S-3/A

As filed with the Securities and Exchange Commission on April 22, 2002

Registration No. 333-83446

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 2

TO

FORM S-3

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

UNITED FIRE & CASUALTY COMPANY

(Name of Registrant as Specified in its Charter)

Iowa	42-0644327
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

118 SECOND AVENUE S.E.

CEDAR RAPIDS, IOWA 52407

(319) 399-5700

(Address and Telephone Number of Registrant’s Principal Executive Offices)

JOHN A. RIFE

118 SECOND AVENUE S.E.

CEDAR RAPIDS, IOWA 52407

(319) 399-5700

(Name, Address, and Telephone Number of Agent for Service)

Copies To:

Michael K. Denney	Daniel T. Young
Bradley & Riley PC	Thompson Hine LLP
2007 First Avenue S.E.	3900 Key Center
Cedar Rapids, Iowa 52406-2804	127 Public Square
	Cleveland, Ohio 44114-1291

Approximate Date of Proposed Sale to the Public:     As soon as practicable after the effective date of this registration statement.

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ¨

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ¨

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 of 1933 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 of 1933 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. ¨

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Amount to be Registered (1)(2)	Proposed maximum offering price per unit	Proposed maximum aggregate offering price	Amount of Registration Fee
$25 [         ]% Cumulative Convertible Redeemable Preferred Stock, Series A, no par value	2,300,000	$25.00	$57,500,000	$5,290
Common Stock, $3.33 1/3 par value

(1) Includes 300,000 shares the underwriters have the option to purchase to cover over-allotments.

(2) A presently indeterminable number of shares of common stock, if any, which may be issuable upon conversion of the 2,300,000 shares of preferred stock.

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, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED APRIL 22, 2002

2,000,000 Shares

United Fire & Casualty Company

[     ]% Convertible Preferred Stock, Series A

Dividends on the [    ]% Convertible Preferred Stock, Series A, are cumulative from the date of original issuance and are payable on March 15, June 15, September 15 and December 15 of each year, beginning on [                ], 2002. The preferred stock has a liquidation preference of $25 per share.

The preferred stock is convertible at the option of the holder at any time, unless previously redeemed, into shares of common stock, $3.33 ¹/3 par value, of United Fire & Casualty Company at an initial conversion price of $[        ] per share of common stock, which is equivalent to [        ] shares of common stock for each share of preferred stock converted, subject to adjustment upon certain events as described in this prospectus.

We may redeem all or any shares of preferred stock on or after [      ], 2005. The preferred stock will be subject to mandatory redemption on [      ], 2014.

Our preferred stock will trade on the Nasdaq National Market System under the trading symbol UFCSP. Our common stock trades on the Nasdaq National Market System under the trading symbol UFCS. On April 19, 2002, the closing price of our common stock on the Nasdaq National Market System was $33.50.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Investing in our preferred stock involves risks. See “ Risk Factors” beginning on page 6.

	Price to Public	Underwriting Discount	Proceeds to United Fire & Casualty Company
Per Share	$25.00	$[                ]	$[                ]
Total	$50,000,000	$[                ]	$[                ]

The underwriters have an option to purchase up to 300,000 additional shares of preferred stock at the public offering price, less the underwriting discount, from us within 30 days from the date of this prospectus.

Delivery of the shares of preferred stock will be made on or about [                ], 2002.

McDonald Investments Inc. A.G. Edwards & Sons, Inc.

The date of this prospectus is [                 ], 2002.

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	6
Use of Proceeds	14
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements	15
Capitalization	16
Price Range of Common Stock and Dividend History	16
Selected Consolidated Financial Data	17
Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Business	33
Management	51
Description of Our Capital Stock	54
Underwriting	65
Legal Matters	67
Experts	67
Forward Looking Statements	67
Where You Can Find More Information	68
Incorporation by Reference	69

You should rely only on the information contained in this document or information to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate as of the date of this document.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus or incorporated by reference in this prospectus. Because this is a summary, it is not complete and does not contain all the information that may be important to you. You should read the entire prospectus carefully, including the information under “Risk Factors,” before making an investment decision.

Unless otherwise indicated, all information presented in this prospectus has been prepared based on generally accepted accounting principles in the United States and assumes that the underwriters’ over-allotment option is not exercised.

Our Company

United Fire & Casualty Company is an Iowa insurance company incorporated in January 1946. We and our related insurance companies are engaged in the business of writing property and casualty insurance and life insurance. We and our property and casualty insurers are licensed in 40 states, primarily in the Midwest, West and South, and are represented by approximately 1,220 independent agencies. Our life insurance subsidiary is licensed in 25 states, primarily in the Midwest and West, and is represented by approximately 1,470 independent agencies.

At December 31, 2001, we had $278.9 million in total equity and $1.85 billion in total assets. For the year ended December 31, 2001, our total revenue was $472.9 million and net income was $24.0 million, or $2.40 per share. Of our net income, 64.6% was attributable to our property and casualty segment and 35.4% was attributable to our life insurance segment.

Our family of property and casualty insurers has received a group rating of “A” (Excellent) from A.M. Best Company. Within the group, all of our property and casualty insurers have an “A” (Excellent) rating, except Lafayette Insurance Company, which has an “A-” (Excellent) rating. Standard & Poor’s rates United Fire & Casualty Company, Addison Insurance Company and Lafayette Insurance Company “A+.” Our life insurance subsidiary has received an “A-” (Excellent) from A.M. Best Company and an “A+” rating from Standard & Poor’s. Rating agencies such as A.M. Best Company and Standard and Poor’s evaluate insurance companies based on financial strength and the ability to pay claims, factors relevant to policyholders, but not necessarily to investors. Financial strength ratings by insurance rating agencies are not ratings of securities or recommendations to buy, hold or sell any security.

Our Property and Casualty Business

We write both commercial and personal lines of property and casualty insurance. We focus on our commercial lines, which represented approximately 82% of our direct property and casualty premiums written for the year ended December 31, 2001. Our primary commercial lines are tailored business packages that include the following coverages: fire and allied lines, automobile, workers’ compensation and fidelity and surety. We also write multiple peril, inland marine and specialty lines for our commercial policyholders.

Our personal lines, which represented approximately 18% of our direct property and casualty premiums written for the year ended December 31, 2001, primarily consist of automobile and fire and allied lines coverage. Additionally, we write policies covering recreational vehicles and watercraft.

Because we rely on independent agencies to market our product lines, we utilize a profit-sharing plan as an incentive for our agents to place high-quality property and casualty business with us. In addition to United Fire & Casualty Company, our property and casualty segment consists of the following related companies: Addison Insurance Company, Lafayette Insurance Company, American Indemnity Company, Texas General Indemnity Company, United Fire & Indemnity Company and United Fire Lloyds.

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Our Life Insurance Business

Our life insurance subsidiary is United Life Insurance Company, a wholly-owned Iowa life insurance company headquartered in Cedar Rapids, Iowa, which underwrites all of our life insurance business. Our principal life insurance products are single premium annuities and universal life products. For the year ended December 31, 2001, single premium annuities accounted for approximately 83% of our life insurance premium revenues determined on the basis of statutory accounting principles, and universal life products accounted for approximately 7% of that revenue. We also underwrite and market single premium whole life insurance, term life insurance, credit life insurance and disability insurance products.

Business Focus

We compete in the insurance business by focusing on our goal of writing “good business with good agents at an adequate price.” We focus primarily on areas within the Midwest, West and South where we believe our agents can most effectively compete. Although we continue to write quality personal business, we believe we will benefit more in the long-term by emphasizing our commercial lines of business. We endeavor to realize our goal by relying on our principal strengths, which we believe include:

Experienced Senior Management Team and Employees.    Our 22-person senior management team has extensive experience, with an average of over 28 years of experience in the insurance industry and over 17 years with us. Our team has led us through several market cycles, and our seasoned and knowledgeable employee base supports our senior management team. Most of our 719 employees employed as of December 31, 2001 have completed internal insurance-related training courses within the last 12 months. Further, 321 employees hold a total of 722 insurance industry professional designations, and 238 employees are enrolled in insurance industry courses.

Management Focus and Discipline.    We manage our business based on three core performance indicators: return on equity, loss ratios and expense levels. We focus our performance on these indicators by aligning our employee incentive compensation programs with performance targets for each of the three key indicators. We maintain detailed systems, records and databases that enable us to continuously monitor our book of business and identify and react swiftly to positive or negative trends. We are able to track our performance, including profitability reports and loss ratios, by reporting segment, product, region, state, producer and policyholder.

Pricing Discipline and Underwriting Expertise.    We are selective about the new policies we underwrite, seeking new business that enables us to maintain our profitability standards. We employ experienced underwriters and we focus on markets where our underwriting expertise provides us a competitive advantage. Our disciplined approach to writing policies enables us to grow by writing quality business instead of simply focusing on increasing our premium revenue.

Strong Agency Relationships.    We distribute our products through a network of approximately 1,220 independent property and casualty agencies and approximately 1,470 independent life agencies. We have developed strong agency relationships due to our local presence and our performance-based compensation programs. We offer competitive commission rates and other sales inducements to maintain and enhance relationships with existing independent agencies as well as to attract new independent agencies. We continually monitor our agencies for compatibility with us, taking into account factors such as loss ratio, premium volume and relationship history. We seek relationships with agencies where we will be one of their top three insurers, measured on the basis of direct premiums written.

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Local Market Presence.    We underwrite property and casualty insurance in 40 states. Our strongest property and casualty markets are Texas, Iowa, Louisiana, Missouri and Illinois, which accounted for approximately 55.8% of our direct property and casualty premiums written in 2001. We underwrite life insurance in 25 states, with Iowa, Minnesota, Wisconsin, Illinois and Nebraska accounting for approximately 72.4% of our direct life insurance premiums written in 2001. We believe our local and regional presence in our strongest markets provides us a competitive advantage over large, national competitors with centralized operations.

Commitment to Financial Stability.    At December 31, 2001, our consolidated statutory surplus was approximately $194,988,000. We have historically kept a strong balance sheet by following conservative investing practices and by maintaining appropriate reserves in our property and casualty and life insurance operations. As of December 31, 2001, over 89% of our invested assets were invested in fixed income securities, 89% of which were investment grade and 7% of which were government securities. The remaining 11% of our invested assets was invested in equities, short-term investments, policy loans and other long-term investments.

Emphasis on Technology.    We utilize technology in a variety of ways to assist our agents and improve the delivery of service to our policyholders. For example, in addition to providing general company and product information, our Web site also has a section accessible exclusively to our agents where they can receive quotes, report claims on-line, make online applications and receive policy approval. Our life agents can view the status of clients’ applications and access detailed information on our annuity, universal life, term life and whole life policies. For our policyholders we provide secure online access to their account information.

Easy-to-Understand Life Insurance Products.    Unlike many of the life insurance products offered by our competitors, we offer straight-forward life insurance products that our policyholders can easily understand.

Recent Trends

During the 1990s and into 2000, the property and casualty insurance industry was characterized by excess capacity, which resulted in highly competitive market conditions evidenced by declining premium rates and, in many cases, policy terms less favorable to insurers. As a result, the industry experienced reduced profitability and a recent contraction of capacity, as property and casualty companies chose, or were forced, to withdraw from the business. In response to the contraction of capacity, many insurance and reinsurance companies, including our companies, independently sought and achieved price increases and improved policy terms.

Following the events of September 11, we have seen accelerated improvement in policy pricing and terms throughout the U.S. property and casualty insurance markets. In 2002, we expect to see further price increases. We believe that we are favorably positioned to take advantage of the improving conditions in the property and casualty insurance market and that the expected price increases, together with improved terms and conditions, will contribute to more favorable financial results. However, we can give no assurance that we will be able to broadly implement price increases which would result in increased premium revenues. During 2001, we recorded a pre-tax charge of $6.9 million representing our estimated loss, through assumed reinsurance, for the terrorist attacks on September 11. We do not expect any additional material payout beyond this charge unless the insurance industry or the judicial system determines that the attacks were multiple events, in which case our estimate for reserves would increase by approximately $3,000,000, based upon information currently available to us.

Our principal executive offices are located at 118 Second Avenue, S.E., Cedar Rapids, Iowa 52407. Our telephone number is 319-399-5700. Our Web site address is www.unitedfiregroup.com. The information on our Web site is not part of this prospectus.

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The Offering

[    ]% Cumulative Convertible Redeemable Preferred Stock, Series A, offered by United Fire & Casualty Company	2,000,000 shares (1)
Preferred stock to be outstanding immediately after the offering	2,000,000 shares (1)
Preferred stock liquidation preference	$25 per share
Preferred stock annual dividend	[    ]%
Initial conversion price	$[    ] per share, equivalent to [    ] shares of common stock for each share of preferred stock
Conversion rights	Each share of preferred stock will be convertible into shares of our common stock at an initial price of $[    ] per share of common stock, equivalent to [    ] shares of common stock for each share of preferred stock. The conversion price may be adjusted from time to time upon the occurence of certain events. See “Description of Our Capital Stock—Series A Preferred Stock—Conversion Rights.”
Redemption at our option	We may redeem all or some of the preferred stock at any time on or after [             ], 2005 at a redemption price of $25 per share of preferred stock, plus accrued and unpaid dividends. If we redeem any shares on or after [             ], 2005 but before [             ], 2006 we will pay a premium equal to 3.0% of the redemption price; if we redeem any shares on or after [             ], 2006 but before [            ], 2007 we will pay a premium equal to 1.5% of the redemption price. See “Description of Our Capital Stock—Series A Preferred Stock—Redemption.”
Mandatory redemption	We are obligated to redeem all outstanding shares of the preferred stock on [             ], 2014. The redemption price will be equal to $25 plus an amount equal to accrued and unpaid dividends.
Nasdaq symbol	UFCSP
Use of proceeds	We expect to use the net proceeds from the sale for general corporate purposes. See “Use of Proceeds.”

(1) Does not include up to 300,000 shares the underwriters have the option to purchase to cover over-allotments.

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Summary Financial Data

	Year ended December 31,
	2001			2000			1999		1998		1997
	(Dollars in thousands, except per share data) (Prepared on the basis of generally accepted accounting principles)
Income Statement Data:
Revenues:
Net premiums earned	$	372,019		$	333,365		$	273,051	$	245,727	$	244,939
Net investment income		98,909			86,867			75,317		67,928		61,686
Realized gains (losses) and other income		(84	)		(1,825	)		2,936		22,796		2,676
Commission and policy fee income		2,108			2,172			1,912		1,815		1,829
	$	472,952		$	420,579		$	353,216	$	338,266	$	311,130
Benefits, losses and expenses:
Losses and settlement expenses	$	270,329		$	236,807		$	197,291	$	191,388	$	159,199
Increase in liability for future policy benefits		5,236			6,241			5,157		3,707		5,016
Amortization of deferred policy acquisition costs		67,502			58,394			49,863		47,892		50,269
Other underwriting expenses		53,042			59,378			51,401		40,315		35,968
Interest on policyholders’ accounts		48,213			42,410			32,286		26,568		22,510
	$	444,322		$	403,230		$	335,998	$	309,870	$	272,962
Income before income taxes	$	28,630		$	17,349		$	17,218	$	28,396	$	38,168
Federal income taxes		4,537			1,822			1,834		4,719		9,436
Net income	$	24,093		$	15,527		$	15,384	$	23,677	$	28,732
Earnings available to common stockholders	$	24,093		$	15,527		$	15,384	$	23,677	$	28,732
Weighted average common shares outstanding		10,035,819			10,047,248			10,079,563		10,393,930		10,727,440
Basic and diluted earnings per common share	$	2.40		$	1.55		$	1.53	$	2.28	$	2.68
Cash dividends declared per common share	$	0.72		$	0.71		$	0.68	$	0.67	$	0.63
Balance Sheet Data:
Total cash and investments	$	1,561,112		$	1,403,035		$	1,240,460	$	1,084,116	$	998,278
Total assets		1,851,839			1,674,109			1,467,716		1,250,594		1,157,922
Reserves for future policy benefits and losses, claims and settlement expenses		1,323,316			1,180,190			1,039,593		826,306		714,205
Stockholders’ equity		278,988			257,429			237,793		256,282		277,208

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RISK FACTORS

You should carefully consider the risks described below before making an investment decision. If any of the events described in the following risk factors occurs, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our preferred stock and our common stock could decline, and you may lose all or part of your investment.            

Risks Relating to Our Business

Unpredictable catastrophic events could reduce our net income.

Our property and casualty insurance operations expose us to claims arising out of catastrophes, including hurricanes, tornadoes, windstorms, hailstorms, fires, explosions, earthquakes and other events that may cause catastrophes, including terrorist acts. For example, a hailstorm that swept through New Orleans, Louisiana, in 2000 negatively affected our business in 2000 and 2001. Catastrophe claims arise principally under our commercial insurance policies, but we also have exposure under our personal insurance policies. Our automobile business exposes us to losses to automobiles arising from floods. Property damage resulting from catastrophes is the greatest risk of loss we face in the ordinary course of our business. Because the occurrence and severity of catastrophes are inherently unpredictable, historical results of operations may not be indicative of future results of operations. Claims from catastrophic events could reduce our net income, cause substantial volatility in our financial results for any fiscal quarter or year or otherwise adversely affect our financial condition or results of operations. Our ability to write new business could also be affected. Increases in the value and geographic concentration of insured property and the effects of inflation could increase the severity of claims from catastrophic events in the future.

Our reserves for losses and costs related to adjustment of losses and our annuity reserves may be inadequate, which would result in reductions in net income and stockholders’ equity and could result in a downgrading of our rating and the ratings of our insurance company subsidiaries.

Our reserves for claims and future policy benefits may prove to be inadequate. We establish and carry, as a liability, reserves based on estimates by actuaries of how much we will need to pay for future benefits and claims. We establish property and casualty reserves for loss and loss adjustment expenses based on assumptions and estimates of damages and liabilities incurred. For our life insurance and annuity products, we calculate these reserves based on many assumptions and estimates, including estimated premiums we will receive over the assumed life of the policy, the timing of the event covered by the insurance policy, the amount of benefits or claims to be paid and the investment returns on the assets we purchase with the premiums we receive.

Our reserves are only estimates; we determine the amount of these reserves based on our best estimate and judgment of the losses and costs we will incur on existing insurance policies.

Because of the uncertainties that surround estimating loss reserves, we cannot precisely determine the ultimate amounts that we will pay for, or the timing of payment of, actual benefits and claims or whether the assets supporting the policy liabilities will grow to the level we assume prior to payment of benefits or claims. The following factors may have a substantial impact on our future loss experience:

• the amounts of claims settlements and awards;

• the performance of our investments;

• legislative or judicial developments; and

• changes in inflation and economic conditions.

Actual claims and claim expenses paid might exceed our reserves. If our reserves are insufficient to cover our actual loss and loss adjustment expenses, we would have to augment our reserves and incur charges to our

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earnings. These charges could be material. Further, strengthening reserves causes a reduction in surplus and could cause a downgrading of our rating and the ratings of our insurance company subsidiaries. This in turn could impair our ability to sell insurance policies.

On September 11, 2001, terrorists hijacked and crashed four airplanes, resulting in large losses to life and property. Our only exposure to these losses is through assumed reinsurance, where we contract with other insurance companies to pay part of the loss incurred on policies they write. We estimate our 2001 pre-tax losses associated with these terrorist attacks to be $6.9 million, or $4.5 million net of taxes. However, if the insurance industry or the judicial system determines that the attacks should be considered multiple events, we estimate, based upon information currently available to us, that our pre-tax losses would increase by approximately $3,000,000. These incidents may have further repercussions and effects on us and our industry that are inherently unpredictable and beyond our control. The current “war on terrorism,” the potential commission of further terrorist attacks, substantial political instability and societal disruption may result in further losses.

Interest rate and market value fluctuations could negatively affect our profitability.

Some of our products, principally fixed annuities, expose us to the risk that changes in interest rates will reduce our “spread”, or the difference between the amounts that we are required to pay under the contracts and the rate of return we are able to earn on our investments intended to support our obligations under the contracts.

In periods of increasing interest rates, we may not be able to replace our invested assets with higher yielding assets to the extent needed to fund the higher rates we must pay with respect to our interest sensitive products to keep them competitive. Consequently, we may have to accept a lower spread, and thus lower profitability, or face a decline in sales and loss of existing contracts and related assets. In periods of declining interest rates, we have to reinvest the cash we receive as interest or return of principal on our investments in lower yielding instruments then available. Moreover, borrowers may prepay fixed income securities, commercial mortgages and mortgage-backed securities in which we have invested in order to borrow at lower market rates, which exacerbates this risk. Because we are entitled to reset the interest rates on our annuities only at limited, pre-established intervals and because many of our policies have guaranteed interest rates, our spreads could decrease and potentially become negative.

Due to the reinvestment risk described above, a decline in market interest rates available on investments could also reduce our return from investments of capital that do not support particular policy obligations, which could also have a material adverse effect on our results of operations. The adverse effect on us of fluctuations in interest rates may be exacerbated because we currently maintain, and intend to continue to maintain, a large portion, approximately 89%, of our investment portfolio in fixed income securities. Generally, the fair value of these investments increases or decreases in an inverse relationship with changes in interest rates. Because we classify approximately 83% of our fixed income securities as available-for-sale, we must report the value of those investments at their current fair value. Accordingly, fluctuations in interest rates may result in fluctuations in the valuation of our fixed income investments, which could affect our stockholders’ equity.

Increases in interest rates may cause increased surrenders and withdrawals of insurance products. In periods of increasing interest rates, policy loans and surrenders and withdrawals of life insurance policies and annuity contracts may increase as policyholders seek to buy products with perceived higher returns. This process may lead to an outflow of cash from our business. These outflows may require invested assets to be sold at a time when the prices of those assets are lower because of the increase in market interest rates, which may result in realized investment losses. In addition, unanticipated withdrawals and terminations also may require us to accelerate the amortization of deferred policy acquisition costs, which would increase our expenses in the current period.

The fair value of securities in our investment portfolio may fluctuate depending on general economic and market conditions or events relating to a particular issuer of securities. Changes in the fair value of securities in our investment portfolio are reflected in our financial statements and, therefore, could result in realized or unrealized investment losses, thereby affecting our stockholders’ equity.

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Our results may fluctuate as a result of many factors, including cyclical changes in the insurance industry.

The results of companies in the property and casualty insurance industry historically have been subject to significant fluctuations and uncertainties. Rates for property and casualty insurance are influenced primarily by factors that are outside of our control, including market and competitive conditions and regulatory issues. Any significant decrease in the rates for property and casualty insurance could reduce our net income. Our profitability, like the profitability of other companies in the industry, can be affected significantly by:

• rising levels of actual costs that we are unaware of at the time we price our products;

• volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes or terrorist attacks;

• changes in loss reserves resulting from general claims and the legal environment, as different types of claims arise and judicial interpretations relating to the scope of our liability develop; and

• fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect our return on invested assets and may impact our ultimate payout of losses.

The demand for property and casualty insurance can also vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases. The property and casualty insurance industry historically is cyclical in nature. Fluctuations in demand and competition could produce underwriting results that would have a negative impact on our results of operations and financial condition.

Our investment returns, and thus our profitability, may also be adversely affected from time to time by conditions affecting a specific investment and, more generally, by stock and other market fluctuations and general economic, market and political conditions. Our ability to make a profit on insurance products, fixed annuities and products with guaranteed interest features depends in part on the returns on investments supporting our obligations under these products. As described above, the value of specific investments may fluctuate substantially.

A significant portion of our direct property and casualty premiums are received from five states, and a significant portion of our direct life insurance premiums are received from five states.

The following five states accounted for approximately 55.8% of our direct property and casualty premiums written in 2001: Texas, 14.2%; Iowa, 13.5%; Louisiana, 11.6%; Missouri, 8.5% and Illinois, 8.0%. The following five states accounted for approximately 72.4% of our direct life insurance premiums written in 2001: Iowa, 42.0%; Minnesota, 10.1%; Wisconsin, 7.7%; Illinois, 6.7% and Nebraska, 5.9%. A general decline in the economy of these states could result in decreased premium revenue, thus decreasing profitability. Our exposure to losses from localized catastrophes, such as hailstorms, is increased in those areas where we have written significant numbers of property and casualty insurance policies.

If we can not adequately meet our independent agents’ needs or keep pace with our competitors’ future technological advances, we may lose business.

We do business with approximately 1,220 property and casualty agencies in 40 states and approximately 1,470 life agencies in 25 states. We have contracts with all of our agencies. Our agencies are independent and offer products of competing companies. Our agencies require the timely processing of applications and claims, as well as prompt attention to their questions and concerns. Like us, many of our competitors use technology to provide their agencies with information and to process applications for insurance coverage and claims. Examples

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of such technology include the use of the internet to provide agencies with access to policy information and to submit underwriting and claims information. Although we believe we enjoy good relationships with our independent agents, if we are unable to continue to adequately meet our independent agents’ needs and keep pace with our competitors’ future technological advances, we may not be able to retain the agents’ business.

If market conditions cause reinsurance to be more costly or unavailable, we may be required to bear increased risks or reduce the level of our underwriting commitments.

As part of our overall risk and capacity management strategy, we purchase reinsurance for significant amounts of risk, especially catastrophe risks which are underwritten by us and our insurance company subsidiaries. The availability and cost of reinsurance is subject to market conditions, which are beyond our control. The availability and cost of the reinsurance we purchase may affect the level of our business and profitability. Our reinsurance facilities are generally subject to annual renewal. We may be unable to maintain our current reinsurance facilities or to obtain other reinsurance facilities in adequate amounts and at favorable rates. If we are unable to renew our expiring facilities or to obtain new reinsurance facilities, either our net exposure to risk would increase or, if we are unwilling to bear an increase in net risk exposures, we would have to reduce the amount of risk we underwrite, especially risks related to catastrophes. As a result of the attacks of September 11, 2001, we have experienced in 2002 continuing increases in the price of reinsurance on terms less favorable to us than previously available.

The insurance industry may experience an increase in claims related to damage from mold, and some of our business exposes us to such claims.

The existence of certain airborne mold spores resulting from moisture trapped in confined areas has been alleged to cause severe health and environmental hazards. We have current and potential future exposure to mold claims in both our commercial and personal lines of business. While mold is a potential problem in several states, Texas has been at the forefront of mold insurance issues. We have recently received approval from the Texas Department of Insurance to adopt an exclusion in our homeowners policies and a $25,000 limitation in our commercial general liability policies with respect to claims arising from mold. We are investigating a mold exclusion for our commercial property policies. As market conditions permit, we plan to implement any coverage reforms permitted by the Texas Department of Insurance that would enable us to reduce our exposure in Texas to claims related to mold. However, due to the uncertainty of future changes in Texas regulation, we cannot estimate our future probable liability for mold claims. Also, as case law expands, we may be subject to mold-related losses beyond those intended by policy coverage and not addressed by exclusionary or limiting language. Loss reserve additions arising from future unfavorable judicial trends cannot be reasonably estimated at the present time.

As a primary insurer, we will likely be unable to obtain reinsurance coverage for terrorist acts.

Reinsurers have excluded coverage for terrorist acts. Some states may not permit primary insurers, like us and our insurance company subsidiaries, to likewise exclude terrorist acts. To the extent this occurs, we and our insurance subsidiaries, as primary insurers, would have a gap in our reinsurance protection and would be exposed to potential losses as a result of any terrorist acts.

The effect of potential U.S. and other governmental intervention on the insurance and reinsurance markets is uncertain. For example, there may be federal legislation on insurance coverage for terrorism, including the possibility that we may be subject to assessments to cover losses arising from future terrorist acts.

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We may not maintain favorable financial strength ratings, which could adversely affect our ability to compete effectively with our competitors; our ability to sell insurance policies could decline, reducing our sales and earnings.

Third party rating agencies assess and rate the claims-paying ability of insurers and reinsurers. Financial strength ratings are used by insurers and reinsurers and insurance and reinsurance intermediaries as an important means of assessing the financial strength and quality of insurers and reinsurers. In addition, if the rating of a reinsurer is unfavorable, the rating agency may reduce the rating of an insurance company purchasing reinsurance from that reinsurer.

We believe that the ratings assigned by third party rating agencies are an important factor in marketing our products. Our ability to retain our existing business or to attract new business in our insurance operations depends largely on our ratings by these agencies. If an agency downgrades our ratings in the future, it is likely that we would not be able to compete as effectively with our competitors, and our ability to sell insurance policies could decline. If that happens, our sales and earnings would decrease. Rating agencies evaluate insurance companies based on financial strength and the ability to pay claims, factors which are more relevant to policyholders than investors. Financial strength ratings by rating agencies are not ratings of securities or recommendations to buy, hold or sell any security.

We cannot guarantee that our reinsurers will pay claims in a timely fashion, if at all. As a result, we could experience losses.

We transfer some of the risk we have from the direct policies that we write to reinsurance companies in exchange for part of the premium we receive in connection with the risk. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred, it does not relieve us of our liability to our policyholders. Our reinsurers may not pay what they owe us on a timely basis or at all. If our reinsurers fail to pay us or fail to pay us on a timely basis, our financial results would be adversely affected. Losses resulting from the attacks of September 11, 2001 may adversely affect the financial resources of some of our reinsurers, which could affect their ability to pay us.

We face significant competitive pressures in our business that could cause demand for our products to fall and reduce our revenue and our profitability.

The insurance industry is highly competitive. In our property and casualty business and in our life business, we compete, and will continue to compete, with dozens of major U.S. and non-U.S. insurers and smaller regional companies, as well as mutual companies, specialty insurance companies, underwriting agencies and diversified financial services companies. Some of our competitors have far greater financial and marketing resources than we do. Our premium revenue and our profitability could decline if we lose business to competitors offering similar or better products at or below our prices. We price our insurance based on estimated profit margins, and we do not expect to be able to significantly reduce our current estimated profit margins in the near future. Many of our competitors, however, are better capitalized than we are and may be able to withstand significant reductions in their profit margins. If our competitors decide to target our policyholder base by offering lower priced insurance, we may not be able to respond competitively. In addition, a number of new, proposed or potential legislative or industry developments could further increase competition in our industry. Increased competition from these developments could cause the demand for our products to fall, which could reduce our revenue and our profitability.

These new, proposed or potential legislative or industry developments include:

• the enactment of the Gramm-Leach-Bliley Act of 1999, which permits financial services companies such as banks and brokerage firms to engage in the insurance business, could result in increased competition from new entrants to our markets;

• the formation of new insurers and an influx of new capital in the marketplace as existing companies attempt to expand their business as a result of better pricing and/or terms;

• programs in which state-sponsored entities provide property insurance in catastrophe-prone areas; and

• changing practices caused by the Internet, such as the direct purchase by consumers of life, property and casualty insurance products, which have led to greater competition in the insurance business.

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These developments and others could make the property and casualty insurance marketplace more competitive by increasing the number and strength of competitors. In that event, recent favorable industry trends that have reduced insurance and reinsurance supply and increased demand could be reversed and may negatively influence our ability to maintain or increase rates. Accordingly, these developments could reduce our revenue and our profitability.

Changes in federal income tax law could make some of our products less attractive to consumers and increase our tax costs.

In June 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 was enacted. The 2001 Act contains provisions that will, over time, significantly lower individual tax rates. This will have the effect of reducing the benefits of taxable income deferral on the build-up of value in annuities and life insurance products. The 2001 Act also includes provisions that will eliminate, over time, the estate, gift and generation-skipping taxes and partially eliminate the step-up in basis rule applicable to property held in a decedent’s estate. Some of these changes might hinder our sales and result in the increased surrender of insurance products. We cannot predict the overall effect on the sales of our products as a result of the tax law changes in the 2001 Act. Congress has, from time to time, also considered other tax legislation that could make our products less attractive to consumers, including legislation that would reduce or eliminate the benefit of the current federal income tax rule under which tax on the build-up of value of annuities and life insurance products can generally be deferred until payments are actually made to the policyholder or a beneficiary and excluded when paid as a death benefit under a life insurance contract. Congress, as well as state and local governments, has also considered legislation that could increase our tax costs. If such legislation is adopted, our consolidated net income could decline. We cannot predict whether any such legislation will be enacted, what the specific terms of any such legislation will be or how, if at all, it might affect sales of our products.

Because we are heavily regulated by the states in which we operate, we may be limited in the way we operate.

We are subject to extensive supervision and regulation by the states in which we operate. Governmental agencies exercise broad administrative power to regulate many aspects of the insurance business. This regulation covers, among other things:

• standards of solvency, including risk-based capital measurements;

• restrictions on the amount, type, nature, quality and concentration of investments;

• restrictions on the types of terms that we can include in the insurance policies we offer;

• certain required methods of accounting;

• reserves for unearned premiums, losses and other purposes;

• premium rates;

• marketing practices;

• policy forms;

• capital adequacy;

• the amount of dividends that can be paid;

• licensing of agents;

• approval of reinsurance contracts and inter-company contracts;

• approval of proxies; and

• potential assessments in order to provide funds to settle covered claims under insurance policies provided by impaired, insolvent or failed insurance companies.

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In addition, state insurance holding company statutes generally require prior notice or approval of changes of control of an insurer or its holding company. Regulatory authorities enforcing these statutes are concerned primarily with the protection of policyholders rather than stockholders.

Regulations of state insurance departments may affect the cost or demand for our products and may impede us from obtaining rate increases or taking other actions we might wish to take to increase our profitability. Further, we may be unable to maintain all required licenses and approvals and our business may not fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations. Also, regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could stop or temporarily suspend us from carrying on some or all of our activities or assess fines or penalties against us. In light of several recent significant property and casualty insurance company insolvencies, it is possible that assessments we must pay to state guarantee funds may increase.

Our access to capital markets and our ability to timely file financial reports may be impaired if we need to engage a new independent public accounting firm.

On March 14, 2002, our independent public accountant, Arthur Andersen LLP, was indicted on federal obstruction of justice charges arising from the government’s investigation of Enron Corp. Arthur Andersen LLP has stated that it intends to vigorously contest the indictment. The Securities and Exchange Commission has said that it will continue accepting financial statements audited by Arthur Andersen LLP and interim financial statements reviewed by it, so long as Arthur Andersen LLP is able to make certain representations to its clients. Our access to capital markets and our ability to make timely filings with the Securities and Exchange Commission could be impaired if the Securities and Exchange Commission ceases accepting financial statements audited by Arthur Andersen LLP, if Arthur Andersen LLP becomes unable to make the required representations to us or if for any other reason Arthur Andersen LLP is unable to perform required audit-related services for us. In such a case, we would promptly seek to engage a new independent public accounting firm or take such other actions as may be necessary to enable us to maintain access to the capital markets and to timely file our financial reports.

Our articles of incorporation and the insurance laws of various states may discourage takeover attempts and make it difficult to replace management.

Our articles of incorporation allow the board of directors to issue one or more classes or series of preferred shares with voting rights, preferences and other privileges as our board may determine. The issuance of an additional series of preferred shares could prevent, delay or defer a change of control, which could permit management to become entrenched and difficult to replace.

We are also subject to the laws of various states, particularly Iowa, Texas, Louisiana, Illinois and Colorado, where we are domiciled, governing insurance holding companies. Under these laws, a person generally must obtain the applicable insurance department’s approval to acquire, directly or indirectly, 5% to 10% or more of our outstanding voting securities or the outstanding voting securities of our insurance subsidiaries. An insurance department’s determination of whether to approve an acquisition would be based on a variety of factors, including an evaluation of the acquiror’s financial stability, the competence of its management and whether competition in that state would be reduced. These laws may delay or prevent a takeover of our company or our insurance company subsidiaries, and may permit management to become entrenched and difficult to replace.

Our success depends on retaining our current key personnel and attracting additional key personnel.

Our performance depends on the continued service of our senior management. None of our senior management is bound by an employment agreement nor do we have key person insurance on any of our senior

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management. The loss of the services of both Scott McIntyre, Jr., our Chairman, and John A. Rife, our President and Chief Executive Officer, could temporarily disrupt our day-to-day operations. Our success also depends on our continuing ability to attract, hire, train and retain highly skilled managerial, underwriting, claims, risk management, sales, marketing and customer support personnel. In addition, new hires frequently require extensive training before they achieve desired levels of productivity. Competition for qualified personnel is intense, and we may fail to retain our key employees or to attract or retain other highly qualified personnel.

Mr. Scott McIntyre, Jr., the Chairman of our board of directors, owns a significant amount of our common stock. His interests may diverge from those of our other stockholders.

Mr. Scott McIntyre, Jr., the Chairman of our board of directors, and his wife vote or control the disposition of approximately 15.1% of our issued and outstanding common stock. Mr. McIntyre’s children vote or control the disposition of approximately 2.8% of our issued and outstanding common stock. Mr. McIntyre’s mother and other members of her family vote and control the disposition of approximately 20.5% of our issued and outstanding common stock. Mr. McIntyre, his mother and members of their families will be in a position to strongly influence the outcome of substantially all corporate actions requiring stockholder approval, including mergers involving us, sales of all or substantially all of our assets and the adoption of amendments to our articles of incorporation. Mr. McIntyre, his mother and members of their families may have interests different than, or adverse to, those of the rest of our stockholders.

Risks Related to Our Preferred Stock and Our Common Stock

Because there has not been any trading market for our preferred stock and these securities may be affected by fluctuations in the market price of our common stock, we cannot assure you that an active trading market will develop for our preferred stock or that you will be able to resell our preferred stock at or above the purchase price.

There is currently no public market for our preferred stock. In addition, the liquidity of any trading market in our preferred stock and the market price quoted for shares of our preferred stock may be adversely affected by changes in the overall market for these securities and by changes in our financial performance or prospects or in the prospects of companies in our industry generally. We cannot predict the extent to which investors’ interest will lead to a liquid trading market or whether the market price of our preferred stock will be volatile. Because our preferred stock is convertible into common stock, the trading price of our preferred stock may be affected by fluctuations in the market price of our common stock. The price of our common stock over the past two years has fluctuated significantly, from a low of $15.50 in June 2000 to a high of $34.51 in April 2002.

We may not be able to pay the redemption price of our preferred stock upon a change of control if the holders exercise their right to require us to redeem those securities.

If we undergo a change of control, subject to limited exceptions, each holder of our preferred stock will have the right to require us to redeem all or any part of that holder’s shares at a redemption price equal to 100% of the liquidation preference plus an amount equal to all accrued and unpaid dividends on those shares to the date of redemption. We may pay the redemption price only if we have legally available funds for such payment. Our future credit facilities may prohibit us from paying the redemption price of our preferred stock in cash. In addition, the right of holders to cause us to redeem our preferred stock upon a change of control may be subject to our obligation to repay or repurchase any indebtedness, such as future credit facilities or additional series of preferred shares, required in connection with a change in control. We do not currently have any credit facilities that have change of control provisions that would trigger an obligation to repay that indebtedness or that would prohibit the payment of the redemption price of our preferred stock in cash.

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You will experience immediate dilution if you convert your shares of preferred stock into shares of common stock.

