy. These interests have no tangible market value separate from such
insurance policy and a policyholder who terminates his policy automatically
forfeits the interests in the company described above. Policyholder interests
other than contract rights under policies of insurance will be terminated as
a result of the Conversion.

Continuity of Insurance Coverage and Business Operations.

Voting Rights.

Dividends.

The Conversion will not affect the right of a policyholder to receive
dividends from the Insurance Companies in accordance with the terms of the
policyholder's existing policy of insurance, which provides that dividends
will be paid only if, as and when declared by the Boards of Directors of the
Insurance Companies. However, the Insurance Companies have never declared a
policyholder dividend and have no present intention of doing so in the
future, whether or not the Insurance Companies convert to stock form.
Shareholders of the Company, including eligible policyholders who purchase
shares of Common Stock in the Subscription Offering, will have the exclusive
right to receive dividends paid by the Company, if any. See "Description of
Capital Stock -- Common Stock." Rights Upon Dissolution.

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THE SUBSCRIPTION AND COMMUNITY OFFERINGS

Subscription Offering.

shares of Common Stock were subscribed for at the Purchase Price in
the Subscription Offering pursuant to nontransferable subscription rights by:
(i) certain Eligible Policyholders, (ii) the ESOP, and (iii) certain
directors, officers and employees of the Insurance Companies and shares
of Common Stock were subscribed for in the Community Offering by members of
the general public. The Subscription Offering and the Community Offering
terminated on , 1997.

STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED

The Plan requires that the purchase price of the Common Stock be based on
the appraised pro forma market value of the Insurance Companies as
subsidiaries of the Company, as determined on the basis of an independent
valuation by an appraiser who is experienced in corporate valuation. The
Company has retained Berwind to prepare such appraisal. Berwind, as part of
its investment banking business, is engaged regularly in the valuation of
assets, securities and companies in connection with various types of asset
and security transactions, including mergers, acquisitions, private
placements, and valuations for various other purposes and in the
determination of adequate consideration in such transactions. Berwind
received a fee of approximately $75,000 for its appraisal.

Berwind has determined that, as of August 19, 1996, the estimated pro
forma market value of the Insurance Companies as subsidiaries of the Company
was $33,570,000. Under the Plan, the aggregate purchase price of the Common
Stock to be offered in the Conversion must equal the pro forma market value
of the Insurance Companies as subsidiaries of the Company. The Company, in
consultation with its advisors, has determined to offer the shares in the
Conversion at a price of $10.00 per share, and by dividing the price per
share into the Estimated Valuation Range, initially offered between 2,853,500
and 3,860,600 shares (exclusive of purchases by the ESOP) of the Common Stock
in the Conversion.

The Plan requires that an appraiser establish a valuation range (the
"Estimated Valuation Range") consisting of a midpoint valuation, a valuation
15 percent (15%) above the midpoint valuation (the "Maximum of the Valuation
Range") and a valuation 15 percent (15%) below the midpoint valuation (the
"Minimum of the Valuation Range"). Accordingly, Berwind established a range
of value from $28,535,000 to $38,606,000. Upon completion of the Public
Offering, after taking into account factors similar to those involved in its
prior appraisal, Berwind will submit to the Company and to the Department its
updated estimate of the pro forma fair market value of the Insurance
Companies as subsidiaries of the Company as of the last day of the Offering.
If such updated estimated valuation does not fall within the Estimated
Valuation Range, then, in such event, the Company, after consultation with
the Department, may terminate the Plan, establish a new Estimated Valuation
Range, extend, reopen or hold a new offering or take such other action as may
be authorized by the Department. Subscribers will be notified of any such
action by mail and, if a new Estimated Valuation Range is established,
subscribers will be given an opportunity to affirm, amend or cancel their
subscriptions. Subscription orders may not be withdrawn for any reason, if
the updated appraisal is within the Estimated Valuation Range.

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information provided by the Company and the Insurance Companies, and Berwind
did not value independently the assets and liabilities of the Company and the
Insurance Companies. The valuation considers the Company and the Insurance
Companies only as a going concern and should not be considered as an
indication of the liquidation value of the Company and the Insurance
Companies. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons purchasing
Common Stock will thereafter be able to sell such shares at or above the
initial purchase price. Copies of the appraisal report of Berwind setting
forth the method and assumptions for such appraisal are on file and available
for inspection at the principal executive offices of the Company. Any
subsequent updated appraisal report of Berwind also will be available for
inspection.

TAX EFFECTS.

General.

SURPLUS NOTE

LIMITATIONS ON PURCHASES OF COMMON STOCK

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Each person purchasing Common Stock in the Conversion shall be deemed to
confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law. In the event that such purchase
limitations are violated by any person (including any associate or affiliate
of such person or person otherwise acting in concert with such person), the
Company shall have the right to purchase from such person at the Purchase
Price all shares acquired by such person in excess of any such purchase
limitation or, if such excess shares have been sold by such person, to
receive the difference between the aggregate Purchase Price paid for such
excess shares and the proceeds received by such person from the sale of such
excess shares. This right of the Company to purchase such excess shares shall
be assignable by the Company.

