PIEDMONT MANAGEMENT CO INC, S-1/A, 1995-11-09

PIEDMONT MANAGEMENT CO INC
S-1/A, 1995-11-09
LIFE INSURANCE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1995
REGISTRATION NO. 33-62919

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PIEDMONT MANAGEMENT COMPANY INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6719 13-2612123
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
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80 MAIDEN LANE
NEW YORK, NY 10038
(212) 363-4650
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

PETER J. PALENZONA
CHIEF FINANCIAL OFFICER
PIEDMONT MANAGEMENT COMPANY INC.
80 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 363-4650
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
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DAVID W. FERGUSON KATHLEEN M. CARROLL PETER R. O'FLINN
DAVIS POLK & WARDWELL VICE PRESIDENT AND GENERAL LEBOEUF, LAMB, GREENE & MACRAE,
450 LEXINGTON AVENUE COUNSEL L.L.P.
NEW YORK, NEW YORK 10017 CHARTWELL RE CORPORATION 125 WEST 55TH STREET
(212) 450-4000 300 ATLANTIC STREET, SUITE 400 NEW YORK, NEW YORK 10019
STAMFORD, CT 06901 (212) 424-8000
(203) 961-7300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable
after this Registration Statement becomes effective and all other conditions to
the transactions described herein have been satisfied or waived.

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, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PIEDMONT MANAGEMENT COMPANY INC.

Cross Reference Sheet pursuant to Rule 404(a) of the Securities Act of 1933
and Item 501(b) of Regulation S-K showing the location or heading in the
Prospectus of the information required by Part I of Form S-1.

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LOCATION OR HEADING
S-1 ITEM NUMBER AND CAPTION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page
of Prospectus........................... Facing Page; Cross Reference Sheet;
Outside Front Cover Page of Prospectus.

2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Available Information; Inside Front Cover
Page of Prospectus; Table of Contents.

3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors; Summary
Pro Forma Financial Data (unaudited).

4. Use of Proceeds........................... *

5. Determination of Offering Price........... *

6. Dilution.................................. *

7. Selling Security Holders.................. *

8. Plan of Distribution...................... The Merger--The CI Notes Issuance.

9. Description of Securities to be
Registered................................ Description of Contingent Interest Notes.

10. Interests of Named Experts and Counsel.... *

11. Information with Respect to Registrant.... Prospectus Summary; The Companies;
Management and Operations After Merger;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business-- Piedmont
Management Company Inc.;
Business--Chartwell Re Corporation;
Certain Relationships and Related
Transactions; Directors and Executive
Officers; Executive Compensation;
Principal Stockholders; Pro Forma
Financial Information; Capitalization;
Selected Financial Data; Index to
Financial Statements.

12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>

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* Item is omitted because answer is negative or Item is inapplicable.
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SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1995

PROSPECTUS
PIEDMONT MANAGEMENT COMPANY INC.
CONTINGENT INTEREST NOTES DUE 2006

The Contingent Interest Notes Due 2006 (the "CI Notes") are being
distributed by Piedmont Management Company Inc. ("Piedmont") as a dividend (the
"CI Notes Dividend") to each holder of the common stock, par value $.50 per
share, of Piedmont (the "Piedmont Common Stock") prior to the proposed merger
(the "Merger") of Piedmont with and into Chartwell Re Corporation ("Chartwell").
Upon the effectiveness of the Merger, all obligations of Piedmont under the CI
Notes will be assumed by Chartwell.

The CI Notes will be issued in an aggregate principal amount of $1 million,
which principal amount will accrete interest at a rate of 8% per annum,
compounded annually (collectively, the "Fixed Amount"). Such interest will not
be payable until maturity or earlier redemption of the CI Notes. In addition,
the CI Notes will entitle the holders to receive at maturity, in proportion to
the principal amount of CI Notes held by them, an aggregate of from $0 up to
approximately $55 million in contingent interest (the "Contingent Interest").
The actual amount of Contingent Interest paid will depend on the outcome of
certain contingencies, the most significant of which is the development over
time of the reserves recorded as of March 31, 1995 by Piedmont's principal
insurance subsidiary for losses and loss adjustment expenses. The principal
amount of the CI Notes to be issued to each holder of Piedmont Common Stock will
bear the same relation to the aggregate principal amount of the CI Notes that
the number of shares of Piedmont Common Stock held by such holder bears to the
aggregate number of shares of Piedmont Common Stock outstanding as of the record
date for the CI Notes Dividend (the "CI Notes Record Date"). Settlement of the
CI Notes may be made by payment of cash or, under certain specified conditions,
by delivery of shares of Chartwell common stock. The CI Notes will mature on
June 30, 2006, subject to extension in certain limited circumstances as
described herein.

The CI Notes will not be redeemable prior to the third anniversary of their
date of issuance. Thereafter, the CI Notes will be redeemable by Chartwell at a
price equal to the sum of the Fixed Amount and the Contingent Interest as of the
redemption date. In addition, in the event of a Change of Control (as defined
herein), Piedmont or, following the Merger, Chartwell will be required to make
an offer to purchase from the holders of the CI Notes all outstanding CI Notes
at an aggregate purchase price equal to the sum of the Fixed Amount and the
Contingent Interest.

The distribution of the CI Notes will be taxable as a dividend to each
Piedmont stockholder which receives CI Notes. See "FEDERAL INCOME TAX
CONSIDERATIONS."

During the first 90 days after issuance, the CI Notes may be transferred
without restriction of any kind, subject to compliance with the Securities Act
of 1933, as amended (the "Securities Act"). After such 90 day period, the CI
Notes will be transferable only in certain limited circumstances. The CI Notes
will not be listed on any stock exchange. To the extent that the CI Notes are
transferable, there can be no assurance that any market for the CI Notes will
develop or, if such a market develops, as to the liquidity of such market. See
"RISK FACTORS--Transfer Restrictions; Absence of Public Market."

SEE "RISK FACTORS" COMMENCING ON PAGE 13 HEREIN FOR CERTAIN FACTORS RELEVANT
TO THE CI NOTES.

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

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The date of this Prospectus is November , 1995.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
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FOR NORTH CAROLINA PURCHASERS:
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON
THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.

State insurance holding company laws and regulations applicable to Piedmont
and Chartwell in general provide that no person may acquire control of Piedmont
or Chartwell, and thus indirect control of its insurance subsidiaries, unless
such person has provided certain required information to, and such acquisition
is approved (or not disapproved) by, the appropriate insurance regulatory
authorities. Generally, any person acquiring beneficial ownership of 10% or more
of the common stock of Piedmont or, after the Merger, Chartwell would be
presumed to have acquired such control, unless the appropriate insurance
regulatory authorities upon advance application determine otherwise.

AVAILABLE INFORMATION

Piedmont and Chartwell are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith each company files reports and other information with the
Securities and Exchange Commission (the "SEC"). Reports and other information
(including proxy statements with respect to Piedmont) filed by each of Piedmont
and Chartwell can be inspected and copied at the public reference facilities at
the SEC's office at 450 Fifth Street, N.W., Washington D.C. 20549, and at the
SEC's Regional Offices at Seven World Trade Center, New York, New York 10048 and
Citicorp Center, 500 W. Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Piedmont
Common Stock is listed for trading on the Nasdaq Stock Market ("NASDAQ") under
the symbol "PMAN." Such material and other information concerning Piedmont can
be inspected and copied at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.

Piedmont has filed with the SEC a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act covering the securities
described herein. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. For further information,
reference is hereby made to the Registration Statement and the exhibits filed
therewith. The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for inspection and copying as
set forth above.

TABLE OF CONTENTS

AVAILABLE INFORMATION................ 2
PROSPECTUS SUMMARY................... 3
RISK FACTORS......................... 13
THE COMPANIES........................ 18
THE MERGER........................... 20
PRO FORMA FINANCIAL INFORMATION...... 27
CAPITALIZATION....................... 37
SELECTED FINANCIAL DATA.............. 38
MANAGEMENT AND OPERATIONS AFTER
MERGER............................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 44
PIEDMONT MANAGEMENT
COMPANY INC........................ 66
CHARTWELL RE CORPORATION............. 77
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS......................... 100
DIRECTORS AND EXECUTIVE OFFICERS..... 105
EXECUTIVE COMPENSATION............... 110
PRINCIPAL STOCKHOLDERS............... 119
DESCRIPTION OF CONTINGENT INTEREST
NOTES................................ 125
FEDERAL INCOME TAX CONSIDERATIONS.... 148
LEGAL MATTERS........................ 151
EXPERTS.............................. 151
INDEX TO FINANCIAL STATEMENTS........ F-1

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PROSPECTUS SUMMARY

The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this
Prospectus. Stockholders are urged to read carefully this Prospectus in its
entirety.

All information concerning Piedmont included in this Prospectus has been
furnished by Piedmont and all information concerning Chartwell included in this
Prospectus has been furnished by Chartwell.

As used herein, "the Company" refers to Piedmont prior to the Merger and to
Chartwell as the surviving corporation in the Merger (the "Surviving
Corporation") from and after the effective time of the Merger (the "Effective
Time").

THE COMPANIES

PIEDMONT

Piedmont is a financial services holding company, the principal subsidiaries
of which are The Reinsurance Corporation of New York ("RECO") and Lexington
Management Corporation ("LMC"). Founded in 1936, RECO is one of the oldest
reinsurance companies in the United States. It is licensed to underwrite
business in all states except Maine and Hawaii and is an approved surety for
bonds and undertakings required for United States government contracts. It is
also qualified to underwrite business in all U.S. Possessions as well as in
Canada where it maintains a resident agent.

LMC, established in 1938 and acquired by Piedmont in 1969, is a holding
company that offers a variety of asset management and related services to retail
investors, institutions and high net worth individuals. LMC manages
approximately $3.5 billion in assets, including $1.5 billion in a diversified
group of mutual funds.

Piedmont's principal executive offices are located at 80 Maiden Lane, New
York, New York 10038, and its telephone number is (212) 363-4650.

CHARTWELL

Chartwell is a holding company, the principal subsidiary of which is
Chartwell Reinsurance Company ("Chartwell Reinsurance"). Chartwell Reinsurance
underwrites treaty reinsurance through reinsurance brokers for casualty and to a
lesser extent property risks. Chartwell Reinsurance provides a broad array of
reinsurance coverages to ceding companies, emphasizing working layer casualty
coverages. Chartwell Reinsurance is rated "A-" (Excellent) by A.M. Best.
Chartwell's other subsidiaries include Chartwell Advisers Limited ("Chartwell
Advisers") and Drayton Company Limited ("Drayton"). Chartwell Advisers acts as
the exclusive adviser to New London Capital plc, a non-affiliated company formed
to underwrite at Lloyd's of London ("Lloyd's") through a group of wholly-owned
subsidiaries that are limited liability corporate members of certain Lloyd's
syndicates. Drayton is a Bermuda-domiciled insurer which is not currently
writing new business. Chartwell is managing the resolution of the remaining
claims under Drayton's old

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business and Drayton's remaining assets in a controlled winding-up (or
"run-off") of such old business.

Chartwell's principal executive offices are located at 300 Atlantic Street,
Suite 400, Stamford, Connecticut 06901, and its telephone number is (203)
961-7300.

THE CI NOTES DIVIDEND

The Board of Directors of Piedmont intends to declare and distribute the CI
Notes as a dividend to each holder of record of Piedmont Common Stock on the CI
Notes Record Date. The CI Notes Dividend has not yet been declared by the Board
of Directors of Piedmont, and, accordingly, the CI Notes Record Date has not yet
been established. The CI Notes Record Date will be established by the Board of
Directors of Piedmont as described more fully herein. The CI Notes Dividend is
not contingent upon satisfaction of the conditions to the Spin-off (as defined
below) or the Merger. The Board of Directors is not obligated to declare the
dividend of or distribute the CI Notes, although the CI Notes Dividend is a
condition to both the Spin-off and the Merger. The principal amount of the CI
Notes to be issued to each holder of Piedmont Common Stock will bear the same
relation to the aggregate principal amount of the CI Notes that the number of
shares of Piedmont Common Stock held by such holder bears to the aggregate
number of shares of Piedmont Common Stock outstanding as of the CI Notes Record
Date. The CI Notes will be issued pursuant to an indenture between Piedmont and
Shawmut Bank Connecticut, N.A., as trustee (the "Indenture"), and will be
assumed by Chartwell in the Merger. See "DESCRIPTION OF CONTINGENT INTEREST
NOTES."

THE MERGER

GENERAL

Piedmont and Chartwell have entered into an Agreement and Plan of Merger,
dated as of August 7, 1995 (the "Merger Agreement"). Pursuant to the Merger
Agreement, Piedmont will be merged with and into Chartwell, with Chartwell being
the Surviving Corporation in the Merger.

Piedmont has mailed to the holders of the Piedmont Common Stock and of its
Cumulative Preferred Stock, Convertible Series A, par value $1.00 per share (the
"Piedmont Preferred Stock"), its Proxy Statement dated November , 1995 in
connection with the solicitation of proxies by the Board of Directors of
Piedmont for use at a special meeting of stockholders of Piedmont to be held on
December 6, 1995 (the "Piedmont Meeting") for the purpose of voting on approval
of the Merger Agreement and related matters. Such Proxy Statement also
constitutes the Prospectus of Chartwell with respect to the shares of its common
stock, par value $.01 per share (the "Chartwell Common Stock"), to be issued in
the Merger, and is referred to herein as the "Proxy Statement/Prospectus."

MERGER CONSIDERATION

The Merger Agreement provides that in the Merger, the shares of Piedmont
Common Stock outstanding will be converted into the right to receive shares of
Chartwell Common Stock representing, in the aggregate, approximately 45.25% of
the aggregate number of shares of Chartwell Common Stock outstanding immediately
following the Merger, while the Chartwell stockholders will retain shares
representing in the aggregate approximately 54.75% of such stock.

The number of Chartwell shares each Piedmont stockholder will receive is
subject to automatic adjustment in the event that Piedmont or Chartwell or both
were to suffer a decrease, as of the fifth business day prior to the Closing
Date, in the stockholders' equity of such company and its consolidated
subsidiaries (other than, in the case of Piedmont, the Asset Management Subs (as
defined herein)) of from $2.5 million to $5 million on an after-tax basis from
the amount thereof at March 31, 1995, other than as a result of certain
specified causes and excluding certain specific

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items (such a decrease, a "Financial Adjustment"). See "THE MERGER--Merger
Consideration" and "THE MERGER--The Merger Agreement--Conditions to the Merger"
in the Proxy Statement/Prospectus.

REGULATORY AND OTHER APPROVALS REQUIRED

The Merger is subject to review under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), by the Federal Trade
Commission and the Department of Justice and is also subject to, among other
approvals, the prior approval of insurance regulatory authorities in the States
of Minnesota and New York, and potentially those of certain other states as
well. Notification and report forms under the HSR Act were submitted on October
17, 1995 and early termination of the waiting period has been granted. See "THE
MERGER--The Merger Agreement--Regulatory and Other Approvals."

The holders of a majority in principal amount of Chartwell's 10 1/4% Senior
Notes due 2004 (the "Senior Notes") are required to consent to certain
Merger-related transactions. In addition, Chartwell has received a commitment
from a commercial bank for the refinancing of Piedmont's existing bank credit
facility as of the Effective Time.

CONDITIONS TO THE MERGER

In addition to obtaining requisite stockholder and regulatory approvals, the
obligations of Piedmont and Chartwell to consummate the Merger are subject to
the satisfaction or waiver of various conditions, including, among other things,
the obtaining of required third party consents, the receipt of legal opinions
with respect to the tax consequences of the Spin-off (as defined herein) and the
Merger, the accuracy in all material respects of certain representations and
warranties and the absence of certain material adverse changes. See "THE
MERGER--The Merger Agreement-- Conditions to the Merger."

In addition to approval by the common and preferred stockholders of Piedmont
described above, the Merger Agreement requires approval by holders of two-thirds
of the outstanding shares of Chartwell Common Stock. Such approval is expected
to occur at or near the time of the Piedmont Meeting. Pursuant to a voting
agreement with Piedmont dated August 7, 1995, holders of in excess of two-thirds
of the outstanding shares of Chartwell Common Stock have agreed to vote in favor
of the Merger Agreement and related transactions and as result, approval by the
holders of Chartwell Common Stock is virtually assured.

PIEDMONT PREFERRED STOCK CONVERSION; STOCK OPTION EXERCISES

At the Piedmont Meeting, holders of Piedmont Preferred Stock will also be
asked to consider and approve an amendment to the Restated Certificate of
Incorporation of Piedmont (the "Piedmont Preferred Stock Amendment"). The
Piedmont Preferred Stock Amendment, if adopted, would have the effect of
automatically converting each outstanding share of Piedmont Preferred Stock into
two fully paid and nonassessable shares of Piedmont Common Stock as of the time
(such time, the "Option Date") that is immediately prior to the CI Notes Record
Date. Because holders representing in excess of a majority of the Piedmont
Preferred Stock outstanding have agreed in the Piedmont Voting Agreement to vote
in favor of the Piedmont Preferred Stock Amendment, approval of such amendment
is virtually assured. In addition, the Merger Agreement provides that
outstanding Piedmont stock options may be exercised until the Option Date, and
all in-the-money Piedmont stock options not previously exercised will be
automatically exercised (subject to a reduction in the number of shares received
due to share withholding in respect of the exercise price and applicable tax
withholding) on the Option Date. As a result of the foregoing, the number of
shares of Piedmont Common Stock that will be outstanding as of the CI Notes
Record Date, and therefore the portion of the aggregate principal amount of the
CI Notes that will be issued to each Piedmont stockholder, cannot be finally
determined until the Option Date.

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THE SPIN-OFF

Immediately prior to the Effective Time, the Board of Directors of Piedmont
intends to declare and pay as a dividend (the "Spin-off") to the holders of
Piedmont Common Stock as of a record date to be established by the Board of
Directors which will be prior to the Effective Time and after the date of the CI
Notes Dividend (the "Spin-off Record Date"), one share of common stock, par
value $.01 per share (the "Lexington Common Stock"), of Lexington Global Asset
Managers, Inc., a Delaware corporation ("Lexington") for each share of Piedmont
Common Stock held by such holders. Lexington is currently a wholly-owned
subsidiary of Piedmont which has been recently formed to serve as a holding
company for Piedmont's subsidiaries involved in the asset management business
(collectively with Lexington, the "Asset Management Subs"). The Asset Management
Subs will not be included in the Merger but will instead be contributed to
Lexington immediately prior to the Spin-off. The Spin-off will qualify as
tax-free to Piedmont and its stockholders. A Preliminary Information Statement
relating to Lexington and the Spin-off is also being mailed to Piedmont
stockholders together with this Prospectus.

CERTAIN COVENANTS

The Merger Agreement contains various covenants of Piedmont and Chartwell
with respect to operational and other matters in the period prior to the
Effective Time. Among other things, in the Merger Agreement, Piedmont agreed
that, prior to the Effective Time, RECO would increase by an aggregate of $25
million its net reserves for losses incurred but not reported under statutory
accounting practices ("SAP") with respect to certain of its business, and
Piedmont would correspondingly increase by an aggregate of $25 million its net
reserves for losses incurred but not reported under generally accepted
accounting principles ("GAAP") (such increase, the "Reserve Addition"). The
Reserve Addition was recorded in RECO's financial statements in the quarter
ended September 30, 1995. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Piedmont--Consolidated Results of
Operations."

TERMINATION

The Merger Agreement may be terminated prior to the Effective Time by either
Piedmont or Chartwell, among other circumstances, if the required stockholder
approval of either company has not been obtained, if any governmental entity
issues a non-appealable order permanently enjoining or otherwise prohibiting the
Merger, if the Board of Directors of either Piedmont or Chartwell has withdrawn
or modified its approval of the Merger, or in the event of certain material
adverse changes with respect to Piedmont or Chartwell. See "THE MERGER--The
Merger Agreement-- Termination."

DIRECTORS AND OFFICERS FOLLOWING THE MERGER

The Merger Agreement provides that the Board of Directors of Chartwell as of
the Effective Time will consist of Richard E. Cole, the Chairman and Chief
Executive Officer of Chartwell, Steven J. Bensinger, the President of Chartwell,
and Jacques Q. Bonneau, the Executive Vice President and Chief Underwriting
Officer of Chartwell, six additional persons who are currently directors of
Chartwell, and four persons who are currently directors of Piedmont. The
officers of Chartwell at the Effective Time will be officers of the Surviving
Corporation immediately after the Merger. See "DIRECTORS AND EXECUTIVE
OFFICERS."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The distribution of the CI Notes will be taxable as a dividend to each
Piedmont stockholder that receives CI Notes. See "FEDERAL INCOME TAX
CONSIDERATIONS." All Piedmont stockholders should read carefully the foregoing
discussion and are urged to consult their own tax advisors as to the specific
consequences to them of receiving, holding and disposing of the CI Notes under
Federal, state, local or any other applicable tax laws.

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THE CI NOTES

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SECURITIES DISTRIBUTED....................... $1,000,000 aggregate principal amount of
Contingent Interest Notes due 2006.
INTEREST..................................... The CI Notes will accrete interest at the
rate of 8% per annum, compounded annually.
Such interest will not be payable until
maturity or earlier redemption of the CI
Notes. In addition, the CI Notes will entitle
the holders thereof to receive Contingent
Interest in an aggregate amount of from $0 up
to approximately $55 million.
ISSUER....................................... Piedmont Management Company Inc. Upon the
Effective Time of the Merger, Chartwell will
assume all obligations of Piedmont under the
CI Notes.
MANNER OF DISTRIBUTION....................... The Board of Directors of Piedmont intends to
declare and distribute the CI Notes as a
dividend to each holder of record of Piedmont
Common Stock on the CI Notes Record Date. The
CI Notes Dividend has not yet been declared
by the Board of Directors of Piedmont, and,
accordingly, the CI Notes Record Date has not
yet been established. The CI Notes Record
Date will be established by the Board of
Directors of Piedmont and is expected to be a
date occuring immediately after the
conversion of the Piedmont Preferred Stock
into Piedmont Common Stock pursuant to the
Piedmont Preferred Stock Amendment (which
conversion will occur after the Piedmont
Meeting) and prior to the record date
established for the Spin-off and the
Effective Time of the Merger.
The CI Notes Dividend is not contingent upon
satisfaction of the conditions to the
Spin-off or the Merger. The Board of
Directors is not obligated to declare the
dividend of or distribute the CI Notes,
although the CI Notes Dividend is a condition
to both the Spin-off and the Merger.
MATURITY DATE................................ June 30, 2006, subject to extension in
limited circumstances.
</TABLE>

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DETERMINATION OF THE CONTINGENT INTEREST..... The Indenture provides that Ernst & Young LLP
will initially be appointed as actuary to
represent the interests of the holders of the
CI Notes under the Indenture (the "Holder
Actuary"). Upon maturity or earlier
settlement of the CI Notes, the Indenture
provides that an actuary appointed by
Chartwell and the Holder Actuary will each
independently calculate the Contingent
Interest pursuant to the formula set forth in
the Indenture. If the Holder Actuary's
calculation of the Contingent Interest
differs from the Chartwell actuary's
calculation by $3 million or less, then the
Contingent Interest calculated by Chartwell
will be used for purposes of settling the CI
Notes. If, however, the two calculations vary
by more than $3 million, following a required
period of consultation between the Holder
Actuary and the Chartwell actuary, a third
actuary will be appointed as arbitrator (the
"Independent Actuary"). The Independent
Actuary will perform its own calculation of
the Contingent Interest and, based thereon,
will determine which of the Chartwell
actuary's or the Holder Actuary's calculation
of the Contingent Interest is, in the
judgment of the Independent Actuary, the best
estimate of the Contingent Interest. The
amount so selected shall be the Contingent
Interest for purposes of settling the CI
Notes.
CALCULATION OF THE CONTINGENT INTEREST....... The Contingent Interest will be calculated
under a complex formula set forth in the
Indenture. In general, assuming the CI Notes
are settled at maturity, the Contingent
Interest will be equal to $55 million (a)
less the and amount equal to (i)
amount of any adverse development of
the loss and LAE reserves and related
accounts (including certain reinsurance
recoverables, commissions and unearned
premiums) of RECO recorded as of March 31,
1995, minus (ii) $25 million (b)
plus the amount of certain tax benefits
received or recorded by Chartwell as a result
of such adverse development. The amount so
calculated may not be greater than $55
million nor less than a minimum amount equal
to the lesser of (a) $10 million less the
Fixed Amount and (b) the tax benefits
referred to above. The Contingent Interest
will in any event be reduced by part of the
costs of any Independent Actuary and by part
or all of the costs of the Holder Actuary.
</TABLE>

8
<PAGE>

<TABLE>
<S> <C>
In the event that the CI Notes are settled
prior to maturity, the foregoing formula will
in general apply, except that the $55 million
maximum amount of the CI Notes will be
reduced to an amount equal to $55 million
discounted back from June 30, 2006 at a
discount rate of 8% per annum, compounded
annually, and the tax benefits will be
calculated in a prescribed manner. See
"DESCRIPTION OF CONTINGENT INTEREST
NOTES--Determination of the Payment Amount."
RANKING...................................... The CI Notes will be senior unsecured
obligations of Piedmont and, following the
Merger, of Chartwell, in each case ranking
pari passu in right of payment with all
existing and future senior unsecured
obligations of such company. Chartwell
conducts its operations through its
subsidiaries and, accordingly, the CI Notes
will be effectively subordinated to all
indebtedness and other liabilities of its
subsidiaries, including reinsurance
obligations.
MANDATORY REDEMPTION......................... None.
OPTIONAL REDEMPTION.......................... The CI Notes will not be redeemable prior to
the third anniversary of their date of issue.
Thereafter, the CI Notes will be redeemable
in whole but not in part, at a redemption
price, on a per note basis, equal to (i) the
Fixed Amount as of the redemption date, plus
(ii) the Contingent Interest as of the
redemption date. Upon delivery of the
redemption notice, the Contingent Interest
shall be determined. See "DESCRIPTION OF
CONTINGENT INTEREST NOTES--Optional
Redemption."
CHANGE OF CONTROL............................ Upon the occurrence of a Change of Control,
Chartwell will be required to make an offer
to purchase all of the outstanding CI Notes
at an aggregate purchase price (expressed on
a per note basis) equal to (i) the Fixed
Amount as of the Change of Control payment
date, plus (ii) the Contingent Interest as of
that date. See "DESCRIPTION OF CONTINGENT
INTEREST NOTES--Repurchase at the Option of
Holders Upon a Change of Control."
</TABLE>

9
<PAGE>

<TABLE>
<S> <C>
CERTAIN COVENANTS............................ The Indenture will contain covenants
restricting the incurrence of indebtedness by
subsidiaries of Chartwell, the incurrence of
liens to secure indebtedness of Chartwell and
the merger or consolidation of Chartwell or
the transfer of all or substantially all of
its assets. Such covenants are subject to
important exceptions and qualifications. See
"DESCRIPTION OF CONTINGENT INTEREST
NOTES--Certain Covenants."
TRANSFER RESTRICTIONS........................ During the first 90 days after issuance, the
CI Notes may be transferred without
restriction of any kind, subject to
compliance with the Securities Act. After
such 90 day period, the CI Notes will be
transferable only in certain limited
circumstances. See "RISK FACTORS" and
"DESCRIPTION OF CONTINGENT INTEREST
NOTES--Transfer Restrictions."
FORM......................................... The CI Notes will be issued only in
definitive form. Permitted transfers thereof
may be effected only by delivery of CI Notes
with properly executed instruments of
transfer to the transfer agent for the CI
Notes (the "Transfer Agent").
LISTING...................................... The CI Notes will not be listed on any stock
exchange or on NASDAQ.
</TABLE>

10
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA (UNAUDITED)

The summary pro forma financial data consolidates the historical balance
sheets of Chartwell and Piedmont (after giving effect to the Spin-off, the CI
Notes Dividend and certain other items) as of September 30, 1995, as if the
Merger and related transactions had been consummated at September 30, 1995 and
consolidates the statements of operations of Chartwell and Piedmont for the nine
months ended September 30, 1995 and the year ended December 31, 1994, as if the
Merger and related transactions had been consummated on January 1, 1994 in each
case giving effect to the Merger and related transactions under the purchase
method of accounting. This pro forma data is presented for illustrative purposes
only and is not necessarily indicative of the results of operations or financial
position that would have been reported if the Merger had been consummated at the
dates indicated or that may be reported in the future. This pro forma data is
derived from the unaudited Condensed Consolidated Pro Forma Financial Statements
appearing herein under "PRO FORMA FINANCIAL INFORMATION" and should be read in
conjunction with those statements and the notes thereto.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Pro Forma Statement of Operations Data:
Gross premiums written........................................ $ 260,988 $ 348,226
------------- ------------
Net premiums written.......................................... 187,842 255,997
------------- ------------
Net premiums earned........................................... 180,346 232,070
Net investment income......................................... 30,045 33,969
Net realized capital gains (losses)........................... 5,141 (3,044)
Other income.................................................. 1,080 1,573
------------- ------------
Total revenues................................................ 216,612 264,568
------------- ------------
Loss and LAE.................................................. 161,891 192,302
Policy acquisition costs...................................... 49,396 48,679
Other expenses................................................ 12,383 31,460
Interest and amortization................................... 8,986 10,069
------------- ------------
Loss before taxes........................................... (16,044) (17,942)
Income tax benefit.......................................... (5,844) (6,316)
------------- ------------
Loss from continuing operations............................. ($ 10,200) ($ 11,627)
------------- ------------
------------- ------------
Loss from continuing operations per common share............ ($ 1.49) ($ 1.65)
------------- ------------
------------- ------------
Weighted average shares outstanding........................... 6,859,017 6,864,390
------------- ------------
------------- ------------
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
----------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
----------------------
<S> <C>
Pro Forma Balance Sheet Data:
Total investments and cash........................................... $ 709,966
Total assets......................................................... 1,159,241
Loss and LAE reserves................................................ 745,923
Common stockholders' equity.......................................... 142,937
Book value per common share.......................................... $ 20.84
Common shares outstanding............................................ 6,859,017
</TABLE>

11
<PAGE>
COMPARATIVE PER SHARE DATA

The following unaudited table sets forth certain historical per share
information for Chartwell and Piedmont, certain pro forma per share information
for Piedmont giving effect to the Spin-off, the CI Notes Dividend and certain
other items, certain pro forma information for Chartwell giving effect to the
Merger and related transactions, and equivalent pro forma per share information
of Piedmont. The data is based upon and should be read in conjunction with the
historical consolidated financial statements of Chartwell and Piedmont and the
unaudited Condensed Consolidated Pro Forma Financial Statements and the notes
thereto appearing herein under "PRO FORMA FINANCIAL INFORMATION."

<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------
CHARTWELL PIEDMONT
HISTORICAL MERGER WITH EQUIVALENT(3)
--------------------- PIEDMONT AS PIEDMONT AS MERGER WITH
CHARTWELL PIEDMONT ADJUSTED(1) ADJUSTED(2) CHARTWELL
--------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30,
1995:
Income per common share........... $ 1.21 $(3.35) $ (3.05) $ (1.49) $ (0.79)
Dividends per common share........ -- -- -- -- --

YEAR ENDED DECEMBER 31, 1994:
Loss per common share(4).......... $ (0.84) $(0.69) $ (1.70) $ (1.65) $ (0.88)
Dividends per common share........ -- -- -- -- --

AS OF SEPTEMBER 30, 1995:
Book value per common share....... $ 18.82 $18.55 $ 13.52 $ 20.84 $ 11.08
</TABLE>

- ------------

(1) Gives pro forma effect to the Spin-off of Lexington, the CI Notes Dividend,
and the other items for which adjustments are made in the pro forma
financial information of Piedmont appearing in "PRO FORMA FINANCIAL
INFORMATION" assuming such transactions were consummated on January 1, 1994
for the income (loss) per share and dividends paid per common share data and
on September 30, 1995 for the book value per common share data.

(2) Gives pro forma effect to the Merger after the transactions described in
footnote (1) assuming all such transactions were consummated on January 1,
1994 for the income (loss) per common share and the dividends paid per
common share data and on September 30, 1995 for the book value per common
share data. The loss per common share for the nine months ended September
30, 1995 includes the effect of Piedmont's $25 million Reserve Addition, a
$2.37 per share after tax. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Piedmont--Consolidated
Results of Operations."

(3) Represents the pro forma equivalent of one share of Piedmont Common Stock
calculated by multiplying the pro forma Chartwell data by an assumed
Conversion Number of 0.5319 (based on the actual number of shares of
Chartwell Common Stock and the actual number of shares of Piedmont stock
outstanding at October 20, 1995, assuming all vested outstanding Piedmont
stock options with an exercise price of less than $15.00 are exercised for
cash prior to the Option Date and that all other Piedmont stock options are
automatically exercised on the Option Date based on an assumed average
closing price over the relevant period of $15.00 per share and a 28% tax
withholding rate). The actual Conversion Number will depend on the number of
shares of Piedmont Common Stock outstanding immediately prior to the
Effective Time and on whether a Financial Adjustment occurs with respect to
either party. See "THE MERGER--Merger Consideration."

(4) The historical loss per share and weighted average number of common shares
outstanding of Chartwell for the year ended December 31, 1994 have been
calculated assuming the Senior Notes offering by Chartwell on March 17, 1994
and certain related transactions were consummated at the beginning of the
year.

12
<PAGE>
RISK FACTORS

In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the CI Notes.

LOSS RESERVE DEVELOPMENT AND OTHER CONTINGENCIES

The actual amount of the Contingent Interest portion of the CI Notes will
depend on certain significant contingencies. As a result, there can be no
assurance as to what amount, if any, will be paid with respect to the Contingent
Interest.

The principal contingency affecting the amount of Contingent Interest is the
development over time of the reserves for losses and loss adjustment expenses
recorded by RECO, Piedmont's principal insurance subsidiary, as of March 31,
1995. In general, if as of the
determination date for the Contingent Interest, the total of the amount paid and
remaining reserves for losses and loss adjustment expenses with respect to
business as to which earned premiums had been recorded by RECO as of March 31,
1995, exceeds the sum of the March 31, 1995 reserves and $25 million,
then the Contingent Interest will be reduced by such excess, as offset by
certain actual and deferred tax benefits realized or recorded by the Company
related to such excess adverse development.

Loss reserves are established by an insurer or reinsurer based upon its
estimate of what it expects to pay on claims based on facts and circumstances
then known and estimates of future trends and experience (including inflation,
judicial decisions and other variable factors). As a result, the process of
estimating loss and loss adjustment expense reserves is inherently imprecise.
The inherent uncertainties of estimating such reserves are increased for
reinsurers, as compared to primary insurers, because of the significant lapse of
time which may occur between the occurrence of an insured loss, the reporting of
the loss to the primary insurer and, thus, to the reinsurer, and the primary
insurer's payment of that loss and subsequent indemnification by the reinsurer.
Consequently, ultimate losses to a reinsurer may vary significantly from
established reserves.

In addition, RECO continues to receive claims for losses asserting injury
from asbestos, toxic waste and other environmental pollutants for periods prior
to 1985, when standard exclusionary clauses for such injuries were written into
insurance policies. Estimates of liability for such claims are particularly
difficult to calculate since they involve disputes between the insured party and
its insurer, substantial legal defense costs, and questions as to occurrences
and aggregation of claims and "late notice" issues. Environmental suits often
contain multiple parties and multiple sites that result in an array of
litigations among insureds and their insurers and require the parties to agree
on a reasonable basis for settling the claims. The wide variety of settlements
involving primary insurers challenges the reinsurers in determining the extent
to which they should follow the settlements of their ceding companies. As a
result in part of the foregoing, exposures for environmental impairment,
asbestos-related and other latent injuries do not lend themselves to traditional
actuarial reserving techniques.

Among other contingencies, the amount of Contingent Interest payable will
also depend on the recoverability of RECO's receivables from reinsurers recorded
as of March 31, 1995. In general, in the event that, as of the determination
date for the Contingent Interest, the sum of then-current reserves for
uncollectible reinsurance and write-offs taken since March 31, 1995 exceeds the
reserve for uncollectible reinsurance as of March 31, 1995, the Contingent
Interest will be reduced. The establishment of reserves for uncollectible
reinsurance is also inherently imprecise, since it may involve questions as to
the scope of coverage and an assessment of the financial health of the reinsurer
involved.

13
<PAGE>
The amount of certain actual and deferred tax benefits realized or recorded
by the Company as a result of any adverse reserve development in general will
increase the amount of Contingent Interest. However, these benefits will not be
realized or recorded on settlement of the CI Notes at maturity unless the
Company has had adequate taxable income on a consolidated basis during the term
of the CI Notes to take advantage of such benefits. The value of tax benefits
will also depend on corporate income tax rates prevailing from time to time.
Therefore, the amount of tax benefits that would result from any particular
level of adverse development cannot be predicted with certainty.

TRANSFER RESTRICTIONS; ABSENCE OF PUBLIC MARKET

During the first 90 days following the issuance of the CI Notes (the
"Initial Period"), the CI Notes may be transferred without restrictions of any
kind by the holders thereof, subject to compliance with the Securities Act and
other applicable law. Following the Initial Period, the CI Notes will be
transferable only to certain permitted transferees, such as to affiliates or
family members of such holders, by gift without consideration, to an entity
offering to acquire at least 25% of the CI Notes then outstanding, and, in
certain instances, to other holders of CI Notes. Transfers after the Initial
Period to certain of such transferees may be made only during specified periods
of time. As a result, following the Initial Period, holders of the CI Notes may
have to bear the risk of holding the CI Notes through the maturity date. See
"DESCRIPTION OF CONTINGENT INTEREST NOTES--Transfer Restrictions."

The CI Notes will not be listed on any securities exchange or on NASDAQ. It
is currently anticipated that during the Initial Period, Smith Barney will
provide recent price quotations for the CI Notes, although such activity may be
discontinued by Smith Barney at any time. There can be no assurance that any
market for the CI Notes will develop or, if any such market does develop, as to
the liquidity of any such market or the prices at which the CI Notes would trade
in any such market.

LEVERAGE

As of September 30, 1995, after giving pro forma effect to the Merger and
related transactions, the Company would have had long term indebtedness of $95.0
million, not including the CI Notes. In addition, the Company may incur
additional indebtedness from time to time, in connection with acquisitions or
otherwise. The degree to which the Company is leveraged could have important
consequences, including the following: (i) a substantial portion of the
Company's cash flow from operations may be dedicated to the payment of principal
and interest on its indebtedness and would not be available for other purposes;
(ii) the Company's ability to obtain additional financing in the future may be
impaired; (iii) the Company may be more leveraged than certain of its
competitors, which may place it at a disadvantage; (iv) the Company's loan and
other debt agreements may or will impose significant financial and operating
restrictions; and (v) the Company's degree of leverage could make it more
vulnerable to changes in general economic conditions.

HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS

Because Chartwell is a holding company which conducts its operations
principally through its insurance company subsidiaries, following the Merger
Chartwell will be largely dependent upon dividend payments from Chartwell
Reinsurance and RECO to meet its obligations, including interest and principal
on the Senior Notes and other debt of Chartwell and its subsidiaries, and the
payment of the Fixed Amount of and Contingent Interest on the CI Notes in the
event Chartwell elects not to or is unable to settle the CI Notes in Chartwell
Common Stock. Chartwell and Chartwell Reinsurance are subject to the insurance
holding company laws of the State of Minnesota. Under the applicable provisions
of those laws as currently in effect, Chartwell Reinsurance may, upon
appropriate notice to the Minnesota Commissioner of Commerce (the
"Commissioner"), pay

14
<PAGE>
dividends to stockholders without the approval of the Commissioner, unless such
dividends, together with other dividends paid within the preceding 12 months,
exceed the greater of (i) 10% of Chartwell Reinsurance's policyholder surplus as
of the end of the prior calendar year or (ii) Chartwell Reinsurance's statutory
net income, excluding realized capital gains, for the prior calendar year. Any
dividend in excess of the amount determined pursuant to the foregoing formula
would be characterized as an "extraordinary dividend" requiring the prior
approval of the Commissioner. In any case, the maximum amount of dividends
Chartwell Reinsurance may pay is limited to its earned surplus, also known as
unassigned funds.

Under current New York law, which is applicable to RECO, the maximum
ordinary dividend payable by RECO to Chartwell Reinsurance in any twelve month
period without the approval of the Superintendent of Insurance of the New York
Insurance Department (the "Superintendent") may not exceed the lesser of (a) 10%
of policyholders surplus as shown on the company's last annual statement filed
in accordance with SAP or any more recent quarterly statement or (b) the
company's adjusted net investment income. Adjusted net investment income is
defined as net investment income for the twelve months preceding the declaration
of the dividend plus the excess, if any, of net investment income over dividends
declared or distributed during the period commencing thirty-six months prior to
the declaration or distribution of the current dividend and ending twelve months
prior thereto. In any case, New York law permits the payment of an ordinary
dividend by an insurer or reinsurer only out of earned surplus. Moreover, not
withstanding the receipt of any dividend from RECO, Chartwell Reinsurance may
only make dividend payments to Chartwell to the extent permitted under the
provisions described above.

In addition to the foregoing limitation, the New York Insurance Department,
as a routine matter in any change of control situation such as the Merger, will
generally require the acquiring company to commit to not cause the acquired New
York-domiciled insurer to pay any ordinary dividends for two years after the
change of control without prior regulatory approval.

The maximum dividend permitted by law is not indicative of an insurer's
actual ability to pay dividends, which may be constrained by business and
regulatory considerations, such as the impact of dividends on surplus, which
could affect an insurer's ratings or competitive position, the amount of
premiums that can be written and the ability to pay future dividends.
Furthermore, beyond the limits described in the preceding paragraph, the
Commissioner and Superintendent have discretion to limit the payment of
dividends by insurance companies domiciled in Minnesota and New York,
respectively.

As of the Effective Time, Chartwell will transfer substantially all of its
assets and liabilities to a new subsidiary, which will serve as an intermediate
level holding company for Chartwell's operations. See "MANAGEMENT AND OPERATIONS
AFTER MERGER." This new subsidiary, to be named Chartwell Re Holdings
Corporation ("Chartwell Holdings"), will become the obligor under Chartwell's
Senior Notes and will be the borrower under a new $20 million principal amount
bank facility to be entered into concurrently with the Merger to refinance
Piedmont's existing bank debt. The agreements governing the foregoing debt and
future debt which Chartwell Holdings may incur may limit the ability of
Chartwell Holdings to make dividend and other payments to the Company.

In order to pay the CI Notes in cash on maturity or upon acceleration, or to
purchase the CI Notes upon a Change of Control, the Company could be required to
seek additional financing or engage in asset sales or similar transactions.
There can be no assurance that sufficient funds for any of the foregoing
purposes would be available to the Company at such time.

RANKING OF THE CI NOTES

Following the assumption by Chartwell of the CI Notes upon the Merger, the
CI Notes will rank pari passu in right of payment with all existing and future
indebtedness of Chartwell that is not

15
<PAGE>
designated as subordinate or junior in right of payment to the CI Notes. The CI
Notes are unsecured and thus, in effect, will rank junior to any secured
indebtedness of Chartwell. Since Chartwell is a holding company, the Notes will
be effectively subordinated to all indebtedness and other liabilities of
Chartwell's subsidiaries, including reinsurance and other trade obligations and
obligations to holders of preferred stock, if any. Upon the liquidation or
reorganization of any of Chartwell's subsidiaries, the claims of Chartwell and,
indirectly, of its creditors, including the holders of the CI Notes, to the
assets of such subsidiary will rank behind the claims of creditors (including
reinsureds, other trade creditors and holders of preferred stock, if any) of
such subsidiary.

The Indenture will, among other things, limit the incurrence of debt by
certain subsidiaries of Chartwell and prohibit the incurrence of liens to secure
indebtedness of Chartwell. However, these limitations are subject to a number of
important exceptions and qualifications. See "DESCRIPTION OF CONTINGENT INTEREST
NOTES--Certain Covenants."

INDUSTRY FACTORS

The property and casualty insurance and reinsurance industry has
historically been highly cyclical. Demand for reinsurance is influenced
significantly by prevailing market conditions, including the underwriting
results of primary insurers. The supply of reinsurance is related primarily to
levels of underwriting capacity in the reinsurance industry and the relative
cost and terms of reinsurance coverage. The profitability of the industry and
the Company and the cyclical trends in the industry can be affected
significantly by volatile and unpredictable developments, including the
occurrence of natural disasters, other catastrophic events, competitive
pressures on pricing (premium rates), fluctuations in interest rates, other
variations in the investment environment, changes in the judicial system
regarding tort law and general economic conditions and trends, such as
inflationary pressures, that may tend to affect the size of profits and losses
experienced by ceding primary insurers. Such factors may also reduce the
statutory surplus (including earned surplus) of Chartwell Reinsurance or RECO or
otherwise limit the growth of such surplus. Many sectors of the industry are in
a soft market and management cannot predict if or when market conditions for
such sectors will improve or whether other sectors will experience a
deterioration in pricing or terms.

The reinsurance business is highly competitive. Currently, Chartwell
Reinsurance and RECO compete for their business with independent reinsurers,
reinsurance subsidiaries or affiliates of insurers, reinsurance departments of
primary insurers and underwriting syndicates from the United States and abroad,
many of which have greater financial resources than they do. While some
competitors have announced their intention to cease engaging in the reinsurance
business, the announcement of new capitalization plans by other competitors
suggests that, in the future, Chartwell Reinsurance and RECO may experience
increased competition from other well-capitalized reinsurers. In addition to
reinsurance, RECO currently underwrites certain specific types of primary
insurance. See "MANAGEMENT AND OPERATIONS AFTER MERGER." In writing primary
insurance, RECO is subject to similar competitive factors. See "CHARTWELL RE
CORPORATION--Business--Competition."

ADEQUACY OF LOSS RESERVES

As noted above, the establishment of reserves for losses and loss adjustment
expenses is inherently uncertain. In addition, reserves for environmental
impairment, asbestos-related and other latent exposures are particularly
difficult to calculate. Consequently, ultimate losses to a reinsurer or insurer
such as Chartwell Reinsurance or RECO may deviate from established reserves. To
the extent reserves are inadequate and are subsequently strengthened, the amount
of such increase is treated as a charge to earnings in the period that the
deficiency is recognized. Adverse reserve development can reduce statutory
surplus or otherwise limit the growth of such surplus.

16
<PAGE>
INSURANCE REGULATION

Chartwell, Chartwell Reinsurance and RECO are subject to regulation by state
insurance authorities of various states in which they transact business,
including Minnesota and New York. State insurance authorities, among other
activities, regulate the payment of dividends and other transactions between
affiliates, impose solvency, capital and reserve standards, limit the types of
investments permitted and risks assumed, set forth accounting and actuarial
standards and require reports of financial condition. Oversight of state
regulation by the National Association of Insurance Commissioners (the "NAIC")
has resulted recently in the enactment or proposal of a number of significant
regulatory changes, including risk-based capital requirements (discussed below),
new investment valuation principles, a limitation on offset rights of
reinsurers, a revised mechanism for credit for reinsurance and the licensing of
reinsurance intermediaries. No assurance can be given as to future legislative
or regulatory changes, nor that one or more changes will not have a material
adverse effect on the operations or financial condition of RECO, Chartwell
Reinsurance or Chartwell.

In order to enhance the regulation of insurer solvency, on December 5, 1993
the NAIC adopted risk-based capital ("RBC") requirements for property and
casualty insurance and reinsurance companies commencing with filings made in
1995 covering the 1994 year. These RBC requirements are designed to monitor
capital adequacy and to raise the level of protection that statutory surplus
provides for policyholders. The RBC formula measures four major areas of risk
facing property and casualty insurers: (i) underwriting risk, which is the risk
of errors in pricing and reserves; (ii) asset risk, which is the risk of asset
default for fixed income assets and loss in market value for equity assets;
(iii) credit risk, which is the risk of losses from unrecoverable reinsurance
and the inability of insurers to collect agents' balances and other receivables;
and (iv) off-balance sheet risk, which is primarily the risk created by
excessive growth. Insurers and reinsurers having less statutory surplus than
that required by the RBC formula will be subject to varying degrees of
regulatory action depending on the level of capital inadequacy. For further
discussion, see "CHARTWELL RE CORPORATION--Business--Insurance Regulation."

PRINCIPAL STOCKHOLDERS

For information about the principal stockholders of Chartwell following the
Merger that are in a position to influence the policies and affairs of Chartwell
and the outcome of actions requiring stockholder approval, see "PRINCIPAL
STOCKHOLDERS."

17
<PAGE>
THE COMPANIES

PIEDMONT

Piedmont is a financial services holding company, the principal subsidiaries
of which are RECO and LMC. Founded in 1936, RECO is one of the oldest
reinsurance companies in the United States. It is licensed to underwrite
business in all states except Maine and Hawaii and is an approved surety for
bonds and undertakings required for United States government contracts. It is
also qualified to underwrite business in all U.S. Possessions as well as in
Canada where it maintains a resident agent.