If you convert your shares of preferred stock into shares of common stock, you will experience immediate dilution because the per share conversion price of your shares of preferred stock is higher than the net tangible book value per share of our outstanding common stock immediately after this offering. In addition, you may also experience dilution when we issue additional shares of common stock that we are permitted or required to issue under options, warrants, our Employee Stock Purchase Plan, our Non-Qualified Employee Stock Option Plan or other employee or director compensation plans.

Our preferred stock ranks junior to all of our and our subsidiaries’ liabilities.

In the event of our bankruptcy, liquidation, winding-up or dissolution, our assets will be available to pay obligations on our preferred stock only after all our indebtedness and other liabilities have been paid. In addition, our preferred stock will effectively rank junior to all existing and future liabilities of our subsidiaries and the capital stock, other than common stock, of our subsidiaries held by third parties. The rights of holders of our preferred stock to participate in the assets of our subsidiaries upon any liquidation or reorganization of any subsidiary will rank junior to the prior claims of that subsidiary’s creditors and the holders of non-common stock. After payment of liabilities there may not be sufficient assets remaining to pay amounts due on any or all of our preferred stock then outstanding.

We and our family of companies currently have no indebtedness that is senior to the preferred stock. Therefore, we will be able to incur substantial indebtedness in the future. Any such borrowings would be senior to our preferred stock. To the extent new debt and other obligations are incurred, the risks described above would exist.

Our future credit facilities may prohibit us from redeeming or paying cash dividends on our preferred stock.

Our current credit facility does not limit or restrict our ability to pay dividends or redeem our capital stock. However, future credit facilities may prevent us from paying dividends or redeeming capital stock if we fail to meet specified operating performance or credit benchmarks or if, before the payment or after giving effect to the payment, an event of default of the credit facilities is or would be in existence. Because of this, we cannot assure you that we will be able to pay any future cash dividends on our preferred stock or redeem our preferred stock.

Iowa law may prohibit us from redeeming our preferred stock or from paying dividends on our preferred stock.

Iowa law permits distributions to stockholders only if, after making the distribution, (i) we would be able to pay our debts as they become due in the usual course of business or (ii) our total assets would be greater than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the payment, to satisfy upon dissolution the preferential rights of stockholders whose preferential rights are superior to the stockholders of our preferred stock. Iowa law requires dividends to be paid from earned profits arising from business, not from contributed capital or contributed surplus. Because of this, we cannot assure you that we will be able to pay any future dividends on our preferred stock or redeem our preferred stock.

USE OF PROCEEDS

We estimate that the net proceeds we will receive from the offering of our preferred stock, after reduction for estimated underwriting discounts and offering expenses payable by us, will be approximately $[            ], or approximately $[            ] if the over-allotment is exercised. We intend to use between $20 and $30 million of the

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net proceeds from this offering to increase the capital and surplus of our life insurance subsidiary in order to improve its capital adequacy as evaluated by rating agencies. In order to sell our life insurance products and annuities, we must be able to maintain favorable ratings. The exact amount of net proceeds we will provide to our life insurance subsidiary will vary depending upon our life insurance subsidiary’s need for capital at the time that the net proceeds become available. We expect to use the balance of the net proceeds for general corporate purposes and to increase our ability to write property and casualty insurance, as our property and casualty companies are subject to similar rating agency capital adequacy levels.

RATIO OF EARNINGS TO COMBINED FIXED

CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS

The following table sets forth our ratio of earnings to fixed charges.

	Year ended December 31,
	2001	2000	1999	1998	1997
Ratio of earnings to fixed charges (1)	1.59	1.41	1.53	2.07	2.70

(1) Includes interest credited to policyholder account balances. We had no preferred stock dividend requirements or fixed charges related to indebtedness prior to the issuance of our preferred stock. When we issue our preferred stock, we will have preferred stock dividend requirements, but no fixed charges related to indebtedness.

For purposes of determining the ratio of earnings to fixed charges and preferred stock dividend requirements and the sufficiency of earnings to cover our fixed charges and our preferred stock dividend requirements, earnings are defined as income from continuing operations before income taxes, plus fixed charges and preferred stock dividends. Preferred stock dividend requirements are the amount of pre-tax earnings required to permit the payment of dividends on our preferred stock.

If the sale of our preferred stock had occurred on January 1, 2001, our earnings for the year ended December 31, 2001 would have been [            ] and the ratio of earnings to fixed charges and our preferred stock dividend requirements for that year would have been [            ]. We have assumed that our preferred stock would have paid dividends at an annual rate of [            ]% for purposes of calculating the pro forma ratio.

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2001, and the adjusted pro forma capitalization which gives effect to the sale of the preferred stock offered by this prospectus at an assumed net offering price of $[            ] per share after deducting estimated underwriting discounts and offering expenses payable by us. The information in the following table is presented in accordance with generally accepted accounting principles.

	December 31, 2001 (Audited)		Pro Forma as Adjusted for Offering (Unaudited)
	(Dollars in thousands)
Long-term debt		—		—
[    ]% cumulative convertible redeemable preferred stock, no     par value		—	$	[	]
Stockholders’ equity
Common stock, $3.33 1/3 par value	$	33,453		33,453
Additional paid-in capital		6,912		6,912
Retained earnings		189,214		189,214
Accumulated other comprehensive income, net of tax		49,409		49,409
Total stockholders’ equity	$	278,988	$	278,988
Total capitalization	$	278,988	$	[	]

PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY

The following table sets forth, for the periods indicated, the high and low closing sales prices of our common stock as reported on the Nasdaq National Market System and cash dividends per share for the last three years. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

	Price Range				Cash Dividends Per Share
	High		Low
Year Ended December 31, 1999
1st Quarter	$	35.50	$	25.50	$	0.17
2nd Quarter		26.88		22.25		0.17
3rd Quarter		26.50		22.19		0.17
4th Quarter		23.38		19.25		0.17
Year Ended December 31, 2000
1st Quarter		23.31		17.38		0.17
2nd Quarter		19.69		15.50		0.18
3rd Quarter		20.50		15.50		0.18
4th Quarter		20.63		16.19		0.18
Year Ended December 31, 2001
1st Quarter		25.00		19.25		0.18
2nd Quarter		34.51		19.50		0.18
3rd Quarter		31.85		19.00		0.18
4th Quarter		31.42		24.58		0.18

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth our selected consolidated financial data as of and for the years ended December 31, 1997 through 2001. The financial data is derived from the financial statements audited by Arthur Andersen LLP, independent certified public accountants. This table is a summary and should be read in conjunction with our consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, which is incorporated by reference in this prospectus.

	Year ended December 31,
	2001			2000			1999		1998		1997
	(Dollars in thousands, except per share data and ratios)
Income Statement Data:
Revenues:
Net premiums earned	$	372,019		$	333,365		$	273,051	$	245,727	$	244,939
Net investment income		98,909			86,867			75,317		67,928		61,686
Realized gains (losses) and other income		(84	)		(1,825	)		2,936		22,796		2,676
Commission and policy fee income		2,108			2,172			1,912		1,815		1,829
	$	472,952		$	420,579		$	353,216	$	338,266	$	311,130
Benefits, losses and expenses:
Losses and settlement expenses	$	270,329		$	236,807		$	197,291	$	191,388	$	159,199
Increase in liability for future policy benefits		5,236			6,241			5,157		3,707		5,016
Amortization of deferred policy acquisition costs		67,502			58,394			49,863		47,892		50,269
Other underwriting expenses		53,042			59,378			51,401		40,315		35,968
Interest on policyholders’ accounts		48,213			42,410			32,286		26,568		22,510
	$	444,322		$	403,230		$	335,998	$	309,870	$	272,962
Income before income taxes	$	28,630		$	17,349		$	17,218	$	28,396	$	38,168
Federal income taxes		4,537			1,822			1,834		4,719		9,436
Net income	$	24,093		$	15,527		$	15,384	$	23,677	$	28,732
Earnings available to common stockholders	$	24,093		$	15,527		$	15,384	$	23,677	$	28,732
Weighted average common shares outstanding		10,035,819			10,047,248			10,079,563		10,393,930		10,727,440
Basic and diluted earnings per common share	$	2.40		$	1.55		$	1.53	$	2.28	$	2.68
Cash dividends declared per common share	$	0.72		$	0.71		$	0.68	$	0.67	$	0.63

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	Year ended December 31,
	2001			2000			1999			1998			1997
	(Dollars in thousands, except per share data and ratios)
Segment Data:
Property and casualty segment:
Net premiums earned	$	346,582		$	307,271		$	247,054		$	220,550		$	225,822
Benefits, losses and expenses		362,626			329,253			272,315			254,306			224,480
Income before income taxes		16,393			8,738			2,687			12,327			28,616
Life segment:
Net premiums earned	$	25,654		$	26,304		$	26,100		$	25,295		$	19,231
Benefits, losses and expenses		82,038			74,324			63,923			55,822			48,740
Income before income taxes		12,237			8,611			14,531			16,069			9,552
Balance Sheet Data:
Total cash and investments	$	1,561,112		$	1,403,035		$	1,240,460		$	1,084,116		$	998,278
Total assets		1,851,839			1,674,109			1,467,716			1,250,594			1,157,922
Reserves for future policy benefits and losses, claims and settlement expenses		1,323,316			1,180,190			1,039,593			826,306			714,205
Stockholders’ equity		278,988			257,429			237,793			256,282			277,208
Operating Data:
Return on average equity		8.98	%		6.27	%		6.23	%		8.88	%		11.38	%
Loss ratio		73.9			73.6			75.2			81.2			66.2
Expense ratio		30.7			33.5			35.0			34.0			33.1
Combined ratio		104.6			107.1			110.2			115.2			99.3

We are required to use statutory accounting principles to prepare and report our financial results to the insurance departments in those states where we are domiciled. Statutory accounting principles are based upon state laws, regulations and general administrative rules, and generally emphasize the concepts of policyholder protection and solvency and stress measurement of ability to pay claims in the future. This emphasis generally results in lower assets and net income than results reported according to generally accepted accounting principles, which consist of a set of uniform accounting rules for recording and reporting financial data and stress measurement of emerging earnings of a business from period to period. Generally accepted accounting principles are established by the Financial Accounting Standards Board, and their use is required by the Securities and Exchange Commission for corporations under its jurisdiction.

Statutory Data:
Property and casualty segment:
Net premiums written	$	366,138		$	325,052		$	254,214		$	221,002		$	226,915
Capital and surplus		194,988			183,604			179,689			202,342			231,326
Net premiums written to surplus		1.88			1.77			1.41			1.09			0.98
Loss ratio		74.4	%		74.2	%		75.6	%		81.9	%		66.6	%
Expense ratio		30.3			31.9			33.6			33.2			31.9
Combined ratio		104.7			106.1			109.2			115.1			98.5
Life segment:
Net premiums written	$	195,096		$	191,800		$	173,312		$	154,789		$	118,798

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations for the Year Ended

December 31, 2001, Compared to the Year Ended December 31, 2000

For the year ended December 31, 2001, our consolidated net operating income, which excludes net realized gains and losses on securities, was $24,214,000, or $2.41 per share, compared to $16,713,000, or $1.67 per share, for the year ended December 31, 2000. The most significant factors contributing to the increase were growth in net premiums earned, growth in net investment income and favorable development in our property and casualty loss reserves.

Net premiums earned increased by $38,654,000, or 12%, to $372,019,000, due primarily to premium rate increases in our property and casualty insurance segment. Net investment income increased by $12,042,000, or 14%, to $98,909,000, with more than $9,000,000 of the increase contributed by our life insurance segment. Annuity deposits increased our life insurance segment’s investment portfolio, leading to higher investment earnings. During 2001, we experienced a decrease in estimated losses for property and casualty claims that occurred in prior years, as described in “Property and Casualty Insurance Segment,” below.

Losses and settlement expenses increased by $33,522,000, or 14%, to $270,329,000, due primarily to an increase in severity in our fire and allied lines and workers’ compensation lines of business. This increased severity more than offset the decrease in prior year estimated property and casualty claim losses. The combination of amortization of deferred policy acquisition costs and other underwriting expenses reflected a moderate increase of $2,772,000, or 2%, which primarily resulted from the continued increase in business written across our various property and casualty lines of business, both on a new and renewal basis. Interest on policyholders’ accounts increased by $5,803,000, or 14%, to $48,213,000, due primarily to interest credited on existing annuity account balances; we decreased interest crediting rates for new annuity deposits received during 2001.

On a consolidated basis, net income, which is net operating income plus after-tax net realized gains and losses on securities, was $24,093,000, or $2.40 per share, in 2001, compared to $15,527,000, or $1.55 per share, in 2000. We recorded net realized after-tax losses of $121,000 in 2001 and $1,186,000 in 2000. In both years, other-than-temporary impairments on a small number of fixed income securities contributed to realized losses.

During the third quarter of 2001, we began a review of our exposure to the events of September 11, 2001. Because we do not write direct premiums in the eastern United States, we knew that we did not have any material direct exposure as a result of these events. However, we did have assumed reinsurance claims related to the terrorist attacks, resulting in after-tax charges in 2001 of $4,479,000, or $0.45 per share.

We recorded reserves for the September 11 events based upon the “one event” theory. If the insurance industry or the judicial system determines that the events of September 11 were multiple events, our estimate, based upon information currently available to us, is that our reserves for the September 11 catastrophe would increase by approximately $3,000,000.

The rates we pay for reinsurance increased on our reinsurance contracts that renewed on January 1, 2002, and those contracts now limit or exclude coverage for terrorist activities. We will utilize terrorist exclusions on our direct policies, as such exclusions are approved by state regulators. We expect price increases to occur in the property and casualty insurance industry due to the anticipated industry-wide increase in reinsurance rates, and we have already begun our own price increases.

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Property and Casualty Insurance Segment

Our property and casualty insurance segment recorded net income of $15,559,000 in 2001, compared to net income of $9,810,000 in 2000. Net premiums earned grew by $39,311,000, or 13%, to $346,582,000. Much of the net premium written growth was generated by premium rate increases throughout a majority of our lines of business. In 2001, Texas became our largest state in terms of direct premium volume, with direct premiums written of $52,489,000. Iowa was our second largest state, with direct premiums written of $50,807,000.

Our liability lines of business, such as commercial automobile liability, other liability and workers’ compensation, are considered long-tail lines of business due to the length of time which may elapse before claims are finally settled. Therefore, we may not know our final development on individual claims for many years. Our estimates for losses, particularly in these long-tail lines, are dependent upon many factors, such as our estimate of the severity of the claim, the legal environment, inflation and medical costs. We consider all of these factors, as well as others, in estimating our loss reserves. As conditions or trends with respect to these factors change, we change our estimate for loss reserves accordingly.

Our property and casualty insurance segment incurred losses of $256,145,000 in 2001, compared to $226,168,000 in 2000. We experienced favorable development on prior years’ estimated losses of $47,037,000 in 2001 and $36,931,000 in 2000. This favorable development was attributable to savings from workers’ compensation medical bill reviews of approximately $1,290,000 in 2001 and $856,000 in 2000 and savings from alternative dispute resolution of an estimated $3,930,000 in 2001 and an estimated $3,543,000 in 2000. The remaining favorable development resulted from adjustments related to our acquisition of American Indemnity Financial Corporation, which we discuss in the following paragraph, the settlement of claims for less than the amounts reserved, a reduction in loss reserves due to additional information on individual claims after the reserves for those claims had been established or a change in our estimate of the severity of claims. Our reserving process, which contributed to favorable development in 2000 and 2001, is discussed under “Reserves,” below. In 2001, favorable development was concentrated in our commercial automobile liability and other liability lines of business. For both lines of business, favorable development was concentrated with respect to accidents occurring in years 1998 through 2000. Off-setting favorable development were incurred losses totaling $303,182,000 for accidents occurring in 2001. In 2000, favorable development was concentrated in our workers’ compensation and personal automobile liability lines of business, primarily for accidents occurring in 1998 through 2000. Claims for accidents occurring in 2000 resulted in incurred losses of $263,099,000 in 2000.

Following our purchase of American Indemnity Financial Corporation in August 1999, we carefully analyzed the adequacy of reserves associated with the newly-acquired book of business. Based on our analysis and on our actual experience with the book of business, we increased associated reserves in early 2000. Subsequently, due primarily to aggressive claims adjusting, we have experienced redundancies associated with the book of business of approximately $3,900,000.

As a measure of our underwriting profitability, we calculate a “combined ratio,” which is the sum of two ratios, the loss ratio and the expense ratio. On a statutory basis of accounting, the loss ratio is calculated by dividing net losses and net loss adjustment expenses incurred by net premiums earned, because losses occur over the life of a policy. On a statutory basis of accounting, the expense ratio is stated as a percentage of premiums written rather than premiums earned, because most underwriting expenses are paid when policies are written and are not amortized over the policy period. The statutory underwriting profit margin is the extent to which the combined ratio is less than 100%. In 2001, our statutory combined ratio was 104.7%, which compares favorably with the industry statutory combined ratio of 117.0%, as estimated by A.M. Best Company, a leading insurance industry rating agency and data provider. Our statutory combined ratio was 106.1% in 2000. Without the effect of catastrophes, our statutory combined ratio was 97.0% in 2001 and 98.2% in 2000.

Under generally accepted accounting principles, the loss ratio is computed in the same manner as under the statutory basis of accounting, but the expense ratio is determined by matching underwriting expenses to the period when net premiums were earned, rather than by when net premiums were written. In 2001, our combined ratio, calculated on the basis of generally accepted accounting principles, was 104.6%, compared to 107.1% in 2000. Without the effect of catastrophes, our combined ratio calculated according to generally accepted accounting principles was 96.8% in 2001 and 99.2% in 2000.

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After-tax charges in 2001 for catastrophes, including the September 11 events, were $17,524,000, or $1.75 per share, compared to $15,778,000, or $1.57 per share, in 2000. We define catastrophes to include events that cause $25,000,000 or more in direct insured losses to property and that affect a significant number of insureds and insurers, which is the definition utilized by the Insurance Services Office, a supplier of property and casualty statistical data. We also include events that we believe are, or will be, material to our operations. We had exposure to 23 catastrophes that occurred in 1999, 20 in 2000 and 23 in 2001.

Reserves

Losses and loss adjustment expenses incurred represent actual payments made and changes in estimated future payments to be made, including expenses required to settle both reported and unreported losses. For reported losses, we establish reserves based upon policy provisions, accident facts, injury or damage exposure, trends in the legal system, historical results and other factors. For unreported losses, we establish reserves for each line of business based on the probable number and nature of losses, determined on the basis of historical and statistical information. Once we have established reserves, we closely monitor and adjust them as losses develop. We regularly review our reserve calculations and, as required by state law, we engage an independent actuary to render opinions as to the adequacy of the statutory reserves we establish. We file the actuarial opinions in those states where we are licensed. There are no material differences between our statutory reserves and those established under generally accepted accounting principles.

To establish loss and loss adjustment expense reserves, we make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in our financial statements. Actual results could differ materially from those estimates. The estimate of these reserves is subjective and complex and requires us to make estimates about the future payout of claims, which is inherently uncertain. When we establish and adjust reserves, we do so given our knowledge of the circumstances and claim facts. Upon notice of a claim, we establish a case reserve for loss and loss adjustment expenses based on the claims information reported to us at that time. Subsequently, we conduct an investigation of each reported claim, a process that may extend over a long period of time, which allows us to more fully understand the factors contributing to the loss and our potential exposure. As our investigations of claims develop and as our claims personnel identify trends in claim activity, we refine and adjust our estimates of case reserves. We track and monitor all claims until they are settled and paid in full and all salvage and subrogation claims are resolved, which helps us to evaluate and refine our overall reserving process.

For incurred but not reported losses, we estimate the amount of reserves for each line of business on the basis of historical and statistical information. We consider historical patterns of paid and reported claims, industry data, and the probable number and nature of losses arising from claims that have occurred but have not yet been reported for a given accident year.

Over the course of the last ten accident years, our reserves for losses and loss adjustment expenses have exceeded our incurred losses and loss adjustment expenses. Because establishing reserves is inherently uncertain, an analysis of factors affecting reserves can produce a range of reasonable estimates. Our philosophy is to establish reserves that are appropriate and reasonable, but assume a pessimistic view of potential outcomes. Other factors contributing to this redundancy include the following:

• Claims negotiation utilized in the claims settlement process to control the size of settlements;

• Loss prevention services that focus on workplace safety and accident and illness prevention;

• Claims management services including return-to-work programs, case management by nurses for serious injuries and management of medical provider services and billings;

• Investigation and legal services provided to policyholders for the prevention of fraud and assistance in favorably resolving litigated claims; and

• Assuming that we have liability for all claims, even though in some cases the issue of liability may ultimately be resolved in our favor.

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In 2001, our loss ratio was 73.9%, compared to 73.6% in 2000. The “pure” loss ratio, which is net losses incurred without loss adjustment expenses incurred divided by net premiums earned, was 61.4% in 2001 and 59.9% in 2000. We use the pure loss ratio to measure our profitability by line and make pricing and underwriting decisions based upon these results. In the following table, we present the pure loss ratio for each of the last three years for each of our lines of business. The information in the following table is presented in accordance with generally accepted accounting principles.

	Year Ended December 31,
	2001			2000			1999
	(Dollars in thousands)
Fire and allied lines (1)
Net premiums earned	$	111,367		$	96,894		$	76,557
Net losses incurred		80,914			60,076			40,176
Pure loss ratio		72.7	%		62.0	%		52.5	%
Automobile
Net premiums earned	$	98,215		$	85,323		$	64,558
Net losses incurred		60,220			53,412			44,824
Pure loss ratio		61.3	%		62.6	%		69.4	%
Other liability (2)
Net premiums earned	$	68,434		$	57,720		$	38,922
Net losses incurred		24,806			18,667			17,266
Pure loss ratio		36.2	%		32.3	%		44.4	%
Workers’ compensation
Net premiums earned	$	29,475		$	25,858		$	20,524
Net losses incurred		21,338			12,567			15,119
Pure loss ratio		72.4	%		48.6	%		73.7	%
Fidelity and surety
Net premiums earned	$	20,481		$	18,087		$	18,129
Net losses incurred		2,879			2,138			387
Pure loss ratio		14.1	%		11.8	%		2.1	%
Reinsurance
Net premiums earned	$	17,504		$	22,539		$	27,739
Net losses incurred		22,291			36,547			34,003
Pure loss ratio		127.3	%		162.2	%		122.6	%
Miscellaneous
Net premiums earned	$	1,106		$	850		$	625
Net losses incurred		449			712			66
Pure loss ratio		40.6	%		83.8	%		10.6	%
Total property and casualty
Net premiums earned	$	346,582		$	307,271		$	247,054
Net losses incurred		212,897			184,119			151,841
Pure loss ratio		61.4	%		59.9	%		61.5	%

(1) “Fire and allied lines” in this table includes fire, allied lines, homeowners, commercial multiple peril and inland marine.

(2) “Other liability” is business insurance covering bodily injury and property damage arising from general business operations, accidents on the insured’s premises and products manufactured or sold.

Improvement in our commercial automobile business more than offset deterioration in our personal automobile business. In our commercial automobile business, we have imposed stricter underwriting guidelines and aggressively pursued rate increases. We also continue to increase rates and tighten eligibilities for our personal automobile business.

Our reinsurance line of business improved in 2001 with a pure loss ratio of 127.3%, compared to 162.2% in 2000. The impact from the September 11 events is included in the 2001 results. While reserves related to the September 11 events increased the pure loss ratio in this line of business, a decrease in assumed loss reserves

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partially offset these charges. We decreased assumed loss reserves due to our reduced number of contracts and exposure in assumed reinsurance business. We continue to have exposure, primarily catastrophe coverages, related to assumed reinsurance contracts written prior to 2001. We believe that as of December 31, 2001 our loss reserves established for the assumed reinsurance business are appropriate. We anticipate that we will decrease the assumed loss reserves each year as the non-renewed assumed reinsurance contracts are further into the run-off period.

Other liability insurance covers businesses for liability for bodily injury and property damage arising from general business operations, accidents on their premises and products manufactured or sold. Our pure loss ratio in the other liability line of business has been favorable when compared with our other lines of business. Our pure loss ratio was 36.2% in 2001 and 32.3% in 2000. Appropriate pricing, and restrictive underwriting guidelines have contributed to the favorable results in the other liability line of business.

The pure loss ratio deteriorated, or increased, to 72.7% in 2001 compared to 62.0% in 2000 in the fire and allied lines business, which includes fire, allied lines, homeowners, commercial multiple peril and inland marine. In 2001, we experienced a greater number of fire losses than in 2000. In 2000, our homeowners’ business was negatively affected by a hailstorm that swept through the New Orleans area in January 2000.

The existence of certain airborne mold spores resulting from moisture trapped in confined areas has been alleged to cause severe health and environmental hazards. In 2001, Texas homeowners’ claims related to mold increased. While mold is a potential problem in several states, Texas has been at the forefront of mold insurance issues. Until recently, Texas was unlike many states because it did not permit insurance companies to exclude mold coverage from homeowners policies. In response, some property and casualty insurers no longer write homeowners insurance in Texas. In 2001, we responded to the mold issue by implementing more stringent underwriting guidelines, new claims handling procedures and price increases.

We have current and potential future exposure to mold claims in both our commercial and personal lines of business. We have recently received approval from the Texas Department of Insurance to adopt an exclusion in our homeowners policies and a $25,000 limitation in our commercial general liability policies with respect to claims arising from mold. We are investigating a mold exclusion for our commercial property policies. As market conditions permit, we plan to implement any coverage reforms permitted by the Texas Department of Insurance that would enable us to reduce our exposure in Texas to claims related to mold. Due to the uncertainty of future changes in Texas regulation, we cannot estimate our future probable liability for mold claims. Also, as case law expands, we may be subject to mold losses beyond those intended by policy coverage and not addressed by exclusionary or limiting language. We believe it is unlikely that any such loss would have a material adverse effect on our financial condition or our cash flows. However, loss reserve additions arising from future unfavorable judicial trends cannot be reasonably estimated at the present time. Management believes we have adequately reserved losses for our future probable liability for mold claims, based upon current regulations.

The pure loss ratio for our workers’ compensation line of business deteriorated to 72.4% in 2001, from 48.6% in 2000. Results in 2000 were unusually favorable because we settled many workers’ compensation cases favorably, which led to lower payments than were reserved. In 2001, the frequency and severity of the claims reported to us increased, and many of our workers’ compensation cases have not settled favorably. We carefully continue to underwrite this line of business and have further tightened our eligibility guidelines.

Our fidelity and surety bond business had some deterioration in 2001 when compared to 2000. The pure loss ratio was 14.1% in 2001 and 11.8% in 2000. This line continues to be our most profitable. However, for the past several years a soft surety insurance market and competitive pressures have contributed to depressed rates for this line of business. We have recently initiated rate increases and stricter underwriting guidelines to address the conditions in this line.

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The second component of the statutory combined ratio is the expense ratio. In 2001, our expense ratio improved to 30.3%, compared to 31.9% in 2000. Through a consolidation of functions we have been able to reduce underwriting expenses incurred relative to premiums written.

Life Insurance Segment

Our life insurance segment’s earnings are derived primarily from premium revenues plus investment results, including net realized gains and losses, reduced by interest credited, benefits to policyholders and expenses. In 2001, our life insurance segment recorded net income of $8,534,000, compared to net income of $5,717,000 in 2000. The results were driven in both years primarily by investment results. Net investment income earned in 2001 was $70,682,000, compared to $61,468,000 in 2000. Annuity deposits increased our life segment’s investment portfolio, leading to higher investment earnings. In 2001 and 2000, a small number of fixed income securities held by the life segment were written down as a result of other-than-temporary declines in market value. These write-downs were the primary reason for net realized losses, after-tax, of $1,346,000 recorded in 2001 and $3,089,000 recorded in 2000.

After intercompany eliminations, net premiums earned by the life segment in 2001 totaled $25,437,000, compared to $26,094,000 in 2000. Annuity deposits collected are not reflected in net premiums earned. Rather, revenues for annuities consist of policy surrender charges and investment income earned. Annuity deposits are invested and recorded as liabilities for future policy benefits. In 2001, annuity deposits were $163,115,000, compared to $165,181,000 in 2000.

In 2001, we credited interest of $48,213,000 to annuity and universal life policyholder accounts, compared to $42,410,000 in 2000. We establish our interest crediting rates based upon current market conditions and maintain a favorable “spread” because our average crediting rates on our policyholder account balances are less than the ratio of net investment income to average invested assets. We decreased interest crediting rates during 2001 for new deposits. The increase in our expense for interest on policyholders’ accounts for the year was primarily a result of the interest credited on existing account balances. We believe that annuity growth continues to be driven by our ability to distribute and service this product as well as by general market conditions during the current year, as private investors shift their focus from variable to non-variable annuity products.

Investment Results

Premium rate increases and new annuity deposits resulted in additional funds to be invested in 2001. This led to growth in our investment portfolio and resulted in an increase in net investment income earned during the year. In 2001, net investment income was $98,909,000, compared to $86,867,000 in 2000, an increase of 14%. More than 90% of our investment income originates from interest on fixed income securities. Our remaining investment income is derived from dividends on equity securities, interest on other long-term investments, interest on policy loans and rent earned from tenants in our home office. The investment yield, which is investment income divided by average invested assets, was 6.7% in 2001 and 6.6% in 2000.

Our accounting policy for impairment recognition requires other-than-temporary impairment charges to be recorded when we determine that we are unable to recover our cost basis in an investment. Impairment charges on investments are included in net realized gains and losses. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which the fair value has been less than cost; the financial conditions and near-term prospects of the issuer; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery.

In 2001 and 2000, we wrote down a small amount of holdings in our fixed income portfolio as a result of other-than-temporary declines in market value and recognized a net realized loss, before tax, of $3,841,000 in 2001 and $2,932,000 in 2000. We continue to review the other-than-temporarily impaired securities for appropriate valuation on an ongoing basis. Based on the existing status and condition of these securities, we do

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not currently anticipate additional losses, but continued credit deterioration of some securities is possible, which may result in further write-downs.

Although we do have loss exposure to below investment grade fixed income securities, we are committed to minimizing credit risks and maintaining a high quality portfolio. As of December 31, 2001, 89% of our fixed income securities were investment grade, as defined by the National Association of Insurance Commissioners Securities Valuation Office, and had ratings of Class 1 or Class 2.

The composition of our investment portfolio at December 31, 2001 is presented in the following table in accordance with generally accepted accounting principles:

	Property and Casualty Segment				Life Segment				Total
			Percent of Total				Percent of Total				Percent of Total
	(Dollars in thousands)
Fixed income securities (1)	$	376,433	71.0	%	$	1,007,797	97.0	%	$	1,384,230	88.0	%
Equity securities		104,715	20.0			5,642	1.0			110,357	7.0
Policy loans		—	—			8,201	1.0			8,201	1.0
Short-term investments		37,333	7.0			10,675	1.0			48,008	3.0
Other		10,166	2.0			—	—			10,166	1.0
Total	$	528,647	100.0	%	$	1,032,315	100.0	%	$	1,560,962	100.0	%

(1) Available-for-sale fixed income securities are carried at fair value, while held-to-maturity fixed income securities are carried at amortized cost.

Federal Income Taxes

Our effective income tax rate of 16% was less than the applicable federal tax rate of 35% due primarily to our portfolio of tax-deductible securities and a reduction in deferred tax liabilities.

In 2001, we eliminated a deferred tax liability of $1,143,000 which we had established in connection with a Revenue Agent Review and other tax contingencies related to the 1999 purchase of American Indemnity Financial Corporation. The Revenue Agent Review has been settled, and we believe that the reserve for other tax contingencies is unnecessary at December 31, 2001. The effect of the elimination was a reduction of deferred tax liabilities and a reduction in federal income tax expense of $1,143,000.

At December 31, 2001, we had $26,605,000 of net operating loss carryforwards acquired in the purchase of American Indemnity Financial Corporation in August 1999. The utilization of these net operating losses is limited by the Internal Revenue Code. The net operating losses began to expire prior to our purchase of American Indemnity Financial Corporation and will continue to expire in various future years through 2019. Realization of the deferred tax asset associated with the net operating loss carryforwards is dependent on generating sufficient taxable income to utilize the net operating losses prior to their expiration.

Due to uncertainty of the realizable value of the deferred tax asset, we recorded a valuation allowance of $8,934,000. The valuation allowance recorded on our deferred tax asset decreased $2,436,000 from 2000, due primarily to the utilization of net operating loss carryforwards. In the future, if we can use the net operating losses acquired in the purchase of American Indemnity Financial Corporation, the related reduction in the valuation allowance will be recorded as a reduction to goodwill until goodwill has been eliminated, at which point the reduction in the allowance will reduce federal income tax expense.

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Results of Operations for the Year Ended

December 31, 2000, Compared to the Year Ended December 31, 1999

Net operating income, which is net income excluding after-tax net realized investment gains and losses and other income, improved in 2000 to $16,713,000, or $1.67 per share, from $13,476,000, or $1.34 per share, in 1999. This improvement resulted primarily from increased premium revenue and a reduction of operating expenses due to our purchase of American Indemnity Financial Corporation, a group of property and casualty insurers, in August 1999 and to the consolidation of certain of our functions.

Net premiums earned in 2000 were $333,365,000, an increase of $60,314,000, or 22%, from 1999. This increase was due primarily to the inclusion in 2000 of twelve months of results of American Indemnity Financial Corporation, instead of only five months in 1999. Net investment income increased by $11,550,000, or 15%, to $86,867,000 in 2000, primarily as a result of growth in our investment portfolio.

Losses and settlement expenses increased by $39,516,000, or 20%, to $236,807,000, due primarily to an increase in claims frequency in our fire and allied lines. A hailstorm occurring in New Orleans on January 23, 2000 contributed $3,829,000 of after-tax net losses to the 2000 results.

The combination of amortization of deferred policy acquisition costs and other underwriting expenses resulted in an increase of $16,508,000, or 16%. An increase in premiums written by our property and casualty segment led to growth in the related underwriting expenses. The purchase of American Indemnity Financial Corporation contributed significantly to the reduction of our underwriting expenses as a percentage of premiums written from 34% in 1999 to 32% in 2000. This reduction was primarily the result of economies of scale that we realized by consolidating the operations of American Indemnity Financial Corporation with our operations.

Interest on policyholder accounts increased by $10,124,000, or 31%, to $42,410,000 due to growth in new and existing account balances, and higher crediting interest rates offered to policyholders on deposits received in 2000, when compared to 1999 rates.

For the year ended December 31, 2000, net income was $15,527,000, or $1.55 per share, compared to $15,384,000, or $1.53 per share, for 1999. After-tax realized investment losses and other income of $(1,186,000) in 2000, compared to after-tax realized investment gains and other income of $1,908,000 in 1999, weakened net income for the year ended December 31, 2000. In 2000, we wrote down a small number of holdings in our fixed income portfolio as a result of other-than-temporary declines in market value and recognized a net realized loss, before tax, of $2,932,000 in 2000 compared to investment impairment write-downs in 1999 of $760,000.

Property and Casualty Insurance Segment

For the year 2000, our property and casualty segment recorded net income of $9,810,000, compared to net income of $6,062,000 for 1999. Despite the New Orleans hailstorm catastrophe, our property and casualty results improved in 2000 in several lines of business. The pure loss ratio decreased, which means that it showed improvement, in our automobile, other liability and workers’ compensation lines of business. Improvements in our underwriting function and a decrease in the severity of claims led to enhanced profitability in these lines.

Three lines of business deteriorated in 2000, compared to 1999:

• Fire and allied lines business, with a pure loss ratio of 62.0% in 2000, compared to 52.5% in 1999, was negatively affected by the New Orleans hailstorm.

• The fidelity and surety line of business had a pure loss ratio of 11.8% in 2000, compared to 2.1% in 1999. Despite this increase, our results in the fidelity and surety line were considerably better in 2000 than those reported for the fidelity and surety industry by A.M. Best Company. The 2000 pure loss ratio for the fidelity and surety industry was 31.3%. The continued growth of construction projects, coupled with shortages in the construction labor market, contributed to increased losses in these lines, for us as well as for the industry as a whole.

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• Our reinsurance line of business also deteriorated, with a pure loss ratio of 162.2% in 2000, compared to 122.6% in 1999. The bulk of the business we assumed was property reinsurance, with an emphasis on catastrophe coverage. In response to the tighter margins in this particular line, we decided to significantly reduce our writings in assumed reinsurance business. A majority of the business expired in 2000; however, we renewed certain of these contracts to write assumed reinsurance business with a very limited number of brokers. We will continue to have exposure, primarily with respect to catastrophe coverage, related to the assumed reinsurance contracts that we previously wrote. We believe that as of December 31, 2000, the loss reserves established for the assumed reinsurance business were appropriate. The assumed reinsurance reserves will be adjusted as additional facts become known.

Net premiums, which are direct premiums plus assumed reinsurance less ceded reinsurance, written by the property and casualty segment increased by $70,838,000 to $325,052,000 between 2000 and 1999, due to price increases, new and renewal business and twelve months of business from American Indemnity Company. Net premiums written increased in every line of business, with the exception of reinsurance. The largest dollar growth in net premiums written was reported in fire and allied lines, which increased from $77,270,000 in 1999 to $103,385,000 in 2000. The largest percentage growth was in other liability, with a 43% increase in net premiums written, due in part to the stabilization of prices in the commercial lines of business.

In 2000, direct premiums written by the property and casualty segment increased $77,405,000, or 32%, over 1999. Iowa was the segment’s largest volume state, with direct premiums of $44,533,000. In 2000, as a result of our acquisition of American Indemnity Financial Corporation, Texas became our third largest volume state, with direct premiums of $40,596,000, compared to $13,730,000 in 1999.

In 2000, the segment’s statutory combined ratio was 106.1% compared to 109.2% in 1999. The improvement resulted from the growth in premiums and a lower expense ratio, due in part to the consolidation of functions and the closing of the branch offices of the American Indemnity group of companies. Catastrophes, including the New Orleans hailstorm, negatively affected the statutory combined ratio, adding 7.9% to the ratio in 2000 and 6.0% in 1999, and resulted in after-tax net incurred losses and expenses of $15,778,000, or $1.57 per share, in 2000, compared to $9,561,000, or $0.95 per share, in 1999.

Life Insurance Segment

Our life insurance segment reported net income of $5,717,000 for 2000, compared to $9,322,000 for 1999. During the third quarter of 2000, write-downs on two fixed income securities contributed significantly to the segment’s realized investment gains (losses) and other income of $(3,089,000), net of tax. Net premiums earned by the life segment after intercompany eliminations in 2000 totaled $26,094,000, compared to $25,997,000 in 1999. On a statutory basis, annuity deposits increased to $165,181,000, compared to $145,810,000 in 1999. Premium revenue reported on the basis of generally accepted accounting principles does not reflect annuity deposits. Revenues for annuities determined on the basis of generally accepted accounting principles consist of policy surrender charges and investment income earned.

