INFINITY PROPERTY & CASUALTY CORP
EX-10.1
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<TYPE>EX-10.1
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<FILENAME>l99910aexv10w1.txt
<DESCRIPTION>EX-10.1
<TEXT>
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                                                                    Exhibit 10.1

                       FORMATION AND SEPARATION AGREEMENT

                                     BETWEEN

                       AMERICAN PREMIER UNDERWRITERS, INC.

                                       AND

                   INFINITY PROPERTY AND CASUALTY CORPORATION

                          DATED AS OF DECEMBER 31, 2002


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                       FORMATION AND SEPARATION AGREEMENT

         THIS FORMATION AND SEPARATION AGREEMENT (this "AGREEMENT") is made and
entered into as of December 31, 2002, between AMERICAN PREMIER UNDERWRITERS,
INC., an Ohio corporation ("APU"), and INFINITY PROPERTY AND CASUALTY
CORPORATION, an Ohio corporation (the "Company").

                                    RECITALS

         APU has sponsored the formation of the Company and in connection
therewith:

         A.   APU will transfer to the Company, all of the issued and
              outstanding capital stock of each of the NSA Insurance
              Subsidiaries (as defined below) in exchange for all issued and
              outstanding common shares, no par value per share (the "Common
              Shares"), of the Company and a note payable to APU in the amount
              of $55 million and in the form attached hereto as Exhibit A (the
              "APU Note").

         B.   Great American Insurance Company, including certain of its
              subsidiaries, shall transfer to the Company its personal insurance
              business written through independent agents.

         C.   The Company will file a registration statement under the
              Securities Act (as defined below) for the purpose of selling a
              portion of the Common Shares owned by APU (the "Public Offering").

         D.   The Company will file a registration statement under the
              Securities Act for the purpose of offering for sale to the public
              $180 million in principal amount of senior notes (the "Senior Note
              Offering").

         E.   APU and the Company wish to provide for certain transactions
              to be entered into in connection with the formation of the Company
              and the Public Offering and to set forth herein certain
              arrangements that will govern the relationship between APU, the
              Company and their respective Affiliates (as defined below).

         NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth herein, the sufficiency of which is acknowledged, the
parties hereby agree as follows:

                                   ARTICLE I
                                   DEFINITIONS

         Section 1.1. Definitions. As used in this Agreement, the following
terms have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):



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                                      -2-

         "ACTION" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.

         "AFFILIATE" of any Person or entity means any Person which, directly or
indirectly, controls, is under common control with, or is controlled by, such
Person.

         "AFG" means American Financial Group, Inc., an Ohio corporation.

         "ANCILLARY AGREEMENTS" means the Reinsurance Agreement, Registration
Rights Agreement, Investment Advisory Agreement, Services Agreement,
Noncompetition Agreement, Tax Allocation Indemnification Agreement, License
Agreement and Sublease Agreement in each case as defined and described in more
detail in Section 3.1 hereof.

         "ASSUMED AGENCY BUSINESS" means the personal insurance business written
by Great American Insurance Company and its wholly-owned subsidiaries through
independent agents and which will be transferred to the Company under the
Reinsurance Agreement as described in Section 3.1 hereof.

         "BUSINESS" means collectively the insurance business conducted through
the NSA Insurance Subsidiaries and the Assumed Agency Business.

         "BUSINESS DAY" means any day excluding Saturday, Sunday and any day on
which banks in Cincinnati, Ohio have the option by law or other governmental
action to close.

         "CLOSING" has the meaning specified in Section 3.2.

         "CLOSING DATE" has the meaning specified in Section 3.2.

         "COMMISSION" means the Securities and Exchange Commission.

         "COMMON SHARES" has the meaning specified in the Recitals.

         "COMPANY" has the meaning specified in the preamble of this Agreement.

         "CONTINUING EMPLOYEES" means active employees of AFG who, as of the
Closing Date, will render or have rendered their services to the NSA Insurance
Subsidiaries or the Assumed Agency Business. For purposes of this Agreement,
active employees shall include employees who are on approved absences from work
(e.g., disability leave, statutory leave, approved leave of absence, etc.) as of
the Closing Date.