RECO is engaged in providing reinsurance to ceding insurers of property and
casualty risks that purchase reinsurance principally to reduce their liability
on individual risks, to protect themselves against catastrophic losses and to
enhance their ratio of total net liabilities to capital and surplus. RECO's
general policy is to develop business through qualified reinsurance brokers. The
business can be underwritten on either a treaty or facultative basis and on
either a pro rata or an excess of loss basis. RECO is rated "B++" (Very Good) by
A.M. Best. As part of its reinsurance business, RECO maintains underwriting
participations in several pools that insure a variety of industrial, marine and
aviation risks. The pool contributing the largest amount of net premiums written
to RECO, the Somerset Marine Pool, insures hulls of ships owned by international
shipping lines and is the foremost insurer of many of the world's passenger
fleets. The Somerset Aviation Pool deals with aircraft manufacturers and
commercial general aviation.

In recent years, RECO has sought to identify market opportunities and has
developed a book of "controlled source" direct insurance business. Through the
production facilities of two Piedmont affiliated companies, Florida Intracoastal
Underwriters and Inter-Reco, Inc. as well as an insurance agency affiliated with
Continental National Indemnity Company, RECO has served as an issuing company
for selected lines of property and casualty insurance. The companies producing
the business do so in accordance with strict guidelines established by RECO.
RECO's staff reviews all coverages bound by the agencies and monitors claims
administration. In 1994 direct business accounted for 13% of RECO's net premiums
written.

For further information about the business of Piedmont and RECO, see
"PIEDMONT MANAGEMENT COMPANY INC." For further information about LMC, Lexington
and the other Asset Management Subs, see the Preliminary Information Statement
for the Spin-off which is being mailed to stockholders of Piedmont together with
this Prospectus.

CHARTWELL

Chartwell is a holding company, the principal operating subsidiary of which
is Chartwell Reinsurance.

Chartwell Reinsurance, a Minnesota-domiciled insurance company, underwrites
treaty reinsurance through reinsurance brokers for casualty and to a lesser
extent property risks. Chartwell Reinsurance provides a broad array of
reinsurance coverages to ceding companies, emphasizing working layer casualty
coverages. In 1994, casualty risks represented approximately 68.3% of net
premiums written. Chartwell Reinsurance is rated "A-" (Excellent) by A.M. Best.

Chartwell's strategy is to grow its core businesses through internal growth
and through strategic acquisitions. Chartwell believes that the broker market
reinsurance business, its historic

18
<PAGE>

core business, is becoming increasingly dominated by a smaller number of larger
companies which are perceived by reinsurance buyers as being financially strong.
Chartwell's goal is to achieve strategic increases in its size in order to
continue to compete effectively in this market. Chartwell has raised additional
capital of approximately $41 million in December 1992 from a group of U.S. and
international investors and $72 million in March 1994 through a public offering
of Senior Notes. Due in part to these transactions, the statutory surplus of
Chartwell Reinsurance, determined in accordance with SAP, increased from $51
million at June 30, 1992 to over $116 million at September 30, 1995. An
additional portion of the proceeds from each of the foregoing transactions was
used to repay a portion of the debt incurred in connection with the Acquisition
(as defined below).

The Merger is Chartwell's next step in effecting this strategy. Following
the Merger, Chartwell intends to contribute all of the outstanding stock of RECO
to Chartwell Reinsurance. This contribution will increase the statutory surplus
of Chartwell Reinsurance and as a result is intended to increase its
attractiveness to ceding companies and reinsurance brokers. See "MANAGEMENT AND
OPERATIONS AFTER MERGER."

At the same time as it has taken these steps to expand its core business,
Chartwell has sought to diversify its sources of income by developing
opportunities for fee-based income and by pursuing other selected business
opportunities in which it can capitalize on its expertise in the insurance and
reinsurance business. Chartwell Advisers, which was incorporated in 1993 in the
United Kingdom, acts as the exclusive adviser to New London Capital plc ("NLC"),
a non-affiliated company formed to underwrite at Lloyd's through a group of
wholly-owned subsidiaries that are limited liability corporate members of
certain Lloyd's syndicates. Chartwell Advisers earns fee income for these
services. Additionally, in 1994, Chartwell and NLC entered into an agreement
pursuant to which Chartwell will participate in NLC's syndicate underwriting
results for the 1995 year of account.

In May 1995, Chartwell acquired Drayton for nominal consideration. Drayton
is a Bermuda-domiciled insurer which prior to its acquisition was a captive
insurer of the directors and officers liability risks of a group of U.S. savings
banks. Drayton is not currently writing new business and is being managed by
Chartwell in "run-off."

Chartwell was founded in 1979 as a wholly-owned subsidiary of Northwestern
National Life Insurance Company ("NWNL"). In March 1992, Chartwell Reinsurance
was acquired (the "Acquisition") by an acquisition group led by Wand Partners,
Inc., an investment firm specializing in insurance. Such acquisition group also
included Amerisure, Inc., an affiliate of Michigan Mutual Insurance Company, and
members of Chartwell's senior management. See "PRINCIPAL
STOCKHOLDERS--Chartwell."

Prior to the Merger, Chartwell will contribute all the stock of Chartwell
Reinsurance and substantially all of its other assets to a new wholly-owned
subsidiary, Chartwell Re Holdings Corporation, which will serve as an
intermediate level holding company for these operations. Chartwell believes that
the establishment of Chartwell Holdings will increase its flexibility to obtain
future financing. See "THE MERGER--The Merger Agreement--Regulatory and Other
Approvals."

19
<PAGE>
THE MERGER

THE PIEDMONT MEETING

At a meeting of Piedmont stockholders to be held at Piedmont's offices on
December 6, 1995, such stockholders will be asked to consider and vote on a
proposal to approve and adopt the Merger Agreement between Piedmont and
Chartwell that provides for the Merger of Piedmont with and into Chartwell, with
Chartwell being the Surviving Corporation, and the issuance by Chartwell of its
common stock in connection with the Merger.

Piedmont stockholders will also be asked to consider and vote upon certain
amendments to Piedmont's 1979 and 1988 Employee Stock Option Plans (the
"Piedmont Stock Option Amendments"). In addition, the holders of the Piedmont
Preferred Stock will be asked to consider and vote upon a proposal to approve
and adopt the Piedmont Preferred Stock Amendment to effect the automatic
conversion of each outstanding share of such preferred stock into two shares of
Piedmont Common Stock prior to the CI Notes Record Date and the Merger.

Approval of the Merger Agreement and the Piedmont Stock Option Amendments
requires the affirmative vote of a majority of the outstanding shares of
Piedmont Common Stock and Piedmont Preferred Stock, voting together as one
class. Approval of the Piedmont Preferred Stock Amendment requires the
affirmative vote of a majority of outstanding shares of the Piedmont Preferred
Stock.

Pursuant to a Voting Agreement dated as of August 7, 1995, between Chartwell
and certain Piedmont stockholders, holders of shares representing approximately
37.5% of the total combined voting power of the Piedmont Common Stock and
Piedmont Preferred Stock have agreed to vote in favor of the Merger Agreement
and the transactions contemplated thereby, and holders of shares representing
approximately 63.1% of the total voting power of the Piedmont Preferred Stock
have agreed to vote in favor of the Piedmont Preferred Stock Amendment. As a
result, approval of the Merger Agreement and other related transactions will
require the additional affirmative vote of holders of shares representing
approximately 12.5% of the total combined voting power of the Piedmont Common
Stock and the Piedmont Preferred Stock. Because holders representing in excess
of a majority of the Piedmont Preferred Stock outstanding have agreed in the
Piedmont Voting Agreement to vote in favor of the Piedmont Preferred Stock
Amendment, approval of such amendment is virtually assured.

THE MERGER AGREEMENT

The following description does not purport to be complete and is qualified
in its entirety by reference to the Merger Agreement, which is attached as Annex
A to the Proxy Statement/Prospectus and is incorporated herein by reference. All
Piedmont stockholders are urged to read the Merger Agreement in its entirety.

The Merger Agreement provides that, subject to the satisfaction or waiver of
certain conditions, including but not limited to the receipt of all necessary
third party, regulatory and shareholder approvals, Piedmont with be merged with
and into Chartwell. As a result of the Merger, the separate corporate existence
of Piedmont will cease, and each share of Piedmont Common Stock outstanding
prior to the Effective Time (other than shares owned by Piedmont or any of its
subsidiaries or Chartwell or any of its subsidiaries, which will be cancelled
(the "Cancelled Shares")) will be converted into the right to receive the
Conversion Number of shares of Chartwell Common Stock.

Subject to adjustment as provided below, the "Conversion Number" shall be
the number (rounded to the nearest ten-thousandth of a share) determined by
dividing (A) the CWL Shares Issuable (as defined below) by (B) the number of
shares of Piedmont Common Stock outstanding

20
<PAGE>
immediately prior to the Effective Time (not including the Cancelled Shares)
(the "Piedmont Shares Number"). The number of "CWL Shares Issuable" shall be
determined by multiplying (A) the number of shares of Chartwell Common Stock
outstanding immediately prior to the Effective Time (the "Chartwell Shares
Number") by (B) 0.826484.

The effect of the foregoing formula is to cause the stockholders of Piedmont
to receive in the Merger approximately 45.25% of the aggregate number of shares
of Chartwell Common Stock outstanding immediately following the Merger, while
the Chartwell stockholders will retain shares representing in the aggregate
approximately 54.75% of such stock. However, the exact number of shares that
will be issued to each Piedmont stockholder will depend on the number of
Piedmont shares outstanding prior to the Effective Time (other than Cancelled
Shares), which will in turn depend on the number of such shares that are issued
prior to the Effective Time pursuant to outstanding options to purchase shares
of Piedmont Common Stock.

The Conversion Number is also subject to automatic adjustment in the event
that Chartwell or Piedmont or both were to suffer a decrease (a "Financial
Adjustment"), as of the fifth business day prior to the Closing Date, in the
stockholders' equity of such company and its consolidated subsidiaries (other
than, in the case of Piedmont, the Asset Management Subs) of from $2.5 million
to $5 million on an after-tax basis from the amount thereof at March 31, 1995
(other than as a result of certain causes and excluding certain items).

The Merger Agreement sets forth a formula for recalculating the Conversion
Number in the event that either or both parties experiences a Financial
Adjustment.

If either party were to suffer a decrease in the stockholders' equity of
such company and its consolidated subsidiaries (other than, in the case of
Piedmont, the Asset Management Subs) of more than $5 million on an after-tax
basis from the amount thereof at March 31, 1995, other than as a result of
certain causes and excluding certain items, such event would constitute a
Material Adverse Change with respect to such party and would permit the other
party to refuse to consummate the Merger. See "--Conditions to the Merger."

The Merger Agreement contains customary representations and warranties by
both Piedmont and Chartwell and, subject to certain exceptions, requires both
companies to carry on their respective businesses, prior to the Merger, only in
the ordinary course. These exceptions include, in the case of Piedmont, the
Spin-off, the issuance of the CI Notes and the payment of dividends on the
Piedmont Preferred Stock in an amount not to exceed an aggregate of $1,344,000.
The Merger Agreement contains covenants of each party to take specified actions
and to cause its subsidiaries to take such actions as may be necessary to
consummate the Merger.

In addition, Piedmont agreed in the Merger Agreement that RECO would
increase by an aggregate of $25 million its reserves
for losses incurred but not reported under SAP with respect to certain of its
insurance and
reinsurance business, and Piedmont would correspondingly increase by an
aggregate of $25
million its reserves for losses incurred but not reported under GAAP. The
Reserve Addition was recorded in RECO's financial statements in the quarter
ended September 30, 1995. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - PIEDMONT."

No Solicitation; Fiduciary Out; Certain Fees

The Merger Agreement prohibits Piedmont and its affiliates, employees,
agents and certain others from soliciting or participating in discussions or
negotiations regarding a Piedmont Acquisition Proposal (as defined in the Merger
Agreement). However, if, prior to the approval at the Piedmont stockholders
meeting (the "Piedmont Stockholder Approval") of the Merger Agreement and the
Piedmont Preferred Stock Amendment (the "Piedmont Vote Items"), Piedmont
receives an unsolicited acquisition proposal, Piedmont or certain of its
affiliates, employees and agents may

21
<PAGE>
participate in negotiations regarding such Piedmont Acquisition Proposal or
furnish information regarding Piedmont and its business to the person making
such proposal, subject to an appropriate confidentiality agreement, if the Board
of Directors of Piedmont determines in good faith, following consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to stockholders under applicable law.

Similarly, the Merger Agreement provides that if Piedmont receives an
unsolicited Piedmont Acquisition Proposal and the Board of Directors of Piedmont
determines in good faith, following consultation with outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties to
stockholders under applicable law, prior to the Piedmont Stockholder Approval
the Board of Directors may (w) withdraw or modify its approval or recommendation
of any of the Piedmont Vote Items, (x) approve or recommend such Piedmont
Acquisition Proposal, (y) cause Piedmont to enter into an agreement with respect
to such Piedmont Acquisition Proposal or (z) terminate the Merger Agreement. In
the event the Board of Directors of Piedmont takes any action described in
clause (y) or (z) of the preceding sentence or Chartwell exercises its right to
terminate the Merger Agreement based on the Board of Directors of Piedmont
having taken any action described in clause (w) or (x) of the preceding
sentence, Piedmont shall, concurrently with the taking of such action or such
termination, as applicable, pay to Chartwell the fee and the expenses described
in the next paragraph.

The Merger Agreement requires Piedmont to pay to Chartwell upon demand $3
million plus up to $1 million in reimbursement of Expenses (as defined below) of
Chartwell (i) upon the occurrence of any of the events described in the last
sentence of the prior paragraph or (ii) if the requisite approval of Piedmont's
stockholders of any of the Piedmont Vote Items is not obtained at the Piedmont
Meeting. With respect to any person, "Expenses" means all documented reasonable
out-of-pocket fees and expenses incurred or paid by or on behalf of such person
in connection with the Merger or the consummation of any of the transactions
contemplated by the Merger Agreement, including but not limited to all printing
costs and fees and expenses of counsel, investment banking firms, accountants,
actuaries, experts and consultants.

The Merger Agreement contains provisions which are substantially identical
to those applicable to Piedmont as described above which (i) limit the ability
of Chartwell, its subsidiaries and representatives to solicit any Chartwell
Acquisition Proposal (as defined in the Merger Agreement), (ii) restrict the
ability of the Board of Directors of Chartwell to withdraw or modify its
recommendation of the Merger or enter into an agreement with respect to a
Chartwell Acquisition Proposal and (ii) provide for the payment of a $3 million
fee plus up to $1 million of Expenses under circumstances with respect to
Chartwell that are comparable to the circumstances under which Piedmont must pay
such amounts.

Regulatory and Other Approvals

The consummation of the Merger is subject to, among other approvals, the
prior approval of the insurance regulatory authorities in the States of
Minnesota and New York, and potentially also those of certain other states, as
well as the expiration or termination of the relevant waiting period under the
HSR Act. Applications for such approvals are being prepared or have been
submitted and the HSR Act notification and report forms were filed on October
17, 1995 and early termination of the waiting period has been granted.

The Indenture dated as of March 17, 1994, between Chartwell and Bankers
Trust Company, under which Chartwell's Senior Notes in the aggregate principal
amount of $75.0 million were issued (the "Senior Notes Indenture"), requires the
consent of holders of a majority in principal amount of the Senior Notes to the
waiver or modification of certain covenants under the Senior Notes Indenture in
connection with certain related Merger transactions (the "Noteholder Consent").
The Merger Agreement provides, however, that, unless consented to by both
Piedmont and

22
<PAGE>
Chartwell, Chartwell shall not obtain the Noteholder Consent if, despite
Chartwell's using its best efforts to obtain the consent, the cost of obtaining
the consent would be prohibitive.

The Merger would also require the consent of the lender under Piedmont's
existing bank credit facility, under which an aggregate principal amount of
$19.5 million is outstanding at September 30, 1995. Chartwell has negotiated
with Shawmut Bank Connecticut, N.A., to provide a $20.0 million principal amount
facility, under which Chartwell Holdings will be the borrower, to replace
Piedmont's existing bank debt at the Effective Time (which eliminates the need
for such consent) and an additional $10.0 million revolving credit facility
(collectively, the "New Bank Facility"). See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Chartwell--Liquidity
and Capital Resources."

Conditions to the Merger

The obligations of each of Chartwell and Piedmont to consummate the Merger
are subject to the satisfaction or waiver of several conditions, including: (i)
the obtaining of all necessary stockholder approvals; (ii) the making of all
filings with, and the receipt of all required consents, approvals, permits and
authorizations from, governmental entities, and such consents, approvals,
permits and authorizations not being subject to any conditions other than (A)
conditions customarily imposed by insurance regulatory authorities and (B) other
conditions that would not reasonably be expected to have a Chartwell Material
Adverse Effect (as defined in the Merger Agreement) or a Piedmont Material
Adverse Effect (as defined in the Merger Agreement); (iii) the waiting period
under the HSR Act having expired or been terminated; (iv) the absence of any
injunction, order or other legal restraint or prohibition preventing the Merger
or any of the other transactions contemplated by the Merger Agreement; provided
that any party invoking this condition shall have used reasonable efforts to
have any such order or injunction vacated; (v) all required registration
statements having become effective under the Securities Act and the Exchange Act
and not being subject to any stop order or related proceedings; (vi) the
Noteholder Consent and certain other material consents of third parties having
been obtained; (vii) the shares of Chartwell Common Stock to be issued in the
Merger having been approved for listing on the NYSE or AMEX or approved for
trading on NASDAQ; (viii) the issuance of the CI Notes having occurred; (ix) the
receipt by Piedmont of a legal opinion of Davis Polk & Wardwell with respect to
the tax consequences of the Spin-off, and the Spin-off having occurred; (x) the
execution and delivery of a supplemental indenture, under which Chartwell will
assume as of the Effective Time all obligations under the CI Notes (the
"Supplemental Indenture"), by all parties thereto; and (xi) the absence of
certain Material Adverse Changes (as defined in the Merger Agreement) with
respect to the other party.

Subject to satisfaction or waiver of all conditions to the Merger or the
earlier termination of the Merger Agreement, the closing of the Merger (the
"Closing") will take place at 10:00 a.m. on the date (the "Closing Date") that
is the later of (A) the second business day following the date on which the
conditions set forth in clauses (i) through (vii) of the preceding paragraph
shall be fulfilled or waived and (B) the first business day following the date
on which the condition set forth in clause (viii) of the preceding paragraph
shall be fulfilled.

Amendment and Waiver

Subject to applicable law, at any time prior to the Effective Time, the
parties may (i) amend the Merger Agreement; provided, however, that after
approval of the Merger by the stockholders of Piedmont, no amendment shall be
made that by law requires the approval of Piedmont's stockholders without the
approval of such stockholders, (ii) extend the time for the performance of any
of the obligations or other acts of the other party, (iii) waive any
inaccuracies in the representations and warranties of the other parties
contained in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement or (iv) subject to clause (i) above, waive compliance with any
of

23
<PAGE>

the agreements or conditions of the other parties contained in the Merger
Agreement. Any Agreement on the part of a party to any such Amendment, extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.

Termination

The Merger Agreement may be terminated at any time prior to the Effective
Time:

(a) by mutual written consent of Piedmont and Chartwell; (b) by either
Piedmont or Chartwell: (i) if, upon a vote at a duly held stockholders meeting
or any adjournment thereof, any required approval of the stockholders of
Chartwell or Piedmont, as the case may be, shall not have been obtained; (ii) if
the Merger shall not have been consummated on or before March 31, 1996, unless
the failure to consummate the Merger is the result of a willful and material
breach of the Merger Agreement by the party seeking to terminate the Merger
Agreement; (iii) if any governmental entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; or (iv) if the Board of Directors of
Chartwell or of Piedmont shall have taken any action described under "--No
Solicitation; Fiduciary Out; Certain Fees"; or (c) by Piedmont if the Noteholder
Consent shall not have been obtained on or before December 31, 1995, unless the
failure to obtain the Noteholder Consent is the result of a willful and material
breach of the Merger Agreement by Piedmont; provided, that the effectiveness of
the Noteholder Consent may be subject to certain specified conditions and
limitations.

In addition, in the event that either Chartwell or Piedmont (the "Notifying
Party") shall notify the other in writing in a specified form that such
Notifying Party has experienced a Chartwell Material Adverse Change (in the case
of a notice given by Chartwell) or a Piedmont Material Adverse Change (in the
case of a notice given by Piedmont) the party so notified shall have 30 days
from its receipt of such notice to elect to terminate the Merger Agreement. In
the event that such party does not so elect to terminate the Merger Agreement,
it shall be deemed to have waived its right to refuse to consummate the Merger
and the other transactions contemplated by the Merger Agreement on the basis of
the Material Adverse Change identified in the Notifying Party's notice, without
prejudice to its rights with respect to any subsequent Material Adverse Change
with respect to the Notifying Party.

Any termination may occur before or after the Chartwell Stockholder Approval
(as defined in the Merger Agreement) or the Piedmont Stockholder Approval,
except that (i) Chartwell shall have no right to terminate the Merger Agreement
following the Chartwell Stockholder Approval in exercise of its rights described
under "--No Solicitation; Fiduciary Out; Certain Fees" and (ii) Piedmont shall
have no right to terminate the Merger Agreement following the Piedmont
Stockholder Approval in exercise of its rights described under "--No
Solicitation; Fiduciary Out; Certain Fees."

THE CI NOTES ISSUANCE

Background of the CI Notes Dividend

In the negotiations relating to the Merger, Chartwell sought protection
against the possibility of adverse development of RECO's reserves for losses and
loss adjustment expenses ("LAE"), particularly with respect to RECO's potential
exposures for environmental impairment, asbestos-related and latent injury
claims and other long-tail casualty exposures. For RECO, as for any insurer or
reinsurer, the process of estimating loss and LAE reserves for any type of
potential claim is inherently imprecise and involves an evaluation of many
variables, including potentially unpredictable social and economic conditions.
Moreover, the ultimate liability of an insurer or reinsurer for environmental
impairment and other latent injury types of claims is particularly difficult to
estimate,

24
<PAGE>
and does not lend itself to traditional actuarial reserving techniques.
Significant legal issues, primarily with regard to issues of coverage, exist
with regard to potential liability under policies issued in the mid-1980's and
prior, before absolute exclusions of coverage for environmental and certain
other latent exposures were made a part of standard insurance policy forms. RECO
was founded in 1936, and continues today to deal with claims made under
"occurrence-form" policies written prior to the mid-1980's. Accordingly, there
can be no assurance that RECO's ultimate liability for losses and LAE will not
vary significantly from amounts reserved.

To address Chartwell's concern, Piedmont and Chartwell ultimately agreed to
the restructuring of Piedmont through the issuance of the CI Notes prior to the
Merger.

The issuance of the CI Notes was primarily designed to provide protection
against adverse reserve development to Chartwell, while at the same time
permitting Piedmont stockholders to receive benefits, in the form of cash or
additional Chartwell Common Stock, in the event such protection was not
utilized.

The CI Notes Dividend was unanimously approved by the Piedmont Board on
August 7, 1995.

The CI Notes Dividend

Prior to the Effective Time, the Board of Directors of Piedmont intends to
declare and pay as a dividend to each holder of Piedmont Common Stock as of the
CI Notes Record Date, one CI Note for each share of Piedmont Common Stock held
by such holder. The CI Notes will be issued in an aggregate principal amount of
$1 million, which principal amount will accrete interest at a rate of 8% per
annum, compounded annually. Such interest will not be payable until maturity or
earlier redemption of the CI Notes. In addition, the CI Notes will entitle the
holders thereof to receive at maturity, in proportion to the principal amount of
the CI Notes held by them, an aggregate of from $0 up to approximately $55
million in Contingent Interest.

The Contingent Interest will be calculated under a complex formula set forth
in the CI Notes Indenture. In general, assuming the CI Notes are settled at
maturity, the Contingent Interest will be equal to $55 million (a) less an
amount equal to (i) the amount of any adverse development of the loss and LAE
reserves and related accounts (including certain reinsurance recoverables,
commissions and unearned premiums) of RECO recorded as of March 31, 1995, minus
(ii) $25 million, (b) plus the amount of certain tax benefits received or
recorded by Chartwell as a result of the amount determined pursuant to clause
(a) above. The amount so calculated may not be greater than $55 million nor less
than a minimum amount equal to the lesser of (a) $10 million less the Fixed
Amount and (b) the tax benefits referred to above. The Contingent Interest will
in any event be reduced by part of the costs of any Independent Actuary and by
part or all of the costs of the Holder Actuary.

In the event that the CI Notes are settled prior to maturity, the foregoing
formula will in general apply, except that the $55 million maximum amount of the
CI Notes will be reduced to an amount equal to $55 million discounted back from
June 30, 2006 at a discount rate of 8% per annum, compounded annually, and the
tax benefits will be calculated in a prescribed manner.

Since the Contingent Interest is subject to significant contingencies, there
can be no assurance as to what amount, if any, will be paid under the CI Notes
with respect to the Contingent Interest.

Manner and Timing of, and Conditions to, the CI Notes Dividend

25
<PAGE>
established by the Board of Directors of Piedmont and is expected to be a date
occurring immediately after the conversion of the Piedmont Preferred Stock into
Piedmont Common Stock pursuant to the Piedmont Preferred Stock Amendment (which
conversion will occur after the Piedmont Meeting) and prior to the record date
established for the Spin-off and the Effective Time of the Merger.

The CI Notes Dividend is not contingent upon satisfaction of the conditions
to the Spin-off or the Merger. The Board of Directors is not obligated to
declare the dividend of or distribute the CI Notes, although the CI Notes
Dividend is a condition to both the Spin-off and the Merger.

The principal amount of the CI Notes to be issued to each holder of Piedmont
Common Stock will bear the same relation to the aggregate principal amount of
the CI Notes that the number of shares of Piedmont Common Stock held by such
holder bears to the aggregate number of shares of Piedmont Common Stock
outstanding as of the CI Notes Record Date. As a result of potential exercises
of Piedmont stock options prior to the CI Notes Record Date, the number of
shares of Piedmont Common Stock that will be outstanding as of the CI Notes
Record Date, and therefore the principal amount of the CI Notes to be issued to
each Piedmont stockholder, cannot be finally determined until the Option Date.
As of June 30, 1995, assuming that all the Piedmont Preferred Stock had been
converted into Piedmont Common Stock, there would have been 5,370,972
outstanding shares of Piedmont Common Stock (not counting treasury shares), as
well as outstanding options to purchase an additional 785,100 shares of Piedmont
Common Stock.

Federal Tax Consequence

The CI Notes Dividend will be taxable to the stockholders of Piedmont as a
dividend. See "FEDERAL INCOME TAX CONSIDERATIONS."

Trading of the CI Notes

The CI Notes will be freely transferable for the first 90 days after their
issue date. Following the Initial Period, the CI Notes will only be transferable
to certain specified transferees (for example, to affiliates and certain family
members of the holder, and to Chartwell) and with respect to certain of such
transferees, only during certain specified periods of time.

The CI Notes will not be listed on any stock exchange or on NASDAQ. It is
currently anticipated that during the Initial Period, Smith Barney will provide
recent price quotations for the CI Notes, although such activity may be
discontinued by Smith Barney at any time. There can be no assurance that any
market for the CI Notes will develop during the Initial Period or, if any such
market does develop, as to the liquidity of any such market, nor can there be
any assurance as to the values at which the CI Notes will trade in any such
market.

Further Information

For a more complete description of the CI Notes, see "DESCRIPTION OF
CONTINGENT INTEREST NOTES."

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<PAGE>

PRO FORMA FINANCIAL INFORMATION

The following condensed consolidated pro forma balance sheet at September
30, 1995, and condensed consolidated pro forma statements of operations for the
nine months ended September 30, 1995 and the year ended December 31, 1994
reflect the financial position and results of operations of Chartwell after
giving effect to the Merger and related transactions as described in the notes
hereto. These pro forma statements should be read in conjunction with the
historical financial statements of Chartwell and Piedmont and the notes thereto
included elsewhere herein. The condensed consolidated pro forma information is
not necessarily indicative of the results of operations or financial position of
Chartwell that would have been reported if the Merger and related transactions
had occurred at the dates assumed for purposes of preparation of such
information or of the future results of operations or financial position of
Chartwell.

CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PIEDMONT
HISTORICAL AS MERGER PRO FORMA FOOTNOTE
CHARTWELL ADJUSTED(1) ADJUSTMENTS CONSOLIDATED REFERENCE
---------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments...................... $ 288,619 $ 387,287 $ 435 $ 676,341 (2)
Cash and cash equivalents........ 24,522 9,947 (1,344) 33,625 (3)
500 (4)
---------- ----------- ----------- ------------
Total investments and cash..... 313,141 397,234 (409) 709,966
Premiums in process of
collection..................... 54,195 32,543 86,738
Reinsurance recoverable.......... 37,816 172,765 210,581
Prepaid reinsurance.............. 924 24,219 25,143
Deferred and current income
taxes.......................... 11,986 26,677 88 38,751 (5)
Deferred policy acquisition
costs.......................... 7,035 12,649 (12,649) 7,035 (6)
Value of business in force....... 12,649 12,649 (6)
Other assets..................... 35,842 29,764 3,424 68,378 (7)
(652) (8)
---------- ----------- ----------- ------------
Total assets................... $ 460,939 $ 695,851 $ 2,451 $1,159,241
---------- ----------- ----------- ------------
---------- ----------- ----------- ------------
LIABILITIES:
Loss and loss adjustment
expenses....................... $ 258,295 $ 487,628 $ $ 745,923
Unearned premiums................ 30,837 77,553 108,390
Long term debt................... 75,000 19,500 500 95,000 (4)
Contingent interest notes........ 25,034 25,034
Accrued expenses and other
liabilities.................... 26,144 13,490 3,667 41,957 (9)
(1,344) (3)
---------- ----------- ----------- ------------
Total liabilities.............. 390,276 623,205 2,823 1,016,304
COMMON STOCKHOLDERS' EQUITY:
Preferred stock.................. 245 (245) (10)
Common stock..................... 38 2,626 (2,595) 69 (10)
Additional paid-in capital....... 77,254 28,024 (28,024) 149,497 (10)
72,243 (11)
Net unrealized appreciation
(depreciation)................. 1,167 (109) 109 1,167 (10)
Foreign currency translation
adjustment..................... 20 20
Retained earnings (deficit)...... (7,816) 43,583 (43,583) (7,816) (10)
Treasury stock................... (1,723) 1,723 (10)
---------- ----------- ----------- ------------
Total common stockholders'
equity....................... 70,663 72,646 (372) 142,937
---------- ----------- ----------- ------------
Total liabilities and
stockholders' equity......... $ 460,939 $ 695,851 $ 2,451 $1,159,241
---------- ----------- ----------- ------------
---------- ----------- ----------- ------------
</TABLE>

See notes to unaudited condensed consolidated pro forma financial statements.

27
<PAGE>

CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PIEDMONT
HISTORICAL AS MERGER PRO FORMA FOOTNOTE
CHARTWELL ADJUSTED(12) ADJUSTMENTS CONSOLIDATED REFERENCE
--------- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Premiums earned.............. $ 87,355 $ 92,991 $ $ 180,346
Net investment income........ 14,743 15,023 279 30,045 (13)
Net realized capital gains... 1,707 3,434 5,141
Other income................. 796 284 1,080
--------- ------------ ----- ------------
Total revenues............. 104,601 111,732 279 216,612
--------- ------------ ----- ------------
LOSSES AND EXPENSES INCURRED:
Loss and loss adjustment
expenses................... 63,712 98,179 161,891
Policy acquisition costs..... 20,598 28,798 49,396
Other expenses............... 7,846 4,929 (392) 12,383 (15)
Interest and amortization.... 5,750 3,048 188 8,986 (16)
--------- ------------ ----- ------------
Total losses and expenses
incurred................. 97,906 134,954 (204) 232,656
--------- ------------ ----- ------------
Income (loss) before income
taxes........................ 6,695 (23,222) 483 (16,044)
Income tax expense (benefit)... 2,152 (8,180) 184 (5,844) (17)
--------- ------------ ----- ------------
Net income (loss).............. 4,543 (15,042) 299 (10,200)
Dividends and accretion on
preferred stock.............. 144 (144)
--------- ------------ ----- ------------
Net income (loss) attributable
to common shares............. $ 4,543 $ (15,186) $ 443 $ (10,200)
--------- ------------ ----- ------------
--------- ------------ ----- ------------
Income (loss) per common
share........................ $ 1.21 $ (3.05) N/A $ (1.49)
--------- ------------ ----- ------------
--------- ------------ ----- ------------
Weighted average number of
common shares outstanding.... 3,755,312 4,986,637 N/A 6,859,017
------------ ----- ------------
------------ ----- ------------
</TABLE>

See notes to unaudited condensed consolidated pro forma financial statements.

<PAGE>
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PIEDMONT PRO
HISTORICAL AS MERGER FORMA FOOTNOTE
CHARTWELL ADJUSTED(12) ADJUSTMENTS CONSOLIDATED REFERENCE
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Premiums earned................ $ 102,698 $ 129,372 $ $ 232,070
Net investment income.......... 14,726 18,871 372 33,964 (13)
Net realized capital gains
(losses)......................... (3,794) 750 (3,044)
Other income................... 1,679 (106) 1,573
--------- --------- ----------- ---------
Total revenues............... 115,309 148,887 372 264,568
--------- --------- ----------- ---------
LOSSES AND EXPENSES INCURRED:
Loss and loss adjustment
expenses......................... 78,577 113,725 192,302
Policy acquisition costs....... 24,295 24,384 48,679 (14)
Other expenses................. 10,178 21,282 31,460
Interest and amortization...... 7,379 2,440 250 10,069 (16)
--------- --------- ----------- ---------
Total losses and expenses
incurred......................... 120,429 161,831 250 282,511
--------- --------- ----------- ---------
Loss before income taxes......... (5,120) (12,944) 122 (17,942)
Income tax expense (benefit)..... (1,685) (4,697) 67 (6,316) (17)
--------- --------- ----------- ---------
Net loss before extraordinary
item............................. (3,435) (8,247) 55 (11,627)
Dividends and accretion on
preferred stock.................. 1,078 192 (1,270)
--------- --------- ----------- ---------
Net loss attributable to common
shares........................... $ (4,513) $ (8,439) $ 1,325 $ (11,627)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Loss per common share............ $ (0.84) $ (1.70) N/A $ (1.65) (18)
--------- --------- ----------- ---------
--------- --------- ----------- ---------

<CAPTION>
Weighted average number of common
shares outstanding............... 3,760,685 4,969,556 N/A 6,864,390 (18)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>

See notes to unaudited condensed consolidated pro forma financial statements.

29
<PAGE>
NOTES TO CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)

The condensed consolidated pro forma financial statements reflect the Merger
of Piedmont with Chartwell and related transactions. Pro forma adjustments
related to the condensed consolidated pro forma statements of operations have
been prepared assuming the Merger and related transactions were consummated as
of January 1, 1994. The condensed consolidated pro forma balance sheet was
prepared assuming the Merger and related transactions were consummated on
September 30, 1995.

The historical financial information has been derived from the historical
financial statements of Chartwell and Piedmont. The condensed consolidated pro
forma financial statements should be read in conjunction with the historical
consolidated financial statements of Chartwell and Piedmont and the notes
thereto and the other financial information pertaining to Chartwell and Piedmont
included elsewhere herein.

The condensed consolidated pro forma financial statements have been prepared
under the purchase method of accounting for the Merger with Piedmont. Under
purchase accounting, the acquired assets and liabilities of Piedmont are
recognized at their fair value as of the Effective Time. This value is treated
as consideration received for the common stock issued by Chartwell in the
Merger.

The condensed consolidated pro forma financial statements do not purport to
be indicative of the financial position or operating results which would have
been achieved had the Merger been consummated as of the dates indicated and
should not be construed as representative of future financial position or
operating results. The pro forma adjustments are based upon available
information and assumptions that Chartwell believes are reasonable under the
circumstances. Operating expense savings that may result from the Merger have
not been reflected in these pro forma financial statements.

30
<PAGE>

The following describes the pro forma adjustments reflected in the
accompanying condensed consolidated pro forma financial statements:

(1) The Piedmont balance sheet at September 30, 1995 has been adjusted to
reflect the Spin-off of Lexington, the CI Notes Dividend and certain other
pre-Merger events which will be recorded in the historical financial statements
of Piedmont prior to the Merger as if the foregoing occurred on September 30,
1995.

<TABLE>
<CAPTION>
ADJUSTMENT PIEDMONT
HISTORICAL TO SPIN-OFF OTHER AS
PIEDMONT LEXINGTON(A) ADJUSTMENTS ADJUSTED
---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS:
Investments.................................. $ 392,765 $ (5,478) $ $387,287
Cash and cash equivalents.................... 10,343 (396) 9,947
---------- ------------ ----------- --------
Total investments and cash................. 403,108 (5,874) 397,234
Premiums in process of collection............ 32,543 32,543
Reinsurance recoverable...................... 172,765 172,765
Prepaid reinsurance.......................... 24,219 24,219
Deferred and current income taxes............ 23,162 (1,657) 5,172(b) 26,677
Deferred policy acquisition costs............ 12,649 12,649
Other assets................................. 35,306 (5,542) 29,764
---------- ------------ ----------- --------
Total assets............................... $ 703,752 $(13,073) $ 5,172 $695,851
---------- ------------ ----------- --------
---------- ------------ ----------- --------
LIABILITIES:
Loss and loss adjustment expenses............ $ 487,628 $ $ $487,628
Unearned premiums............................ 77,553 77,553
Long term debt............................... 19,500 19,500
Contingent interest notes.................... 25,034(c) 25,034
Accrued expenses and other liabilities....... 19,435 (16,069) 10,124(d) 13,490
---------- ------------ ----------- --------
Total liabilities.......................... 604,116 (16,069) 35,158 623,205
COMMON STOCKHOLDERS' EQUITY:
Preferred stock.............................. 245 245
Common stock................................. 2,626 2,626
Additional paid-in capital................... 28,024 28,024
Net unrealized depreciation of investments... (109) (109)
Retained earnings............................ 70,573 2,996 (29,986) (e) 43,583
Treasury stock............................... (1,723) (1,723)
---------- ------------ ----------- --------
Total common stockholders' equity.......... 99,636 2,996 (29,986) 72,646
---------- ------------ ----------- --------
Total liabilities and stockholders'
equity................................... $ 703,752 $(13,073) $ 5,172 $695,851
---------- ------------ ----------- --------
---------- ------------ ----------- --------
</TABLE>

The adjustments to Piedmont's balance sheet at September 30, 1995 are as
follows:

(a) The "Adjustment to Spin-off Lexington" reflects the deduction of
assets, liabilities and equity of Lexington and the distribution from
Piedmont to its stockholders of the Lexington Common Stock as if the
Spin-off occurred on September 30, 1995. The credit to Piedmont's retained
earnings represents the accumulated deficit attributable to Lexington.

(b) To record the deferred tax effect of the pro forma adjustments. A
deferred tax benefit has been recorded on the excess of the carrying value
over the principal amount of the CI Notes.

(c) To record the carrying value of the CI Notes computed by discounting
the approximately $57 million maturing in 2006 at 8%. During the life of the
CI Notes the carrying value will be increased for the accretion of the
discount and reduced to the extent the acquired loss and LAE reserves of
Piedmont develop adversely subject to the terms of the CI Notes. The

31
<PAGE>

changes in the carrying value of the CI Notes will be recognized in the
results of operations of the periods in which they occur. The ultimate
amount payable to the holders of the CI Notes will depend on several
significant contingencies. See "THE CONTINGENT INTEREST NOTES."

(d) To eliminate the intercompany balances owed by Lexington to Piedmont
or RECO at September 30, 1995.

(e) The net effect of the adjustments to total assets and total
liabilities.

(2) Reflects an adjustment to mark to market Piedmont's held-to-maturity
investments at September 30, 1995.

(3) Represents the dividend to be paid on each share of Piedmont Preferred
Stock. Such amount includes $6.50 per share representing all accrued and unpaid
dividends on such shares through April 15, 1995 and an additional $0.50 per
share which was declared in the third quarter and will be paid immediately prior
to the Option Date. The total payment of dividends shall not exceed $1,344,000.

(4) Represents the difference between the New Bank Facility of $20.0 million
obtained by Chartwell and existing bank loan of Piedmont of 19.5m.

(5) To reflect the tax effect of certain pro forma adjustments as described
in notes (8) and (15) below.

(6) The value of business in force represents the deferred policy
acquisition costs (primarily commission and brokerage expenses) paid by RECO.
The pro forma statements of operations assume that such amount will be amortized
over the period in which the related premiums are earned.

(7) To capitalize the estimated transaction costs associated with the Merger
and related transactions. Transaction costs related to Chartwell's Senior Notes,
the New Bank Facility and the CI Notes will be amortized over approximately ten
years. Goodwill will be amortized over forty years. Transaction costs related to
the issuance of Chartwell Common Stock have been charged against additional
paid-in capital. The above expenses are net of Lexington's share of the
transaction costs which it is required to dividend under the Merger Agreement.

(8) To write-off the unamortized debt issue costs associated with Piedmont's
existing bank loan. The pro forma statements of operations exclude a charge for
the write-off of Piedmont's unamortized costs.

(9) To accrue the estimated transaction costs as described in note (6) net
of the amount paid or accrued as of September 30, 1995.

(10) To reflect the conversion of Piedmont Preferred Stock to Piedmont
Common Stock, the cancellation of the Piedmont treasury shares and the
conversion of the Piedmont Common Stock to shares of Chartwell Common Stock. The
stockholders of Piedmont will receive approximately 45.25% of the aggregate
number of outstanding shares of Chartwell Common Stock following the Merger,
while the Chartwell stockholders will retain shares representing approximately
54.75% of such stock, subject to adjustment as described elsewhere herein.

(11) Adjustment to recognize the excess value of net assets acquired after
acquisition adjustments over the par value of the respective Chartwell stock
issued. A total of 3,103,705 shares of Chartwell Common Stock will be issued in
exchange for all of the outstanding Piedmont Common Stock at the time of the
Merger, resulting in receipt by the stockholders of Piedmont (assuming no
Financial Adjustment occurs) of approximately 45.25% of the aggregate number of
shares of Chartwell Common Stock outstanding immediately following the Merger.

32
<PAGE>

In the absence of a quoted market price per share of the Chartwell Common
Stock, the value assigned to each share of Chartwell Common Stock for purposes
of making this pro forma adjustment, and therefore the resulting purchase price,
was based upon the net assets to be received in the Merger. Such purchase price
was determined to be $72,274,000 and was allocated to the respective net assets
and liabilities received as follows:

<TABLE>
<CAPTION>
<S> <C>
Historical book value of Piedmont after giving effect to the Spin-off of
Lexington, the CI Notes Dividend and certain pre-Merger events.............. $72,646,000
Merger adjustments:
Deferred taxes.............................................................. 88,000
Other assets................................................................ (258,000)
Accrued liabilities......................................................... (3,667,000)
-----------
(3,837,000)

Fair value adjustments:
Investments................................................................. 435,000
Goodwill (included in other assets)......................................... 3,030,000
-----------
3,465,000
-----------
Total purchase price.................................................... $72,274,000
-----------
-----------
</TABLE>

The book value per common share of Chartwell Common Stock as of September
30, 1995, after giving pro forma effect to the Merger is $20.84 per share.

(12) The Piedmont Statements of Operations for the nine months ended
September 30, 1995 and the year ended December 31, 1994 have been adjusted to
reflect the Spin-off of Lexington, the CI Notes Dividend and certain other
pre-Merger events as if the foregoing were consummated as of January 1, 1994.

33
<PAGE>

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
ADJUSTMENT
TO
HISTORICAL SPIN-OFF PRO FORMA PIEDMONT
PIEDMONT LEXINGTON(A) ADUSTMENTS AS ADJUSTED
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Premiums earned........................ $ 92,991 $ $ $ 92,991
Net investment income.................. 15,435 (155) (257)(b) 15,023
Advisory and counseling fees........... 15,356 (15,356)
Net realized capital gains............. 3,434 3,434
Other income........................... 598 (314) 284
--------- --------- ---------- -----------
Total revenues....................... 127,814 (15,825) (257) 111,732
--------- --------- ---------- -----------
LOSSES AND EXPENSES INCURRED:
Loss and loss adjustment expenses...... 100,010 (1,831)(c) 98,179
Policy acquisition costs............... 28,798 28,798
Investment advisory service costs...... 13,682 (13,682)
Other expenses......................... 9,773 (4,844)(c) 4,929
Interest and amortization.............. 1,426 1,622(d) 3,048
--------- --------- ---------- -----------
Total losses and expenses incurred... 153,689 (13,682) (5,053) 134,954
--------- --------- ---------- -----------
Income (loss) before income taxes........ (25,875) (2,143) 4,976 (23,222)
Income tax expense (benefit)........... (9,334) (679) 1,833(e) (8,180)
--------- --------- ---------- -----------
Net income (loss)........................ (16,541) (1,464) 2,963 (15,042)
--------- --------- ---------- -----------
--------- --------- ---------- -----------
Dividends and accretion on preferred
stock.................................. 144 144
--------- --------- ---------- -----------
Net income (loss) attributable to common
share.................................. $ (16,685) $ (1,464) $ 2,963 $ (15,186)
--------- --------- ---------- -----------
--------- --------- ---------- -----------
Income (loss) per common share........... $ (3.35) $ 0.29 N/A $ (3.05)
--------- --------- ---------- -----------
--------- --------- ---------- -----------
Weighted average number of common shares
outstanding.............................. 4,986,637 4,986,637 N/A 4,986,637
</TABLE>

34
<PAGE>
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
ADJUSTMENT
TO
HISTORICAL SPIN-OFF PRO FORMA PIEDMONT
PIEDMONT LEXINGTON(A) ADUSTMENTS AS ADJUSTED
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Premiums earned........................ $ 129,372 $ $ $ 129,372
Net investment income.................. 19,384 (153) (360)(b) 18,871
Advisory and counseling fees........... 21,530 (21,530)
Net realized capital gains............. 750 750
Other income........................... 638 (744) (106)
--------- --------- ---------- -----------
Total revenues....................... 171,674 (22,427) (360) 148,887
--------- --------- ---------- -----------
LOSSES AND EXPENSES INCURRED:
Loss and loss adjustment expenses...... 113,725 113,725
Policy acquisition costs............... 24,384 24,384
Investment advisory service costs...... 17,898 (17,898)
Other expenses......................... 21,282 21,282
Interest and amortization.............. 437 2,003(d) 2,440
--------- --------- ---------- -----------
Total losses and expenses incurred... 177,726 (17,898) 2,003 161,831
--------- --------- ---------- -----------
Loss before income taxes................. (6,052) (4,529) (2,363) (12,944)
Income tax benefit....................... (2,834) (1,310) (553)(e) (4,697)
--------- --------- ---------- -----------
Net loss before extraordinary item....... (3,218) (3,219) (1,810) (8,246)
Dividends and accretion on preferred
stock.................................. 192 192
--------- --------- ---------- -----------
Net loss attributable to common shares... $ (3,410) $ (3,219) $ (1,810) $ (8,439)
--------- --------- ---------- -----------
--------- --------- ---------- -----------
Loss per common share.................... $ (0.69) $ 0.65 N/A $ (1.70)
--------- --------- ---------- -----------
--------- --------- ---------- -----------
Weighted average number of common shares
outstanding.............................. 4,969,556 4,969,556 N/A 4,969,556
</TABLE>

The adjustments to Piedmont's statement of operations are as follows:

(a) The "Adjustment to Spin-off Lexington" reflects the separation of
Lexington's results of operations from Piedmont as if the Spin-off had
occurred on January 1, 1994.

(b) To reflect the additional investment advisory costs which would have
been incurred had RECO's investments been managed by an unaffiliated
investment manager.

(c) Piedmont has entered into both a Severance Compensation and Change
in Control Agreement and Stay Bonus Agreement with a number of its
employees. See "THE MERGER-- Interests of Certain Persons in the
Merger--Severance and Stay Arrangements". In the third quarter of 1995, the
employees to be terminated were identified and the aggregate benefits to be
paid under the above agreements of $6,300,000 was recorded as an expense by
Piedmont. In addition approximately $375,000 was expensed by Piedmont in the
third quarter in respect of amounts to be contributed upon the Merger to its
employee benefit plans. These amounts, which are included in loss and loss
adjustment expenses and other expenses, are directly attributable to the
transaction and will not have a continuing impact on the operations of the
merged entity.

(d) To reflect accreted interest on the carrying value of the CI Notes
at 8%.

(e) To reflect the income tax effect of the above adjustments at the
statutory rate of 34%.

35
<PAGE>

(13) Represents amortization of adjustment to Piedmont's investment
portfolio to new cost basis in purchase accounting.

(14) Policy acquisition costs include the amortization of the value of
business in force acquired in the Merger.

(15) To reverse the legal and consulting expenses directly related to this
Merger and the related transactions which have been paid or accrued by Piedmont
through September 30, 1995.