Our life segment’s largest expenditure is interest credited to annuities and universal life policies. In 2000, two primary factors, growth in new and existing account balances and higher interest rates, contributed to the increase in interest credited of $42,410,000, which was a 31% increase from $32,286,000 in 1999.

Investment Results

We reported net investment income of $86,867,000 in 2000, compared to $75,317,000 in 1999, primarily as a result of growth in our investment portfolio. The portfolio balance grew by $124,761,000. Over 90% of our net investment income originated in 2000 from interest on fixed income securities. We derived the remaining amount from dividends on equity securities, interest on other long-term investments, interest on policy loans and rent earned from tenants in our home office. The investment yield, which is investment income divided by average invested assets, was 6.6% in 2000 and 6.5% in 1999.

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Our realized investment gains (losses) and other income, after tax, was $(1,186,000) in 2000, compared to $1,908,000 in 1999. Losses we recognized on the sale of securities held by the American Indemnity group of companies and two security write-downs were the major factors of the decline in 2000. We included as other income interest income of $257,000 in 2000 and $632,000 in 1999. This interest income related to a refund in connection with a federal income tax Revenue Agent Review for previous tax years.

Federal Income Taxes

Our provision for Federal income taxes was $1,822,000 for 2000 and $1,834,000 for 1999. Pre-tax income was very similar between the two years, as were the components of federal income tax expense. At December 31, 2000, we had $29,709,000 of net operating loss carryforwards, the utilization of which is limited by the Internal Revenue Code. These net operating losses were acquired in the purchase of American Indemnity Financial Corporation in August 1999 and will expire in various future years through 2019. We recorded a net deferred tax liability of $12,245,000 at December 31, 2000 and $7,430,000 at December 31, 1999. The deferred tax liability increased primarily due to net unrealized appreciation on investment securities. We had a valuation allowance of $11,370,000 as of December 31, 2000 related to American Indemnity Financial Corporation net operating losses. The valuation allowance recorded on our deferred tax asset decreased $3,769,000 between years, due primarily to the utilization of net operating loss carryforwards. If we determine that the benefit of the American Indemnity Financial Corporation net operating losses can be realized in the future, the related reduction in the deferred tax asset valuation allowance will be recorded as a reduction to goodwill.

Financial Condition

As of December 31, 2001, when compared to December 31, 2000, our assets increased 11%, our liabilities increased 11% and our stockholders’ equity increased 8%. Invested assets, primarily fixed income securities, increased $157,927,000, or 11%, from 2000. Of this growth, $18,314,000 was attributable to changes in the market prices of our securities classified as available-for-sale and other invested assets, both of which are reported at fair value. The unrealized appreciation from these investments is reported net of tax as a separate component of stockholders’ equity.

As of December 31, 2001, 89% of our fixed income securities were investment grade, as defined by the National Association of Insurance Commissioners Securities Valuation Office, and had ratings of Class 1 or Class 2. We are able to hold a majority of our fixed income securities to maturity, but we have moved toward an increased concentration of available-for-sale fixed income securities to take advantage of constantly changing market conditions. At December 31, 2001, $1,142,614,000, or 83%, of our fixed income security portfolio was classified as available-for-sale, compared to $928,947,000, or 77%, at December 31, 2000. Our remaining fixed income securities are classified as held-to-maturity and are reported at amortized cost. We did not have securities classified as trading securities at December 31, 2001 or December 31, 2000.

We defer and capitalize, to the extent recoverable, commissions and other costs of underwriting insurance, which vary with and are primarily related to the production of our property and casualty lines of business. To attain a matching of revenue to expense, the deferred acquisition costs asset is amortized over the life of the insurance policies written. Growth in premiums written will typically result in an increase of the deferred acquisition costs asset. However, the deferred acquisition costs asset is limited by unprofitability in individual lines of business. Therefore, if a line of business is unprofitable, we are limited in the underwriting expenses, if any, that we may capitalize and amortize for that line of business. In addition, a premium deficiency will be recognized if the expected loss ratio for a line of business exceeds 100%. This deficiency is charged against unamortized deferred acquisition costs to the extent necessary to eliminate the deficiency.

Deferral of underwriting expenses involves the use of estimates and assumptions that effect the assets and expenses reported in our financial statements. Actual results could differ materially from our estimates. Although some variability is inherent in these estimates, we believe the deferred acquisition costs asset provided is

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appropriate. Our property and casualty insurance segment’s deferred acquisition costs asset increased to $29,313,000 at December 31, 2001, an increase of $5,928,000, or 25%, from the deferred acquisition costs asset at December 31, 2000. The growth was attributable to the increase in premiums written and reduced premium deficiency in unprofitable lines of business.

Deferred policy acquisition costs related to traditional life insurance policies are amortized over the premium paying period of the related policies in proportion to the ratio of the present value of annual expected premium income to the present value of total expected premium income. Adjustments are made each year to recognize actual experience as compared to assumptions used for the current period.

Deferred policy acquisition costs related to investment contracts and universal life contracts sold by our life segment are deferred and amortized using the retrospective deposit method. Under the retrospective deposit method, acquisition costs are amortized in proportion to the present value of expected gross profits from investment, mortality and expense margins and surrender charges. Actual gross profits can vary from our estimates, resulting in increases or decreases in the rate of amortization. We periodically review these estimates and evaluate the recoverability of the deferred acquisition costs asset. When appropriate, we revise our assumptions on the estimated gross profits of these contracts and the cumulative amortization for the books of business are re-estimated and adjusted by a cumulative charge or credit to income.

One component of our life segment’s estimate of the deferred acquisition costs asset related to universal life and annuity business is the impact of unrealized gains and losses resulting from certain available-for-sale securities in our investment portfolio. In 2001, the unrealized loss component of our life segment’s deferred acquisition costs calculation contributed a decrease of $10,253,000 in the reported deferred acquisition costs asset. This unrealized loss component of deferred acquisition costs was partially offset by an increase in the life segment’s net deferred expenses of $8,629,000.

Our life insurance segment’s deferred acquisition costs asset decreased between December 31, 2000 and December 31, 2001 by $1,624,000, or 2%. To date, our experience has generally been consistent or favorable to the assumptions used in determining deferred acquisition costs amortization. However, if we were to experience a material adverse deviation in certain critical assumptions, including surrender rates, mortality experience, or investment performance, there could be a negative affect to our reported earnings and stockholders’ equity.

Cash flow and liquidity is primarily derived from operating cash flows. We invest premiums and annuity deposits in assets maturing at regular intervals in order to meet our obligations to pay policy benefits, claims and claim adjusting expenses. Net cash provided by our operating activities was $24,612,000 through December 31, 2001, compared to $42,543,000 through December 31, 2000. This variance is attributed to timing differences in the recognition of certain accrued expenses between years. We also have significant cash flows from sales and scheduled and unscheduled investment security maturities, redemptions and prepayments. These cash flows totaled $205,739,000 in 2001 and $168,615,000 in 2000. If our operating and investment cash flows are not sufficient to support our operations, we have short-term investments which we could utilize for that purpose. We may also borrow up to $20 million on a bank line of credit.

Funds we have available for short-term cash needs are invested primarily in money market accounts and fixed income securities. At December 31, 2001, our consolidated invested assets included $48,008,000 of short- term investments. We did not utilize our line of credit during 2001 or 2000. Under the terms of our credit agreement, interest on outstanding notes is payable at the lender’s prevailing prime rate, minus 1%.

In order to support the continued growth of our operations, we are offering the preferred stock described in this prospectus. See “Use of Proceeds.”

Stockholders’ equity increased from $257,429,000 at December 31, 2000 to $278,988,000 at December 31, 2001, an increase of 8%. Increases to equity included net income of $24,093,000 and net unrealized appreciation of $5,048,000, after tax. Stockholder dividends of $7,225,000 decreased stockholders’ equity, as did a minimum

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pension liability of $357,000. The minimum pension liability resulted from a decrease in the discount rate and a less than expected return on pension assets. Book value per share at December 31, 2001 was $27.80, reflecting an 8% increase for the year. As of December 31, 2001, we had authorization granted by the board of directors to repurchase 89,210 shares of our common stock. In 2001, we repurchased 580 shares of our common stock, all of which were distributed to employees as awards. We did not retire any shares of our common stock in 2001.

Regulation

The insurance industry is governed by the National Association of Insurance Commissioners and individual state insurance departments. All of the insurance departments of the states in which we are domiciled have adopted the codification of insurance statutory accounting principles, effective January 1, 2001. Previously, these principles were prescribed in a variety of publications, as well as state laws, regulations and general administrative rules. The effect on our statutory financial statements as of January 1, 2001 was an increase to statutory policyholders’ surplus of $10,300,000. This change does not affect the financial statements incorporated by reference in this prospectus, which are based on generally accepted accounting principles. Pursuant to codification rules, we may use permitted statutory accounting practices with approval from the insurance departments in our states of domicile; however we do not use any statutory permitted practices. The National Association of Insurance Commissioners annually calculates a number of financial ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. A “usual range” of results for each ratio is used as a benchmark. Departure from the “usual range” on four or more of the ratios could lead to inquiries from individual state insurance departments as to certain aspects of a company’s business. None of our insurance companies had four or more ratios outside of the “usual range.”

To comply with the National Association of Insurance Commissioners’ and state insurance departments’ solvency regulations, we are required to calculate a minimum capital requirement based on insurance risk factors. The risk-based capital results are used to identify companies that merit regulatory attention or the initiation of regulatory action. At December 31, 2001, both our life segment and our property and casualty segment had capital well in excess of the required levels. We are not aware of any other current recommendations by the National Association of Insurance Commissioners or other regulatory authorities in the states in which we conduct business that, if or when implemented, would have a material effect on our liquidity, capital resources or operations.

Subsequent Events

In February 2002, we notified our employees that we will be closing our Lincoln, Nebraska office and consolidating its operations into our Cedar Rapids, Iowa home office. The Lincoln office employed approximately 70 people, about 25 of whom have been offered positions in our Cedar Rapids office. In addition, a number of our Lincoln employees, such as claims adjusters, will work from their homes and continue to serve the region. The consolidation will be completed by the end of the third quarter of 2002. We expect the consolidation will result in processing efficiencies and cost savings.

Quantitative and Qualitative Disclosures about Market Risk

Our main objectives in managing our investment portfolio are to maximize after-tax investment income and total investment returns. We develop our investment strategies based on a number of factors, including estimated duration of reserve liabilities, short and long-term liquidity needs, projected tax status, general economic conditions, expected rates of inflation and regulatory requirements. We manage our portfolio based on investment guidelines approved by our management.

Our investment portfolio is subject to market risk arising from potential changes in the value of the securities we hold in our portfolio. Market risk includes, interest rate risk, liquidity risk, foreign exchange risk,

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credit risk and equity price risk. Our primary market risk is exposure to interest rate risk. Interest rate risk is the price sensitivity of a fixed income security or portfolio to changes in interest rates. We also have limited exposure to equity price risk and foreign exchange risk.

The active management of market risk is integral to our operations. Potential changes in the value of our investment portfolio due to the market risk factors noted above are analyzed within the overall context of asset and liability management. A technique we use in the management of our investment and reserve portfolio is the calculation of duration. Our actuaries estimate the payout pattern of our reserve liabilities to determine their duration, which is the present value of the weighted average payments expressed in years. A target duration is then established for our investment portfolio so that at any given point in time the estimated cash flowing into the investment portfolio will match the estimated cash flowing out of the reserve portfolio. Our chief investment officer then structures the investment portfolio to meet the target duration to achieve the required cash flow based on liquidity and market risk factors.

Duration relates primarily to our life insurance segment because the long-term nature of the segment’s reserve liabilities increases the importance of projecting estimated cash flows over an extended time frame. At December 31, 2001, our life segment had $749,899,000 in deferred annuity liabilities that are specifically allocated to fixed income securities. We manage the life segment investments by focusing on matching the duration of the investments to that of the deferred annuity obligations. The duration for the investment portfolio must take into consideration interest rate risk. This is accomplished through the use of sensitivity analysis, which measures the price sensitivity of the fixed income securities to changes in interest rates. The alternative valuations of the investment portfolio given the various hypothetical interest rate changes utilized by the sensitivity analysis allow management to revalue the potential cash flow from the investment portfolio under varying market interest rate scenarios. Duration can then be recalculated at the differing levels of projected cash inflows.

Amounts set forth in Table 1 detail the material impact of hypothetical interest rate changes on the fair value of certain core fixed income investments held at December 31, 2001. The sensitivity analysis measures the change in fair values arising from immediate changes in selected interest rate scenarios. We employed hypothetical parallel shifts in the yield curve of plus or minus 100 and 200 basis points in the simulations. Additionally, based upon the yield curve shifts, we employ in the simulations estimates of prepayment speeds for mortgage related products and the likelihood of call or put options being exercised. According to this analysis, at current levels of interest rates, the duration of the investments supporting the deferred annuity liabilities is .37 years shorter than the projected duration of the liabilities. If interest rates increase by 100 basis points, this difference would be expected to narrow to .34 years. The selection of a 100-basis-point increase in interest rates should not be construed as a prediction by our management of future market events, but rather as an illustration of the potential impact of an event.

Table 1 – Sensitivity Analysis

Interest Rate Risk

Asset	-200 Basis Points		-100 Basis Points		Base		+100 Basis Points		+200 Basis Points
	(Dollars in thousands)
Estimated fair value of fixed income securities	$	1,499,643	$	1,435,314	$	1,374,309	$	1,310,497	$	1,248,201

Table 2 details the effect on fair value for a positive and negative 10% price change on our equity portfolio.

Table 2 – Sensitivity Analysis

Equity Price Risk

Asset	-10%	Base	+10%
	(Dollars in thousands)
Estimated fair value of equity securities	$99,321	$110,357	$121,393

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To the extent actual results differ from the assumptions utilized, our duration and rate increase measures could be significantly affected. Additionally, our calculation assumes that the current relationship between short-term and long-term interest rates will remain constant over time. As a result, these calculations may not fully capture the impact of non-parallel changes in the relationship between short-term and long-term interest rates.

Foreign currency exchange rate risk arises from the possibility that changes in foreign currency exchange rates will affect the fair value of financial instruments. We have limited foreign currency exchange rate risk in our transactions with foreign reinsurers relating to the settlement of amounts due to or from foreign reinsurers in the normal course of business. We consider this risk to be immaterial to our operations.

Equity price risk is the potential loss arising from changes in the fair value of equity securities. Our exposure to this risk relates to our equity securities portfolio and covered call options we have written to generate additional portfolio income. We do not utilize the options, or any other derivatives for hedging purposes. We minimize the market risk associated with our covered call options by writing covered call options on common stocks that are held in our investment portfolio and that are “out of the money,” which means we write the options above the stock’s market value at the time the option is written. If the market price of the underlying common stock were to decline, it would be unusual for the option to be exercised since the exercise price would be higher than the market price. At December 31, 2001, we had no open covered call options.

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BUSINESS

General

United Fire & Casualty Company was incorporated under Iowa law in January 1946. We and our related insurance companies are engaged in the business of writing property and casualty insurance and life insurance. We market our products primarily in the Midwest, West and South through a network of independent agencies.

At December 31, 2001, we had $278.9 million in total equity and $1.85 billion in total assets. For the year ended December 31, 2001, our total revenue was $472.9 million and net income was $24.0 million, or $2.40 per share. Of our net income, 64.6% was attributable to our property and casualty segment and 35.4% was attributable to our life insurance segment.

Our Property and Casualty Business

We write both commercial and personal lines of property and casualty insurance. We focus on our commercial lines, which represented approximately 82% of our direct property and casualty premiums written for the year ended December 31, 2001. Our primary commercial lines are tailored business packages that include the following coverages: fire and allied lines, automobile, workers’ compensation and fidelity and surety. We also write multiple peril, inland marine and specialty lines for our commercial policyholders.

Our personal lines, which represented approximately 18% of our direct property and casualty premiums written for the year ended December 31, 2001, primarily consist of automobile and fire and allied lines coverage. Additionally, we write policies covering recreational vehicles and watercraft.

The following table shows the apportionment of our property and casualty direct premiums written by major category and is presented in accordance with generally accepted accounting principles.

	Year Ended December 31,
	2001				2000				1999				1998				1997
			Percent of Total				Percent of Total				Percent of Total				Percent of Total				Percent of Total
	(Dollars in thousands)
Commercial lines:
Fire and allied lines (1)	$	104,370	27.8	%	$	83,846	26.0	%	$	55,911	22.8	%	$	57,206	27.4	%	$	61,432	28.9	%
Other liability (2)		77,525	20.6			64,962	20.2			47,142	19.2			33,250	16.0			33,441	15.7
Automobile		70,788	18.9			59,620	18.5			39,188	16.0			32,119	15.4			30,052	14.1
Workers’ compensation		29,528	7.9			27,755	8.6			21,710	8.9			19,969	9.6			20,679	9.7
Fidelity and surety		25,146	6.7			20,776	6.4			19,751	8.1			19,000	9.1			18,599	8.7
Miscellaneous		845	0.2			682	0.2			488	0.2			425	0.2			440	0.2
Total commercial lines	$	308,202	82.1	%	$	257,641	79.9	%	$	184,190	75.2	%	$	161,969	77.7	%	$	164,643	77.3	%
Personal lines:
Automobile	$	36,056	9.6	%	$	32,906	10.2	%	$	30,013	12.3	%	$	23,663	11.3	%	$	24,558	11.6	%
Fire and allied lines (3)		30,576	8.1			30,893	9.6			29,881	12.2			21,444	10.3			22,021	10.3
Miscellaneous		763	0.2			838	0.3			789	0.3			1,379	0.7			1,671	0.8
Total personal lines	$	67,395	17.9	%	$	64,637	20.1	%	$	60,683	24.8	%	$	46,486	22.3	%	$	48,250	22.7	%
Total	$	375,597	100.0	%	$	322,278	100.0	%	$	244,873	100.0	%	$	208,455	100.0	%	$	212,893	100.0	%

(1) “Fire and allied lines” includes fire, allied lines, commercial multiple peril and inland marine.

(2) “Other liability” is business insurance covering bodily injury and property damage arising from general business operations, accidents on the insured’s premises and products manufactured or sold.

(3) “Fire and allied lines” includes fire, allied lines, homeowners and inland marine.

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In addition to United Fire & Casualty Company, an Iowa insurance company, our property and casualty segment includes the following wholly-owned companies: Addison Insurance Company, Lafayette Insurance Company and American Indemnity Financial Corporation. Our property and casualty segment is organized as follows:

• Addison Insurance Company, an Illinois property and casualty insurer, is the sole owner of Addison Insurance Agency, an Illinois general agency.

• Lafayette Insurance Company, a Louisiana property and casualty insurer, is the sole owner of Insurance Brokers & Managers, Inc., a Louisiana general agency.

• American Indemnity Financial Corporation, a Delaware holding company, owns the following subsidiary:

• American Indemnity Company, a Texas property and casualty insurer, substantially all of which is owned by American Indemnity Financial Corporation. American Indemnity Company owns the following insurance subsidiaries:

• Texas General Indemnity Company, a wholly-owned Colorado property and casualty insurer; and

• United Fire & Indemnity Company, a wholly-owned Texas property and casualty insurer.

American Indemnity Company is affiliated with:

• United Fire Lloyds, a Texas property and casualty insurer, which is operationally and financially controlled by American Indemnity Company.

Our property and casualty insurance companies write insurance policies in exchange for premiums paid by our policyholders. An insurance policy is a contract between an insurance company and a policyholder whereby the insurance company agrees to pay for losses covered under the contract. Property insurance covers the financial consequences of accidental losses to the property of the policyholder, such as a business’ building, inventory and equipment. Casualty insurance, which is often referred to as liability insurance, generally covers the financial consequences of the legal liability of an organization or an individual resulting from negligent acts or omissions causing bodily injury and/or property damage to a third party.

We provide property and casualty insurance on a wide variety of coverages, including the following:

• Fire and allied lines.    Our insurance generally covers losses to an insured’s property, including its contents, as a result of weather, fire, theft or other causes. For our commercial lines, we provide coverage through a variety of business policies. With respect to our personal lines, we provide coverage primarily through homeowners insurance, although we write a variety of policies to cover losses pertaining to recreational vehicles and watercraft. Our insurance also may include policies covering injury to persons and inland marine policies.

• Automobile insurance.    On both commercial and personal policies, our insurance covers physical damage to an insured’s vehicle as well as liabilities to third parties. Automobile physical damage insurance covers loss or damage to vehicles from collision, vandalism, fire, theft, flood or other causes. Automobile liability insurance covers bodily injury, damage to property resulting from automobile accidents caused by the insured or uninsured or under insured motorists and the legal costs of defending the insured against lawsuits. Our policy is to write only standard automobile insurance.

• Workers’ compensation insurance.    Our insurance covers an employer’s liability for injuries, disability or death of employees, without regard to fault, as prescribed by state workers’ compensation laws and other statutes.

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• General liability insurance.    Our insurance covers businesses for any liability for bodily injury and property damage arising from general business operations, accidents on their premises and products manufactured or sold.

• Fidelity and surety.    Our surety products commonly provide protection against loss due to non-performance, such as a construction bond that protects owners against nonpayment by general contractors of material suppliers and subcontractors. Our fidelity products generally provide insurance against loss of money or other property due to the fraud or dishonesty of employees.

We derive a significant amount of our total revenues from earned premiums, investment income and net gains and losses from sales of securities. Earned premiums represent premiums paid by policyholders, which are recognized as revenue over the period of time during which insurance coverage is provided, i.e., ratably over the life of the policy. Investment income, consisting primarily of interest earned on fixed income investments and dividends earned on equity securities, is derived from investing funds on hand, including funds supporting unpaid loss and loss adjustment expense reserves and unearned premium reserves. Net realized investment gains and losses result from sales of securities from our investment portfolio. The timing and magnitude of such gains or losses depend on conditions in the securities markets.

We incur a significant amount of our total expenses from policyholder losses, which are commonly referred to as claims. As part of the settlement of policyholder losses, insurance companies also incur various loss adjustment expenses, including insurance adjusters’ fees and litigation expenses. Insurance companies also incur expenses in the form of commissions payable to agents and expenses related to the underwriting process, such as expenses for actuarial services.

An underwriting profit or loss is determined by subtracting losses, loss adjustment expenses and other underwriting expenses from earned premiums. A key measure of relative underwriting performance is the combined ratio. An insurer’s combined ratio is calculated by adding the loss ratio and the expense ratio. The loss ratio is calculated by dividing net losses and loss adjustment expenses by net premiums earned. The expense ratio is calculated by dividing underwriting expenses and policyholder dividends by net premiums written. Generally, a combined ratio of 100% or less indicates an underwriting profit, while a ratio greater than 100% indicates an underwriting loss. Insurance companies operating at a combined ratio of greater than 100% can be profitable, despite incurring an underwriting loss, due to investment income and realized gains.

The following table sets forth certain data for our property and casualty business before intersegment eliminations and is presented in accordance with generally accepted accounting principles.

	Year ended December 31,
	2001			2000			1999			1998			1997
	(Dollars in thousands)
Property and casualty insurance
Premiums earned	$	346,582		$	307,271		$	247,054		$	220,550		$	225,822
Losses and settlement expenses		256,145			226,168			185,643			179,089			149,536
Underwriting and acquisition expenses		106,481			103,085			86,672			75,217			74,944
Underwriting gain (loss)		(16,044	)		(21,982	)		(25,261	)		(33,756	)		1,342
Net investment income		28,352			25,536			23,614			23,297			23,007
Other income		2,108			2,172			1,912			1,815			1,829
Operating earnings (loss)	$	14,416		$	5,726		$	265		$	(8,644	)	$	26,178

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The following table sets forth the aggregate direct and assumed premiums written, ceded reinsurance and net premiums written for the periods indicated and is presented in accordance with generally accepted accounting principles.

	Year Ended December 31,
	2001		2000		1999		1998		1997
	(Dollars in thousands)
Fire and allied lines (1)	$	134,275	$	116,429	$	87,594	$	81,229	$	86,200
Automobile		106,863		90,747		69,557		56,452		55,269
Other liability (2)		78,288		65,801		48,157		35,010		35,645
Workers’ compensation		30,662		28,385		22,192		20,736		22,075
Fidelity and surety		25,146		20,776		19,751		19,000		18,599
Reinsurance assumed (3)		14,021		24,179		29,950		28,979		33,882
Miscellaneous		2,050		1,483		1,044		800		799
Aggregate direct and assumed premiums written	$	391,305	$	347,800	$	278,245	$	242,206	$	252,469
Reinsurance ceded (3)		25,167		22,748		24,031		21,204		25,554
Net premiums written	$	366,138	$	325,052	$	254,214	$	221,002	$	226,915

(1) “Fire and allied lines” includes fire, allied lines, homeowners, commercial multiple peril and inland marine.

(2) “Other liability” is business insurance covering bodily injury and property damage arising from general business operations, accidents on the insured’s premises and products manufactured or sold.

(3) “Reinsurance” is an arrangement by which a reinsurance company, referred to as the “assuming company,” agrees to indemnify an insurance company, referred to as the “ceding company,” for all or a portion of the insurance risks underwritten by the ceding company.

The following table shows loss ratios, expense ratios and combined ratios for the periods indicated for us and for the property and casualty industry. The ratios have been prepared on a statutory basis. The industry figures, determined on a statutory basis, in the following table were obtained from A.M. Best Company.

	Year ended December 31,
	2001				2000				1999				1998				1997
			Industry (1)				Industry				Industry				Industry				Industry
Loss ratio	74.4	%	90.1	%	74.2	%	81.2	%	75.6	%	78.6	%	81.9	%	76.2	%	66.6	%	72.8	%
Expense ratio (2)	30.3		26.9		31.9		28.9		33.6		29.2		33.2		29.4		31.9		28.8
Combined ratio	104.7	%	117.0	%	106.1	%	110.1	%	109.2	%	107.8	%	115.1	%	105.6	%	98.5	%	101.6	%

(1) A.M. Best Company estimate.

(2) Adjusted for policyholder dividends.

The following table shows our loss ratios, expense ratios and combined ratios for the periods indicated. The ratios are presented in accordance with generally accepted accounting principles. Industry ratios are unavailable because they are not normally calculated in accordance with generally accepted accounting principles.

	Year ended December 31,
	2001		2000		1999		1998		1997
Loss ratio	73.9	%	73.6	%	75.2	%	81.2	%	66.2	%
Expense ratio (1)	30.7		33.5		35.0		34.0		33.0
Combined ratio	104.6	%	107.1	%	110.2	%	115.2	%	99.2	%

(1) Adjusted for policyholder dividends.

Our Life Insurance Business

Our life insurance subsidiary is United Life Insurance Company, a wholly-owned Iowa life insurance company headquartered in Cedar Rapids, Iowa. United Life Insurance Company underwrites all of our life

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insurance business. Our principal life insurance products are single premium annuities and universal life products. For the year ended December 31, 2001, single premium annuities accounted for approximately 83% of our life insurance premium revenues determined on the basis of statutory accounting principles and universal life products accounted for approximately 7% of that revenue. Under statutory accounting principles, deposits for policyholders for universal life and annuity products are recognized as premiums when they are collected. Under generally accepted accounting principles, the deposits are earned over the life of the contracts. We also underwrite and market single premium whole life insurance, term life insurance, credit life insurance and disability insurance products. Additionally, we offer an individual disability income rider that may be attached to our life insurance products.

The following table sets forth life insurance net premiums written for the last five years, prepared on the statutory basis of accounting.

	Year ended December 31,
	2001				2000				1999				1998				1997
			Percent of Total				Percent of Total				Percent of Total				Percent of Total				Percent of Total
	(Dollars in thousands)
First year and single:
Annuities	$	162,128	83.1	%	$	164,232	85.6	%	$	144,718	83.5	%	$	118,441	76.5	%	$	91,928	77.4	%
Credit life		5,327	2.8			4,016	2.1			4,206	2.4			8,430	5.4			3,152	2.7
Universal life		3,176	1.6			2,229	1.2			2,514	1.5			2,635	1.7			2,894	2.4
Ordinary life		1,994	1.0			1,522	0.8			2,519	1.5			2,622	1.7			3,357	2.8
Miscellaneous		5,916	3.0			4,087	2.1			4,046	2.3			7,732	5.0			3,355	2.8
Total first year and single	$	178,541	91.5	%	$	176,086	91.8	%	$	158,003	91.2	%	$	139,860	90.3	%	$	104,686	88.1	%
Renewal:
Annuities	$	987	0.5	%	$	949	0.5	%	$	1,093	0.6	%	$	1,276	0.8	%	$	1,134	1.0	%
Credit life		—	—			—	—			—	—			—	—			—	—
Universal life		10,735	5.5			10,520	5.5			10,499	6.1			10,391	6.7			9,906	8.3
Ordinary life		3,562	1.8			3,133	1.6			2,771	1.6			2,406	1.6			2,279	1.9
Miscellaneous		1,271	0.7			1,112	0.6			946	0.5			856	0.6			793	0.7
Total renewal	$	16,555	8.5	%	$	15,714	8.2	%	$	15,309	8.8	%	$	14,929	9.7	%	$	14,112	11.9	%
Total	$	195,096	100.0	%	$	191,800	100.0	%	$	173,312	100.0	%	$	154,789	100.0	%	$	118,798	100.0	%

The following table sets forth certain data prepared on the basis of generally accepted accounting principles for our life insurance business before intersegment eliminations.

	Year ended December 31,
	2001		2000		1999		1998		1997
	(Dollars in thousands)
Life insurance
Premiums earned	$	25,654	$	26,304	$	26,100	$	25,295	$	19,231
Net investment income		70,682		61,468		51,840		44,771		38,823
Total revenue	$	96,336	$	87,772	$	77,940	$	70,066	$	58,054
Benefits, underwriting and acquisition expenses		82,038		74,324		63,923		55,822		48,740
Operating earnings	$	14,298	$	13,448	$	14,017	$	14,244	$	9,314

Business Focus

We compete in the insurance business by focusing on our goal of writing “good business with good agents  at an adequate price.” We focus primarily on areas within the Midwest, West and South where we believe our

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agents can most effectively compete. Although we continue to write quality personal business, we believe we will benefit more in the long-term by emphasizing our commercial lines of business. We endeavor to realize our goal by relying on our principal strengths, which we believe include:

Experienced Senior Management Team and Employees.    Our 22-person senior management team has extensive experience, with an average of over 28 years of experience in the insurance industry and over 17 years with us. Our team has led us through several market cycles, and our seasoned and knowledgeable employee base supports our senior management team. Of the 719 employees we employed as of December 31, 2001, most had completed internal insurance-related training courses within the last 12 months. Further, 321 employees hold a total of 722 insurance industry professional designations, and 238 employees are enrolled in insurance industry courses. Among our senior management team and employees, 28 have over 30 years of insurance industry experience, 109 have between 20 and 30 years of experience and 182 have between 10 and 20 years of experience.

Management Focus and Discipline.    We manage our business based on three core performance indicators: return on equity, loss ratios and expense levels. We focus our performance on these indicators by aligning our employee incentive compensation programs with performance targets for each of the three key indicators. We maintain detailed systems, records and databases that enable us to continuously monitor our book of business and identify and react swiftly to positive or negative trends. We are able to track our performance, including loss ratios, by reporting segment, product, region, state, producer and policyholder. We produce and review detailed profitability reports on a routine basis, primarily monthly, as part of our policy of continuously analyzing and reviewing our book of business.

Pricing Discipline and Underwriting Expertise.    We are selective about the new policies we underwrite, seeking new business that enables us to maintain our profitability standards. We employ experienced underwriters and we focus on markets where our underwriting expertise provides us a competitive advantage. Our disciplined approach to writing policies enables us to grow by writing quality business instead of simply focusing on increasing our premium revenue.

Strong Agency Relationships.    We distribute our products through a network of approximately 1,220 independent property and casualty agencies and approximately 1,470 independent life agencies. We have developed strong agency relationships due to our local presence and our performance-based compensation programs. We offer competitive commission rates and other sales inducements to maintain and enhance relationships with existing independent agencies as well as to attract new independent agencies. We continually monitor our agencies for compatibility with us, taking into account factors such as loss ratio, premium volume and relationship history. We seek relationships with agencies where we will be one of their top three insurers, measured on the basis of direct premiums written. In 2001, our top 100 property and casualty agencies increased their premium writings of our products by over 25%. As an additional incentive for our property and casualty agents to write high quality business for us, we provide our agents a profit-sharing plan, which we believe is one of the most generous in the industry. We estimate we will pay our agencies profit-sharing commissions of approximately $8,423,000, based on business written in 2001, representing approximately 2.2% of direct premiums written. To encourage our life agents to market our products, we provide an incentive-based travel program.

Local Market Presence.    We underwrite property and casualty insurance in 40 states. Our strongest property and casualty markets are Texas, Iowa, Louisiana, Missouri and Illinois, which accounted for approximately 55.8% of our direct property and casualty premiums written in 2001. We underwrite life insurance in 25 states, with Iowa, Minnesota, Wisconsin, Illinois and Nebraska accounting for approximately 72.4% of our direct life insurance premiums written in 2001. We believe our local and regional presence in our strongest markets provides us a competitive advantage over large, national competitors with centralized operations. Our understanding of these markets and our strong relationships with agents and policyholders enable us to take into account local market characteristics and to respond quickly and appropriately to local environments.

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Commitment to Financial Stability.    At December 31, 2001, our consolidated statutory surplus was approximately $194,988,000. We have historically kept a strong balance sheet by following conservative investing practices and by maintaining appropriate reserves in our property and casualty and life insurance operations. As of December 31, 2001, over 89% of our invested assets were invested in fixed income securities, 89% of which were investment grade and 7% of which were government securities. The remaining 11% of our invested assets was invested in equities, short-term investments, policy loans and other long-term investments.

Emphasis on Technology.    We utilize technology in a variety of ways to assist our agents and improve the delivery of service to our policyholders. For example, through our public Web site that provides general company and product information, we also provide a section accessible exclusively to our agents where they can receive quotes, report claims on-line, make online applications and receive policy approval. Our agents can also use the agent-only portion of our Web site to access detailed information about our products; order sales literature; and download applications, questionnaires and other forms. Our life agents can view the status of clients’ applications and access detailed information on our annuity, universal life, term life and whole life policies. For our policyholders we provide secure online access to their account information. Additionally, we electronically scan and store documents, allowing easy retrieval and viewing by multiple users simultaneously. We believe our investment in technology allows us to provide enhanced service to our agents and policyholders.

Easy-to-Understand Life Insurance Products.    Unlike many of the life insurance products offered by our competitors, we offer straight-forward life insurance products that our policyholders can easily understand.

Recent Trends

During the 1990s and into 2000, the property and casualty insurance industry was characterized by excess capacity, which resulted in highly competitive market conditions evidenced by declining premium rates and, in many cases, policy terms less favorable to insurers. As a result, the industry experienced reduced profitability and a recent contraction of capacity, as property and casualty companies chose, or were forced, to withdraw from the business. In response to the contraction of capacity, many insurance and reinsurance companies, including our companies, independently sought and achieved price increases and improved policy terms.

Following the events of September 11, we have seen accelerated improvement in policy pricing and terms throughout the U.S. property and casualty insurance markets. In 2002, we expect to see further price increases. We believe that we are favorably positioned to take advantage of the improving conditions in the property and casualty insurance market and that the expected price increases, together with improved terms and conditions, will contribute to more favorable financial results.

We expect the beneficial impact of these price increases will be reflected in our financial results over time. We continue to implement price increases as business is renewed, and it generally takes one year for our entire book of business to reflect the price increases. We recognize increased premiums on particular policies as the premiums are earned.

Despite current market conditions, we can give no assurance that we will be able to broadly implement price increases which would result in increased premium revenues. Even if the industry in general experiences price increases, we cannot assure you that our business will see similar results. Further, any benefit that we derive from such price increases may be partially or completely offset by increases in our loss reserves and increases in premiums we must pay to reinsurance companies to whom we transfer certain of our obligations.

Acquisition History

Since our inception, we have achieved growth internally and through strategic acquisitions which have strengthened our agency distribution system and expanded our operating territories. We consider acquisition opportunities, whether books of business or companies, only when they are presented to us and we pursue them only if we believe that they will complement our business and meet our business objectives. In August 1999, we acquired American Indemnity Financial Corporation and its affiliates, strengthening our presence in Texas, Alabama, Florida and Tennessee. In 1990, we purchased Addison Farmer’s Insurance Company to expand our presence in Illinois and Wisconsin. Also, in 1990, we purchased a book of business from State Automobile and

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Casualty Underwriters, Inc. to expand our presence in Iowa. In 1981, we assumed the business of Protective Fire and Casualty Company in Lincoln, Nebraska. In 1979, we acquired Lafayette Insurance Company extending our reach into Louisiana and Mississippi. We are not currently considering any acquisitions, and we have no plans to make acquisitions in the foreseeable future.

Marketing

We market our products principally from our home office in Cedar Rapids, Iowa, and through three regional offices, located in Denver, Colorado; New Orleans, Louisiana; and Galveston, Texas.

Our property and casualty insurers are licensed in 40 states, primarily in the Midwest, West and South and are represented by approximately 1,220 independent agencies. Our life insurance subsidiary is licensed in 25 states, primarily in the Midwest and West, and is represented by approximately 1,470 independent agencies.

Our regional offices are staffed with underwriting, claims and marketing representatives and administrative technicians, all of whom provide support and assistance to the independent agencies. Also, our home office staff technicians and specialists provide support to our subsidiaries, related companies, regional offices and independent agencies. Our home office management uses regular management reports to monitor our affiliates and regional offices for overall results and conformity to our policies.

In February 2002, we notified our employees that we will be consolidating the operations of our branch office in Lincoln, Nebraska with our Cedar Rapids, Iowa home office. The consolidation will be completed by the end of the third quarter of 2002. We expect the consolidation will result in processing efficiencies and cost savings.

We compete in the United States property and casualty insurance market with more than 3,400 other insurers. The industry is highly competitive, with insurers competing on the basis of service, price and coverage. Because we rely heavily on independent agencies, we utilize a profit-sharing plan as an incentive for agents to place high-quality property and casualty business with us. We believe our profit sharing plan is one of the most generous in the industry. In 2002, we estimate agencies will receive profit-sharing commissions of approximately $8,423,000, representing 2.2% of direct premiums written, based on business written in 2001.

Our life insurance segment also operates in a highly competitive industry. Our life insurance subsidiary encounters significant competition in all lines of business, both from other life insurance companies and from other providers of financial services. Our life insurance subsidiary utilizes competitive commission rates and other sales inducements to attract independent agencies and to maintain and enhance relationships with independent agencies.

We utilize technology in a variety of ways to assist our agents and enhance the delivery of service to our policyholders. We electronically scan and store documents, allowing easy retrieval and viewing by multiple users simultaneously. As a result of utilizing this imaging system, we have increased the efficiency and speed of processing claims and policy applications. The imaging system has also enabled us to strengthen our relationship with our agents and policyholders.

