Meridian Declines Sweetened Shepard Offer

On Sept. 18, the Shepard brothers amended their hostile tender offer that was commenced by offering documents dated Aug. 31. In response to the amended offer, Norma J. Oman, President and Chief Executive Officer of MIGI is sending a letter to the shareholders on behalf of the Board of Directors summarizing the reasons for the Board’s recommendation not to tender any of their shares.

The text of that letter follows:

September 22, 2000

Dear Shareholders,

On September 18, 2000, Gregory M. Shepard (“Shepard”) and his brother Tracy M. Shepard, through Meridian Insurance Group Acquisition Corporation and its parent, American Union Insurance Company, amended their tender offer to buy shares of Meridian Insurance Group, Inc. (the “Company” or “MIGI”) and extended the offer’s expiration date until October 20, 2000.

You should soon be receiving in the mail a copy of the amended materials, including a Supplement dated September 18, 2000. Among other changes, Shepard has increased the offer price from $20 to $25 per share and has eliminated the financing condition from the offer.

Shepard’s offer, however, no longer seeks to purchase all of MIGI’s outstanding stock. Instead, the amended offer obligates Shepard to buy only 2,985,769 shares, which is a number that Shepard calculates will result in his acquisition of 50.1% of the fully diluted shares of MIGI when consolidated with Shepard’s current stockholdings.

In the event that more shares are tendered than Shepard’s group is obligated to buy, Shepard would buy a pro-rata portion of the shares tendered by each tendering shareholder and return the unpurchased shares. Further, in the original offering documents, Shepard stated that, if he acquired control of MIGI pursuant to the offer, he would then cause the Company to merge with one of his companies in a transaction in which all MIGI shares not already owned by him would be acquired at the same price as was offered in the original offer.

Under the amended offer, Shepard states that he no longer intends to cause this second-step merger to occur. AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE AMENDED OFFER ARE NOT IN THE BEST INTERESTS OF THE COMPANY OR ITS SHAREHOLDERS. ACCORDINGLY, YOUR BOARD RECOMMENDS THAT YOU REJECT THE AMENDED OFFER AND NOT TENDER ANY OF YOUR SHARES.

The Board of Directors continues to believe that it would not be in the best interests of the Company or its shareholders, employees, agents and policyholders, and would be detrimental to the long-term viability of the Company, for Shepard to obtain control of the Company in light of Shepard’s past history and experience in the insurance industry.

Specifically, the Board is concerned with Shepard’s involvement in the recent insolvency of Illinois HealthCare Insurance Company, as noted in our letter to you dated September 11, 2000.

Questions concerning Shepard’s past history and experience in the insurance industry achieved even greater significance in connection with the Board’s consideration of the terms of the amended offer due to the abandonment by Shepard of his plans to acquire all shares of MIGI.

Shepard now plans to acquire only 50.1% of the outstanding shares, with the result that all holders who (as a result of the proration provisions of the offer or otherwise) retained MIGI shares following the offer would become minority shareholders in a company controlled by Shepard. Further, in that event, the number of shares available for trading in the public market by persons other than Shepard and his affiliates and Meridian Mutual would be significantly reduced, which the Board believes would have a negative effect on share prices and stock market liquidity for holders of the shares.

The Board considered a number of other factors in connection with reaching its determination to recommend rejection of the terms of the amended offer. For a complete description of other reasons that were considered by the Board of Directors, we urge you to read carefully the enclosed copy of Amendment No. 2 to the Company’s Schedule 14D-9 so that you will be fully informed as to the Board’s recommendation.

As stated in that Amendment No. 2, one factor that the Board did not consider in connection with forming its recommendation was whether the increased price per share, offered for only a limited number of shares, was adequate or fair to shareholders from a financial point of view.

In our last letter, we advised you that the Company had received communications from Meridian Mutual and from various individual executive officers and directors of the Company who, in the aggregate, hold more than 50% of the Company’s outstanding shares, indicating that they did not support the offer and will not tender their shares.

Meridian Mutual and its executive officers and directors have indicated to the Company that they do not support the amended terms and that they do not intend to tender their shares under the amended offer. Therefore, the Board continues to believe that Shepard’s offer will not gather tenders of a sufficient number of shares to permit him to meet the Minimum Condition set forth in his offer.

As we did just two weeks ago, we again recommend that you reject the offer and recommend that you do not tender your shares. We thank you for your continued support and confidence. Sincerely,

Norma J. Oman President and Chief Executive Officer