(16) To record the amortization of deferred transaction costs. This pro
forma adjustment assumes the transaction was consummated on January 1, 1994.

(17) To record the tax effect at the statutory rate of 34% of the pro forma
adjustments where applicable.

(18) The loss per common share and weighted average number of common shares
outstanding of Chartwell for the year ended December 31, 1994 have been
calculated assuming the Senior Notes offering by Chartwell on March 17, 1994 and
related refinancing transactions were consummated at the beginning of the year.
The pro forma consolidated loss per common share has been calculated by adding
the net loss before extraordinary item of Piedmont as Adjusted and the net
Merger Adjustments to Chartwell's adjusted loss before extraordinary item
assuming the Senior Notes offering was consummated at the beginning of the year.
Such adjusted loss for Chartwell was approximately $3,141,000. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Chartwell--Liquidity and Capital Resources."

36
<PAGE>

CAPITALIZATION

The following unaudited table sets forth the consolidated capitalization of
Chartwell and Piedmont on an historical basis as of September 30, 1995 as well
as the pro forma capitalization of Piedmont after giving effect to the Spin-off,
the CI Notes Dividend and certain other items and the pro forma capitalization
of Chartwell after giving effect to the Merger and certain concurrent
transactions. This data is derived from the historical financial statements of
Chartwell and Piedmont and the unaudited Condensed Consolidated Pro Forma
Financial Statements appearing elsewhere herein and should be read in
conjunction with those statements and the notes thereto.

<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------------
HISTORICAL PIEDMONT CHARTWELL
------------------------------------
AS MERGER MERGER WITH
CHARTWELL PIEDMONT ADJUSTED(1) ADJUSTMENTS PIEDMONT(2)
--------- -------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Long-term debt:
Senior Notes.................... $ 75,000 $ $ $ $ 75,000
Senior term loan................ 19,500 19,500 (19,500)
New Bank Facility............... 20,000 20,000
--------- -------- ----------- ----------- -----------
Total long-term debt............ 75,000 19,500 19,500 500 95,000
--------- -------- ----------- ----------- -----------
Contingent Interest Notes......... 25,034(3) 25,034
Stockholders' equity:
Preferred stock................. 245 245 (245) (4)
Common stock.................... 38 2,626 2,626 (2,595) 69(5)
Paid-in capital................. 77,254 28,024 28,024 44,219 149,497
Unrealized appreciation
(depreciation) of investments
and foreign translation
adjustment, net of deferred
income taxes...................... 1,187 (109) (109) 109 1,187
Retained earnings............... (7,816) 70,573 43,583(6) (43,583) (7,816)
Less cost of treasury stock..... (1,723) (1,723) 1,723 (4)
--------- -------- ----------- ----------- -----------
Total stockholders' equity...... 70,663 99,636 72,646 (372) 142,937
--------- -------- ----------- ----------- -----------
Total capitalization............ $ 145,663 $119,136 $ 117,180 $ 128 $ 262,971
--------- -------- ----------- ----------- -----------
--------- -------- ----------- ----------- -----------
</TABLE>

- ------------

(1) Gives pro forma effect to the Spin-off of Lexington and certain other events
which will occur prior to the Merger as if the foregoing occurred on
September 30, 1995.

(2) Gives pro forma effect to the Merger and other events, including the
refinancing of Piedmont's existing bank debt with borrowings under the New
Bank Facility as if the foregoing were consummated on September 30, 1995.

(3) Represents the carrying value of the CI Notes to be paid as a dividend to
the Piedmont stockholders prior to the Merger. The ultimate amount payable
to the holders of the CI Notes will depend on several significant
contingencies. See "THE CONTINGENT INTEREST NOTES."

(4) In accordance with the terms of the Merger, each outstanding share of
Piedmont Preferred Stock will be automatically converted into two shares of
Piedmont Common Stock. The Piedmont Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into the
Conversion Number of shares of Chartwell Common Stock. Each share of
treasury stock of Piedmont shall automatically be canceled and retired.

(5) The Piedmont Common Stock issued and outstanding immediately prior to the
Effective Time will be converted into the Conversion Number of shares of
Chartwell Common Stock. The Conversion Number shall be determined by
dividing (A) the number of shares of Chartwell Common Stock outstanding
prior to the effective time multiplied by 0.826484, by (B) the number of
shares of Piedmont Common Stock outstanding immediately prior to the
effective time which are not to be canceled. The Conversion Number is
subject to adjustment in the event of a Financial Adjustment.

(6) Represents the pro forma retained earnings of Piedmont after giving effect
to the Spin-off and the carrying value of the CI Notes paid as a dividend to
the Piedmont stockholders prior to the Merger.

<PAGE>
SELECTED FINANCIAL DATA
PIEDMONT MANAGEMENT COMPANY INC.

The following table sets forth selected consolidated financial data for
Piedmont as of and for the periods indicated. The financial data for each of the
five years in the period ended December 31, 1994 is derived from the audited
financial statements of Piedmont. The financial data for the nine months ended
September 30, 1995 and 1994 is derived from the unaudited financial statements
of Piedmont. The results of operations for the nine months ended September 30,
1995 are not necessarily indicative of the results which may be expected for the
entire year. The data set forth below should be read in conjunction with the
consolidated financial statements of Piedmont and the notes thereto and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Piedmont" included elsewhere herein.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net premiums written..... $ 95,466 $ 100,163 $ 142,035 $ 112,240 $ 115,346 $ 104,834 $ 82,279
Net premiums earned...... 92,991 89,745 129,372 113,704 116,989 93,461 86,417
Net investment income
including equity in
net earnings of
investees............... 15,746 15,589 19,304 20,617 20,299 25,074 27,968
Realized capital gains
(losses)................ 3,435 1,309 750 7,070 4,232 1,985 (3,065)
Interest expense......... 1,426 318 437 474 665 1,196 1,607
Net income (loss)(1)..... $ (16,542) $ (3,436) $ (3,218) $ 11,736 $ (12,359) $ 721 $ 4,390
PER SHARE DATA:
Weighted average shares
outstanding............. 4,986,637 4,965,844 4,969,556 5,539,665 4,923,636 4,903,182 5,321,252
Net income (loss)........ $ (3.35) $ (0.72) $ (0.69) $ 2.12 $ (2.55) $ 0.11 $ 0.92
FINANCIAL POSITION:
Invested assets.......... $ 392,765 $ 367,774 $ 371,519 $ 364,292 $ 333,372 $ 337,369 $ 314,339
Investments in investee
companies............... 5,156 4,828 4,635 22,977 20,135 18,416 19,473
Total assets(2).......... 703,752 655,901 675,469 642,697 639,835 473,883 433,752
Outstanding losses and
loss expenses(2)........ 487,628 456,898 461,533 433,810 447,767 284,446 255,483
Loan payable............. 19,500 8,225 20,000 9,800 11,900 14,000 16,000
Liquidation value of
preferred stock......... 5,753 5,615 5,615 5,434 5,284 5,110 5,106
Stockholders' equity..... $ 99,636 $ 107,873 $ 102,481 $ 124,960 $ 105,266 $ 118,400 $ 107,476
Book value per share..... $ 18.55 $ 20.13 $ 19.09 $ 23.44 $ 19.79 $ 22.30 $ 20.25
</TABLE>

- ------------
(1) The 1993 net income excludes the cumulative effect of a change in accounting
for income taxes of $6.9 million, $1.25 per share.

(2) Total assets and loss and LAE reserves at September 30, 1995 and 1994 and
December 31, 1994, 1993 and 1992 are stated gross of reinsurance recoverable
in accordance with the requirements of Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts".

38
<PAGE>
SELECTED FINANCIAL DATA
CHARTWELL RE CORPORATION

The following table sets forth selected consolidated financial data of
Chartwell and its predecessor prior to the Acquisition (the "Predecessor
Company") as of and for the periods indicated. The financial data for each of
the five years in the period ended December 31, 1994 is derived from the audited
financial statements of Chartwell or the Predecessor Company, as the case may
be. The financial data for the nine months ended September 30, 1995 and 1994 is
derived from the unaudited financial statements of Chartwell. The results of
operations for the nine months ended September 30, 1995 are not necessarily
indicative of the results which may be expected for the entire year. The
following table also includes selected data from Statutory Annual Statements.
The selected consolidated financial data should be read in conjunction with the
consolidated financial statements of Chartwell and notes thereto and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Chartwell", included elsewhere herein.

<TABLE>
<CAPTION>
PREDECESSOR
CHARTWELL(1) COMPANY(2)
---------------------------------------------------- -------------------
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross premiums written.................. $ 95,681 $ 86,818 $116,396 $ 70,129 $ 42,343 $ 32,657 $ 17,927
-------- -------- -------- -------- -------- -------- --------
Net premiums written.................... 92,376 84,768 113,962 69,827 39,622 30,260 16,067
-------- -------- -------- -------- -------- -------- --------
Net premiums earned..................... 87,355 73,983 102,698 68,416 36,926 27,505 18,242
Net investment income................... 14,743 10,531 14,726 10,959 11,206 11,943 13,410
Net realized capital gains (losses)..... 1,707 (3,794) (3,794) 6,418 1,335 (1,186) (125)
Other income............................ 796 1,237 1,679 54 70 113 61
-------- -------- -------- -------- -------- -------- --------
Total revenues.......................... 104,601 81,957 115,309 85,847 49,537 38,375 31,588
Loss and LAE............................ 63,712 57,478 78,577 48,740 44,107 22,281 14,193
Policy acquisition costs................ 20,598 17,012 24,295 15,398 7,695 6,167 3,721
Other expenses.......................... 7,846 7,587 10,178 10,238 8,160 6,504 5,387
Interest expense........................ 5,504 5,312 6,999 4,228 3,458 -- --
Amortization expense(3)................. 246 292 380 480 133 -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item.................... 6,695 (5,724) (5,120) 6,763 (14,016) 3,423 8,287
Provision (benefit) for federal income
taxes................................. 2,152 (1,725) (1,685) 2,266 (4,695) 1,693 740
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item.................................. 4,543 (3,999) (3,435) 4,497 (9,321) 1,730 7,547
Extraordinary item, net of income tax... -- (465) (465) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(4).................... 4,543 (4,464) (3,900) 4,497 (9,321) 1,730 7,547
Less: Preferred dividends and
accretion............................. -- 1,079 1,078 1,405 1,152 -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) attributable to common
shares................................ $ 4,543 $ (5,543) $ (4,978) $ 3,092 $(10,473) $ 1,730 $ 7,547
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per common share
(5)................................... $ 1.21 $ (0.98) $ (0.84) $ 0.62 $ (7.56) -- --
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
INSURANCE OPERATING DATA (GAAP)
Loss ratio(6)........................... 72.9% 77.7% 76.5% 71.2% 119.4% 81.0% 77.8%
Underwriting expense ratio (7).......... 31.7 32.2 32.5 34.5 42.9 46.1 49.9
-------- -------- -------- -------- -------- -------- --------
Combined ratio.......................... 104.6% 109.9% 109.0% 105.7% 162.3% 127.1% 127.7%
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
INSURANCE OPERATING DATA (SAP):(8)
Loss ratio.............................. 73.3 81.4 75.4% 76.7% 67.9% 81.0% 77.8%
Underwriting expense ratio (9).......... 31.6 32.2 30.3 37.2 52.3 35.3 36.6
-------- -------- -------- -------- -------- -------- --------
Combined ratio.......................... 104.9% 113.6% 105.7% 113.9% 120.2% 116.3% 114.4%
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Statutory net income.................... $ 4,920 $ (7,479) $ 910 $ 6,105 $ 5,044 $ 2,979 $ 9,103
Policyholders' surplus (10)............. 116,473 103,677 111,845 81,102 75,470 51,410 54,296
Net premiums written to surplus ratio... .79:1 .82:1 1:02:1 .80:1 .36:1 .59:1 .30:1
</TABLE>

39
<PAGE>

- ------------

(1) Chartwell was acquired during 1992. The purchase price of the Acquisition
was determined based upon the December 31, 1991 historical balance sheet of
the Predecessor Company. The Acquisition was accounted for by the purchase
method of accounting with an effective date of January 1, 1992. As a result
of purchase accounting adjustments and the indebtedness incurred in
connection with the Acquisition, financial data for the Predecessor Company
is not directly comparable to financial data for Chartwell.

(2) Prior to the Acquisition, the Predecessor Company was a 99% owned
subsidiary of NWNL, which is a wholly-owned subsidiary of ReliaStar
Financial Corporation.

(3) Amortization expense includes amortization of goodwill and amortization of
debt issuance costs, but does not include amortization of deferred policy
acquisition costs, which are included in policy acquisition costs.

(4) The net loss for the year ended December 31, 1994 includes after-tax
expenses of $3.6 million for losses incurred related to the Northridge,
California earthquake and $1.2 million of recapitalization expenses. The
net loss for the year ended December 31, 1992 includes after-tax expenses
of $8.4 million for losses incurred related to Hurricanes Andrew and Iniki.
In addition, effective January 1, 1992 the Company adopted, for GAAP
reporting purposes, SFAS No. 113. Reinsurance contracts not meeting the
conditions for reinsurance accounting of SFAS No. 113 are accounted for as
financing transactions with amounts paid under such contracts recorded as
deposits and amounts recovered recorded as a reduction of such deposits. At
December 31, 1994, 1993 and 1992 these deposits totaled $6.3 million, $6.5
million and $5.3 million, respectively. During 1992, a valuation allowance
of $1.8 million (which resulted in a $1.2 million after-tax charge) was
established to reduce such deposits to amounts that would be recoverable
under experience refund calculations consistent with the requirements of
SFAS No. 113.

(5) Historical earnings per share are not presented for 1991 and 1990 because
such information is not considered meaningful in light of the Acquisition,
the Senior Notes offering and the related refinancing in 1994. Pro forma
loss per common and common equivalent share is presented based on the
weighted average number of common shares outstanding. Such computation
includes the conversion of certain preferred stock and the exercise of
certain warrants, both of which occurred in connection with the 1994
refinancing. Common equivalent shares from the exercise of stock warrants
and options remaining outstanding have not been included as their effect on
earnings would be antidilutive.

(6) The GAAP loss ratio for the year ended December 31, 1992 was increased by
approximately 36.8 percentage points due to losses related to Hurricanes
Andrew and Iniki. In addition, in 1992 the Company's mix of assumed
business consisted of proportionately more excess of loss coverages which
generally have a higher loss ratio than pro rata coverages. For the year
ended December 31, 1992, the Company ceded more losses for statutory
purposes than for GAAP purposes because certain reinsurance contracts did
not meet the GAAP conditions for reinsurance accounting under SFAS No. 113.
As a result, the GAAP basis loss ratio was higher than the SAP basis loss
ratio for the year ended December 31, 1992.

(7) The underwriting expense ratio is calculated exclusive of approximately
$1.1 million of overhead expenses related to Chartwell Advisers in 1994 and
approximately $2.0 million of IPO costs written off in 1993.

(8) Statutory data have been derived from the Annual Statement of Chartwell
Reinsurance, as filed with insurance regulatory authorities and prepared in
accordance with SAP.

(9) For statutory accounting purposes, the Company ceded significantly more
premiums in 1992 than in 1991 due in part to premiums to reinstate
coverages exhausted by losses related to Hurricanes Andrew and Iniki. The
reduction in statutory net premiums written for 1992 as compared to 1991
results in an increase in the underwriting expense ratio in 1992 since
operating expenses were relatively stable during the two periods.

(10) The statutory surplus of Chartwell Reinsurance was increased by $30.0
million in 1994 from the proceeds of the Senior Notes offering.

(11) Total assets and loss and LAE reserves at September 30, 1995 and 1994 and
December 31, 1994, 1993 and 1992 are stated gross of reinsurance
recoverable in accordance with the requirements of Statement of Financial
Accounting Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts".

40
<PAGE>
MANAGEMENT AND OPERATIONS AFTER MERGER

STRATEGY

Chartwell's strategy is to grow its core businesses through internal growth
and through strategic acquisitions. Chartwell believes that the broker market
reinsurance business, its historic core business, is becoming increasingly
dominated by a smaller number of larger companies which are perceived by
reinsurance buyers as being financially strong. Chartwell's goal is to achieve
strategic increases in its capital in order to continue to compete effectively
in this market. To this end, since the Acquisition in March 1992, Chartwell has
raised additional capital of approximately $41 million in December 1992 from a
group of U.S. and international investors and $72 million in March 1994 through
the Senior Notes offering. In each case, a substantial portion of the proceeds
was used to increase the statutory surplus, and accordingly the underwriting
capacity, of Chartwell Reinsurance. A portion of the proceeds from each of the
foregoing transactions was also used to repay a portion of the debt incurred in
connection with the Acquisition.

The Merger with Piedmont is Chartwell's next step in effecting its strategy.
Following the Merger, Chartwell intends to contribute all of the outstanding
stock of RECO to Chartwell Reinsurance. This contribution will increase the
statutory surplus of Chartwell Reinsurance and as a result is intended to
increase its attractiveness to ceding companies and reinsurance brokers. The
Merger will also supplement and diversify Chartwell's book of business by giving
it access to certain of RECO's reinsurance renewals, as well as RECO's existing
primary insurance business. Further, the Merger will provide Chartwell with a
public market for its common stock, which among other benefits will enhance its
flexibility to pursue acquisitions and raise capital.

In addition to expanding its core business, Chartwell at the same time has
sought to diversify its sources of income by developing opportunities for
fee-based income and by pursuing other selected business opportunities, such as
the NLC syndicate participation and the Drayton acquisition, in which it can
capitalize on its expertise in the insurance and reinsurance business.

Prior to the Merger, Chartwell will contribute all the stock of Chartwell
Reinsurance and substantially all its other assets to a new wholly-owned
subsidiary, Chartwell Holdings, which will serve as an intermediate level
holding company for these operations. Chartwell believes that the establishment
of Chartwell Holdings will increase its flexibility to obtain future financing
to pursue its business strategy. As a result of this transfer and the
contribution of the stock of RECO described above, immediately following the
Merger the corporate structure of Chartwell and its principal subsidiaries will
be as follows:

Chartwell Re Corporation
(public stockholders)
(obligor on CI Notes)
100%
Chartwell Holdings
(obligor on Senior Notes
and New Bank Facility)
100% 100% 100%
Chartwell
Advisers Chartwell Reinsurance Drayton
100%
RECO

41
<PAGE>
Chartwell regularly evaluates additional opportunities for the acquisition
of books of business or of reinsurance or specialty insurance companies as a
going concern, for business combinations with other reinsurance or insurance
concerns and for the provision of insurance related advisory services to third
parties. There can be no assurance, however, that any suitable business
opportunities will arise.

OPERATIONS FOLLOWING THE MERGER

The principal elements of Chartwell's marketing and underwriting strategy
are: (i) a client segment focus; (ii) a cycle management approach to marketing
and underwriting; (iii) a commitment to the broker market; and (iv) superior
client services, coupled with broad market acceptance. Chartwell has organized
its marketing and underwriting activities into client segments differentiated by
the nature of the ceding companies and their businesses. Accordingly, Chartwell
has established three underwriting units: Specialty Accounts, Global Accounts
and Regional Accounts, consisting of specialized, dedicated underwriters who are
supported by Chartwell's technical resources and personnel, including its
actuarial, claims and accounting departments.

Specialty Accounts primarily covers non-standard, non-traditional casualty
risks that require specialized underwriting, claims and actuarial skills. Global
Accounts is principally engaged in providing reinsurance to large domestic
insurance companies, typically companies writing in more than 10 states and with
surplus in excess of $100 million, and in writing specific reinsurance programs
for certain syndicates at Lloyd's and for other insurers and reinsurers writing
non-U.S. risks. Regional Accounts provides reinsurance for the standard risks of
regional insurers, typically companies that either operate in 10 or fewer states
or have a surplus of $100 million or less, and is also the segment responsible
for managing Chartwell's marine and aviation reinsurance.

Following the Merger, Chartwell intends to establish a fourth client
segment, Controlled Source Insurance. Controlled Source Insurance will write
insurance business through program administrators, emphasizing areas or lines of
business in which Chartwell's reinsurance clients do not compete. Chartwell
intends to use RECO as its principal vehicle for writing primary insurance.
Chartwell Reinsurance will remain Chartwell's principal entity for writing
reinsurance. Chartwell will seek to move RECO's reinsurance business to
Chartwell Reinsurance as contracts renew.

Initially, Controlled Source Insurance is expected to consist of RECO's
current portfolio of controlled source business. Chartwell is reviewing this
book of business and following the Merger may seek to make selective changes in
the underwriting, pricing or level of its participation in these insurance
programs. The controlled source business consists of seasoned books of specialty
insurance business with a limited geographic focus which are principally
controlled by program administrators, in certain of which Piedmont has made an
equity investment. Controlled Source Insurance will have a dedicated marketing
and underwriting team focused on identifying selected specialty producers having
underwriting expertise in specialty business with a limited geographic focus. As
with Chartwell's other client segments, this team will be supported by
Chartwell's technical resources and personnel, including its actuarial, claims,
legal and accounting departments. Although a majority of the insurance programs
underwritten are expected to be produced by specialty retail or wholesale
brokers, Chartwell's management believes that some business may originate from
reinsurance intermediaries and Chartwell's current ceding companies. In general,
Chartwell intends to avoid competing directly with companies it reinsures.

Chartwell believes that its Controlled Source Insurance segment would have
increased underwriting opportunities if RECO were to regain its former "A-"
(Excellent) rating from A.M. Best, while a continuation of RECO's current "B++"
(Very Good) rating could adversely affect this segment. In this regard, A.M.
Best has publicly stated that as a result of the Merger with Chartwell, the
ratings outlook for RECO is positive.

42
<PAGE>
BOARD OF DIRECTORS

The Merger Agreement provides that the Board of Directors of Chartwell as of
the Effective Time will consist of Chartwell's current Chairman and Chief
Executive Officer (Mr. Cole), President (Mr. Bensinger) and Executive Vice
President and Chief Underwriter Officer (Mr. Bonneau) (or, if any of such
individuals is unable or unwilling to serve, such other senior officer of
Chartwell as it shall designate), six additional individuals who were members of
the Board of Directors of Chartwell prior to the Effective Time (Bruce W.
Schnitzer, David J. Callard, Stephen L. Green, Greg S. Feldman, Frank E.
Grzelecki and John Sagan), and four individuals who were directors of Piedmont
prior to the Effective Time (Messrs. DeMichele, Miller, L. Richardson, Jr. and
S. Richardson). For information about these individuals and their terms of
office, see "DIRECTORS AND EXECUTIVE OFFICERS."

The Stockholders Agreement to be entered into by Chartwell, the Richardson
Stockholders and certain holders of Chartwell Common Stock prior to the
Effective Time will permit such Richardson Stockholders, depending on their
aggregate ownership of Chartwell Common Stock, to nominate up to four
individuals for election to the Chartwell Board of Directors, with such
individuals to be included in management's slate of nominees. The four Piedmont
directors who will initially serve as Chartwell directors as of the Effective
Time will be considered designees of the Richardson Stockholders for this
purpose.

The Stockholders Agreement requires the other stockholders who are parties
to such agreement, subject to certain exceptions, to vote all shares of
Chartwell Common Stock and other voting securities held by them for election of
the Richardson Stockholder nominees to the Chartwell Board. The Stockholders
Agreement also permits such Richardson Stockholders under certain circumstances
to designate an individual to serve on the Board of Directors of any U.S.
subsidiary of Chartwell. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--Chartwell."

MANAGEMENT

The officers of Chartwell at the Effective Time will be the officers of the
Surviving Corporation until they resign or are removed. For information relating
to such officers, see "DIRECTORS AND EXECUTIVE OFFICERS--Chartwell."

DIVIDEND POLICY

Chartwell anticipates that it will not pay dividends for the foreseeable
future and that it will retain earnings to finance future growth and increase
the underwriting capacity of its insurance subsidiaries. The decision whether to
pay dividends in the future will be made by Chartwell's Board of Directors in
light of conditions then existing.

Because Chartwell is a holding company, its ability to pay dividends will
depend on the earnings of, and cash flow available from, its subsidiaries. The
ability of such subsidiaries to pay dividends is subject to certain regulatory
restrictions and following the Effective Time will be subject to the limitations
imposed by the covenants in the indenture under which the Senior Notes were
issued and in the New Bank Facility. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Chartwell--Liquidity and
Capital Resources."

43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Reinsurance Business

Reinsurance is an arrangement in which an insurance company, the reinsurer,
agrees to indemnify another insurance company, the ceding company, for all or a
portion of the insurance risks underwritten by the ceding company under one or
more insurance policies. 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, stabilizing financial
results and assisting in maintaining acceptable operating leverage ratios.
Reinsurance also provides 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 and surplus.

Reinsurance is contracted either through treaties or facultative
certificates. A reinsurance treaty is an agreement whereby the ceding company is
obligated to cede, and the reinsurer is obligated to assume, a specified portion
or category of risk under all qualifying policies issued by the ceding company
during the term of the treaty. Facultative reinsurance arrangements are
separately negotiated for each insurance policy to be reinsured and result in a
facultative certificate under which the ceding company cedes, and the reinsurer
assumes, all or part of the risk under a specific insurance policy. Facultative
reinsurance is normally purchased by insurance companies for individual risks
not covered under reinsurance treaties or for amounts in excess of limits on
risks covered under reinsurance treaties. In the underwriting of treaty
reinsurance, the reinsurer does not evaluate each individual risk assumed, as it
must in the underwriting of facultative reinsurance, and generally accepts the
original underwriting decisions made by the ceding insurer.

Both treaty and facultative reinsurance can be written on either a pro rata
(also known as quota share or proportional) or excess of loss basis. Under pro
rata reinsurance, the reinsurer indemnifies the ceding company against an agreed
upon portion or share of the losses and loss adjustment expenses ("LAE")
incurred by the ceding company under the reinsured policy or policies. Premiums
that the ceding company pays to the reinsurer for pro rata reinsurance are
proportional to the premiums that the ceding company receives, consistent with
the proportional sharing of risk, generally less a ceding commission. The ceding
commission is negotiated between the reinsurer and the ceding company to
reimburse the ceding company for its acquisition costs relating to the
underlying policies and may include a contingent component that varies depending
upon the loss experience of the underlying business. As a consequence, the
underwriting results of the reinsurer may not parallel the underwriting results
of the ceding company.

In reinsurance written on an excess of loss basis, the reinsurer indemnifies
the ceding company against all or a specified portion of losses and LAE on the
reinsured policy or policies in excess of a specified dollar amount, known as
the ceding company's retention or reinsurance attachment point, generally
subject to a negotiated limit. Such reinsurance can cover losses from a single
risk or from a variety of risks in connection with a single occurrence
(generally referred to as catastrophe coverage). Excess of loss reinsurance is
often written in multiple layers. One or a group of reinsurers typically assumes
that portion of the risk immediately above the ceding company's retention up to
a specified amount, at which point another reinsurer or group of reinsurers
assumes, or the ceding company retains, the excess liability. The reinsurer
assuming the risk immediately above the ceding company's retention point is said
to write working layer (or low layer) reinsurance. A loss that is greater in
amount than the ceding company's retention will result in a loss to the

44
<PAGE>
working layer reinsurer, but may not result in a loss to the reinsurers on
higher layers. Since the probability of loss for the reinsurer providing excess
of loss coverage differs from that to which the ceding company is subject, such
reinsurance coverage is priced separately from the pricing set by the ceding
company with respect to its own risks.

Reinsurers may also purchase reinsurance, known as retrocessional
reinsurance, to cover their own risks assumed for primary ceding companies.
Reinsurance companies enter into retrocessional agreements for reasons similar
to those for which ceding companies purchase reinsurance.

Recent Industry Performance

The property and casualty insurance and reinsurance industry has
historically been highly cyclical. Demand for reinsurance is influenced
significantly by prevailing market conditions, including the underwriting
results of primary insurers. The supply of reinsurance is primarily related to
levels of underwriting capacity in the reinsurance industry and the relative
cost and terms of reinsurance coverage. The industry's profitability and the
cyclical trends in the industry can be affected significantly by volatile and
unpredictable developments, including the occurrence of natural disasters, other
catastrophic events, competitive pressures on pricing (premium rates),
fluctuations in interest rates, other variations in the investment environment,
changes in the judicial system regarding tort law, general economic conditions
and trends, such as inflationary pressures, that may tend to affect the size of
profits and losses experienced by ceding primary insurers, and other factors
such as changes in tax laws and regulations. Many sectors of the industry are
currently in a cyclical downturn and it cannot be predicted if or when market
conditions will improve or when other sectors may experience a deterioration in
pricing and terms.

Inadequate pricing during the latter 1970s and early 1980s led to increased
underwriting losses and a decline in underwriting capacity. Reinsurance rates
and terms improved substantially during the mid-1980s as primary insurers, which
had been adversely affected by the soft market of the previous several years,
increased their demand for reinsurance. Reinsurers achieved improved
underwriting results and, consequently, the supply of reinsurance capacity
increased, both from existing companies and new entrants.

Commencing in the latter part of the 1980s, primary property and casualty
insurers began to retain more of their business. This reduction in the amount of
business ceded to reinsurers, combined with the growth in reinsurance capacity,
resulted in renewed price competition and less attractive pricing for
reinsurers. This caused a downturn for the reinsurance industry, resulting in
increased underwriting losses which have continued to the present.

The following table presents the statutory combined ratios of Chartwell
Reinsurance, RECO, the property and casualty reinsurance industry and the
property and casualty insurance industry during the 1990 to 1994 years and the
nine months ended September 30, 1995. The combined ratio is the sum of the loss
ratio (incurred losses and loss adjustment expenses divided by net premiums
earned) and the underwriting expense ratio (underwriting expenses divided by net
premiums written). A combined ratio of over 100% indicates unprofitable
underwriting. Although an insurance or reinsurance company's underwriting may be
unprofitable, the company may be profitable after including investment income.
Due to the implementation of SFAS No. 113, the statutory combined ratio of
Chartwell Reinsurance as shown below differs significantly in 1992 from its GAAP
combined ratio.

45
<PAGE>
STATUTORY COMBINED RATIOS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -----------------------------------------
SEPTEMBER 30, 1995 1994 1993 1992 1991 1990
------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
CHARTWELL REINSURANCE
Loss Ratio........................ 73.3% 75.4% 76.7% 67.9% 81.0% 77.8%
Underwriting Expense Ratio........ 31.6 30.3 37.2 52.3 35.3 36.6
------ ----- ----- ----- ----- -----
Combined Ratio.................... 104.9% 105.7% 113.9% 120.2% 116.3% 114.4%
------ ----- ----- ----- ----- -----
------ ----- ----- ----- ----- -----
RECO
Loss Ratio........................ 107.6% 87.9% 78.1% 91.9% 89.7% 89.6%
Underwriting Expense Ratio........ 41.6 32.7 32.0 38.0 35.5 33.7
------ ----- ----- ----- ----- -----
Combined Ratio.................... 149.2% 120.6% 110.1% 129.9% 125.2% 123.3%
------ ----- ----- ----- ----- -----
------ ----- ----- ----- ----- -----
PROPERTY AND CASUALTY REINSURANCE
INDUSTRY(1)
Loss Ratio........................ 80.8% 76.8% 76.9% 87.7% 76.1% 75.7%
Underwriting Expense Ratio........ 30.3 29.9 29.9 31.3 31.0 30.6
------ ----- ----- ----- ----- -----
Combined Ratio.................... 111.1% 106.7% 106.8% 119.0% 107.1% 106.3%
------ ----- ----- ----- ----- -----
------ ----- ----- ----- ----- -----
PROPERTY AND CASUALTY INSURANCE
INDUSTRY(2)
Loss Ratio........................ -- 82.0% 79.5% 88.1% 81.1% 82.2%
Underwriting Expense Ratio........ -- 27.4 27.4 27.5 27.6 27.2
------ ----- ----- ----- ----- -----
Combined Ratio.................... -- 109.4% 106.9% 115.6% 108.7% 109.4%
------ ----- ----- ----- ----- -----
------ ----- ----- ----- ----- -----
</TABLE>

- ------------

(1) Source: RAA Underwriting Review for Annual Period. Latest available ratios
are for the six months ended June 30, 1995.

(2) Source: A.M. Best Publication, Best's Aggregates and Averages,
Property-Casualty, 1995 Edition. Ratios shown are calculated after dividends
to policyholders. Ratios for the 1995 period are not available.

Certain of the effects of retrocessions on the historical results of
operations of Chartwell and Piedmont are described under CHARTWELL RE
CORPORATION--Business--Risk Management and Retrocessional Arrangements" and
"PIEDMONT MANAGEMENT COMPANY INC.--Business-- Retrocessional Arrangements,"
respectively.

The following discussions of the financial condition and results of
operations of Chartwell and of Piedmont should be read in conjunction with the
consolidated financial statements and notes thereto of Chartwell and of
Piedmont, respectively, included elsewhere herein.

46
<PAGE>
PIEDMONT

The following discussion of Piedmont's Consolidated Results of Operations
was prepared by Piedmont's management as of the periods referenced. Because
Chartwell's management will be responsible for managing the operations of the
combined company after the Merger, this discussion may not be indicative of
future strategy or performance. See "MANAGEMENT AND OPERATIONS AFTER MERGER."

RECENT DEVELOPMENTS

On August 7, 1995, Piedmont entered into the Merger Agreement with Chartwell
pursuant to which Piedmont will merge with and into Chartwell. Following the
Merger, RECO will become a subsidiary of Chartwell Reinsurance. Prior to the
Merger, the Piedmont Board intends to declare and pay as a dividend to its
stockholders the CI Notes. See "THE CONTINGENT INTEREST NOTES." Immediately
prior to the Merger, the Piedmont Board intends to declare and pay as a dividend
to its stockholders the Lexington Common Stock in the Spin-off. See "THE
SPIN-0FF."

In reaction to the announcement of the Merger, A.M. Best affirmed RECO's
"B++" (Very Good) rating based on the positive implications of the business
combination. Piedmont's management believes the Merger is a positive step
towards RECO regaining its former "A-" (Excellent) rating. However, there can be
no assurance as to whether or when such an improvement will occur. In April
1995, RECO's rating by A.M. Best was reduced from "A-" (Excellent) to "B++"
(Very Good). According to A.M. Best at that time, although the rating downgrade
primarily reflected RECO's poor operating results over the last five years and
constrained growth in its policyholders' surplus, its rating outlook was stable
at the time of downgrade given RECO's redirection toward a specialty lines
company and other operational changes, which included reductions in property pro
rata exposures, the purchase of aggregate reinsurance coverage to further
protect against catastrophic property losses and realignment of the investment
portfolio in favor of lower risk securities. The rating downgrade has limited
and continues to limit RECO's ability to quote and participate on certain lines
of new and renewal business during 1995. The effects of the rating downgrade on
future results of operations absent the Merger would depend on RECO's ability to
replace the foregone new and renewal business with alternative sources of
premium and the underlying profitability of the business. To date, no material
alternative sources of premium income have emerged.

RECO will incur losses from Hurricane Opal, which struck the Gulf Coast
region on October 4, 1995. At this time, based on early reports of losses and
projections of additional losses, up to approximately $1.0 million, pre-tax,
could be incurred from this hurricane. Since all reporting is not complete,
ultimate losses could be higher.

Concurrent with the consummation of the Merger, it is expected that
Piedmont's existing bank debt will be replaced with the New Bank Facility
arranged by Chartwell.

CONSOLIDATED RESULTS OF OPERATIONS

Nine Months Ended September 30, 1995 Compared to Nine Months Ended September
30, 1994

The consolidated net loss for the nine months ended September 30, 1995 was
$16.5 million, $3.35 per share. This compares to a net loss for the nine months
ended September 30, 1994 of $3.4 million, $0.72 per share. Included in the nine
months results for 1995 are various charges with respect to the Merger as well
as various non-recurring expenses relating to the spin-off of Piedmont's asset
management operations. Further information regarding these adjustments is
contained in the following discussion.

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Reinsurance Operations

The pre-tax operating loss for RECO was $25.3 million compared to a pre-tax
operating loss of $8.7 million in 1994. Included in the results for 1995 is a
charge of $25.0 million, net of reinsurance of $7.5 million, representing a
strengthening in reserves for losses incurred but not reported with respect to
RECO's business written in prior years. This reserve strengthening was agreed to
in the Merger Agreement and was based on a reevaluation of RECO's business,
particularly environmental and other latent injury claims and other long-tail
casualty exposures. Such increase reflects the utilization of factors that are
consistent with recent trends in the property and casualty insurance industry
where a number of companies have increased IBNR reserves for these types of
exposures in light of continued adverse development and as additional
information becomes known. Also included in these results is a $5.4 million
charge for severance and other employee benefit costs expected to be incurred in
connection with the Merger.

RECO's underwriting results in the period ended September 30, 1995 were also
negatively impacted by losses from Hurricanes Luis and Marilyn, which in the
aggregate totalled $1.4 million. RECO's share of a textile plant fire loss which
occurred early in 1995 was $2.8 million.

Net premiums written were $95.5 million for nine months, a 5% decline over
the prior year period. Premiums earned increased to $93.0 million from $89.8
million a year ago. The decline in premiums written is in line with RECO's
strategy of withdrawing from certain classes of business. RECO has chosen not to
renew a number of property reinsurance accounts primarily in an effort to reduce
exposure to property related catastrophe losses. Excluding the effects of the
$25 million net reserve strengthening mentioned above, loss activity for RECO
declined in comparison to the prior year, primarily as a result of a reduction
in catastrophe and other major loss activity in 1995. The combined ratio,
computed on a generally accepted accounting principles basis, after excluding
the foregoing reserve strengthening and non-recurring expenses, was 113.5% in
the 1995 period.

For the 1995 period, net investment income was $14.6 million compared to
$13.6 million for the 1994 period, a 7% increase. This increase is attributed to
higher average yields and growth in the base of invested assets. During the
fourth quarter of 1994, additional cash for investment was provided by the $17.5
million capital contribution made by Piedmont.

Investment Advisory Operations

Pre-tax operating income was $2.1 million in the 1995 period, down from $3.2
million earned in the 1994 period. Results in the 1995 period include $1.0
million in non-recurring expenses (primarily legal and other professional fees)
connected with the spin-off of Piedmont's asset management companies which is
expected to occur by the end of 1995. Primarily as a result of a decline in
average net assets, revenues in the mutual fund segment of Lexington are down in
comparison to the prior year period. Service and marketing expenses also
declined as compared to last year. On September 30, 1995 total assets under
management were $3.5 billion, an increase of $100 million since December 31,
1994.

Parent Company and Investees

The parent company operating loss for the nine months was $3.1 million
compared to a loss of $673,000 a year ago. These results also include Merger
related expense accruals, notably, severance and other employee benefit costs
amounting to $1.3 million. Excluding these items, the main reason for the
decline in pre-tax income from last year relates to increased interest expense
which, for the 1995 period, was $1.4 million compared to $318,000 for the 1994
period. Piedmont entered into a senior term loan agreement in December of 1994
for $20.0 million, which replaced a previously outstanding loan in the amount of
$8.2 million.

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Equity in net earnings (losses) of investees was $284,000 in the 1995 period
compared to a loss of $139,000 a year ago. This component of Piedmont's
operating results is represented by RECO's investment in Continental National
Corporation (CNC), an affiliated company. CNC has experienced an improvement in
underwriting results in 1995 primarily as a result of the abatement in weather
related losses in comparison to the prior year period and a continuing emphasis
on underwriting lines of business that historically have produced better results
for RECO.

For the nine months ended September 30, 1995, Piedmont recorded a $25.9
million pre-tax loss which in turn created a net operating loss for tax
purposes. Piedmont has accrued a current tax benefit of $530,000 because it was
able to carry back a portion of this net operating loss to 1993. The $8.8
million deferred tax benefit is virtually all related to the net operating loss
generated from results of operations in the period. Piedmont expects to realize
the tax benefit of this loss based upon projections of taxable income to be
earned in the carryforward period. On September 30, 1995, the net deferred tax
asset carried in the balance sheet was $23.2 million. Piedmont's management
believes that amount will be realized based on estimates of future taxable
income. The amount ultimately realized, however, could be reduced if actual
amounts of future taxable income are reduced.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

The consolidated net loss in 1994 was $3.2 million, $0.69 per share,
compared to net income of $18.7 million, $3.37 per share, in 1993. Included in
the 1993 net income was a $6.9 million benefit, $1.25 per share, for the
cumulative effect on prior years of adopting Statement of Financial Accounting
Standards Number 109 (SFAS 109)--"Accounting for Income Taxes."

The results reported above include after-tax investment gains of $0.10 per
share in 1994 and $0.83 per share in 1993. A discussion and analysis of results
of operations on a segment basis follows.

Reinsurance Operations

The pre-tax operating loss for RECO, excluding realized capital gains, was
$9.8 million in 1994 compared with operating income of $6.2 million in 1993. The
underwriting loss was $28.2 million compared to $10.8 million in 1993. The
deterioration in underwriting results in comparison to 1993 stems from
significant losses incurred from catastrophes and other natural disasters
throughout the year. For all of 1994, insured catastrophe losses for the
insurance industry in general totalled nearly $15 billion, making it the second
worst year on record for catastrophes. The single largest catastrophe loss
occurring in 1994 was the earthquake which devastated Northridge, California in
January. Not long after this earthquake loss, a series of fierce winter storms
occurred in the midwest and eastern regions of the United States. On the heels
of these losses were the occurrences of several aviation disasters affecting
U.S. and international carriers. The insurance industry estimate of the
Northridge earthquake loss wound up the year 1994 totalling five to six times
greater than early year estimates largely because hidden structural damage was
only discovered gradually. By year end 1994 it was apparent that the Northridge
earthquake loss would exceed $10 billion. RECO suffered a $9.1 million loss from
this catastrophe, the second highest loss ever for the company, exceeded only by
Hurricane Andrew, the industry's largest catastrophe, in 1992. The earthquake
losses are based on information available at the time reserves are being
estimated and ultimate losses may be higher or lower. All told, RECO's losses
from the Northridge earthquake, winter storms and various other natural
disasters reached $14.9 million in calendar year 1994.

For the year, RECO's combined ratio, computed on a GAAP basis, was 121.8%.
The significant loss activity mentioned above added 11.5 points to this ratio.
In 1993, the combined ratio was 109.5%, reflecting the success of RECO's core
business and very minor catastrophe loss activity

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for the company in that year. Over the last six years, catastrophe losses have
appeared everywhere and with increasing severity. This phenomenon has clearly
served to detract from the overall underwriting performance for RECO during that
period.

The loss activity in 1994 clearly overshadowed significant growth in net
written premiums for 1994 which rose to $142.0 million from $112.2 million in
1993. RECO's business in 1994 included a unique blend of property and casualty
insurance and reinsurance. In recent years, the company has developed and
expanded a new "controlled source" book of business, combining both primary and
reinsurance accounts consisting of liability, marine and aviation lines, along
with participation in pools covering property, satellite, and accident and
health lines. Fueled by a rise in property rates following the devastation
caused by Hurricane Andrew, RECO was able in 1994 to increase its participation
and underwrite new accounts in property pro-rata business, a core reinsurance
class of business of RECO. In addition, over the 1992 to 1994 period, RECO
developed a book of non-standard auto business, a short-tail casualty line,
which also experienced growth in volume in 1994.

RECO's pre-tax investment income increased 8% in 1994 to $18.4 million
compared to $17 million earned a year earlier. The generally upward trend of
short term interest rates throughout 1994 accounted for much of the increase in
pre-tax net investment income over 1993. Included in RECO's pre-tax results for
1994 were net capital gains realized on sales of securities in its portfolio
amounting to $382,000. In 1993, net realized capital gains on sales of
securities were $7.1 million.

Investment Advisory Operations

Investment advisory pre-tax income rose to $4.5 million in 1994--an all-time
high--reflecting strong and encouraging growth in the mutual fund business of
LMC. Throughout much of 1994 LMC continued to build upon the growth in mutual
fund assets under management that began during mid-1993. Mutual fund management
fees, a significant component of total investment advisory revenue, grew to
$10.1 million in 1994 compared to $5.9 million in 1993. Mutual fund assets under
management, at one point rising to $1.7 billion, rounded out the 1994 year at
$1.5 billion, a $200 million increase over 1993 and a key factor in producing
the revenue increase. Another element contributing to the 1994 strengthened
operating results was a turnaround in the pre-tax results for affiliated
companies, LCM and Lexington Plan Administrators ("LPA"), which combined earned
pre-tax income of $133,000 in 1994 compared with a pre-tax operating loss of
$378,000 in 1993.

Investment advisory operating expenses also increased in 1994, 12% over
1993, and this was largely attributed to the attendant growth in the overall
business of LMC. Compensation expense, which is driven by the successful
performance of assets managed, and marketing expenses were each up in tandem
with the growth in assets under management as were related costs to distribute
the mutual funds and service their shareholders.

Parent Company and Investees

The pre-tax loss at the parent company was $1.1 million in 1994, down
slightly from $1.3 million in 1993. The 1994 results included net realized
capital gains on the sale of securities of $368,000 in 1994 compared to $20,000
in net realized capital gains in 1993. Investment and other income increased to
$833,000 in 1994 from $721,000 in 1993. This is accounted for by the increase in
the return on the parent company's investments in two affiliated companies,
Florida Intracoastal Underwriters ("FIU") and Inter-Reco Inc. ("Inter-Reco").
Corporate operating expenses jumped from $1.6 million to $1.9 million on a year
to year comparison basis. This increase is primarily attributed to increased
compensation expenses, higher professional fees and certain one-time placement
fees paid in conjunction with the parent's negotiating a $20 million senior term
loan. Interest expense of $437,000 on prior outstanding debt compared favorably
with the $474,000 in interest expense recognized in 1993.

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There was a $105,000 loss from investees in 1994, representing RECO's equity
in the net loss of CNC, in comparison to total equity in net income of investees
of $2.8 million in 1993. The prior year's results included the parent company's
share of equity in the net income of The Navigators Group, Inc. ("Navigators"),
a former investee, previously accounted for under the equity method of
accounting. In 1993, the parent company's share of equity in the net earnings of
Navigators was $2.0 million. Additional information concerning Piedmont's prior
affiliation with Navigators is explained below as well as in Note 3 to
Piedmont's audited consolidated financial statements included elsewhere herein.

Reflecting the pre-tax loss of $6.1 million in 1994, Piedmont accrued a
current tax benefit of $2.6 million in 1994 compared with a current tax expense
of $3.8 million in 1993 on pre-tax income of $16.5 million. In 1994 a $185,000
deferred tax benefit was recognized compared to a deferred tax expense of
$956,000 a year ago.

Year Ended December 31, 1993 Compared With Year Ended December 31, 1992
Reinsurance Operations

In 1993 RECO's pre-tax income, excluding realized capital gains of $7.1
million, was $6.2 million compared to a loss of $18.3 million in 1992. In spite
of 1993's being one of the worst catastrophe loss years for the insurance
industry as a whole (actually, at the time, the third worst year on record after
1992 and 1989), underwriting results for RECO experienced a decline in
catastrophe loss frequency and severity. The combined ratio, computed on a GAAP
basis, was 109.5% in 1993 compared to 131.0% a year earlier. The 1992 combined
ratio included 8.5 percentage points related to two major hurricanes, Andrew and
Iniki.

Although net premiums earned declined slightly, to $113.7 million in 1993
from $117.0 million in 1992, at the same time there was a significant decline
for the year in net losses and loss expenses incurred. The loss ratio in 1993
was 78.1% compared to 91.9% in 1992.

RECO started 1993 with an approach to tighten control of its exposure to
significant weather related losses through the cancellation of certain accounts
and reductions in aggregate limits covering its property oriented business. In
contrast to pre-1992 when there was more emphasis on property oriented business,
in 1993 the company concentrated on specialized lines of reinsurance business
such as non-standard auto while building its controlled source book of primary
and reinsurance business. This controlled source business includes business
produced by agencies affiliated with Piedmont or RECO.

RECO's pre-tax net investment income for the year declined to $17.0 million,
a 5% reduction from 1992. This lower annual net investment income reflected the
reduction in yields available on fixed income securities in 1993 compared with
1992.

Investment Advisory Operations

Investment advisory pre-tax income increased dramatically over the prior
year, as $1.8 million was earned in 1993 compared with $1.3 million in 1992. A
great deal of this progress was due to the operating results for LMC which
earned $2.2 million on a pre-tax basis, in comparison to $1.6 million in 1992.
Total assets under management (mutual fund and investment counseling accounts)
increased to $3.3 billion at the end of 1993 compared to $2.7 billion a year
earlier. Virtually all of the increase was attributed to growth in the mutual
fund division of the company where assets under management were up 74% over
1992. This growth in mutual fund assets reflects superior investment performance
achieved during 1993 by several mutual funds managed by LMC and also includes
new assets which were generated through an expanded distribution network.

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Primarily as a result of the foregoing increase in assets, fees earned and
other income in 1993 increased $1.9 million, 12% over 1992. Service and
marketing costs increased $1.4 million, 10% over 1992, and was mainly due to
higher advertising and other promotional costs of distribution for the mutual
funds.