To increase our responsiveness to our agents and deliver policies quickly, we maintain a Web site specifically for our agents. We regularly monitor and enhance the Web site in order to provide improved accessibility for our agents. We offer separate pages for our property and casualty agents, our life agents and our bond agents. Agents can learn about our products; order supplies; download and print brochures, applications,

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questionnaires and forms; and familiarize themselves with our staff. The Web site also has the following features:

• Our property and casualty agents can receive quotes, print quote proposals, learn about our programs and report claims on-line. Agents can make online applications and receive online policy approval, which shortens the processing time for both us and our agents.

• Our life insurance agents can view the status of clients’ applications, review the details of clients’ annuity policies, and access a great deal of information about our annuity, universal life, term life and whole life policies. Agents can also access information about policy values, premium payments, beneficiaries, sales material and sales ideas.

• Our bond agents can access details about our underwriting guidelines and verify rating information and criteria.

In addition to providing access to information and processing services online for our agents, we also provide information online to our policyholders, who can access their account information at any time. Policyholders are able to view the current billing status of their policies, learn about various payment options, and read valuable information about what to do and what not to do in the event of a loss. Policyholders can also locate information about their agent, including the agent’s telephone number, and mailing, e-mail and Web site addresses.

Our family of property and casualty insurers has received a group rating of “A” (Excellent) from A.M. Best Company. Within the group, all of our property and casualty insurers have an “A” (Excellent) rating, except Lafayette Insurance Company, which has an “A-” (Excellent) rating. Our life insurance subsidiary has received an “A-” (Excellent) rating from A.M. Best Company. According to A.M. Best Company, companies rated “A” and “A-” (Excellent) have, “on balance, excellent balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have a strong ability to meet their ongoing obligations to policyholders.”            

Standard & Poor’s rates United Fire & Casualty Company, Addison Insurance Company and Lafayette Insurance Company “A+.” According to Standard & Poor’s, an insurer rated “A+” has a “strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than insurers with higher-rated categories.” A Standard & Poor’s Insurer Financial Strength Rating is Standard & Poor’s current opinion of the creditworthiness of an insurer with respect to its ability to pay under its insurance policies and contracts in accordance with their terms.

We believe that the ratings assigned by A.M. Best Company and Standard & Poor’s are an important factor in marketing our products. Rating agencies evaluate insurance companies based on financial strength and the ability to pay claims, factors relevant to policyholders, but not necessarily to investors. Financial strength ratings by insurance rating agencies are not ratings of securities or recommendations to buy, hold or sell any security. Our ability to retain our existing business or to attract new business in our insurance operations may depend on our A.M. Best Company ratings and our Standard & Poor’s ratings.

We have a managing general agency agreement with Western Re/Managers of Los Angeles, California with whom we have done business since 1979. They specialize in writing high-layer property insurance, which is insurance that covers losses in excess of the projected maximum loss. The insurance they write normally has large deductibles and can be written as either direct premiums or on a reinsurance assumed basis. Our principle exposure to insurance written by Western Re/Managers is loss from earthquakes.

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Our direct premium writings on a statutory basis by state for 2001 are shown in the following table.

	Property and Casualty Segment				Life Segment (1)
	Amount		Percent of Total		Amount		Percent of Total
	(Dollars in thousands)
Alabama	$	4,190	1.0	%		—	—
Arkansas		8,031	2.1			—	—
California		7,404	2.0			—	—
Colorado		27,141	7.2		$	5,147	2.6	%
Florida		7,753	2.1			—	—
Idaho		2,714	0.7			—	—
Illinois		29,888	8.0			13,195	6.7
Indiana		3,636	1.0			—	—
Iowa		50,807	13.5			82,904	42.0
Kansas		15,851	4.2			6,971	3.5
Louisiana		43,599	11.6			—	—
Michigan		2,151	0.6			5,941	3.0
Minnesota		21,419	5.7			19,992	10.1
Mississippi		8,751	2.3			—	—
Missouri		31,939	8.5			5,486	2.8
Nebraska		17,558	4.7			11,632	5.9
Oklahoma		—	—			6,971	3.4
New Mexico		1,361	0.4			—	—
North Dakota		4,260	1.1			9,988	5.1
South Dakota		11,609	3.1			3,353	1.7
Texas		52,489	14.2			6,151	3.1
Utah		2,785	0.7			—	—
Wisconsin		12,206	3.2			15,118	7.7
Wyoming		4,534	1.2			1,167	0.6
Other		3,521	0.9			3,600	1.8
	$	375,597	100.0	%	$	197,616	100.0	%

(1) Includes life insurance and annuities.

Reinsurance

General

Reinsurance is an arrangement by which a reinsurance company, referred to as the “reinsurer”, agrees to indemnify an insurance company, referred to as the “ceding company”, for all or a portion of the insurance risks underwritten by the ceding company. In exchange for the assumption of risk, the ceding company pays some of the premiums it receives to the reinsurer. Reinsurance can benefit a ceding company in a number of ways, including reducing net liability exposure on individual risks, providing catastrophe protection from large or multiple losses and stabilizing financial results. Reinsurance can also provide a ceding company with additional underwriting capacity by permitting it to accept larger risks and underwrite a greater number of risks without a corresponding increase in its capital or surplus. Reinsurance can benefit a reinsurer by providing premium revenue at levels of risk acceptable to the reinsurer.

The ceding of reinsurance does not legally discharge a ceding company from primary liability under the policies written by the ceding company, which must pay the loss if the reinsurer fails to meet its obligations. We believe the financial position and solvency of our reinsurers is very important. Accordingly, we select our reinsurers carefully, placing reinsurance with only those reinsurers with strong financial strength ratings. We

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regularly monitor the financial condition of our reinsurers. At December 31, 2001 and 2000, there were no uncollectable reinsurance balances that would result in a material impact on our financial statements. In accordance with generally accepted accounting principles and industry practice, we account for insurance premiums earned and for benefits, losses and expenses incurred net of reinsurance ceded.

Property and Casualty Segment Reinsurance            

Our property and casualty segment follows the industry practice of reinsuring a portion of its exposure by ceding to reinsurers a portion of the premium received and a portion of the risk under the policies reinsured. Reinsurance is purchased to reduce the net liability on individual risks to predetermined limits and to protect against catastrophic losses from a single catastrophe, such as a hurricane or tornado. Catastrophe protection is purchased on both direct and assumed business.

We use many reinsurers, both domestic and foreign; this helps us to avoid concentrations of credit risk associated with our reinsurance. Our principal reinsurers include Employers Reinsurance Corporation, AXA Reassurance, Continental Casualty Company, Hanover Re and Partner Reinsurance Company of the U.S.

Because catastrophe losses are by their nature unpredictable, the frequency and severity of catastrophic losses experienced in any year could potentially be material to our results of operations and financial position. Typical catastrophes experienced by our policyholders include windstorms, hailstorms, tornados and hurricanes. Other catastrophes include earthquakes, wildfires and terrorist acts. The severity of a particular catastrophe for us is a function of various factors, including how many policies we have written in the area of the catastrophe and the severity of the event. We continually assess and improve how we manage our exposure to catastrophe losses; we do this through individual risk selection, by limiting the concentration of insurance written in certain areas and through the purchase of catastrophe reinsurance.

Historically, we have acted as a reinsurer, assuming both property and casualty reinsurance from other insurance or reinsurance companies. Most of the business we have assumed is property reinsurance with an emphasis on catastrophe coverage. During the second quarter of 2000, we began to significantly reduce our assumed reinsurance business. Most of our reinsurance business expired on or before December 31, 2000. We have reduced our assumed business by limiting our reinsurance contracts to a very limited number of brokers. We will continue to have exposure related to the assumed reinsurance contracts that we have elected to continue to write.

Our property and casualty insurance segment limits the direct risk that it retains by reinsuring direct risks in excess of our retention limits. For our property and casualty lines of business, our retention for 2002 is $1,250,000, which means we have reinsurance for any single claim over $1,250,000. Our loss retention was $1,000,000 for losses that pertain to years 1995 through 2001 and $750,000 or less for losses that pertain to years prior to 1995. We also have reinsurance that limits the total direct loss we may incur from a single catastrophe. Currently, the total direct loss we may incur from a single catastrophe, after reinsurance, is $7,500,000, and from 1993 to 2001, the limit was $5,000,000. We increased our retention limits this year due primarily to increased reinsurance costs.            

Life Insurance Segment Reinsurance

United Life Insurance Company follows the industry practice of reinsuring a portion of its exposure by ceding to reinsurers a portion of the premium received and risk under the policies reinsured. Reinsurance is purchased to reduce the net liability on individual risks. United Life Insurance Company’s maximum retention is $200,000 per life, and it reinsures the remaining liability.

The ceding of reinsurance does not legally discharge United Life Insurance Company from primary liability under its policies. United Life Insurance Company must pay the loss if the reinsurer fails to meet its obligations. United Life Insurance Company’s primary reinsurance companies are ERC Reinsurance Company, RGA Reinsurance Company and Business Men’s Assurance Company of America. These companies insure both life and disability risks.

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Insurance Underwriting

Our primary underwriting objective is to carefully assess opportunities and accept only those risks that exhibit a reasonable likelihood of providing an underwriting profit. We evaluate underwriting opportunities based on a number of factors including the expected frequency and severity of losses, the administrative and sales costs of providing the necessary coverage information provided by our agents and information obtained from claims personnel regarding developing claim patterns and issues.

Price is one of the significant competitive factors in the insurance business. Pricing pressures can be caused by many factors such as:

• insurance companies selling their products for a period of time at less than adequate rates, because they either underestimate ultimate claim costs or overestimate the amount of investment income they will earn on premiums before claims are paid;

• insurance companies marketing at lower costs by utilizing direct-response marketing methods, such as internet sales and direct mail, as compared with marketing products through independent agents that may be more expensive; and

• mutual insurance companies and other insurance companies who are willing to accept a lower return on equity on their insurance operations than we are willing to accept.

In addition, pricing levels can also be influenced by the frequency and severity of insurance claims, state regulation and legislation, inflation and judicial decisions. Because of our underwriting experience, we have ceased or limited, and will continue to cease or limit, writing policies on lines that we consider to be unprofitable. We monitor our underwriting results to improve our underwriting practices and to identify other areas in which we may improve. We endeavor to be selective and disciplined in our underwriting practices, the implementation of price increases and the elimination of marginal accounts and agents.

Claims

A significant competitive factor in the property and casualty insurance marketplace is the handling of claims. We believe effective claims management is a key to achieving satisfactory underwriting results. We seek to differentiate ourselves in the marketplace by being highly responsive and timely in our handling of claims. All of our claims are managed by our home office, while claims adjusting is performed in our home office as well as in our regional offices. We maintain an experienced staff of appraisers, managers, attorneys and field adjusters that are strategically located throughout our operating territory. We continually seek to improve our handling of claims in order to reduce ultimate loss and loss adjustment expense payments.

The following table sets forth, for the periods indicated, the “pure” loss ratios, which are identical under statutory accounting principles and generally accepted accounting principles. Under both bases of accounting, net losses incurred without loss adjustment expenses incurred are divided by net premiums earned.

	Year ended December 31,
	2001		2000		1999		1998		1997
Fire and allied lines (1)	72.7	%	62.0	%	52.5	%	73.5	%	59.5	%
Automobile	61.3		62.6		69.4		70.0		66.7
Other liability (2)	36.2		32.3		44.4		39.0		29.1
Workers’ compensation	72.4		48.6		73.7		78.3		69.4
Fidelity and surety	14.1		11.8		2.1		9.9		12.3
Reinsurance	127.3		162.2		122.6		95.9		59.9
Miscellaneous	40.6		83.8		10.6		1.5		20.2
Total	61.4	%	59.9	%	61.5	%	65.4	%	54.2	%

(1) “Fire and allied lines” in this table includes fire, allied lines, homeowners, commercial multiple peril and inland marine.

(2) “Other liability” is business insurance covering bodily injury and property damage arising from general business operations, accidents on the insured’s premises and products manufactured or sold.

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Investments

We must comply with state insurance laws that prescribe the kind, quality and concentration of investments that may be made by insurance companies. We determine the mix of our investment portfolio based upon these state laws, liquidity needs, tax position and general market conditions. We also consider the timing of our obligations, as cash must be available when obligations are due to be paid. We make modifications to our investment portfolio as the conditions listed above change. We manage internally all but a small portion of our investment portfolio.

Assets relating to the property and casualty segment are invested to meet liquidity needs and maximize after-tax returns with appropriate risk diversification. Assets relating to the life insurance segment are invested to meet liquidity needs, maximize the investment return and achieve a matching of assets and liabilities.

Investment results for the periods indicated are summarized in the following table and are presented in accordance with generally accepted accounting principles:

Year ended December 31,	Average Invested Assets (1)		Net Investment Income (2)		Annualized Yield on Average Invested Assets
	(Dollars in thousands)
2001	$	1,481,999	$	98,909	6.7	%
2000		1,316,906		86,867	6.6
1999		1,157,414		75,317	6.5
1998		1,040,008		67,928	6.5
1997		928,052		61,686	6.6

(1) Average of amounts at beginning and end of period.

(2) Investment income after deduction of investment expenses, but before applicable income tax. Realized gains and losses are excluded.

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The following table summarizes the consolidated investment portfolio as of December 31, 2001 and is presented in accordance with generally accepted accounting principles:

	Amount as Stated on Balance Sheet (1)		Percent of Total		Value (2)
	(Dollars in thousands)
Fixed income securities:
Bonds
United States government and     government agencies and authorities	$	95,249	6.1	%	$	96,632
States, municipalities and political subdivisions		234,061	15.0			240,753
Foreign governments		40,093	2.6			40,312
Public utilities		273,981	17.6			274,474
All other corporate bonds		740,846	47.5			742,924
Total fixed income securities	$	1,384,230	88.8	%	$	1,395,095
Equity securities:
Common stocks
Public utilities	$	9,205	0.6	%	$	9,205
Banks, trusts and insurance companies		52,162	3.3			52,162
Industrial, miscellaneous and all others		46,701	3.0			46,701
Nonredeemable preferred stock		2,289	0.1			2,289
Total equity securities	$	110,357	7.0	%	$	110,357
Short-term investments	$	48,008	3.1	%	$	48,008
Other long-term investments		10,166	0.6			10,166
Policy loans		8,201	0.5			8,201
Total investments	$	1,560,962	100.0	%	$	1,571,827

(1) We carry held-to-maturity fixed income securities at amortized cost and available-for-sale fixed income securities at fair value. We carry equity securities at prices which approximate market quotations, short-term investments at cost, which approximates fair value, and policy loans at the actual amounts loaned to the policyholder.

(2) We estimate the fair value of our financial instruments based on relevant market information or by discounting estimated future cash flows at estimated current market discount rates appropriate to the particular asset or liability shown. In most cases, we use quoted market prices to determine the fair value of fixed income securities, equity securities and short-term investments. Where quoted market prices are unavailable, we estimate fair value based on recent trading. Long-term investments consisting of holdings in limited partnership funds are valued by the fund managers.

Reserves

Property and Casualty Insurance Segment

We and our property and casualty subsidiaries are required by applicable insurance laws to maintain reserves for losses and loss adjustment expenses with respect to both reported and unreported losses. Loss

reserves are estimates at a given time of the ultimate amount expected to be paid on losses that are, in fact, incurred. Reserves for loss adjustment expenses are intended to cover the actual cost of investigating losses and defending lawsuits arising from losses. These reserves are continuously revised based on historical analysis and management’s expectations. Estimates of losses are based on facts and circumstances known when the estimates are made.

Loss and loss adjustment expense reserves have two components: reported reserves, which are reserves for reported losses, and reserves for incurred but not reported events. We estimate reserves for reported losses in one of two ways. For some classes of reported losses under $5,000, reserves are set based upon a schedule

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determined by averaging similar claims paid over a recent 13-month period. The estimate is revised in response to changes in experience or as investigations progress and further information is received. All other reserves for reported losses are established on an individual case basis. Our claims personnel establish reported reserves based on a variety of factors, including the type of each claim, our knowledge of the circumstances surrounding each loss, the policy provisions relating to the type of loss, trends in the legal system and other factors.

For incurred but not reported losses, we estimate the amount of reserves for each line of business on the basis of historical and statistical information. We consider historical patterns of paid and reported claims, industry data and the probable number and nature of losses arising from occurrences which have not yet been reported.

The process of estimating loss reserves and loss adjustment expense reserves involves a considerable degree of judgment by our claims personnel. Because reserves are estimates of the amount expected to be paid based on facts and circumstances known at any given time, we continuously review our loss and loss adjustment expense reserves. During the claims settlement period, which may extend over a long period of time, our claims personnel may become aware of additional facts regarding claims and trends which cause us to refine and adjust our estimates of ultimate liability. Consequently, actual loss and loss adjustment expenses may deviate from estimates reflected in our consolidated financial statements. Such deviations may be significant.

We do not discount reserves based on the time value of money. We implicitly provide for inflation in the reserving process by reviewing cost trends and historical reserving results and projecting future economic conditions.

The table below provides an analysis of changes in our property and casualty loss and loss adjustment expense reserves for 2001, 2000 and 1999, net of reinsurance amounts, and is presented in accordance with generally accepted accounting principles. Changes in reserves are reflected in the income statement for the year when the changes are made. Conditions and trends that have affected the reserve development reflected in the table may change; future reserve redundancies or deficiencies cannot be extrapolated from this development.

	At December 31,
	2001			2000			1999
	(Dollars in thousands)
Gross liability for losses and loss adjustment expenses at beginning of year	$	358,032		$	338,243		$	251,117
Less reinsurance receivables		37,526			27,606			8,111
Net liability for losses and loss adjustment expenses at beginning of year	$	320,506		$	310,637		$	243,006
Net liability for losses and loss adjustment expenses at acquisition date		—			—			51,661
Provision for losses and loss adjustment expenses for claims occurring in the current year		303,182			263,099			210,778
Decrease in estimated losses and loss adjustment expenses for claims occurring in prior years		(47,037	)		(36,931	)		(25,135	)
Total incurred	$	256,145		$	226,168		$	185,643
Losses and loss adjustment expenses payments for claims occurring during
Current year	$	139,225		$	119,278		$	93,646
Prior years		110,516			97,021			76,027
Total paid	$	249,741		$	216,299		$	169,673
Net liability for losses and loss adjustment expenses at end of year	$	326,910		$	320,506		$	310,637
Plus reinsurance receivables		39,609			37,526			27,606
Gross liability for losses and loss adjustment expenses at end of year	$	366,519		$	358,032		$	338,243

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The following table shows the calendar year development of net loss and loss adjustment expense reserve liabilities and payments for us and our property and casualty subsidiaries for the years 1992 through 2001. The top line of the table shows the estimated liability for unpaid losses and loss adjustment expenses recorded at the

end of each of the indicated years. This liability represents the estimated amount of losses and loss adjustment expenses for losses arising in all prior years that are unpaid at the end of each year, including losses that had been incurred but not yet reported, net of applicable ceded reinsurance. The first portion of the table shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the losses for individual years. Conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table. The second portion of the table displays cumulative losses paid and loss adjustment expenses paid for each of the years indicated on the basis of generally accepted accounting principles. The third portion of the table displays the reinsurance recoverable and the re-estimated amount of reinsurance recoverable and the resulting gross liabilities.

	Year ended December 31,
	1992		1993		1994		1995		1996		1997		1998		1999		2000		2001
	(Dollars in thousands)
Liability for unpaid losses and settlement expenses	$	158,825	$	170,798	$	180,653	$	188,700	$	209,876	$	218,912	$	243,006	$	310,637	$	320,506	$	326,910
Liability reestimated as of:
One year later		154,572		153,691		160,776		159,571		176,332		192,297		213,047		273,706		273,469
Two years later		148,507		142,572		172,546		145,486		169,348		185,700		233,325		261,217
Three years later		144,159		158,312		164,133		142,877		164,030		198,298		226,353
Four years later		134,309		155,313		161,961		140,639		172,366		198,931
Five years later		132,075		154,849		162,424		147,412		176,411
Six years later		132,747		157,005		169,472		152,134
Seven years later		135,559		161,898		172,807
Eight years later		140,038		164,591
Nine years later		142,576
Cumulative redundancy (deficiency)	$	16,249	$	6,207	$	7,846	$	36,566	$	33,465	$	19,981	$	16,653	$	49,420	$	47,037
Cumulative amount of liability paid through:
One year later	$	54,291	$	51,550	$	80,246	$	56,618	$	61,694	$	62,988	$	71,251	$	97,021	$	110,516
Two years later		84,074		102,637		109,281		83,071		93,599		97,142		123,965		154,886
Three years later		96,976		119,349		123,469		97,763		110,531		122,818		155,622
Four years later		107,420		127,333		132,414		106,770		122,413		143,216
Five years later		112,360		133,531		137,597		112,456		134,193
Six years later		116,929		137,295		141,524		119,400
Seven years later		119,657		140,127		145,170
Eight years later		121,861		143,080
Nine years later		124,071
Liability for unpaid losses and settlement expenses	$	158,825	$	170,798	$	180,653	$	188,700	$	209,876	$	218,912	$	243,006	$	310,637	$	320,506	$	326,910
Reinsurance recoverable		12,733		13,957		23,258		9,703		11,331		12,856		8,111		27,606		37,526		39,609
Gross liability	$	171,558	$	184,755	$	203,911	$	198,403	$	221,207	$	231,768	$	251,117	$	338,243	$	358,032	$	366,519
Net re-estimated liability	$	142,576	$	164,591	$	172,807	$	152,134	$	176,411	$	198,931	$	226,353	$	261,217	$	273,469
Re-estimated reinsurance recoverable		11,460		13,399		22,328		7,859		9,518		11,699		7,543		23,189		31,897
Gross re-estimated liability	$	154,036	$	177,990	$	195,135	$	159,993	$	185,929	$	210,630	$	233,896	$	284,406	$	305,366
Gross redundancy	$	17,522	$	6,765	$	8,776	$	38,410	$	35,278	$	21,138	$	17,221	$	53,837	$	52,666

The above table illustrates a year-to-year cumulative redundancy in our reserves for liability for unpaid losses and settlement expenses. Because establishing reserves is inherently uncertain, an analysis of factors

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affecting reserves can produce a range of reasonable estimates. We believe that our redundancies are the result of a variety of factors, including:

• Our philosophy is to establish reserves that are appropriate and reasonable, but assume a pessimistic view of potential outcomes;

• We use claims negotiation to control the size of settlements;

• We assume that we have liability for all claims, even though the issue of liability may in some cases be resolved in our favor;

• We focus on loss prevention services to enhance workplace safety and to prevent accidents and illness;

• We promote claims management services to encourage return-to-work programs, case management by nurses for serious injuries and management of medical provider services and billings; and

• We use programs and services to help prevent fraud and to assist in favorably resolving cases.

The determination of property and casualty insurance and reinsurance reserves, particularly those relating to liability lines, reflects significant judgment factors. If, during the course of our regular monitoring of reserves, we determine that coverages previously written were incurring higher than expected losses with respect to either reported losses or losses incurred but not yet reported, we would take action which could include increasing the related reserves. Any adjustments we make to reserves are reflected in operating results in the year in which we make those adjustments. As required by state law, we engage an independent actuary to render an opinion as to the adequacy of the statutory reserves we establish. The actuarial opinion is filed in those states where we are licensed. There are no material differences between our statutory reserves and those established under generally accepted accounting principles.

We believe the reserves for our property and casualty segment at December 31, 2001 are appropriate. The increases over the last ten years in liability for unpaid losses and settlement expenses reflect our increased business. In determining the appropriateness of our reserves, we rely upon the opinion of an independent actuary that our reserves meet the requirements of applicable insurance laws, are consistent with reserves that are computed in accordance with accepted loss reserving standards and principles and make a reasonable provision in the aggregate for all unpaid loss and loss expense obligations under the terms of our insurance policies and agreements. We also consider state regulatory reviews and examinations and our own experience. Because we are comfortable with our reserving experience, we have not made any significant changes in our reserving methodology or philosophy that have resulted in recognition of favorable development.

Life Insurance Segment

Reserves for the life insurance segment are based upon applicable Iowa insurance laws. Our life insurance subsidiary’s reserves meet, or exceed, the minimum statutory requirements. The reserves reflected in our consolidated financial statements are calculated in accordance with generally accepted accounting principles. Reserves determined on the basis of generally accepted accounting principles are based upon our best estimates of mortality and morbidity, persistency, expenses and investment income. Reserves determined for statutory purposes are based upon mortality rates and interest rates specified by state law. All of our reserves are developed and analyzed annually by independent consulting actuaries.

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The table below provides an analysis of changes in our life policy claim liabilities for 2001, 2000 and 1999, net of reinsurance amounts, and is presented in accordance with generally accepted accounting principles.

	At December 31,
	2001		2000		1999
	(Dollars in thousands)
Gross liability for unpaid claims beginning of year	$	1,769	$	1,819	$	1,336
Less reinsurance receivables		41		116		90
Net liability for unpaid claims at beginning of year	$	1,728	$	1,703	$	1,246
Incurred claims relating to
Current year		10,955		10,337		9,749
Prior years		2,937		2,621		940
Total incurred	$	13,892	$	12,958	$	10,689
Paid claims related to
Current year	$	10,367	$	10,059	$	9,547
Prior years		2,944		2,874		685
Total paid	$	13,311	$	12,933	$	10,232
Net liability for unpaid claims at end of year	$	2,309	$	1,728	$	1,703
Plus reinsurance receivables		385		41		116
Gross liability for unpaid claims at end of year	$	2,694	$	1,769	$	1,819

Properties

We own two buildings and related parking facilities in Cedar Rapids, Iowa, which we use as our home office. We occupy all of a five-story office building and the top seven floors of an eight-story office building in which the first floor is leased to tenants. The two buildings are connected by a skywalk. We also lease additional adjacent space in Cedar Rapids.

Lafayette Insurance Company owns and occupies a two-story building in New Orleans, Louisiana, which serves as its home office.

American Indemnity Company, a subsidiary of American Indemnity Financial Corporation, owns two adjacent and connected buildings in Galveston, Texas, which serve as its home office. One building is seven stories and the other is three stories. These buildings are occupied primarily by American Indemnity Company with a small amount of office space leased to tenants.

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MANAGEMENT

Our board of directors is divided into three classes, with the members of each class serving three-year terms expiring at the third annual meeting of the stockholders following their election, upon the election and qualification of their successors. The following table sets forth information as of the date of this prospectus concerning our directors.

Name	Age	Position	Term as Director Expires
Scott McIntyre, Jr.	68	Chairman and Director	May 2002
John A. Rife	59	President and Director	May 2004
Jack B. Evans	53	Vice Chairman and Director	May 2003
Christopher R. Drahozal	40	Director	May 2003
Casey D. Mahon	50	Director	May 2002
Thomas K. Marshall	68	Director	May 2003
George D. Milligan	45	Director	May 2003
Mary K. Quass	52	Director	May 2004
Byron G. Riley	71	Director	May 2002
Kyle D. Skogman	51	Director	May 2004
Frank S. Wilkinson, Jr.	62	Director	May 2002

A brief description of the business experience of each of our current directors follows:

Scott McIntyre, Jr. has served as a director since 1956. Mr. McIntyre has been employed by us in various capacities since 1954, including as President from 1966 to 1997 and as Chief Executive Officer from 1991 to 2000. He has agreed to be nominated as a director at our next annual meeting in 2002.

John A. Rife serves as our President and Chief Executive Officer. Mr. Rife began his employment with us in 1976. Mr. Rife was appointed our President in 1997 and our Chief Executive Officer in 2000. He has been President of United Life Insurance Company since 1984, and he also serves as President of some of our other subsidiaries. Mr. Rife has served as a director of United Life Insurance Company from 1983 to the present. He has served us as a director since 1998.

Jack B. Evans serves as President of the Hall-Perrine Foundation, a private philanthropic corporation located in Cedar Rapids, Iowa; he has served as its President since January 1996. Prior to that, Mr. Evans was employed by SCI Financial Group, Cedar Rapids, Iowa, serving as its President from 1993 to 1995. SCI Financial Group is a regional financial services firm providing brokerage, insurance and related services to its clients. Mr. Evans has served as a director since 1995.

Christopher R. Drahozal is a Professor of Law at the University of Kansas School of Law, Lawrence, Kansas, where he has been teaching since 1994. Mr. Drahozal was an attorney in private practice in Washington, D.C. from 1991 until 1994. Mr. Drahozal is the son-in-law of Scott McIntyre, Jr. Mr. Drahozal has served as a director since 1997.

Casey D. Mahon is an Adjunct Professor of Law at the University of Iowa College of Law, Iowa City, Iowa, where she has been teaching since 1998. Ms. Mahon was employed as Senior Vice President and General Counsel of McLeodUSA, Inc. from June 1993 until she retired in February 1998. McLeodUSA, Inc. provides integrated communications services. Ms. Mahon has served as a director since 1993. She has agreed to be nominated as a director at our next annual meeting in 2002.

Thomas K. Marshall retired in 1992 from his position as Vice President-Development of Grinnell College, Grinnell, Iowa, a position he had held since 1982. Mr. Marshall has served as a director since 1983.

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George D. Milligan is the President of The Graham Group, Inc., Des Moines, Iowa, a position he has held since 1985. The Graham Group is a real estate firm specializing in the development of medical office buildings and a construction firm specializing in the construction of hospital facilities. Mr. Milligan has served as a director since 1999.

Mary K. Quass is President and Chief Executive Officer of Quass Communications, LLC, a position she has held since 1998. Quass Communications, LLC is a privately-held investment company. From 1988 to 1998, Ms. Quass held the position of President and Chief Executive Officer of Quass Broadcasting Company, which operated two radio stations. In 1998, Quass Broadcasting Company merged with Capstar Broadcasting Partners to form Central Star Communications. Ms. Quass served as President and CEO of Central Star Communications, responsible for over 50 radio stations throughout the Midwest until she retired in 1999. Ms. Quass has served as a director since 1998.

Byron G. Riley is an attorney with the law firm of Bradley & Riley PC, Cedar Rapids, Iowa. He has practiced law with that law firm since 1981. Bradley & Riley PC provides legal services to us from time to time. Mr. Riley has served as a director since 1983. He has agreed to be nominated as a director at our next annual meeting in 2002.

Kyle D. Skogman is President of Skogman Construction Co. of Iowa, a company that specializes in residential construction primarily in Cedar Rapids, Iowa. He has served in that capacity since 1990. Mr. Skogman has served as a director since 2000.

Frank S. Wilkinson, Jr. retired in December 2000 from E.W. Blanch Co., a Minneapolis, Minnesota company that provides risk management and distribution services and arranges reinsurance coverage between insurers and reinsurers. Before retiring after 31 years of service, Mr. Wilkinson held a number of positions with E.W. Blanch, including Executive Vice President and director from 1993 to December 2000. Mr. Wilkinson was named in 2001 to a vacant board term that expires in May 2002. He has agreed to be nominated as a director at our next annual meeting in 2002.

The following table sets forth information as of the date of this prospectus concerning certain of our executive officers.

Name	Age	Position
Richard B. Swain	45	Senior Vice President
Kent G. Baker	58	Vice President and Chief Financial Officer
E. Dean Fick	57	Vice President, Claims
Samuel E. Hague	50	Executive Vice President and Treasurer of United Life Insurance Company
Wilburn J. Hollis	61	Vice President, Human Resources
Robert B. Kenward	59	Vice President, Management Information Systems
Kevin L. Kubik	47	Vice President and Chief Investment Officer
Dianne M. Lyons	39	Controller
Neal R. Scharmer	45	Vice President and General Counsel

A brief description of the business experience of these executive officers follows:

Richard B. Swain is Senior Vice President. He has served in that capacity since 1999. Mr. Swain served as Vice President of Underwriting at Hastings Mutual Insurance Company, Hastings, Michigan, from May 1998 to 1999. Hastings Mutual Insurance Company is a regional insurance company with a five-state, Midwest marketing territory offering personal, business and farmowners property and casualty insurance products. He was employed by us as Vice President of the Lincoln Regional Office from 1993 to 1998.

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Kent G. Baker is Vice President and Chief Financial Officer. He has served us in that capacity since 1984.

E. Dean Fick has served us as Vice President, Claims, since 1991.

Samuel E. Hague is Executive Vice President and Treasurer of United Life Insurance Company, a position he has held since 1992.

Wilburn J. Hollis is our Vice President, Human Resources, a position he has held since 1996.

Robert B. Kenward became our Vice President, Management Information Systems, in 1992 and has held various positions within the management information systems department since joining us in 1978.

Kevin L. Kubik is our Vice President and Chief Investment Officer, a position he has held since June 1997. Mr. Kubik was employed from 1989 to 1997 by Van Kampen American Capital Investment Advisory Inc., an investment adviser to various open-end and closed-end investment companies.

Dianne M. Lyons was appointed Controller in 1999. She has been with us as an Accounting Manager and Financial Accountant since 1983.

Neal R. Scharmer has been our General Counsel since 1995. He was named Vice President in May 2001.

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DESCRIPTION OF OUR CAPITAL STOCK

General

Our articles of incorporation, as amended, authorize us to issue 30,000,000 shares of common stock, $3.33 1/3 par value. At the close of business on February 1, 2002, we had 10,036,819 shares of common stock outstanding. Our articles of incorporation, as amended, also authorize us to issue 10,000,000 shares of preferred stock. As of the date of this prospectus, we have no shares of preferred stock outstanding. Upon completion of the offering, 2,000,000 shares of our preferred stock, or 2,300,000 shares if the underwriters’ over-allotment option is fully exercised, will be issued and outstanding.

Preferred Stock—General

Our board of directors may establish one or more series of preferred stock to be issued out of our shares of authorized preferred stock. Our board of directors, without approval of the stockholders, may determine, with respect to any series of preferred stock, the terms and rights of that series, including the following:

• the designation of the series;

• the number of authorized shares of the series, which number our board may subsequently increase or decrease to not more than the total number of authorized shares of preferred stock and not less than the number of shares of the series then outstanding;

• whether the series will bear dividends and whether any such dividends will be cumulative or non-cumulative, and the preference or relation which any such dividend will bear to the dividends payable on any other class or classes of any other series of capital stock;

• the dividend rate, if any, of the series;

• the conditions and dates upon which dividends, if any, will be payable;

• the redemption rights and price or prices, if any, for shares of the series;

• the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;

• the amounts payable on and the priority, if any, of shares of the series if we voluntarily or involuntarily liquidate, dissolve or wind up our affairs;

• whether the shares of the series will be convertible or exchangeable into shares of any of our other classes or series, or any of our other securities, or the securities of any other entity, and, if so, the specification of such other class or series or such other security, the conversion or exchange price or prices or rate or rates, any adjustments thereof, the date or dates as of which such shares shall be convertible or exchangeable and all other terms and conditions upon which such conversion or exchange may be made;

• restrictions on the issuance of shares of the same series or of any other class or series;

• the voting rights, if any, of the holders of the shares of the series; and

• any other rights, preferences and limitations of such series.

Series A Preferred Stock

Our board established the provisions of our preferred stock by exercising the authority granted to the board in our articles of incorporation. This section is a summary of the material provisions of our preferred stock. The following summary does not restate the provisions of our preferred stock in their entirety. We urge you to read the amendment to our articles of incorporation that established our preferred stock because it, and not this summary, defines your rights as a holder of our preferred stock. The amendment to our articles of incorporation that established our preferred stock was filed as an exhibit to the registration statement of which this prospectus is a part. Copies of the amendment to our articles of incorporation are available as set forth under “Where You Can Find More Information” below.

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General

Our preferred stock is officially referred to as “$25 [            ]% Cumulative Convertible Redeemable Preferred Stock, Series A, no par value.” The preferred stock offered by this prospectus is a single series consisting of up to 2,300,000 shares, including shares issuable on exercise of the underwriters’ over-allotment option. When issued, shares of our preferred stock will be validly issued, fully paid and non-assessable.

The holders of shares of our preferred stock have no preemptive or preferential rights to purchase or subscribe to stock, obligations, warrants or any other of our securities.

Under Iowa law, we may:

• pay dividends on our preferred stock in cash, or

• redeem our preferred stock by paying the redemption price in cash,

only if after giving effect to the payment, either:

• we are able to pay our debts as they become due in the usual course of business, or

• our total assets would be equal to or more than the sum of our total liabilities plus the amount needed to satisfy upon dissolution any preferential rights of stockholders who hold securities that are senior to our preferred stock.

Priority

Our preferred stock will rank, with respect to dividend rights and rights upon liquidation, winding up or dissolution:

• junior to:

• all our existing and future debt obligations and other liabilities; and

• each class or series of our capital stock the terms of which provide that such class or series will rank senior to our preferred stock;

• on a parity with parity stock, which is any other class or series of our capital stock that has terms which provide that that class or series will rank on a parity with our preferred stock; and

• senior to junior stock, which is our common stock and each class or series of our capital stock that has terms which provide that that class or series will rank junior to our preferred stock.

We do not currently have any outstanding indebtedness that is secured or ranks senior to or on a parity with the preferred stock. None of our subsidiaries has any debt that effectively ranks senior to the preferred stock.

We do not currently have any other outstanding class or series of our capital stock ranking on a parity with or senior to our preferred stock. Without the consent of the holders of at least two-thirds of the outstanding shares of our preferred stock, we will not be entitled to issue any class or series of capital stock that ranks senior to our preferred stock with respect to the payment of dividends or distributions upon liquidation, winding up or dissolution, including, without limitation, any class or series of capital stock, other than parity stock or junior stock, that pays cumulative dividends.

Except as described in the preceding paragraph, we may, without the consent of the holders of shares of our preferred stock, authorize, create by way of reclassification or otherwise or issue common, parity or junior stock, or any obligation or security convertible or exchangeable into, or evidencing a right to purchase, shares of any class or series of common, parity or junior stock.

The terms senior stock, parity stock and junior stock include warrants, rights, calls or options exercisable for or convertible into that type of stock.

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Dividends

The holders of shares of our preferred stock are entitled to receive cumulative dividends at an annual rate of $[            ] per share, when, as and if declared by our board of directors out of funds legally available therefor. The right of the holders of shares of our preferred stock to receive dividend payments is subject to the rights of any holders of shares of senior stock and parity stock.

Dividends will accrue and are cumulative from the date our preferred stock is first issued. Dividends are payable in arrears on March 15, June 15, September 15 and December 15 of each year, beginning on [            ], 2002. If any of those dates is not a business day, then dividends will be payable on the next succeeding business day. Dividends will be payable on those dates to holders of record as they appear in our stock records at the close of business on March 1, June 1, September 1 and December 1 of each year. Dividends payable on shares of our preferred stock for any period other than a full quarterly period will be computed on the basis of a 360-day year consisting of twelve 30-day months.

Iowa law requires that we pay dividends only out of earned profits arising from our business, which does not include contributed capital or contributed surplus. Further, under Iowa law, we may pay dividends on our preferred stock only if after giving effect to the payment, either:

• we are able to pay our debts as they become due in the usual course of business, or

• our total assets would be equal to or more than the sum of our total liabilities plus the amount needed to satisfy upon dissolution any preferential rights of stockholders who hold securities that are senior to our preferred stock.