         "CORPORATE OBLIGATIONS" mean all liabilities related to the Business
other than (a) Extracontractual Obligations, (b) claims payments, including loss
adjustment expenses, and (c) other obligations for which a reserve has been
established. The date on which a Corporate Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the action taken or not
taken giving rise to the Obligation.



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                                      -3-

         "EXTRACONTRACTUAL OBLIGATIONS" means those liabilities not covered
under any other provision of this Agreement and which arise from or in
connection with the operation, administration, underwriting or claim handling of
the Business, such liabilities arising because of, but not limited to, the
following: failure to settle within the policy limit, or by reason of alleged or
actual negligence, fraud or bad faith in rejecting an offer of settlement, or
denying coverage, or in the preparation or prosecution of an appeal consequent
upon such action.

         The date on which an Extracontractual Obligation is incurred shall be
deemed, in all circumstances, to be the date of the action taken or not taken
giving rise to the Extracontractual Obligation.

         "EXTRACONTRACTUAL OBLIGATIONS" shall also include losses in excess of
policy limits of an original policy, such loss in excess of limit having been
incurred because of failure to settle within the policy limit or by reason of
alleged or actual negligence, fraud or bad faith in rejecting coverage or an
offer of settlement or in the preparation of the defense or in the trial of any
action against an insured or reinsured or in the preparation of prosecution of
an appeal consequent upon such action. For purposes of this definition, the word
"loss" shall mean any amounts for which a party would have been contractually
liable to pay had it not been for the limit of the original policy.

         "FIRM PUBLIC OFFERING SHARES" means the Company's Common Shares issued
in the Public Offering, other than Common Shares issued as a result of exercise
of the Over-Allotment by the underwriters of the Public Offering.

         "GAI SUBSIDIARIES" mean Great American Contemporary Insurance Company
and Great Texas County Mutual Insurance Company.

         "FOREIGN SUBSIDIARIES" mean El Aguila Compania de Seguros, S.A. de
C.V., Penn Central U.K. Limited, and their respective wholly-owned subsidiaries.

          "LOSSES" means any and all losses, liabilities, claims, damages,
obligations, payment, costs and expenses, matured or unmatured, absolute or
contingent, disclosed or undisclosed, determined or determinable, accrued or
unaccrued, liquidated or unliquidated, known or unknown (including, without
limitation, the costs and expenses of any Action, threatened Action, demand,
assessment, judgment, settlement and compromise relating thereto and attorneys'
fees and any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against, or settling any such Action or threatened Action
but reduced by, in all cases, the amount of reinsurance, whether or not
collectible).

         "NSA INSURANCE SUBSIDIARIES" means Atlanta Casualty Company, Leader
Insurance Company, Infinity Insurance Company, Windsor Insurance Company and
each of their respective U.S. domestic subsidiaries except, however, Leader
National Agency of Texas, Inc. ("Leader National").



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                                      -4-

         "OVER-ALLOTMENT" means an over-allotment option that may be exercised
by the underwriters of the Public Offering pursuant to the Underwriting
Agreement relating to the Public Offering.

         "PERSON" includes an individual, a partnership, a joint venture, a
limited liability company, a corporation, a trust, an unincorporated
organization, a group and a government or other department or agency thereof.

         "POST-CLOSING SUBSIDIARIES," with respect to either APU or the Company,
means collectively all of the Subsidiaries of such entity following the Closing
Date.

         "REGISTRATION STATEMENTS" means the registration statements on Form
S-1, as amended and supplemented from time to time, to be filed with the
Commission under the Securities Act, relating to the Public Offering.

         "SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.

         "SUBSIDIARY" means, as to any Person, (i) any corporation, partnership
or other entity of which at the time of determination more than 50% of the
outstanding Voting Stock is owned directly or indirectly, by such Person and/or
one or more Subsidiaries of such Person.

         "UNDERWRITING AGREEMENT" means the underwriting agreement among APU,
the Company and CS First Boston and the other underwriters named therein
relating to the Public Offering.