The 1993 operating results for LCM and LPA were somewhat behind a year
earlier, a pre-tax operating loss of $378,000 in 1993 versus a $285,000 loss in
1992.

Parent Company and Investees

The operating loss for the parent company in 1993 declined to $1.3 million
compared with $1.8 million a year earlier. Investment and other income increased
$229,000 over the prior year and this was primarily attributed to Piedmont's
share of net income from its investment in FIU and Inter-Reco which were less
significant contributors to operating results in 1992.

Interest expense, reflecting the overall decline in short term interest
rates as well as a $2.1 million loan repayment, fell in comparison to the prior
year, $474,000 in 1993 compared to $665,000 in 1992. Other corporate expenses
also declined in comparison with 1992, falling to $1.6 million from $1.7
million.

The equity in net earnings of investees improved over the prior year, rising
to $2.8 million in 1993 from $1.8 million a year ago. The parent's equity in net
income of Navigators rose to $2.0 million from $1.1 million in 1992 while RECO's
equity in the net income of CNC was on par with a year earlier, $739,000
compared to $677,000 in 1992.

Navigators announced its intention in late 1993 to merge with several
affiliated insurance agencies and to issue additional common stock as part of a
plan of reorganization. As a result of the merger, Piedmont's ownership of the
common stock of Navigators decreased to 11% and in 1994 Piedmont discontinued
accounting for its investment in Navigators under the equity method and began
carrying the investment at publicly quoted market value. The change in
accounting for Navigators did not affect results of operations. The difference
between the December 31, 1993 equity method carrying value of Navigators and its
publicly quoted market value is reflected in unrealized gains (losses) on
securities net of deferred taxes.

In conjunction with the increase in taxable income in 1993, Piedmont's net
provision for income taxes increased to $4.8 million in contrast to a net tax
benefit of $453,000 in 1992. In addition, as previously mentioned, with the
implementation of SFAS 109 in 1993, Piedmont recognized a tax benefit of $6.9
million for the cumulative effect of its adoption on prior periods. SFAS 109,
which replaced the provisions of Accounting Principles Board Opinion No. 11,
calls for a liability method of accounting which recognizes, as of the date of
the financial statements, the amount of current and deferred taxes payable or
refundable using currently enacted tax regulations and rates.

LIQUIDITY AND FINANCIAL CONDITION

Total assets on September 30, 1995 were $704.0 million, up from $675.5
million at the end of 1994. Invested assets grew to $392.8 million from $371.5
million at the end of 1994. Virtually all of Piedmont's fixed income
investments, primarily bonds, are categorized as available for sale and carried
at market values, with unrealized gains and losses reflected in stockholders'
equity, net of related deferred income taxes. On September 30, 1995, the
weighted average maturity of the bond portfolio was 3.6 years and the average
quality rating was AAA. On September 30, 1995, fixed maturities carried at
market value were $237.2 million with an amortized cost of $239.5 million.

Total cash flow from operating activities was $(667,000) for the nine months
ended September 30, 1995 compared to $8.4 million a year ago. The negative cash
flow for the nine months of 1995 is reflective of the payments made for several
large property losses incurred in 1995 through

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RECO's participation in underwriting pools. In addition, there have been
payments for severance costs and transaction costs connected with the Merger and
Spin-off. The overall liquidity of Piedmont is strong. Piedmont's management
intends to satisfy ongoing cash obligations through internally generated cash
without having to liquidate significant amounts of invested assets.

In keeping with an investment policy decision to reduce RECO's level of
equity securities, a program was initiated during 1995 to sell a portion of
equity investments. Proceeds from the sales of those investments have primarily
been reinvested in short term investments and intermediate term fixed income
securities.

Consolidated stockholders' equity on September 30, 1995 was $99.6 million,
compared to $102.5 million at the end of 1994. Consolidated stockholders' equity
includes net unrealized depreciation on invested assets of $109,000, compared to
unrealized depreciation of $13.9 million at the end of 1994. The significant
turnaround in the nine months of 1995 was primarily due to the positive effects
of the bond market rally on RECO's fixed income portfolio.

Total assets on December 31, 1994 were $675.5 million compared to $642.8
million on December 31, 1993. Total invested assets and cash at the end of 1994
were $380.6 million. The average maturity of the bond portfolio was just over
four years. The portfolio was particularly sensitive to the sharp rise in
short-term interest rates occurring throughout 1994 which contributed to a fall
in the prices of short to intermediate term bonds in general. The decline in
market value of the fixed income portfolio was temporary and did not have a
significant effect on near term liquidity. Additionally, although there are
regulatory restrictions on RECO's ability to transfer funds to the parent
company, such restrictions have not impaired the overall liquidity of Piedmont.

At December 31, 1994 Piedmont recorded a net deferred tax asset of $21.8
million. Management believes it will be able to realize the benefit of this
deferred tax asset based largely upon estimates of future taxable income and
accordingly has not provided for a valuation allowance. The amount ultimately
realized, however, could be reduced if actual amounts of future taxable income
are reduced.

Included in RECO's outstanding loss reserve liabilities are reserves for
environmental impairment and other latent injury claims. RECO's ultimate
liability for these claims is extremely difficult to estimate. Significant legal
issues, primarily with regard to issues of coverage, exist with regard to
potential liability under policies issued in the mid-1980's and prior, before
the absolute exclusions of coverage were made a part of standard insurance
policy forms. As a result, the ultimate resolution of claims for environmental
and other latent exposures is usually subject to lengthy litigation, during
which time it is difficult to project an ultimate liability. Accordingly, future
judicial and legal developments could cause additional adjustments to
established reserves. On December 31, 1994 the total gross reserves for
outstanding losses and loss expenses related to these claims were $35.5 million
and corresponding net reserves carried were $25.2 million. Gross and net paid
losses on these claims were $5.5 million and $3.5 million, respectively, in
1994. On June 30, 1995 the total gross reserves for outstanding losses and loss
expenses related to these claims were $35.9 million. Gross and net paid losses
on these claims were $3.7 million and $2.9 million, respectively, for the six
months ended June 30, 1995. Despite the significant uncertainties inherent in
the estimating of such claims, management of Piedmont believes RECO's reserves
for such claims are adequate, based on available information. As noted above in
"--Recent Developments," in the Merger Agreement, Piedmont has agreed to
establish the Reserve Addition prior to the Merger.

Cash flow generated from operating activities was $8.9 million in 1994,
compared to $13.5 million in 1993. While operating cash flow declined from 1993,
cash obligations were met through internally generated funds without the need
for liquidating a significant amount of invested assets.

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In an effort to capture maximum total return, Piedmont, in implementing its
overall asset/liability management strategy, engaged in purchase and sale
transactions within its investment portfolio of fixed income and equity
security investments. During 1994 proceeds from sales, maturities and
redemptions of available-for-sale securities were reinvested within that
segment of the portfolio. Proceeds from net sales/maturities of a portion of
short-term investments were re-allocated to purchase equity securities and
capture higher yields.

Toward the end of 1994, Piedmont entered into a new senior term loan
agreement with a commercial bank under which it borrowed $20.0 million, using
the proceeds, along with other available resources, to retire an existing bank
loan and contribute $17.5 million to RECO. The term of the bank loan is five
years and nine months with interest indexed to the prime rate or London
Interbank Offering Rate (LIBOR), which were 8.5% and 6.5%, respectively, on
December 31, 1994, plus an additional margin over either option. Principal
payments for each year, 1995 through 2000, are $1,050,000; $3,550,000;
$3,800,000; $3,800,000; $3,800,000; and $4,000,000, respectively. The loan is
collateralized by invested assets of Piedmont, including 100% of the capital
stock of RECO and LMC. The loan agreement contains affirmative and negative
covenants including provisions for maintaining minimum levels of net worth,
limitations on capital expenditures and certain investments, restrictions on
additional borrowings, minimum earnings requirements and restrictions on the
payment of dividends. As a result of the waiver referred to below, Piedmont is
not currently in default with respect to any covenants under its senior term
bank loan agreement. Any material adverse change in Piedmont's business,
financial condition or results of operations constitutes a default under the
loan agreement. On November 9, 1995, Piedmont's commercial bank lender agreed to
waive, for a period not to exceed six months, certain defaults under the loan
agreement that would otherwise have occurred as a result of the $25.0 million
reserve strengthening. The waiver includes an agreement by Piedmont to make
certain principal payments under the loan agreement in the event of termination
of the Merger Agreement and provides for certain increases (not to exceed 2% in
total) in the interest rate on amounts outstanding under the loan agreement in
the event that the Merger Agreement is not consummated by certain specified
dates. Under the terms of the waiver, Piedmont has agreed to liquidate certain
temporary cash investments and apply the proceeds thereof at the time of any
such termination to reduce amounts outstanding under the loan agreement and to
use its best efforts to sell its holdings of certain stock and apply the
proceeds thereof to further reduce amounts outstanding under the loan agreement.
Chartwell has agreed, under certain circumstances, to purchase any such stock
not otherwise sold in the event of a termination of the Merger Agreement.
Piedmont has also agreed, under certain circumstances, to provide a security
interest in certain liquid investments to the lender.

RECO is subject to minimum capital requirements in order to satisfy the
regulations promulgated by the National Association of Insurance Commissioners
calling for ongoing compliance with predetermined levels of "risk based
capital." The NAIC has developed a risk based capital program that is used by
state insurance departments to enable them to take appropriate and timely
regulatory actions relating to companies that show signs of weak or
deteriorating financial conditions. On December 31, 1994, RECO was in full
compliance with risk based capital requirements and its statutory policyholders'
surplus on that date was substantially in excess of the level at which
regulatory action would be initiated against it.

Piedmont's stockholders' equity on December 31, 1994 declined to $102.5
million from $125.0 million a year earlier. This includes net unrealized
depreciation of $13.9 million, primarily on fixed income investments in RECO's
portfolio which are carried at market value. Much of the $19.5 million increase
in net unrealized depreciation for the 1994 calendar year was triggered by the
rising interest rate environment dominating the bond market in 1994.

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Management believes that Piedmont's liquid assets and its net cash provided
by operations will enable it to meet any foreseeable cash requirements.
Piedmont's overall liquidity position remains strong.

ACCOUNTING STANDARDS
Derivative Financial Instruments--SFAS No. 119

In October 1994, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS
No. 119"), which was effective for the financial statements of Piedmont for the
year ended December 31, 1994. SFAS No. 119 requires more complete disclosure
about the amounts, nature and terms of derivative financial instruments. Since
Piedmont currently holds no derivative financial instruments, the implementation
of SFAS No. 119 will not have an impact on the financial statements of Piedmont.

Long-Lived Assets--SFAS No. 121

In March 1995, the FASB issued SFAS No. 121, "Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"), which is
effective for years beginning after December 15, 1995. SFAS No. 121 requires
impairment of property, plant and equipment, identifiable intangibles and
goodwill to be considered whenever evidence suggests a lack of recoverability.
The implementation of SFAS No. 121 is not expected to have an effect on the
financial condition or results of operations of Piedmont.

EFFECTS OF INFLATION

The effects of inflation pose a significant factor in the development of
results of operations and financial condition of Piedmont. This is most apparent
in the areas of investments and loss reserves. As an example, when managing the
investment portfolio, steps are taken to minimize the effects of interest rate
risk when establishing the duration period for investment in fixed income
investments to best match the estimated payments of loss reserve liabilities.
Because the level of loss reserves is substantial relative to the financial
condition of Piedmont, methods utilized in setting the IBNR component of such
reserves provide for some uncertainty about future costs of claims.
Nevertheless, until claims are ultimately settled, the true inflationary effect
is unknown.

NAIC-IRIS RATIOS

The NAIC's Insurance Regulatory Information System ("IRIS") was developed by
a committee of state insurance regulators and is primarily intended to assist
state insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies operating in their respective states.
IRIS identifies 11 industry ratios and specifies "usual values" for each ratio.
Departure by an insurer from the usual values on four or more of the ratios
generally leads to inquiries from individual state insurance commissioners as to
certain aspects of such insurer's business. Departure from a usual value does
not necessarily indicate an adverse condition, but rather a deviation from the
norm.

For the year ended December 31, 1994, RECO fell outside the range of usual
IRIS values for two values, the Two Year Overall Operating Ratio and the
Estimated Current Reserve Deficiency to Surplus ratio. The unusual value for the
Two Year Overall Operating Ratio was primarily caused by property losses
associated with the Northridge earthquake in 1994. The unusual value for the
Estimated Current Reserve Deficiency to Surplus resulted from changes in RECO's
mix of business and an emphasis on writing shorter tailed business than was
previously underwritten.

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CHARTWELL

CONSOLIDATED RESULTS OF OPERATIONS

Nine Months Ended September 30, 1995 Compared With Nine Months Ended September
30, 1994

Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased 10.2% to $95.7 million for the 1995 period from $86.8
million in the 1994 period. The increase in gross premiums written was
attributable to premium growth on the underlying reinsured business, increased
participations on existing client treaties, and the establishment of new
programs and client relationships in all three of Chartwell's underwriting
segments. Specialty Accounts volume increased over 1994 levels due to the
expansion of relationships with existing clients and the addition of new
programs in the fidelity, surety and accident and health lines. International
business in Global Accounts has decreased slightly from 1994 levels, primarily
as a result of reduced writings in UK motor accounts as pricing became less
attractive. Regional Accounts volume has increased from 1994 levels primarily
due to expansion into the marine market, an increase in aviation premiums due to
increased rate levels on certain programs and expansion of existing business
relationships, an increase in and partially offset the non-renewal of a large
non-marine account that experienced deteriorating underwriting results.
Chartwell elected to non-renew such account at the expiring term since other
reinsurers did not support a rate increase. The distribution of Chartwell's
gross premiums written among its three underwriting client segments was as
follows (in millions):

NINE MONTH
PERIODS
ENDED
SEPTEMBER 30,
--------------
1995 1994
----- -----
Specialty................................................... $45.0 $39.9
Global...................................................... 29.9 31.9
Regional.................................................... 20.8 15.0
----- -----
$95.7 $86.8
----- -----
----- -----

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Net premiums written increased 9.0% to $92.4 million for 1995 from $84.8
million in 1994. Net premiums earned increased 18.1% to $87.4 million from $74.0
million in 1994. The increases in net premiums written and net premiums earned
were primarily attributable to the reasons noted above. The lower percentage
increase of premiums written compared to premiums earned is attributable to the
delayed effect on premiums earned of the higher percentage increase in premiums
written experienced in 1994. In 1994 premiums written increased 66.0% over 1993.

Net Investment Income and Net Realized Capital Gains (Losses). Net
investment income, exclusive of realized and unrealized capital gains and
losses, increased by 40.0% to $14.7 million in 1995 from $10.6 million for the
1994 period. The net investment income return (net investment income excluding
both realized and unrealized gains and losses) based on average invested assets
increased to 6.2% in 1995 from 5.3% in 1994. This increase was primarily due to
an increase in market interest rates in the second half of 1994. Cash and
invested assets increased to $313.1 million at September 30, 1995 as compared to
$275.1 million at December 31, 1994 and $270.2 million at September 30, 1994.
This increase is primarily attributable to the increase in net cash provided by
during the past twelve months, and Chartwell's acquisition of Drayton which
added $5.1 million to cash and invested assets at June 30, 1995.

Chartwell realized capital gains of $1.7 million in 1995 as compared to
capital losses of $3.8 million in 1994 primarily as a result of the decrease in
market interest rates in 1995 which caused the market values of bonds to
appreciate during the first nine months of 1995, thus providing opportunities to
reposition certain sectors of the portfolio while achieving capital gains.
Trading during the first nine months was executed principally to modify the
portfolio by sector and to capitalize on some opportunities to improve on credit
quality without sacrificing yield. The overall portfolio return (net investment
income plus realized capital gains or losses) based on average invested assets
increased to 7.0% in 1995 from 3.5% in 1994.

Other Income. Other income, primarily service revenue from Chartwell
Advisers, decreased to $0.8 million for 1995 from $1.2 million in 1994. The
service revenue for 1994 included certain one-time fees related to the start-up
of New London Capital plc.

Loss and Loss Adjustment Expenses. Losses and loss adjustment expenses
("LAE") incurred increased 10.8% to $63.7 million for 1995 from $57.5 million in
1994. This increase is primarily attributable to the increase in loss reserves
established as a result of the growth in earned premiums. Net losses and LAE
expressed as a percentage of net earned premiums (the loss and LAE ratio)
decreased to 72.9% for 1995 from 77.7% for the 1994 period. Net losses and LAE
for the first nine months of 1994 were increased by $5.1 million and the loss
and LAE ratio increased by 6.9 percentage points for the same nine months as a
result of the Northridge, California earthquake. Chartwell does not expect to
incur any a significant losses from either domestic or international
catastrophic activity occurring the date of this Prospectus.
However, since Chartwell's belief is based on preliminary information, no
assurance can be given that ultimate net losses will not be higher than
currently estimated.

Policy Acquisition Costs. Policy acquisition costs, primarily brokerage fees
paid to reinsurance intermediaries and commissions paid to ceding companies less
commissions received from retrocessionaires, increased 21.1% to $20.6 million
for 1995 from $17.0 million for the 1994 period. Expressed as a percentage of
net premiums earned, acquisition expenses increased to 23.6% in 1995 from 23.0%
for the 1994 period. The increase was due to an increase in the amount of pro
rata business written, which generally has a higher commission rate than excess
of loss business.

Other Expenses. Other expenses, which include underwriting and
administrative expenses, increased 3.4% to $7.8 million for 1995 from $7.6
million for the 1994 period. Expressed as a percentage of net premiums earned,
other expenses, excluding the expenses associated with Chartwell Advisers,
decreased to 8.1% in 1995 from 9.2% for the 1994 period. This decrease was

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primarily due to the higher growth in net premiums earned compared to a lower
increase in overhead expense.

Interest and Amortization. Interest and amortization increased by 2.6% to
$5.8 million in 1995 from $5.6 million in the 1994 period, although the
components differed. The 1995 expense amount includes $6.0 million of interest
and amortization on Chartwell's Senior Notes, partially offset by $0.3 million
of savings from an interest rate swap which was terminated during the second
quarter of 1995 cost free to Chartwell. The 1994 expense amount includes $0.9
million of interest and amortization on a senior term loan and certain
subordinated debentures which were outstanding prior to the Senior Notes
issuance on March 17, 1994, $4.3 million of interest and amortization on
Chartwell's Senior Notes, and a one-time cash conversion incentive payment of
$0.8 million associated with certain refinancing transactions completed
concurrently with Chartwell's issuance of the Senior Notes, as discussed under
"--Liquidity and Capital Resources" below (the Senior Note issuance and the use
of proceeds thereof and the foregoing transactions being herein collectively
referred to as the "1995 refinancing"), partially offset by $0.4 million of
savings from the interest rate swap.

Income Tax Expense (Benefit). The provision for Federal income taxes in 1995
increased to a $2.2 million expense compared with a $1.7 million benefit in
1994. The primary reason for the increase in 1995 compared with the same period
in 1994 was the increase in income before taxes discussed above. The effective
Federal tax rate was 32.1% for 1995 and 30.1% in 1994.

Net Income (Loss) Before Extraordinary Item. Results of operations before
extraordinary items increased to a profit of $4.5 million in 1995 from a loss of
$4.0 million in the 1994 period because of the factors discussed above.

Extraordinary Item, Net of Income Tax. Chartwell recognized a net after-tax
extraordinary expense of $0.5 million in 1994 for the write-off of unamortized
debt issuance costs resulting from Chartwell's 1994 refinancing.

Net Income (Loss). Chartwell realized a $4.5 million net profit in 1995
compared with a net loss of $4.5 million in the 1994 period because of the
factors discussed above.

Preferred Dividends and Accretion. Preferred dividends and accretion were
$1.1 million for the 1994 period. The amount for 1994 includes a 4% cash
conversion incentive payment of $0.8 million made to preferred stockholders
associated with Chartwell's 1994 refinancing. All of the preferred stock was
converted to common stock as part of the 1994 refinancing.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased 66.0% to $116.4 million in 1994 from $70.1 million in
1993. Net premiums written increased by 63.2% to $114.0 million in 1994 from
$69.8 million in 1993. This growth was due to significant increases in premiums
written by all client segments. Specialty Accounts increased 38.5% to $53.8
million from $38.9 million in 1993. Global Accounts increased 100.2% to $39.7
million from $19.8 million in 1993. Regional Accounts increased 100.0% to $22.9
million from $11.4 million in 1993. The growth in Specialty Accounts was
primarily the result of new accounts being underwritten by Chartwell and, to a
lesser extent, to increases in the size of Chartwell's participation on renewals
of certain existing accounts and increases in pricing on certain of Chartwell's
Specialty Accounts lines. Global Accounts grew in 1994 over the 1993 level
primarily as a result of substantial growth achieved in the international
marketplace, where rate levels showed strength. Regional Accounts growth was
primarily due to new programs written in 1994. Net premiums earned increased by
50.1% to $102.7 million in 1994 from $68.4 million in 1993. Net premiums earned
increased primarily due to the aforementioned increase in written premiums.

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Net Investment Income and Net Realized Capital Gains (Losses). Net
investment income, exclusive of realized and unrealized capital gains and
losses, increased by 34.4% to $14.8 million in 1994 from $11.0 million in 1993.
The net investment income return (net investment income excluding both realized
and unrealized gains and losses) on average invested assets increased to 5.7% in
1994 from 5.3% in 1993. This increase was primarily due to an increase in the
overall portfolio yield as a result of a higher interest rate environment in
1994. Realized capital losses of $3.8 million were incurred in 1994 compared to
realized capital gains of $6.4 million in 1993, primarily as a result of the
increase in market interest rates which caused the market values of bonds to
decline, thus providing fewer opportunities to sell bonds and achieve capital
gains. During 1994, Chartwell modified its investment policy to place more
emphasis on current yield without any sacrifice in credit quality.

Loss and Loss Adjustment Expenses. Net losses and LAE increased to $78.6
million in 1994 from $48.7 million in 1993. Net losses and LAE expressed as a
percentage of net earned premiums (the loss ratio) increased to 76.5% in 1994
from 71.2% in 1993. This increase was due to the January 17, 1994 Northridge,
California earthquake. As a result of that event, net losses and LAE for 1994
were increased by $5.5 million and the loss ratio was increased by 5.4
percentage points. The earthquake losses are based on information available at
the time reserves are being estimated and ultimate losses may be higher or
lower. There were no material property catastrophe events which affected the
1993 period.

Policy Acquisition Costs. Policy acquisition costs, primarily brokerage fees
paid to reinsurance intermediaries and commissions paid to ceding companies less
commissions received from retrocessionaires, increased 57.8% to $24.3 million in
1994 from $15.4 million in 1993. Expressed as a percentage of net premiums
earned, acquisition expenses increased to 23.7% for the year ended December 31,
1994 from 22.5% for the year ended December 31, 1993. The increase was due to an
increase during 1994 in the amount of pro rata business written, which generally
has a higher rate of commission than excess of loss business.

Other Expenses. Other expenses, which include underwriting and
administrative expenses, were $10.2 million in both 1994 and 1993. Other
expenses for 1994 include $1.1 million of salaries and expenses related to the
first full year of operation of Chartwell Advisers. Other expenses for 1993
include expenses of $2.0 million related to the preparation and filing of a
registration statement for the sale of Chartwell's Common Stock in an initial
public offering. The offering was subsequently withdrawn due to market
conditions. Exclusive of these expenses, other expenses increased by 10.1% in
1994 from 1993. Such increase was primarily due to an increase in salaries and
benefits for existing employees. Expressed as a percentage of earned premiums,
other expenses (excluding the two expenses referred to above) decreased to 8.8%
in 1994 from 12.0% in 1993.

Interest and Amortization. Interest and amortization increased 56.7% to $7.4
million in 1994 from $4.7 million in 1993. The increase is primarily due to the
issuance of the Senior Notes on March 17, 1994, a cash conversion incentive
payment of $0.8 million made to holders of the subordinated debentures upon
exercise of certain common stock warrants and the retirement of subordinated
debentures, all associated with Chartwell's 1994 refinancing.

Income Tax Expense (Benefit). Federal income taxes in 1994 were a benefit of
$1.7 million compared with an expense of $2.3 million in 1993. The effective
federal tax rate of 32.9% in 1994 is lower than the effective rate in 1993 of
33.5%. The largest factor for the decline was the one-time cash conversion
incentive payment to subordinated debentureholders in 1994 which produced no
income tax benefit.

Net Income (Loss) Before Extraordinary Item. Results of operations before
extraordinary item decreased to a loss of $3.4 million in 1994 from a profit of
$4.5 million in the 1993 period because of the factors discussed above.

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Extraordinary Item, Net of Income Tax. Chartwell recognized a net after-tax
extraordinary expense of $0.5 million in 1994 for the write-off of unamortized
debt issuance costs in connection with its refinancing.

Net Income (Loss). Chartwell realized a $3.9 million loss in 1994 compared
with net income of $4.5 million in the 1993 period because of the factors
discussed above.

Preferred Dividends and Accretion. Preferred dividends and accretion
decreased to $1.1 million for 1994 from $1.4 million in 1993. The amount for
1994 includes a 4% cash conversion incentive payment of $0.8 million made to
preferred stockholders in connection with Chartwell's 1994 refinancing. The 1994
dividends are only for the period through March 17, 1994, when the preferred
stock was converted to common stock, while the 1993 dividends were for the
entire year.

Year Ended December 31, 1993 Compared to Year Ended December 31, 1992

Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased 65.5% to $70.1 million in 1993 from $42.3 million in
1992. Net premiums written increased by 76.2% to $69.8 million in 1993 from
$39.6 million in 1992. This growth was principally due to an increase in
premiums written by Specialty Accounts to $38.9 million from $22.6 million in
1992, and the establishment of Regional Accounts in July 1992. The growth in
Specialty Accounts was primarily the result of new accounts being underwritten
by Chartwell and, to a lesser extent, to increases in the size of Chartwell's
participation on renewals of certain existing accounts and increases in pricing
on certain of Chartwell's Specialty Accounts lines. Net premiums earned
increased by 85.3% to $68.4 million in 1993 from $36.9 million in 1992. Net
premiums earned increased primarily due to the aforementioned increase in
written premiums. In addition, Chartwell ceded less earned premiums in 1993 with
respect to catastrophe coverages than in 1992 as a result of the cancellation of
approximately 100 assumed property catastrophe treaties, thereby reducing the
amount of catastrophe coverage purchased by Chartwell.

Net Investment Income and Net Realized Capital Gains (Losses). Net
investment income, exclusive of realized and unrealized capital gains and
losses, decreased by 2.2% to $11.0 million in 1993 from $11.2 million in 1992
primarily due to a decline in interest rates, offset in part by an increase in
invested assets. The net investment income return (net investment income
excluding both realized and unrealized capital gains and losses) based on
average invested assets decreased to 5.3% in 1993 from 6.7% in 1992. Realized
capital gains increased to $6.4 million in 1993 from $1.3 million in 1992
primarily as a result of the change in the interest rate environment as
discussed below.

Total return (the sum of net investment income and realized and unrealized
capital gains and losses) based on average invested assets increased 52.3% to
$18.7 million (including $1.3 million of unrealized capital gains) for 1993 from
$12.3 million (including $0.3 million of unrealized capital losses) for 1992
primarily due to a lower interest rate environment, which caused the market
value of the securities in Chartwell's investment portfolio to increase.

Loss and Loss Adjustment Expenses. Net loss and LAE increased to $48.7
million in 1993 from $44.1 million in 1992. Net losses and LAE expressed as a
percentage of net earned premiums (the loss ratio) decreased to 71.2% in 1993
from 119.4% in 1992. Net losses and LAE in 1992 were increased by $13.6 million
and the loss ratio was increased by 36.8 percentage points as a result of
Hurricanes Andrew and Iniki. In addition, in 1992 Chartwell's mix of assumed
business consisted of proportionately more excess of loss coverages which
generally have a higher loss ratio than pro rata coverages.

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ended December 31, 1993 from 20.8% for the year ended December 31, 1992. The
increase was due to an increase during 1993 in the amount of pro rata business
written, which generally has a higher rate of commission than excess of loss
business.

Other Expenses. Other expenses increased 25.5% to $10.2 million in 1993 from
$8.2 million in 1992. Other expenses for 1993 include expenses of $2.0 million
related to the preparation and filing of a registration statement for the sale
of Chartwell's common stock in an initial public offering. The offering was
subsequently withdrawn due to market conditions. Other expenses in 1992 include
a valuation allowance of $1.8 million which was established to reduce deposits
under certain reinsurance contracts to amounts that would be recoverable under
experience refund calculations consistent with the requirements of SFAS No. 113.
Exclusive of these two expenses, other expenses increased by 29.6% from 1992 to
1993. Such increase was primarily due to an increase in base salaries of
approximately 6% for existing employees, the addition of new personnel and an
increase in consulting expenses related to the development of a management
compensation program. Expressed as a percentage of earned premiums, other
expenses (excluding the two expenses referred to above) decreased to 12.0% in
1993 from 17.2% in 1992.

Interest and Amortization. Interest and amortization increased 31.1% to $4.7
million in 1993 from $3.6 million in 1992. The increase is primarily due to
interest on the subordinated debentures issued December 31, 1992 and
amortization of related debt issuance costs.

Income Tax Expense (Benefit). Federal income taxes increased to an expense
of $2.3 million in 1993 from a benefit of $4.7 million in 1992 because of the
improvement in 1993 results discussed above. The effective federal tax rate was
33.5% in both 1993 and 1992.

Net Income (Loss). Net income increased to a profit of $4.5 million in 1993
from a loss of $9.3 million in 1992 because of the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

As a holding company, Chartwell's assets consist primarily of the stock of
its subsidiary, Chartwell Reinsurance, and its cash flow depends largely on
dividends and tax sharing payments from Chartwell Reinsurance. Chartwell
Reinsurance's sources of funds consist primarily of net premiums, reinsurance
recoveries, investment income and proceeds from sales and redemptions of
investments. Funds are applied primarily to payments of claims, operating
expenses and income taxes and to the purchase of investments, largely fixed
income securities. Premiums are typically received in advance of related claim
payments. Cash and short-term investments are maintained for the payment of
claims and expenses.

Consolidated cash flow from operations was $21.4 million for the first nine
months of 1995 compared to consolidated cash flow from operations of $23.3
million in the 1994 period. The primary contributors to the positive cash flow
for the 1995 period were underwriting cash flow (i.e., premiums received less
paid losses and LAE and underwriting expenses) and investment income received.
For the years ended December 31, 1994, 1993 and 1992, Chartwell's consolidated
cash flow provided by operations was $30.2 million, $10.2 million and $8.5
million, respectively. The improvement in operating cash flow for 1994 was due
primarily to the increase in gross premiums written.

For the nine months ended September 30, 1995, the carrying value of
investments and cash increased by $38.0 million, or 13.8%, to $313.1 million at
September 30, 1995, from $275.1 million at December 31, 1994. At September 30,
1995 the aggregate market value of Chartwell's fixed income portfolio exceeded
the amortized cost of 258.8 million by $2.4 million pre-tax, compared with net
unrealized capital loss of $13.0 million pre-tax as of December 31, 1994.

Sales of investments were $209.2 million and $237.3 million for the nine
months ended September 30, 1995 and 1994, respectively. Much of the activity
that occurred in the 1994 period

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was due to changes in Chartwell's investment guidelines which called for a
repositioning of the portfolio into higher yielding securities as interest rates
trended upward, particularly at the short-end of the yield-curve. During this
period, Chartwell kept durations short and reduced its exposure to corporate
bonds by selling longer maturity corporate bonds in favor of shorter maturity
securities. Trading activity increased during the second and third quarters of
1995 primarily to modify the portfolio by sector and to capitalize on some
opportunities to improve on credit quality without sacrificing yield. During the
third quarter Chartwell invested a substantial portion of the cash and cash
equivalents it held at June 30, 1995, in intermediate term securities.

At December 31, 1994, the carrying value of total investments, including
cash and cash equivalents, increased by $55.4 million, or 25.2% to $275.1
million compared to $219.7 million at December 31, 1993. The primary reasons for
the increase were the net cash provided by operations of $30.2 million plus cash
provided by financing activities of $43.8 million (primarily the net proceeds of
the Senior Note offering of $71.9 million less debt repayment of $25.9 million).
These increases were partially offset by the decrease in the carrying value of
the securities in the investment portfolio as a result of realized and
unrealized losses of $17.9 million in 1994.

As indicated in the consolidated statements of cash flows, Chartwell sold
fixed income securities in the amount of $238.6 million, $354.4 million and
$247.6 million for the years ended December 31, 1994, 1993 and 1992,
respectively. The sales of investments in 1994 principally consisted of
dispositions of lower yielding securities in the early part of the year to
increase Chartwell's current yield, in accordance with Chartwell's current
investment strategy. The sales of investments in 1993 were primarily due to
Chartwell's former investment strategy to maximize total return.

As of September 30, 1995, over 99% of Chartwell's fixed maturity investments
were rated investment grade by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"). While uncertainties exist regarding
interest rates and inflation, Chartwell attempts to minimize such risks and
exposures by balancing the duration of reinsurance liabilities with the duration
of assets in its investment portfolio. The current market value of Chartwell's
fixed maturity investments is not necessarily indicative of their future
valuation. Chartwell does not have any investments in real estate or high-yield
bonds, and does not have any non-income producing investments.

Financing activities have also been a source of liquidity for Chartwell and
its subsidiaries. On December 31, 1992, Chartwell raised $41.2 million through
the private issuance to a group of U.S. and international investors of common
stock, preferred stock and subordinated debentures. Of the net proceeds, $21.4
million was contributed to the statutory surplus of Chartwell Reinsurance and
$7.5 million was used to reduce the outstanding balance under a senior term loan
incurred to finance the Acquisition.

On March 17, 1994, Chartwell completed the offering of $75.0 million
principal amount of the Senior Notes. Net proceeds of $71.9 million (after
transaction expenses) were received by Chartwell and were used as follows:

. $30.0 million was contributed to the statutory surplus of Chartwell
Reinsurance.

. $23.4 million was used to retire the remaining amount outstanding
under the senior term loan at par.

. $18.5 million, the remaining proceeds, was held by Chartwell for
working capital.

Concurrently with the Senior Notes offering, as part of the 1994
refinancing, (i) all outstanding shares of two series of Chartwell's preferred
stock were converted to common stock, (ii) all outstanding shares of the
remaining series of preferred stock were redeemed for a nominal consideration
and (iii) the holders of certain warrants issued in connection with Chartwell's

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subordinated debentures referred to above exercised their right to acquire
common stock and in connection therewith, all the outstanding subordinated
debentures were retired.

On May 17, 1995, Chartwell terminated an interest rate swap transaction it
had entered into in April 1994 with a notional amount of $37.5 million to hedge
the 10.25% fixed interest rate on the Senior Notes. The effect on the financial
statements of this swap was a reduction of interest expense of $0.2 million for
the nine months ended September 30, 1995 and $0.4 million for the same period in
1994.

Chartwell's primary uses of funds prior to the Senior Notes offering had
been to pay interest on its senior term loan and subordinated debentures,
dividends on preferred stock, and operating expenses and taxes. Chartwell's
aggregate payments of interest and dividends for the year ended December 31,
1993 were $4.2 million. Following the 1994 refinancing, the preferred stock was
no longer outstanding and Chartwell's only outstanding indebtedness was the
Senior Notes. Chartwell's current annual interest expense under the Senior Notes
is $7.7 million.

Chartwell has entered into a commitment letter with Shawmut Bank
Connecticut, N.A. with respect to the New Bank Facility. The New Bank Facility
provides for a $20.0 million credit facility ("Tranche A") and a separate $10.0
million revolving credit facility ("Tranche B"). Chartwell Holdings will borrow
up to the full amount under Tranche A as of the Effective Time and use the
proceeds to repay in full Piedmont's existing bank debt. Tranche B is not
expected to be drawn immediately but instead to be available for borrowing by
Chartwell or Chartwell Holdings at a later date. Tranche A has a seven year term
(subject to two one-year extensions) and requires equal annual repayments of
principal after the first year. Tranche B has a three year term and requires no
principal repayments until maturity. Both Tranches provide for interest at a
spread over LIBOR or the prime rate (at Chartwell's option) which varies based
on Chartwell Holdings' senior debt rating. Such spreads range from 0.75% to
1.75% over LIBOR and from 0.125% to 0.5% over the prime rate. The New Bank
Facility also provides for customary fees, covenants and events of default.

Upon the Merger, Chartwell will become the successor to Piedmont under the
CI Notes. The CI Notes do not require any interest payments until maturity or
earlier redemption or repurchase. Under certain circumstances, the CI Notes may
be settled by delivery of shares of common stock. See "DESCRIPTION OF CONTINGENT
INTEREST NOTES."

Chartwell may incur additional indebtedness in the future, subject to the
limitations contained in the Senior Notes Indenture, the agreements governing
the New Bank Facility and the CI Notes Indenture.

Chartwell is largely dependent upon receipt of dividends and other
statutorily permissible payments from Chartwell Reinsurance to meet its
obligations. Under the applicable provisions of the insurance holding company
laws of the State of Minnesota, Chartwell Reinsurance may, upon five days notice
to the Commissioner of the Minnesota Department of Commerce following the
declaration of dividends to stockholders, and upon at least ten days notice to
the Commissioner prior to dividend payments, pay dividends to Chartwell without
the approval of the Commissioner, unless such dividends, together with other
dividends paid within the preceding twelve months, exceed the greater of (i) 10%
of Chartwell Reinsurance's policyholder surplus as of the end of the prior
calendar year or (ii) Chartwell Reinsurance's statutory net income, excluding
realized capital gains, for the prior calendar year. Any dividend in excess of
the amount determined pursuant to the foregoing formula would be characterized
as an "extraordinary dividend" requiring the prior approval of the Commissioner.
In any case, the maximum amount of dividends Chartwell Reinsurance may pay is
limited to its earned surplus, also known as unassigned funds. As of December
31, 1994, Chartwell Reinsurance reported unassigned funds in the amount of $15.1
million. Under the foregoing formula, up to $8.1 million was available for the
payment of dividends by Chartwell Reinsurance without regulatory approval in
1994. Chartwell Reinsurance paid Chartwell no dividends in 1994 and an aggregate
of $0.4 million in dividends in 1993. Up to $11.2 million is available

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under the foregoing formula for the payment of dividends by Chartwell
Reinsurance without regulatory approval in 1995.

Under New York law, which is applicable to RECO, the maximum ordinary
dividend payable in any twelve month period without the approval of the
Superintendent of Insurance of the New York Insurance Department may not exceed
the lesser of (a) 10% of policyholders surplus as shown on the company's last
Annual Statement or any more recent quarterly statement or (b) the company's
adjusted net investment income. Adjusted net investment income is defined as net
investment income for the twelve months preceding the declaration of the
dividend plus the excess, if any, of net investment income over dividends
declared or distributed during the period commencing thirty-six months prior to
the declaration or distribution of the current dividend and ending twelve months
prior thereto. In any case, New York law permits the payment of an ordinary
dividend by an insurer or reinsurer only out of earned surplus. Moreover,
notwithstanding the receipt of any dividend from RECO, Chartwell Reinsurance may
only make dividend payments to Chartwell to the extent permitted under the
programs described above.

In addition to the foregoing limitation, the New York Insurance Department,
as a routine matter in any change of control situation, will generally require
the acquiring company to commit to not cause the acquired New York-domiciled
insurer to pay any ordinary dividends for two years after the change of control
without prior regulatory approval.

Management believes that current levels of cash flow from operations and
assets held at the holding company level provide Chartwell with sufficient
liquidity to meet its operating needs in the short term (over the next 12
months), including the payment of interest on the Senior Notes and the New Bank
Facility. Management expects Chartwell to be able to continue to meet its
operating needs after the next 12 months from internally generated funds. Since
the ability of Chartwell to meet its obligations in the long term (beyond such
12-month period) is dependent upon such factors as market changes, insurance
regulatory changes and economic conditions, no assurance can be given that the
available net cash flow will be sufficient to meet its operating needs.
Chartwell expects that, in order to repay the principal amount of the Senior
Notes on maturity or otherwise, it will be required to seek additional financing
or engage in asset sales or similar transactions, and would be required to take
similar actions in order to repay the CI Notes on maturity or otherwise, in the
event it chose or was required to settle the CI Notes in cash rather than common
stock. There can be no assurance that sufficient funds for any of the foregoing
purposes would be available to Chartwell at such time.

ACCOUNTING STANDARDS

Derivative Financial Instruments--SFAS No. 119

In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments," which was effective for the financial statements of
Chartwell for the year ended December 31, 1994. SFAS No. 119 requires more
complete disclosure about the amounts, nature and terms of derivative financial
instruments. For entities that hold derivative financial instruments for
purposes other than trading, it requires disclosures about those purposes and
about how the instruments are reported in the financial statements. If a purpose
for holding the derivative financial instrument is to hedge

64
<PAGE>

anticipated transactions, SFAS No. 119 requires disclosure about the anticipated
transactions, any hedging gain or loss deferred and the transactions or other
events that result in the recognition of the deferred amounts.

At December 31, 1994, the only derivative financial instrument held by
Chartwell was an interest rate swap agreement entered into with Salomon Brothers
Holding Company for other than trading purposes to convert a portion of its
10.25% fixed rate Senior Notes to a floating rate based on the six-month London
Interbank Offering Rate (LIBOR). Such agreement was terminated on May 17, 1995.
For further information, see note 4 to the consolidated financial statements of
Chartwell included elsewhere herein.

Long-Lived Assets--SFAS No. 121

In March 1995, the FASB issued SFAS No. 121, "Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which is effective for
years beginning after December 15, 1995. SFAS 121 requires impairment of
property, plant and equipment, identifiable intangibles and goodwill to be
considered whenever evidence suggests a lack of recoverability. The
implementation of SFAS No. 121 is not expected to have an effect on the
financial condition or results of operations of Chartwell.

REGULATORY ACCOUNTING PRACTICES

Management does not believe that current accounting changes being
contemplated by regulatory authorities, if implemented, would have a significant
effect on the operations or liquidity of Chartwell.

EFFECTS OF INFLATION

The effects of inflation on Chartwell are considered in pricing and
estimating reserves for unpaid losses and loss adjustment expenses. The actual
effects of inflation on Chartwell's results cannot be accurately determined
until ultimate losses are settled. However, based on the actual results reported
to date, management believes that premium rates and loss reserves, including
reserves for losses that have been incurred but not reported, adequately
incorporate the effects of inflation. See "CHARTWELL RE
CORPORATION--Business--Reserves."

NAIC-IRIS RATIOS

The NAIC's Insurance Regulatory Information System was developed by a
committee of state insurance regulators and is primarily intended to assist
state insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies operating in their respective states.
IRIS identifies 11 industry ratios and specifies "usual values" for each ratio.
Departure by an insurer from the usual values on four or more of the ratios
generally leads to inquiries from individual state insurance commissioners as to
certain aspects of such insurer's business. Departure from a usual value does
not necessarily indicate an adverse condition, but rather a deviation from the
norm.

For the year ended December 31, 1994, Chartwell Reinsurance fell outside the
range of usual IRIS values with respect to the values for Changes in Writings
and the Estimated Current Reserve Deficiency to Surplus ratio. Both of these
unusual values resulted from the increase in net written premiums.

Significantly, for the year ended December 31, 1994, Chartwell Reinsurance's
IRIS ratios for one-and two-year reserve development to surplus ratios were well
within the NAIC's usual range.

65
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.

BUSINESS
HISTORY

Piedmont was incorporated in Delaware in March, 1968 as a business
corporation offering financial services through the operations of its
subsidiaries. In July of that year it acquired all of the capital stock of RECO
and in February, 1969 it acquired substantially all of the capital stock of
Lexington Research and Management Corporation, which was merged into LMC. Today,
Piedmont continues to operate chiefly through these two subsidiaries, RECO and
LMC, in the fields of property and casualty insurance and reinsurance, asset
management and investment counseling. Piedmont oversees the operations of these
subsidiaries and provides them with capital, management and administrative
services.

Piedmont and RECO are subject to the insurance holding company laws of New
York and other states in which they do business. These laws require registration
and the furnishing of periodic information concerning the operations of
companies within the holding company system which may materially affect the
operations, management or financial condition of the registered insurers within
the system. Notice to state insurance departments is required prior to the
consummation of certain material transactions between a registered insurer and
any person in its holding company system and, in addition, certain of such
material transactions cannot be consummated without prior state approval. These
requirements are intended to protect the interests of policyholders, not the
interests of stockholders.

At September 30, 1995, Piedmont owned 49% of the outstanding capital stock
of Inter-Reco, a general insurance agency, and was a limited partner in a
general insurance agency, FIU. Further, RECO owns 48% of the voting capital
stock of CNC, the parent of Continental National Indemnity Company ("CNI"),
based in Cincinnati, Ohio. CNI underwrites a specialized book of trucking
insurance and other commercial casualty business. RECO also owns 100% of the
capital stock of ReCor Insurance Company Inc. ("ReCor"). ReCor is currently
inactive but is licensed to underwrite business in various states.

Because the Lexington operations will not be included in the Merger, they
are not described in the remainder of this section. For further information
about these operations, see the Preliminary Information Statement with respect
to Lexington and the Spin-off which has been mailed to Piedmont stockholders
together with this Prospectus.

REINSURANCE OPERATIONS

Founded in 1936, RECO is one of the oldest reinsurance companies in the
United States. It is licensed to underwrite business in all states except Maine
and Hawaii and is an approved surety for bonds and undertakings required for
United States government contracts. It is also qualified to underwrite business
in all U.S. Possessions as well as in Canada where it maintains a resident agent
who represents RECO.

REINSURANCE BUSINESS

66
<PAGE>
As part of its reinsurance business, RECO maintains underwriting
participations in several pools that insure a variety of industrial, marine and
aviation risks. The pool contributing the largest amount of net premiums written
to RECO, the Somerset Marine Pool, insures the hulls of ships owned by
international shipping lines and is the foremost insurer of many of the world's
passenger fleets. The Somerset Aviation Pool deals with aircraft manufacturers
and commercial general aviation. In addition, RECO is one of the founding
members of Industrial Risk Insurers, a facility established in the 1950's to
insure high value industrial risks.

DIRECT INSURANCE BUSINESS

In recent years, RECO has sought to identify market opportunities and has
developed a book of "controlled source" direct insurance business. Through the
production facilities of two Piedmont affiliated companies, FIU and Inter-Reco,
as well as an insurance agency affiliated with CNI, RECO has served as an
issuing company for selected lines of property and casualty insurance. The
companies producing the business do so in accordance with strict guidelines
established by RECO. RECO underwriting staff reviews all coverages bound by the
agencies and claims administration is monitored between the agencies and RECO.
In 1994 direct business accounted for 13% of RECO's net premiums written.

UNDERWRITING RESULTS

The following tables set forth for the periods indicated RECO's net premiums
written, its net premiums earned and its combined ratios determined on a GAAP
basis. The combined loss and expense ratio, expressed as a percentage, is a
standard measure of underwriting results commonly used in the property and
casualty industry. It is arrived at by taking the sum of the ratio of net losses
and loss expenses incurred to net premiums earned plus the ratio of net
underwriting expenses to net premiums earned. A combined ratio under 100%
indicates an underwriting profit; a combined ratio over 100% indicates an
underwriting loss.