The terms of our existing credit facility and other contracts do not prevent us from paying dividends. Our future credit facilities or other contracts may contain restrictions on paying cash dividends on our preferred stock if, before the payment or after giving effect to the payment, an event of default, as described in a credit facility or other contract, is in existence or would result from the payment of the dividend.

Unless all prior dividends on our preferred stock and on any other class or series of our preferred shares ranking on a parity as to dividends with our preferred stock have been paid in full or have been declared and a sum sufficient for payment thereof has been set aside, then

• we may not declare or pay a cash dividend or distribution on our common stock or other securities ranking junior to our preferred stock, except a distribution in shares of our common stock or our other securities ranking junior to our preferred stock as to dividends and distributions upon liquidation, dissolution or winding up, and

• we may not purchase, retire or otherwise acquire any shares of our common stock or other securities ranking junior to our preferred stock.

We do not currently have outstanding any other class or series of preferred shares ranking on a parity with or senior to the preferred stock offered by this prospectus. Dividends paid on shares of our preferred stock or any parity stock in an amount less than the total amount of the dividends at the time accumulated and payable on those shares will be allocated pro rata among all such shares at the time outstanding. If a dividend upon any shares of preferred stock offered by this prospectus, or any other outstanding class or series of preferred shares ranking on a parity with our preferred stock as to dividends, is in arrears, all dividends or other distributions declared upon shares of each series of such stock will be declared pro rata so that in all cases the amounts of dividends or other distributions declared per share on each such series bear to each other the same ratio that accumulated and unpaid dividends per share on each such series bear to each other.

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Redemption

Redemption at Our Option

We may not redeem any shares of our preferred stock at any time before [                ], 2005. After that date, we will have the option to redeem any outstanding shares of our preferred stock, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price per share equal to the $25 liquidation preference plus an amount equal to accrued and unpaid dividends from, and including, the immediately preceding dividend payment date to, but excluding, the redemption date. In the case of a redemption, for each share redeemed:

• on or after [                          ], 2005 but before [                          ], 2006 we will pay, in addition, an amount equal to 3.0% of the liquidation preference, and

• on or after [                         ], 2006 but before [                         ], 2007 we will pay, in addition, an amount equal to 1.5% of the liquidation preference.

In the case of any partial redemption, we will select the shares of our preferred stock to be redeemed on a pro rata basis, by lot or any other method that we, in our discretion, deem fair and appropriate. However, we may redeem, without regard for any selection or allocation method we employ, all the shares held by holders of fewer than 100 shares or holders who would hold fewer than 100 shares as a result of the redemption.

Mandatory Redemption

We will be obligated to redeem all outstanding shares of our preferred stock on [                     ], 2014 only if we have funds legally available for such payment and only if we are not prohibited from doing so by Iowa law or contractual obligations. The redemption price will be equal to the $25 liquidation preference plus an amount equal to accrued and unpaid dividends from, and including, the immediately preceding dividend payment date to, but excluding, the date of redemption.

General Provisions

Our preferred stock is not subject to any sinking fund or other similar provisions. We may pay the redemption price only if we have funds legally available for such payment and only if we are not prohibited from doing so by Iowa law or contractual obligations.

On and after the redemption date, dividends will cease to accrue on the shares of our preferred stock called for redemption, and those shares will cease to be outstanding, so long as the redemption price, including any accrued and unpaid dividends to, but excluding, the date fixed for redemption and any premium, has been duly paid or provided for.

Payment of the redemption price for shares of our preferred stock is conditioned upon book-entry transfer or physical delivery of certificates representing the shares, together with necessary endorsements, to the transfer agent at any time after delivery of the redemption notice. Payment of the redemption price for shares of our preferred stock will be made promptly following the later of the redemption date and the time of book-entry transfer or physical delivery of certificates representing the shares.

If the transfer agent holds money sufficient to pay the redemption price of our preferred stock on the redemption date in accordance with the terms of our articles of incorporation, then, on the redemption date, shares of our preferred stock will cease to be outstanding, whether or not book-entry transfer is made or certificates representing the shares are delivered to the transfer agent. At such time, all rights as a holder of shares of our preferred stock shall terminate, other than the right to receive the redemption price.

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Liquidation Preference

Upon any voluntary or involuntary liquidation, dissolution or winding up of our company, each holder of shares of our preferred stock will be entitled to payment, out of our assets available for distribution, of an amount equal to the $25 liquidation preference per share of our preferred stock held by that holder. In addition, such holder will be entitled to payment of an amount equal to all accrued and unpaid dividends on those shares to, but excluding, the date of liquidation, dissolution or winding up. The holders of our preferred stock are entitled to these payments before any distribution is made on any junior stock, including our common stock. After payment in full of the liquidation preference and the amount equal to all accrued and unpaid dividends to which holders of shares of our preferred stock are entitled, the holders will not be entitled to any further participation in any distribution of our assets. If upon any voluntary or involuntary liquidation, dissolution or winding up of our company, the amounts payable with respect to shares of our preferred stock and any other outstanding class or series of preferred shares ranking on a parity with our preferred stock are not paid in full, the holders of shares of our preferred stock and the holders of the parity stock will share equally and ratably in any distribution of our assets in proportion to the full liquidation preference and an amount equal to all accrued and unpaid dividends to which each such holder is entitled.

Neither the voluntary sale, conveyance, exchange or transfer, for cash, shares of stock, securities or other consideration, of all or substantially all of our property or assets nor the consolidation, merger or amalgamation of our company with or into any other entity or the consolidation, merger or amalgamation of any other entity with or into our company will be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of our company.

Conversion Rights

General

Each share of our preferred stock will be convertible at any time, at the option of the holder, into fully paid and non-assessable shares of our common stock. The number of shares of common stock deliverable upon conversion of a share of our preferred stock, commonly referred to as the “conversion rate,” will initially be [            ]. The initial conversion rate is determined by dividing the liquidation preference of $25 by the initial conversion price of $[            ]. The conversion price is subject to adjustment from time to time as described below.

Holders of shares of our preferred stock who convert their shares into common stock will not be entitled to any accrued dividends for the dividend period in which they convert their shares. Accordingly, shares of our preferred stock surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding dividend payment date must be accompanied by payment of an amount equal to the dividend payable on such shares on such dividend payment date.

In case any shares of our preferred stock are to be redeemed, a holder’s right to convert those shares called for redemption will terminate at the close of business on the business day immediately preceding the date fixed for redemption unless we default in the payment of the redemption price of those shares.

We will not issue fractional shares of our common stock upon conversion. Instead of issuing fractional shares, we will pay cash in respect of such fractional share, based on the current market price of our common stock. If more than one share of our preferred stock is surrendered for conversion by the same holder at the same time, the number of full shares of common stock issuable on conversion of those shares will be computed on the basis of the total number of shares surrendered for conversion. For purposes of this paragraph, the current market price of our common stock means the average of the sale prices of our common stock for the twenty consecutive trading days immediately preceding the conversion date.

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We will at all times reserve and keep available, free from preemptive rights, for issuance upon the conversion of shares of our preferred stock a number of our authorized but unissued shares of common stock that will be sufficient to permit the conversion of all outstanding shares of our preferred stock. Before the delivery of any common stock upon conversion of our preferred stock, we will comply with all applicable federal and state laws and regulations which require action to be taken by us. All shares of common stock delivered upon conversion of our preferred stock will be duly and validly issued, fully paid and non-assessable, free of all liens and charges and not subject to any preemptive rights.

Adjustments to the Conversion Price

The conversion price is subject to adjustment as described below at any time or from time to time after the issuance of our preferred stock, whenever any of the following events occur:

(1)    Stock splits and combinations.    If we:

• subdivide or split the outstanding shares of our common stock,

• combine or reclassify the outstanding shares of our common stock into a smaller number of shares, or

• issue by reclassification of the shares of our common stock any shares of our capital stock,

then, and in each such case, the conversion price in effect immediately prior to that event or the close of business on the record date therefor, whichever is earlier, will be adjusted so that the holder of any shares of our preferred stock thereafter surrendered for conversion will be entitled to receive the number of shares of our common stock or of our other securities which the holder would have owned or would have been entitled to receive after the occurrence of any of the events described above, had the holder’s shares of preferred stock been surrendered for conversion immediately before the occurrence of that event or the record date therefor, whichever is earlier. Notwithstanding the foregoing, this subparagraph (1) shall not apply to stock dividends provided for in subparagraph (2) below.

(2)    Stock dividends in common stock.    If we pay a dividend or make a distribution in shares of our common stock on any class of our capital stock and the total number of shares of common stock constituting the dividend or distribution exceeds 1.0% of the total number of shares of common stock outstanding at the close of business on the record date fixed for determination of stockholders entitled to receive the dividend or distribution, the conversion price in effect immediately prior to the close of business on the record date fixed for determination of stockholders entitled to receive that dividend or distribution will be adjusted by multiplying:

• that conversion price by

• a fraction, the numerator of which will be the number of shares of common stock outstanding at the close of business on that record date and the denominator of which will be the sum of that number of shares and the total number of shares issued in that dividend or distribution.

In case the total number of shares constituting that dividend or distribution does not exceed 1.0% of the total number of shares of common stock outstanding at the close of business on the record date fixed for that dividend or distribution, the shares of common stock will be considered to be issued as a dividend or distribution at the time of any succeeding dividend or distribution in which the number of shares of common stock issued, together with the number of shares issued in all previous such dividends and distributions for which no adjustment to the conversion price has been made, exceeds 1.0% of the total number of shares of common stock outstanding at the close of business on the record date for the first such dividend or distribution.

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(3)    Issuance of rights or warrants.    If we issue to all holders of our common stock rights or warrants expiring within 45 days of issuance entitling those holders to subscribe for or purchase shares of our common stock at a price per share less than the current market price, the conversion price in effect immediately before the close of business on the record date fixed for determination of stockholders entitled to receive those rights or warrants will be adjusted by multiplying:

• that conversion price by

• a fraction, the numerator of which will be the sum of the number of shares of our common stock outstanding at the close of business on that record date and the number of shares of our common stock that the aggregate offering price of the total number of shares of our common stock so offered for subscription or purchase would purchase at the current market price and the denominator of which will be the sum of the number of shares of common stock outstanding at the close of business on that record date and the number of additional shares of our common stock so offered for subscription or purchase.

For purposes of this subparagraph (3), the issuance of rights or warrants to subscribe for or purchase securities convertible into shares of our common stock will be deemed to be the issuance of rights or warrants to subscribe for or purchase shares of our common stock into which those securities are convertible at an aggregate offering price equal to the sum of the aggregate offering price of those securities and the minimum aggregate amount, if any, payable upon conversion of those securities into shares of our common stock. For purposes of this subparagraph (3), the current market price of our common stock means the average of the sale prices of our common stock for the twenty consecutive trading days immediately preceding the record date for the relevant event.

(4)    Distribution of indebtedness, securities or assets.    Other than common stock, rights or warrants referred to in subparagraph (3) above, a dividend payable exclusively in cash, a dividend payable in shares of capital stock or similar equity interests in the case of a spin-off, as described below, and other than as a result of a fundamental change described in subparagraph (6) below, if we distribute to all holders of our common stock, whether by dividend or in a merger, amalgamation or consolidation or otherwise, evidences of indebtedness, shares of capital stock of any class or series, other securities, cash or assets, the conversion price in effect immediately prior to the close of business on the record date fixed for determination of stockholders entitled to receive that distribution will be adjusted by multiplying:

• that conversion price by

• a fraction, the numerator of which will be the current market price of our common stock and the denominator of which will be the sum of the current market price of our common stock and the fair market value, as determined by our board of directors, whose determination in good faith will be conclusive, of the portion of those evidences of indebtedness, shares of capital stock, other securities, cash or assets so distributed applicable to one share of our common stock.

In respect of a dividend or distribution of shares of capital stock of any class or series, or similar equity interests, which are traded on a United States national securities exchange or quoted on the Nasdaq National Market System, of or relating to a subsidiary or other business unit, which we refer to as a spin-off, the conversion price in effect immediately prior to the close of business on the record date fixed for determination of stockholders entitled to receive that dividend or distribution will be adjusted by multiplying:

• that conversion price by

• a fraction, the numerator of which will be the current market price of our common stock and the denominator of which will be the sum of the current market price of our common stock and the fair market value, determined as described below, of the portion of those shares of capital stock or similar equity interests so distributed applicable to one share of our common stock.

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In the event of a spin-off, the fair market value of the securities to be distributed to holders of our common stock means the average of the sale prices of those securities over the first twenty trading days after the effective date of the spin-off.

For purposes of this subparagraph (4), the current market price of our common stock means the average of the sale prices of our common stock for the first twenty trading days from, and including, the first day that the common stock trades following a dividend, distribution or spin-off.

(5)    Extraordinary cash distribution.    If we pay a dividend or make a distribution in cash on our common stock, and the amount of cash constituting the dividend or distribution exceeds 15% of the market price of our common stock at the close of business on the first day that the common stock trades following the dividend or distribution, the conversion price in effect immediately prior to the close of business on the record date fixed for determination of stockholders entitled to receive the dividend or distribution will be adjusted by multiplying:

• that conversion price by

• a fraction, the numerator of which will be the current market price of our common stock and the denominator of which will be the sum of the current market price of our common stock and the amount per share of that dividend or distribution.

For purposes of this subparagraph (5), the current market price of our common stock means the average of the sale prices of our common stock for the first twenty trading days from, and including, the first day that the common stock trades following a dividend or distribution.

(6)    Fundamental changes.    For purposes of this subparagraph (6), the term “fundamental change” means any transaction or event, including any merger, consolidation, sale of assets, tender or exchange offer, reclassification, compulsory share exchange or liquidation, in which all or substantially all outstanding shares of our common stock are converted into or exchanged or acquired for or constitute the right to receive stock, other securities, cash, property or assets. If a fundamental change occurs, the holder of each share of our preferred stock outstanding immediately before that fundamental change occurred that remains outstanding after the fundamental change will have the right upon any subsequent conversion to receive, out of funds legally available, the kind and amount of stock, other securities, cash, property or assets that the holder would have received if that share had been converted immediately prior to the fundamental change.

We will not, however, be required to give effect to any adjustment in the conversion price pursuant to any of subparagraphs (1) through (6) unless and until the net effect of one or more adjustments, each of which will be carried forward until counted toward adjustment, will have resulted in a change of the conversion price by at least 1%, and when the cumulative net effect of more than one adjustment so determined will be to change the conversion price by at least 1%, that change in the conversion price will be given effect. If, at any time as a result of the provisions described above, the holders of shares of our preferred stock upon subsequent conversion become entitled to receive any shares of our capital stock other than common stock, the number of those other shares so receivable upon conversion of shares of our preferred stock will thereafter be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions described above.

There will be no adjustment to the conversion price in case of the issuance of any shares of our capital stock in a merger, reorganization, acquisition, reclassification, recapitalization or other similar transaction except as described above. We will not be required to make more than one adjustment to the conversion price based on a single event notwithstanding the fact that the event may be covered by more than one of the preceding subparagraphs.

In any case in which an adjustment is required as a result of any event becoming effective from and after a record date, we may elect to defer until after the occurrence of that event:

• issuing to the holder of any shares of our preferred stock converted after that record date and before the occurrence of that event the additional shares of our common stock issuable upon that conversion over and above the shares issuable on the basis of the conversion price in effect immediately before adjustment; and

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• delivering cash in lieu of a fractional share of our common stock.

If we take a record of the holders of our common stock for the purpose of entitling them to receive a dividend or distribution, and after that record is taken but before the dividend or distribution is made we legally abandon our plan to pay that dividend or make that distribution, then no adjustment in the conversion price then in effect will be required by reason of taking that record.

Voting Rights

Holders of our preferred stock are not entitled to any voting rights except as required by law. Notwithstanding the foregoing, so long as any shares of our preferred stock remain outstanding, we will not, without the consent of the holders of at least two-thirds of the shares of our preferred stock outstanding at the time:

• issue shares of or increase the authorized number of shares of any class or series of stock ranking senior to our preferred stock as to dividends or distributions upon liquidation, dissolution or winding up; or

• amend our articles of incorporation if the amendment would alter or change any power, preference or special right of our preferred stock so as to materially and adversely affect the holders thereof.

Notwithstanding the foregoing, none of the following shall be deemed to be an amendment that alters or changes the powers, preferences or special rights of our preferred stock so as to materially and adversely affect the holders thereof:

• any increase in the authorized number of shares of common stock or our preferred stock or the authorization and issuance of other classes or series of common stock or preferred shares ranking on parity with or junior to our preferred stock;

• the issuance of shares of common stock;

• an amendment of our bylaws so as to change the number of our directors so long as the number of directors is not increased above fifteen; or

• any increase, decrease or change in the par value of any class or series of capital stock, including our preferred stock.

If we are in default in the payment of the full dividends on our preferred stock, or any other outstanding class or series of parity stock having the voting rights described in this paragraph, for six dividend payment periods, whether or not consecutive, the holders of our preferred stock, together with the holders of such parity stock, become entitled to vote as a separate class, at a meeting at which the holders of at least one-third thereof are represented, to elect two of the not less than nine nor more than fifteen of our directors to serve until all accrued dividends thereon have been paid.

Change of Control

For purposes of this section, “change of control” of our company means the occurrence of any of the following:

• if any “person” or “group,” as such terms are used in Section 13(d) and Section 14(d) of the Securities Exchange Act of 1934 or any successor provisions to either of the foregoing, including any group acting for the purpose of acquiring, holding, voting or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Securities Exchange Act of 1934 becomes the “beneficial owner,” as defined in Rule 13d-3 under the Securities Exchange Act of 1934, except that a person will be deemed to have “beneficial ownership” of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, directly or indirectly, of 50% or more of the total voting power of our voting stock; or

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• if we consolidate or merge with or into any other person, other than a consolidation or merger under a transaction in which our outstanding voting stock remains outstanding or is changed into or exchanged for cash, securities or property with the effect that the beneficial owners of our outstanding voting stock immediately before that transaction beneficially own, directly or indirectly, more than 50% of the voting stock, measured by voting power rather than number of shares, of the surviving corporation immediately following that transaction; or

• the sale, transfer, assignment, lease, conveyance or other disposition, directly or indirectly, of all or substantially all the assets of our company and its subsidiaries considered as a whole.

Change of Control Put Right

If we undergo a change of control, each holder of shares of our preferred stock will have the right to require us to redeem, no later than 30 days after the change of control and out of legally available funds, any or all of the holder’s shares of our preferred stock at a redemption price per share equal to the liquidation preference of those shares, plus an amount equal to accrued and unpaid dividends, if any, on those shares to, but excluding, the date of redemption. Unless we undergo a change of control, each holder of shares of our preferred stock does not have a put right. This right of holders will be subject to our obligation to repay or repurchase any indebtedness or preferred shares required in connection with a change of control and to Iowa law and any contractual restrictions then contained in our indebtedness. We currently have no indebtedness the repayment of which would be triggered by a change of control. Under the terms of our current credit facilities, we are not prohibited from paying the redemption price of our preferred stock. Our future credit facilities and other future indebtedness may contain restrictions prohibiting us from paying the redemption price of our preferred stock. When we have satisfied these restrictions, we will so redeem all shares of our preferred stock tendered upon a change of control.

Holders of our preferred stock will not have the foregoing put right if:

• the sale price per share of our common stock for any five trading days within the period of twenty consecutive trading days ending immediately after the later of the change of control or the public announcement thereof in the case of a change of control under the first bullet above, or the period of twenty consecutive trading days ending immediately before the change of control in the case of a change of control under the second and third bullets above, shall equal or exceed 105% of the conversion price of our preferred stock immediately after the later of the change of control or the public announcement thereof; or

• at least 95% of the consideration in the change of control transaction consists of shares of capital stock traded on a U.S. national securities exchange or quoted on the Nasdaq National Market System and having a total market capitalization at least equal to our market capitalization immediately prior to the change of control, and as a result of the transaction, our preferred stock becomes convertible solely into this capital stock.

For purposes of the above paragraphs:

• the term capital stock of any person means any and all shares, interests, participations or other equivalents however designated of corporate stock or other equity participations, including partnership interests, whether general or limited, of that person and any rights, other than debt securities convertible or exchangeable into an equity interest, warrants or options to acquire an equity interest in that person; and

• the term voting stock of any person means capital stock of that person which ordinarily has voting power for the election of directors, or individuals performing similar functions, of that person, whether at all times or only for so long as no senior class of securities has such voting power by reason of any contingency.

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We intend to comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934 and any other securities laws and regulations to the extent those laws and regulations are applicable to us in connection with the redemption of our preferred stock as a result of a change of control. To the extent that the provisions of any securities laws or regulations conflict with any of the provisions described above, we will comply with the applicable securities laws and regulations and will be deemed not to have breached our obligations described above.

On the date scheduled for payment of the shares of our preferred stock put to us, we will, to the extent lawful:

• redeem all shares of our preferred stock properly tendered;

• deposit with the transfer agent an amount equal to the redemption price of the shares of preferred stock so tendered; and

• deliver or cause to be delivered to the transfer agent shares of our preferred stock so accepted together with an officers’ certificate stating the aggregate liquidation preference of the shares being redeemed by us.

The transfer agent will promptly mail or deliver to each holder of shares of our preferred stock so tendered the applicable payment for those shares, and the transfer agent will promptly mail or deliver, or cause to be transferred by book-entry, to each holder new shares of our preferred stock equal in liquidation preference to any unredeemed portion of the shares of our preferred stock surrendered, if any. We will publicly announce the results of our offer on or as soon as practicable after the redemption date for the redemption of shares of our preferred stock in connection with a change of control of our company.

We will not be required to redeem any shares of our preferred stock upon the occurrence of a change of control if a third party makes an offer to purchase our preferred stock in the manner, at the price, at the times and otherwise in compliance with the requirements described above and purchases all shares of our preferred stock validly tendered and not withdrawn.

Transfer Agent

The transfer agent, registrar, paying agent and redemption agent for our common stock and our preferred stock is Computershare Investor Services, LLC.

Common Stock

Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of our common stockholders. Holders of shares of our common stock have no cumulative voting rights. Directors are divided into three classes. Each year the terms of the members of a different class of directors expire and directors for that class are elected to three-year terms. A holder or group of holders of our common stock who own not less than one-fifth but less than a majority of the outstanding shares of our common stock may nominate and elect that number of directors, ignoring fractions, which bears the same ratio to the number of directors to be elected as the number of shares of our common stock held by such stockholders bears to the total shares of our common stock outstanding, but the total number of directors so elected by minority stockholders may not exceed one less than a majority of the aggregate number of directors to be elected. Unless minority common stockholders exercise their right to nominate and elect a proportionate number of directors as described above, the holders of a majority of the outstanding shares of our common stock voting in any election of directors at which a quorum is present can elect all of the directors. In the limited circumstances described above in “Description of Our Capital Stock—Series A Preferred Stock—Voting Rights” the holders of shares of our preferred stock, together with the holders of all other outstanding classes and series of preferred shares ranking on a parity with our preferred stock as to certain voting rights, may as a class be able to elect two directors.

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Holders of our common stock have no preemptive rights and have no right to convert their common stock into any other securities. Subject to preferences that may be applicable to the preferred stock offered by this prospectus or any other class or series of preferred shares, holders of our common stock are entitled to receive ratably such dividends as may be declared by our board of directors out of funds legally available therefor. If we liquidate, dissolve or wind up, holders of our common stock are entitled to share ratably in all assets remaining after payment of any amounts due creditors and the liquidation preference of any accrued and unpaid dividends on any outstanding preferred shares, including our preferred stock. There are no sinking fund provisions applicable to our common stock. All outstanding shares of our common stock are fully paid and non-assessable.

UNDERWRITING

Pursuant to an underwriting agreement, we have agreed to sell to the underwriters named below, for which McDonald Investments Inc. is acting as representative, the following numbers of shares of preferred stock:

Underwriter	Number of Shares
McDonald Investments Inc.	[	]
A.G. Edwards & Sons, Inc.	[	]
Total	2,000,000

The underwriting agreement provides that the underwriters are obligated to purchase all the shares of preferred stock in the offering if they purchase any, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.

We have granted to the underwriters a 30-day option to purchase up to 300,000 additional shares of preferred stock from us at the public offering price less underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of preferred stock made in connection with this offering.

The underwriters propose to offer the shares of preferred stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $[            ] per share. The underwriters and selling group members may allow a discount of $[            ] per share on sales to other broker-dealers. The preferred stock is offered subject to receipt and acceptance by the representative and to certain other conditions, including the right to reject orders in whole or in part.

The following table summarizes the compensation and estimated expenses we will pay:

Per Share

Total

Without Over- allotment

With Over- allotment

Without Over- allotment

With Over- allotment

Underwriting discounts paid by us

$

[

]

$

[

]

$

[

]

$

[

]

Expenses payable by us

$

[

]

$

[

]

$

[

]

$

[

]

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 relating to, any shares of our common or preferred stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of McDonald Investments Inc. for a period of 90 days after the date of this prospectus. Some of our affiliates have agreed to similar restrictions on their activities.

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Our preferred stock is a new issue of securities with no established trading market. We have been advised by McDonald Investments Inc. and A.G. Edwards & Sons, Inc. that they intend to make a market in our preferred stock. The underwriters are not obligated, however, to make a market in our preferred stock and may discontinue market-making at any time without notice. We can give you no assurance as to the liquidity of the trading market for our preferred stock.

We have agreed to indemnify the underwriters against liabilities under the Securities Act of 1933, or contribute to payments that the underwriters may be required to make in that respect.

The underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934.

• Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

• Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market.

• Syndicate covering transactions involve purchases of shares of preferred stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

• Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the preferred stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our preferred stock or preventing or retarding a decline in the market price of the preferred stock. As a result, the price of our preferred stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq National Market System or otherwise and, if commenced, may be discontinued at any time.

McDonald Investments Inc. also acts as a broker for us with respect to transactions in our investment portfolio from time to time.

McDonald Investments Inc. has informed us that the underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority in excess of 5% of the number of shares of preferred stock offered by this prospectus.

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LEGAL MATTERS

Bradley & Riley PC, Cedar Rapids, Iowa, will pass on the validity of the shares of preferred stock offered by this prospectus. Mr. Byron G. Riley, one of our directors, is a lawyer with the firm of Bradley & Riley PC. Bradley & Riley PC provides legal services to us from time to time. Attorneys with Bradley & Riley PC own 4,706 shares of our common stock. Thompson Hine LLP, Cleveland, Ohio, will pass upon certain legal matters related to the offering for the underwriters.

EXPERTS

The financial statements incorporated by reference in this prospectus, to the extent and for the periods indicated in their report, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated herein in reliance upon the authority of said firm as experts in giving said report. Reference is made to said report, which includes an explanatory paragraph with respect to the change in the method of accounting for derivative instruments and hedging activities in 1999 as discussed in Note 1 to the financial statements.

FORWARD LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are not historical facts and which involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate, management’s beliefs, and assumptions made by management. In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of us. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “continues,” “seeks,” “estimates,” “predicts,” “should,” “could,” “may,” “might” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements.

Among the factors that could cause our actual outcomes and results to differ are the following:

• uncertainties with respect to loss reserving;

• the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding our estimates;

• the actual amount of new and renewal business and demand for our products and services;

• the competitive environment in which we operate, including price, product and service competition;

• developments in domestic and global financial markets that could affect our investment portfolio and financing plans;

• estimates of the financial statement impact of regulatory actions;

• uncertainties relating to government and regulatory policies;

• legal developments;

• changing rates of inflation, interest rates and other economic conditions;

• the impact of mergers and acquisitions, including the ability to successfully integrate acquired businesses and achieve cost savings;

• a continuation of the global economic slowdown or a broad downturn in the economy in general;

• the requirement to pay dividends on our preferred stock;

• our relationship with our agencies; or

• our relationship with our reinsurers.

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These are representative of the risks, uncertainties and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. For a further description of the risks, uncertainties and assumptions that could cause actual results to differ materially from such forward-looking statements, see “Risk Factors.”

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, and other information with the Securities and Exchange Commission. You may read and copy any document we file at the public reference rooms maintained by the Securities and Exchange Commission at:

450 Fifth Street, N.W. Washington, DC 20549 233 Broadway New York, NY 10279 500 West Madison Street Chicago, IL 60661

You may obtain information on the operation of the Securities and Exchange Commission’s public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330. Our SEC filings also are available to the public from the Securities and Exchange Commission’s Web site at http://www.sec.gov.

We have filed a registration statement on Form S-3 with the Securities and Exchange Commission to register the preferred stock offered by this prospectus. This prospectus is part of the registration statement. However, this prospectus does not contain all the information that you can find in the registration statement or the exhibits to the registration statement. Statements we have made in this prospectus as to the contents of any contract, agreement or other document referred to in this prospectus are not necessarily complete and are qualified in their entirety by reference to each such contract, agreement or other document which is filed as an exhibit to the registration statement. You may read the registration statement without charge at the public reference rooms maintained by the Securities and Exchange Commission, and copies of such materials can be obtained from the Public Reference Section of the Securities and Exchange Commission at prescribed rates. You should refer to the registration statement and to the exhibits filed with the registration statement for additional information about us, our subsidiaries and our preferred stock.

68

INCORPORATION BY REFERENCE

The Securities and Exchange Commission allows us to “incorporate by reference” the information we file with them. This means that we may disclose information to you by referring you to other documents we have filed with the Securities and Exchange Commission. The information that we incorporate by reference is considered to be part of this prospectus. In addition, information that we file with the Securities and Exchange Commission after the date of this prospectus will automatically update and supersede the information in this prospectus.

We incorporate by reference in this prospectus our Annual Report on Form 10-K/A for the year ended December 31, 2001. We also incorporate by reference in this prospectus all documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this prospectus and prior to the termination of this offering, and such documents shall be a part of this prospectus from the respective dates of filing of such documents.

Upon a written or oral request, we will provide, without charge, copies of all documents which are incorporated by reference in this prospectus to anyone to whom this prospectus is delivered. We will not send exhibits to those documents unless we specifically incorporated the exhibits by reference in those documents or this prospectus. Make your request by calling or writing:

Kent G. Baker

Chief Financial Officer

United Fire & Casualty Company

118 Second Avenue, S.E.

Cedar Rapids, Iowa 52407-3909

(319) 399-5700

You should rely only on the information that we have provided or incorporated by reference in this prospectus. We have not authorized anyone else to provide you with different information. You should assume that the information in this prospectus, as well as information we previously filed with the Securities and Exchange Commission and incorporated by reference, is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since then.

69

[IBC—4/COLOR GRAPHICS]

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14.    OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table itemizes the expenses incurred by the registrant in connection with the offerings described in this registration statement. All the amounts shown are estimates, except the SEC registration fees.

SEC registration fees	$	5,290
NASD filing fee		6,250
NASDAQ entry fee		96,000
Rating agency fees and expenses		42,500
Accounting fees and expenses		100,000
Legal fees and expenses		200,000
Printing and engraving fees and expenses		75,000
Miscellaneous fees and expenses		10,000
Total	$	535,040

ITEM 15.    INDEMNIFICATION OF DIRECTORS AND OFFICERS

The registrant’s Articles Incorporation provide that a director of the registrant shall not be personally liable to the registrant or its security holders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the registrant or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Iowa Code Section 490.833 of the Iowa Business Corporation Act, which concerns unlawful distributions or (4) for any transaction from which the director derived an improper personal benefit.

The registrant’s Articles Incorporation further provide that if the Iowa Business Corporation Act, Iowa Code Chapter 490 is amended to authorize corporate action further eliminating or limiting the personal liability of the directors, then the liability of a director of the registrant shall be eliminated or limited to the fullest extent permitted by the Iowa Business Corporation Act.

The directors and officers of the registrant are covered by insurance policies indemnifying them against certain liabilities, including certain liabilities arising under the Securities Act, which might be incurred by them in such capacities.

ITEM 16.    EXHIBITS

See the index to exhibits, which is incorporated herein by reference.

ITEM 17.    UNDERTAKINGS

(a) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(b)  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

II-1

(c)  For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4)or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(d)  For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-2

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to its registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cedar Rapids, State of Iowa on April 22, 2002.

UN ITED FIRE & CASUALTY COMPANY

(Registrant)

By:	/S/    JOHN A. RIFE
	John A. Rife, President and Chief Executive Officer (Principal Executive Officer)

By:	/S/    KENT G. BAKER
	Kent G. Baker, Vice President and Chief Financial Officer (Principal Accounting Officer)

Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to its registration statement on Form S-3 has been signed by the following persons, in the capacities and on the dates indicated.

(SIGNATURE)	(TITLE AND DATE)
/S/    SCOTTMCINTYRE, JR.*         Scott McIntyre, Jr.	Chairman and Director Date: April 22, 2002
/S/    JOHNA. RIFE         John A. Rife	Director Date: April 22, 2002
/S/    JACKB.EVANS*         Jack B. Evans	Vice Chairman and Director Date: April 22, 2002
/S/    CHRISTOPHERR. DRAHOZAL*         Christopher R. Drahozal	Director Date: April 22, 2002
/S/    CASEYD. MAHON*         Casey D. Mahon	Director Date: April 22, 2002
/S/    THOMASK.MARSHALL*         Thomas K. Marshall	Director Date: April 22, 2002

/S/    GEORGEG.MILLIGAN*         George G. Milligan	Director Date: April 22, 2002
/S/    MARYK. QUASS*         Mary K. Quass	Director Date: April 22, 2002

/S/    BYRONG.RILEY*         Byron G. Riley Director Date: April 22, 2002

II-3

(SIGNATURE)	(TITLE AND DATE)
/S/    KYLED. SKOGMAN*         Kyle D. Skogman	Director Date: April 22, 2002
/S/    FRANKS. WILKINSON, JR.*         Frank S. Wilkinson, Jr.	Director Date: April 22, 2002

  *By John A. Rife, attorney-in-fact. Powers of Attorney appointing John A. Rife and Kent G. Baker, and each of them individually, to execute this registration statement and any amendments thereto were previously filed with the Securities and Exchange Commission.

II-4

INDEX TO EXHIBITS

EXHIBIT NUMBER	EXHIBIT DESCRIPTION
1	Form of Underwriting Agreement
4.1	Fourth Restated Articles of Incorporation of United Fire & Casualty Company*
4.2	By-Laws of the registrant (incorporated by reference to Exhibit 4.2 of the registrant’s Form S-8 Registration Statement, filed with the Securities and Exchange Commission on December 19, 1997; SEC File Number 333-42895)
4.3	Form of First Amendment to Fourth Restated Articles of Incorporation of United Fire & Casualty Company
4.4	Form of Certificate of $25 [     ]% Cumulative Convertible Redeemable Preferred Stock, Series A, no par value*
5	Opinion of Bradley & Riley PC re legality and consent**
12	Statements re Computation of Ratios*
23.1	Consent of Arthur Andersen LLP
23.2	Consent of Bradley & Riley PC (included in Exhibit 5)**
24	Powers of Attorney (included in the signatures pages of the first filing of this registration statement)

* Previously filed.

** To be filed by amendment.

II-5

EX-1

                                                                       Exhibit 1




                         UNITED FIRE & CASUALTY COMPANY

                   2,000,000 Cumulative Convertible Redeemable
                     Preferred Stock, Series A, no par value


                             UNDERWRITING AGREEMENT
                             ----------------------
                                                                __________, 2002

McDonald Investments Inc.
As Representative of the Several Underwriters
c/o McDonald Investments Inc.
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio  44114

Ladies and Gentlemen:

     1. Introductory. United Fire & Casualty Company, an Iowa corporation (the
"Company"), proposes to issue and sell 2,000,000 shares of its $25 __%
Cumulative Convertible Redeemable Preferred Stock, Series A, no par value (the
"Preferred Shares"), which are authorized but unissued, upon the terms
hereinafter set forth in this Underwriting Agreement (the "Agreement") to the
Underwriters named in Schedule A hereto (the "Underwriters"), who are acting
severally and not jointly, and for whom you are acting as Representative. The
2,000,000 Preferred Shares to be purchased from the Company are hereinafter
referred to as the "Firm Stock." The Company also proposes to sell to the
Underwriters, at their option, an aggregate of not more than 300,000 additional
Preferred Shares, which are hereinafter referred to as the "Option Stock," to
cover over-allotments. The Firm Stock and the Option Stock are hereinafter
collectively referred to as the "Stock" and are more fully described in the
Registration Statement (as hereinafter defined) and the Prospectus (as
hereinafter defined). The Company hereby confirms its several agreements with
you, acting as the Representative of the Underwriters. Except as may be
expressly set forth below, any references to you in this Agreement shall be
solely in your capacity as the Representative of the Underwriters.

     2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters that:

          (a) Schedule B hereto sets forth each corporation, association or
other entity that is directly or indirectly owned or controlled by the Company
(collectively, the "Subsidiaries"). Each of the Company and the Subsidiaries has
been duly incorporated (or otherwise formed, as appropriate) and is validly
existing as a corporation (or other entity, as appropriate) in good standing
under the laws of the state of its formation, with power and authority
(corporate and other) to own and lease its properties and conduct its business
as



described in the Prospectus. Each of the Company and the Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions in which the nature of the business as presently conducted by it,
or the nature of the property owned or leased by it, requires such qualification
(except for those jurisdictions in which the failure to so qualify or be in good
standing will not have a material adverse effect on the business, prospects,
properties, assets, results of operation or condition (financial or other) of
the Company or such Subsidiary). Except as disclosed in the Registration
Statement, neither the Company nor any Subsidiary owns, directly or indirectly,
any equity securities or securities convertible into or exchangeable for equity
securities of any other corporation, association, partnership, joint venture,
Massachusetts or other business trust or any other business enterprise, other
than passive investments which do not represent more than 2% of the voting power
of such enterprise.

          (b) This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.

          (c) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission"), in accordance with the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules, regulations and
interpretive releases of the Commission thereunder (the "Rules and
Regulations"), a registration statement on Form S-3 (Registration No.
333-83446), and amendments thereto, including a preliminary prospectus relating
to the Stock in the form heretofore delivered to you, and also delivered to you
for each of the other Underwriters. If such registration statement has not
become effective, an amendment (the "Final Amendment") to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective, will promptly be filed by the
Company with the Commission. If such registration statement has become effective
and any post-effective amendment to such registration statement has been filed
with the Commission prior to the execution and delivery of this Agreement, which
amendment or amendments shall be in form reasonably acceptable to you, the most
recent such amendment shall have been declared effective by the Commission. If
such registration statement has become effective, a final prospectus (the "Rule
430A Prospectus") relating to the Stock and containing information permitted to
be omitted at the time of effectiveness by Rule 430A of the Rules and
Regulations will promptly be filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations. No stop order suspending the effectiveness of such
registration statement or any part thereof shall have been issued and not
withdrawn, and no proceedings for that purpose shall have been instituted or
shall be pending or, to the knowledge of the Company, contemplated by the
Commission. Any preliminary prospectus filed as part of such registration
statement, or amendments thereof, before it became effective under the Act and
any prospectus filed with the Commission by the Company with the consent of the
Representative pursuant to Rule 424(a) of the Rules and Regulations shall
hereinafter be referred to as a "Preliminary Prospectus," and the final
prospectus relating to the Stock in the form first filed pursuant to Rule
424(b)(1) or (4) of the Rules and Regulations or, if no such filing is required,
the form of final prospectus included in the registration statement, shall be
hereinafter referred to as the "Prospectus." The term "Registration Statement"
shall hereinafter refer to such registration statement, as amended at the time
that it becomes or became effective, or, if applicable, as amended at the time
the most recent post-effective amendment to such registration statement filed
with the Commission prior

                                       2




to the date of this Agreement became effective (the "Effective Date"), including
all exhibits thereto and all information deemed to be a part thereof at such
time pursuant to Rule 430A(b) of the Rules and Regulations.