PROPOSED MANAGEMENT PURCHASES

</TABLE>

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<PAGE>

at the midpoint of the Estimated Valuation Range) at exercise prices
equal to the price at which the Common Stock is sold in the Offering.
Shares issued pursuant to the exercise of options could be from treasury
stock or newly issued shares. Implementation of the Compensation Plan
requires shareholder approval.

(4) Director of Goschenhoppen.

(5) Director of the Company and the Insurance Companies.

(6) Director of the Company and Old Guard Mutual.

(7) Secretary and General Counsel of the Company.

(8) Director of Old Guard Fire.

(9) Chairman of the Board and Chief Executive Officer of the Company and the
Insurance Companies and President of the Company, Old Guard Mutual and
Old Guard Fire.

(10) Treasurer and Chief Financial Officer of the Company and the Insurance
Companies.

(11) Director of Old Guard Mutual and Old Guard Fire.

(12) Vice President of the Company and the Insurance Companies.

(13) Director of the Company, Old Guard Mutual and Old Guard Fire.

LIMITATIONS ON RESALES

INTERPRETATION AND AMENDMENT OF THE PLAN OF CONVERSION

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In the event that the Department adopts mandatory regulations applicable
to the Conversion prior to the Effective Date, the Plan may be amended to
conform to such regulations at any time prior to such Effective Date by the
affirmative vote of two-thirds of the directors of the Company and of each
Insurance Company, and no resolicitation of proxies or further approval by
Eligible Policyholders shall be required. In the event that the Department
adopts regulations applicable to the Conversion prior to the Effective Date
and if such regulations contain optional provisions, the Plan may be amended
to conform to any such optional provision at any time before such Effective
Date by the affirmative vote of two-thirds of the directors of the Company
and of each Insurance Company, and no resolicitation of proxies or further
approval by Eligible Policyholders shall be required.

TERMINATION

CONDITIONS

UNDERWRITING

The Company has entered into an Underwriting Agreement (the "Underwriting
Agreement") with the underwriters listed in the table below (referred to
individually as an "Underwriter" and collectively as the "Underwriters"), for
whom Legg Mason Wood Walker, Incorporated and McDonald & Company Securities,
Inc. are acting as representatives (the "Representatives"). Subject to the
terms and conditions set forth in the Underwriting Agreement, the Company has
agreed to sell to each of the Underwriters, and each of the Underwriters has
severally agreed to purchase from the Company, the number of shares of Common
Stock set forth opposite each Underwriter's name in the table below.

<TABLE>
<CAPTION>
Underwriters Number of Shares
--------------------------------------- --------------------
<S> <C>
Legg Mason Wood Walker, Incorporated ..
McDonald & Company Securities, Inc. ...
--------------------
TOTAL ...............................
====================

</TABLE>

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold
pursuant to the Underwriting Agreement if any is purchased (excluding shares
covered by the over-allotment option granted therein). In the event of a
default by any Underwriter, the Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be
terminated.

The Representatives have advised the Company that the Underwriters
proposed to offer the Common Stock to the public initially at the public
offering price set forth in the cover page of this Prospectus and to selected
dealers at such price less a concession of not more than $------ per share.
Additionally, the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $------ per share to certain other dealers. After
the initial public offering, the public offering price and other selling
terms may be changed by the Underwriters.

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The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
- ------ shares of Common Stock at the same price per share to be paid by the
Underwriters for the other shares offered hereby and such that the total
number of shares sold in the Conversion will not exceed the maximum of the
Estimated Valuation Range. If the Underwriters purchase any of such
additional shares pursuant to this option, each Underwriter will be committed
to purchase such additional shares in approximately the same proportion as
set forth in the table above. The Underwriters may exercise the option only
for the purpose of covering over-allotment, if any, made in connection with
the distribution of the Common Stock offered hereby.

The initial public offering price of the shares of Common Stock will be
$10.00 per share, as specified in the Plan. See "The Conversion -- Stock
Pricing and Number of Shares to be Issued" herein.

The Representatives have informed the Company that the Underwriters will
not, without customer authority, confirm sales to any accounts over which
they exercise discretionary authority.

The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including civil liabilities under the
1933 Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.

CERTAIN RESTRICTIONS ON ACQUISITION
OF THE COMPANY

PENNSYLVANIA LAW

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<PAGE>

holder to successfully challenge the actions of the Company's Board of
Directors in a potential change in control context. Pennsylvania case law
appears to provide that the fiduciary duty standard under the 1990 amendment
to the BCL grants directors the statutory authority to reject or refuse to
consider any potential or proposed acquisition of the corporation.

A corporation may redeem all "control shares" at the average of the high
and low sales price, as reported on a national securities exchange or
national quotation system or similar quotation system, on the date the
corporation provides notice of redemption (a) at any time within 24 months
after the date on which the control-share acquisition occurs if the
acquiring person does not, within 30 days after the completion of the
control-share acquisition, properly request that shareholders consider the
issue of voting rights to be accorded to control shares and (b) at any time
within 24 months after the issue of voting rights is submitted to
shareholders and such voting rights either are not accorded or are accorded
and subsequently lapse. Voting rights accorded to control shares by a vote of
shareholders lapse and are lost if any proposed control-share acquisition is
not consummated within 90 days after shareholder approval is obtained.