67
<PAGE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------------------- -----------------------------------------------------------------
1995 1994 1994 1993 1992 1991
--------------- ---------------- ---------------- ---------------- ---------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET PREMIUMS WRITTEN:
Treaty
Property............... $23,333 24.4% $ 29,792 29.7% $ 44,910 31.6% $ 27,284 24.3% $ 25,996 22.5% $ 33,147
Casualty............... 30,383 31.8 27,287 27.2 37,429 26.4 31,542 28.1 46,591 40.4 35,350
Facultative
Property............... 3,057 3.2 3,613 3.6 4,749 3.3 6,352 5.7 4,471 3.9 5,047
Casualty............... 2,155 2.3 882 .9 2,095 1.5 2,474 2.2 2,947 2.6 4,106
Surety.................. 4,018 4.2 3,056 3.1 4,750 3.3 6,310 5.6 13,538 11.7 11,417
Pools................... 18,721 19.6 22,045 22.0 29,236 20.6 27,017 24.1 16,778 14.6 11,753
Direct.................. 13,799 14.5 13,488 13.5 18,866 13.3 11,261 10.0 5,025 4.3 4,014
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- --------
All Classes......... $95,466 100.0% $100,163 100.0% $142,035 100.0% $112,240 100.0% $115,346 100.0% $104,834
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- --------
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- --------
NET PREMIUMS EARNED:
TREATY
Property............. $21,599 23.2% $ 23,113 25.8% $ 37,593 29.1% $ 27,169 23.9% $ 27,582 23.6% $ 33,729
Casualty............. 29,265 31.5 26,443 29.5 36,414 28.2 36,168 31.8 47,897 40.9 23,559
Facultative
Property............. 3,435 3.7 4,024 4.5 5,452 4.2 6,241 5.5 4,418 3.8 4,640
Casualty............. 2,282 2.5 1,189 1.3 2,206 1.7 2,348 2.1 3,154 2.7 4,562
Surety.................. 3,832 4.1 3,982 4.4 5,435 4.2 8,457 7.4 13,506 11.5 11,918
Pools................... 19,603 21.1 20,242 22.6 27,165 21.0 25,779 22.7 15,921 13.6 11,779
Direct.................. 12,975 13.9 10,752 11.9 15,107 11.6 7,542 6.6 4,511 3.9 3,274
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- --------
All Classes............. $92,991 100.0% $ 89,745 100.0% $129,372 100.0% $113,704 100.0% $116,989 100.0% $ 93,461
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- --------
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- --------
RECO GAAP
COMBINED RATIOS:
Treaty
Property............... 110.7% 133.7% 123.1% 94.0% 156.8%
Casualty............... 224.2 126.3 124.3 137.0 131.0
Facultative
Property............... 165.1 199.4 193.8 122.2 151.6
Casualty............... 1.7 (67.8) (34.1) 108.1 154.8
Surety.................. 66.3 55.8 27.1 63.0 97.7
Pools................... 132.6 138.2 145.1 100.1 110.0
Direct.................. 96.1 105.2 101.1 96.7 108.5
All Classes............. 146.5% 125.9% 121.8% 109.5% 131.0%

1990
----------------
<S> <C> <C> <C>
NET PREMIUMS WRITTEN:
Treaty
Property............... 31.6% $ 35,379 43.0%
Casualty............... 33.7 11,651 14.2
Facultative
Property............... 4.8 3,149 3.8
Casualty............... 3.9 6,716 8.2
Surety.................. 10.9 13,173 16.0
Pools................... 11.2 9,641 11.7
Direct.................. 3.9 2,570 3.1
----- -------- -----
All Classes......... 100.0% $ 82,279 100.0%
----- -------- -----
----- -------- -----
NET PREMIUMS EARNED:
TREATY
Property............. 36.1% $ 37,458 43.4%
Casualty............. 25.2 13,430 15.5
Facultative
Property............. 5.0 3,325 3.9
Casualty............. 4.9 6,686 7.7
Surety.................. 12.7 14,811 17.1
Pools................... 12.6 9,725 11.3
Direct.................. 3.5 982 1.1
----- -------- -----
All Classes............. 100.0% $ 86,417 100.0%
----- -------- -----
----- -------- -----
RECO GAAP
COMBINED RATIOS:
Treaty
Property............... 128.8% 114.4%
Casualty............... 145.8 179.3
Facultative
Property............... 148.2 121.2
Casualty............... 179.7 154.6
Surety.................. 92.7 61.8
Pools................... 103.1 120.4
Direct.................. 129.6 163.9
All Classes............. 128.5% 119.8%
</TABLE>

<PAGE>

Piedmont's underwriting results in recent years have been influenced by the
cyclical trends of the insurance and reinsurance industry as well as other
volatile developments such as increases in the amounts of adjudicated liability
awards and natural disasters (including hurricanes, storms and earthquakes).
Against this backdrop, Piedmont management's underwriting strategy has been to
focus RECO's book of business on those lines experiencing more favorable
conditions while shifting from segments with unfavorable rates or prone to a
higher degree of catastrophe risk.

Catastrophe losses have had significant negative effects on results for
treaty and facultative property business and business assumed from pools. In
1991, 1992 and 1994, losses from major catastrophes (including, among others,
the Oakland, California fires, Hurricane Andrew and the Northridge, California
earthquake) totalled $4.6 million, $12.0 million and $14.9 million,
respectively. The major catastrophes added 4.9, 10.3 and 11.5 points to the
total combined ratios for 1991, 1992 and 1994, respectively. During the third
quarter of 1995 property results were negatively impacted by losses from
Hurricanes Luis and Marilyn, which in the aggregate totalled $1.4 million, 1.5
points of the total combined ratio for the nine months of 1995.

In recent years, RECO has emphasized shorter tail casualty business,
focusing on non-standard auto and trucking liability lines. Accordingly, there
has been growth in treaty casualty earned premiums. On a calendar year reported
basis, this growth has provided an improvement in combined ratios for treaty
casualty business written in more recent years, when compared with the results
of casualty and multi-line excess of loss business written in 1985 and prior
years, for which losses are still reported against no new or renewal premium
base.

Included in the underwriting results for treaty casualty business for the
nine months of 1995 is a $25.0 million net strengthening in reserves for losses
incurred but not reported with respect to business written in prior years. This
reserve strengthening was agreed to in the Merger Agreement and was based on a
reevaluation of RECO's business, particularly environmental and other latent
injury claims and other long-tail casualty exposures. Such increase reflects the
utilization of factors that are consistent with recent trends in the property
and casualty insurance industry where a number of companies have increased loss
reserves for these types of exposures in light of continued adverse development
and as additional information becomes known.

Premium volume for facultative casualty business has declined in every year
since 1990, as RECO has begun to selectively underwrite this business in recent
years. A similar trend has developed in the surety class of business. Loss
experience trends in these lines have been favorable in recent years.

In recent years RECO has begun to develop a "controlled source" book of
direct insurance business. This business consists of seasoned books of specialty
insurance business, developed by general agents in which, in certain instances,
Piedmont is an equity investor. Underwriting results for this business have been
relatively stable.

Underwriting results for business assumed from pools as mentioned above
reflect significant losses from catastrophes, including Hurricane Andrew in 1992
and the Northridge earthquake in 1994. In addition, in 1994 there were several
major aviation losses incurred. The 1995 results thus far reflect two large fire
losses totalling $3.9 million and additional aviation losses.

LOSS RESERVING

RECO establishes loss and loss expense reserves to provide for the ultimate
cost of settlement and administration of losses, including an estimate for
losses that the ceding insurer has incurred but not yet reported to RECO.

69
<PAGE>
RECO establishes reserves for reported losses upon notice of the loss from
the ceding insurer. The reserves can equal or exceed the amount recommended by
the ceding insurer. RECO also makes its own reserve determination for ongoing
treaty excess of loss, facultative and direct business and considers such
factors as the type of risk, the circumstances surrounding the loss, the
severity of the damage, the potential for ultimate exposure, RECO's experience
with the ceding insurer, the line of business and the terms of the reinsurance
agreement. RECO continually reviews the adequacy of its reserves.

RECO establishes IBNR reserves to adjust for the lag between the time the
loss is incurred and the time the loss is reported to RECO and to reflect
potential adverse developments relating to reported but unpaid losses. The IBNR
reserves are an estimate of ultimate losses incurred but not yet reported based
on historical loss development. Such estimates reflect potential unusual and
large losses that may have an impact on the IBNR reserves, emerging loss
development patterns for both paid and incurred losses, earned premiums and
expected ultimate loss ratios, the current litigious environment, the regulatory
outlook and economic conditions.

Loss reserves are only estimates of what the insurer or reinsurer expects to
pay on claims based on known facts and circumstances, and it is possible that
the ultimate liability may exceed or be less than such estimates. Such estimates
are based, among other things, on predictions of events and estimates of future
trends in claims severity and frequency. During the loss settlement period,
which in some cases may last several years, additional facts regarding
individual claims may become known and require RECO to increase or enable it to
decrease the estimate of liability on a claim. Even then, the ultimate liability
may exceed or be less than the revised estimates. The reserving process is
intended to provide implicit recognition of the impact of inflation and other
factors affecting loss payments by taking into account changes in historical
payment patterns and perceived probable trends. There is generally no precise
method to evaluate the impact of any specific factor because the eventual
deficiency or redundancy of reserves is affected by many interdependent factors.

Several generally accepted actuarial methods are considered in arriving at
estimated losses for long tail liability lines. These methods consider loss
trend factors in order to reflect growth in losses from one accident year to the
next. Two methods employed by RECO are (1) the incurred loss development method
and (2) the Bornhuetter/Ferguson incurred loss and selected loss ratio method.
Using the incurred loss development method, ultimate losses are estimated by
calculating past incurred loss development factors and applying them to exposure
periods with further expected incurred loss development. The
Bornhuetter/Ferguson incurred loss and selected loss ratio method is a
combination of the incurred loss development method and a loss ratio method. The
amount of losses yet to be incurred is based on expected loss ratios. These
expected loss ratios are modified, however, to the extent incurred losses to
date differ from what would have been expected based on the selected incurred
loss development.

The following table includes a reconciliation of the changes in the net
reserves for outstanding losses and loss expenses, including net paid losses and
loss expenses, for each year in the three year period ended December 31, 1994.
The reserves are also adjusted each year to reflect revised estimates of
ultimate liability. The effect of such adjustments is reflected in each year's
operating results.

70
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
-------- -------- --------
(000 OMITTED)
<S> <C> <C> <C>
Gross reserves for outstanding losses and loss
expenses at January 1.............................. $433,810 $447,767 $391,202
Ceded reserves for outstanding losses and loss
expenses........................................... (138,077) (149,937) (106,756)
-------- -------- --------
Net reserves for outstanding losses and loss expenses
at January 1....................................... 295,733 297,830 284,446
Net losses and loss expenses incurred:
related to current year............................ 104,590 76,265 93,750
related to prior years............................. 9,135 12,544 13,797
-------- -------- --------
Total net losses and loss expenses incurred...... 113,725 88,809 107,547
-------- -------- --------
Net paid losses and loss expenses:
related to current year............................ (41,198) (33,705) (43,591)
related to prior years............................. (66,751) (57,201) (50,572)
-------- -------- --------
Total net paid losses and loss expenses.......... (107,949) (90,906) (94,163)
-------- -------- --------
Reserves for net outstanding losses and loss expenses
at December 31..................................... $301,509 $295,733 $297,830
-------- -------- --------
-------- -------- --------
</TABLE>

The next table summarizes RECO's reserves net of associated reinsurance
recoverables for outstanding losses and loss expenses as originally estimated at
December 31, for the years 1984 through 1993; gross reserves for 1992 and 1993
and the development of those losses and loss expenses with respect to subsequent
payments and revisions of the original reserve estimates. The amounts included
in the table have been determined in accordance with GAAP, but do not differ
from the amounts recorded on a statutory basis.

"Reserves for net outstanding losses and loss expenses" reflects the
reserves at December 31 for each of the indicated years and represents the
estimated amount of losses and loss expenses established in each such year and
all prior years that are unpaid at December 31.

The table also includes the "cumulative amount paid" with respect to the
previously recorded liability as of the end of each subsequent year. For
example, as of December 31, 1994, payments of $108 million have been made
against the reestimated $245 million of reserves carried on December 31, 1988.
Therefore, on the basis of reserves as estimated at the end of 1994,
approximately $137 million of losses incurred through 1988 remained to be paid
at the end of 1994.

The "reestimated liability" section of the table reflects reestimates of
previously recorded reserves based on loss experience as of the end of each
succeeding year. As additional information becomes available about the frequency
and severity of losses for individual years, the reserve estimates are revised.
Revisions to the estimated reserve amounts are reflected in each year's results
of operations. The "cumulative deficiency" line of the table reflects the
aggregate revisions to reserve estimates during all prior years, such that a
loss development in one year affects the reserves of each subsequent year from
the date the loss was first recorded until the loss is paid.

Information with respect to the cumulative development of gross reserves as
of December 31, 1992 and 1993 also appears at the bottom portion of the table.

Conditions and trends that have affected the development of liabilities in
the past will not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future loss development based on the table.

71
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
- ------------------------ --------- --------- -------- -------- -------- -------- -------- -------- -------- --------
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for net
outstanding losses and
loss expenses on
December 31.......... $ 63,290 $ 82,956 $118,418 $161,306 $193,216 $248,144 $255,483 $284,446 $297,830 $295,733
Cumulative amount paid
as of:
One year later......... 31,110 34,416 37,646 39,422 32,422 47,286 45,279 50,572 57,201 66,751
Two years later........ 50,056 53,799 62,942 54,698 57,388 77,876 76,105 82,350 94,696
Three years later...... 62,560 72,472 64,725 76,311 76,755 97,865 97,328 108,589
Four years later....... 76,600 67,063 75,864 83,642 86,927 113,926 118,010
Five years later....... 66,760 74,894 87,241 89,216 95,064 131,690
Six years later........ 72,974 84,403 89,935 93,786 107,613
Seven years later...... 80,615 85,453 91,989 104,515
Eight years later...... 80,687 85,919 101,552
Nine years later....... 80,624 94,992
Ten years later........ 89,385
Reestimated liability as
of:
One year later......... 77,317 92,108 123,559 166,736 209,302 255,692 261,283 298,243 310,374 304,868
Two years later........ 84,753 100,871 137,849 180,122 212,085 263,221 274,439 308,621 313,468
Three years later...... 93,312 118,194 156,120 188,210 218,219 274,007 285,290 315,948
Four years later....... 107,828 135,780 164,527 196,496 226,239 283,708 292,513
Five years later....... 124,895 145,046 176,685 206,138 235,214 292,939
Six years later........ 133,827 158,010 187,305 214,327 245,092
Seven years later...... 144,792 170,420 196,158 224,557
Eight years later...... 157,534 178,975 207,718
Nine years later....... 166,883 191,331
Ten years later........ 178,884

Net Cumulative
Deficiency:........... $(115,594) $(108,375) $(89,300) $(63,251) $(51,876) $(44,795) $(37,030) $(31,502) $(15,638) $ (9,135)

<CAPTION>
YEAR ENDED 1994
- ------------------------ --------
<S> <C>
Reserves for net
outstanding losses and
loss expenses on
December 31............ $301,509
Cumulative amount paid
as of:
One year later.........
Two years later........
Three years later......
Four years later.......
Five years later.......
Six years later........
Seven years later......
Eight years later......
Nine years later.......
Ten years later........
Reestimated liability as
of:
One year later.........
Two years later........
Three years later......
Four years later.......
Five years later.......
Six years later........
Seven years later......
Eight years later......
Nine years later.......
Ten years later........
Net Cumulative
Deficiency:.............
</TABLE>

<TABLE>
<S> <C> <C> <C>
Gross reserves for outstanding losses and loss expenses on December 31....... $447,767 $433,810 $461,534
Reinsurance recoverable...................................................... (149,937) (138,077) (160,025)
-------- -------- --------
Net reserves on December 31................................................. 297,830 295,733 $301,509
Gross reestimated liability one year later................................... 495,724 474,600
Reestimated recoverable one year later....................................... (185,350) (169,732)
-------- --------
Net reestimated liability one year later.................................... 310,374 304,868
Gross reestimated liability two years later.................................. 509,680
Reestimated recoverable two years later...................................... (196,212)
--------
Net reestimated liability two years later................................... 313,468
Gross cumulative deficiency.................................................. $(61,913) $(40,790)
</TABLE>

At December 31, 1994 the cumulative deficiency was $15.6 million, or 5% of
the then carried reserves for 1992 and prior years, compared to $9.1 million, or
3% of the reserves carried for 1993 and prior years. A significant portion of
the cumulative deficiency relates to casualty excess treaty and multi-line
excess business written in years 1985 and prior. The decrease in the cumulative
deficiency resulted, in part, from the following: (1) multi-line excess business
losses reported for 1994 declined from 1993; (ii) during 1994, RECO commuted
losses on some casualty excess treaties resulting in a savings in the reserves
previously established under those treaties; and (iii) generally favorable
experience on casualty facultative and surety business. In recent years, RECO
has concentrated on property reinsurance, non-standard auto liability
reinsurance and, in recent years, the development of a primary book of insurance
business. Included in this business are "main street" property and liability
lines, habitational risk and trucking liability lines. The loss reserves on
these classes of business have been relatively stable.

A cumulative deficiency of $40.8 million has developed with respect to 1993
and prior years' gross loss reserves. This represents 9.4% of the gross reserves
carried for the years 1993 and prior. As explained above, a significant portion
of the net deficiency relates to casualty treaty excess and multi-line excess
business written in 1985 and prior years. A significant amount of this business
is subject to reinsurance, accounting for the $31.7 million difference between
gross and net deficiencies. The company believes that this reinsurance
recoverable is collectible, although no assurance can be given that changes in
circumstances or other factors will not affect RECO's ability to collect in
full.

72
<PAGE>
RECO continues to receive claims for losses asserting injury from asbestos,
toxic waste and other environmental pollutants. These claims fall within the
periods prior to 1985 before the standard exclusionary clauses for such injuries
were written into policy forms. The company's ultimate liability for these
claims is extremely difficult to estimate and does not lend itself to
traditional actuarial reserving techniques.

Environmental claims are particularly challenging to a reinsurance company.
Such claims involve underlying coverage disputes between the insured party and
its insurer; substantial legal defense costs; questions as to occurrences and
aggregation of claims and "late notice" issues. Environmental liability suits
often contain multiple party and multiple site actions that result in varied
adjudications among insureds and their insurers. Such a complex setting forces
the parties to find a reasonable basis for settling the claims. These widely
varying settlements involving primary insurers force challenges upon the
reinsurer with respect to the extent to which they should follow the settlements
of their ceding companies.

The following table presents a two-year development of RECO's reserves for
losses and LAE associated with environmental and other latent injury claims. All
of the development relates to prior years.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993
------------------ ------------------
GROSS NET GROSS NET
------- ------- ------- -------
(000 OMITTED) (000 OMITTED)
<S> <C> <C> <C> <C>
Liability, beginning of year........................ $28,000 $22,900 $24,000 $18,700
Incurred during the year............................ 13,000 5,800 6,700 6,000
Less amount paid during the year.................... 5,500 3,500 2,800 1,800
------- ------- ------- -------
Liability end of year............................... $35,500 $25,200 $28,000 $22,900
------- ------- ------- -------
Gross or net deficiency for year.................... $13,000 $ 5,800 $ 6,700 $ 6,000
------- ------- ------- -------
------- ------- ------- -------
</TABLE>

73
<PAGE>

RETROCESSIONAL ARRANGEMENTS

The following table sets forth, as of December 31, 1994, reinsurance
recoverable on outstanding losses and LAE from any single entity of $1.0 million
or more and the written premiums ceded to such entity in 1994:

<TABLE>
<CAPTION>
RATING REINSURANCE CEDED PREMIUMS
REINSURER A.M. BEST(1) RECOVERABLE WRITTEN
- --------------------------------------------------- ------------- ----------- --------------
<S> <C> <C> <C>
(IN MILLIONS)
European International Reinsurance Company
Limited.......................................... A $ 14.0 $ 0.0
Navigators Insurance Company....................... A 13.3 8.2
Lloyd's Underwriters............................... NA-4 10.7 5.6
Continental National Indemnity Company............. A- 9.7 4.6
Somerset Insurance Limited......................... * 6.2 5.2
Cigna Property & Casualty Insurance Company........ A- 4.8 0.0
Government Insurance Office of New South Wales..... * 4.6 1.2
SCOR Reinsurance Company........................... A 4.3 1.4
Skandia America Reinsurance Corporation............ A- 4.1 0.2
American Re-Insurance Company...................... A+ 3.1 8.4
Dorinco Reinsurance Company........................ A 2.6 1.0
Continental Casualty Company....................... A 2.1 0.8
New England Reinsurance Corporation................ NA-4 2.0 0.2
Northwestern National Insurance Company............ NA-4 1.7 0.0
Pennsylvania Manufacturers' Association Insurance
Company.......................................... A 1.7 0.1
Frankona Reinsurance Company....................... A 1.6 2.3
Nationwide Property & Casualty Insurance Company... A+ 1.5 0.5
Reliance Insurance Company......................... A- 1.5 0.7
Transatlantic Reinsurance Company.................. A+ 1.5 2.5
The Mercantile & General Reinsurance Company of
America.......................................... A- 1.3 0.5
Prudential Reinsurance Company..................... A 1.2 0.4
Christiania General Insurance Corporation of New
York............................................. A 1.1 0.6
Constitution Reinsurance Corporation............... A+ 1.1 1.6
Homestead Insurance Company........................ A- 1.1 0.5
Employers Insurance of Wausau...................... A+ 1.1 0.0
Shelter Mutual Insurance Company................... A+ 1.1 1.5
The General Star National Insurance Company........ A++ 1.0 0.0
Gerling Global Reinsurance Corporation............. A- 1.0 2.8
Allendale Mutual Insurance Company................. A++ 1.0 0.0
Re Capital Reinsurance Corporation................. A 1.0 0.0
All Other(2)....................................... 57.0 39.0
----------- ------
TOTAL.......................................... $ 160.0 $ 89.8
----------- ------
----------- ------
</TABLE>

- ------------

* Company has not been rated by A.M. Best. A.M. Best's ability to evaluate an
insurer (especially an alien insurer) is limited by several factors including
availability of financial information, inconsistent data caused by the
application of different accounting principles in insurers' countries of
domicile, and A.M. Best's own selection criteria for deciding what insurers it
wishes to evaluate.

(1) Ratings displayed in this column were obtained from the 1995 editions of
Bests Insurance Reports-United States and Bests Insurance
Reports-International. Generally, A.M. Best assigns

(Footnotes on following page)

<PAGE>

(Footnotes continued from preceding page)

ratings to insurance companies after performing qualitative and quantitative
evaluations of the factors it believes affect the overall performance of
such companies. A rating reflects the opinion of A.M. Best as to an
insurer's financial strength, operating performance and ability to meet its
obligations to policyholders.

The A.M. Best ratings presented in the table have been defined by A.M. Best as
follows: A++ AND A+ (SUPERIOR)

Assigned to companies which have demonstrated superior overall performance when
compared to the standards established by A.M. Best. A++ and A+ companies have
a very strong ability to meet their obligations to policyholders over a long
period of time.

A AND A- (EXCELLENT)

Assigned to companies which have demonstrated excellent overall performance when
compared to the standards established by A.M. Best. A and A- companies have a
strong ability to meet their obligations to policyholders over a long period
of time.

NA-4 (RATING PROCEDURE INAPPLICABLE)

Assigned to companies whose business and/or operations are such that Best's
normal rating procedure does not properly apply.

(2) The remaining reinsurers aggregated in the "All Other" category are
individually immaterial since no single reinsurer's recoverable on
outstanding losses and LAE represented more than $0.8 million at December
31, 1994.

Generally, reinsurance recoverable related to contracts with reinsurers not
authorized to conduct insurance business in the State of New York, must be
collateralized in order for RECO to receive credit for such reinsurance
recoverable in filings made with state insurance regulatory authorities.
Collateral can be in many forms, including but not limited to cash, marketable
securities and letters of credit.

At December 31, 1994, 32% of reinsurance recoverable on outstanding losses
and LAE was recoverable from unauthorized reinsurers, and RECO, in the normal
course of business, obtained collateral for a large majority of such balances.

REGULATION

Both Piedmont and RECO are subject to regulation under the insurance
statutes of the jurisdictions in the United States and Canada in which RECO
operates. Such statutes are intended to protect the interests of an insurance
company's policyholders and not its stockholders. The scope of such regulations
varies, but for RECO generally includes capital and surplus requirements,
licensing, limitations on investments, restrictions on the payment of dividends
to stockholders, leverage limitations, deposits of securities or qualifying
bonds, periodic audits, and filing of financial reports.

Certain types of material transactions, such as change of control, are
subject to prior regulatory approval. An investor who acquires more than ten
percent of the outstanding shares of common stock of Piedmont could become
subject to state insurance regulation and could be required to file certain
notices and reports with and obtain the approval of certain state regulatory
agencies prior to such acquisition.

The New York State Insurance Department, RECO's principal regulator,
formally examines RECO's financial condition, affairs and management
periodically. Regulators from other jurisdictions may join these examinations.
The most recent completed examination covered the three year period ended
December 31, 1989. As a result of the conclusions reached in that examination,
there

<PAGE>

were no adjustments to RECO's financial statements which had not been recorded
prior to receipt of the report. Currently the years 1990 to 1993 are under
examination.

PROPERTIES

Neither Piedmont nor its subsidiaries and majority owned companies owns any
real estate; premises are leased from unaffiliated third parties for the
principal offices of Piedmont and its subsidiaries with these leases expiring at
various dates through the year 2004. Piedmont is located in New York City,
sharing its headquarters with RECO and MSR Advisors, Inc., one of the Asset
Management Subs, jointly occupying approximately 36,000 square feet of office
space at an annual rental of approximately $930,000 under a lease expiring in
1996. RECO also leases premises in Chicago, Illinois pursuant to a lease which
expires in 2004.

Substantially all of the leases referred to provide for the payment of tax,
escalation, maintenance, insurance and certain other operating expenses
applicable to the leased premises. In addition to the above leases, Piedmont
leases equipment on a long-term or month-to-month basis. Equipment rental
expense was $185,171 in 1994.

LEGAL PROCEEDINGS

In the normal course of its operations, Piedmont and certain of its
subsidiaries and majority owned companies are named as defendants in various
legal actions seeking monetary damages. Management does not expect any material
adverse judgments to be rendered against Piedmont, its subsidiaries or majority
owned companies as a result of pending legal actions.

<PAGE>
CHARTWELL RE CORPORATION

BUSINESS

MARKETING AND UNDERWRITING STRATEGY

The principal elements of Chartwell's reinsurance marketing and underwriting
strategy are: (i) a client segment focus; (ii) a cycle management approach to
marketing and underwriting; (iii) a commitment to the broker market; and (iv)
superior client service, coupled with broad market acceptance.

Client Segment Approach. Chartwell has organized its reinsurance marketing
and underwriting activities into client segments differentiated by the nature of
the ceding companies and their businesses. Accordingly, Chartwell has
established three underwriting units: Specialty Accounts, Global Accounts and
Regional Accounts, consisting of specialized, dedicated underwriters who are
supported by Chartwell's technical resources and personnel, including its
actuarial, claims and accounting departments. Management believes that this
client segment approach enhances Chartwell's ability to operate successfully
throughout the underwriting cycle by enabling Chartwell to: (i) focus its
underwriting expertise; (ii) recognize and react quickly to changing market
conditions that affect each segment; (iii) allocate its underwriting capacity to
those segments with greater profit potential; (iv) evaluate and control risk
exposure efficiently; and (v) identify and service the needs of brokers and
ceding companies within each segment.

Specialty Accounts, which represented approximately 47.1%, 46.0%, 46.2% and
55.4% of gross premiums written by Chartwell during the nine month periods ended
September 30, 1995 and 1994 and the years ended December 31, 1994 and 1993,
respectively, primarily covers non-standard, non-traditional risks that require
specialized underwriting, claims and actuarial skills. Currently, these
coverages include primarily professional liability, medical malpractice,
non-standard auto and coverages for excess and surplus lines insurers. Since
business written by Specialty Accounts is inherently more complex than the
business written by Chartwell's other underwriting units, capacity for this
business tends to be more restricted, and pricing is generally less competitive.
The Specialty Accounts unit is designed to provide Chartwell with opportunities
to underwrite attractive lines and classes of risks throughout the underwriting
cycle.

Global Accounts, which represented approximately 31.2%, 36.8% 34.1% and
28.3% of gross premiums written by Chartwell during the nine month periods ended
September 30, 1995 and 1994 and the years ended December 31, 1994 and 1993,
respectively, is principally engaged in two activities. First, Global Accounts
provides reinsurance to large domestic insurance companies, typically companies
writing in more than 10 states and with surplus in excess of $100 million. These
insurers generally purchase reinsurance for standard risks on the basis of price
and availability. Chartwell's participation in this segment will vary
significantly depending on prevailing market conditions. Second, Global Accounts
writes specific reinsurance programs for certain syndicates at Lloyd's and for
other insurers and reinsurers writing non-U.S. risks.

Regional Accounts, which represented approximately 21.7%, 17.3%, 19.7% and
16.3% of gross premiums written during the nine month periods ended September
30, 1995 and 1994 and the years ended December 31, 1994 and 1993, respectively,
provides reinsurance for the standard risks of regional insurers, typically
companies that either operate in 10 or fewer states or have a surplus of $100
million or less. Chartwell seeks to enhance its business by establishing
long-term relationships with regional insurers through its commitment to
superior client service. These insurers generally purchase reinsurance to
provide essential capacity and reinsurance protection. As compared to Global
Accounts, Regional Accounts clients typically exhibit less price sensitivity in
purchasing reinsurance and require greater underwriting, claims and
administrative services. The Regional Accounts segment also manages Chartwell's
marine and aviation reinsurance business.

77
<PAGE>
Following the Merger, Chartwell intends to establish a fourth underwriting
unit, Controlled Source Insurance. See "MANAGEMENT AND OPERATIONS AFTER MERGER."

Cycle Management. Chartwell employs a focused cycle management approach to
reinsurance marketing and underwriting pursuant to which it seeks to emphasize
different types of business during various phases of the underwriting cycle.
Management believes that certain segments of the insurance market will have a
continuing potential for profit even as the industry as a whole moves through a
broad underwriting cycle. During soft markets, Chartwell concentrates on
identifying and pursuing underwriting opportunities in areas exhibiting adequate
profit potential. During hard markets, Chartwell's general strategy is to expand
its premium writings in all market segments.

Broker Market Distribution. Management believes that, as a broker market
reinsurer, Chartwell has flexibility to: (i) access a broad range of
underwriting submissions from numerous ceding companies with various reinsurance
needs; (ii) vary levels of participation on reinsurance programs depending on
prevailing market conditions; and (iii) manage expenses by minimizing fixed
costs.

Superior Client Service. Management also believes that Chartwell has
developed strong working relationships with brokers and ceding companies because
of its high level of service tailored to the individual needs of each of its
client segments. Chartwell, in coordination with brokers, provides underwriting
assistance to ceding companies in structuring and pricing reinsurance programs
and furnishes ceding companies with operational reviews of their underwriting
and claims activities. In addition, Chartwell is committed to the prompt payment
of claims. As an indication of this commitment, during the nine months ended
September 30, 1995 and the years ended December 31, 1994 and 1993 Chartwell paid
approximately 99% of all approved claims within two business days of receipt.
Management believes that these factors enhance its ability to attract and retain
business.

UNDERWRITING

Chartwell's underwriting approach with respect to new and renewal business
is to assess the potential profitability of each individual reinsurance
proposal. This assessment includes a historical analysis of results and an
estimation of future loss costs based upon an analysis of exposure and a review
of other programs displaying similar exposure characteristics. Management
utilizes this assessment, in combination with an evaluation of the structure,
terms and conditions of the proposed reinsurance to determine the level of
Chartwell's participation, if any.

Chartwell's underwriting policies are subject to a two-tiered review
process. Policies for each client segment are initially formulated by the
respective unit managers in response to the specific reinsurance requirements of
each segment. These policies are then subject to review and approval by
Chartwell's Underwriting Committee (composed of the Chief Underwriting Officer,
other senior underwriters, the Chief Executive Officer, the President, the Chief
Actuary and the Claims Manager) to assure conformity with Chartwell's objectives
and quality standards. Chartwell's senior management regularly evaluates the
general state of the insurance and reinsurance market by client segment, class
of business and geographic region.

In general, prior to authorization, submissions are reviewed by at least two
underwriters, including the manager of the relevant underwriting unit.
Chartwell's Underwriting Policy mandates that large, complex or unusual
submissions are further reviewed by the Chief Underwriting Officer,

78
<PAGE>
and, if warranted, the Chief Executive Officer of Chartwell. Submissions
requiring actuarial and claims assessments are referred to those departments for
review.

The table set forth below shows gross premiums written by client segment for
the periods indicated:

GROSS PREMIUMS WRITTEN BY CLIENT SEGMENT (1)
(DOLLARS IN THOUSANDS)

- ------------
(1) Chartwell divided its non-specialty treaty business into Global Accounts and
Regional Accounts in July, 1992. The amounts and percentages in the table
have been adjusted to reclassify reinsurance business written by Chartwell
as if these three underwriting units had been in operation throughout all
periods shown.

The growth of 174.9% in gross premiums written for the period from 1992 to
1994 is a result of the implementation of Chartwell's marketing and underwriting
strategy, particularly in working layer casualty programs, receipt of its
initial letter rating of "A-" (Excellent) from A.M. Best and the growth in
demand for reinsurance coverage in specialty areas.

Specialty Accounts. The table set forth below shows the distribution of
gross premiums written for Specialty Accounts by line of business for the
periods indicated:

SPECIALTY ACCOUNTS
GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS
(DOLLARS IN THOUSANDS)

- ------------
(1) Includes directors' and officers' liability and errors and omissions
liability.

Specialty Accounts represented approximately 47.1%, 46.0%, 46.2%, 55.4% and
53.3% of gross premiums written by Chartwell Reinsurance for the nine month
periods ended September 30,
1995 and 1994 and the years ended December 31, 1994, 1993 and 1992,
respectively. Specialty Accounts currently writes professional liability,
non-standard automobile, specialty commercial automobile, medical malpractice,
fidelity, surety, casualty reinsurance for ceding companies writing general
liability coverages on an excess and surplus lines basis and other non-standard
coverages. Specialty Accounts also writes casualty reinsurance for the
alternative risk market.

Gross premiums for Specialty Accounts for the first nine months of 1995
increased by 12.9% over the first nine months of 1994 due in part to the
expansion of relationships with existing clients.

79
<PAGE>

Within the segment, general liability premiums decreased in 1995 over 1994 due
to increased competition, while other casualty premiums increased largely as a
result of opportunities associated with fidelity, surety and accident and health
business. Gross premiums written by Specialty Accounts increased 38.5% in the
year ended December 31, 1994 compared with 1993, and 72.1% in the year ended
December 31, 1993 compared with 1992, primarily because of Chartwell's
development of business with leading writers of specialized risks. The increases
in 1994 in premium writings in the automobile liability and general liability
lines were due primarily to Chartwell's development of new reinsurance
relationships with ceding companies writing non-standard automobile liability
business and companies writing excess and surplus lines of casualty business.
Premium writings in the professional liability and medical malpractice lines
remained at essentially the same levels as in 1993 as a result of increased
competition in certain classes within these lines.

Global Accounts. The table set forth below shows the distribution of gross
premiums written for Global Accounts by line of business for the periods
indicated:

GLOBAL ACCOUNTS (1)
GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS
(DOLLARS IN THOUSANDS)

- ------------

(1) Chartwell divided its non-specialty treaty business into Global Accounts and
Regional Accounts in July 1992. The amounts and percentages in the table
have been adjusted to reclassify reinsurance business written by Chartwell
prior to July 1992 as if Global Accounts had been in operation throughout
all periods shown.

Global Accounts represented approximately 31.2%, 36.7%, 34.1%, 28.3% and
40.1% of gross premiums written by Chartwell for the nine month periods ended
September 30, 1995 and 1994 and the years ended December 31, 1994, 1993 and
1992, respectively. Global Accounts includes reinsurance of the standard risks
of domestic insurance companies with surplus in excess of $100 million that
write business in more than 10 states. Such companies generally purchase
coverage on the basis of price and availability and the risks involved are
generally larger and more volatile than those of Regional Accounts. In this
segment, Chartwell typically writes a large number of treaties with a relatively
small participation in any one treaty. In hard markets, when overall industry
capacity is generally reduced, Chartwell is able to increase its level of
participation in such treaties, which, in combination with price increases,
results in an increased volume of premiums written.

Global Accounts also reinsures certain syndicates at Lloyd's and other
insurers and reinsurers writing non-U.S. risks. There is currently an emphasis
by Global Accounts on this business in response to the opportunities created by
the restructuring taking place at Lloyd's and general favorable international
market conditions.

Premiums increased within this client segment in 1994 by 100.2% over 1993
and in 1993 by 16.6% over 1992, primarily as a result of market opportunities in
the international and Lloyd's markets and an increase in non-catastrophe
property writings in response to improved rate levels.

80
<PAGE>
Business from the international sector was 44.2%, 23.2% and 6.3% of the total
Global Accounts volume in 1994, 1993 and 1992, respectively.

In 1993, primarily as a result of Hurricanes Andrew and Iniki, Global
Accounts cancelled approximately 100 property catastrophe treaties.
Notwithstanding these cancellations, total property premiums increased in 1993
as a consequence of pricing improvements on remaining in-force treaties. The
significant growth in premium writings in the property line in 1994 was due
primarily to the continued repositioning of the property portfolio away from
property catastrophe treaties to working cover contracts and international
property exposures, a trend which continued in the first six months of 1995.

Automobile liability and automobile physical damage premium volume increased
in both 1994 and 1993 as compared to 1992 as a result of selectively entering
the U.K. motor segment in response to price increases. General liability
premiums decreased in 1993 from 1992 in response to a continuation of the
competitive environment for large domestic cedents and increased in 1994
primarily due to rate adjustments from contracts written in prior years. General
liability business has continued to be de-emphasized in 1995 due to strong
competitive pressures on rates.

Regional Accounts. The table set forth below shows the distribution of gross
premiums written for Regional Accounts by line of business for the periods
indicated:

REGIONAL ACCOUNTS (1)
GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS
(DOLLARS IN THOUSANDS)

- ------------

(1) Chartwell divided its non-specialty treaty business into Global Accounts and
Regional Accounts in July 1992. The amounts and percentages in the table
have been adjusted to reclassify reinsurance business written by Chartwell
prior to July 1992 as if Regional Accounts had been in operation throughout
all periods shown.

Regional Accounts represented approximately 21.7%, 17.3%, 19.7%, 16.3% and
6.6% of gross premiums written by Chartwell for the nine month periods ended
September 30, 1995 and 1994 and the years ended December 31, 1994, 1993 and
1992, respectively. These increases reflect the establishment and development of
a dedicated underwriting unit at July 1, 1992 for this client segment. Regional
Accounts includes reinsurance of the standard risks of insurance companies that
either operate in 10 or fewer states or have a surplus of $100 million or less
as well as reinsurance of marine and aviation business.

Regional Accounts premiums in 1994 grew 100.0% over 1993 levels as a result
of increased marketing efforts and increased participation on selected existing
accounts. Gross premiums for the first nine months of 1995 increased 38.3% over
the comparable period in 1994. This increase was due primarily to the expansion
of existing business relationships, an increased focus on the

81
<PAGE>
marine market and an increase in aviation premiums due to increased rate levels
on certain programs, partially offset by the non-renewal by Chartwell
Reinsurance of its participation in a large regional property program as a
result of deteriorating results and unattractive pricing.

Management believes that the business of smaller, regional insurers is
generally less cyclical and therefore less volatile than that of Global Accounts
or Specialty Accounts clients. Although profit margins in this segment are
typically lower, these coverages generally entail less risk to the reinsurer and
underwriting results generally have a higher degree of certainty due to the
nature of the risks reinsured. Chartwell seeks to enhance its business by
establishing long-term relationships with regional insurers through its
commitment to superior client service.

Regional Accounts' clients are generally less sensitive to price than Global
Accounts' clients in purchasing reinsurance, but require greater underwriting,
claims and administrative advice and services from reinsurers than Global
Accounts' clients. As contrasted with certain of its competitors, a senior
underwriter heads Chartwell's efforts to develop business with regional insurers
and oversees the provision of services to these clients.

MIX OF BUSINESS

Chartwell writes excess of loss and pro rata reinsurance as well as casualty
clash and property catastrophe coverages, all on a treaty basis. Chartwell
typically focuses on the working layers of a ceding company's reinsurance
program. Chartwell does not currently write facultative reinsurance but may
commence writing such coverages depending on market conditions. Chartwell's mix
of business, on the basis of gross premiums written and net premiums, is set
forth in the following table for the periods indicated:

MIX OF BUSINESS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------------------- -----------------------------------------------------------------------
1995 1994 1994 1993 1992 1991
------------------- ------------------- -------------------- ------------------- ------------------- -------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT
------- ---------- ------- ---------- -------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Premiums
Written
Casualty:
Excess of
Loss...... $29,056 30.4% $22,816 26.3% $ 32,674 28.1% $23,622 33.7% $18,024 42.6% $18,360
Pro Rata.... 31,321 32.7 30,772 35.4 43,328 37.2 28,542 40.7 11,215 26.4 5,007
Clash....... 2,299 2.4 2,725 3.1 3,498 3.0 1,710 2.4 2,936 7.0 2,303
Total
Casualty... 62,676 65.5 56,313 64.9 79,500 68.3 53,874 76.8 32,175 76.0 25,670
Property:
Excess of
Loss...... 4,159 4.3 2,529 2.9 2,656 2.3 1,369 2.0 2,912 6.9 1,969
Pro Rata.... 26,615 27.8 24,547 28.3 31,030 26.6 10,105 14.4 2,787 6.6 2,356
Catastrophe... 2,231 2.3 3,429 3.9 3,210 2.8 4,781 6.8 4,469 10.5 2,662
Total
Property... 33,005 34.5 30,505 35.1 36,896 31.7 16,255 23.2 10,168 24.0 6,987
------- --- ------- --- -------- --- ------- --- ------- --- -------
Total Gross
Premiums
Written... $95,681 100.0% $86,818 100.0% $116,396 100.0% $70,129 100.0% $42,343 100.0% $32,657
------- --- ------- --- -------- --- ------- --- ------- --- -------
------- --- ------- --- -------- --- ------- --- ------- --- -------
Net Premiums
Written
Casualty:
Excess of
Loss:....... $29,042 31.4% $22,861 27.0% $ 32,680 28.7% $23,797 34.1% $17,769 44.8% $17,447
Pro Rata.... 31,255 33.8 30,765 36.3 43,319 38.0 28,560 40.9 11,198 28.3 4,854
Clash....... 2,299 2.5 2,719 3.2 3,492 3.1 1,729 2.5 2,880 7.3 2,204
Total
Casualty... 62,596 67.8 56,345 66.5 79,491 69.8 54,086 77.5 31,847 80.4 24,505
Property:
Excess of
Loss..... 4,166 4.5 2,348 2.8 2,476 2.1 1,223 1.7 2,221 5.6 1,358
Pro Rata.... 25,202 27.3 22,809 26.9 28,928 25.4 9,859 14.1 2,505 6.3 2,058
Catastrophe... 412 0.4 3,266 3.9 3,067 2.7 4,659 6.7 3,049 7.7 2,339
Total
Property...... 29,780 32.2 28,423 33.5 34,471 30.2 15,741 22.5 7,775 19.6 5,755
------- --- ------- --- -------- --- ------- --- ------- --- -------
Total Net
Premiums
Written... $92,376 100.0% $84,768 100.0% $113,962 100.0% $69,827 100.0% $39,622 100.0% $30,260
------- --- ------- --- -------- --- ------- --- ------- --- -------
------- --- ------- --- -------- --- ------- --- ------- --- -------

1990
-------------------
PERCENTAGE PERCENTAGE
OF TOTAL AMOUNT OF TOTAL
---------- ------- ----------
<S> <C> <C> <C>
Gross Premiums
Written
Casualty:
Excess of
Loss...... 56.2% $12,527 69.8%
Pro Rata.... 15.3 (79) (0.4)
Clash....... 7.1 766 4.3
Total
Casualty...... 78.6 13,214 73.7
Property:
Excess of
Loss...... 6.0 1,826 10.2
Pro Rata.... 7.2 2,053 11.4

Catastrophe... 8.2 834 4.7
Total
Property...... 21.4 4,713 26.3
--- ------- ---
Total Gross
Premiums
Written... 100.0% $17,927 100.0%
--- ------- ---
--- ------- ---
Net Premiums
Written
Casualty:
Excess of
Loss:....... 57.7% $11,741 73.0%
Pro Rata.... 16.0 (83) (0.5)
Clash....... 7.3 718 4.5
Total
Casualty...... 81.0 12,376 77.0
Property:
Excess of
Loss...... 4.5 1,250 7.9
Pro Rata.... 6.8 1,811 11.3

Catastrophe... 7.7 630 3.8
Total
Property...... 19.0 3,691 23.0
--- ------- ---
Total Net
Premiums
Written... 100.0% $16,067 100.0%
--- ------- ---
--- ------- ---
</TABLE>

82
<PAGE>
Chartwell increased the amount of pro rata casualty business written in the
years ended December 31, 1994 and 1993 as compared to the year ended December
31, 1992, principally as a result of opportunities associated with non-standard
auto business and U.K. motor business. Property premiums increased in 1994 over
1993 as a result of expansion into the international property marketplace and
increases in the automobile physical damage component of non-standard auto
business and U.K. motor business.

During the nine month period ended September 30, 1995, and the year ended
December 31, 1994, Chartwell received approximately 23.5% and 22.2%,
respectively, of its gross premiums written from two groups of ceding companies.
For the 1995 period, approximately 17% of gross premiums written came from 81
treaties with 16 member companies of American International Group, and
approximately 7% of gross premiums written came from affiliates of Clarendon
Insurance Group. During 1994, approximately 17% of gross premiums written came
from 67 treaties with fifteen member companies of American International Group
and approximately 6% of gross premiums written came from treaties with
affiliates of Symons International Group. In addition, two other ceding
companies, Markel Group and Wellington Agencies, each accounted for
approximately 6% and 5% respectively of gross premiums written during the first
nine months of 1995. In 1994, two other ceding companies, Wessex Motor Policies
Syndicate No. 1184 and Clarendon Insurance Group accounted for approximately 5%
of gross premiums written each. No other ceding company or group of affiliated
ceding companies accounted for more than 5% of Chartwell's gross written
premiums for the nine months ended September 30, 1995 or the year ended December
31, 1994, and no one reinsurance treaty accounted for more than 6% of
Chartwell's gross written premiums for any such period.

During the first nine months of 1995, Chartwell received approximately 71%
of gross premiums written from 5 reinsurance brokers, of which AON Reinsurance
Agency accounted for approximately 29%, Guy Carpenter & Co., Inc. accounted for
approximately 15%, E.W. Blanch Co. accounted for approximately 15%, Alexander
Reinsurance Intermediaries, Inc. accounted for approximately 9%, and Willis
Faber North America accounted for approximately 3%. No other broker accounted
for more than 5% of the company's gross premium written for the nine months
ended September 30, 1995. During 1994, Chartwell received approximately 73% of
its gross written premiums from five reinsurance brokers, of which AON
Reinsurance Agency Inc. accounted for approximately 24%, Guy Carpenter & Co.,
Inc. accounted for approximately 20%, Alexander Reinsurance Intermediaries, Inc.
accounted for approximately 11%, E.W. Blanch Co. accounted for approximately
11%, and Sedgwick Payne Co. accounted for approximately 7%. No other broker
accounted for more than 5% of Chartwell's gross premiums written for the year
ended December 31, 1994.

In order to reduce the potential adverse effect arising from the termination
of any specific business relationship, Chartwell seeks business from a large
number of reinsurance brokers and ceding companies. While management believes
that its relationships with these reinsurance brokers and ceding companies are
excellent, the termination of all or a substantial number of these relationships
could have a material adverse effect on the business and operations of
Chartwell.

RISK MANAGEMENT AND RETROCESSIONAL ARRANGEMENTS

Chartwell's management seeks to manage risk exposures by offering maximum
limits of $1 million (excluding loss adjustment expenses) on any one risk,
subject to certain exceptions as approved by the Chief Underwriting Officer and,
in certain cases, by the Chief Executive Officer. For the business written
during the year ended December 31, 1994, the average line per contract written
by Chartwell was approximately $212,000 (excluding loss adjustment expenses).
Chartwell may elect to increase its maximum limits based upon market conditions.

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<PAGE>
In writing casualty reinsurance, Chartwell uses a variety of means to
control the inherent long tail nature of these risks. It is the general practice
of Chartwell to reinsure professional liability lines of business or coverages
with known or suspected latent exposures only if the original business is
written on a claims made policy form or if the reinsurance is provided on a
claims made basis. This practice curtails the accumulation of claims across
several policy periods and reduces the time period in which claims on a specific
policy are reported and can be fully estimated. As a result, loss cost estimates
become more predictable and the likelihood of producing an acceptable
underwriting result improves. In instances where Chartwell is unable to
participate in such business on a claims made basis, it will normally require
the inclusion of sunset clauses or loss ratio caps. Sunset clauses limit the
period in which losses may be reported, and loss ratio caps impose a ceiling on
the loss amount permitted under any one contract.

Chartwell utilizes retrocessions primarily to provide protection from large
or multiple losses and may in the future use additional retrocessions to
increase underwriting capacity. Chartwell seeks to establish long-term
relationships with its leading retrocessionaires in order to achieve continuity
and stability of coverage. Chartwell purchases property catastrophe coverage for
Global and Regional Accounts business to provide coverage for losses arising
from an aggregation of claims under various insurance policies from a single
event. Chartwell's current property catastrophe program, effective January 1,
1995, provides $6.5 million of coverage in excess of a $2.5 million retention.

In addition, Chartwell entered into a 10% quota share retrocession agreement
effective January 1, 1994, which was renewed at January 1, 1995, for its
non-standard automobile liability business written in Specialty Accounts. Under
this agreement, Chartwell will cede 10% of the premiums, losses and expenses
associated with that business. The amounts ceded under this agreement may be
greater than 10% (subject to a maximum of 40%) if Chartwell's overall premiums
to surplus ratio exceeds certain levels.