         "VOTING STOCK" means stock of any class or classes or other ownership
interest having general voting power under ordinary circumstances to elect a
majority of the board of directors, managers, trustees or persons with similar
functions of the entity in question, provided that, for the purposes of this
definition, stock which carries only the right to vote conditionally on the
happening of an event will not considered Voting Stock whether or not that event
has happened.

         Section 1.2. Other Definitional Provisions. The words "hereof,"
"hereto," "herein" and "hereunder" and words of similar import when used in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement; and references to any Article, Section, Exhibit or Schedule
are references to Articles, Sections, Exhibits or Schedules in or to this
Agreement unless otherwise specified.



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                                      -5-


                                   ARTICLE II
                       TRANSFER OF INSURANCE SUBSIDIARIES

         Section 2.1. Transfer of NSA Subsidiaries. On or prior to the Closing
Date, subject to the receipt of any required third party approvals, consents and
the satisfaction of any conditions precedent set forth herein, and in exchange
for 900 shares of the Company's common stock and the APU Note, APU shall, and
(as necessary) shall cause its Subsidiaries, to transfer and deliver to the
Company, all of the outstanding shares of capital stock of the NSA Subsidiaries
(the "NSA Shares"), free of any lien, claim or encumbrance of any kind (except
as required by the insurance regulations of certain states) and shall deliver to
the Company at the Closing certificates representing the NSA Shares, registered
and in such denominations as the Company shall notify APU prior to the Closing.

         Section 2.2. Transfer of Foreign Subsidiaries and Leader National.
Prior to the Closing Date, APU and the Company shall take all necessary steps to
cause a transfer to APU of all of the outstanding shares of capital stock,
limited partnership interests or other indicia of ownership, of the Foreign
Subsidiaries and Leader National. Such steps shall include the pursuit of a
novation whereby Windsor Insurance Company ("Windsor") shall be released, and
Great American Insurance Company shall assume, all obligations of Windsor under
a reinsurance agreement relating to Insurance (GB) Limited. If the approvals or
authorizations for the transfer of the Foreign Subsidiaries and Leader National
have not been obtained on or prior to the Closing Date, then APU and the Company
shall reasonably cooperate subsequent to the Closing Date in attempting to
obtain such approvals or authorizations as promptly thereafter as practicable.

         Section 2.3. Transfer of GAI Subsidiaries. As soon as reasonably
practicable after the Closing Date (a) all of the outstanding shares of capital
stock of Great American Contemporary Insurance Company and (b) that certain
management agreement in the case of Great Texas County Mutual Insurance Company
(collectively the "GAI Ownership Interests") shall be transferred or assigned,
as the case may be, to the Company at a price equal to the statutory book value
at the time of the transfer of each of the GAI Ownership Interests.
Notwithstanding the foregoing, the transfer of the GAI Ownership Interests shall
not bestow upon the Company any rights to, or license to use, any marks,
designs, logos, names, words or letters that include the words "Great American"
or those that are suggestive or derivative thereof, and Company shall take all
actions reasonably necessary to change the corporate names of the GAI
Subsidiaries to other names that will not reasonably suggest or imply any
affiliation with Great American Insurance Company.

                                  Article III
            INTERCOMPANY TRANSACTIONS AS OF THE CLOSING DATE; CLOSING

         Section 3.1. Ancillary Agreements. As a condition precedent to the
transfer of the capital stock of the NSA Subsidiaries under Section 2.1, the
parties, or, in certain cases, their
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                                      -6-

Affiliates, shall enter into such transfer documents as are customary to effect
the transfers set forth in Section 6.1 and shall enter into the following
Ancillary Agreements, in each case (unless otherwise specified in this Article
III or within the form of Ancillary Agreement) effective as of the Closing Date:

         3.1.1.   a Reinsurance Agreement substantially in the form of Exhibit
3.1.1;

         3.1.2. a Registration Rights Agreement substantially in the form of
Exhibit 3.1.2;

         3.1.3. an Investment Advisory Agreement substantially in the form of
Exhibit 3.1.3;

         3.1.4. a Services Agreement substantially in the form of Exhibit 3.1.4;

         3.1.5. a Noncompetition Agreement in the form of Exhibit 3.1.5;

         3.1.6. a Tax Allocation Indemnification Agreement in the form of
Exhibit 3.1.6.