          (d) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the Rules and Regulations, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through you expressly for use therein.

          (e) At the Effective Date and at the respective Closing Dates (as
hereinafter defined) of the offering: (i) the Registration Statement and any
amendments thereof contained or will contain all statements of material fact
that are required to be stated therein in accordance with the Act and the
applicable Rules and Regulations, and conformed or will conform in all material
respects with the requirements of the Act and the Rules and Regulations, and
neither the Registration Statement nor any amendment thereof included or will
include any untrue statement of a material fact or omitted or will omit any
material fact required to be stated therein or necessary to make the statements
therein not misleading and (ii) the Prospectus and any amendments thereof or
supplements thereto contained or will contain all statements of material fact
that are required to be stated therein in accordance with the Act and the
applicable Rules and Regulations, and conformed or will conform in all material
respects with the requirements of the Act and the Rules and Regulations, and
neither the Prospectus nor any amendment thereof or supplement thereto included
or will include any untrue statement of a material fact or omitted or will omit
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection (e) shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing to the
Company by an Underwriter through you expressly for use therein.

          (f) The Company has the duly authorized, issued and outstanding
capitalization as set forth under "Capitalization" in the Prospectus. As of
the date of this Agreement and immediately prior to the First Closing Date (as
hereinafter defined), none of the Preferred Shares are or will be outstanding.
In the event a Second Closing Date (as hereinafter defined) occurs, the only
outstanding Preferred Shares will be those sold to the Underwriters pursuant to
this Agreement. All of the outstanding shares of common stock of the Company
(the "Common Shares") have been duly authorized and validly issued, are fully
paid and nonassessable, are free of any preemptive rights, rights of first
refusal or similar rights, were issued and sold in compliance with applicable
federal and state securities laws and conform to the description thereof
contained in the Prospectus, and any certificates for the Common Shares are in
due and legal form under Iowa law. Except as described in the Prospectus, there
are no outstanding options, warrants or other rights calling for the issuance
of, and there are no

                                       3



commitments, plans or arrangements to issue, any shares of capital stock of the
Company or any security convertible or exchangeable or exercisable for capital
stock of the Company. There are no contracts, agreements or understandings
between the Company and any person or entity granting such person or entity the
right to require the Company to file a registration statement under the Act with
respect to any securities owned or to be owned by such person or entity or to
require the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the Act,
other than such contracts, agreements or understandings as have been satisfied
by the inclusion of securities in the Registration Statement.

          (g) The Preferred Shares conform in substance to all statements in
relation thereto contained in the Registration Statement and the Prospectus and
the Firm Stock has been duly authorized and, when (and, with respect to the
Option Stock, if) issued, delivered and paid for pursuant to this Agreement,
will be validly issued, fully paid and nonassessable, free of any preemptive
rights, rights of first refusal or similar rights and will conform in substance
to the description thereof contained in the Prospectus. All corporate action
required to be taken for the issuance of the Stock by the Company has been
validly and sufficiently taken. The certificates for the Stock are in due and
legal form under Iowa law.

          (h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Prospectus, (i) neither the Company nor any Subsidiary has incurred any
material liability or obligation, direct or contingent, or entered into any
material transaction, (ii) there has not been any change (on a pro forma basis
or otherwise) in the capital stock or short-term or long-term debt of the
Company, or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the business, prospects,
properties, assets, results of operations or condition (financial or other) of
the Company, (iii) there has not been any dividend of any kind declared, paid or
made by the Company on its capital stock other than dividends declared, paid or
made in accordance with past practices and (iv) the Company has not sustained
any loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute, work
stoppage or work slowdown or court or governmental action, order or decree which
could have a material adverse effect on the business, prospects, properties,
assets, results of operations or condition (financial or other) of the Company.

          (i) The execution, delivery and performance of this Agreement by the
Company, the consummation by the Company of the transactions herein
contemplated, the issuance and sale of the Stock by the Company and the
compliance by the Company with all the provisions of this Agreement will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any pledge, lien, encumbrance, equity, security interest, charge
or claim upon any of the property or assets of the Company pursuant to, any
indenture, mortgage, deed of trust, loan agreement, lease, contract or other
agreement or instrument to which the Company is a party or by which the Company
is bound or to which any of the property or assets of the Company are subject,
nor will such action result in any violation of the provisions of the Third
Amended and Substituted Articles of Incorporation or the By-Laws or other
organizational documents, in each case as

                                       4



amended to the date hereof, of the Company, or any statute or any order, ruling,
judgment, decree, rule or regulation applicable to the Company or any Subsidiary
of any court or governmental agency or body having jurisdiction over the Company
or its Subsidiaries or its business, properties or assets.

          (j) The audited financial statements, including the notes and
schedules thereto, of the Company included or incorporated by reference in the
Registration Statement and the Prospectus fairly present in all material
respects the financial condition of the Company as of the dates indicated and
the results of operations and cash flows for the periods therein specified in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved except to the extent disclosed therein. Any pro
forma financial statements, including any notes and schedules thereto, of the
Company included or incorporated by reference in the Registration Statement and
the Prospectus fairly present in all material respects the pro forma financial
condition of the Company as of the dates indicated and the pro forma results of
operations and cash flows for the periods therein specified and have been
compiled on a basis consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus, and have been
prepared to give effect to certain assumptions and proposed transactions made on
reasonable bases that are fully and accurately described in the Prospectus, and
any and all pro forma adjustments have been properly applied on reasonable bases
that are fully and accurately described therein. The selected financial and
statistical data included in the Prospectus are accurate in all material
respects and fairly present the information shown therein and have been compiled
on a basis consistent with that of the audited financial statements included in
the Registration Statement and the Prospectus. No other financial statements,
notes or schedules are required to be included in the Registration Statement and
the Prospectus in compliance with the Act and the Rules and Regulations.

          (k) Arthur Andersen LLP have certified certain financial statements of
the Company, have delivered their report with respect to the audited financial
statements, notes and schedules included in the Registration Statement and the
Prospectus, and are independent public accountants within the meaning of the Act
and the Rules and Regulations, Regulation S-X promulgated by the Commission.

          (l) Each of the Company and the Subsidiaries possesses all material
authorizations, approvals, orders, licenses, certificates, consents and permits
of and from all governmental or regulatory officials and bodies (collectively,
the "Licenses") as are necessary under applicable law to own or lease, as the
case may be, and to operate its properties and to conduct its business as
presently conducted and as described in the Prospectus, and neither the Company
nor any Subsidiary has received any notice of any material restriction upon, or
any notice of proceedings relating to the revocation or material modification of
any such Licenses, all such Licenses are valid and in full force and effect and
the Company and each Subsidiary is operating in compliance in all material
respects with the terms and provisions of such Licenses.

          (m) Neither the Company nor any Subsidiary is (by virtue of any
action, omission to act, contract to which it is a party or by which it is
bound, or any occurrence or state of facts whatsoever) in violation of, and
neither the Company nor any Subsidiary has received any outstanding notice of a
violation of, any applicable foreign, federal, state, county or

                                       5



local laws, statutes, rules, orders, regulations or ordinances relating to
public health, safety or the environment, including, without limitation,
relating to releases, discharges, emissions or disposals into the air, water,
land or groundwater, to the withdrawal or use of groundwater, to the use,
handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, or to exposure to
toxic, hazardous or other controlled, prohibited or regulated substances, which
violation would have a material adverse effect on the business, prospects,
properties, assets, results of operations or condition (financial or other) of
the Company, or that might materially and adversely affect the consummation of
the transactions contemplated by this Agreement. In addition, and irrespective
of such compliance, neither the Company nor any Subsidiary is subject to any
liability for environmental remediation or clean-up, including any liability or
class of liability of a lessee under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or under the Resource
Conservation and Recovery Act of 1976, as amended, which liability would have a
material adverse effect on the business, prospects, properties, assets, results
of operations or condition (financial or other) of the Company, or that might
materially and adversely affect the consummation of the transactions
contemplated by this Agreement.

          (n) There are no legal or governmental actions, suits, proceedings or
investigations pending or, to the knowledge of the Company, threatened or
contemplated to which the Company or any of its Subsidiaries, executive officers
or directors is a party, or of which the business, property or assets
(including, without limitation, any of the Licenses) of the Company, or any of
the Company's employees is the subject that is required to be described in the
Prospectus or that, individually or in the aggregate (after giving effect to any
applicable insurance, reinsurance or reserves therefor), could have a material
adverse effect or a prospective material adverse effect on the business,
prospects, properties, assets, results of operations or condition (financial or
other) of the Company or that might materially and adversely affect the
consummation of the transactions contemplated by this Agreement, except as set
forth in the Prospectus. Neither the Company nor any Subsidiary is subject to
any outstanding order, ruling, judgment, award or decree that could have a
material adverse effect on the business, prospects, properties, assets, results
of operations or condition (financial or other) of the Company; and all pending
legal or governmental proceedings to which the Company or its Subsidiaries is a
party or by which the business, property or assets of the Company are subject
that are not described in the Prospectus, including ordinary routine litigation
incidental to its business, are, considered individually or in the aggregate,
not material.

          (o) Neither the Company nor any Subsidiary is in violation of its
Articles of Incorporation, By-Laws or other organizational documents, in each
case as amended to the date hereof, and no default exists, and no event has
occurred that, with notice or lapse of time, or both, would constitute an event
of default by the Company or any Subsidiary in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, loan agreement, lease, contract or other agreement or instrument
material to the Company, to which the Company or such Subsidiary is a party or
by which the Company or such Subsidiary or its business, properties or assets
are bound. Neither the Company nor any Subsidiary is in violation of, in any
material respect, any applicable statute or any applicable

                                       6



order, ruling, judgment, decree, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or such Subsidiary or its
business, properties or assets.

          (p) The Company and each Subsidiary has good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by it, in each case free and clear of all liens, charges,
encumbrances, restrictions and defects except those that are described in the
Prospectus, or those that do not materially affect the value of such property
and do not interfere with the use currently made and proposed to be made of such
property by the Company or such Subsidiary. Any real property and buildings held
under lease or sublease by the Company or any Subsidiary is held by it under
valid, subsisting and enforceable leases or subleases, as the case may be, with
such exceptions as are not material and do not interfere with the use currently
made and proposed to be made of such real property and buildings by the Company
or such Subsidiary. Neither the Company nor any Subsidiary has received any
notice of any claim that has been asserted by anyone adverse to the rights of
the Company or such Subsidiary under any such lease or sublease or affecting or
questioning the rights of the Company or any Subsidiary to the continued
possession of the leased or subleased premises under any such lease or sublease.

          (q) Other than as set forth in the Prospectus, the Company owns or
possesses all patents, patent rights, licenses, inventions, copyrights,
technology, know-how (including trade secrets, applications and other unpatented
or unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names, trademark registrations and service mark
registrations (collectively, "Proprietary Rights") used in or necessary for the
conduct of its business as now conducted and as proposed to be conducted as
described in the Prospectus; the Company has the right to use all Proprietary
Rights used in or necessary for the conduct of its business without infringing
the rights of any person or violating the terms of any licensing or other
agreement to which the Company is a party and, to the knowledge of the Company,
no person is infringing upon any Proprietary Right which the Company has the
sole and exclusive right to use; no charges, claims or litigation have been
asserted or, to the knowledge of the Company, threatened against the Company
contesting the right of the Company to use, or the validity of, any Proprietary
Right or challenging or questioning the validity or effectiveness of any license
or agreement pertaining thereto or asserting the misuse thereof and, to the
knowledge of the Company, no valid basis exists for the assertion of any such
charge, claim or litigation; all licenses and other agreements to which the
Company is a party relating to Proprietary Rights are in full force and effect
and constitute valid, binding and enforceable obligations of the Company and, to
the knowledge of the Company, the other respective parties thereto, and there
have not been and there currently are not any defaults that would have a
material adverse effect on the Company, or its business, prospects, properties,
assets, results of operations or condition (financial or other) and no event has
occurred that, with notice or lapse of time, or both, would constitute an event
of default under any license or other agreement affecting Proprietary Rights
used in or necessary for the conduct of the business of the Company by any
party; and except as set forth in the Prospectus, the validity, continuation and
effectiveness of all such licenses and other agreements, and the current terms
thereof, will not be affected by the transactions contemplated by this
Agreement.

                                       7



          (r) No consent, approval, authorization, order, license, certificate,
permit, registration or qualification of or with any court or governmental
agency or body is required of the Company for the issuance and sale of the Firm
Stock (or, if applicable, the Option Stock) or the consummation by the Company
of the transactions herein contemplated, except: (i) as required under the Act
or the Rules and Regulations with respect to the Firm Stock (or, if applicable,
the Option Stock); (ii) as may be required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or the rules, regulations and
interpretive releases of the Commission thereunder (the "Exchange Act Rules and
Regulations") with respect to the Firm Stock (or, if applicable, the Option
Stock); (iii) for such consents, approvals, authorizations, orders, licenses,
certificates, permits, registrations or qualifications as may be required under
securities or Blue Sky laws of any jurisdiction in connection with the purchase
and distribution of the Firm Stock (or, if applicable, the Option Stock) by the
Underwriters; and (iv) for such consents or approvals as may be required of the
Iowa Insurance Commissioner and the Iowa Attorney General; and all such
consents, approvals, authorizations, orders, licenses, certificates, permits,
registrations or qualifications have been obtained.

          (s) The Stock is exempt from registration under Section 12(g) of the
Exchange Act and has been authorized for trading on the Nasdaq National Market
System ("Nasdaq"), the latter being subject only to official notice of issuance.

          (t) The outstanding debt and the business, prospects, properties,
assets, results of operations and condition (financial or other) of the Company
conform in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.

          (u) The Company and each Subsidiary has filed on a timely basis all
federal, state, county, local and foreign income, franchise or other tax returns
required to be filed through the date hereof and has paid all taxes that have
become due, whether pursuant to any assessments or otherwise, and there is no
further liability (whether or not disclosed on such returns) or assessments for
any such taxes, and no interest or penalties have accrued or are accruing with
respect thereto, except for such taxes, interest and penalties being contested
in good faith or as may be set forth or adequately reserved for in the financial
statements included in the Registration Statement and the Prospectus; no tax
deficiency has been asserted against the Company or any Subsidiary, nor does the
Company know of any tax deficiency, that if determined adversely could have a
material adverse effect on the business, prospects, properties, assets, results
of operations or condition (financial or other) of the Company; and the amounts
currently established as provisions for taxes by the Company on its books and
records are sufficient for the payment of all its unpaid federal, state, county,
local and foreign taxes accrued through the dates as of which such books and
records speak, and for which the Company may be liable in its own right, or as a
transferee of the assets of, or as successor to, any other corporation,
association, partnership, joint venture or other entity.

          (v) The Company and each Subsidiary is in compliance, in all material
respects, with all applicable insurance laws governing the Company and such
Subsidiary and its business and has made all necessary filings in connection
therewith.

                                       8



          (w) The Company and each Subsidiary maintains insurance of the types
and in the amounts required by any indenture, mortgage, deed of trust, loan
agreement, lease, contract or other agreement or instrument to which the Company
or such Subsidiary is a party or by which the Company or such Subsidiary is
bound or to which any of the property or assets of the Company or such
Subsidiary are subject and as is generally deemed adequate for the conduct of
its business, the value of its business, properties and assets and consistent
with insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering (i) personal injury claims and
(ii) real and personal property owned or leased by the Company or such
Subsidiary against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect.

          (x) No labor disturbance by the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is threatened or imminent
that could have a material adverse effect on the business, prospects,
properties, assets, results of operation or condition (financial or other) of
the Company or such Subsidiary, and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, contractors or customers that could have a material adverse
effect on the business, prospects, properties, assets, results of operation or
condition (financial or other) of the Company or any Subsidiary.

          (y) Neither the Company nor any Subsidiary is in violation of, and it
has not received any outstanding notice of a violation of, any federal or state
law relating to equal employment or discrimination in the hiring, promotion or
paying of employees or civil rights generally, any federal or state law relating
to discrimination with respect to the issuance of insurance policies or
establishing the premiums therefor, any applicable federal or state wages and
hours laws or any provisions of the Employee Retirement Income Security Act of
1974, as amended, including the rules, regulations and published interpretations
thereunder ("ERISA"), where such violation could have a material adverse effect
on the business, prospects, properties, assets, results of operation or
condition (financial or other) of the Company; no "reportable event" (as defined
in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability that could have a material
adverse effect on the business, prospects, properties, assets, results of
operation or condition (financial or other) of the Company; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" (as defined in
ERISA) or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the rules, regulations and published interpretations
thereunder (the "Code"); and each "pension plan" (as defined in ERISA) for which
the Company would have liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or failure to act, that would cause the loss of such
qualification.

          (z) The Company has obtained, or will obtain prior to the First
Closing Date, the agreement of each of its affiliates identified on Schedule C
hereto, that, for a period of ninety (90) days from the date of the

                                       9



Prospectus, such persons will not, without the prior written consent of McDonald
Investments Inc., directly or indirectly, sell, offer to sell, contract to sell,
grant any option for the sale of, transfer, distribute or otherwise dispose of
by any means (or publicly announce any intention to do the foregoing) any
Preferred Shares or Common Shares (including, without limitation, Preferred
Shares or Common Shares that may be deemed to be beneficially owned by such
persons in accordance with the applicable Exchange Act Rules and Regulations) or
any securities convertible into or exchangeable or exercisable for Preferred
Shares or Common Shares that such person has or will have the right to acquire
through options, warrants, subscriptions or other rights, other than, in the
case of individuals, under certain limited circumstances.

          (aa) Neither the Company nor any of its directors, officers, agents,
employees or affiliates (as defined in the Act and the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to stabilize
or manipulate, or that has constituted, or might reasonably be expected to cause
or result in, the stabilization or manipulation of the price of any security of
the Company in order to facilitate the sale or resale of the Stock or otherwise.

          (bb) The Company and each Subsidiary (i) makes and keeps accurate
books and records and (ii) maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
only in accordance with management's general or specific authorization, (B)
transactions are recorded in conformity with generally accepted accounting
principles as necessary to permit the preparation of financial statements and to
maintain accountability for assets, (C) access to assets is permitted only in
accordance with management's specific or general authorization, and (D) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

          (cc) Neither the Company nor any of its directors, officers, agents,
employees or other persons acting on behalf of the Company has (i) used any
corporate funds for any unlawful contribution, payment, gift, entertainment or
other unlawful expense relating to political activity, (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds, (iii) violated or is in violation of any
provision of the Foreign Corrupt Practices Act of 1977, or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment or
received or retained any contribution, payment, gift or expenditure in violation
of any law, rule or regulation.

          (dd) The Company does not, and does not intend to conduct, its
business in a manner in which it would become and, after giving effect to the
offering and sale of the Stock, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "1940 Act") and the rules and
regulations of the Commission thereunder.

          (ee) The Company does not conduct business with the government of Cuba
or with any person or affiliate located in Cuba, within the meaning of Section
517.075 of the Florida Statutes.


                                       10



          (ff) There are no statutes or regulations or any contracts or other
documents that are required to be described in the Prospectus, incorporated by
reference therein or filed as exhibits to the Registration Statement by the Act
or the Rules and Regulations and are not so described in the Prospectus,
incorporated by reference therein or filed as exhibits to the Registration
Statement as required by the Act and the Rules and Regulations; and all such
contracts to which the Company is a party have been duly authorized, executed
and delivered by the Company, constitute valid and binding agreements of the
Company, have been performed and/or are being performed in all material respects
and are enforceable against the Company, in each case, in accordance with the
terms thereof.

          (gg) No relationship, direct or indirect, exists between or among the
Company, on the one hand, and the directors, officers, shareholders, affiliates,
customers or suppliers of the Company, on the other hand, that is required by
the Act or the Rules and Regulations to be described in the Prospectus or
incorporated by reference therein and are not so described in the Prospectus or
incorporated by reference therein.

          (hh) The Company has no agreements or understandings with any person
or entity (i) concerning the future acquisition by the Company of a controlling
interest in any entity or (ii) concerning the future acquisition by any person
or entity of a controlling interest in the Company, that are not disclosed in
the Prospectus or incorporated by reference therein.

          (ii) Other than with respect to the Underwriters, the Company has not
incurred any liability for finder's or broker's fees or agent's commissions in
connection with the execution and delivery of this Agreement, the offer and sale
of the Stock or the transactions contemplated hereby.

     Any certificate executed by an authorized officer of the Company and
delivered to the Underwriters or counsel for the Underwriters pursuant to this
Agreement shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.

     3. Sale, Purchase and Delivery of Stock. (a) On the basis of the
representations, warranties and agreements herein contained, subject to the
terms and conditions set forth herein, the Company hereby agrees to issue and
sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company the respective number of shares of the
Firm Stock set forth opposite the Underwriter's name in Schedule A hereto, at a
price of $_____ per share.

          (b) The Company will deliver the Firm Stock to you for the respective
accounts of the several Underwriters at the office of McDonald Investments Inc.,
McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114, at 10:00
a.m., Eastern Time, or to your designee at a specified place at the same time,
against payment of the purchase price therefor in immediately available funds to
the order of the Company on the third full business day after the date of this
Agreement (or, if the Firm Stock is priced after 4:30 p.m., Eastern Time, on the
date of this Agreement, the fourth full business day after the date of this

                                       11



Agreement), or at such other time not later than seven full business days after
such public offering as you shall determine, such time and place being herein
referred to as the "First Closing Date." Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. The certificates
representing the shares of the Firm Stock to be so delivered will be in such
denominations and registered in such names as you may specify to the Company at
or before 3:00 p.m., Eastern Time, on the second full business day prior to the
First Closing Date. Such certificates will be made available for checking and
packaging at least twenty-four (24) hours prior to the First Closing Date.

          (c) On the basis of the representations, warranties and agreements
herein contained, subject to the terms and conditions set forth herein, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to 300,000 additional shares in the aggregate of
Option Stock at the purchase price set forth in Section 3(a) hereof, for use
solely in covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Stock. The option granted hereunder may be exercised at
any time (but not more than once) within thirty (30) days after the date of this
Agreement, upon written or telephonic (subsequently confirmed in writing) notice
by the Representative to the Company setting forth the aggregate number of
shares of Option Stock upon which the Underwriters are exercising the option and
the time and place at which certificates representing such shares of Option
Stock will be delivered, such time (which, unless otherwise determined by you
and the Company, shall not be earlier than three (3) nor later than ten (10)
full business days after the exercise of said option), if not the First Closing
Date, shall be herein referred to as the "Second Closing Date" and each of the
First Closing Date and the Second Closing Date shall be herein referred to as a
"Closing Date." The number of shares of Option Stock to be sold by the Company
to each Underwriter and purchased by such Underwriter from the Company shall be
the same percentage of the total number of shares of Option Stock to be
purchased by the several Underwriters on the Second Closing Date as such
Underwriter purchased of the total number of shares of the Firm Stock, as
adjusted by the Representative to avoid fractions and to reflect any adjustment
required by Section 11 hereof. The Company will deliver certificates
representing the shares of the Option Stock being purchased by the several
Underwriters to you, with any transfer taxes thereon duly paid by the Company,
for the respective accounts of the several Underwriters on the Second Closing
Date at the place and time of such closing, or to your designee at a specified
place at the same time, against payment of the purchase price therefor in
immediately available funds to the order of the Company. The certificates
representing the shares of the Option Stock to be so delivered will be in such
denominations and registered in such names as you may specify to the Company at
or before 3:00 p.m., Eastern Time, on the second full business day prior to the
Second Closing Date. Such certificates will be made available for checking and
packaging at least twenty-four (24) hours prior to the Second Closing Date. The
option granted hereby may be canceled by you as the Representative of the
several Underwriters, as to the shares of the Option Stock for which the option
is unexercised, at any time prior to the expiration of the 30-day period, upon
written or telephonic (subsequently confirmed in writing) notice to the Company.

     4. Offering by Underwriters. Subject to the terms and conditions hereof,
the several Underwriters agree that they will (i) offer the Stock to the public
as set forth in the Prospectus as

                                       12



soon after the Effective Date as may be practicable, but in no event later than
5:00 p.m., Eastern Time, on the 15th business day subsequent to the Effective
Date and (ii) offer and sell the Stock to the public only in those
jurisdictions, and in such amounts, where due qualification and/or registration
has been effected or an exemption from such qualification and/or registration is
available under the applicable securities or Blue Sky laws of such jurisdiction;
it being understood, however, that such agreement only covers the initial sale
of the Stock by the Underwriters and not any subsequent sale of such Stock in
any trading market that may develop after the public offering.

     5. Covenants of the Company. The Company covenants and agrees with each of
the Underwriters that:


          (a) If the Registration Statement has not become effective, the
Company will promptly file the Final Amendment with the Commission and use its
best efforts to cause the Registration Statement to become effective; if the
Registration Statement has become effective, the Company will prepare the Rule
430A Prospectus in a form approved by you and will file such Rule 430A
Prospectus with the Commission pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; the Company will make no
further amendment to the Registration Statement or supplement to the Prospectus
of which you and counsel for the Underwriters shall not previously have been
advised and furnished a copy, or to which you or counsel for the Underwriters
shall object; the Company will advise you promptly, after the Company receives
notice thereof, of the time when the Registration Statement, or any amendment
thereto, has been filed or becomes effective or any supplement to the Prospectus
or any amended Prospectus has been filed and will furnish you and counsel for
the Underwriters with copies thereof; the Company will advise you, promptly
after it receives notice thereof, of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Stock for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose or of any request by the Commission to amend or supplement the
Registration Statement or the Prospectus or for additional information; in the
event of the issuance of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending the qualification of the
Stock for offering or sale in any jurisdiction, the Company will promptly use
its best efforts to obtain as soon as possible the withdrawal of such order; and
the Company will use its best efforts to prevent the issuance of any such stop
order or of any such order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or suspending the qualification of the Stock for
offering or sale in any jurisdiction.

          (b) The Company will comply with the Act and the Rules and Regulations
so as to permit the continuance of offerings, sales and dealings in the Stock
under the Act for such period as may be required by the Act. Promptly from time
to time, the Company will take such action as you may request to register and
qualify the Stock for offering and sale under the securities laws of such
jurisdictions as you may request and to comply with

                                       13



such laws so as to permit the continuance of offerings, sales and dealings
therein in such jurisdictions for as long as may be necessary to complete the
distribution of the Stock, provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction. The Company consents to use
of the Preliminary Prospectus, in accordance with the provisions of the Act and
with the securities or Blue Sky laws of the jurisdictions in which the Stock is
offered by the Underwriters and any dealers, prior to the Effective Date.

          (c) The Company will furnish the Representative and counsel for the
Underwriters, without charge, two signed and conformed copies of the
Registration Statement as originally filed with respect to the Stock and each
amendment thereto (in each case including all consents and exhibits filed
therewith) and to each other Underwriter, without charge, one signed and
conformed copy of such Registration Statement and each amendment thereto (in
each case without the consents and exhibits filed therewith) and, so long as a
prospectus relating to the Stock is required to be delivered under the Act or
the Rules and Regulations, such number of copies of each Preliminary Prospectus,
the Prospectus and all amendments or supplements thereto as you may from time to
time reasonably request. If at any time when the delivery of a prospectus
relating to the Stock is required under the Act or the Rules and Regulations, an
event shall have occurred the result of which would cause the Prospectus as then
amended or supplemented to include an untrue statement of a material fact or
omit to state any material fact necessary in order to make statements therein,
in the light of the circumstances under which they were made when such
Prospectus was or is delivered, not misleading, or if for any other reason it
shall be necessary to amend or supplement the Prospectus in order to comply with
the Act or the Rules and Regulations, the Company will forthwith prepare and,
subject to the provisions of Section 5(a) hereof, file with the Commission an
appropriate supplement or amendment thereto, and will furnish to each
Underwriter and to any dealer in securities, without charge, such number of
copies as you may from time to time reasonably request of an amended Prospectus
that will correct such statement or omission or effect such compliance in
accordance with the requirements of Section 10 of the Act. The Company consents
to use of the Prospectus (and of any amendments or supplements thereto), in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Stock is offered by the Underwriters and
any dealers, both in connection with the offering or sale of the Stock and for
such period of time thereafter as the Prospectus is required to be delivered in
connection therewith.

          (d) Not later than forty-five (45) days following the end of the
fiscal quarter first occurring after the first anniversary of the Effective
Date, or such other later date that the Commission may permit or establish by
rule, regulation, release or other action, the Company will deliver to you and
generally make available to its shareholders an earnings statement in form
complying with the provisions of Section 11(a) of the Act (including, without
limitation, Rule 158 of the Rules and Regulations) covering a period of at least
twelve (12) consecutive months beginning after the Effective Date.

          (e) The Company will promptly file with the Commission any amendment
to the Registration Statement or the Prospectus or any supplement to the
Prospectus

                                       14



that may, in the judgment of you or the Company, be required by the Act or
requested by the Commission.

          (f) The Company will, subsequent to the Effective Date and during any
period when the Prospectus is required to be delivered under the Act, promptly
file all documents required to be filed with the Commission pursuant to Section
13, 14 or 15 of the Exchange Act within the time periods required by the
Exchange Act and the Exchange Act Rules and Regulations.

          (g) For a period of five (5) years from the Effective Date, the
Company will furnish to its shareholders as soon as practicable after the end of
each fiscal year, an annual report (including a balance sheet, statement of
income, statement of cash flow and statement of changes in shareholders' equity
of the Company and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarterly periods in each fiscal year, summary financial information of
the Company and its consolidated subsidiaries for such quarter in reasonable
detail.

          (h) For a period of five (5) years from the Effective Date, the
Company will deliver to you: (i) as soon as sent or made available to its
shareholders, all such proxy statements, financial statements and reports as the
Company shall send or make available to its shareholders, (ii) as soon as filed
with the Commission, copies of all annual or periodic reports as the Company
shall file with the Commission as required by the Act, the Rules and
Regulations, the Exchange Act and the Exchange Act Rules and Regulations, that
are available for public inspection at the Commission, or any material reports
filed in connection with the Company's listing on any stock exchange, and (iii)
such additional publicly available information prepared by the Company
concerning the business and financial condition of the Company as you may from
time to time reasonably request.

          (i) The Company will apply the net proceeds from the sale of the Stock
sold by it in the manner set forth in the Prospectus under the caption "Use of
Proceeds."

          (j) The Company will not, and will cause its directors, officers,
agents, employees and affiliates (as defined in the Act and the Rules and
Regulations) to not, take, directly or indirectly, any action designed to
stabilize or manipulate or that constitutes, or might reasonably be expected to
cause or result in, the stabilization or manipulation of the price of any
security of the Company in order to facilitate the sale or resale of the Stock
or otherwise.

          (k) Prior to the respective Closing Dates, except as set forth in the
Prospectus (i) there will not be any change (on a pro forma basis or otherwise)
in the capital stock or short-term or long-term debt of the Company, or any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the business, prospects, properties, assets,
results of operations or condition (financial or other) of the Company, (ii)
neither the Company nor any Subsidiary will incur any material liability or
obligation, direct or contingent, or enter into any material transaction, and
(iii) there will not be any dividend of any kind declared, paid or made by the
Company on its capital stock other than dividends declared, paid or made in
accordance with past practices.

                                       15



          (l) The Company will file with Nasdaq all documents and notices
required by Nasdaq of companies that have issued securities that are traded on
Nasdaq, in the over-the-counter market and quotations for which are reported by
Nasdaq.

          (m) For a period of ninety (90) days from the date of the Prospectus,
the Company will not, without the prior written consent of McDonald Investments
Inc., directly or indirectly, sell, offer to sell, contract to sell, grant any
option for the sale of, transfer, distribute or otherwise dispose of by any
means (or publicly announce any intention to do the foregoing) any Preferred
Shares or Common Shares or any securities convertible into or exchangeable or
exercisable for Preferred Shares or Common Shares that the Company has or will
have the right to issue and sell through options, warrants, subscription or
other rights; provided, however, that the Company may, within such 180 day
period, issue up to _______ Common Shares pursuant to options outstanding under
the Company's Stock Incentive Plan and issue Common Shares pursuant to the
Company's Employee Stock Purchase Plan.

          (n) The Company will comply with the financial record-keeping
requirements and internal accounting control requirements of Section 13(b)(2) of
the Exchange Act.

     6. Payment of Expenses. The Company will pay or cause to be paid all costs
and expenses incident to the performance of the obligations of the Company
hereunder, including, but not limited to, the fees, disbursements and expenses
of its counsel; the fees, costs and expenses of preparing, printing and
delivering the certificates for the Stock; the fees, costs and expenses of the
transfer agent and registrar for the Preferred Shares; the fees, disbursements
and expenses of its accountants; the filing fees and expenses incurred in
connection with the qualification, registration or exemption of the Stock under
state securities or Blue Sky laws and the reasonable fees, disbursements and
expenses of counsel for the Underwriters in connection with such qualification,
registration or exemption and the preparation and printing of the preliminary
and final Blue Sky surveys; the filing fees and expenses paid and incurred by
the Underwriters, including the reasonable fees, disbursements and expenses of
counsel for the Underwriters, in connection with the review of the terms of the
underwriting arrangements by the National Association of Securities Dealers,
Inc. (the "NASD"); all fees and expenses in connection with the listing and
quotation of the Stock on Nasdaq; the costs and expenses in connection with the
preparation, printing and filing of the Registration Statement (including the
financial statements and exhibits thereto) as originally filed and as amended,
all amendments thereto, all Preliminary Prospectuses, the Prospectus and any
amendments or supplements thereto and the furnishing to the Underwriters of
copies thereof, including charges for mailing, air freight and delivery,
counting and packaging thereof; the costs and expenses in connection with the
printing of this Agreement and the Agreement Among Underwriters and other
documents distributed to the Underwriters; all reasonable costs and expenses
incurred in connection with the "road show" for the Stock; and all other costs
incident to the authorization, issuance, sale and delivery of the Stock and any
taxes payable in that connection.

     7. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Stock on the First
Closing Date and the Option

                                       16



Stock on the Second Closing Date shall be subject, in their discretion, to the
condition that the representations and warranties of the Company contained
herein shall be true and correct in all respects as of the date hereof and as of
the respective Closing Dates, to the condition that the written statements of an
authorized officer of the Company made and delivered pursuant to the provisions
hereof shall be true and correct in all respects, to the performance by the
Company of its obligations hereunder and to the following additional conditions:

          (a) The Registration Statement shall have become effective not later
than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such later
time or on such later date as shall have been consented to in writing by you,
and you shall have received notice thereof not later than the first full
business day next following the date of this Agreement or such later date as
shall be consented to in writing by you. If you and the Company shall have
elected to rely upon Rule 430A of the Rules and Regulations, the price of the
Stock and any price-related or other information previously omitted in reliance
upon such Rule 430A shall have been filed with the Commission in the manner and
within the time period required by Rule 424(b). Prior to each Closing Date, no
stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceedings for that purpose shall
have been instituted or shall be pending or, to the knowledge of the Company or
you, shall be contemplated by the Commission and all requests for additional
information made by the Commission shall have been complied with to your
satisfaction.

          (b) All corporate proceedings and related legal and other matters in
connection with the organization of the Company and the registration,
authorization, issue, sale and delivery of the Stock shall have been reasonably
satisfactory to Thompson Hine LLP, counsel for the Underwriters, and Thompson
Hine LLP shall have been timely furnished with such documents, certificates and
opinions as they may have requested to enable them to pass upon the issuance and
sale of the Stock as contemplated by this Agreement, and in order to evidence
the accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any of the covenants of the
Company or the fulfillment of any of the conditions herein contained.

          (c) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto
contains an untrue statement of fact that, in the opinion of Thompson Hine LLP,
counsel for the Underwriters, is material, or omits to state a fact which, in
the opinion of such counsel, is material and is required to be stated therein or
is necessary to make the statements therein not misleading. Subsequent to the
Effective Date, (i) there shall not have been any change, or any development
involving a prospective material adverse change, in or affecting the business,
prospects, properties, assets, results of operations or condition (financial or
other) of the Company not described in the Prospectus, that, in your reasonable
opinion, would materially and adversely affect the market for the Stock or make
it impracticable or inadvisable to proceed with the offering, sale or delivery
of the Stock and (ii) the business, prospects, properties, assets, results of
operations or condition (financial or other) of the Company shall not have been
materially interfered with by any fire, explosion, flood or other calamity,
whether or not covered by insurance, or by any labor dispute, work stoppage or
work slowdown or court or governmental action, order or decree.

                                       17



          (d) You shall have received as of each Closing Date (or prior thereto
as indicated) the following:

               (i) Such opinion or opinions of Bradley & Riley PC, counsel for
the Company, addressed to the Underwriters and dated the respective Closing
Dates, in form and substance satisfactory to you, to the effect that:

                    (aa) Each of the Company and its Subsidiaries has been duly
incorporated (or otherwise formed, as appropriate) and is validly existing as a
corporation (or other entity, as appropriate) in good standing under the laws of
the state of its formation, with power and authority (corporate and other) to
own and lease its properties and conduct its business as described in the
Prospectus. Each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
in which the nature of the business as presently conducted by it, or the nature
of the property owned or leased by it, requires such qualification (except for
those jurisdictions in which the failure to so qualify or be in good standing
will not have a material adverse effect on the business, prospects, properties,
assets, results of operation or condition (financial or other) of the Company or
such Subsidiary).

                    (bb) The Company has the duly authorized, issued and
outstanding capitalization as set forth under "Capitalization" in the
Prospectus. Immediately prior to the First Closing Date, none of the Preferred
Shares were outstanding. In the event of a Second Closing Date, the only
outstanding Preferred Shares will be those sold pursuant to this Agreement. All
of the outstanding Common Shares have been duly authorized and validly issued,
are fully paid and nonassessable, are free of any preemptive rights, rights of
first refusal or similar rights, were issued and sold in compliance with
applicable federal and state securities laws and conform to the description
thereof contained in the Prospectus, and any certificates for the Common Shares
are in due and legal form under Iowa law. Except as described in the Prospectus,
to the best knowledge of such counsel, there are no outstanding options,
warrants or other rights calling for the issuance of, and there are no
commitments, plans or arrangements to issue, any shares of capital stock of the
Company or any security convertible, exchangeable or exercisable for capital
stock of the Company. To the best knowledge of such counsel, there are no
contracts, agreements or understandings between the Company and any person or
entity granting such person or entity the right to require the Company to file a
registration statement under the Act with respect to any securities owned or to
be owned by such person or entity or to require the Company to include such
securities in the securities registered pursuant to the Registration Statement
or in any securities being registered pursuant to any other registration
statement filed by the Company under the Act other than such contracts,
agreements or understandings as have been satisfied by the inclusion of
securities in the Registration Statement.