Since Chartwell is contingently liable with respect to reinsurance ceded in
the event that a retrocessionaire is unable to meet its obligations assumed
under a retrocession agreement, the financial strength of each retrocessionaire
is formally evaluated and its participation is then approved by Chartwell's
Security Committee, which is chaired by its Chief Actuary. As of September 30,
1995 the reinsurance recoverable balance of $37.8 million is attributable to
retrocessional arrangements with approximately 124 retrocessionaires.

The following table sets forth ceded premiums for the nine months ended
September 30, 1995 to principal retrocessionaires participating in Chartwell's
retrocession program:

CEDED
A.M. BEST EARNED
RETROCESSIONAIRE RATING(1) PREMIUM
- -------------------------------------------------- --------- --------------
(IN THOUSANDS)
Lloyd's Underwriters.............................. NA-4 $ 1,217
LaSalle Re Limited................................ * 647
First Re Company of Hartford...................... A- 255
Protective Insurance Company...................... A+ 204
All others........................................ -- 176
--------------
$ 2,499
--------------
--------------

84
<PAGE>

<TABLE>
<CAPTION>
AMOUNTS
RECOVERABLE ON
A.M. BEST LOSSES
RETROCESSIONAIRE RATING(1) AND LAE
- ------------------------------------------------- --------- --------------
<S> <C> <C>
(IN THOUSANDS)
Centre Reinsurance (Bermuda), Ltd. .............. A $ 15,393
Northwestern National Life Insurance Company..... A 4,202
Kemper Reinsurance Company....................... A- 1,384
Skandia America Reinsurance Corporation.......... A- 975
Paladin Reinsurance Company...................... NA-4 882
Aegon Reinsurance Company of America............. NA-4 829
Lloyd's Underwriters............................. NA-4 828
All others(2).................................... -- 13,323
--------------
Total.......................................... $ 37,816
--------------
--------------
</TABLE>

- ------------

(1) Ratings displayed in this column were obtained from the 1995 editions of
Best's Insurance Reports-United States and Best's Insurance
Reports-International. Generally, A.M. Best assigns ratings to insurance
companies after performing qualitative and quantitative evaluations of the
factors it believes affect the overall performance of such companies. A
rating reflects the opinion of A.M. Best as to an insurer's financial
strength, operating performance and ability to meet its obligations to
policyholders.

The A.M. Best ratings presented in the table have been defined by A.M. Best as
follows:

A++ and A+ (Superior)

A and A- (Excellent)

NA-4 (Rating Procedure Inapplicable)

Assigned to companies whose business and/or operations are such that Best's
normal rating procedure does not properly apply.

At September 30, 1995, Chartwell had deposits with Centre Reinsurance
(Bermuda) Limited of $6.7 million.

Ceded premiums earned increased 262.8% to $2.5 million in 1994 from $0.7
million in 1993. Of the $2.5 million ceded premiums earned in 1994, $0.8 million
was to provide protection from large or multiple losses from property
catastrophe events for Global and Regional Accounts business. In addition,
Chartwell entered into a 10% quota share retrocession agreement effective
January 1, 1994 for its non-standard automobile liability business written in
Specialty Accounts. The ceded premiums earned for this retrocession was
approximately $1.7 million. Ceded losses incurred increased 27.1% to $4.1
million in 1994 from $3.2 million in 1993. The incurred losses included $2.2

85
<PAGE>

million and $0.6 million for 1994 and 1993, respectively, covered under the NWNL
Reserve Indemnification Agreement (as defined below) and $1.6 million and $1.0
million for property catastrophe recoveries in 1994 and 1993, respectively. In
addition, the 1994 amount includes $0.3 million of ceded losses related to the
10% non-standard automobile quota share and the 1993 amount includes $1.6
million of facultative run-off losses.

Ceded premiums earned decreased 74.1% to $0.7 million in 1993 from $2.7
million in 1992. Substantially all of the $0.7 million ceded premiums earned in
1993 was to provide protection from large or multiple losses from property
catastrophe events for Global and Regional Accounts business.

For 1992, $2.7 million of ceded premiums earned was for catastrophe
protection for Hurricanes Andrew and Iniki. Also in 1992, $9.7 million in ceded
losses incurred included recoveries of $3.5 million due to the same two
hurricanes. Ceded losses incurred also included $1.3 million in 1992 due to the
Reserve Indemnification Agreement and the effect of a large commutation in which
an additional $4.5 million in ceded losses was recognized.

CLAIMS

Chartwell's claims department evaluates loss exposure in order to establish
case reserves, pay claims, and assist in the underwriting process by evaluating
the claims activities of prospective ceding companies. In performing these
functions, Chartwell's claims department consults with Chartwell's underwriting
and actuarial departments. The claims department also assists the accounting
department in reporting Chartwell's retrocessional claims and in seeking
collection of such claims on a timely basis.

In evaluating loss exposure, Chartwell's claims department reviews loss
reports received from ceding companies to confirm that submitted claims are
covered under the contract terms, establishes reserves on an individual case
basis and monitors the adequacy of such reserves. The department also tracks
industry loss activity as well as other industry trends to facilitate
management's evaluation of Chartwell's overall risk profile.

Consistent with Chartwell's service orientation, Chartwell's policy is to
pay promptly all approved claims submitted by ceding companies. For the first
nine months of 1995 and the year ended December 31, 1994, Chartwell paid
approximately 99% of all approved claims within two working days of receiving
the payment request.

Through its claims audit program, Chartwell provides advice and direction
regarding claims policy and administration, systems, procedures and staffing to
its ceding companies. Chartwell's policy of communicating its audit findings to
the management of ceding companies has served to reinforce and enhance
Chartwell's client relationships.

RESERVES

General

A significant period of time may elapse between each of: (i) the occurrence
of an event causing an insured loss; (ii) the reporting of the loss to the
ceding company; (iii) the reporting of the loss by the ceding company to
Chartwell; (iv) the ceding company's adjustment and payment of the loss; and (v)
payment to the ceding company by Chartwell. To recognize liabilities for unpaid
losses, Chartwell establishes loss and loss expense reserves which are balance
sheet liabilities representing estimates of future amounts needed to pay claims
and related expenses with respect to insured events. Loss and loss adjustment
expense ("LAE") reserves have two components: case loss and LAE reserves, which
are estimates of future loss and LAE with respect to insured events

86
<PAGE>
that have been reported to the reinsurer, and incurred but not reported ("IBNR")
reserves. IBNR reserves are actuarially determined and reflect (i) an estimate
of the ultimate loss amount that will be paid by the reinsurer on claims that
have occurred but have not yet been reported to the reinsurer and (ii) the
expected change in the value of those claims that have already been reported to
the reinsurer.

When a claim is reported to the ceding company, its claims personnel
establish a liability for the estimated amount of the ultimate settlement cost
of the reported claim. The estimate reflects the judgment of the ceding company,
based on the experience and knowledge of its claims personnel, regarding the
nature and value of the claim. The ceding company may periodically adjust the
amount of case reserves as additional information becomes known or partial
payments are made.

Upon notification of loss from a ceding company, Chartwell establishes case
reserves, including LAE, based upon Chartwell's share of the amount of reserves
established by the ceding company and Chartwell's independent evaluation of the
loss. Where appropriate, Chartwell establishes case reserves in excess of its
share of the reserves established by the ceding company. These reserves are
periodically reviewed by Chartwell's claims department based on its evaluation
of reports from the ceding company and its audits of claims activities of the
ceding company.

During the claims settlement period, which may extend over a protracted
period of time, additional facts regarding claims and trends may become known.
As Chartwell becomes aware of new information, it may adjust its estimates of
its ultimate liability. The revised estimates of ultimate liability may prove to
be less than or greater than the actual settlement or award amount for which the
claim is finally discharged.

Actuarial Methods

Chartwell has an experienced in-house actuarial staff that performs analyses
of Chartwell's historical claims and underwriting experience. Chartwell's
methods for determining and establishing reserves are continually reviewed and
updated.

Chartwell utilizes the two most common methods of actuarial evaluation
employed within the insurance industry, the Bornhuetter-Ferguson method and the
loss development method. The Bornhuetter-Ferguson method involves the
application of selected loss ratios to Chartwell's earned premiums to determine
estimates of ultimate expected loss and LAE for each underwriting year.
Multiplying earned premium by a selected loss reporting pattern gives an
estimate of reported and unreported IBNR losses. When the IBNR is added to the
loss and LAE amounts with respect to claims that have been reported to date, an
estimated ultimate expected loss results. This method provides a more stable
estimate of IBNR that is insulated from wide variations in reported losses. In
contrast, the loss development method extrapolates the current value of reported
losses to ultimate expected losses by using selected reporting patterns of
losses over time. The selected reporting patterns are based on historical
information (organized into loss development triangles) and are adjusted to
reflect the changing characteristics of the book of business written by
Chartwell.

Chartwell employs a combination of both methods outlined above. For the
older years, when reported losses have generally stabilized, Chartwell gives
greater weight to the loss development result. For the more recent years, when
reported loss activity is either less reliable in the aggregate or non-existent,
Chartwell gives greater weight to the Bornhuetter-Ferguson method. Because
losses are reported relatively earlier for property and other short tail
coverages, the weighing for those types of coverages shifts from the
Bornhuetter-Ferguson method to the loss development method at an earlier point
than for casualty and other long tail coverages.

87
<PAGE>
In the reserve setting process, Chartwell includes provisions for inflation
and "social inflation" if appropriate, as losses are generally not determined
until some time in the future. Chartwell continually monitors legislative
activity and evaluates the potential effect of any legislative changes on its
reserve liabilities.

Chartwell's reserves are carried at the full amount estimated for ultimate
expected losses and LAE without any discount to reflect the time value of money
in accordance with both SAP and GAAP.

Analysis of Reserve Development

The following table presents the development of reserves for losses and LAE
for calendar years 1984 through 1994. The first line of the table sets forth the
estimated liability for losses and LAE for claims arising in each of the
indicated years, as recorded on the balance sheet of Chartwell Reinsurance as of
the end of the indicated year, including IBNR. The upper portion of the table
shows the cumulative amounts paid as of the end of each successive year for such
claims. The bottom portion of the table also shows the re-estimated amount of
the previously recorded liability based on experience as of the end of each
succeeding year, including cumulative payments. The estimates are readjusted as
more information becomes known about the frequency and severity of claims for
each year. A redundancy (deficiency) exists when the original liability estimate
is greater (less) than the re-estimated liability at the end of a year. The
cumulative redundancy (deficiency) shown in the table is the aggregate net
change in estimates over the period of years subsequent to the calendar year
reflected at the top of the particular columns.

In evaluating the information in the table, it should be noted that each
amount entered incorporates the effects of all changes in amounts entered for
prior periods. Thus, if the 1990 estimate for a previously incurred loss was
$150,000 and the loss was reserved at $100,000 in 1984, the $50,000 deficiency
(later estimate minus original estimate) would be included in the cumulative
redundancy (deficiency) in each of the years 1984-1990 shown in table. It should
further be noted that the table does not present accident or policy year
development data. In addition, conditions and trends that have affected the
development of liability in the past may not necessarily recur in the future.
Accordingly, it may not be appropriate to extrapolate future redundancies or
deficiencies from the table.

88
<PAGE>
ANALYSIS OF LOSS AND LAE
RESERVE DEVELOPMENT
(DOLLARS IN THOUSANDS)
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for Loss and
LAE(1).................... $ 25,071 $ 49,791 $ 81,094 $135,818 $156,869 $130,939 $126,746 $126,292 $189,386
Cumulative paid as of:
One year later............. 9,230 18,082 11,339 15,557 39,084 15,946 19,745 9,074 31,354
Two years later............ 17,910 27,669 23,620 51,108 53,101 34,928 26,338 24,227 49,686
Three years later.......... 25,909 37,717 54,996 62,624 69,914 40,622 39,933 37,935
Four years later........... 32,422 63,105 63,743 76,432 75,034 52,514 52,436
Five years later........... 45,196 69,369 74,093 79,158 86,463 63,479
Six years later............ 49,056 76,492 73,978 88,789 97,020
Seven years later.......... 52,898 75,059 79,723 97,869
Eight years later.......... 51,912 80,528 86,928
Nine years later........... 55,265 85,115
Ten years later............ 58,034
Reserves re-estimated as of:
One year later............. 44,633 72,675 89,490 135,624 158,048 129,333 125,919 126,926 192,496
Two years later............ 51,621 82,769 94,678 137,539 156,185 128,655 127,627 126,193 192,363
Three years later.......... 59,913 88,966 94,552 134,107 155,224 132,406 128,740 127,102
Four years later........... 63,741 89,652 98,013 136,649 161,868 132,783 129,707
Five years later........... 61,778 91,905 101,386 143,223 159,912 133,112
Six years later............ 62,865 94,285 108,561 142,078 160,195
Seven years later.......... 64,497 102,158 108,646 146,443
Eight years later.......... 69,241 102,715 118,433
Nine years later........... 72,950 112,012
Ten years later............ 81,551
Cumulative redundancy
(deficiency)(2)............. $(56,480) $(62,221) $(37,339) $(10,625) $ (3,326) $ (2,173) $ (2,961) $ (810) $ (2,977)
Cumulative%................ (225%) (125%) (46%) (8%) (2%) (2%) (2%) (1%) (2%)

<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Reserves for Loss and
LAE(1).................... $201,013 $232,733
Cumulative paid as of:
One year later............. 30,085
Two years later............
Three years later..........
Four years later...........
Five years later...........
Six years later............
Seven years later..........
Eight years later..........
Nine years later...........
Ten years later............
Reserves re-estimated as of:
One year later............. 204,094
Two years later............
Three years later..........
Four years later...........
Five years later...........
Six years later............
Seven years later..........
Eight years later..........
Nine years later...........
Ten years later............
Cumulative redundancy
(deficiency)(2)............. $ (3,081)
Cumulative%................ (2%)
</TABLE>
- ------------

(1) Reserves for loss and LAE are presented net of reinsurance recoverables for
the periods 1984 through 1991. In 1992, Chartwell adopted SFAS No. 113
which, among other things, requires Chartwell to record its reserves for
unpaid losses and LAE without reduction for amounts that would be recovered
from retrocessionaires. The amount recoverable from retrocessionaires is
recorded as an asset on Chartwell's balance sheet. The net of such asset and
the reserves for loss and LAE is $197.3, $167.4 and $153.4 million at
December 31, 1994, 1993 and 1992, respectively.

(2) The cumulative deficiency was $0.9 million and $0.2 million for 1993 and
1992, respectively, after amounts recoverable from retrocessionaires and the
Reserve Indemnification Agreement (as defined below) with NWNL.

Chartwell entered the property and casualty reinsurance market in 1979.
Because Chartwell was a new participant in the reinsurance market, the business
available to Chartwell prior to 1986 was not of the same quality as that
available to more established market participants and was thus subject to
relatively greater loss potential. Chartwell's entrance into the market also
occurred during a period of extreme price competition when the industry as a
whole underestimated significantly the potential for loss on business written.
Thus, Chartwell and the reinsurance industry have experienced considerable
adverse loss development for business written prior to 1986.

Deficiencies in balance sheet loss reserves for the period from 1984 through
1987 were affected significantly by facultative business written prior to 1986
and an assumed treaty from one client that has been commuted. Deficiencies
arising from these two sources of business for each of the four years 1984
through 1987 totalled $38.4 million, $37.2 million, $20.3 million and $13.5
million, respectively. The remaining loss reserve deficiencies have developed
from casualty pro rata and casualty excess treaties. This adverse development is
attributable primarily to business written prior to 1985 when policy forms did
not typically limit coverages for latent liabilities relating to asbestos and
environmental pollution claims. After adjustment for the adverse development
attributable to the two previously described business sources, the remaining
balance sheet loss

89
<PAGE>
reserves have been relatively stable since December 31, 1987. The cumulative
adverse loss development, after adjustment for these two business sources, has
been less than 1%.

In the latter part of 1984, Chartwell began to strengthen management
resources and to re-underwrite its business in order to position itself for an
upturn in the underwriting cycle. In addition, Chartwell established an internal
actuarial function at the end of 1986. The deficiencies experienced through 1987
are primarily attributable to adverse development on business written from 1982
to 1985. Reserves on accident years since 1986 have developed modest
redundancies, except for 1987 which has developed a redundancy of approximately
$18.3 million since the initial recording and 1992 which has developed a modest
deficiency of $0.7 million. The cumulative deficiency was $0.9 million and $0.2
million for 1993 and 1992, respectively, after amounts recoverable from
retrocessionaires and the NWNL Reserve Indemnification Agreement.

Chartwell has commuted two significant treaties which distort the payment
patterns represented in the table. In 1989, Chartwell commuted an assumed treaty
for $18.0 million affecting calendar years from 1984 to 1989. The commutation
ensured that no further adverse development on that treaty occurred in
subsequent years. In 1992, Chartwell commuted a retrocession arrangement which
resulted in a reduction of net paid losses for the prior calendar years of $4.4
million. In 1993, Chartwell paid approximately $12.0 million in gross losses
related to Hurricanes Andrew and Iniki.

At December 31, 1994, the GAAP basis reserves, before reduction for ceded
reinsurance, were $232.7 million compared to SAP basis reserves, before
reduction for ceded reinsurance, of $232.6 million. The difference is due to
adjustments for foreign currency transactions. At December 31, 1994, 1993 and
1992, GAAP basis reserves, net of amounts recoverable from retrocessionaires,
were $197.3, $167.4 and $153.4 million, respectively, compared to SAP net
reserves of $179.2, $145.8 and $125.9 million, respectively. The difference
between GAAP and SAP amounts are due to the implementation of Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS No. 113")
($22.2, $23.5 and $28.8 million for 1994, 1993 and 1992, respectively) and the
recognition of future amounts recoverable under the Reserve Indemnification
Agreement ($4.1, $1.9 and $1.3 million for 1994, 1993 and 1992, respectively).

A reconciliation of beginning and ending reserve balances as of December 31,
1994, 1993 and 1992 is herein incorporated by reference to footnote 11 to the
audited consolidated financial statements of Chartwell included elsewhere in
this document.

Management believes that Chartwell Reinsurance's reserves are adequate.
However, the process of estimating reserves is inherently imprecise and involves
an evaluation of many variables, including potentially unpredictable social and
economic conditions. Accordingly, there can be no assurance that Chartwell's
ultimate liability will not vary significantly from amounts reserved. The
inherent uncertainties of estimating such reserves are greater for reinsurers
than for primary insurers, primarily due to the longer-term reporting nature of
the reinsurance business, the diversity of development patterns among different
types of reinsurance, the necessary reliance on ceding companies for information
regarding reported claims and differing reserving practices among ceding
companies. Reserves also include provisions for latent injury or toxic tort
claims that cannot be estimated with traditional reserving techniques. Because
of inconsistent court decisions in federal and state jurisdictions and the wide
variation among insureds with respect to underlying facts and coverage,
uncertainty exists with respect to these claims as to liabilities of ceding
companies and, consequently, reinsurance coverage. Management believes that
Chartwell Reinsurance's exposure to such latent losses is lessened because of
its relatively recent entry into the reinsurance business in 1979, its low
historical levels of premium volume prior to 1985, the Reserve Indemnification
Agreement and its retrocessional programs. At December 31, 1994 and 1993,

90
<PAGE>
Chartwell Reinsurance carried loss and LAE reserves of $232.7 and $201.0 million
respectively ($197.3 and $167.4 million after reduction for reinsurance
recoverable), of which $4.8 and $4.7 million, respectively ($2.8 and $2.9
million after reduction for reinsurance recoverable), were case reserves and
allocated LAE attributable to asbestos claims and environmental pollution
claims. For the three years ended December 31, 1994, the effect of asbestos and
environmental pollution claims was not material to Chartwell's results of
operations.

Reserve Indemnification Agreement

In connection with the Acquisition, Chartwell entered into an agreement (the
"Reserve Indemnification Agreement") with NWNL and its parent company, ReliaStar
Financial Corporation ("RLR") pursuant to which NWNL and RLR agreed jointly and
severally to provide to Chartwell limited indemnification and reimbursement for
adverse development of the net loss and LAE reserves and related accounts (the
"Covered Reserves") of Chartwell Reinsurance for accident years ending on or
before December 31, 1991 (the "Covered Years"). Pursuant to the Reserve
Indemnification Agreement, if Chartwell Reinsurance's Covered Reserves as of
December 31, 1996 for the Covered Years are greater than its Covered Reserves as
of December 31, 1991, RLR and NWNL will jointly and severally indemnify and
reimburse Chartwell at that time in an amount equal to (i) 85% of the first $20
million of such difference in excess of $100,000 plus (ii) 60% of the next $10
million of such difference, up to a maximum amount of $23 million, representing
18% of loss reserves as of December 31, 1991. If Chartwell Reinsurance's Covered
Reserves as of December 31, 1996 for the Covered Years are less than its Covered
Reserves as of December 31, 1991, Chartwell has agreed to reimburse NWNL at that
time in an amount equal to fifty percent (50%) of the first $10 million of such
difference in excess of $100,000, up to a maximum amount of $5 million. At
September 30, 1995, December 31, 1994 and December 31, 1993, the amounts
recoverable as reflected in Chartwell's financial statements under the Reserve
Indemnification Agreement were $8.2, $7.8 and $4.8 million, respectively ($4.2,
$4.1 and $1.9 million included in reinsurance recoverable and $4.0, $3.7 and
$2.9 million included in other assets, respectively).

As reported in RLR's quarterly report on Form 10-Q for the period ended
September 30, 1995 (the "RLR 10-Q") filed with the SEC, at December 31, 1994 and
September 30, 1995 RLR had total consolidated assets of $10,366.8 million and
$15,077.1 million, respectively, and shareholders' equity of $798.5 million and
$1,274.2 million, respectively. As reported in the RLR 10-Q, for the nine months
ended September 30, 1995 RLR had consolidated revenues of $1,548.3 million and
consolidated net income of $125.3 million. As reported in RLR's annual report on
Form 10-K for the year ended December 31, 1994 filed with the SEC, at December
31, 1994 RLR had consolidated revenues of $1,570.8 million and consolidated net
income of $105.1 million.

INVESTMENTS

Chartwell's long term investment policy is to maximize after-tax operating
return and to seek increased yields in periods when increasing fixed income
securities rates make active portfolio management less attractive because of its
negative effect on statutory surplus. Complementing this primary objective,
Chartwell's investment policy also seeks to achieve appropriate diversification
and safety of principal while maintaining sufficient liquidity in cash and short
term investments to meet its obligations on a timely basis. Chartwell's
investment portfolio consists primarily of investment-grade fixed maturity debt
securities. As of September 30, 1995 and December 31, 1994, approximately 98.9%
and 98.2% of the bond portfolio was rated A or better by Moody's.

J.P. Morgan Investment Management Inc. ("J.P. Morgan") acts as investment
advisor to Chartwell. Pursuant to an investment management agreement with
Chartwell, J.P. Morgan implements the investment policies established and
approved by the Board of Directors of Chartwell. Chartwell's investment policy
is to maintain a portfolio with an average rating of A or better from

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Moody's and to retain such securities for sale in response to changes in
interest rates and liquidity needs. However, it is not Chartwell's policy to
sell securities merely to generate profits on short-term differences in price.
The performance of J.P. Morgan and the fees associated therewith are
periodically reviewed by both management and the Board of Directors of
Chartwell. Investments by Chartwell Reinsurance must comply with the insurance
laws of the State of Minnesota, the domiciliary state of Chartwell Reinsurance.

The following table summarizes the investments of Chartwell (at carrying
value):

COMPOSITION OF INVESTMENT PORTFOLIO
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------------------ ---------------------------------------------
1995 1994 1994 1993
---------------- ---------------- --------------------- ---------------------
PERCENTAGE PERCENTAGE
AMOUNT % AMOUNT % AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- ----- -------- ----- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Income Securities
Corporate....................... $ 43,516 15.1% $ 62,973 30.0% $ 67,745 28.5% $ 51,114 27.8%
U.S. Government and Government
Agency(1)..................... 207,676 71.9 124,983 59.5 143,935 60.4 116,796 63.5
Obligations of States and
Political Subdivisions......... 27,586 9.6 17,880 8.5 22,124 9.3 13,797 7.5
Foreign Government and
Government Agency.............. 8,982 3.1 4,079 1.9 4,049 1.7 2,022 1.1
Other........................... 859 0.3 247 0.1 278 0.1 259 0.1
-------- ----- -------- ----- -------- ----- -------- -----
Total Investments............... $288,619 100.0% $210,162 100.0% $238,131 100.0% $183,988 100.0%
-------- ----- -------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- ----- -------- -----
Cash & Cash Equivalents......... $ 24,522 $ 60,008 $ 37,005 $ 35,738
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

- ------------

(1) At September 30, 1995 and December 31, 1994, $92.4 million and $75.8 million
of these securities were backed by the full faith and credit of the U.S.
Government and $115.3 million and $68.1 million were obligations of issuing
agencies.

The following table reflects investment results for Chartwell for the
periods indicated:

INVESTMENT RESULTS
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Invested Assets............. $295,056 $255,033 $259,054 $207,974 $167,755
Net Investment Income(1)............ $ 14,743 $ 10,531 $ 14,726 $ 10,959 $ 11,206
Net Effective Yield(2).............. 6.7% 5.5% 5.7% 5.3% 6.7%
Net Realized Capital Gains(Losses).. $ 1,707 $ (3,794) $ (3,794) $ 6,418 $ 1,335
Effective Yield Including Realized
Capital Gains (Losses)(3)......... 7.2% 4.0% 4.2% 8.4% 7.5%
</TABLE>

- ------------

(1) After investment expenses, excluding realized investment gains (losses).

(2) Net investment income for the year-end period or annualized for interim
periods divided by average invested assets for the same period.

(3) Net investment income for the year-end period or annualized for interim
periods plus realized capital gains (losses) for the period divided by
average invested assets for the same period.

A major portion of Chartwell's fixed income portfolio is classified as
available for sale. At September 30, 1995, December 31, 1994 and December 31,
1993, $267.3, $218.9, and $173.7 million (at market value) of Chartwell's fixed
income securities were classified as available for sale

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<PAGE>

and $20.5, $19.0, and $10.1 million (at amortized cost) of such securities were
classified as held for investment. Changes in the market value of securities
that are classified as assets available for sale are reflected directly in
Chartwell's stockholders' equity.

The following table indicates the composition of Chartwell's fixed income
portfolio (at carrying value) by rating:

COMPOSITION OF FIXED INCOME SECURITY PORTFOLIO
BY RATING (1)
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
U.S. Government and Government Agency Fixed Income
Securities...................................... $197,546 68.6% $147,300 61.9%
Aaa/Aa............................................ 41,074 14.3 46,112 19.4
A................................................. 45,947 16.0 40,201 16.9
Baa............................................... 3,193 1.1 4,240 1.8
-------- ------- -------- -------
Total......................................... $287,760 100.0% $237,853 100.0%
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>

- ------------

(1) Rating as assigned by Moody's. Such ratings are generally assigned upon the
issuance of the securities and are subject to revision on the basis of
ongoing evaluations. Ratings in the table are as of the date indicated.

Moody's rating system utilizes nine symbols to indicate the relative
investment quality of a rated bond. Aaa rated bonds are judged to be of the best
quality and are considered to carry the smallest degree of investment risk. Aa
rated bonds are also judged to be of high quality by all standards. Together
with Aaa bonds, these bonds comprise what are generally known as high grade
bonds. Bonds rated A possess many favorable investment attributes and are
considered to be upper medium grade obligations. Baa rated bonds are considered
as medium grade obligations; they are neither highly protected nor poorly
secured. Bonds rated Ba or lower (those rated B, Caa, Ca and C) are considered
to be too speculative to be of investment quality.

NAIC investment ratings are provided annually at December 31 of each year.
At September 30, 1995, approximately 98.9% and at December 31, 1994
approximately 98.2% of Chartwell's fixed maturity investments were rated "Class
1," and the remaining 1.1% at September 30, 1995 and 1.8% at December 31, 1994
of Chartwell's fixed maturity investments were rated "Class 2," the two highest
ratings assigned by the NAIC.

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<PAGE>
The following table indicates the composition of Chartwell's fixed income
security portfolio (at carrying value) by time to maturity:

COMPOSITION OF FIXED INCOME SECURITY PORTFOLIO
BY MATURITY (1)
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1 year or less...................................... $ 7,199 2.5% $ 19,924 8.4%
Over 1 year through 5 years......................... 80,482 28.0 71,773 30.2
Over 5 years through 10 years....................... 30,351 10.6 29,353 12.3
Over 10 years through 20 years...................... 8,311 2.9 8,627 3.6
Over 20 years....................................... 36,892 12.8 32,128 13.5
Mortgage backed securities.......................... 124,525 43.2 76,048 32.0
-------- ------- -------- -------
Total......................................... $287,760 100.0% $237,853 100.0%
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>

- ------------

(1) Based on stated maturity dates with no prepayment assumptions.

Certain mortgage backed securities are subject to prepayment risk. Mortgage
backed securities represent 39.8% and 27.6% of Chartwell's total investments and
cash and 43.2% and 32.0% of Chartwell's fixed income securities portfolio at
September 30, 1995 and December 31, 1994, respectively. During periods of
significant interest rate volatility, the underlying mortgages may prepay more
quickly than anticipated. If the repayment of principal occurs earlier than
anticipated during periods of declining interest rates, investment income may
decline due to the reinvestment of these funds at the lower current market
rates. The risk is similar to corporate bonds being called prior to maturity due
to lower interest rates. Management does not believe that the prepayment risk
associated with Chartwell's portfolio of mortgage backed securities is
significant.

The following table sets forth certain information concerning Chartwell's
mortgage backed investments:

DISTRIBUTION OF MORTGAGE BACKED SECURITIES PORTFOLIO
BY TYPE (1)
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
SEPTEMBER 30, 1995 DECEMBER 31, 1994
-------------------------------- -------------------------------
MARKET AMORTIZED MARKET AMORTIZED
VALUE VALUE PAR VALUE VALUE VALUE PAR VALUE
-------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Collateralized Mortgage
Obligations........................ $ 33,451 $ 32,382 $ 36,612 $30,836 $33,366 $ 36,960
Pass-throughs (primarily GNMA, FNMA
and FHLMC)......................... 91,074 91,376 89,252 45,212 48,317 47,661
-------- --------- --------- ------- --------- ---------
Total................................ $124,525 $ 123,758 $ 125,864 $76,048 $81,683 $ 84,621
-------- --------- --------- ------- --------- ---------
-------- --------- --------- ------- --------- ---------
</TABLE>

- ------------

(1) At September 30, 1995 and December 31, 1994, agency backed securities
represented 95.9% and 87.8% of Chartwell's mortgage backed investments at
such dates. Other mortgage backed securities represented 4.1% and 12.2%.
These other mortgage backed securities are rated either Aaa or A as assigned
by Moody's. Such ratings equate with the NAIC's SVO rating Class 1 which is
the highest rating category used by the SVO.

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<PAGE>
COMPETITION

The reinsurance business is highly competitive. Reinsurers compete based on
many factors including the financial strength of the reinsurer, the A.M. Best
rating of the reinsurer, premiums charged, other terms and conditions of the
reinsurance offered, services offered, timeliness of claims payments, ongoing
business relationships, reputation and experience.

Chartwell competes with numerous international and domestic reinsurance and
insurance companies. These competitors, many of which have substantially greater
financial and staff resources than Chartwell, include independent reinsurance
companies, as well as subsidiaries, affiliates or reinsurance departments of
established insurance companies and underwriting syndicates. As indicated by
data compiled by A.M. Best, broker market reinsurers and direct reinsurers wrote
70% and 30%, respectively, of the aggregate net treaty premiums written in the
United States during 1992. Chartwell competes directly with other broker market
reinsurers for business obtained through reinsurance brokers and, because
reinsurance brokers must compete with direct writers for business from ceding
companies, Chartwell also competes indirectly with direct writers.

While the reinsurance industry has traditionally had relatively low barriers
to entry, the reinsurance industry, including the broker market, is currently
undergoing consolidation. Management believes that in the next few years fewer
reinsurance brokerage firms will place a greater proportion of the brokered
business. In addition, because of concerns regarding financial security and the
ease of administration, reinsurance brokers will also seek to reduce the number
of reinsurance companies with which they place business. Chartwell's management
believes that, as a consequence, a reinsurer's relative financial strength will
in the future be of greater importance as a competitive factor. Management
believes that the increase of Chartwell Reinsurance's statutory surplus to over
$100 million in 1994 has enhanced its position in the marketplace.

Chartwell Reinsurance is rated "A-" (Excellent) by A.M. Best. The ratings
assigned by A.M. Best are based upon factors of concern to policyholders, agents
and intermediaries and are not directed toward the protection of investors.
There can be no assurance that A.M. Best's rating of Chartwell Reinsurance will
not change in the future.

Chartwell may in the future face additional competition from other
well-capitalized companies or from market participants that may in the future
devote more of their capital to the reinsurance business.

INSURANCE REGULATION

General

Chartwell Reinsurance is subject to the insurance laws and regulations of
Minnesota, its domiciliary state, and administrative supervision by the
Commissioner. In addition, it is subject to similar laws, regulations and
supervision in the various states in which it is licensed or authorized to
transact business, primarily with regard to solvency, accounting practices,
reports on financial condition and operations, investments and reserves. Under
state insurance law, property and casualty reinsurers are generally not subject
to filing or other regulatory requirements applicable to primary insurers with
respect to rates, policy forms or contract wording. In supervising and
regulating insurance companies, including reinsurers, state agencies, charged
primarily with protecting policyholders and the public rather than investors,
enjoy broad authority and discretion in applying applicable insurance laws and
regulations for the protection of policyholders and the public.

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<PAGE>
Insurance Holding Company Systems Regulations

Chartwell and Chartwell Reinsurance are subject to regulation pursuant to
the insurance holding company systems statutes of Minnesota. While the insurance
holding company systems laws and regulations vary from state to state, they
generally require an insurance holding company and insurers and reinsurers that
are members of such insurance holding company's system to register with the
state regulatory authorities, to file with those authorities certain reports
disclosing information including their capital structure, ownership, financial
condition, certain intercompany transactions including material transfers of
assets and intercompany business agreements, and to report material changes in
such information. Such laws may also require that intercompany transactions be
fair and reasonable and that an insurer's policyholder surplus following a
dividend distribution to affiliated stockholders be adequate to meet its
financial needs.

In general, state insurance holding company systems statutes also require
prior notice to, or regulatory agency approval of, direct or indirect changes in
control of ownership of a domestic or foreign licensed or authorized insurer or
reinsurer. Under Minnesota law, no person, corporation or other entity may
acquire, directly or indirectly, a controlling interest in the capital stock of
Chartwell or Chartwell Reinsurance unless such person, corporation or other
entity has obtained prior approval from the Commissioner for such acquisition of
control. Pursuant to the Minnesota insurance holding company systems statutes,
any person, corporation or other entity acquiring, controlling or holding with
the power to vote, directly or indirectly, ten percent or more of the voting
securities of an insurance company, including a reinsurance company, is presumed
to have "control" of such company. The party may rebut this presumption by
filing with the Commissioner a disclaimer of affiliation. Other jurisdictions
where Chartwell Reinsurance is licensed to transact business may have similar
requirements for prior approval of an acquisition of control of a domestic or
foreign insurance or reinsurance company licensed or authorized to transact
business in such jurisdictions. Additional requirements in such jurisdictions
may include relicensing or subsequent approval for renewal of existing licenses
upon an acquisition of control.

Restrictions on Dividends

The principal source of funds for servicing debt of Chartwell and paying
dividends to stockholders of Chartwell is derived from receipt of dividends from
Chartwell Reinsurance. Under Minnesota insurance law, Chartwell Reinsurance may
pay dividends only from its earned surplus, which is defined as unassigned funds
(surplus) as reported in the statutory financial statement filed by Chartwell
Reinsurance with the Minnesota Department of Commerce for the most recent
period. As of December 31, 1994, Chartwell Reinsurance reported unassigned funds
(surplus) in the amount of $15.1 million. Subject to such constraints, Chartwell
Reinsurance may declare and pay non-extraordinary dividends subject to certain
notice requirements to the Commissioner and extraordinary dividends to
stockholders subject to certain notice and approval requirements by the
Commissioner. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS --Chartwell--Liquidity and Capital Resources." With
respect to payments of all dividends to affiliated shareholders, following the
payment of such a dividend, Chartwell Reinsurance's policyholder surplus must be
reasonable in relation to its outstanding liabilities and adequate for its
financial needs.

No dividends were paid in the first nine months of 1995 or in 1994. For the
years ended December 31, 1993 and 1992, the cash dividends paid by Chartwell
Reinsurance were $0.4 and $2.3 million, respectively. All of the dividends paid
were ordinary for purposes of the Minnesota insurance laws. For 1995, Chartwell
Reinsurance is permitted to declare and pay ordinary dividends to stockholders
in the aggregate amount of $11.2 million, subject to the notice requirements on
dividend declarations and payments.

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Investment Limitations

Minnesota insurance laws and regulations prescribe the kind, quality and
concentration of investments that are permissible for Minnesota insurance and
reinsurance companies, including Chartwell Reinsurance. The purpose of these
laws is to protect the interests of policyholders, claimants, creditors and the
general public by promoting the safety, yield and growth of an insurance
company's investment principal, the liquidity necessary to meet the insurance
company's expected business needs, and investment diversification. Non-life
insurance companies, such as Chartwell Reinsurance, within specified limits and
subject to certain qualifications, are authorized to invest in specifically
prescribed investments, including, subject to certain conditions, federal, state
and municipal government obligations, bank obligations, obligations and stocks
of corporations and business trusts, real estate and mortgages on real estate,
collateral loans, options, foreign and other investments. Such investment
obligations, however, may not be in default as to payments of principal and
interest. Non-life insurance companies may invest unrestricted surplus in
securities or property of any kind, without limitation, except as may be imposed
on business corporations in general. Non-life insurance companies are subject to
recently adopted risk-based capital guidelines which could influence investment
decisions. See "--Risk-based Capital." Management of Chartwell believes that
Chartwell Reinsurance is in compliance with all applicable Minnesota insurance
investment laws for non-life insurance companies.

Regulatory Examinations

The business and operations of Chartwell Reinsurance are subject to periodic
examination by the insurance departments of the jurisdictions in which it is
licensed or authorized to transact business. The Commissioner has broad
authority to conduct examinations at any time. The report made with respect to
the most recent examination of Chartwell Reinsurance is dated as of December 31,
1989 and contained no material adverse findings. Field work has been completed
on an examination as of December 31, 1994. While the final report has not been
issued, Chartwell believes that no material adverse findings will be made.

Risk-based Capital

In order to enhance the regulation of insurer solvency, the NAIC adopted
risk-based capital ("RBC") requirements for property and casualty insurance and
reinsurance companies commencing with filings made in 1995 covering the 1994
year. These RBC requirements are designed to monitor capital adequacy and to
raise the level of protection that statutory surplus provides for policyholders.
The RBC formula measures four major areas of risk facing property and casualty
insurers: (i) underwriting risk, which is the risk of errors in pricing and
reserves; (ii) asset risk, which is the risk of asset default for fixed income
assets and loss in market value for equity assets; (iii) credit risk, which is
the risk of losses from unrecoverable reinsurance and the inability of insurers
to collect agents' balances and other receivables; and (iv) off-balance sheet
risk, which is primarily the risk created by excessive growth. Insurers and
reinsurers having less statutory surplus than that required by the RBC formula
will be subject to varying degrees of regulatory action depending on the level
of capital inadequacy.

The RBC formula provides a mechanism for the calculation of an insurance
company's Authorized Control Level RBC and its total adjusted capital. The
formula sets forth the points at which a commissioner of insurance is authorized
and expected to take regulatory action. The first level is known as the Company
Action Level RBC, which is set at twice the Authorized Control Level RBC. The
second level is the Regulatory Action Level RBC, set at 1.5 times the Authorized
Control Level BRC. The third is the Authorized Control Level RBC, and the fourth
is the Mandatory Control Level RBC, set at 70 percent of the Authorized Control
Level RBC.

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If an insurance company's adjusted capital is higher than or equal to the
Regulatory Action Level RBC but below the Company Action Level RBC, the
insurance company must submit to its commissioner of insurance an RBC plan which
shall contain, among other things, proposals of corrective action. If an
insurance company's adjusted capital is higher than or equal to the Authorized
Control Level RBC but lower than the Regulatory Action Level RBC, the
commissioner of insurance shall perform any examination or analysis as deemed
necessary of the insurer's business and operations and issue any appropriate
corrective orders to address the insurance company's financial problems. If an
insurer's adjusted capital is higher than or equal to the Mandatory Control
Level RBC but lower than the Authorized Control Level RBC, the commissioner may
place the insurer under regulatory control. If the insurance company's adjusted
capital falls below the Mandatory Control Level RBC, the commissioner will be
required to place the insurer under regulatory control. At December 31, 1994
Chartwell Reinsurance's adjusted capital was higher than the Company Action
Level RBC, and as a result no regulatory action is required. Should a future
deficiency occur, Chartwell will be subject to an increased level of regulatory
attention and, depending on the capital deficiency, possibly to actual control
by the appropriate regulatory authorities. There can be no assurance that any
such deficiency will not occur in the future.

Possible Legislative and Regulatory Changes

The insurance and reinsurance industry is regulated at the state level. In
recent years, numerous proposals for regulatory and legislative change have been
considered by the states and the NAIC reflecting the concern of the NAIC with
the financial solvency of insurers. Issues recently examined by the NAIC include
asset valuation reserves, loss reserve discounting, solvency surveillance and
risk-based capital.

The NAIC has recognized reinsurance as an area to which it needs to devote
substantive attention. Various model laws or regulations applicable to
reinsurance have been adopted or are under active consideration, including
proposed revisions to the model laws on credit for reinsurance and proposed
model laws on assumption reinsurance and accounting and reporting changes. It is
not possible to predict the future impact of changing state laws, regulations
and other non-statutory regulatory requirements relating to these issues on the
operations of Chartwell Reinsurance.

Certain states have adopted, or are considering the adoption of, laws and
regulations that limit the right of offset by reinsurers. In general, offset is
the right of a debtor to set off and apply against any financial obligation of
such debtor to a creditor any financial obligation of such creditor owed to the
debtor. The right of offset may become important to a reinsurer when a ceding
company or retrocessionaire of such reinsurer becomes insolvent.

There is currently no direct federal regulation of insurance or reinsurance.
The issue of insurance regulation and insurer solvency has previously been the
focus of substantial activity both by Congress and certain federal agencies.
However, there are no present proposals before the 104th Congress which would
provide for federal regulation of domestic reinsurers.

EMPLOYEES

As of September 30, 1995, Chartwell had 57 employees. None of these
employees is represented by a labor union and Chartwell believes that its
employee relations are excellent.

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PROPERTIES

Chartwell leases space for its principal executive offices in Stamford,
Connecticut. Chartwell also leases space in London, England for the operations
of Chartwell Advisers. Management believes its office space is adequate for its
current needs.

LEGAL PROCEEDINGS

Chartwell and Chartwell Reinsurance are subject to the litigation of
disputes in the normal course of their business. In addition, Chartwell
Reinsurance is subject to arbitration proceedings in the normal course of its
business because its reinsurance agreements generally provide for the resolution
of disputes with reinsureds pursuant to arbitration. Neither Chartwell nor
Chartwell Reinsurance believes that any pending litigation or arbitration to
which it is a party, or of which any of its properties or assets are subject, is
likely to have a materially adverse effect on its current financial position or
results of operations.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PIEDMONT

Approximately $639 million of invested assets of principal stockholders of
Piedmont (several of whom are directors) and their related interests are managed
by Lexington. See "PRINCIPAL STOCKHOLDERS--Piedmont." The fees charged by
Lexington for the management of such assets are based upon standard fee
schedules which are competitive with the fees charged on non-related accounts.

Piedmont's management and certain members of its Board of Directors may be
deemed to have certain interests in the Merger that are in addition to their
interests as stockholders of Piedmont generally, and which may create potential
conflicts of interest. These interests include, among others, provisions in the
Merger Agreement with respect to employee stock options, other employee
benefits, indemnification and insurance, severance benefits and the
directorships described below. See "THE MERGER--Interests of Certain Persons in
the Merger" in the Proxy Statement/Prospectus.

Except as stated above, no director or officer of Piedmont, beneficial
owners of more than 5% of any class of stock of Piedmont, member of the
immediate family of any of the foregoing persons had any material interest in
any material transaction of Piedmont or any of its subsidiaries or affiliates
since January 1, 1994.

CHARTWELL
STOCKHOLDERS AGREEMENT

In connection with the Merger, Chartwell will enter into a Stockholders
Agreement (the "Stockholders Agreement") with certain of its stockholders,
including the Virginia Retirement System ("VRS"), Institutional Venture Capital
Fund II ("IVCF II"), Michigan Mutual Insurance Company ("MMIC"), FIMA Finance
Management Inc. ("FIMA") and Wand/Chartwell Investments L.P. (the "Partnership")
(collectively, the "Chartwell Stockholders"), and Messrs. L. Richardson, Jr., S.
Richardson, S. Boney, L.R. Preyer, P.L. Richardson and R.R. Richardson, each of
whom is a director of Piedmont, and certain other Piedmont stockholders who are
relatives of the foregoing, or which are trusts with respect to which the
foregoing or such relatives are trustees or hold beneficial interests, as well
as a charitable organization established by relatives of the foregoing
(collectively, the "Richardson Stockholders"). The Stockholders Agreement
addresses certain matters relating to the control of Chartwell after the Merger,
and is intended to promote stability and facilitate the pursuit by Chartwell of
long-term stockholder goals.

Standstill Provisions. The Stockholders Agreement contains certain
"standstill" provisions intended to restrict the ability of any party to
increase significantly its present share of control over Chartwell. Pursuant to
the standstill provisions, the Chartwell Stockholders and the Richardson
Stockholders are each prohibited from engaging in certain actions, including the
following: (i) during the six month period commencing upon the Effective Time,
purchasing additional shares of Chartwell Common Stock or other voting
securities of Chartwell, except that such stockholders may purchase additional
shares of Chartwell Common Stock up to certain individual and aggregate
thresholds prescribed by the Stockholders Agreement; and (ii) for three years
following the Effective Time, depositing any shares of Chartwell Common Stock or
other voting securities of Chartwell into a voting trust or subjecting any such
securities to any arrangement or agreement (other than the Stockholders
Agreement) with respect to the voting of such securities, subject to specified
exceptions.

Voting Provisions. The Stockholders Agreement contains provisions giving the
Richardson Stockholders certain rights with respect to representation on the
Chartwell Board of Directors following the Merger. Under these provisions, the
Richardson Stockholders initially will be entitled to designate four persons to
be nominated for election to the Chartwell Board of Directors. The number of
persons that the Richardson Stockholders may designate shall be permanently
reduced

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if the Richardson Stockholders hold less than 16% of the outstanding Chartwell
Common Stock, such that (i) if the Richardson Stockholders hold less than 16%
but equal to or greater than 12% of the Chartwell Common Stock, they will be
entitled to three designees; (ii) if the Richardson Stockholders hold less than
12% but equal to or greater than 8% of the Chartwell Common Stock, they will be
entitled to two designees; (iii) if the Richardson Stockholders hold less than
8% but equal to or greater than 5% of the Chartwell Common Stock, they will be
entitled to one designee; or (iv) if the Richardson Stockholders hold less than
5% of the Chartwell Common Stock, they will have no further designation rights.
Initially, Stuart Smith Richardson will exercise the designation rights of the
Richardson Stockholders.

The designees of the Richardson Stockholders will be recommended by the
nominating committee of Chartwell's Board of Directors to the full Board of
Directors for inclusion in Chartwell's slate of nominees for election. Each
party to the Stockholders Agreement will agree to vote its shares in favor of
the slate proposed by Chartwell, subject to the right of the Chartwell
Stockholders to be released from this voting obligation upon their ownership
interests in Chartwell declining below certain specified thresholds. In the
event that any designee of the Richardson Stockholders ceases to serve as a
director, the Richardson Stockholders will have the right to designate another
person for election to the Chartwell Board of Directors.

If at any time (i) a designee of the Richardson Stockholders is sitting on
the Chartwell Board of Directors and (ii) the board of directors of any
principal U.S. subsidiary of Chartwell has any member who is not an officer or
employee of Chartwell or any of its subsidiaries, Chartwell shall cause one
designee of the Richardson Stockholders that is sitting on the Chartwell Board
of Directors to be elected to the board of directors of such subsidiary.

Tag-Along Rights. With certain limited exceptions, any party or parties to
the Stockholders Agreement proposing to sell a number of shares of Chartwell
Common Stock representing 30% or more of the then outstanding Chartwell Common
Stock in one or a series of related transactions must provide written notice to
the other parties of the proposed action at least fifteen days before the
proposed date of sale. Within ten days of the receipt of such notice any other
party may inform the party proposing to sell the shares that such other party
desires to sell shares to the prospective buyer on the same terms and conditions
set forth in the notice and, upon giving notice, such other party will be
entitled to participate on a pro-rata basis in the sale of the shares.