         3.1.7. a License Agreement in the form of Exhibit 3.1.7.

         3.1.8. a Sublease Agreement in the form of Exhibit 3.1.8.

         Section 3.2. Closing. Subject to the terms and conditions of this
Agreement, all transactions contemplated by this Agreement shall be consummated
at a closing (the "Closing") to be held at the offices of Keating, Muething &
Klekamp, P.L.L, Cincinnati, Ohio time, on the date of the delivery of the Firm
Public Offering Shares or at such other place or at such other time or on such
other date as APU and the Company may mutually agree upon in writing (the day on
which the Closing takes place being the "Closing Date").

                                   ARTICLE IV
                      REPESENTATIONS AND WARRANTIES OF APU

         Section 4.1. Organization, Authority and Qualification. APU and the NSA
Insurance Subsidiaries are duly organized, validly existing and in good standing
under the laws of each of their respective jurisdictions of incorporation, and
in good standing in all jurisdictions in which the failure to qualify or be in
good standing could materially adversely affect the consummation or the validity
of the transaction as provided for in this Agreement or any of the Ancillary
Agreements.

         APU has full corporate power and authority and has taken all corporate
action necessary to execute delivery of this Agreement and will have taken all
corporate action necessary to execute and deliver the Ancillary Agreements to
which it is a party and to perform its obligations hereunder and thereunder.
This Agreement has been, and each of the Ancillary Agreements to which APU is a
party will be, duly authorized, executed and delivered by APU; and, assuming




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                                      -7-

due authorization, execution and delivery by all other parties to such
agreement, each of this Agreement and such Ancillary Agreements constitutes or
will constitute, as the case may be, the valid and legally binding obligation of
APU, enforceable against APU and in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or effecting creditors' rights
and to general equity principles.

         Section 4.2. Transferred NSA Shares. APU, directly or indirectly, has,
and at the closing, the Company or its designees will receive good and
marketable title to all of the NSA Shares, in each case free and clear of any
claim, lien or encumbrance of any kind (except as required by the insurance
regulations of certain states).

                                    ARTICLE V
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         Section 5.1. Organization, Authority and Qualification. The Company is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of incorporation, and in good standing in all jurisdictions in
which the failure to qualify or be in good standing can materially adversely
affect the consummation or validity of the transaction provided for in this
transaction.

         The Company has full corporate power and authority and has taken all
corporate action necessary to execute and deliver this Agreement and will have
taken all corporate action necessary to execute and deliver the Ancillary
Agreements to which it is a party and to perform its obligations hereunder and
thereunder. This Agreement has been, in each of the Ancillary Agreements to
which the Company is a party will be, duly authorized, executed and delivered by
the Company; and, assuming due authorization, execution and delivery by all
other parties to such Agreement, each of this Agreement and such Ancillary
Agreements constitutes or will constitute, as the case may be, the valid and
legally binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.

                                   ARTICLE VI
                                OTHER AGREEMENTS

         Section 6.1. Transfer of Assumed Agency Business. Upon the effective
date of the Reinsurance Agreement identified in Section 3.1.1 (the "Effective
Date"), AFG shall cause to be transferred to one or more of the NSA Insurance
Subsidiaries assets and liabilities related to the Assumed Agency Business as of
September 30, 2002, as reflected in the statement of assets (excluding
investments) and liabilities to be transferred and included in the registration
statement for the Public Offering (the "Financial Statement"), along with policy
renewal rights and other items of personal property and any related liabilities
as listed on Schedule 6.1.


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                                      -8-

         As part of the transfer of the Assumed Agency Business, on the
Effective Date AFG shall transfer to the Company cash and investment securities
with an agreed value equal to: (x) the liabilities to be transferred (expressed
as a positive number); less (y) the assets to be transferred; less (z) $5
million. The liabilities to be transferred and the assets to be transferred
shall be as reflected in the Financial Statement. The investment securities to
be transferred including the amount of cash (the "Transferred Investment
Securities") shall be as set forth on Schedule 6.1 attached hereto and
incorporated herein by reference.