                    (cc) The Preferred Shares conform in substance to all
statements in relation thereto contained in the Registration Statement and the
Prospectus and the Firm Stock has been duly authorized and, when (and, with
respect to the Option Stock, if) issued, delivered and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable, free of any
preemptive rights, rights of first refusal or similar rights. The Stock conforms
to the description thereof contained in the Prospectus and the certificates for
the Stock

                                       18



are in due and legal form under Iowa law. All corporate action required to be
taken for the issuance of the Stock by the Company has been validly and
sufficiently taken.

                    (dd) This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.

                    (ee) The Registration Statement has become effective under
the Act; the Prospectus has been filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and Regulations specified in such
opinion, on the date specified in such opinion, or such filing is not required;
and no stop order suspending the effectiveness of the Registration Statement or
any part thereof has been issued and not withdrawn, and no proceedings for that
purpose have been instituted, are pending or, to such counsel's knowledge, are
contemplated by the Commission. The Registration Statement and the Prospectus,
and each amendment thereof or supplement thereto (except for the financial
statements, notes and schedules and other financial data included therein as to
which such counsel need express no opinion), as of their respective effective or
issue dates, complied as to form in all material respects with the requirements
of the Act and the Rules and Regulations; all descriptions in the Registration
Statement and the Prospectus of contracts or other documents are accurate and
fairly present the information required to be shown with respect to such
matters, all such contracts and other documents conform in all material respects
to the descriptions thereof contained therein, and to the extent such contracts
or other documents are required under the Act or the Rules and Regulations to be
filed therein, as exhibits to the Registration Statement, they are so filed; to
such counsel's knowledge, there are no contracts or other documents that are
required to be described in the Registration Statement and the Prospectus,
incorporated by reference therein or filed as exhibits to the Registration
Statement by the Act or the Rules and Regulations that are not so described,
incorporated by reference or filed; and to such counsel's knowledge, all
descriptions in the Registration Statement and the Prospectus of statutes,
regulations or legal or governmental actions, suits, proceedings or
investigations are accurate and fairly present the information required to be
shown with respect to such matters and there are no statutes, regulations or
legal or governmental actions, suits, proceedings or investigations that are
required to be described in the Registration Statement and the Prospectus by the
Act or the Rules and Regulations that are not so described.

                    (ff) The execution, delivery and performance of this
Agreement by the Company, the consummation by the Company of the transactions
herein contemplated, the issuance and sale of the Stock and the compliance by
the Company with all the provisions of this Agreement will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any
pledge, lien, encumbrance, equity, security interest, charge or claim upon any
of the property or assets of the Company pursuant to, any indenture, mortgage,
deed of trust, loan agreement, lease, contract or other agreement or instrument
to which the Company is a party or by which the Company is bound or to which any
of the property or assets of the Company are subject and of which such counsel
has knowledge after reasonable investigation, nor will such action result in any
violation of the provisions of the Third Amended and Substituted Articles of
Incorporation or the By-Laws or other organizational documents, in each case as
amended to the date of such

                                       19



opinion, of the Company, or, to the knowledge of such counsel, any statute or
any order, ruling, judgment, decree, rule or regulation applicable to the
Company or any Subsidiary of any court or governmental agency or body having
jurisdiction over the Company or its Subsidiaries or its business, properties or
assets.

                    (gg) No consent, approval, authorization, order, license,
certificate, permit, registration or qualification of or with any court or
governmental agency or body is required of the Company for the issuance and sale
of the Firm Stock (or, if applicable, the Option Stock) or the consummation by
the Company of the transactions herein contemplated, except: (i) as required
under the Act or the Rules and Regulations with respect to the Firm Stock (or,
if applicable, the Option Stock); (ii) as may be required under the Exchange Act
or the Exchange Act Rules and Regulations with respect to the Firm Stock (or, if
applicable, the Option Stock); (iii) for such consents, approvals,
authorizations, orders, licenses, certificates, permits, registrations or
qualifications as may be required under securities or Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of the Firm Stock
(or, if applicable, the Option Stock) by the Underwriters; and (iv) for such
consents or approvals as may be required of the Iowa Insurance Commissioner and
the Iowa Attorney General; and all such consents, approvals, authorizations,
orders, licenses, certificates, permits, registrations or qualifications have
been obtained.

                    (hh) To the best knowledge of such counsel, there are no
legal or governmental actions, suits, proceedings or investigations pending or
threatened or contemplated to which the Company or any of its Subsidiaries,
executive officers or directors is a party, or of which the business, property
or assets (including, without limitation, any of the Licenses) of the Company,
or any of the Company's employees is the subject that is required to be
described in the Prospectus or that, individually or in the aggregate (after
giving effect to any applicable insurance, reinsurance or reserves therefor),
could have a material adverse effect or a prospective material adverse effect on
the business, prospects, properties, assets, results of operations or condition
(financial or other) of the Company or that might materially and adversely
affect the consummation of the transactions contemplated in this Agreement,
except as set forth in the Prospectus. To the best knowledge of such counsel,
neither the Company nor any Subsidiary is subject to any outstanding order,
ruling, judgment, award or decree that could have a material adverse effect on
the business, prospects, properties, assets, results of operations or condition
(financial or other) of the Company; and, to the best knowledge of such counsel,
all pending legal or governmental proceedings to which the Company or its
Subsidiaries is a party or by which the business, property or assets of the
Company are subject that are not described in the Prospectus, including ordinary
routine litigation incidental to its business, are, considered individually or
in the aggregate, not material.

                    (ii) Neither the Company nor any Subsidiary is in violation
of its Articles of Incorporation, By-laws or other organizational documents, in
each case as amended to the date of such opinion, and no default exists, and no
event has occurred that, with notice or lapse of time, or both, would constitute
an event of default by the Company or any Subsidiary in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, loan agreement, lease, contract or other agreement or instrument
material to the Company, to which the Company or such Subsidiary is a party or
by

                                       20



which the Company or such Subsidiary or its business, properties or assets are
bound and of which such counsel has knowledge after reasonable investigation. To
the knowledge of such counsel, neither the Company nor any Subsidiary is in
violation of, in any material respect, any applicable statute or any applicable
order, ruling, judgment, decree, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or such Subsidiary or its
business, properties or assets.

                    (jj) The Company is not and, after giving effect to the
offering and sale of the Stock, will not be, an "investment company" or an
entity "controlled" by an "investment company," as such terms are defined in the
1940 Act and the rules and regulations of the Commission thereunder.

                    (kk) To such Counsel's knowledge, each of the Company and
the Subsidiaries possesses all Licenses as are necessary under applicable law to
own or lease, as the case may be, and to operate its properties and to conduct
its business as presently conducted and as described in the Prospectus, and
neither the Company nor any Subsidiary has received any notice of any
restriction upon, or any notice of proceedings relating to the revocation or
modification of any such Licenses, all such Licenses are valid and in full force
and effect, and the Company and each Subsidiary is operating in compliance in
all material respects with the terms and provisions of such Licenses.

                    (ll) Nothing has come to the attention of such counsel,
after reasonable investigation and discussion with the Company, that would lead
such counsel to believe that any of the representations and warranties of the
Company contained in this Agreement or in any certificate or document
contemplated under this Agreement to be delivered are not true or correct or
that any of the covenants and agreements herein contained to be performed on the
part of the Company or any of the conditions herein contained, or set forth in
the Registration Statement and the Prospectus, to be fulfilled or complied with
by the Company have not been or will not be duly and timely performed, fulfilled
or complied with.

                    (mm) Nothing has come to the attention of such counsel,
after reasonable investigation, that would lead such counsel to believe that
either the Registration Statement or any amendment thereof or supplement thereto
at the time such Registration Statement or amendment or supplement became
effective and at the First Closing Date or the Second Closing Date, as the case
may be, contains or contained an untrue statement of a material fact or omits or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus or any
amendment thereof or supplement thereto as of the date of such Prospectus or
amendment or supplement and as of the First Closing Date or the Second Closing
Date, as the case may be, contains or contained an untrue statement of a
material fact or omits or omitted to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need not express any belief or opinion with respect to the
financial statements, notes and schedules and other financial data included
therein).

                                       21



                    (nn) The statements contained in the Registration Statement
under the captions "Risk Factors," "Capitalization" and "Description of Capital
Stock," insofar as they constitute statements of law or legal conclusions, are
correct in all material respects and fairly present the information presented
therein.

                    Such opinion may be limited to the laws of the State of Iowa
and the federal laws of the United States, except that (A) as to the matters
referred to in Section 7(d)(i)(aa) hereof, the opinion shall not be so limited,
and as to such matters, counsel shall rely, to the extent involving the
application of laws other than the laws of the United States and jurisdictions
in which they are admitted, to the extent specified in such opinion, upon an
opinion or opinions of other counsel, including counsel who are employees of the
Company, familiar with the applicable laws (who shall be counsel satisfactory to
counsel for the Underwriters), and (B) may rely as to matters of fact contained
within the certificates and written statements of government officials,
accountants and authorized officers of the Company, upon such certificates and
written statements. You shall have received a copy of each of such opinion which
shall be dated the respective Closing Date, addressed to you or otherwise
authorizing you to rely thereon. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel is in form satisfactory
to such counsel and, in their opinion, you and they are justified in relying
thereon.

               (ii) Such opinion or opinions of Thompson Hine LLP, counsel for
the Underwriters, dated the respective Closing Dates, with respect to the
incorporation of the Company, the validity of the Stock, the Registration
Statement, the Prospectus and such other related matters as you may reasonably
request, and the Company shall have furnished to such counsel such documents,
certificates and opinions as such counsel may request for the purpose of
enabling them to pass upon such matters. In connection with such opinions, such
counsel may rely on representations or matters of fact contained within the
certificates of the authorized officers of the Company.

               (iii) A certificate of the Company executed by the principal
executive officer and the principal financial and accounting officer of the
Company, dated each respective Closing Date, to the effect that:

                    (aa) The representations and warranties of the Company in
Section 2 hereof are true and correct as of each respective Closing Date, and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to each
respective Closing Date.

                    (bb) No stop order suspending the effectiveness of the
Registration Statement has been issued and not withdrawn, and no proceedings for
that purpose have been instituted, are pending or, to the knowledge of the
respective signers of the certificate, contemplated by the Commission.

                    (cc) The signers of such certificate have carefully and
completely examined the Registration Statement and the Prospectus, nothing has
come to their attention that would lead them to believe that the Registration
Statement, at the time it became

                                       22



effective (or any amendment thereof made prior to the First Closing Date or the
Second Closing Date, as the case may be, as of the date of such amendment),
contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus, as of the date thereof (or any
amendment thereof or supplement thereto made prior to the First Closing Date or
the Second Closing Date, as the case may be, as of the date of such amendment or
supplement), contained an untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as set forth
in the Prospectus, (A) neither the Company nor any Subsidiary has incurred any
material liability or obligation, direct or contingent, and it has not entered
into any material transaction, (B) there has not been any change (on a pro forma
basis or otherwise) in the capital stock or short-term or long-term debt of the
Company, or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the business, prospects,
properties, assets, results of operations or condition (financial or other) of
the Company, (C) there has not been any dividend of any kind declared, paid or
made by the Company on its capital stock other than dividends declared, paid or
made in accordance with past practices, and (D) the Company has not sustained
any loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute, work
stoppage or work slowdown or court or governmental action, order or decree which
could have a material adverse effect on the business, prospects, properties,
assets, results of operations or condition (financial or other) of the Company;
and since the Effective Date there has occurred no event required to be set
forth in an amended or supplemented Prospectus that has not been so set forth in
the Prospectus.

                    (iv) Letters from Arthur Andersen LLP dated respectively the
date of this Agreement and each respective Closing Date, addressed to you and in
form and substance reasonably satisfactory to you, providing customary
assurances with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.

               (e) Prior to each Closing Date, the Company shall have furnished
to you such further certificates and documents as you may reasonably request.

               (f) Prior to each Closing Date, no stop orders suspending the
qualification of the Stock for offering or sale under the securities or Blue Sky
laws of the states in which the Stock is to be offered and sold shall have been
issued and not withdrawn, and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company or you,
contemplated by the applicable state securities administrators.

               (g) Each affiliate of the Company (as described in Section 2(z)
hereof) shall have delivered to you an agreement that, for a period of one
hundred eighty (180) days from the date of the Prospectus, such person will not
to, without the prior written consent of McDonald Investments Inc., directly or
indirectly, sell, offer to sell, contract to sell, grant any option for the sale
of, transfer, distribute or otherwise dispose of by any means (or publicly

                                       23



announce any intention to do the foregoing) any Preferred Shares or Common
Shares (including, without limitation, Preferred Shares or Common Shares that
may be deemed to be beneficially owned by such persons in accordance with the
Exchange Act Rules and Regulations) or any securities convertible into or
exchangeable or exercisable for Preferred Shares or Common Shares that such
person has or will have the right to acquire through options, warrants,
subscriptions or other rights, other than, in the case of individuals, under
certain limited circumstances.

     If any condition of the Underwriters' obligations hereunder to be satisfied
prior to any Closing Date is not so satisfied, this Agreement may be terminated
by you prior to such Closing Date, upon writing or telephonic (subsequently
confirmed in writing) notice to the Company.

     All opinions, certificates, letters and documents furnished to you pursuant
to this Section 7 will be considered to be in compliance with the provisions
hereof only if they are in all material respects satisfactory to you and to
Thompson Hine LLP, counsel for the Underwriters, as to which both you and such
counsel shall act reasonably. The Company will furnish you with such executed
and conformed copies of such opinions, certificates, letters and documents as
you may request.

     You, on behalf of the Underwriters, may waive in writing the compliance by
the Company of any one or more of the foregoing conditions or extend the time
for its performance.

     8. Information Provided by the Underwriters. The statements set forth in
the [last paragraph on the outside front cover page of the Prospectus and in the
last paragraph on the inside front cover page of the Prospectus] and the
statements set forth under the caption "Underwriting" in the Prospectus shall
constitute the only information furnished by any Underwriter through you to the
Company for purposes of Sections 2(d), 2(e) and 10 hereof.

     9. Termination of Agreement. This Agreement shall become effective: (i)
upon the execution and delivery hereof by the parties hereto or (ii) if, at the
time this Agreement is executed and delivered, it is necessary for the
Registration Statement, or a post-effective amendment thereto, to be declared
effective before the offering of the Stock may commence, when notification of
such effectiveness of the Registration Statement or such post-effective
amendment has been released by the Commission. At any time before the happening
of such occurrence, the Company may, by notice to you, terminate this Agreement;
and at any time prior to such time, you, as the Representative of the several
Underwriters, may, by notice to the Company, terminate this Agreement.

     This Agreement may also be terminated by you, as the Representative of the
several Underwriters, by notice to the Company on or after the date of this
Agreement and prior to each respective Closing Date, if at any time during such
period any of the following has occurred: (i) except as set forth in the
Registration Statement and the Prospectus, subsequent to the respective dates as
of which information is given in the Registration Statement and the Prospectus,
any material adverse change in or affecting the business, prospects, properties,
assets, results of operation or condition (financial or other) of the Company,
whether or not arising in the ordinary course of business, (ii) any outbreak of
hostilities or escalation in existing hostilities anywhere in

                                       24



the world or other national or international calamity or crisis or change in
political, financial or economic conditions, if the effect of such outbreak,
escalation, calamity, crisis or change in the political, financial or economic
conditions of the United States would, in your reasonable judgment, make it
impracticable to offer for sale or to enforce contracts made by the Underwriters
for the resale of the Stock agreed to be purchased hereunder, (iii) any general
suspension of trading in securities on the New York Stock Exchange, the American
Stock Exchange or Nasdaq or any general limitation on prices for such trading or
any general restrictions on the distribution of securities, all to such a degree
as would, in your reasonable judgment, materially and adversely affect the
market for the Stock, or (iv) a banking moratorium shall have been declared by
any Federal, Ohio, Missouri or New York State authorities.

     This Agreement may also be terminated as provided in Sections 7 and 11
hereof.

     If this Agreement shall be terminated by you because of any failure on the
part of the Company to comply with any of the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Company shall be unable
to perform its obligations under this Agreement, the Company shall pay, in
addition to the costs and expenses referred to in Section 8 hereof, all
reasonable out-of-pocket expenses incurred by the Underwriters in contemplation
of the performance by them of their obligations hereunder, including but not
limited to the reasonable fees, disbursements and expenses of counsel for the
Underwriters, the Underwriters' reasonable printing and traveling expenses and
postage, telegraph and telephone charges relating directly to the offering
contemplated by the Prospectus, and also including reasonable advertising
expenses of the Representative incurred after the date of this Agreement and so
relating.

     10. Indemnification. (a) The Company will indemnify and hold harmless each
Underwriter, and each person, if any, who controls each Underwriter (within the
meaning of the Act or the Exchange Act) against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities, joint or several, (or actions in respect
thereof) (i) arise out of or are based in whole or in part upon any inaccuracy
or alleged inaccuracy in the representations or warranties of the Company
contained herein or any failure of the Company to perform its obligations
hereunder or (ii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in (A) the Registration
Statement or any amendments thereof or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or (B)
any Preliminary Prospectus, the Prospectus or any amendments thereof or
supplements thereto or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading and, subject to the provisions of
Section 10(c) hereof, will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, preparing to defend
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity provided for in this Section 10(a) with respect to
any Preliminary Prospectus shall not inure to the benefit of any Underwriter or
to the benefit of any person

                                       25



controlling such Underwriter in respect of any loss, claim, damage, liability or
action asserted by a person who purchases shares of the Stock from such
Underwriter, if such Underwriter failed to send or give a copy of the Prospectus
(as the same may then be amended or supplemented) to such purchaser concurrently
with or prior to written confirmation of the sale to such purchaser, in any case
where such delivery is required by the Act, and the Company previously furnished
copies of such Prospectus in the quantity requested in accordance with Section
5(c) hereof to such Underwriter, and the loss, claim, damage, liability or
action of such Underwriter results from an allegedly untrue statement or
omission of a material fact contained in the Preliminary Prospectus and such
allegedly untrue statement or omission was corrected in the Prospectus or the
Prospectus as then supplemented or amended; and provided, further, that the
Company will not be liable in any case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment thereof or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through you
expressly for use in the preparation thereof, as referred to in Section 8
hereof. The indemnity provided for in this Section 10(a) shall be in addition to
any liability that the Company may otherwise have.

          (b) Each Underwriter will indemnify and hold harmless the Company,
each person, if any, who controls the Company (within the meaning of the Act or
the Exchange Act), each of the Company's directors and each of the Company's
officers who signed the Registration Statement against any losses, claims,
damages or liabilities to which the Company, or such controlling person or any
such director or officer may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in (i) the Registration Statement or any
amendments thereof or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any Preliminary
Prospectus or the Prospectus or any amendments thereof or supplements thereto or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment thereof or supplement thereto in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter through you expressly for use in the preparation thereof, as
referred to in Section 8 hereof; and, subject to the provisions of Section 10(c)
hereof, will reimburse the Company and each such controlling person and each
such director or officer for any legal or other expenses reasonably incurred by
them in connection with investigating, preparing to defend or defending any such
loss, claim, damage, liability or action. The indemnity provided for in this
Section 10(b) shall be in addition to any liability that the Underwriters may
otherwise have.

          (c) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party under this Section 10, notify each

                                       26



party against whom indemnification is to be sought in writing of such claim or
the commencement of such action; provided, however, that the failure so to
notify an indemnifying party will not relieve the indemnifying party from any
liability that it may have to any indemnified party otherwise than under this
Section 10. In the event that any such claim or action is brought against any
indemnified party, and it notifies the indemnifying party of such claim or the
commencement of such action, the indemnifying party will be entitled to
participate therein, and to the extent that it may elect to assume the defense
thereof (jointly with any other indemnifying party similarly notified), with
counsel approved by such indemnified party (which approval shall not be
unreasonably withheld), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 10 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof except as provided
below and except for the reasonable costs of investigation subsequently incurred
by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ separate counsel with respect
to any such claim or action, but any fees, disbursements and expenses of such
counsel for the indemnified party shall be at the sole expense of such
indemnified party unless (i) the employment of counsel by such indemnified party
at the indemnifying party's or parties' expense has been authorized in writing
by the indemnifying party or parties, (ii) the named parties to any such action
include both the indemnifying party or parties and the indemnified party, and
the indemnified party shall have reasonably concluded that there is an actual or
potential conflict of interest between the indemnifying party or parties and the
indemnified party in the conduct of the defense of such action and the
indemnified party so notifies the indemnifying party or parties (in which case
the indemnifying party or parties shall not have the right to direct the defense
of such action on behalf of the indemnified party), or (iii) the indemnifying
party or parties shall not have employed counsel to assume the defense of such
claim or action within a reasonable time after notice of the commencement
thereof, in each of such cases the fees, disbursements and expenses of counsel
for the indemnified party shall be at the sole expense of the indemnifying party
or parties. In no event shall the indemnifying party or parties be liable for
the fees, disbursements and expenses of more than one separate firm of attorneys
for all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same set
of allegations or circumstances (in addition to one separate firm of local
attorneys in each such jurisdiction).

     No indemnifying party, without the prior written consent of the indemnified
party, shall effect any settlement of any claim or action in respect of which
any indemnified party is or could have been a party and indemnity could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional and irrevocable release of such indemnified party from all
loss, claims, damage or liability with respect to claims that are the subject
matter of such claim or action. Anything in this Section 10 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent.

          (d) In order to provide for just and equitable contribution in
circumstances in which indemnification provided for in this Section 10 is for
any reason held to be unavailable from the Company or the Underwriters, as the
case may be, or such indemnification is

                                       27



insufficient to hold harmless a party indemnified hereunder, the indemnifying
party shall contribute, in lieu of indemnifying such indemnified party, the
amount of the aggregate losses, claims, damages, liabilities and expenses (in
all cases, of the nature contemplated by the provisions of this Section 10)
including, without limitation, any investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit, proceeding or claims asserted, but only after deducting, in the case of
losses, claims, damages, liabilities and expenses suffered by the Company, any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution (including persons who control the
Company within the meaning of the Act or the Exchange Act, the directors of the
Company and the officers of the Company who signed the Registration Statement)
to which the Company or one or more of the Underwriters, as the case may be, may
be subject, in such proportions as is appropriate to reflect the relative
benefits received by the Company or one or more of the Underwriters, as the case
may be, from the offering of the Stock or, if such allocation is not permitted
by applicable law or indemnification is not available as a result of the
indemnifying party not having received notice as provided in this Section 10, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above, but also the relative fault of the Company and one or more of
the Underwriters, as the case may be, in connection with the statements, acts or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company or one or more of the Underwriters, as the case
may be, shall be deemed to be in the same proportion as (i) the total proceeds
from the offering of the Stock (net of underwriting discounts and commissions,
but before deducting expenses) received by the Company, and (ii) the
underwriting discounts and commissions received by one or more of the
Underwriters, respectively, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company and of one or more of
the Underwriters, as the case may be, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or one or more of the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 10(d) were determined by pro rata allocation (even if one or more of the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 10(d), (A) in
no case shall any Underwriter (except as may be provided in the Agreement Among
Underwriters) be liable or responsible for any amount in excess of the
underwriting discounts and commission applicable to the Stock purchased by such
Underwriter hereunder and (B) no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) by the action
of a governmental or regulatory body having jurisdiction over same shall be
entitled to contribution from any person, if any, who was not found guilty of
such fraudulent misrepresentation. For purposes this Section 10(d), each person,
if any, who controls an Underwriter (within the meaning of Section 15 of the
Act) shall have the same rights to contribution as such Underwriter, and each
person, if any, who controls the Company (within the meaning of Section 15 of
the Act), each director of the Company and each officer of the Company who
signed the Registration Statement shall have the same rights to contribution as
the Company, subject in each case to clauses (A) and (B) of this Section 10(d).
Any party entitled to contribution will, promptly after

                                       28



receipt of notice of any claim or the commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 10(d), notify such
party or parties from whom contribution may be sought; provided, however, that
the failure so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 10(d) or otherwise. No party shall be liable for
contribution for any settlement of any action or claim effected without its
written consent. The contribution provided for in this Section 10(d) shall be in
addition to any liability that the Company and the Underwriters may otherwise
have. The Underwriters' obligations in this Section 10(d) to contribute are
several in proportion to their respective underwriting obligations, and not
joint.

     11. Default of the Underwriters. If on either the First Closing Date or the
Second Closing Date any Underwriter or Underwriters default in its or their
obligations to purchase the Stock hereunder (the "Defaulted Stock") and
arrangements satisfactory to you and the Company, evidenced by a writing or
writings signed by you and the Company, for the purchase of such Defaulted Stock
are not made by the non-defaulting Underwriters within thirty-six (36) hours
after such default, then this Agreement will terminate without liability on the
part of any non-defaulting Underwriter and the Company (except that the Company
shall be liable for the expenses to be paid by it pursuant to the provisions of
Section 6 hereof other than the fees, disbursements and expenses of counsel for
the Underwriters); provided, however, that if the number of shares of Defaulted
Stock does not exceed 10% of the number of shares of the Stock agreed to be
purchased pursuant to this Agreement by all non-defaulting Underwriters, the
non-defaulting Underwriters shall be obligated, in proportion to their
respective underwriting obligations hereunder, to take up and pay for all shares
of Defaulted Stock.

     If any such default occurs, either you or the Company shall have the right
to postpone the First Closing Date or the Second Closing Date, as the case may
be, for not more than seven (7) business days in order that the necessary
changes in the Registration Statement, the Prospectus and any other documents,
as well as any other arrangement, may be effected, and the Company agrees to
file promptly any amendments to the Registration Statement or the Prospectus
that in your opinion may thereby be made necessary. As used in this Agreement,
the term "Underwriters" includes any person substituted for an Underwriter under
this Section 11, with like effect as if such person had originally been a party
to this Agreement. Nothing herein will relieve a defaulting Underwriter from its
liability to the other several Underwriters and the Company for its default
hereunder.

     12. Representations, Warranties, Agreements and Indemnities to Survive
Delivery. The respective indemnities, agreements, representations and warranties
of the Company and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, will
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter,
the Company or any of their respective officers or directors, or any controlling
person, and will survive the delivery of and payment for the Stock and, in the
case of the agreements contained in Sections 6, 8 and 10 through 14 hereof, will
survive any termination of this Agreement.

                                       29



     13. Notices. All statements, requests, notices and agreements hereunder,
unless otherwise specified in this Agreement, will be in writing and, if sent to
the Underwriters, will be delivered or sent by mail, overnight courier or
facsimile transmission (with receipt confirmed) to McDonald Investments Inc., at
McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio 44114,
Attention: Jonathan Crane (Fax: 216-443-3815), with a copy to Thompson Hine LLP,
at 3900 Key Center, 127 Public Square, Cleveland, Ohio 44114, Attention: Daniel
T. Young, Esq. (Fax: 216-566-5800), or if sent to the Company, will be delivered
or sent by mail, overnight courier or facsimile transmission (with receipt
confirmed) to United Fire & Casualty Company, at 118 Second Avenue S.E., Cedar
Rapids, Iowa 52407, Attention: Kent G. Baker (Fax: 319-286-2512), with a copy to
Bradley & Riley PC, 2007 First Avenue S.E., Cedar Rapids, Iowa 52402, Attention:
Michael K. Denney (Fax: 319-363-9824); provided, however, that any notice to any
Underwriter pursuant to Section 10(b) hereof shall be delivered or sent by mail,
overnight courier or facsimile transmission (with receipt confirmed) to such
Underwriter at its address or facsimile number set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address and/or
facsimile number will be supplied to the Company by you upon request. Any such
statements, requests, notices or agreements shall take effect at the time of
receipt thereof.

     14. Successors; Governing Law. This Agreement shall inure solely to the
benefit of and be binding upon the parties hereto, the officers and directors
and controlling persons referred to in Section 10 and their respective
successors, assigns, heirs, executors and administrators, and no other persons
will acquire or have any right or obligation under or by virtue of this
Agreement. This Agreement will be governed by and construed in accordance with
the laws of the State of Ohio, without giving effect to the principles of
conflicts of laws thereof.

     15. Definition of the Term "Business Day". For purposes of this Agreement,
"business day" means any day when the Commission's office in Washington, D.C. is
open for business.

     16. Execution in Counterparts. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.

     17. Headings. The headings herein are inserted for convenience of reference
only and are not intended to be a part of, or to affect the meaning or
interpretation of, this Agreement.

     18. Authority of the Representative. You represent and warrant that you
have been authorized by the several Underwriters to enter into this Agreement on
their behalf and to act for them in the manner hereinbefore provided.

     If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement by and among the Company and the several
Underwriters, in accordance with its terms.

                                      Very truly yours,

                                       30



                                      UNITED FIRE & CASUALTY COMPANY

                                      By:_______________________________
                                      Name:_____________________________
                                      Title:______________________________


The foregoing Agreement is hereby confirmed and accepted by us in Cleveland,
Ohio, acting on our own behalf and as the Representative of the several
Underwriters named on Schedule A annexed hereto, as of the date first above
written.

McDONALD INVESTMENTS INC.
As Representative of the several Underwriters

BY:  McDONALD INVESTMENTS INC.

By:
         -----------------------------------------------------
         Managing Director



                                       31



                                   SCHEDULE A
                                   ----------

                                  UNDERWRITERS




                                                                                            Number of Shares to
                  Underwriter                                                                  be Purchased
                  -----------                                                               -------------------
                                                                                      
McDonald Investments Inc. .............................................................
A.G. Edwards & Sons, Inc. .............................................................

     Total ............................................................................


                                       32



                                   SCHEDULE B
                                   ----------

                           SUBSIDIARIES OF THE COMPANY

Addison Insurance Company
Addison Insurance Agency
Lafayette Insurance Company
Insurance Brokers & Managers, Inc.
American Indemnity Financial Corporation
American Indemnity Company
Texas General Indemnity Company
United Fire and Indemnity Company
American Computing Company
United Fire Lloyds (an affiliate of the Company)
United Life Insurance Company
UFC Premium Finance Company

                                       33



                                   SCHEDULE C
                                   ----------

                            AFFILIATES OF THE COMPANY

                                       34

EX-4.3

                                                                     Exhibit 4.3

                                 FIRST AMENDMENT
                                     TO THE
                                 FOURTH RESTATED
                            ARTICLES OF INCORPORATION
                                       OF
                         UNITED FIRE & CASUALTY COMPANY

TO THE SECRETARY OF STATE OF THE STATE OF IOWA:

     Pursuant to the provisions of Section 490.601 and Section 490.602 of the
Iowa Business Corporation Act, Code of Iowa, as amended, United Fire & Casualty
Company, an Iowa corporation (the "Corporation"), does hereby adopt the
following Articles of Amendment to its Fourth Restated Articles of
Incorporation:

                              ARTICLES OF AMENDMENT

      I.  The name of the corporation is UNITED FIRE & CASUALTY COMPANY.

      II. The Fourth Restated Articles of Incorporation are amended by adding
the following Section A to Article V of the Fourth Restated Articles of
Incorporation:

                                  ARTICLE V(A)

                         $25 [  ]% CUMULATIVE CONVERTIBLE
               REDEEMABLE PREFERRED STOCK, SERIES A, NO PAR VALUE

     Section 1.  Number; Designation; Registered Form.

      (a) The shares of this series shall be designated as "$25 [ ]% Cumulative
Convertible Redeemable Preferred Stock, Series A, no par value" (the "Preferred
Stock"). The number of shares constituting the Preferred Stock shall be        .

      (b) All shares of Preferred Stock redeemed, purchased, exchanged,
converted or otherwise acquired by the Corporation shall be retired and canceled
and, upon the taking of any action required by applicable law, shall be restored
to the status of authorized but unissued shares of preferred stock of the
Corporation, without designation as to series, and may thereafter be reissued.



      (c) Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in Section 10 below.

     Section 2. Ranking. The Preferred Stock will rank, with respect to dividend
rights and rights upon liquidation, winding up or dissolution:

      (a) junior to Senior Stock and the Corporation's existing and future debt
obligations;

      (b) on a parity with Parity Stock; and

      (c) senior to Junior Stock.

     Section 3. Dividends.

      (a) If the conditions to payment set forth in Section 3(b) below are
satisfied, the Board of Directors shall declare cumulative dividends at the
annual rate of [ ]% of the Liquidation Preference, to be payable on each
Dividend Payment Date, as set forth below. Dividends are payable in arrears on
March 15, June 15, September 15 and December 15 of each year (each, a "Dividend
Payment Date"), beginning on [       ], 2002. If any of those dates is not a
Business Day, then dividends will be payable on the next succeeding Business
Day. The dividends payable on any Dividend Payment Date will accrue and are
cumulative from the date the Preferred Stock is first issued. Dividends will be
payable to holders of record as they appear in the Corporation's stock records
at the close of business on March 1, June 1, September 1 and December 1 of each
year (each, a "Dividend Payment Record Date"). Dividends payable on the shares
of Preferred Stock for any period other than a full quarterly period will be
computed on the basis of a 360-day year consisting of twelve 30-day months.

      (b) To pay dividends on any Dividend Payment Date, the following
conditions must be met: (A) the Corporation shall have earned profits arising
from the Corporation's business, which shall not include contributed capital or
contributed surplus, and dividends shall be paid only from such earned profits;
(B) the Corporation shall have funds legally available to make such payment; (C)
after giving effect to the payment of the dividend, the Corporation must (i) be
able to pay its debts as they become due in the usual course of business or (ii)
have total assets equal to or more than the sum of the Corporation's total
liabilities plus the amount needed to satisfy upon dissolution any preferential
rights of stockholders who hold securities that are senior to the Preferred
Stock; and (D) payment of dividends shall not, as determined by the Board of
Directors, continue or cause a default under any provision of applicable law or
the Articles of Incorporation, as amended, or the by-laws of the Corporation or
any agreement or other instrument binding upon the Corporation or its
Subsidiaries or any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Corporation or any of its Subsidiaries.

      (c) Nothing in this Article V(A) shall prohibit the payment of dividends
on Common Stock provided the Corporation is, at the time of payment of such
dividend, current in the payment of all dividends to be paid pursuant to the
provisions of Section 3(a).

                                      -2-



     Section 4. Liquidation Preference.

         (a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, each holder of Preferred Stock shall be entitled
to payment, out of the assets of the Corporation available for distribution, of
an amount equal to the Liquidation Preference attributable to the shares held by
such holder, plus an amount equal to all accrued and unpaid dividends on those
shares to, but excluding, the date of liquidation, dissolution or winding up,
before any distribution is made on any Junior Stock, including Common Stock.
After payment in full of the Liquidation Preference and an amount equal to all
accrued and unpaid dividends to which holders of shares of Preferred Stock are
entitled, such holders shall not be entitled to any further participation in any
distribution of the assets of the Corporation. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to shares of Preferred Stock and all other Parity
Stock are not paid in full, the holders of shares of Preferred Stock and the
holders of the Parity Stock shall share equally and ratably in any distribution
of assets of the Corporation in proportion to the full Liquidation Preference
and an amount equal to all accrued and unpaid dividends, if any, to which each
such holder is entitled.

         (b) Neither the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation nor the
consolidation, merger or amalgamation of the Corporation with or into any other
entity or the consolidation, merger or amalgamation of any other entity with or
into the Corporation shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.

     Section 5. Redemption.  Shares of Preferred Stock shall be redeemable as
provided below.

         (a) Mandatory Redemption. On [       ], 2014, the Corporation will be
obligated, subject to having legally available funds, and only if the
Corporation is not prohibited from doing so by Iowa law or contractual
obligations, to redeem all Outstanding shares of Preferred Stock for cash at the
Redemption Price.

         (b) Redemption at the Corporation's Option.

                  (i)  The shares of Preferred Stock shall not be redeemable at
any time prior to [      ], 2005. After such date, the Corporation will have the
option to redeem any Outstanding shares of Preferred Stock, out of funds legally
available for payment on account of such redemption, at the Redemption Price
upon not less than 30 nor more than 60 days' prior Notice.

                  (ii) Notwithstanding the foregoing, the Corporation may pay
such Redemption Price only if the Corporation has funds legally available for
such payment and the redemption is not prohibited by Iowa law or contractual
restrictions that prevent the Corporation from paying the Redemption Price. In
the case of any partial redemption, the Corporation will select the

                                      -3-



shares of Preferred Stock to be redeemed on a pro rata basis, by lot or any
other method that the Corporation, in its discretion, deems fair and
appropriate. However, the Corporation may, without regard to proportionality or
any other factor, redeem all of the shares of Preferred Stock held by any
holders of fewer than 100 shares of Preferred Stock (or all the shares of
Preferred Stock held by holders who would hold fewer than 100 shares of
Preferred Stock as a result of such redemption).

               (iii) If fewer than all the shares of Preferred Stock represented
by any share certificate are to be so redeemed, then, for the purposes of
determining the number of such shares that will remain after redemption, any
shares represented thereby which were converted before termination of the
conversion right with respect to such shares shall be regarded as not having
formed a part of the shares elected for redemption.

               (iv) If the Corporation elects to redeem the Preferred Stock in
the manner described in this Section 5(b), the Corporation shall give Notice of
such redemption (the "Redemption Notice") to the holders of record of shares of
Preferred Stock not fewer than 30 days nor more than 60 days before the
Redemption Date provided, however, that no failure to give such Redemption
Notice nor any deficiency therein shall affect the validity of the procedure for
the redemption of any shares of the Preferred Stock to be redeemed except as to
the holder or holders to whom the Corporation has failed to give said Redemption
Notice or except as to the holder or holders whose Redemption Notice was
defective. All such Redemption Notices shall identify the Preferred Stock to be
redeemed (including CUSIP number) and shall state:

                         (A) the Redemption Date;

                         (B) the Redemption Price;

                         (C) if fewer than all Outstanding shares of Preferred
Stock are to be redeemed, the identification (and, in the case of partial
redemption, the certificate number, the total number of shares represented
thereby and the number of such shares being redeemed on the Redemption Date) of
the particular shares of Preferred Stock to be redeemed;

                         (D) that, on the Redemption Date, the Redemption Price
will become due and payable upon each such share of Preferred Stock to be
redeemed and that dividends thereon will cease to accrue on and after said date;

                         (E) the conversion price, the date on which the right
to convert Preferred Stock to be redeemed will terminate and the place or places
where such Preferred Stock may be surrendered for conversion; and

                         (F) the place or places where such Preferred Stock is
to be surrendered for payment of the Redemption Price.