Amendments. Amendments to and modifications of the Stockholders Agreement
may only be made by written consent of Chartwell and other parties to the
Stockholders Agreement holding not less than 66 2/3% of the Chartwell Common
Stock then subject to the Stockholders Agreement, except that any amendment,
modification or other change to the Stockholders Agreement that affects the
nomination or agreement to vote for the directors designated by the Richardson
Stockholders requires the consent of 66 2/3% of the outstanding shares of
Chartwell Common Stock held by the Richardson Stockholders.

Effectiveness and Termination. The Stockholders Agreement will become
effective as of the Effective Time and shall continue in effect (subject to the
earlier termination of certain provisions as described above) until (i) the
written consent of all parties to the agreement is obtained, (ii) Chartwell is
dissolved or liquidated, (iii) the date which is the later of (A) the date on
which settlement of the CI Notes occurs pursuant to the Indenture and (B) the
first date on which the total number of shares of Chartwell Common Stock held by
the Richardson Stockholders represents less than ten percent of the then issued
and outstanding Chartwell Common Stock, or (iv) eleven years from the date of
the Stockholders Agreement.

REGISTRATION RIGHTS AGREEMENT

In connection with the Merger, Chartwell will enter into a Registration
Rights Agreement (the "Registration Rights Agreement") with substantially all of
its current stockholders and the Richardson Stockholders. Pursuant to the
Registration Rights Agreement, at any time after the Effective

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<PAGE>
Time of the Merger, upon the request of stockholders holding at least 400,000
shares of Chartwell Common Stock or any security convertible into 400,000 shares
of Chartwell Common Stock, Chartwell must, subject to certain limited
exceptions, use its best efforts to register such shares under the Securities
Act. Chartwell is not obligated to effect more than one registration in any
nine-month period or more than four during the term of the Registration Rights
Agreement. The Richardson Stockholders will have the right to initiate two of
the four registrations effected pursuant to the Registration Rights Agreement.
Chartwell shall pay all registration expenses in connection with the four
registrations except underwriting discounts and commissions and transfer taxes.
If the registration is in the form of an underwritten offering, the stockholders
holding a majority of the shares of Chartwell Common Stock being registered
pursuant to the registration may select the underwriters, subject to Chartwell's
approval.

Parties to the Registration Rights Agreement have "piggyback" rights to
register shares of Chartwell Common Stock in connection with registration of
equity securities by Chartwell. These rights are subject to limitation if the
registration involves an underwritten offering and the managing underwriter
determines that, in its good faith view, the inclusion of all or any portion of
such additional securities in the registration would have a material adverse
effect on the offering. Chartwell and the other parties to the Registration
Rights Agreement have agreed to certain indemnification arrangements in
connection with a registered offering of securities.

CERTAIN OTHER RELATIONSHIPS

Relationship with Wand/Chartwell Investments L.P., Wand Partners (Chartwell)
L.P. and Wand Partners Inc.

Messrs. Schnitzer and Callard, directors of Chartwell, are the sole
stockholders of, and Mr.Schnitzer is Chairman and Mr. Callard is President of,
Wand Partners Inc. ("Wand"), which is the general partner of Wand Partners
(Chartwell) L.P. ("Wand (Chartwell)"), which, in turn, is the general partner of
the Partnership. Messrs. Schnitzer and Callard also each own 2.1138% of the
limited partnership interests in the Partnership and Wand owns 50% of the
limited partnership interests in Wand (Chartwell).

On March 6, 1992, Chartwell entered into a Monitoring and Oversight
Agreement with Wand (the "Wand Monitoring Agreement") relating to the provision
by Wand of financial and advisory services to Chartwell and Chartwell
Reinsurance in connection with their business and operations. The Wand
Monitoring Agreement was terminated as of December 31, 1994. In 1994, 1993 and
1992, Chartwell paid $213,000, $234,000 and $170,438, respectively, to Wand
under the Wand Monitoring Agreement. No further amounts are payable pursuant to
this agreement.

As fees for advisory services provided in connection with (i) the
acquisition of Chartwell by the Partnership and MMIC and (ii) the private sale
of common stock, preferred stock and subordinated debt of Chartwell in 1992 (the
"1992 Recapitalization"), Chartwell issued certain warrants (the "Acquisition
Warrant" and the "Surplus Enhancement Warrant" (collectively, the "Wand
(Chartwell) Warrants")) to Wand (Chartwell). The Acquisition Warrant entitles
the holder thereof to purchase 81,000 shares of Chartwell Common Stock, subject
to adjustment upon certain dilutive events. The Acquisition Warrant expires on
the later of (i) March 6, 2002 or (ii) the registration of the Chartwell Common
Stock issuable upon exercise of the Acquisition Warrant. The Acquisition Warrant
is exercisable at any time or from time to time prior to expiration at an
exercise price of $21.00 per share, subject to adjustment upon certain dilutive
events. The Surplus Enhancement Warrant entitles the holder thereof to purchase
101,477 shares of Chartwell Common Stock, subject to adjustment upon certain
dilutive events. The Surplus Enhancement Warrant expires on the later of (i)
January 15, 2003 or (ii) the registration of the Chartwell Common Stock issuable
upon exercise of the Surplus Enhancement Warrant. The Surplus Enhancement
Warrant is exercisable at any time or from time to time prior to expiration at
an exercise price of $22.00 per share, subject to adjustment upon certain
dilutive events.

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In connection with the Merger, Chartwell and Wand (Chartwell) will amend as
of the Effective Time the Wand (Chartwell) Warrants to provide for a cashless
exercise feature and to make certain other conforming changes.

Relationship with Michigan Mutual Insurance Company

On March 6, 1992, Chartwell entered into a Monitoring and Oversight
Agreement with MMIC (the "MMIC Monitoring Agreement") relating to the provision
by MMIC of financial and advisory services to Chartwell and Chartwell
Reinsurance in connection with their business and operations. The MMIC
Monitoring Agreement was terminated on December 31, 1994. In 1994, 1993 and 1992
Chartwell paid $100,000, $89,000 and $82,000, respectively, to MMIC under the
MMIC Monitoring Agreement. No further amounts are payable pursuant to this
agreement.

Original Stockholders Agreement

In connection with the 1992 Recapitalization, Chartwell entered into a
stockholders agreement (the "Original Stockholders Agreement") with most of the
holders of its common stock. The Original Stockholders Agreement covers matters
such as the election of directors, registration rights and certain transfer
restrictions. The Original Stockholders Agreement will be terminated as of the
Effective Time of the Merger.

Employee Stockholders Agreement

On March 6, 1992, Chartwell entered into an individual stockholders
agreement (the "Employee Stockholders Agreement") with certain employees of
Chartwell (each an "Employee," collectively, the "Employees") with respect to
their shares of Chartwell Common Stock (the "Employee Shares"). The Employee
Stockholders Agreement restricts the transfer of the Employee Shares and grants
certain "piggyback" registration rights.

Pursuant to the Employee Stockholders Agreement, the Employees may not grant
any proxy or enter into any voting trust or arrangement with respect to the
voting of his or her shares. Also, each Employee is required to sell his or her
shares if (i) holders of two-thirds of the Chartwell Common Stock agree to
transfer their shares or (ii) the Employee ceases to be employed by Chartwell.

Relationship with Old American Insurance Company

Chartwell Reinsurance provides reinsurance on certain reinsurance programs
to Old American Insurance Company, a Texas County Mutual Company ("Old
American"), which is an affiliate of Chartwell. Chartwell participates with
other broker market reinsurers on those programs which meet its underwriting
requirements. Old American accounted for 1.1%, 4.1%, 4.0%, and 4.7% of
Chartwell's gross premiums written for the nine months ended September 30, 1995
and the years ended December 31, 1994, 1993, and 1992, respectively. Chartwell
and Old American have no ownership in each other; however, Wand is the general
partner both of Wand (Chartwell) and of the Delaware general partnership that
controls Old American.

Relationships with New London Capital plc

In 1993, pursuant to an Advisory Agreement between Chartwell Advisers and
NLC (the "NLC Advisory Agreement"), Chartwell Advisers became the exclusive
Lloyd's adviser to NLC, an investment company formed to underwrite at Lloyd's of
London through a group of wholly-owned subsidiaries that are limited liability
corporate members of certain selected Lloyd's syndicates. Messrs. Schnitzer and
Cole are directors of NLC, Chartwell and Chartwell Reinsurance. The NLC Advisory
Agreement, which has a term of five years, provides that Chartwell Advisers will
(i) review and evaluate Lloyd's syndicates to identify those which satisfy NLC's
underwriting criteria, (ii) recommend those syndicates to which the NLC
corporate members should provide underwriting capacity and (iii) monitor the
selected syndicates throughout the underwriting year. Chartwell Advisers'
remuneration for its services will consist of (i) an annual service fee based on
the consolidated net asset value of NLC and (ii) a profit commission based on
the underwriting success of the syndicates in which the NLC corporate members
participate. Chartwell will provide a limited

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<PAGE>
indemnity to NLC only in cases involving negligence, breach of trust or willful
misconduct on the part of Chartwell Advisers in the performance of its duties
under the NLC Advisory Agreement.

In 1994, Chartwell and NLC entered into a Participation Agreement whereby
Chartwell will participate in the 1995 year of account underwriting results of
NLC's syndicates, which are selected by Chartwell Advisers, by posting a letter
of credit in the sum of B.P.6.5 million and guaranteeing a loan to NLC in the
sum of B.P.1.5 million. Under current Lloyd's rules, this allows NLC to increase
its premium capacity by B.P.16 million. The results relating to this increased
capacity will inure to Chartwell. The maximum liability for this investment
would be B.P.8 million, the sum of the letter of credit and the loan guarantee.

Investor Group Warrants

On February 2, 1994, the Board of Directors of Chartwell approved the
issuance to the Partnership and to the holders of the then outstanding Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Stock"),
Series B Convertible Preferred Stock, par value $.01 per share (the "Series B
Stock") and Series C Preferred Stock, par value $.01 per share (the "Series C
Stock"), of warrants (the "Investor Group Warrants") to purchase an aggregate of
188,946 shares of Chartwell Common Stock. The Investor Group Warrants were
granted to the foregoing parties pro rata in accordance with the number of
shares of Chartwell Common Stock each such party held upon consummation of
Chartwell's offering of its Senior Notes in 1994.

In connection with the Merger, Chartwell will use its best efforts to cause
the holders of the Investor Group Warrants to amend as of the Effective Time
such warrants to adjust their exercise price to $21.00 per share, to provide for
a cashless exercise feature and to make certain other conforming changes.

Conversion Distribution

Following consummation of the Senior Notes offering, each holder of the
Series A Stock and the Series B Stock received a cash payment equal to 4% of the
aggregate liquidation preference of such shares held by such holder, for an
aggregate payment by Chartwell of $784,000. Of such amount, MMIC received
$640,000 and the entities affiliated or associated with Canaan Capital Partners,
L.P. ("Canaan Partners") received an aggregate of $140,000. Each holder of
Chartwell's 12% Subordinated Debentures (the "Debentures") received a cash
payment equal to 4% of the aggregate principal amount of the Debentures held by
such holder, for an aggregate payment by Chartwell of $753,000. Of such amount,
EXOR America Inc. (an affiliate of FIMA) received $300,000, VRS and IVCF II
received an aggregate of $300,000, and the State of Michigan Retirement System
received $80,000.

Relocation Loan

In August 1990, Mr. Cole received a compensation related loan from Chartwell
in the amount of $134,000 to assist with his relocation to Connecticut. The loan
is non-interest bearing and interest is imputed and included as compensation to
Mr. Cole. The outstanding balance at December 31, 1994 was $67,000. Such balance
will be forgiven over the next two years under the terms of Mr. Cole's
employment agreement.

Director Warrant

On December 31, 1992, in connection with the 1992 Recapitalization,
Chartwell issued a warrant to one of its directors, John Sagan (the "Sagan
Warrant"). The Sagan Warrant entitles the holder thereof to purchase 4,000
shares of Chartwell Common Stock, subject to adjustment upon certain dilutive
events. The Sagan Warrant expires on the later of (i) March 6, 2002 or (ii) the
registration of the Chartwell Common Stock issuable upon the exercise of such
warrant. The Sagan Warrant is exercisable at any time or from time to time prior
to expiration at an exercise price of $21.00 per share, subject to adjustment
for certain dilutive events.

In connection with the Merger, Chartwell and Mr. Sagan will amend as of the
Effective Time the Sagan Warrant to provide for a cashless exercise feature and
to make certain other conforming changes.

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DIRECTORS AND EXECUTIVE OFFICERS

PIEDMONT

Directors

The following table provides information as of November 9, 1995 regarding
the individuals who are directors of Piedmont. Biographical information for each
director who is not an executive officer of Piedmont is presented below.

<TABLE><CAPTION>
NAME AGE TITLE1
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
R. R. Richardson2......................... 69 Chairman of the Board of Directors
Robert M. DeMichele....................... 50 Director; President and CEO
Sion A. Boney III2........................ 39 Director
Terence N. Deeks.......................... 55 Director
Haynes G. Griffin......................... 48 Director
William R. Miller......................... 64 Director
L. Richardson Preyer2..................... 76 Director
Lunsford Richardson, Jr.2................. 71 Director
Peter L. Richardson2...................... 41 Director
Stuart Smith Richardson2.................. 48 Director
Carl H. Tiedemann......................... 68 Director
Marion A. Woodbury........................ 72 Director
</TABLE>

- ------------

1 In addition to being a director of Piedmont, each of the directors except
Messrs. Boney, Deeks, Griffin, Preyer, Peter L. Richardson and Tiedemann is a
director of either RECO or LMC, both of which are wholly-owned subsidiaries of
Piedmont.

2 Messrs. R. R. Richardson, Lunsford Richardson, Jr. and L. Richardson Preyer
are first cousins. Messrs. Stuart Smith Richardson and Peter L. Richardson are
brothers. Mr. Sion A. Boney is a nephew of Mr. Lunsford Richardson, Jr.

SION A. BONEY III has been a director of Piedmont since 1987. He is also the
Vice President and General Manager of the Venture Group of Bristol-Myers Squibb
Company; formerly Consultant, Marketing Corporation of America.

TERENCE N. DEEKS has been a director of Piedmont since 1984. Mr. Deeks is
the Chairman, President and Chief Executive Officer of Navigators Group, Inc.
("Navigators").

HAYNES G. GRIFFIN has been a director of Piedmont since 1992. Mr. Griffin is
President and Chief Executive Officer of Vanguard Cellular Systems, Inc.
("Vanguard") and a Director of Geotek Communications Inc.

WILLIAM R. MILLER has been a director of Piedmont since 1994. Mr. Miller was
President and Chief Executive Officer of Winterthur U.S. Holdings from 1981 to
1990. He is currently retired.

L. RICHARDSON PREYER has been a director of Piedmont since 1982. Mr. Preyer
also was a Professor at the University of North Carolina and a Member of the
U.S. House of Representatives from the State of North Carolina. He is a Director
of Vanguard and is currently retired.

LUNSFORD RICHARDSON, JR. has been a director of Piedmont and the Chairman of
RECO since 1968. Mr. L. Richardson, Jr. is also the Chairman of Richardson
Corporation of Greensboro. He will serve as Vice Chairman of Lexington after the
Spin-off.

PETER L. RICHARDSON has been a director of Piedmont since 1986. He is
President of Smith Richardson Foundation, Inc. and a Managing Trustee of H.
Smith Richardson Family Trust.

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<PAGE>
R. R. RICHARDSON has been a director of Piedmont since 1971. He has served
as Chairman of Piedmont since 1979.

STUART SMITH RICHARDSON has been a director of Piedmont since 1983 and has
been Vice-Chairman of Piedmont since 1986. He will serve as Chairman of
Lexington after the Spin-off. Mr. S. S. Richardson is also the Chairman of
Vanguard.

CARL H. TIEDEMANN has been a director of Piedmont since 1982. He is also a
General Partner at Tiedemann Boltres Partners, a Director of Curtice Burns, Inc
and a Director of Alltel Corporation.

MARION A. WOODBURY has been a director of Piedmont since 1979. He is a
Director of Navigators.

Executive Officers

The following table sets forth certain information as of December 31, 1994
with respect to Piedmont's executive officers.
<TABLE><CAPTION>
NAME AGE TITLE
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Robert M. DeMichele....................... 50 President, Chief Executive Officer and
Director of Piedmont
Peter J. Palenzona........................ 43 Senior Vice President and Chief Financial
Officer of Piedmont
Richard M. Hisey.......................... 36 Managing Director of LMC
Lawrence Kantor........................... 48 Managing Director of LMC
Richard J. Matinale....................... 47 Executive Vice President of RECO
</TABLE>

ROBERT M. DEMICHELE has been President, CEO and a director of Piedmont since
1982. He also served as President and Chief Operating Officer of RECO since
1985. Mr. DeMichele will serve as President and Chief Executive Officer of
Lexington after the Spin-off. Mr. DeMichele also serves as a director of
Navigators, Vanguard and Chairman and Chief Executive Officer of LMC.

PETER J. PALENZONA has served as Senior Vice President of Piedmont since
1991, as Treasurer and Chief Financial Officer of Piedmont since 1979 and as
Secretary of Piedmont since 1982. He also has served as a Director of both RECO
and LMC since 1982.

RICHARD M. HISEY has been a Managing Director and Chief Financial Officer of
LMC since 1992. He will serve as Executive Vice President and Chief Financial
Officer of Lexington after the Spin-off.

LAWRENCE KANTOR has been the Executive Vice President of LMC since 1986 and
a Managing Director of LMC since 1991. He will serve as Executive Vice President
and General Manager of Mutual Funds of Lexington after the Spin-off.

RICHARD J. MATINALE has been Executive Vice President of RECO since 1986.

The executive officers of Piedmont are elected annually and have been
employed by Piedmont or one or more of its subsidiaries for the past five years.

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<PAGE>
CHARTWELL

Directors

The following table provides information as of November 9, 1995 regarding
the individuals who will serve as directors of Chartwell following the Effective
Time. Biographical information for each director who is not an executive officer
of Chartwell is presented below.

<TABLE><CAPTION>
NAME AGE TITLE
- ---------------------------- --- --------------------------------------------------------
<S> <C> <C>
Richard E. Cole............. 56 Chairman of the Board of Directors; Chief Executive
Officer
Steven J. Bensinger......... 40 Director; President
Jacques Q. Bonneau.......... 41 Director; Executive Vice President and Chief
Underwriting Officer
David J. Callard............ 57 Director
Greg S. Feldman............. 39 Director
Stephen L. Green............ 44 Director
Frank E. Grzelecki.......... 58 Director
John Sagan.................. 74 Director
Bruce W. Schnitzer.......... 51 Director
Robert M. DeMichele......... 50 Director
William R. Miller........... 65 Director
Lunsford Richardson, Jr..... 71 Director
Stuart Smith Richardson..... 48 Director
</TABLE>

DAVID J. CALLARD has been a director of Chartwell since 1992 and has been
President of Wand since December 1990. From November 1989 until he joined Wand
in September 1990, Mr. Callard was a financial advisor to several corporations.
Prior thereto, he was, for 17 years, a general partner and from 1984 a director
and managing director of Alex. Brown & Sons, an investment bank. Mr. Callard is
also a director of Waverly, Inc.

GREG S. FELDMAN has been a director of Chartwell since 1992 and is a
Managing Partner of Wellspring Associates L.L.C., a New York investment firm.
From 1990 to 1994, Mr. Feldman was with EXOR America Inc., where he was a Vice
President. From 1988 to 1990, Mr. Feldman was a Vice President of Clegg
Industries, Inc., an investment firm.

STEPHEN L. GREEN has been a director of Chartwell since 1992 and has been a
General Partner of Canaan Partners since 1991. From 1973 to 1992, Mr. Green held
a variety of financial positions with General Electric Company. He is a director
of several other public and private companies.

FRANK E. GRZELECKI has been a director of Chartwell since March 1994 and has
been President and Chief Operating Officer of Handy & Harman since 1992. He has
been a director of Handy & Harman since prior to 1989. Mr. Grzelecki was Vice
Chairman of Handy & Harman from 1989 to 1992. Mr. Grzelecki is also a director
of Zale Corporation.

JOHN SAGAN has been a director of Chartwell since 1992 and has been
President of Sagan Associates, a financial advisory service, since 1986. Prior
to that time he was Vice President and Treasurer of Ford Motor Company. Mr.
Sagan is also a director of Telident Inc. and Lemna Corporation.

BRUCE W. SCHNITZER has been a director of Chartwell since 1992. From March
1992 to March 1993, he was also Chairman of the Board of Directors of Chartwell.
Mr. Schnitzer has been Chairman of the Board of Directors of Wand since 1990 and
was President of Magical Corporation, the general partner of Wand Investments,
L.P. from prior to 1990. Mr. Schnitzer is a director of

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<PAGE>
Amresco, Inc., Life Partners Group, Inc., and PennCorp Financial Group Inc. He
is also Chairman of New London Capital plc.

WILLIAM R. MILLER has been a director of Piedmont since 1994. Mr. Miller was
President and Chief Executive Officer of Winterthur U.S. Holdings from 1981
until 1990. He is currently retired.

LUNSFORD RICHARDSON, JR. has been a director of Piedmont and the Chairman of
RECO since 1968. Mr. L. Richardson, Jr. also is the Chairman of Richardson
Corporation of Greensboro. He will serve as Vice-Chairman of Lexington after the
spin-off.

Messrs. DeMichele, Miller, L. Richardson, Jr. and S. S. Richardson are not
currently directors of Chartwell but will become directors as of the Effective
Time. Lunsford Richardson, Jr. is the cousin of Stuart Smith Richardson.

For information with respect to certain arrangements to be entered into with
respect to the election of certain directors, see "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."

Executive Officers

The following table provides information as of November 9, 1995 regarding
the executive officers of Chartwell. Such executive officers will be the
executive officers of the Surviving Corporation. Biographical information for
each of the individuals set forth in the table is presented below.

<TABLE><CAPTION>
NAME AGE TITLE
- ---------------------------- --- --------------------------------------------------------
<S> <C> <C>
Richard E. Cole............. 56 Chairman and Chief Executive Officer
Steven J. Bensinger......... 40 President
Jacques Q. Bonneau.......... 41 Executive Vice President, Chief Underwriting Officer
Michael H. Hayes............ 42 Executive Vice President
James A. Giordano........... 43 Senior Vice President
Charles E. Meyers........... 46 Senior Vice President, Chief Financial Officer
Thomas M. Daly.............. 40 Senior Vice President
Kathleen M. Carroll......... 42 Vice President, General Counsel and Secretary
Peter W. Wildman............ 34 Vice President, Chief Actuary
</TABLE>

RICHARD E. COLE became Chairman of the Board of Directors of Chartwell in
March 1993 and has served as Chief Executive Officer and a director of Chartwell
since July 1990. From July 1990 to March 1993, Mr. Cole also served as President
of Chartwell. From October 1988 to July 1990, Mr. Cole was engaged as a
principal in various entrepreneurial activities outside of the insurance and
reinsurance industries. Prior to October 1988, Mr. Cole was President of Cole,
Booth, Potter (formerly Sten-Re Cole & Associates, Inc.), a reinsurance
brokerage firm focusing on specialty lines reinsurance and reinsurance for
regional companies. Mr. Cole is a director of NLC.

STEVEN J. BENSINGER has served as President of Chartwell since March 1993
and as a director of Chartwell since February 1994. From February 1991 to
November 1992, Mr. Bensinger was President and Chief Operating Officer of
Skandia America Reinsurance Corporation ("Skandia

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<PAGE>
America"). From prior to 1988 to February 1991, Mr. Bensinger was Skandia
America's Chief Financial Officer.

JACQUES Q. BONNEAU has served as Executive Vice President and Chief
Underwriting Officer of Chartwell since March 1993 and as a director of
Chartwell since February 1994. From October 1990, when he joined Chartwell and
established Specialty Accounts to March 1993, Mr. Bonneau was a Senior Vice
President of Chartwell. From June 1988 to October 1990, Mr. Bonneau, as Senior
Vice President, managed the Special Treaty and Program Department of Trenwick
Group, Inc. ("Trenwick") and served as a director of Trenwick America
Reinsurance Company. Prior to June 1988, he was a Vice President in and managed
the Special Treaty and Program Department of Trenwick.

MICHAEL H. HAYES, head of Global Accounts, has served as an Executive Vice
President of Chartwell since March 1990. Since September 1993, Mr. Hayes has
been Managing Director of Chartwell Advisers. From October 1988 to March 1990,
Mr. Hayes served as Senior Vice President of Chartwell. Prior to October 1988,
Mr. Hayes was a Vice President of Trenwick, where he was responsible for
Trenwick's treaty operations.

JAMES A. GIORDANO, head of Regional Accounts, has served as a Senior Vice
President of Chartwell since April 1990. Prior to April 1990, Mr. Giordano
served as a Vice President of Chartwell.

CHARLES E. MEYERS has served as Senior Vice President and Chief Financial
Officer of Chartwell since October 1994. Prior to October 1994, Mr. Meyers
served as Senior Vice President and Treasurer of Chartwell from August 1990 to
October 1993 when he became Senior Vice President, Treasurer and Chief Financial
Officer of Chartwell. In addition, he served as Secretary of Chartwell from July
1990 to October 1993. Prior thereto, he was Vice President, Accounting and
Finance of Chartwell from October 1988 to August 1990 and Assistant Vice
President, Accounting and Finance from prior to October 1988.

THOMAS M. DALY has served as a Senior Vice President of Chartwell since July
1993 and previously served as Vice President of Chartwell from June 1990. Prior
to June 1990, Mr. Daly was a Vice President of Yasuda Re Management Corporation
where he was head of the Claims Department.

KATHLEEN M. CARROLL has served as Vice President, General Counsel and
Secretary of Chartwell since October 1993. From May 1991 until September 1993,
she served as Second Vice President and Associate General Counsel of NAC
Reinsurance Corporation. From prior to 1988 until May 1991, she served as
Assistant Vice President and Assistant General Counsel of NAC Reinsurance
Corporation.

PETER W. WILDMAN has served as Vice President, Chief Actuary since August
1994. From January 1990 to July 1994 he served as Manager, Corporate Actuarial
of NAC Reinsurance Corporation. Prior to December 1989, Mr. Wildman served as
Manager, Actuarial Pricing of NAC Reinsurance Corporation.

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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLES

PIEDMONT

The following table sets forth the cash and non-cash compensation for the
fiscal years ended December 31, 1994, 1993 and 1992 awarded to or earned by the
Chief Executive Officer and the four other most highly compensated executive
officers of Piedmont (and its subsidiaries):

<TABLE><CAPTION>
ANNUAL COMPENSATION
-------------------------- UNDERLYING ALL OTHER
SALARY BONUS OTHER ANNUAL OPTIONS COMPENSATION
NAME/POSITION YEAR ($) ($) COMPENSATION GRANTED (1)($)
- ------------------------------- ---- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. DeMichele............ 1994 $437,775 $100,000 -- 17,000 $ 53,152
President & CEO 1993 396,297 401,100 -- -- 37,948
of Piedmont 1992 379,816 -- -- 15,000 37,303
Richard M. Hisey............... 1994 167,034 103,000 -- 7,000 5,011
Managing Director 1993 143,000 70,000 -- -- 4,290
of LMC 1992 124,000 49,500 -- 4,500 3,720
Lawrence Kantor................ 1994 230,535 153,000 -- 7,000 6,916
Managing Director 1993 205,575 115,000 -- -- 6,167
of LMC 1992 195,505 72,000 -- 7,000 5,865
Richard J. Matinale............ 1994 230,000 35,000 -- 10,000 6,900
Executive Vice President 1993 197,500 95,000 -- -- 5,925
of RECO 1992 186,250 20,000 -- 9,000 5,588
Peter J. Palenzona............. 1994 205,250 25,000 -- 10,000 6,158
Senior Vice President & 1993 188,500 55,000 -- -- 5,655
CFO of Piedmont 1992 177,650 20,000 -- 9,000 2,703
</TABLE>

- ------------

(1) The amounts reported in this column represent, for each of the individuals
named, the employer portion of contributions to Piedmont's Pay Conversion
Plan, a defined contribution salary deferral plan which qualifies under
Section 401(k) of the Code. In addition, amounts include employer
contributions to Piedmont's Executive and Supplemental Benefit Plans,
non-qualified plans replacing the portion of benefits which are in excess of
limits for tax qualified plans under the Code. For each of the last three
calendar years, contributions to the Executive Benefit Plan for Mr.
DeMichele were $48,652; $33,451; and $32,939, respectively; and in 1994
contributions to the Supplemental Benefits Plan were as follows: for Mr.
Hisey, $511; Mr. Kantor, $2,416; Mr. Matinale, $2,400; and Mr. Palenzona,
$1,658. There were no contributions to the Supplemental Benefits Plan prior
to 1994.

STOCK OPTIONS

Piedmont has granted options to purchase shares of Piedmont Common Stock to
officers and other key employees of Piedmont and its subsidiaries under its 1979
Stock Option Plan (the "1979 Plan") and its 1988 Piedmont Management Company
Inc. Employee Stock Option Plan (the "1988 Plan"). The plans are administered by
a committee of disinterested members of Piedmont's Board of Directors. No
additional options may be granted under the 1979 Plan. Options may be granted
under the 1988 Plan until August 17, 1998. The option price of Piedmont Common
Stock under both plans is fair market value on the date of the grant. Upon
exercise of an option the option price must be paid in full. Options granted
under the plans are not exercisable until two years after the date of the grant,
and no option may be exercised more than ten years after the date of the grant.

Prior to May 1, 1991, when the plans were amended, Piedmont also granted
stock appreciation rights ("SARs") with respect to options granted under both
plans. The SARs are exercisable only upon surrender of the related option and
only to the extent that the related option is exercisable. The SAR terminates
upon termination of the related option. Upon exercise of the SAR, the holder is
entitled to receive the excess of the fair market value of the shares for which
the right is exercised over the option price under the related option. The
committee referred to above has the authority to

110
<PAGE>
determine whether the value of the SAR is paid in cash or shares of Piedmont
Common Stock or a combination of both. No SARs have been granted subsequent to
May 1, 1991.

The following table contains information concerning the grants of stock
options under the 1988 Plan with respect to the named executive officers during
1994.

<TABLE><CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE OR EXPIRATION GRANT DATE
NAME OPTIONS GRANTED IN 1994 BASE PRICE DATE PRESENT VALUE(1)
- ---------------------- --------------- --------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Robert M. DeMichele... 17,000 14.4% $ 14.75 2/28/04 $ 99,790
Richard M. Hisey...... 7,000 5.9 14.75 2/28/04 41,090
Lawrence Kantor....... 7,000 5.9 14.75 2/28/04 41,090
Richard J. Matinale... 10,000 8.5 14.75 2/28/04 58,700
Peter J. Palenzona.... 10,000 8.5 14.75 2/28/04 58,700
</TABLE>

- ------------

(1) The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. The model assumes: a) an exercise
price of $14.75, equal to the fair market value of the underlying common
stock on the date of grant; b) an option term of 8.4 years, which represents
the weighted average (by number of options) of the length of time between
grant date of options under Piedmont's plans and their exercise for all who
received options; c) an interest rate of 6.05% that represents an average of
seven year and ten year U.S. Treasury Securities on the date of grant; d)
volatility of 36.83% calculated using quarterly stock prices for five years
prior to the date of grant; e) a dividend yield equal to 0.0%; and f) a
reduction of 28% to reflect the probability of forfeiture prior to the
options' expiration. Piedmont's use of the Black-Scholes model should not be
construed as an endorsement of its accuracy. The future values realized may
vary significantly from the model and will ultimately depend upon the excess
of the market price of the stock over the grant price on the date the option
is exercised.

OPTION EXERCISES AND HOLDINGS

The following table sets forth information with respect to the named
executive officers, concerning exercise of options and SARs during 1994 and
unexercised options and SARs held as of December 31, 1994.

<TABLE><CAPTION>
VALUE REALIZED
(MARKET PRICE NUMBER OF SHARES UNDERLYING
SHARES AT EXERCISE VALUE OF UNEXERCISED
ACQUIRED LESS UNEXERCISED OPTIONS/SAR'S "IN THE MONEY" OPTIONS(3)
ON EXERCISE --------------------------- ---------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- -------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. DeMichele.... -- -- 102,000(1) 35,000(1) $ 111,000 $35,250
Richard M. Hisey....... -- -- 15,900 12,100 $ 25,000 $10,500
Lawrence Kantor........ 2,000 $ 7,140 28,700 14,800 $ 36,200 $16,300
Richard J. Matinale.... 3,500 $ 14,665 43,400 20,600 $ 42,900 $21,100
Peter J. Palenzona..... -- -- 48,500(2) 20,500(2) $ 56,300 $21,075
</TABLE>

- ------------

(1) Mr. DeMichele has 87,000 shares of exercisable SARs and 3,000 shares of
unexercisable SARs that were granted in tandem with his stock options.

(2) Mr. Palenzona has 39,500 shares of exercisable SARs and 1,500 shares of
unexercisable SARs that were granted in tandem with his stock options.

(3) These values are based upon the December 31, 1994 market price of Piedmont
Common Stock which was $12.25 per share.

111
<PAGE>
Pursuant to the Merger, the options described above and any additional
options granted in 1995 will be canceled, and each "in the money" option (as
defined in the Merger Agreement), whether or not then vested or exercisable,
will be converted into that number of shares of Piedmont Common Stock obtained
by dividing (i) the excess, if any, of the "fair market value" (determined as
provided below) per share of Piedmont Common Stock multiplied by the number of
such "in the money" options over the sum of (A) the aggregate option price of
such options plus (B) the aggregate amount required to be withheld for federal,
state and local taxes by (ii) the "fair market value" per share of Piedmont
Common Stock. For further information with respect to Piedmont stock options,
see "THE MERGER--Interests of Certain Persons in the Merger--Piedmont Stock
Options" in the Proxy Statement/Prospectus.

RETIREMENT PLAN BENEFITS

Piedmont and its subsidiaries are the sponsors of a defined benefit pension
plan on behalf of their employees. Benefit formulas under the plan are explained
below. Benefits vest after five years of service.

An employee becomes a participant in the plan after attaining age 21 and
completing one year of service. The pension benefit is equal to the sum of past
service retirement income plus future service retirement income. For a
participant as of December 31, 1988, the amount of normal retirement income
standing to his credit as of that date will not be less than 1 1/4% of the first
$17,000 of his average annual earnings for the calendar years 1984 through 1988
inclusive, plus 1 3/4% of average earnings in excess of $17,000, multiplied by
his credited service through December 31, 1988. Certain employees of RECO who
participated in a predecessor pension plan have their benefits reduced by the
December 31, 1978 annuitized value of their balance in a previously sponsored
Profit Sharing Plan. All participants' benefits for future service are arrived
at by calculating 11/2% of annual salary for each year of service. A participant
is eligible for this normal retirement pension on the first date of the month
coincident with or next following his 65th birthday.

The following table illustrates, as of December 31, 1994, for the
individuals named (a) years of service credited under the retirement plan and
(b) the estimated annual benefits payable under the plan, including Social
Security benefits, assuming the election of a single life annuity upon normal
retirement at the age of 65.

<TABLE><CAPTION>
YEARS OF SERVICE AS OF ESTIMATED ANNUAL BENEFIT
NAME OF OFFICER DECEMBER 31, 1994 PAYABLE
- ------------------------------------------------- ---------------------- ------------------------
<S> <C> <C>
Robert M. DeMichele.............................. 14 $ 94,512
Lawrence Kantor.................................. 10 91,632
Richard M. Hisey................................. 9 77,436
Richard J. Matinale.............................. 21 91,452
Peter J. Palenzona............................... 15 93,084
</TABLE>

DEFERRED COMPENSATION AGREEMENTS

Piedmont and Mr. DeMichele entered into a deferred compensation agreement
dated as of January 1, 1987 (the "Deferred Compensation Agreement"), whereby
Piedmont agreed to make certain payments to Mr. DeMichele in recognition of the
instrumental role that he played in Piedmont's 1982 investment of $3.5 million
in the common stock of Navigators. Under one provision of the Deferred
Compensation Agreement, payments were based upon Piedmont's total unrealized
gain on the Navigators common stock as of June 19, 1986 and varied each year
until July 1, 1991. Each annual payment was adjusted by the amount of any
dividends paid by Navigators to its stockholders, by fluctuations of the market
price of the Navigators common stock and by any gain or loss realized by
Piedmont upon the sale of any Navigators common stock prior to July 1, 1991.
Another provision under the Deferred Compensation Agreement provides that upon
any sale (or other transaction having similar characteristics) of the Navigators
common stock subsequent to

112
<PAGE>
July 1, 1991, Piedmont shall pay to Mr. DeMichele 10% of the profit realized
based upon the excess of the per share sale price over the per share market
price on July 1, 1991. If Mr. DeMichele's employment by Piedmont is terminated
by reason of his death or any physical or mental disability rendering the
performance of his duties for Piedmont impossible, Piedmont will pay the agreed
amounts to his estate or other representative. As a result of the Merger,
Piedmont's obligations to Mr. DeMichele under the Deferred Compensation
Agreement will terminate.

In addition, pursuant to the Deferred Compensation Agreement dated as of
February 2, 1981 with Mr. DeMichele, Piedmont will accrue $5,000 a year until
Mr. DeMichele's death or termination of employment and upon such death or
termination of employment (other than for cause), shall pay such accrued amounts
in a lump sum or, at the option of Piedmont, in five annual installments. As a
result of the Merger, Lexington will assume Piedmont's obligations to Mr.
DeMichele under the Deferred Compensation Agreement.

SEVERANCE AND CHANGE IN CONTROL AGREEMENTS

Piedmont has entered into both a Severance Compensation and Change in
Control Agreement (the "Change in Control Agreements") and a Stay Bonus
Agreement (the "Stay Bonus Agreements") with a number of employees, including
Messrs. DeMichele, Palenzona and Matinale, its President, its Chief Financial
Officer and the Executive Vice President of RECO, respectively.

The Change in Control Agreements provide that if any employee is terminated
either within six months before a change in control (as defined below) or within
eighteen months after a Change in Control, the employee shall be entitled to
receive a lump sum severance payment varying from six to thirty months of base
salary and medical and dental coverage for periods varying from six to thirty
months following termination of employment. Messrs. DeMichele, Matinale and
Palenzona are each entitled to thirty months of base salary ($1,200,000,
$650,000 and $555,000, respectively) and medical and dental coverage. The
aggregate amount payable under all of the foregoing agreements will be
approximately $6,300,000, all of which was accrued and $1.8 million of which was
paid in the third quarter of 1995.

As defined in such agreements, a "change in control" includes a merger,
consolidation or other reorganization of Piedmont, except where the shareholders
of Piedmont immediately prior to the consummation of any such trasaction
continue to hold at least majority of the voting power of the outstanding voting
securities of the legal entity resulting from or existing after any transaction
and a majority of the members of the Board of Directors of the legal entity
resulting from or existing after a transaction are former members of Piedmont's
Board of Directors.

Immediately prior to the Merger, the Stay Bonus Agreements will supersede
the Change in Control Agreements and each employee employed at such time shall
be entitled to receive a lump sum bonus equal to the lump sum severance payment
described above and continued medical and dental coverage as described above.
Such payments will be made whether or not the employee is employed by Chartwell
or a subsidiary or by Lexington or a subsidiary immediately following the
Merger.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. DeMichele, Piedmont's Chief Executive Officer and a director, and Mr.
Stuart Smith Richardson, Vice Chairman of the Board of Directors and an employee
of Piedmont, serve on the Executive Personnel Committee of the Board of
Directors. While these individuals serve on such committee, their participation
is limited to an evaluation of senior Piedmont personnel and they do not
participate in any decisions regarding their own compensation.

Mr. DeMichele is also a director and member of the Stock Option Committee of
Navigators whose Chief Executive Officer, Mr. Terence N. Deeks, is a member of
the Board of Directors of Piedmont. Mr. Deeks does not serve on any committees
of the Board of Directors of Piedmont.

113
<PAGE>
Mr. DeMichele and Mr. Stuart Smith Richardson also serve as directors of
Vanguard Cellular Systems, Inc., whose Chief Executive Officer, Mr. Haynes G.
Griffin is a member of the Board of Directors of Piedmont. Mr. DeMichele also
serves on the Compensation Committee of Vanguard. Mr. Griffin does not serve on
any committees of the Board of Directors of Piedmont.

CHARTWELL

The following table sets forth the cash and non-cash compensation for the
fiscal years ended December 31, 1994 and 1993 awarded to or earned by the Chief
Executive Officer and the four other most highly compensated executive officers
of Chartwell:

<TABLE><CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- OTHER ANNUAL ------------ ALL OTHER
SALARY BONUS COMPENSATION RESTRICTED COMPENSATION
NAME/POSITION YEAR ($) ($) (1) ($) STOCK(2)($) (3)($)
- -------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Cole..... 1994 $349,750 $104,925 $ 51,726 -- $ 72,775
Chairman and Chief 1993 349,750 175,000 92,397 -- 73,435
Executive Officer
Steven J. 1994 300,000 90,000 180,964 -- 40,500
Bensinger........... 1993 233,159 150,000 54,648 -- 31,476
President

Jacques Q. Bonneau.. 1994 230,000 69,000 45,763 -- 33,900
Executive Vice 1993 170,108 115,000 -- -- 25,687
President and
Chief Underwriting
Officer
Michael H. Hayes.... 1994 190,000 65,000 -- -- 30,270
Executive Vice 1993 173,154 87,500 -- -- 2,570
President
Charles E. Meyers... 1994 153,692 31,080 -- -- 3,894
Senior Vice 1993 146,789 40,000 -- -- 2,858
President and
Chief Financial
Officer
</TABLE>

- ------------

(1) Includes certain perquisites which include, (i) for Mr. Cole in 1994, the
value of company car of $25,435 and in 1993, payment for unused vacation of
$30,839 and the value of loan forgiveness of $27,805, and (ii) for Mr.
Bensinger in 1994, payment for two installments of a signing bonus in the
total amount of $133,334 and in 1993, payment for certain business
development expenses required to be reimbursed under his employment
agreement in the amount of $45,421, and (iii) for Mr. Bonneau in 1994,
payment for certain business development expenses required to be reimbursed
under his employment agreement in the amount of $13,525.

(2) On March 6, 1992, 21,629, 4,155, 4,448, and 5,749 shares of restricted stock
were granted to Messrs. Cole, Bonneau, Hayes and Meyers, respectively at a
value of $21.00 per share. The shares of restricted stock vest over a four
year period at a rate of 25% per year commencing on January 1, 1994. In
addition, the shares vest fully on a change in control event and vest to the
extent of 25% of the non-vested shares upon a public offering of Chartwell
Common Stock. Dividends are payable on the outstanding restricted stock at
the same rate and time and in the same form in which dividends are payable
on all shares of Chartwell Common Stock. As of December 31, 1994, 16,222,
3,116, 3,336 and 4,312 shares of restricted stock owned by Messrs. Cole,
Bonneau, Hayes and Meyers, respectively, remained restricted. Such shares
were valued at $243,330, $46,740, $50,040, and $64,680, respectively, at the
per share price of $15.00, the book value per share of Chartwell Common
Stock at December 31, 1994. All shares of restricted stock will vest at the
Effective Time as a result of the Merger.

(3) The amounts in this column consist of 401(k) Plan matching contributions by
Chartwell and contributions made by Chartwell to a trust established as a
supplement to the 401(k) Plan.

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<PAGE>
EMPLOYMENT CONTRACTS

On August 2, 1995, the Chartwell Board of Directors extended the term of the
employment agreements with Messrs. Cole, Bensinger, Bonneau and Hayes (the
"Employment Agreements") from December 31, 1996 to December 31, 1997. The
Employment Agreements will provide for annual base salaries (which may be
increased at the discretion of the Chartwell Board of Directors) of $425,000,
$375,000, $300,000 and $225,000, respectively. Under the terms of the Employment
Agreements, bonus awards will be payable to these employees, at the sole
discretion of the Chartwell Board of Directors, in an amount of 0-50% of base
salary if annual results are less than Chartwell's business plan for such year
and 50-100% of base salary if results equal or exceed such annual plan. In
addition, Mr. Bensinger was paid a signing bonus of $200,000.

Messrs. Cole, Bensinger, Bonneau and Hayes will also receive a supplement to
Chartwell's Section 401(k) Plan payable at the earlier of age 65 or employment
termination. The supplement will be equal to the aggregate contributions made
with respect to the employee to a trust established by Chartwell. Annual
contributions to the trust will equal 20% of the year's base salary for Mr. Cole
and 13 1/2% of salary for Messrs. Bensinger, Bonneau and Hayes. The employees
will also be provided with certain other benefits and perquisites pursuant to
the Employment Agreements.

Upon a termination of the employee's employment by Chartwell without "Cause"
or by the employee for "Good Reason" (each as defined in the Employment
Agreements), Chartwell will be obligated to pay the employee's salary for three
years and maintain certain benefits for two years (a lump sum payment will be
made if such a termination occurs following a "Change in Control" of Chartwell
as defined in the Employment Agreements).

In the event any payments to an employee under the Employment Agreements are
subject to an excise tax under Section 4999 of the Internal Revenue Code,
Chartwell will reimburse the employee so that the employee will retain an
after-tax benefit as if the excise tax had not been incurred.

Each employee is subject under the terms of the Employment Agreement to a
non-competition provision during the term of his employment and for up to one
year thereafter under certain circumstances and to ongoing confidentiality
obligations. Although there is no obligation to mitigate severance benefits,
certain amounts received from a new employer will reduce Chartwell's obligations
under the Employment Agreements.

In addition to his Employment Agreement, Mr. Bonneau and Chartwell entered
into an incentive arrangement whereby, dependent upon the performance of various
businesses of Chartwell, Mr. Bonneau may be paid, over the next five years,
payments of up to approximately $750,000.

STOCK OPTION PLAN

The 1993 Stock Option Plan (the "Stock Option Plan") was adopted by the
Chartwell Board of Directors on July 29, 1993 and approved by stockholders on
October 15, 1993. Pursuant to the Stock Option Plan, 800,000 shares of Chartwell
Common Stock are reserved for issuance upon the exercise of options granted to
officers, key employees and directors of Chartwell and its designated
subsidiaries. The primary purpose of the Stock Option Plan is to provide
additional incentive to officers and key employees and to further align their
interests with those of Chartwell's stockholders.

Options granted under the Stock Option Plan may be incentive stock options
(within the meaning of Section 422 of the Internal Revenue Code) or options not
subject to Section 422 of the Internal Revenue Code. Pursuant to the terms of
the Stock Option Plan, no executive officer of Chartwell may be granted in any
calendar year options to purchase in excess of 200,000 shares of

115
<PAGE>
Chartwell Common Stock. Generally, the exercise price of each option under the
Stock Option Plan may not be less than the fair market value of a share of
Chartwell Common Stock on the date the option is granted. The options granted
through December 31, 1994 generally have an exercise price per share equal to
$22.00 or to the lesser of $30.00 or 120% of the offering price per share to the
public in an initial public offering of Chartwell Common Stock. As of the
Effective Time, the exercise price of all outstanding options granted under the
Stock Option Plan will be adjusted to $21.00 per share.

Options will become exercisable pursuant to the terms of each optionee's
Option Agreement. The ability to exercise the options will be accelerated upon
certain corporate transactions resulting in a change in control of Chartwell or
otherwise at the discretion of the compensation committee of the Chartwell Board
of Directors. All options granted under the Stock Option Plan, to the extent not
exercised, generally expire on the earliest of (i) the tenth anniversary of the
date of grant, (ii) six months following the optionee's termination of
employment on account of death or disability or (iii) three months following the
optionee's termination of employment (other than for death or disability). No
options were exercised during 1994.

The Chartwell Board of Directors may from time to time amend or terminate
the Stock Option Plan, provided that (i) no such amendment or termination may
adversely affect the rights of any participant without the consent of such
participant and (ii) to the extent required by Rule 16b-3 under Section 16(b) of
the Exchange Act or any other law, regulation or stock exchange rule, no
amendment shall be effective without the approval of Chartwell's stockholders.

Set forth below are the number of unexercised options at December 31, 1994
granted to each of the executive officers named in the Summary Compensation
Table. As noted above, the exercise price of all outstanding options will be
adjusted to $21.00 per share at the Effective Time.

<TABLE><CAPTION>
EXERCISABLE UNEXERCISABLE
------------------------ ------------------------
$22 $30 $22 $30
OPTIONS(1) OPTIONS(2) OPTIONS(1) OPTIONS(2)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Richard E. Cole.................................. 32,000 14,600 48,000 58,400
Chairman and Chief Executive Officer
Steven J. Bensinger.............................. 12,000 10,940(3) 48,000 43,760(4)
President
Jacques Q. Bonneau............................... 22,000 10,040 33,000 40,160
Executive Vice President and Chief Underwriting
Officer
Michael H. Hayes................................. 14,000 6,380 21,000 25,520
Executive Vice President
Charles E. Meyers................................ 6,000 2,720 9,000 10,880
Senior Vice President and Chief Financial
Officer
</TABLE>

- ------------

(1) Exercisable at $22.00 per share.