         As promptly as practicable after the Effective Date, but not later than
45 days after the Effective Date, AFG or its Affiliates will prepare and deliver
to Ernst & Young LLP a statement of the Assumed Agency Business assets
(excluding investments) and liabilities to be transferred ("Final Closing
Statement") as of the Effective Date, prepared on a basis consistent with the
Financial Statement. As promptly as practicable after receipt of the Final
Closing Statement, but not later than 30 days after such receipt, Ernst & Young
LLP will prepare and deliver to the parties hereto a report of Ernst & Young LLP
on the Final Closing Statement, which report shall state that the Final Closing
Statement presents fairly in all material respects, the assets (excluding
investments) and liabilities of the Assumed Agency Business at the Effective
Date in accordance with GAAP.

         If the value on the Effective Date of the Transferred Investment
Securities is less than (x) the liabilities to be transferred (expressed as a
positive number) less (y) the assets to be transferred, less (z) $5 million,
(all as reflected in the Final Closing Statement), AFG shall transfer investment
securities or cash to the Company in an amount equal to the difference. If the
value on the Effective Date of the Transferred Investment Securities is greater
than (x) the liabilities to be transferred (expressed as a positive number),
less (y) the assets to be transferred, less (z) $5 million (all as reflected in
the Final Closing Statement) then the Company shall transfer cash or investment
securities to AFG in an amount equal to the excess.

         Any amount due pursuant to Section 6.1 shall include interest thereon
from the Effective Date through the payment date calculated at the London
Interbank Offered Rate quoted for six month periods, as reported in The Wall
Street Journal on the Closing Date, plus 100 basis points.

         Section 6.2. Indemnification. APU shall indemnify, defend and hold
harmless the Company and its post-closing Subsidiaries (the "Company
Indemnitees") from and against any and all Losses of such Company Indemnitee
arising out of, by reason of or otherwise in connection with Extracontractual
Obligations or Corporate Obligations that (i) were incurred or that arose or
existed, or where the Actions, inactions or transactions giving rise to the
Extracontractual Obligations or Corporate Obligations arose or existed prior to
the Closing Date, and (ii) equal or exceed $200,000, in which case the entire
amount of Losses arising out of the Extracontractual Obligation or Corporate
Obligation, whichever is the case, shall be eligible for indemnification
("Eligible Losses").

         Notwithstanding anything to the contrary in this Agreement or the
Ancillary Agreements, the Company Indemnitees shall be entitled to
indemnification hereunder only to the extent that the aggregate amount of
Eligible Losses exceeds $12 million ("Indemnifiable Losses"), in which case
APU's aggregate liability to the Company Indemnitees shall be limited to 60% of
the first


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                                      -9-

$25 million of Indemnifiable Losses. By way of examples, with respect to two
unrelated Corporate Obligations, each resulting in Losses to the Company of
$175,000, the Company would not be entitled to indemnification from APU in any
amount and neither claim would be considered in determining whether the
aggregate amount of Eligible Losses exceeds $12 million. With respect to a
Corporate Obligation resulting in $300,000 of Losses which, when added to the
aggregate amount of other Eligible Losses, equals $13.2 million, the Company
would be entitled to indemnification from APU in the amount of $60,000 (60% of
the amount of the Loss in excess of $12 million). With respect to five unrelated
Corporate Obligations, each resulting in Losses to the Company of $500,000
which, when added to the aggregate amount of other Eligible Losses, equals $3
million, the Company would not be entitled to indemnification from APU in any
amount because the aggregate amount of Eligible Losses does not exceed $13.2
million.

         The Company agrees that it shall establish reserves for
Extracontractual Obligations and Corporate Obligations in a manner consistent in
all material respects with past practices (to the extent permitted by applicable
law and applicable accounting rules and conventions pursuant to both generally
accepted accounting principles and statutory accounting principles) and shall
consult with APU on the Company's intentions to settle, pay, defend, arbitrate
or compromise any Indemnifiable Losses.