The Redemption Notice shall be given by the Corporation or, at the Corporation's
request, by the Registrar in the name and at the expense of the Corporation;
provided, that if the

                                      -4-



Corporation so requests, it shall provide the Registrar adequate time, as
reasonably determined by the Registrar, to deliver the Redemption Notice in a
timely fashion.

               (v) Prior to any Redemption Date, the Corporation shall deposit
with the Registrar or with a Paying Agent (or, if the Corporation is acting as
its own Paying Agent, segregate and hold in trust) an amount of consideration
sufficient to pay the Redemption Price of all shares of Preferred Stock which
are to be redeemed on that date other than any Preferred Stock called for
redemption on that date that have been converted into shares of Common Stock
prior to the date of such deposit. If any shares of Preferred Stock called for
redemption are converted, any consideration deposited with the Registrar or with
any Paying Agent or so segregated and held in trust for the redemption of such
shares of Preferred Stock shall, if then held by the Corporation, be discharged
from such trust, or if held by the Registrar or any Paying Agent, be paid or
delivered to the Corporation upon the written request or order of the
Corporation signed in the name of the Corporation by (i) its Chairman of the
Board of Directors, its President or a Vice President and (ii) its Treasurer, an
Assistant Treasurer, its Secretary or an Assistant Secretary.

               (vi) Notice of redemption having been given as aforesaid, the
Redemption Price of the Preferred Stock to be redeemed shall, on the Redemption
Date, become due and payable, and from and after such date (unless the
Corporation shall default in the payment of the Redemption Price), such shares
of Preferred Stock shall no longer be Outstanding, dividends on such Preferred
Stock shall cease to accrue, such shares shall cease to be convertible into
Common Stock and all rights of the holders thereof as stockholders of the
Corporation (except the right to receive the Redemption Price without interest)
shall cease. Upon book-entry transfer or surrender of any certificate
representing any such share of Preferred Stock for redemption in accordance with
said notice, such Redemption Price shall thereupon be paid.

               (vii) If any certificate that represents more than one share of
Preferred Stock, not all of which are subject to redemption, is surrendered at
any office or agency of the Corporation designated for that purpose (with, if
the Corporation or the Registrar so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Corporation and the Registrar
duly executed by, the holder thereof or such holder's attorney duly authorized
in writing), the Corporation shall execute, and the Registrar shall deliver to
the holder of such shares of Preferred Stock without service charge, a new
certificate or certificates, representing any number of shares of Preferred
Stock, as requested by such holder, in an aggregate amount equal to the number
of shares not redeemed and represented by the certificate so surrendered.

     (c) In the case of any redemption pursuant to Section 5(a) or Section 5(b):

               (i) Payment of the Redemption Price for Preferred Stock is
conditioned upon book-entry transfer or physical delivery of the certificates
representing the Preferred Stock, together with necessary endorsements, to the
Transfer Agent at any time after delivery of the Redemption Notice. Payment of
the Redemption Price for the Preferred Stock will be made

                                      -5-



promptly following the later of the Redemption Date and the time of book-entry
transfer or physical delivery of certificates representing the Preferred Stock.

               (ii) If the Transfer Agent holds money sufficient to pay the
Redemption Price of Preferred Stock on the Redemption Date in accordance with
the terms of this Article V(A), then, on the Redemption Date, the Preferred
Stock will cease to be Outstanding, whether or not book-entry transfer is made
or certificates representing the Preferred Stock are delivered to the Transfer
Agent. At such time, all rights of a holder as a holder of Preferred Stock shall
terminate, other than the right to receive the Redemption Price.

          (d) If the Redemption Date falls after a Dividend Payment Record Date
and before the related Dividend Payment Date, the holders of the shares of
Preferred Stock at the close of business on that Dividend Payment Record Date
will be entitled to receive the dividend payable on those shares on the
corresponding Dividend Payment Date. However, the Redemption Price payable on
such Redemption Date will not include dividends accruing on that Dividend
Payment Record Date and payable on the corresponding Dividend Payment Date.

     Section 6. Voting Rights.

          (a) Holders of the Preferred Stock will not have any voting rights
except as set forth below in this Section 6 or as otherwise from time to time
required by law. So long as any shares of the Preferred Stock remain
Outstanding, the Corporation shall not, without the consent of the holders of at
least two-thirds of the shares of Preferred Stock Outstanding at the time (i)
issue shares of or increase the authorized number of shares of any class or
series of Senior Stock or (ii) amend the Articles of Incorporation or the
provisions of this Article V(A), whether by merger, consolidation, or otherwise,
if the amendment would alter or change any power, preference or special right of
the Outstanding Preferred Stock so as to materially and adversely affect the
holders thereof. Notwithstanding the foregoing, none of the following shall be
deemed to be an amendment that alters or changes such powers, preferences or
special rights of the Outstanding Preferred Stock so as to materially and
adversely affect the holders of the Preferred Stock: the issuance of shares of
Common Stock; any increase in the authorized number of shares of Common Stock or
Preferred Stock; the authorization and issuance of other classes or series of
Common Stock, Parity Stock or Junior Stock; an amendment of the Corporation's
bylaws so as to change the number of directors of the Corporation, so long as
the number of directors is not increased above fifteen; or any increase,
decrease or change in the par value of any class or series of Capital Stock,
including the Preferred Stock.

          (b) (i) If dividends on the Preferred Stock (or any Parity Stock upon
which rights described in this Section 6(b)(i) have been conferred) are in
arrears and unpaid for six or more Dividend Periods (whether or not consecutive)
(a "Voting Rights Triggering Event"), then the number of directors constituting
the Board of Directors will be increased by two directors, and the holders of
the then outstanding shares of Preferred Stock, together with the holders of
Parity Stock upon which like rights have been conferred and are exercisable,
voting as a single class regardless of series, shall have the right and power to
elect two additional directors to serve on the Board of Directors. For so long
as the Preferred Stock remains outstanding, the

                                      -6-



Board of Directors shall ensure that the Corporation has a number of directors
sufficient to allow the holders of the Preferred Stock to exercise their rights
upon a Voting Rights Triggering Event without any action required by the holders
of any other Capital Stock of the Corporation.

         (ii) The voting rights set forth in Section 6(b)(i) above will continue
until such time as all dividends in arrears on the Preferred Stock are paid in
full, at which time the term of any directors elected pursuant to the provisions
of Section 6(b)(i) above (subject to the right of holders of any other preferred
stock to elect directors pursuant to the terms of the instruments governing such
preferred stock) shall terminate forthwith, and the number of directors
constituting the Board of Directors shall be decreased by such number until the
occurrence of any subsequent Voting Rights Triggering Event. At any time after
voting power to elect directors shall have become vested and be continuing in
the holders of Preferred Stock pursuant to Section 6(b)(i) hereof, or if
vacancies shall exist in the offices of directors elected by such holders, a
proper officer of the Corporation may, and upon the written request of the
holders of record of at least 25% of the shares of Preferred Stock then
outstanding addressed to the secretary of the Corporation shall, call a special
meeting of the holders of Preferred Stock (and the holders of Parity Stock upon
which like rights have been conferred and are exercisable) for the purpose of
electing the directors which such holders of Preferred Stock and such Parity
Stock are entitled to elect; provided, however, that no such special meeting
shall be called if the next annual meeting of stockholders of the Corporation is
to be held within 60 days after the voting power to elect directors shall have
become vested, in which case such meeting shall be deemed to have been called
for such next annual meeting. If such meeting shall not be called by a proper
officer of the Corporation within twenty days after actual delivery of a request
to the secretary of the Corporation at its principal executive offices, then the
holders of record of at least 25% of the outstanding shares of Preferred Stock
may designate in writing one of such holders to call such meeting at the expense
of the Corporation, and such meeting may be called by the person so designated
upon the notice required for the annual meetings of stockholders of the
Corporation and shall be held at the place for holding the annual meetings of
stockholders. Any holder of Preferred Stock or such Parity Stock so designated
shall have, and the Corporation shall provide, access to the lists of holders of
Preferred Stock and the holders of such Parity Stock. If no special meeting of
the holders of Preferred Stock and the holders of such Parity Stock is called as
provided in this Section 6(b)(ii), then such meeting shall be deemed to have
been called for the next annual meeting of stockholders of the Corporation or
special meeting of the holders of any other Capital Stock of the Corporation.

         (iii) At any meeting held for the purposes of electing directors at
which the holders of Preferred Stock (together with the holders of Parity Stock
upon which like rights have been conferred and are exercisable) shall have the
right, voting together as a separate class, to elect directors as aforesaid, the
presence in person or by proxy of the holders of at least a majority in voting
power of the outstanding shares of Preferred Stock (and such Parity Stock) shall
be required to constitute a quorum thereof.

         (iv) Any vacancy occurring in the office of a director elected by the
holders of Preferred Stock (and the holders of Parity Stock upon which like
rights have been conferred and are exercisable) may be filled by the remaining
director elected by the holders of Preferred Stock

                                      -7-



(and such Parity Stock) naming a director, unless and until such vacancy shall
be filled by the holders of Preferred Stock (and such Parity Stock).

         (v) If an event occurs at any time that results in the holders of any
Parity Stock having active voting rights to elect directors to the Board of
Directors, then holders of Preferred Stock shall, whether or not such event
otherwise constitutes a Voting Rights Triggering Event pursuant to Section
6(b)(i), have the voting rights set forth in Section 6(b)(i), and such event
shall be deemed (for purposes of this Section 6(b)(v) only) to constitute a
Voting Rights Triggering Event. In addition, if during a time in which directors
elected by the holders of Preferred Stock pursuant to this Section 6(b) are
serving on the Board of Directors ("Previously-Elected Directors") an event
occurs that results in holders of Parity Stock having voting rights to elect
(voting together with the holders of Preferred Stock) at least two directors to
the Board of Directors, the holders of Preferred Stock shall vote together as
one class with the holders of such Parity Stock to elect such new directors,
and upon the election of the new directors the Previously-Elected Directors
shall  (unless such Previously-Elected Directors are elected as new directors)
cease to serve on the Board of Directors.

     Section 7. Conversion Rights.

         (a) Each share of Preferred Stock shall be convertible at any time at
the option of the holder thereof into fully paid and non-assessable shares of
Common Stock. The Preferred Stock will be convertible into Common Stock at an
initial conversion price of $[ ] per share, adjusted as described below in
Section 8. The number of shares of Common Stock deliverable upon conversion of a
share of Preferred Stock will be equal to the Liquidation Preference divided by
the conversion price then in effect.

         (b) Conversion of shares of Preferred Stock may be effected by any
holder upon the surrender to the Corporation, at the principal office of the
Corporation or at the office of the Transfer Agent, as may be designated by the
Board of Directors, of the certificate or certificates for such shares of
Preferred Stock to be converted accompanied by a written notice stating that
such holder elects to convert all or a specified whole number of such shares in
accordance with the provisions of this Section 7 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. In case such notice shall specify a name or names
other than that of such holder, such notice shall be accompanied by payment of
all transfer taxes payable upon the issuance of shares of Common Stock in such
name or names. Other than such taxes, the Corporation shall pay any documentary,
stamp or similar issue or transfer taxes that may be payable in respect of any
issuance or delivery of shares of Common Stock upon conversion of shares of
Preferred Stock pursuant hereto. As promptly as practicable after the surrender
of such certificate or certificates and the receipt of such notice relating to
the conversion and payment of all required transfer taxes, if any (or the
demonstration to the satisfaction of the Corporation that such taxes have been
paid), the Corporation shall deliver or cause to be delivered (i) certificates
representing the number of validly issued, fully paid and non-assessable full
shares of Common Stock to which the holder of shares of Preferred Stock being
converted (or such holder's transferee) shall be entitled, and (ii) if less than
the full number of shares of Preferred Stock evidenced by the surrendered

                                      -8-



certificate or certificates is being converted, a new certificate or
certificates, of like tenor, for the number of shares of Preferred Stock
evidenced by such surrendered certificate or certificates less the number of
shares being converted. Such conversion shall be deemed to have been made at the
close of business on the date of giving such notice and of such surrender of the
certificate or certificates representing the shares of Preferred Stock to be
converted so that the rights of the holder thereof as to the shares being
converted shall cease except for the right to receive shares of Common Stock, in
each case, in accordance herewith, and the person entitled to receive the shares
of Common Stock shall be treated for all purposes as having become the record
holder of such shares of Common Stock at such time.

         (c) Shares of Preferred Stock surrendered for conversion during the
period between the close of business on any Dividend Payment Record Date and the
opening of business on the corresponding Dividend Payment Date must be
accompanied by payment of an amount equal to the dividend payable on such shares
on such Dividend Payment Date.

         (d) In case any shares of Preferred Stock are to be redeemed, the right
of conversion shall cease and terminate, as to the shares of Preferred Stock to
be redeemed, at the close of business on the Business Day immediately preceding
the date fixed for redemption, unless the Corporation shall default in the
payment of the Redemption Price of those shares.

         (e) In connection with the conversion of any shares of Preferred Stock,
no fractions of shares of Common Stock shall be issued. In lieu thereof, the
Corporation shall deliver cash in respect of such fractional shares, based on
the market price of our Common Stock. For purposes of this Section 7(e), the
market price of our Common Stock means the average of the Sale Prices of our
Common Stock for the twenty consecutive trading days immediately preceding the
conversion date.

         (f) The Corporation shall at all times reserve and keep available, free
from preemptive rights, for issuance upon the conversion of shares of Preferred
Stock a number of its authorized but unissued shares of Common Stock that will
be sufficient to permit the conversion of all Outstanding shares of Preferred
Stock. Prior to the delivery of any Common Stock that the Corporation shall be
obligated to deliver upon conversion of the Preferred Stock, the Corporation
shall comply with all applicable federal and state laws
         and regulations which require action to be taken by the Corporation.
All shares of Common Stock delivered upon conversion of the Preferred Stock will
upon delivery be duly and validly issued and fully paid and non-assessable, free
of all liens and charges and not subject to any preemptive rights.

     Section 8. Adjustments to the Conversion Price.

         (a) The conversion price shall be subject to adjustment from time to
time as follows:

                (i) Stock Splits and Combinations. In case the Corporation shall
at any time or from time to time after the issuance date of the shares of
Preferred Stock (A) subdivide or split the outstanding shares of Common Stock,
(B) combine or reclassify the outstanding shares of Common Stock into a smaller
number of shares or (C) issue by reclassification of the shares of

                                      -9-



Common Stock any shares of Capital Stock of the Corporation, then, and in each
such case, the conversion price in effect immediately prior to that event or the
close of business on the record date therefor, whichever is earlier, shall be
adjusted so that the holder of any shares of Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock or other securities of the Corporation which the holder would have
owned or have been entitled to receive after the occurrence of any of the events
described above, had those shares of Preferred Stock been surrendered for
conversion immediately prior to the occurrence of that event or the record date
therefor, whichever is earlier. Notwithstanding the foregoing, this Section
8(a)(i) shall not pertain to stock dividends provided for in Section 8(a)(ii)
below, which shall be governed by Section 8(a)(ii).

          (ii)  Stock Dividends in Common Stock. In case the Corporation, at any
time or from time to time after the issuance date of the shares of Preferred
Stock, pays a dividend or makes a distribution in shares of Common Stock on any
class of Capital Stock of the Corporation, and the total number of shares of
Common Stock constituting such dividend or distribution exceeds 1.0% of the
total number of shares of Common Stock outstanding at the close of business on
the record date fixed for determination of stockholders entitled to receive the
dividend or distribution, the conversion price in effect immediately prior to
the close of business on the record date fixed for determination of stockholders
entitled to receive the dividend or distribution shall be adjusted by
multiplying (A) that conversion price by (B) a fraction, the numerator of which
is the number of shares of Common Stock outstanding at the close of business on
that record date and the denominator of which is the sum of that number of
shares and the total number of shares issued in that dividend or distribution.

     In case the total number of shares constituting that dividend or
distribution does not exceed 1.0% of the total number of shares of Common
Stock outstanding at the close of business on the record date fixed for that
dividend or distribution, the shares of Common Stock shall be considered to be
issued as a dividend or distribution at the time of any next succeeding dividend
or distribution in which the number of shares of Common Stock issued, together
with the number of shares issued in all previous such dividends and
distributions for which no adjustment to the conversion price has been made,
exceeds 1.0% of the total number of shares of Common Stock outstanding at the
close of business on the record date for the first such dividend or
distribution.

          (iii) Issuance of Rights or Warrants. In case the Corporation issues
to all holders of Common Stock rights or warrants expiring within 45 days of
issuance entitling those holders to subscribe for or purchase Common Stock at a
price per share less than the Current Market Price, the conversion price in
effect immediately prior to the close of business on the record date fixed for
determination of stockholders entitled to receive those rights or warrants shall
be adjusted by multiplying (A) that conversion price by (B) a fraction, the
numerator of which is the sum of the number of shares of Common Stock
outstanding at the close of business on that record date and the number of
shares of Common Stock that the aggregate offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
the Current Market Price and the denominator of which is the sum of the number
of shares of Common Stock outstanding at the close of business on that record

                                      -10-



date and the number of additional shares of Common Stock so offered for
subscription or purchase. For purposes of this Section 8(a)(iii), the issuance
of rights or warrants to subscribe for or purchase securities convertible into
Common Stock shall be deemed to be the issuance of rights or warrants to
subscribe for or purchase the Common Stock into which those securities are
convertible at an aggregate offering price equal to the sum of the aggregate
offering price of those securities and the minimum aggregate amount (if any)
payable upon conversion of those securities into Common Stock. Such adjustment
will be made successively whenever any such event occurs.

          (iv) Distribution of Indebtedness, Securities or Assets. In case the
Corporation shall distribute to all holders of Common Stock (whether by dividend
or in a merger, amalgamation or consolidation or otherwise) evidences of
indebtedness, shares of Capital Stock of any class or series, other securities
or assets (other than (A) Common Stock, (B) rights or warrants referred to in
subparagraph (iii) above, (C) a dividend payable exclusively in cash, (D) a
dividend payable in shares of Capital Stock or similar equity interests in the
case of a Spin-Off, referred to in the succeeding paragraph, and (E) as a result
of a Fundamental Change referred to in subparagraph (vi) below), then the
conversion price in effect immediately prior to the close of business on the
record date fixed for determination of stockholders entitled to receive that
distribution shall be adjusted by multiplying (Y) that conversion price by (Z) a
fraction, the numerator of which is the Current Market Price of the Common Stock
and the denominator of which is the Current Market Price of the Common Stock
plus the Fair Market Value of the portion of those evidences of indebtedness,
shares of Capital Stock, other securities, cash and assets so distributed
applicable to one share of Common Stock. Such adjustment shall be made
successively whenever any such event shall occur.

     In case of a Spin-Off, the conversion price in effect immediately before
the close of business on the record date fixed for determination of stockholders
entitled to receive the relevant dividend or distribution will be adjusted by
multiplying (x) that conversion price by (y) a fraction, the numerator of which
is the Current Market Price of the Common Stock and the denominator of which is
the Current Market Price of the Common Stock plus the Fair Market Value of the
portion of those shares of Capital Stock or similar equity interests so
distributed plus the fair market value of any other cash and assets distributed
in conjunction with the Spin-Off applicable to one share of Common Stock.

          (v)  Extraordinary distribution in cash. In case the Corporation pays
a dividend or makes a distribution in cash on the Common Stock, and the amount
of cash constituting the dividend or distribution exceeds 15% of the Sale Price
of the Common Stock on the day that the Common Stock trades ex-distribution, the
conversion price in effect immediately before the close of business on the
record date fixed for determination of stockholders entitled to receive the
dividend or distribution will be adjusted by multiplying (A) that conversion
price by (B) a fraction, the numerator of which is the Current Market Price of
the Common Stock and the denominator of which is the Current Market Price of the
Common Stock plus the amount per share of such dividend or distribution.

                                      -11-



                  (vi) Fundamental Changes. In case any transaction or event
(including, without limitation, any merger, consolidation, sale of assets,
tender or exchange offer, reclassification, compulsory share exchange or
liquidation) shall occur in which all or substantially all outstanding shares of
Common Stock are converted into or exchanged or acquired for or constitute the
right to receive stock, other securities, cash, property or assets (each, a
"Fundamental Change"), the holder of each share of Preferred Stock Outstanding
immediately prior to the occurrence of such Fundamental Change that remains
Outstanding after such Fundamental Change shall have the right upon any
subsequent conversion to receive (but only out of funds legally available) the
kind and amount of stock, other securities, cash, property or assets that such
holder would have received if that share had been converted immediately prior to
the Fundamental Change.

         (b) Anything in Section 8(a) to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
conversion price unless and until the net effect of one or more adjustments
(each of which shall be carried forward until counted toward adjustment),
determined as above provided, shall have resulted in a change of the conversion
price by at least one percent (1%), and when the cumulative net effect of more
than one adjustment so determined shall be to change the conversion price by at
least 1%, such change in the conversion price shall thereupon be given effect.
If, at any time as a result of the provisions of this Section 8, the holders of
shares of Preferred Stock upon subsequent conversion shall become entitled to
receive any shares of Capital Stock of the Corporation other than Common Stock,
the number of such other shares so receivable upon conversion of shares of
Preferred Stock shall thereafter be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
contained herein.

         (c) There shall be no adjustment of the conversion price in case of the
issuance of any Capital Stock of the Corporation in a merger, reorganization,
acquisition, reclassification, recapitalization or other similar transaction
except as provided in this Section 8. The Corporation shall not be required to
make more than one adjustment to the conversion price based on a single event
notwithstanding the fact that such event may be covered by more than one
subsection of Section 8(a).

         (d) In any case in which this Section 8 requires that an adjustment as
a result of any event is to become effective from and after a record date, the
Corporation may elect to defer until after the occurrence of that event (i)
issuing to the holder of any shares of Preferred Stock converted after that
record date and before the occurrence of that event the additional shares of
Common Stock issuable upon that conversion over and above the shares issuable on
the basis of the conversion price in effect immediately prior to adjustment and
(ii) delivering cash in lieu of a fractional share of Common Stock.

         (e) If the Corporation takes a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and thereafter but before the dividend or distribution to
stockholders is made, the Corporation legally abandons its plan to pay or
deliver such dividend or distribution, then thereafter no adjustment in the
conversion price then in effect shall be required by reason of the taking of
record.

                                      -12-



     (f)   The Corporation's obligations under this Article V(A) are subject to
applicable Federal and state securities laws.

  Section 9.  Change of Control Put Right.

     (a)   Upon or after the occurrence of a Change of Control, each holder of
shares of Preferred Stock shall have the right, as set forth in this Section 9,
to require the Corporation to redeem all or any part of such holder's
Outstanding shares of Preferred Stock, out of legally available funds, at the
Redemption Price. For shares of Preferred Stock to be redeemed as provided in
this Section 9, the Corporation must receive, from the holder of such shares, at
the office or agency of the Corporation maintained for that purpose a "Notice of
Election of Redemption Upon a Change of Control" in a form acceptable to the
Corporation three Business Days prior to the Redemption Date, as described in
Section 9(c).

     (b)   Holders of the Preferred Stock will not have the right set forth in
Section 9(a):

               (i)  if the Sale Price per share of the Common Stock for any five
Trading Days within the period of twenty consecutive Trading Days ending
immediately after the later of the Change of Control or the public announcement
thereof (in the case of a Change of Control under paragraph (a) of the
definition of "Change of Control" in Section 10) or the period of twenty
consecutive Trading Days ending immediately before the Change of Control (in the
case of a Change of Control under paragraph (b) or (c) of the definition of
"Change of Control" in Section 10) shall equal or exceed 105% of the conversion
price of the Preferred Stock immediately after the later of the Change of
Control and the public announcement thereof; or

               (ii) if at least 95% of the consideration in the Change of
Control transaction consists of Capital Stock of a company quoted on the Nasdaq
National Market System ("Nasdaq") or traded on a U.S. national securities
exchange and having a total market capitalization at least equal to the market
capitalization of the Corporation immediately prior to the Change of Control,
and as a result of the transaction, the Preferred Stock becomes convertible
solely into this Capital Stock.

     (c)   (i) Within 30 days following any Change of Control under paragraph
(a) of the definition of "Change of Control" in Section 10, the Corporation
shall mail a notice to each holder with a copy to the Transfer Agent stating:

                  (A) that a Change of Control has occurred and a description of
the offer; and

                  (B) the Redemption Date, which shall be no earlier than 30
days nor later than 60 days from the date such

notice is mailed.

               (ii) No less than 30 days prior to any Change of Control under
paragraph (b) or (c) of the definition of "Change of Control" in Section 10, the
Corporation shall mail a notice to each holder with a copy to the Transfer Agent
stating:

                                      -13-



               (A) that a Change of Control is scheduled to occur, a description
of the Change of Control event and the scheduled Redemption Date; and

               (B) that the holder shall have the right to require the
Corporation, if the Change of Control actually occurs, to redeem all or a
portion of such holder's Outstanding shares of Preferred Stock (pursuant to this
Section 9) concurrently with the Change of Control.

     (d) The Corporation shall comply with the requirements of Rule 14e-1 under
the Securities Exchange Act of 1934 and any other securities laws and
regulations to the extent those laws and regulations are applicable to the
Corporation in connection with the redemption of Preferred Stock as a result of
a Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with any of the provisions of this Section 9, the
Corporation shall comply with the applicable securities laws and regulations and
shall be deemed not to have breached its obligations under this Section 9.

     (e) On the Redemption Date set forth in the notice mailed to holders
pursuant to Section 9(c), the Corporation will, to the extent lawful, (i) redeem
all shares of Preferred Stock properly tendered, (ii) deposit with the Transfer
Agent an amount equal to the Redemption Price of the shares of Preferred Stock
so tendered and (iii) deliver or cause to be delivered to the Transfer Agent
shares of Preferred Stock so accepted together with an officers' certificate
stating the Liquidation Preference of the shares of Preferred Stock being
redeemed by the Corporation. The Transfer Agent shall promptly mail or deliver
to each holder of shares of Preferred Stock so tendered the applicable payment
for those shares of Preferred Stock, and the Transfer Agent shall promptly mail
or deliver to each holder certificates representing, or cause to be transferred
by book-entry to each holder, new shares of Preferred Stock equal in Liquidation
Preference to any unredeemed portion of the shares of Preferred Stock
surrendered, if any. The Corporation shall publicly announce the results of its
offer on or as soon as practicable after the Redemption Date for the redemption
of shares of Preferred Stock in connection with a Change of Control.

     (f) The Corporation shall not be required to redeem any shares of Preferred
Stock upon the occurrence of a Change of Control if a third party makes an offer
to purchase the Preferred Stock in the manner, for the amount, at the times and
otherwise in compliance with the requirements described in this Section 9 and
purchases all shares of Preferred Stock validly tendered and not withdrawn.

     (g) The right of the holders of shares of Preferred Stock described in this
Section 9 will be subject to the Corporation's obligation to repay or repurchase
all of its debt obligations or Preferred Stock required to be repurchased or
repaid in connection with a transaction or event that constitutes a Change of
Control and to Iowa law and any contractual restrictions contained in the
Corporation's indebtedness. When the Corporation shall have satisfied these
obligations or these obligations are no longer applicable to the Corporation
and, subject to the legal availability of funds for this purpose, the
Corporation shall then redeem all shares of Preferred Stock tendered for
purchase by the Corporation upon a Change of Control pursuant to this Section 9.

                                      -14-



     Section 10. Certain Definitions. As used in this Article V(A), the
following terms shall have the following meanings, unless the context otherwise
requires:

     "Articles of Incorporation" means the Articles of Incorporation of the
Corporation, as amended from time to time.

     "Business Day" means any day other than a Saturday, Sunday, or U.S. Federal
holiday or day on which the Transfer Agent is not open for business.

     "Capital Stock" of any person means any and all shares, interests,
participating or other equivalents however designated of corporate stock or
other equity participating, including partnership interests, whether general or
limited, of such person and any rights (other than debt securities convertible
or exchangeable into an equity interest), warrants or options to acquire an
equity interest in such person.

     "Change of Control" means, with respect to the Corporation, the occurrence
of any of the following:

         (a)      if any "person" or "group" (as such terms are used in Section
                  13(d) and Section 14(d) of the Securities Exchange Act of 1934
                  or any successor provisions to either of the foregoing),
                  including any group acting for the purpose of acquiring,
                  holding, voting or disposing of securities within the meaning
                  of Rule 13d-5(b)(1) under the Securities Exchange Act of 1934,
                  becomes the "beneficial owner" (as defined in Rule 13d-3 under
                  the Securities Exchange Act of 1934, except that a person will
                  be deemed to have "beneficial ownership" of all shares that
                  any such person has the right to acquire, whether such right
                  is exercisable immediately or only after the passage of time),
                  directly or indirectly, of 50% or more of the total voting
                  power of the Voting Stock of the Corporation; or

         (b)      if the Corporation consolidates or merges with or into any
                  other person, other than a consolidation or merger under a
                  transaction in which the outstanding Voting Stock of the
                  Corporation remains outstanding or is changed into or
                  exchanged for cash, securities or other property with the
                  effect that the beneficial owners of the Corporation's
                  outstanding Voting Stock immediately before that transaction,
                  beneficially own, directly or indirectly, more than 50% of the
                  Voting Stock, measured by voting power rather than number of
                  shares, of the surviving corporation immediately following
                  that transaction; or

         (c)      the sale, transfer, assignment, lease, conveyance or other
                  disposition, directly or indirectly, of all or substantially
                  all the assets of the Corporation and its Subsidiaries
                  considered as a whole.

     "Common Stock" means the shares of common stock, par value $3.33 1/3 per
share, of the Corporation.

                                      -15-



     "Conversion Agent" has the meaning set forth in Section 12(a)(ii).

     "Current Market Price" of the Common Stock means (a) in the case of Section
8(a)(iii), the average of the Sale Prices of the Common Stock for the twenty
consecutive Trading Days immediately preceding the record date fixed for
determination of stockholders entitled to receive rights or warrants, (b) in the
case of Section 8(a)(iv), the average of the Sale Prices of the Common Stock for
the first twenty consecutive Trading Days from, and including, the first day
that the Common Stock trades following a dividend, distribution or spin-off and
(c) in the case of Section 8(a)(v), the average of the Sale Prices of Common
Stock for the period of twenty consecutive Trading Days from, and including, the
first day that the Common Stock trades ex-distribution.

     "Dividend Payment Date" has the meaning set forth in Section 3(a).

     "Dividend Payment Record Date" has the meaning set forth in Section 3(a).

     "Dividend Period" for any Dividend Payment Date means the period from and
including the immediately preceding Dividend Payment Date (or if there is no
immediately preceding Dividend Payment Date, from and including [              ]
to but excluding such Dividend Payment Date.

     "Fair Market Value" means (i) in the case of a distribution referred to in
the first paragraph of Section 8(a)(iv), the value determined by the Board of
Directors, whose determination in good faith shall be conclusive, and (ii) in
the case of securities to be distributed to the holders of the Common Stock in
connection with a Spin-Off, the average of the Sale Prices of those securities
over the first twenty Trading Days after the effective date of the Spin-Off.

     "Fundamental Change" has the meaning set forth in Section 8(a)(vi).

     "Junior Stock" means the Corporation's Common Stock and each class or
series of the Corporation's Capital Stock the terms of which provide that such
class or series will rank junior to the Preferred Stock as to the payment of
dividends or distributions upon liquidation, winding up or dissolution. Junior
Stock includes warrants, rights, calls or options exercisable for or convertible
into Junior Stock.

     "Liquidation Preference" means $25 per share of the Preferred Stock.

     "Nasdaq" has the meaning set forth in Section 9(b)(ii).

     "Notice" means, unless otherwise required by applicable law, actual written
notice to the stockholder of record and publication at least once in one daily
newspaper of general circulation in New York City. Actual written notice shall
be deemed to be delivered on the third day following the deposit of a written
Notice in the United States mail or the date such written Notice is actually
received by the addressee, whichever shall occur first.

                                      -16-



     "Outstanding" means, when used with respect to Preferred Stock, as of the
date of determination, all shares of Preferred Stock issued pursuant to this
Article V(A), except (a) Preferred Stock that has been converted into Common
Stock in accordance with Section 7 and Preferred Stock that has been canceled by
the Registrar or delivered to the Registrar for cancellation upon purchase or
other acquisition thereof by the Corporation; and (b) Preferred Stock for whose
payment or redemption money in the necessary amount has been deposited with the
Registrar or any Paying Agent (other than the Corporation) in trust or set aside
and segregated in trust by the Corporation (if the Corporation shall act as its
own Paying Agent) for the holders of such Preferred Stock; provided that, if
such Preferred Stock is to be redeemed, Notice of such redemption has been duly
given pursuant to this Article V(A) or provision therefor satisfactory to the
Registrar has been made; provided, however, that, in determining whether the
holders of Preferred Stock have given any request, demand, authorization,
direction, notice, consent or waiver or taken any other action hereunder,
Preferred Stock owned by the Corporation shall be deemed not to be Outstanding,
except that, in determining whether the Registrar shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent, waiver
or other action, only Preferred Stock which the Registrar has actual knowledge
of being so owned shall be deemed not to be Outstanding.

     "Parity Stock" means each class or series of the Corporation's Capital
Stock the terms of which provide that such class or series will rank on a parity
with the Preferred Stock as to the payment of dividends or distributions upon
liquidation, winding up or dissolution. Parity Stock includes warrants, rights,
calls or options exercisable for or convertible into Parity Stock.

     "Paying Agent" has the meaning set forth in Section 12(a)(i).

     "Redemption Date" shall mean (a) in the case of a redemption pursuant to
Section 5(b) and Section 9(a), the date fixed for redemption (provided that, in
the event of a redemption triggered by an event described in paragraph (b) or
(c) of the definition of "Change of Control," the Redemption Date shall be the
date of the Change of Control), and (b) in the case of a redemption pursuant to
Section 5(a), [        ].

     "Redemption Notice" means notice provided by or on behalf of the
Corporation to the holders.

     "Redemption Price" means, per share of Preferred Stock, the Liquidation
Preference thereof, plus an amount equal to accrued and unpaid dividends to, but
excluding, the Redemption Date, plus, (a) in the case of a redemption on or
after [        ], 2005 but before [        ], 2006, an amount equal to 3.0% of
the Liquidation Preference, and (b) in the case of a redemption on or after [
      ], 2006, but before [        ], 2007, an amount equal to 1.5% of the
Liquidation Preference.

     "Registrar" means any registrar and transfer agent duly appointed by the
Corporation.

     "Sale Price" of the Common Stock on any Trading Day means the closing sale
price per share (or if no closing sale price is reported, the average of the bid
and ask prices or, if more

                                      -17-



than one in either case, the average of the average bid and the average ask
prices) on such Trading Day as reported by Nasdaq, or, if the Common Stock is
listed on a United States national or regional securities exchange, in composite
transactions for the principal United States securities exchange on which the
Common Stock is traded.

     "Senior Stock" means each class or series of the Corporation's Capital
Stock the terms of which provide that such class or series will rank senior to
the Preferred Stock as to the payment of dividends or distributions upon
liquidation, winding up or dissolution. Senior Stock includes warrants, rights,
calls or options exercisable for or convertible into Senior Stock.

     "Spin-Off" means a dividend or other distribution of shares of Capital
Stock of any class or series, or similar equity interests, which are traded on a
United States national securities exchange or quoted on Nasdaq, of or relating
to a Subsidiary or other business unit of the Corporation.

     "Subsidiary" means, with respect to any person, (a) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person (or a combination
thereof) and (b) any partnership (i) the sole general partner or the managing
general partner of which is such person or a Subsidiary of such person or (ii)
the only general partners of which are such person or of one or more
Subsidiaries of such person (or any combination thereof).

     "Trading Day" means each day on which the quotation system or securities
exchange which is used to determine the Sale Price is open for quotation or
trading.

     "Transfer Agent" means Computershare Investor Services LLC, as the
Corporation's initial transfer agent, and thereafter, any successor transfer
agent duly appointed by the Corporation.

     "Voting Stock" of any person means Capital Stock of such person which
ordinarily has voting power for the election of directors, or persons performing
similar functions, of such person, whether at all times or only for so long as
no senior class of securities has such voting power by reason of any
contingency.

     Section 11. Currency. All shares of Preferred Stock shall be denominated in
U.S. currency, and all payments and distributions thereon or with respect
thereto shall be made in U.S. currency. All references herein to "$" or
"dollars" refer to U.S. currency.

     Section 12. Paying Agent and Conversion Agent.

     (a) The Corporation shall maintain in the City of Cedar Rapids, State of
Iowa (i) an office or agency where payments may be made with respect to the
Preferred Stock (the "Paying Agent") and (ii) an office or agency where
Preferred Stock may be presented for conversion (the "Conversion Agent"). The
Corporation may appoint the Registrar, the Paying Agent and

                                      -18-



the Conversion Agent and may appoint one or more additional paying agents and
one or more additional conversion agents in such other locations as it shall
determine. The term "Paying Agent" includes any additional paying agent, and the
term "Conversion Agent" includes any additional conversion agent. The
Corporation may change any Paying Agent or Conversion Agent without prior notice
to any holder. The Corporation shall notify the Registrar of the name and
address of any Paying Agent or Conversion Agent appointed by the Corporation. If
the Corporation fails to appoint or maintain another entity as Paying Agent or
Conversion Agent, the Registrar shall act as such. The Corporation or any of its
affiliates may act as Paying Agent, Registrar, co-Registrar or Conversion Agent.

     (b) Neither the Corporation nor the Registrar shall be required (i) to
issue or register the transfer of or exchange any Preferred Stock during a
period beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of Preferred Stock under Section 5 and ending
at the close of business on the day of such mailing or (ii) to register the
transfer of or exchange any Preferred Stock so selected for redemption in whole
or in part, except the unredeemed portion of any Preferred Stock being redeemed
in part.

     (c) Payments made with respect to the Preferred Stock shall be payable at
the office or agency of the Corporation maintained for such purpose in the City
of Cedar Rapids and at any other office or agency maintained by the Corporation
for such purpose. Payments may be payable by United States dollar check mailed
to the address of the person entitled thereto as such address shall appear in
the Preferred Stock register.

     (d) Any payment, redemption or conversion with respect to the Preferred
Stock due on any day that is not a Business Day need not be made on such
Business Day, but may be made on the next succeeding Business Day with the same
force and effect as if made on such due date.

     Section 13. Headings. The headings of the Sections of this Article V(A) are
for convenience of reference only and shall not define, limit or affect any of
the provisions hereof.


         III.     This Amendment was duly adopted by the Board of Directors on
the _______ day of ___________________, 2002.


         Dated this _______ day of ____________________, 2002.



                                              __________________________________
                                              JOHN A. RIFE, President

                                      -19-

EX-23.1

                                                                    Exhibit 23.1



CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement No. 333-83446 of our report dated
February 8, 2002 included in United Fire & Casualty Company's Form 10-K/A for
the year ended December 31, 2001 and to all references to our Firm included in
this registration statement.




Arthur Andersen LLP

Chicago, Illinois
April 22, 2002