         Section 6.3. Employee Benefits. Until the Closing Date, all Continuing
Employees shall continue to participate in AFG's benefit plans, including
retirement programs, incentive compensation plans and medical and welfare
benefits (the "AFG Benefit Plans"). On the Closing Date, Continuing Employees'
participation in the AFG Plans shall terminate; provided, however, that all
options to purchase AFG common stock under AFG's Stock Option Plan held by
Continuing Employees shall vest as of the Closing Date and remain exercisable
for a period of three years thereafter.

         As soon as practicable after the Closing Date, the Company shall
establish welfare benefit plans with terms and conditions generally comparable
in material respects to welfare benefits offered by AFG. The Company shall use
commercially reasonable efforts to establish as soon as practicable after the
Closing Date, retirement and savings plans for the benefit of its employees.

         AFG's welfare benefit plans including, but not limited to, disability,
medical and severance plans, shall be responsible for welfare benefit claims
relating to the Continuing Employees whose services have been rendered in
connection with the Assumed Agency Business as follows:

         (1) for claims incurred prior to January 1, 2002 by Continuing
Employees involved in claims functions with the Assumed Agency Business; and

         (2) for claims incurred prior to October 10, 2002 by Continuing
Employees involved in non-claims functions with the Assumed Agency Business.

           The Company shall be responsible for all other claims under such
welfare benefit plans incurred after these dates; provided, however, that the
parties shall negotiate in good faith with



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                                      -10-

respect to their respective responsibilities for long term disability claims
incurred after the aforementioned dates. For this purpose, a claim is incurred
when the medical or other service giving rise to the claim is performed, except
that in the case of death or disability, a claim is incurred on the date of
death or date of disability as the case may be.

         Nothing contained in this Section 6.3 shall be construed as a
requirement to continue to employ any Continuing Employee after the Closing, or
to limit the ability of the Company following the Closing Date to amend, modify
or terminate any plan adopted by the Company, consistent with the terms of such
plan, as determined in the Company's sole discretion. No Continuing Employee is
a third party beneficiary of this Section 6.3.

         Section 6.4 Insurance Management Services. The parties hereto agree
that should Great American Insurance Company retain the direct to consumer
personal auto book of business ("Direct Business") after the Closing Date, the
Company and Great American Insurance Company shall negotiate in good faith an
agreement under which the Company will provide, at commercially reasonable
rates, certain management services with respect to the Direct Business.

         Section 6.5 Repayment of APU Note. Upon completion of the Senior Note
Offering, the Company shall repay, in full, including accrued interest thereon,
the APU Note.

                                   ARTICLE VII
                                  MISCELLANEOUS

Section 7.1. Survival. All representations, covenants and agreements contained
or provided for herein shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the party benefiting
from any such covenant or agreement, and shall survive the execution of this
Agreement.

         Section 7.2. Further Assurances. If at any time after the Closing Date
any further action is reasonably necessary or advisable to carry out the
purposes of this Agreement or any Ancillary Agreements, the proper officers of
each party to this Agreement shall take all such action or cause the applicable
Post-Closing Subsidiaries to take all such action. Each of APU and its
Post-closing Subsidiaries and the Company and its Post-closing Subsidiaries
shall use its commercially reasonable efforts to obtain all consents and
approvals, to enter into all amendatory agreements and to make all filings and
applications that may be required for the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements, including, without
limitation, all applicable governmental and regulatory filings.

         Section 7.3. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Ohio, without regard to
its conflict of laws principles.

         Section 7.4. Notices. All notices, requests, claims, demands and other
communications hereunder and under the Ancillary Agreements shall be in writing
and shall be deemed to have been duly given if delivered by hand (with receipt
confirmed), or by certified mail, postage


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                                      -11-

prepaid and return receipt requested, or facsimile transmission addressed as
follows (or to such other address as a party may designate by written notice to
the others) and shall be deemed given on the date on which such notice is
received:

         If to APU:

         American Premier Underwriters, Inc.
         900 Provident Tower
         Cincinnati, Ohio 45202
         Attention:  James C. Kennedy, Esq.
         Facsimile:  (513) 579-0108

         with a copy to:

         Keating, Muething & Klekamp P.L.L.
         1400 Provident Tower
         One East Fourth Street
         Cincinnati, Ohio 45202
         Attention: Edward E. Steiner, Esq.
         Facsimile:  (513) 579-6578

         If to the Company:

         Infinity Property and Casualty Corporation
         2204 Lakeshore Drive
         Birmingham, Alabama  35209
         Attention:  Samuel J. Simon, General Counsel
         Facsimile:  (205) 803-8487


         Section 7.5. Amendment and Modification. The parties may by written
agreement, subject to any regulatory approval as may be required, (a) extend the
time for the performance of any of the obligations or other acts of the parties
hereto; (b) waive any inaccuracies in the documents delivered pursuant to this
Agreement, and (c) waive compliance with or modify, amend or supplement any of
the agreements contained in this Agreement or waive or modify performance of any
of the obligations of any of the parties hereto. This Agreement may not be
amended or modified except by an instrument in writing duly signed on behalf of
the parties hereto.

         Section 7.6. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

         Section 7.7. No Third Party Beneficiaries. This Agreement is solely for
the benefit of the parties hereto and shall not be deemed to confer upon any
third party any remedy, claim, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.


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                                      -12-

         Section 7.8. Headings. The Article and Section headings contained in
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement.

         Section 7.9. Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remaining provisions of this Agreement shall be unaffected and
shall continue in full force and effect.

         Section 7.10. Waiver. No failure by any party to take any action or
assert any right hereunder shall be deemed to be a waiver of such right in the
event of the continuation or repetition of the circumstances giving rise to such
right, unless expressly waived in writing.

         Section 7.11. Assignment of this Agreement. Neither party may assign
this Agreement by operation of law or otherwise without the express written
consent of the other party; provided, however, this Agreement may be assigned by
operation of law or otherwise without the express written consent of the APU and
the Company to their respective Post-closing Subsidiaries it being understood
and agreed that such assignment does not relieve the assigning party of
liability hereunder.

         Section 7.12. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.




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                                      -13-

         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.

                     AMERICAN PREMIER UNDERWRITERS, INC.

                     By:    /s/ James C. Kennedy
                        -----------------------------------------------------
                     Name: James C. Kennedy
                     Title:   Vice President, Deputy General Counsel and
                              Secretary



                     INFINITY PROPERTY AND CASUALTY
                     CORPORATION

                     By:          /s/ Samuel J. Simon
                        -----------------------------------------------------
                     Name:   Samuel J. Simon
                     Title:   Senior Vice President, General Counsel and
                              Secretary

         American Financial Group, Inc. shall perform and/or guarantees the
performance of the obligations set forth in Sections II and VI of this
Agreement.


                     AMERICAN FINANCIAL GROUP, INC.


                     By:    /s/ James C. Kennedy
                        -----------------------------------------------------
                     Name: James C. Kennedy
                     Title:   Vice President, Deputy General Counsel and
                              Secretary



<PAGE>
                            NON-COMPETITION AGREEMENT
                  (hereinafter referred to as the "Agreement")


         This Agreement, entered into this 18th day of February, 2003, by and
between American Financial Group, Inc., an Ohio corporation ("AFG") and Infinity
Property and Casualty Corporation, an Ohio corporation ("Company").

                                   WITNESSETH

         WHEREAS, AFG, through its wholly-owned subsidiary, American Premier
Underwriters, Inc. ("APU") has sponsored the formation of Company;

         WHEREAS, Company has filed a registration statement under the
Securities Act for the purpose of selling a portion of the common shares owned
by APU;

         WHEREAS, Company wishes to secure AFG's agreement not to compete with
Company and its Subsidiaries in order to enable Company and its Subsidiaries to
successfully conduct personal automobile insurance business written through
independent agents.

         NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations contained herein, the parties hereto agree as follows:

         1. Definitions. Terms used herein without definition shall have the
meaning set forth in the Formation and Separation Agreement.

         2. Non-Competition.

                  (a) Except as set forth in this Agreement for a period of five
         years following the Closing Date (the "Restricted Period") AFG shall
         not, and shall not permit any of its Post-Closing Subsidiaries.

                           (i) offer, issue or sell, directly or indirectly
                  within the United States, personal automobile insurance
                  written through independent agents; or

                           (ii) employ, offer to employ or solicit with a view
                  to employment any person employed by the Company whose annual
                  base salary exceeds $50,000; provided, that the foregoing will
                  not prevent AFG from soliciting or hiring any such person if
                  such person's employment has been terminated, without cause,
                  by the Company.

                  (b) Notwithstanding any other provision of this Section 2 to
         the contrary, neither AFG nor any of its Post-Closing Subsidiaries is
         prohibited from:



<PAGE>
                                       2

                           (i) engaging in any line of business in which it is
                  engaged at completion of the Public Offering, including,
                  without limitation, the offering of personal automobile
                  insurance policies through Mid-Continent Casualty Company and
                  its wholly-owned subsidiaries ("Mid-Continent"), but only
                  within those states where Mid-Continent is offering personal
                  automobile insurance policies at the time of the completion of
                  the Public Offering; or

                           (ii) acquiring an interest in any Person engaged in
                  any line of business except for acquisitions of controlling
                  interests, whether in a single transaction or series of
                  transactions, in any Person or Persons with, in the aggregate,
                  $100,000,000 or more in gross annual written premiums, or,
                  with respect to one Person, 50% or more of its gross revenues
                  (excluding investment income and realized investment gains and
                  losses), attributable to the writing of personal automobile
                  insurance based on the most recent full fiscal year for which
                  financial statements are available (a "PERMITTED ACQUIREE"),
                  provided further, however, that AFG and any of its
                  Post-Closing Subsidiaries may acquire a controlling interest
                  in a Person that is not a Permitted Acquiree if AFG or such
                  Post-Closing Subsidiary promptly divests the personal
                  automobile insurance operations of such Person. For purposes
                  of this Agreement, a "controlling interest" in a Person means
                  having the power to direct or cause the direction of
                  management and policies of such Person through the ownership
                  of voting securities.

                  (c) Section 2(a)(i) and (ii) shall also be binding upon any
         person who has a controlling interest in AFG as of the Closing Date
         until such time, however, that the person ceases to have a controlling
         interest in AFG. AFG shall cause each such person to comply with the
         terms and conditions hereof.

                  (d) Section 2(a)(i) and (ii) shall not be binding upon a
         Post-Closing Subsidiary of AFG after the time such Person ceases to be
         a Post-Closing Subsidiary of AFG. For avoidance of doubt, Section
         2(a)(i) and (ii) also does not apply to any person which on or after
         the Closing Date becomes an Affiliate (other than a Post-Closing
         Subsidiary) of AFG, including any person that acquires all or
         substantially all of the capital stock or assets of AFG.

                  (e) The Company and AFG agree that money damages alone would
         not be a sufficient remedy for any breach of this Section 2 by AFG, its
         Post-Closing Subsidiaries, or any person having a controlling interest
         in AFG, and that, in addition to all other remedies, including monetary
         relief, the Company shall be entitled to specific performance and
         injunctive or other equitable relief as a remedy for any such breach.

         3. No Inconsistent Actions. The parties hereto shall not voluntarily
undertake or fail to undertake any action or course of action inconsistent with,
or to avoid



<PAGE>
                                       3

or evade, the provisions or essential intent of this Agreement. Furthermore, it
is the intent of the parties hereto to act in a fair and reasonable manner with
respect to the interpretation and application of the provisions of this
Agreement.

         4. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law, rule or regulation
or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.

         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.

                     AMERICAN FINANCIAL GROUP, INC.

                     By:    /s/ James C. Kennedy
                        ---------------------------------------------------
                     Name: James C. Kennedy
                     Title:   Vice President, Deputy General Counsel and
                     Secretary



                     INFINITY PROPERTY AND CASUALTY
                     CORPORATION

                     By:    /s/  Samuel J. Simon
                        ---------------------------------------------------
                     Name:    Samuel J. Simon
                     Title:   Senior Vice President, General Counsel and
                              Secretary



</TEXT>
</DOCUMENT>