(2) Exercisable at the lesser of $30.00 per share or 120% of the offering price
per share to the public in an initial public offering of Chartwell Common
Stock.

(3) Of these options, 2,000 are exercisable at the lesser of $30.00 per share or
the offering price per share to the public in an initial public offering of
Chartwell Common Stock.

(4) Of these options, 8,000 are exercisable at the lesser of $30.00 per share or
the offering price per share to the public in an initial public offering of
Chartwell Common Stock.

During 1994, no options were granted to any of the above named executive
officers.

116
<PAGE>
At December 31, 1994, the fair market value of Chartwell's Common Stock
which may be issued upon exercise of the options listed above was below the
exercise price of such options.

An additional 81,300 options were granted to certain officers during the
first quarter of 1995. Of these new options, 3,100 were granted to Mr. Hayes,
1,400 were granted to Mr. Meyers and the remaining 76,800 were granted to other
executive and non-executive officers. Messrs. Cole, Bensinger and Bonneau did
not receive any additional options. These newly issued options have an exercise
price at the lesser of $22.00 per share or 120% of the offering price per share
to the public in an initial public offering of Chartwell Common Stock, but in no
event shall 120% of the offering price be less than the GAAP book value per
share of Chartwell at the time of such an offering. Other option terms are
similar to those contained in the options granted previously. As of the
Effective Time, these newly issued options will have an exercise price of $21.00
per share.

DIRECTOR COMPENSATION

Each director who is not an employee of Chartwell, Chartwell Reinsurance,
Wand or MMIC received an annual retainer of $20,000 in 1994. In addition,
directors received reasonable out-of-pocket expenses incurred in attending
meetings of the Chartwell Board of Directors and committees thereof. Directors
who were employees of Chartwell, Chartwell Reinsurance, Wand or MMIC did not
receive any fees for serving on Chartwell's Board of Directors or for committee
service in 1994. Commencing in 1995, directors who are employees of Wand or MMIC
will receive annual retainers of $20,000.

COMPENSATION COMMITTEE INTERLOCKS

Until August 1994, Messrs. Schnitzer and Callard served as members of
Chartwell's Compensation Committee. Following a change in committee assignments
made at the meeting of the Chartwell Board of Directors held on August 4, 1994,
Mr. Schnitzer is no longer a member of the Compensation Committee, although Mr.
Callard remains a member.

EMPLOYEE STOCK PURCHASE PLAN

The 1995 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
was adopted by the Chartwell Board of Directors on August 4, 1995 and approved
by stockholders on such date. 100,000 shares of Chartwell Common Stock will be
authorized for purchase under the Employee Stock Purchase Plan. The Employee
Stock Purchase Plan provides that, subject to certain procedural requirements,
those employees of Chartwell and its designated subsidiaries (i) who have
completed one year of continuous service with Chartwell or a designated
subsidiary, (ii) whose customary employment is at least twenty hours per week
and at least five months in any calendar year and (iii) who are not five percent
or greater stockholders of Chartwell, are eligible to participate
("Participating Employees"). Service with Piedmont will be credited toward the
one year continuous service requirement for employees of Piedmont who become
Chartwell employees as of the Effective Time.

Pursuant to the Employee Stock Purchase Plan, each Participating Employee
will be permitted to purchase shares of Chartwell Common Stock through regular
payroll deductions in an amount equal to not less than two percent and not
greater than ten percent of the employee's base pay (as elected by the employee)
for each payroll period. Participating Employees will be able to purchase shares
of Chartwell Common Stock with such payroll deductions at the end of a one year
cycle at a purchase price equal to the lesser of (i) 85 percent of the fair
market value of Chartwell Common Stock on the date the one year cycle begins or
(ii) 85 percent of the fair market value of the Chartwell Common Stock on the
date the one year cycle ends. Under the Employee Stock Purchase Plan, the fair
market value of the shares of Chartwell Common Stock which may be

117
<PAGE>
purchased by any Participating Employee during any calendar year may not exceed
$25,000. A Participating Employee in the Employee Stock Purchase Plan may
request and receive delivery of all or a portion of the shares purchased by such
Participating Employee pursuant to the Employee Stock Purchase Plan; provided,
however, that withdrawal of shares cannot occur more than once each calendar
year or prior to two years from the date such shares were purchased under the
Employee Stock Purchase Plan unless the Employee Stock Purchase Plan Committee
of Chartwell's Board of Directors, in its sole discretion, accelerates the
permitted date of withdrawal or a Change in Control (as defined in the Employee
Stock Purchase Plan) occurs. Each Participating Employee's option to purchase
shares of Chartwell Common Stock under the Employee Stock Purchase Plan is
exercisable for a maximum period of five years.

The Chartwell Board of Directors may from time to time amend or terminate
the Employee Stock Purchase Plan, provided that (i) no such amendment or
termination may adversely affect the rights of any Participating Employee
without the consent of such Participating Employee and (ii) to the extent
required by Rule 16b-3 of the Exchange Act or any other law, regulation or stock
exchange rule, no such amendment shall be effective without the approval of
Chartwell's stockholders.

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<PAGE>
PRINCIPAL STOCKHOLDERS

PIEDMONT

The following table sets forth information with respect to beneficial
ownership of Piedmont as of October 20, 1995 by: (i) each person who is the
beneficial owner of more than 5% of any class of Piedmont's voting securities;
(ii) all directors of Piedmont; (iii) the Chief Executive Officer of Piedmont
and the four other most highly compensated executive officers of Piedmont in
1994; and (iv) all directors and executive officers of Piedmont as a group.
Except as otherwise indicated and subject to applicable community property and
similar statutes, the persons listed as beneficial owners of the shares have
either sole or shared voting power and investment power with respect to such
shares. The amounts shown include shares which are beneficially owned by more
than one individual because many shares are held in trusts with more than one
trustee.

<TABLE><CAPTION>
NUMBER OF
NUMBER OF SERIES A
COMMON SHARES PERCENT PREFERRED
(1)(2) (3) SHARES PERCENT
------------- ------- --------- -------
<S> <C> <C> <C> <C>
Sion A. Boney, III.......................... 313,308(4,5) 5.5% 28,470(4,5) 14.8%
12 Town Line Road
Bridgewater, CT 06752
Barbara R. Evans............................ 871,068(4,6) 15.4 79,702(4,6) 41.5
5 Fernwood Road
Summit, NJ 07901
Haynes G. Griffin........................... 421,464(4,7) 7.4 -- --
309 Sunset Drive
Greensboro, NC 27408
Laurinda V. Lowenstein...................... 331,300(4,8) 5.9 19,848(4,8) 10.3
Box 371
Seal Harbor, ME 04675
H. Smith Richardson, Jr..................... 433,338(4,9) 7.7 3,800(4,9) 2.0
6246 Head Road
Wilmington, NC 28409
Peter L. Richardson......................... 533,655(4,10) 9.4 1,100(4,10) .6
60 Jesup Road
Westport, CT 06880
Stuart Smith Richardson..................... 1,219,602(4,11) 21.5 10,740(4,11) 5.6
80 Maiden Lane
New York, NY 10038
Richard G. Smith, III....................... 780,807(4,12) 13.8 52,058(4,12) 27.1
1133 Black Gold Place
Gahanna, OH 43230
Center for Creative Leadership.............. 421,464(4,13) 7.4 -- --
P.O. Box P-1
Greensboro, NC 27402
Richardson Family(14)....................... 2,756,238 48.7 177,907 92.7
Gilchrist B. Berg(15)....................... 638,400 11.3 -- --
1987 Enterprise Center
Jacksonville, FL 32202
Southeastern Asset.......................... 475,800 8.4 -- --
Management, Inc.(16)
6075 Poplar Avenue
Memphis, TN 38119
</TABLE>

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<PAGE>

<TABLE><CAPTION>
NUMBER OF
NUMBER OF SERIES A
COMMON SHARES PERCENT PREFERRED
(1)(2) (3) SHARES PERCENT
------------- ------- --------- -------
<S> <C> <C> <C> <C>
Terence N. Deeks............................ 13,860 .2 -- --
Robert M. DeMichele......................... 106,128 1.8 378 --
Richard M. Hisey............................ 18,300 .3 -- --
Lawrence Kantor............................. 32,300 .5 -- --
Richard J. Matinale......................... 45,600 .8 -- --
William R. Miller........................... -- -- -- --
Peter J. Palenzona.......................... 48,100 .8 -- --
L. Richardson Preyer(17).................... 10,050 .2 2,141 1.1
Lunsford Richardson, Jr.(17)................ 158,758 2.8 19,941 10.4
R.R. Richardson(17)......................... 50,576 .9 7,136 3.7
Carl H. Tiedemann........................... -- -- -- --
Marion A. Woodbury.......................... -- -- -- --
All executive officers and directors as a
group..................................... 2,117,873 37.4 69,906 36.4
</TABLE>

- ------------

(1) The amounts shown include shares which may be acquired within sixty days
following October 20, 1995 through the conversion of Piedmont Preferred
Stock at a conversion ratio of two shares of Piedmont Common Stock for
every share of Piedmont Preferred Stock as follows: Mr. Sion A. Boney, III,
56,940; Ms. Barbara R. Evans, 159,404; Ms. Laurinda Lowenstein, 39,696; Mr.
H. Smith Richardson, Jr., 7,600; Mr. Peter L. Richardson, 2,200; Mr. Stuart
Smith Richardson, 21,480; Mr. Richard G. Smith, III, 104,116; and the
"Richardson Family," 355,814

(2) The amounts shown include shares of Piedmont Common Stock which may be
acquired within sixty days following October 20, 1995 through the exercise
of stock options as follows: Mr. Robert M. DeMichele, 96,000; Mr. Richard
M. Hisey, 18,300; Mr. Lawrence Kantor, 30,300, Mr. Richard J. Matinale,
45,600; Mr. Peter J. Palenzona, 47,600; Mr. Stuart Smith Richardson,
64,000; and executive officers and directors as a group, 301,800.

(3) For purposes of computing the percentages, the number of shares of Piedmont
Common Stock outstanding is calculated for each individual or group to
include shares that may be purchased by that individual or group within
sixty days upon conversion of Piedmont Preferred Stock at a conversion
ratio of two shares of Piedmont Common Stock for every share of Piedmont
Preferred Stock.

(4) These shares are included in those owned by the "Richardson Family."

(5) These shares include shares of various trusts of which Mr. Boney is a
trustee and exercises shared voting and investment power with respect to
such shares. Mr. Boney exercises sole voting and investment power with
respect to 20,772 shares of Piedmont Common Stock and 2,330 shares of
Piedmont Preferred Stock.

(6) These shares include shares of various trusts of which Ms. Evans is a
trustee and exercises shared voting and investment power with respect to
such shares. Ms. Evans exercises sole voting and investment power with
respect to 272,284 shares of Piedmont Common Stock and 34,293 shares of
Piedmont Preferred Stock.

(7) These shares include shares of a trust of which Mr. Griffin is a trustee
and exercises shared voting and investment power with respect to such
shares.

(8) These shares include shares of various trusts of which Ms. Lowenstein is a
trustee and exercises shared voting and investment power with respect to
such shares. Ms. Lowenstein exercises sole voting and investment power with
respect to 2,800 shares of Piedmont Common Stock and 890 shares of Piedmont
Preferred Stock.

(9) These shares include shares of various trusts of which Mr. Richardson is a
trustee and exercises shared voting and investment power with respect to
such shares. Mr. Richardson

(Footnotes continued on following page)

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<PAGE>
(Footnotes continued from preceding page)

has sole voting and investment power with respect to 4,274 shares of
Piedmont Common Stock and 3,800 shares of Piedmont Preferred Stock.

(10) These shares include shares of various trusts of which Mr. Richardson is a
trustee and exercises shared voting and investment power with respect to
such shares. Mr. Richardson has sole voting and investment power with
respect to 200 shares of Piedmont Preferred Stock.

(11) These shares include shares of various trusts of which Mr. Richardson is a
trustee and exercises shared voting and investment power with respect to
such shares. Mr. Richardson has sole voting and investment power with
respect to 443,210 shares of Piedmont Common Stock and 200 shares of
Piedmont Preferred Stock.

(12) These shares include shares of various trusts of which Mr. Smith is a
trustee and exercises shared voting and investment power with respect to
such shares. Mr. Smith has sole voting and investment power with respect to
61,012 shares of Piedmont Common Stock and 8,360 shares of Piedmont
Preferred Stock.

(13) The Trustees of the Center for Creative Leadership (the "Center") are:
Messrs. Haynes G. Griffin; Charles T. Hagan, Jr.; L. Richardson Preyer,
Jr.; John W. Red, Jr.; H. Smith Richardson, Jr.; Peter L. Richardson;
Stuart Smith Richardson; Frances J. Rue, Jr.; and Richard D. Waters. These
individuals are deemed to be beneficial owners of all shares held by the
Center.

(14) See below for a description of the "Richardson Family."

(15) Mr. Berg's present principal occupation is President of Water Street
Capital, Inc., an investment advisory firm. Mr. Berg, in his capacity with
such firm, exercises sole voting and investment power with respect to such
shares.

(16) Southeastern Asset Management, Inc., an investment advisory firm, exercises
sole voting and investment power with respect to 130,000 shares of Piedmont
Common Stock.

(17) The individuals named may be deemed to be control persons of Piedmont
(other than solely by reason of being directors of Piedmont) according to
the rules of the SEC.

"Richardson Family," as used herein, means the descendants of Lunsford
Richardson, Sr., their spouses, trusts, a corporation in which they have
interests and charitable organizations established by such descendants. In
addition, several of the descendants of Lunsford Richardson, Sr. or their
spouses currently serve as directors of Piedmont (Messrs. Sion A. Boney, III; L.
Richardson Preyer; Lunsford Richardson, Jr.; Peter L. Richardson; R. R.
Richardson; and Stuart Smith Richardson). At October 20, 1995, such descendants
and spouses (numbering approximately 190 persons), trusts, a corporation in
which they have interests and charitable organizations established by them owned
approximately 2,400,424 shares (48.1%) of Piedmont Common Stock and 177,907
shares (92.7%) of Piedmont Preferred Stock. Many of these shares may be deemed
to be beneficially owned by more than one person because of multiple
fiduciaries, but such shares have been counted only once for purposes of the
foregoing totals. These individuals and institutions have differing interests
and may not necessarily vote their shares in the same manner. Furthermore,
trustees and directors have fiduciary obligations (either individually or
jointly with other fiduciaries) under which they must act on the basis of
fiduciary requirements which may dictate positions which differ from their
personal interests. "Richardson Family" includes stockholders in addition to
those who are identified elsewhere herein as "Richardson Stockholders".

CHARTWELL

The following table sets forth information with respect to beneficial
ownership of Chartwell as of November 7, 1995 by: (i) each person who is the
beneficial owner of more than 5% of any class of Chartwell's voting securities;
(ii) all directors of Chartwell and nominees for director of Chartwell; (iii)
the Chief Executive Officer of Chartwell and the four other most highly
compensated executive

121
<PAGE>
officers of Chartwell in 1994; and (iv) all directors and executive officers of
Chartwell as a group. For purposes of this Proxy Statement/Prospectus,
beneficial ownership of securities is defined in accordance with the rules of
the SEC and means generally the power to vote or dispose of securities,
regardless of any economic interest therein.

<TABLE><CAPTION>
NUMBER OF COMMON SHARES PERCENT
----------------------- -------
<S> <C> <C>
Wand/Chartwell Investments L.P.(1)
c/o Wand Partners Inc.
30 Rockefeller Plaza
Suite 3226
New York, NY 10012...................................... 1,141,011 28.6%
Michigan Mutual(2)
Insurance Company
25200 Telegraph Road
Southfield, MI 48086.................................... 780,706 20.6
FIMA Finance
Management Inc.(3)
Wickhams Cay
Road Town, Tortola
British Virgin Islands.................................. 716,664 18.9
Brinson Partners Inc.(4)
209 South LaSalle Street
Chicago, IL 60604....................................... 716,662 18.9
Canaan Capital Partners, L.P.(5)
105 Rowayton Avenue
Rowayton, CT 06853...................................... 255,913 6.8
Richard E. Cole(6)........................................ 98,829 2.6
Steven J. Bensinger(6).................................... 45,880 1.2
Jacques Q. Bonneau(6)..................................... 61,930 1.6
John Sagan(7)............................................. 13,885 0.4
Bruce W. Schnitzer(1)..................................... 83,488 2.2
David J. Callard(1)....................................... 52,758 1.4
Greg S. Feldman........................................... -- --
Stephen L. Green(5)....................................... -- --
Frank E. Gryzelecki....................................... -- --
Michael H. Hayes(6)....................................... 43,580 1.1
Charles E. Meyers(6)...................................... 23,570 0.6
All executive officers and directors as a group
(16 persons)(6)......................................... 378,513 9.4
</TABLE>

- ------------

(1) 911,926 shares of Chartwell Common Stock are owned of record by the
Partnership and 46,608 shares of Chartwell Common Stock are issuable to the
Partnership upon the exercise of Investor Group Warrants owned by the
Partnership. Further, 182,477 shares of Chartwell Common Stock are issuable
to Wand (Chartwell) upon the exercise of the Wand (Chartwell) Warrants. Mr.
Schnitzer and Mr. Callard, directors of Chartwell, together own of record
all the outstanding shares of common stock of Wand, which is the general
partner of Wand (Chartwell), the general partner of the Partnership. As
such, Messrs. Callard and Schnitzer share investment and voting power with
respect to, and may be deemed to be the beneficial owners of, the Chartwell
Common Stock, Investor Group Warrants and Wand (Chartwell) Warrants owned by
the Partnership and Wand (Chartwell), respectively. Messrs. Schnitzer and
Callard each own 2.1138% of the limited partnership interests in the
Partnership and Wand owns 50% of the limited partnership interests in Wand
(Chartwell). Except as stated in the preceding sentence, Messrs. Schnitzer
and Callard disclaim beneficial ownership of the Chartwell Common Stock,
Investor Group Warrants and Wand (Chartwell) Warrants owned by the
Partnership and Wand (Chartwell). Share ownership for Messrs. Schnitzer and
Callard shown in the chart represents

(Footnotes continued on following page)

122
<PAGE>
(Footnotes continued from preceding page)
their pro rata ownership interest in the Chartwell Common Stock, Investor
Group Warrants and Wand (Chartwell) Warrants held by the Partnership and
Wand (Chartwell), respectively.

(2) MMIC owns 742,747 shares of Chartwell Common Stock and Investor Group
Warrants to purchase 37,959 additional shares.

(3) FIMA owns 681,818 shares of Chartwell Common Stock and Investor Group
Warrants to purchase 34,846 additional shares; FIMA, a wholly owned
subsidiary of EXOR S.A., a Luxembourg corporation, is deemed to be
controlled indirectly by Giovanni Agnelli e. C. S.a.a., an Italian limited
partnership, the general partners of which are Messrs. Giovanni Agnelli,
Umberto Agnelli, Giovanni Nasi, Gianluigi Gabetti and Cesare Romiti. As
such, Messrs. Giovanni Agnelli, Umberto Agnelli, Nasi, Gabetti and Romiti
share investment and voting power with respect to, and may be deemed
beneficial owners of, the securities of Chartwell that FIMA owns.

(4) 636,362 and 45,454 shares of Chartwell Common Stock and Investor Group
Warrants to purchase 32,523 and 2,323 additional shares are owned of record
by VRS and IVCF II, respectively. Brinson Partners, Inc. ("Brinson") has
voting and dispositive power over the shares held of record by VRS, pursuant
to agreements between Brinson and VRS. IVCF II is a closed end collective
investment trust, the trustee of which (Brinson Trust Company) is a
subsidiary of Brinson. Brinson disclaims beneficial ownership of any shares
of Chartwell Common Stock.

(5) 217,419 shares of Chartwell Common Stock and Investor Group Warrants to
purchase 11,112 additional shares are owned of record by Canaan Capital
Offshore Limited Partnership C.V. ("CCLP") and 26,051 shares of Chartwell
Common Stock and Investor Group Warrants to purchase 1,331 additional shares
are owned of record by Canaan Capital Limited Partnership. Mr. Green, a
director of Chartwell, is a general partner of Canaan Partners, the ultimate
general partner of CCLP and Canaan Capital Limited Partnership. The other
general partners of Canaan Partners are Harry T. Rein, James J. Fitzpatrick,
David C. Fries, Gregory Kopchinsky, Robert J. Migliorino, Alan Salzman and
Eric A. Young. As such, Messrs. Green, Rein, Fitzpatrick, Fries, Kopchinsky,
Migliorino, Salzman and Young share investment and voting power with respect
to and may be deemed to be the beneficial owner of Chartwell Common Stock
held by Canaan Partners.

(6) Includes, with respect to each of the officers indicated, the following
numbers of options exercisable within 60 days of the date hereof: Mr. Cole
77,200; Mr. Bensinger 45,880; Mr. Bonneau 53,080; Mr. Hayes 34,380; and Mr.
Meyers 14,720. With respect to all executive officers and directors as a
group, includes an aggregate of 273,700 options.

(7) Includes 4,481 shares of Chartwell Common Stock issuable upon the exercise
of the Sagan Warrant. Mr. Sagan is a director of Chartwell.

OWNERSHIP FOLLOWING THE MERGER

The following table sets forth the beneficial ownership of shares of Chartwell
Common Stock that will be owned immediately following the Merger by: (i) each
person who is the beneficial holder of more than 5% of the Chartwell Common
Stock or of the Piedmont Common Stock; (ii) all directors of Chartwell following
the Merger; and (iii) all directors and officers of Chartwell following the
Merger as a group. This table is based on information as of November 7, 1995
with respect to Chartwell and October 20, 1995 with respect to Piedmont. This
table assumes a Conversion Number of approximately 0.5319 shares of Chartwell
Common Stock for each share of Piedmont Common Stock. See "THE MERGER--Merger
Consideration." For information about warrants, stock options and beneficial
ownership included in this table in calculating the shares owned by stockholders
of

123
<PAGE>
Chartwell, see the footnotes set forth in the prior two tables with respect to
the stockholders of Chartwell and Piedmont.

<TABLE><CAPTION>
NUMBER OF COMMON SHARES PERCENT
----------------------- -------
<S> <C> <C>
Wand/Chartwell Investments L.P............................ 1,141,011 16.1%
Michigan Mutual........................................... 780,706 11.3
FIMA Finance Management Inc............................... 716,664 10.4
Brinson Partners Inc...................................... 716,662 10.4
Canaan Capital Partners, L.P.............................. 255,913 3.7
Richard E. Cole........................................... 98,829 1.4
Steven J. Bensinger....................................... 45,880 0.7
Jacques Q. Bonneau........................................ 61,930 0.9
John Sagan................................................ 13,885 0.2
Bruce W. Schnitzer........................................ 83,488 1.2
David J. Callard.......................................... 52,758 0.8
Sion A. Boney, III(*)..................................... 166,648 2.4
Barbara R. Evans(*)....................................... 463,321 6.8
Haynes G. Griffin(*)...................................... 224,176 3.3
Laurinda V. Lowenstein(*)................................. 176,218 2.6
H. Smith Richardson, Jr.(*)............................... 230,492 3.4
Peter L. Richardson(*).................................... 283,851 4.1
Stuart Smith Richardson(*)................................ 645,251 9.4
Richard G. Smith, III(*).................................. 415,311 6.1
Center for Creative Leadership............................ 224,176 3.3
Gilchrist B. Berg......................................... 339,564 5.0
Southeastern Asset Management, Inc........................ 252,652 3.7
Robert M. DeMichele....................................... 51,585 0.8
William R. Miller......................................... -- --
Lunsford Richardson, Jr................................... 84,443 1.2
</TABLE>

The foregoing table sets forth the beneficial ownership of shares of
Chartwell Common Stock as defined in accordance with the rules of the SEC. For
certain stockholders (marked with *), the number of shares of Chartwell Common
Stock includes shares of various trusts of which such stockholder is a trustee
and exercises shared voting and investment power. See the footnotes to the table
under the heading "PRINCIPAL STOCKHOLDERS--Piedmont." In addition, the foregoing
table includes for each stockholder listed shares of stock which may be acquired
by such stockholder pursuant to warrants and pursuant to options exercisable
within 60 days of the date hereof. For further information, see the footnotes to
the two immediately preceding tables.

Following the Merger, the Richardson Family will have beneficial ownership
of approximately 1,466,042 shares of Chartwell Common Stock representing
approximately 21.4% of the issued and outstanding shares of Chartwell Common
Stock.

124

<PAGE>
DESCRIPTION OF CONTINGENT INTEREST NOTES

GENERAL

The CI Notes will be issued pursuant to the Indenture between the Company
and Shawmut Bank Connecticut, N.A., as trustee (the "Trustee"). A copy of the
proposed form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available as set forth under
"AVAILABLE INFORMATION." The terms of the CI Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in effect on
the date of the Indenture. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. Capitalized terms that are used but not otherwise defined in this
Prospectus have the meanings assigned them in the Indenture.

PRINCIPAL AMOUNT, MATURITY, RANKING

The CI Notes will mature on June 30, 2006 (subject to extension under
certain circumstances as set forth herein) unless previously redeemed or
repurchased. The CI Notes will be issued in an aggregate principal amount of $1
million, which principal amount will accrue interest at a rate of 8% per annum,
compounded annually (such principal amount together with such interest at any
time, the "Fixed Amount"). Such interest will accrue from the Issue Date to the
Settlement Date (not including any extension thereof pursuant to the provisions
described below) and will not be payable until the Settlement Date (as the same
may be so extended). The CI Notes will also entitle the holders thereof to
receive pro rata in proportion to the principal amount of CI Notes held by them
Contingent Interest (in excess of the Fixed Amount) calculated as described
below as of such Settlement Date. The Contingent Interest may range from $0 to
up to $55 million, less certain expenses described below.

The CI Notes will be issued in fully registered form in such denominations
as the Company and the Trustee shall from time to time determine, provided that
the minimum denomination shall not exceed $1,000. The Company will maintain an
office or agency where the CI Notes may be presented for registration of
transfer or exchange (the "Registrar") and an office or agency where the CI
Notes may be presented for payment (the "Paying Agent"), in each case subject to
the limitations described below. The Company has initially appointed the Trustee
as the Paying Agent and Registrar.

The CI Notes will be senior unsecured obligations of Piedmont and, following
the Merger, of Chartwell, in each case ranking pari passu in right of payment
with all existing and future senior unsecured obligations of such company.
Chartwell conducts its operations through its subsidiaries and, accordingly, the
CI Notes will be effectively subordinated to all indebtedness and other
liabilities of its subsidiaries, including reinsurance obligations. Chartwell is
dependent upon the cash flow of its subsidiaries to meet its obligations,
including its obligations under the CI Notes in the event that Chartwell elected
or was required to settle the CI Notes in cash rather than common stock. Upon
the liquidation or reorganization of any of Chartwell's subsidiaries, the claims
of Chartwell and indirectly of its creditors, including the holders of the CI
Notes, to the assets of such subsidiary will rank behind the claims of such
subsidiary's policyholders, other creditors and holders of preferred stock, if
any. Claims on Chartwell's subsidiaries by policyholders and creditors other
than Chartwell include claims for insurance and indebtedness obligations, as
well as other liabilities incurred in the ordinary course of business. At
September 30, 1995, after giving effect to the Merger and related transactions,
Chartwell would have had no indebtedness other than the CI Notes, and
Chartwell's subsidiaries (including Chartwell Holdings) would have had
aggregate liabilities of $992.9 million, primarily consisting of obligations
to reinsureds of $745.9 million, premiums not yet earned of $108.4 million
and long term debt of $94.5 million. See "RISK FACTORS--Ranking of the Notes."

125
<PAGE>
DETERMINATION OF THE PAYMENT AMOUNT

Determination of the Contingent Interest

On any Settlement Date, the Payment Amount shall be paid pro rata to the
Holders of the CI Notes as provided in the Indenture. The Contingent Interest
shall be determined as provided in the Indenture and in Exhibit B thereto, as
described below under "Calculation of Contingent Interest." The Payment Amount
will be paid in cash or, as described below, in Registered Common Stock of the
Company.

Holder Actuary; Compensation and Indemnity

On the Issue Date, the Company will appoint Ernst & Young LLP as Holder
Actuary to represent the interests of the Holders of the CI Notes as provided in
the Indenture and pursuant to an agreement between the Company and the Holder
Actuary (the "Holder Actuary Agreement"). The reasonable fees and expenses of
the Holder Actuary incurred in connection with the performance of its duties
under the Indenture, and the reasonable fees and expenses of any necessary
agents engaged by the Holder Actuary in connection therewith (the "Holder
Actuary Cost"), will be promptly paid in full by the Company, subject to offset
against the Payment Amount as set forth below under "Calculation of Contingent
Interest"; provided that the Company will have no obligation to pay the Holder
Actuary Cost to the extent that such cost exceeds $50,000 in any one year (or
$200,000 in any year which includes a Settlement Date).

The Company will indemnify the Holder Actuary and any predecessor Holder
Actuary for, and hold it harmless against, any loss or liability or expense
incurred by it without willful misconduct, negligence or bad faith on its part
arising out of or in connection with the performance of its duties as Holder
Actuary under the Indenture, the CI Notes or the Holder Actuary Agreement,
including the costs and expenses of defending itself against or investigating
any claim or liability and of complying with any process served upon it or any
of its officers in connection with the exercise or performance of any of its
powers or duties under the Indenture, the CI Notes or the Holder Actuary
Agreement.

The obligations of the Company to compensate and indemnify the Holder
Actuary and each predecessor Holder Actuary and to pay or reimburse the Holder
Actuary and each predecessor Holder Actuary will constitute additional
indebtedness under the Indenture and will survive the satisfaction and discharge
of the Indenture or the rejection or termination of the Indenture under
bankruptcy law. If the Holder Actuary renders services and incurs expenses
following an Event of Default resulting from an event of bankruptcy or
insolvency with respect to the Company or a Principal Restricted Insurance
Subsidiary, such expenses will constitute expenses of administration under any
bankruptcy law.

In the event of the resignation of the Holder Actuary or any other
circumstance whereby the Holder Actuary shall cease to perform or otherwise not
be available to perform its duties under the Indenture, the Trustee will select
a successor Holder Actuary, which successor actuary will be a nationally
recognized property and casualty actuarial firm which has had no relationship
with the Company during the greater of (i) the 5 years preceding the Issue Date
or (ii) the period during which the CI Notes have been outstanding.

Company Actuary

The Company will appoint an actuary to act as "Company Actuary" under the
Indenture. The Company Actuary may be, but will not be required to be, an
employee of the Company. The Company may replace the Company Actuary at any time
for any reason; provided that any such action does not and would not likely
result in an extension of the Settlement Date. The Trustee and the Holder
Actuary will be promptly notified in writing of the appointment, resignation or
discharge

126
<PAGE>
of the Company Actuary. The fees and expenses of the Company Actuary will be
paid by the Company without any adjustment to the amount of Contingent Interest.

Preparation of Reserve Reports

Promptly following (i) the occurrence of a Change of Control, (ii) an
acceleration of the CI Notes following an Event of Default, (iii) delivery of a
notice of redemption to the Trustee by the Company pursuant to its right to
optionally redeem the CI Notes, and (iv) December 31, 2005 (each a "Trigger
Date"), the Company will notify the Trustee, the Holder Actuary and the Company
Actuary of:

(a) the Settlement Date (without regard to any extension thereof);

(b) whether or not the CI Notes are to be settled in Registered Common
Stock; and

In addition, promptly following the Trigger Date, the Company will furnish
to the Company Actuary and the Holder Actuary the information or access to the
information required to be maintained by the Company and each subsidiary
(including RECO) under the Indenture to allow each such Actuary to prepare a
report (each a "Reserve Report") reflecting calculation of the Contingent
Interest as of the applicable Settlement Date.

In accordance with and to the extent set forth in "Calculation of Contingent
Interest" below, each Reserve Report, including calculation of the Contingent
Interest, will be prepared independently by each Actuary. Such calculation will
be made in accordance with the formula set forth in "Calculation of Contingent
Interest" below and, as set forth therein, shall take account of the Tax Benefit
resulting from the Adverse Reserve Development.

The Tax Benefit may be calculated with the assistance of (i) in the case of
the Company Actuary, an accountant selected by the Company who may be a Company
employee and (ii) in the case of the Holder Actuary, an accountant selected by
such Holder Actuary. The calculation of any items relevant to the determination
of the Tax Benefit shall be made in a manner that is consistent with the manner
in which any comparable adjustments to reserves are reported or have been
reported by the Company for federal income tax purposes. From the Trigger Date
to the Settlement Date (including any extension thereof), the Company shall
provide each of the Holder Actuary and the Independent Actuary (and any of their
agents) access to the books and records of the Company and each Subsidiary of
the Company as provided in the Indenture.

Each Reserve Report will include in reasonable detail an explanation of the
methodology used in such Report and all supporting calculations of Adverse
Reserve Development (as defined in "Calculation of Contingent Interest" below).
Each Actuary will use its best efforts to deliver its Reserve Report to the
other Actuary at least 105 calendar days prior to the Settlement Date.

If the calculation of the Contingent Interest set forth in the Holder
Actuary's Reserve Report (i) does not differ from that set forth in the Company
Actuary's Reserve Report or (ii) differs from that set forth in the Company
Actuary's Reserve Report and the amount of the difference does not exceed
$3,000,000, then the Contingent Interest set forth in the Company Actuary's
Reserve Report will be the Contingent Interest for purposes of settlement of the
CI Notes.

Resolution of Disputes; Arbitration

If the calculation of the Contingent Interest set forth in the Holder
Actuary's Reserve Report differs from that set forth in the Company Actuary's
Reserve Report and the amount of the difference exceeds $3,000,000, the Company
and the Holder Actuary will use their reasonable best efforts to resolve this
difference. If, however, the difference cannot be resolved within 30 calendar

127
<PAGE>
days after delivery of the later to be delivered of either the Company Actuary's
or Holder Actuary's Reserve Report, the Company Actuary and the Holder Actuary
will thereafter jointly appoint an independent third party actuary, which will
be a nationally recognized property and casualty actuarial firm, with no
relationship to the Company, the Trustee, the Holder Actuary or any holder of 5%
or more of the CI Notes (the "Independent Actuary"), to resolve the dispute. If
the parties cannot agree on the appointment of an Independent Actuary within 10
calendar days, then the Company Actuary and the Holder Actuary will each select
two actuarial firms meeting the requirements set forth in the preceding
sentence. Each of the Company Actuary and Holder Actuary will then be entitled
to reject one of the two selections of the other party. The Independent Actuary
will then be chosen at random from the remaining two selections. The Independent
Actuary will have the authority to engage an independent third party accountant
with no relationship to the Company, the Trustee, the Holder Actuary or any
beneficial owner of 10% or more of the CI Notes to resolve any disagreement with
respect to the calculation of the Tax Benefit.

Not later than 30 days prior to any Settlement Date, the Independent Actuary
will prepare and deliver to the Company, the Trustee, the Company Actuary and
the Holder Actuary its calculation of the Contingent Interest. This calculation
will be prepared in accordance with the guidelines set forth in "Calculation of
Contingent Interest" below. Based on the foregoing, the Independent Actuary will
determine which of (i) the amount of Contingent Interest set forth in the
Company Actuary's Reserve Report and (ii) the amount of Contingent Interest set
forth in the Holder Actuary's Reserve Report, is, in the judgment of the
Independent Actuary, the best estimate of the Contingent Interest. The amount so
selected will be the Contingent Interest for purposes of settlement of the CI
Notes.

The reasonable fees and expenses of the Independent Actuary incurred in the
performance of its duties under the Indenture, and the reasonable fees and
expenses of any necessary agents engaged by the Independent Actuary in
connection therewith, will be promptly paid in full by the Company; provided
that 50% of all such fees and expenses (the "Arbitration Cost") shall be
deducted from the Contingent Interest as provided in "Calculation of Contingent
Interest" below. Notwithstanding the foregoing, the Independent Actuary will
have discretion to apportion such fees and expenses differently between the
parties as the Independent Actuary deems equitable under the circumstances based
upon its views as to the relative accuracy of the amount of the Contingent
Interest contained in the Reserve Reports prepared by each of the Company
Actuary and the Holder Actuary. The Arbitration Cost will not be subject to the
limits relating to the Holder Actuary Cost set forth above.

Annual Review of Reserves And Claims

Within 90 calendar days following December 31 of each calendar year prior to
the Settlement Date, other than December 31, 2005 (each such December 31, a
"Report Date"), the Company will deliver to the Holder Actuary and to the
Trustee a written statement setting forth in reasonable detail, including all
supporting calculations and methodology, the Adverse Reserve Development
calculated as of the Report Date for such year. In addition, each year the
Company Actuary will provide to the Holder Actuary and the Trustee a written
report stating that all such amounts have been calculated in accordance with the
guidelines set forth in "Calculation of Contingent Interest" below. Annually,
following delivery of each Report, the Company will cause the Company Actuary to
meet with the Holder Actuary and review in detail with the Holder Actuary the
Adverse Reserve Development occurring during such calendar year. Following each
such annual meeting, the Holder Actuary will provide a written report to the
Company Actuary expressing any material issues that have come to its attention
regarding the Company's calculation of the Adverse Reserve Development. All
statements and reports of the Company, the Company Actuary and the Holder
Actuary under this provision of the Indenture will be solely for informational
purposes, will be non-binding and may not be used or considered for any purpose
in any arbitration.

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Settlement in Stock

The Company will have the right to satisfy the Payment Amount due to Holders
of the CI Notes, whether at maturity, upon redemption or upon the occurrence of
a Change of Control, in Registered Common Stock of the Company in lieu of cash;
provided that (i) at the time of payment such stock is quoted for trading on any
U.S. national securities exchange or on NASDAQ and (ii) the Payment Amount of
all CI Notes is able to be satisfied through the delivery of Registered Common
Stock. In connection therewith, the Company will not be required to issue
fractional shares of common stock, and instead may pay cash in lieu of any such
fractional shares. The Company will not have the right to pay the Payment Amount
due under the CI Notes in Registered Common Stock if an Event of Default has
occurred and is continuing.

For purposes of any such payment, such Registered Common Stock will be
valued at 85.0% of its Fair Value. For these purposes, "Fair Value" of such
Registered Common Stock means the average of the closing sales or last reported
sales prices of such Common Stock of the Company for the 20 trading days
immediately preceding the date that is five trading days prior to the Settlement
Date. Certain Holders on the Settlement Date who receive upon repayment of the
CI Notes Common Stock of the Company will have certain registration rights as
summarized below under "Registration Rights of Holders with Respect to the
Company's Common Stock" and as set forth in the Registration Rights Agreement
attached as Exhibit C to the Indenture.

Limited Extension of Settlement Date

Except in the event of acceleration of the CI Notes as the result of an
Event of Default, in the event that, despite the best efforts of the Company,
(i) any of the Company, the Holder Actuary, the Independent Actuary or any
accounting firm is unable to perform in a timely manner its responsibilities
under the Indenture with respect to the calculation of the amount of Contingent
Interest, and as a result such amount has not been finally determined as of any
Settlement Date, or (ii) the SEC or any other regulatory authority has not
provided any consent or approval needed in connection with the settlement of the
CI Notes on or prior to the Settlement Date (including any such consent or
approval necessary in order to permit the Company to settle the CI Notes in
Registered Common Stock pursuant to the Indenture), then, in any such case, the
Settlement Date will be automatically extended until the earlier of (x) the
second Business Day after the date on which the Contingent Interest has been
finally determined or such consent or approval has been obtained, as applicable,
and (y) 180 days from the Settlement Date. For these purposes, the Contingent
Interest will be "finally determined" on the date that the amount of Contingent
Interest has been determined pursuant to the Indenture. The Holders of the CI
Notes will be entitled to receive interest ("Extension Interest") on the sum of
the Fixed Amount and the Contingent Interest in respect of any such extension at
an interest rate per annum, compounded annually, equal to (i) 8% for the first
60 days of any such extension; (ii) 10% for the period from the 61st to the
120th day of any such extension; and (iii) 12% for the period from the 121st to
the 180th day of any such extension. Extension Interest may be settled in
Registered Common Stock to the extent permitted by the Indenture. In the event
that payment of amounts due with respect to the CI Notes is not made within 180
days from the Settlement Date or following acceleration of the CI Notes upon any
Event of Default, Extension Interest on the sum of the Fixed Amount and the
Contingent Interest will accrue on all such unpaid amounts at the rate of 12%
per annum, compounded annually.

Calculation of Contingent Interest

With respect to any Settlement Date, the amount of Contingent Interest will
be the amount equal to:

(A) (x) the sum of (i) the Maximum Interest and (ii) the Tax Benefit
minus (y) the Adverse Reserve Development; provided that in no event will
the amount resulting from this clause (A) be less than the Minimum Amount or
greater than the Maximum Interest

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MINUS

(B) the sum of (i) the Actuary Cost and (ii) the Arbitration Cost.

The calculation of the Contingent Interest shall be made in accordance with
the following definitions:

"Maximum Interest" shall mean, with respect to any Settlement Date, the
amount equal to $55.0 million discounted back from the Maturity Date to the
applicable Settlement Date at a rate of 8.0% compounded annually.

"Tax Benefit" shall mean, for any Settlement Date, without duplication, the
sum of (A) the "Actual Tax Benefit" (as defined below) of the Adverse Reserve
Development and (B) the "Deferred Tax Benefit" (as defined below) of the Adverse
Reserve Development. The Actual Tax Benefit shall be equal to the difference
between the amount of United States federal income tax payable by the affiliated
group of which the Company is the common parent with respect to all taxable
periods beginning on (or including) March 31, 1995 and ending on the applicable
Determination Date (the "Taxable Period") and the amount of United States
federal income tax that would have been payable with respect to such Taxable
Period in the absence of such Adverse Reserve Development. The Deferred Tax
Benefit shall be equal to the deferred tax asset reflected on the GAAP
consolidated financial statements of the Company as of the applicable
Determination Date attributable to the Adverse Reserve Development, after taking
account of the valuation allowance, if any, with respect thereto (to the extent
such valuation allowance is not allocable to a specific component of the
deferred tax asset, it shall be apportioned ratably); provided that the
Settlement Date is the Maturity Date. In the event that the Settlement Date is
not the Maturity Date, the Deferred Tax Benefit shall be equal to the product of
(i) the maximum corporate United States federal income tax rate as of the
applicable Determination Date and (ii) the amount of the Adverse Reserve
Development which did not result in an Actual Tax Benefit during the Taxable
Period.

"Adverse Reserve Development" shall mean, for any Determination Date, the
amount equal to:

(A) (i) Incurred Loss and Allocated Loss Expense Development plus (ii)
Commission Development minus Earned Premium Development, in each case as of
the applicable Determination Date;

MINUS

(B) $25.0 million.

"Incurred Loss and Allocated Loss Expense Development" shall mean:

(1) the sum of the development of incurred losses and allocated loss
expenses for each calendar year beginning with the calendar year ending
December 31, 1996 through the calendar year ending on the Determination
Date, reflected on RECO's Statutory Annual Statement, Schedule P--Part
2--Summary (one year development column of incurred losses and allocated
loss expenses) with respect to the Protected Business for accident years
1994 and prior;

PLUS

(2) the development of incurred losses and allocated loss expenses for
the calendar year ended December 31, 1995, reflected on RECO's 1995
Statutory Annual Statement, Schedule P-- Part 2--Summary (one year
development column of incurred losses and allocated loss expenses) with
respect to the Protected Business for accident years 1994 and prior, minus
$831,000 (which amount respresents the adverse development recorded by RECO
for the quarter ended March 31, 1995 with respect to the Protected Business
for such accident years);

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PLUS

(3) the sum of 25% of the development of incurred losses and allocated
loss expenses for each calendar year beginning with the calendar year ending
December 31, 1996 through the calendar year ending on the Determination
Date, reflected on RECO's Statutory Annual Statement, Schedule P--Part
2--Summary (one year development column of incurred losses and allocated
loss expenses) with respect to all business for accident year 1995;

PLUS

(4) any GAAP adjustment related to the provision for uncollectible
reinsurance of incurred losses and allocated loss expenses applicable to the
Protected Business.

"Commission Development" shall mean the estimated ultimate commissions
recorded in the GAAP financial statements of the Company through the
Determination Date minus estimated ultimate commissions recorded in the GAAP
financial statements of the Company through March 31, 1995 with respect to the
contracts applicable to the Protected Business.

"Earned Premium Development" shall mean estimated ultimate premiums recorded
in the GAAP financial statements of the Company through the Determination Date
minus estimated ultimate premiums recorded in the GAAP financial statements of
the Company through March 31, 1995, in each case with respect to retrospectively
rated casualty treaty excess contracts included in the Protected Business.

"Minimum Amount" shall mean for any Settlement Date, an amount equal to the
lesser of (x) the Tax Benefit and (y) $10.0 million minus the Fixed Amount.

"Actuary Cost" shall mean, with respect to any Settlement Date, if the sum
of (x) the amount determined pursuant to clause (A) of the definition of
"Contingent Interest" above and (y) the Fixed Amount is equal to or less than
$10.0 million, 50% of the Holder Actuary Cost, and if such amount is greater
than $10.0 million, 100% of the Holder Actuary Cost.

"Determination Date" shall mean, with respect to the final Maturity Date,
December 31, 2005, and with respect to any other Settlement Date, December 31 of
the year immediately preceding (i) a Change of Control, (ii) an acceleration of
the CI Notes following an Event of Default, and (iii) delivery of a notice of
redemption to the Trustee under the Indenture.

"Protected Business" shall mean all insurance and reinsurance business,
however denominated, as to which premiums earned have been reflected on the
books of RECO on or prior to March 31, 1995.

"GAAP" shall mean U.S. generally accepted accounting principles as in effect
on the Determination Date. Subject to "Applicable Standards" and "Certain
Changes" below, all amounts shall be calculated in accordance with GAAP.

In connection with the determination of the amount of Contingent Interest,
the following standards and procedures will be followed:

Applicable Standards. The components of Adverse Reserve Development in the
aggregate are to be determined and calculated in accordance with generally
accepted actuarial standards of practice as applied in the insurance industry,
from time to time, including but not limited to Actuarial Standard of Practice
#9 of the Actuarial Standards Board (specifically, Documentation and Disclosure
in Property and Casualty Ratemaking, Loss Reserving, and Valuation), as amended
from time to time. Both the Company Actuary and the Holder Actuary are to be
bound by these standards in the determination of Adverse Reserve Development.

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Certain Changes. In determining any component of Adverse Reserve
Development, there shall be taken into account, as appropriate, changes in
insurance industry standards, generally accepted accounting principles,
generally accepted actuarial standards and changes in prevailing law. Without
limiting the foregoing, in the event of any legislative reform that has the
effect of reducing any liability that relates to Protected Business, the Adverse
Reserve Development shall be appropriately reduced. Conversely, in the event of
any legislative reform that has the effect of substantially transforming any
liability that relates to Protected Business into a charge that would not be
included in the definition of "Adverse Reserve Development," appropriate
adjustment shall be made to include the amount of such charge in the calculation
of the Contingent Interest. Without limiting the foregoing, one example of a
situation where an adjustment as described in the prior two sentences would
occur would be in the event of reform of the federal Superfund legislation, as
from time to time has been suggested, to replace some part or all of the
liability of insurers thereunder with a tax or other assessment levied on
insurers.

Consistency. Each year Adverse Reserve Development at RECO shall be
established on a basis and using a methodology that is no more conservative than
those used to determine reserves and assets for the other insurance and
reinsurance on the books of the Company and its other subsidiaries.

Verification. In determining any component of Incurred Loss and Allocated
Loss Expense Development, Earned Premium Development or Commission Development,
whether as reflected on RECO's Statutory Annual Statement or on RECO's GAAP
financial statements, each such component shall be subject to verification by
the Holder Actuary and the Company Actuary against the books and records of
RECO.

REGISTRATION RIGHTS OF HOLDERS WITH RESPECT TO THE COMPANY'S COMMON STOCK

Holders on the Settlement Date who together receive common stock of the
Company upon repayment of the CI Notes representing 25% or more of the common
stock of the Company issued upon the repayment of such CI Notes will have the
right to initiate the registration of such common stock of the Company within
two years of the Settlement Date; provided that no such demand registration
shall be required unless more than $10,000,000 of stock will be sold in any such
registration and provided further that the Company shall not be required to
effect more than two such demand registrations. All Holders who are affiliates
of the Company on the Settlement Date will have unlimited piggyback registration
rights in connection with any registrations of the common stock for a period of
5 years from the Settlement Date, subject to customary limitations.

MANDATORY REDEMPTION

Except as otherwise provided below under "Repurchase at the Option of
Holders upon a Change of Control," the Company will not be required to make
mandatory redemptions or sinking fund payments prior to maturity with respect to
the CI Notes.

OPTIONAL REDEMPTION

The CI Notes are not redeemable at the Company's option prior to the third
anniversary of the Issue Date. Thereafter, the CI Notes will be subject to
redemption at any time (the "Redemption Date") at the option of the Company, in
whole but not in part, upon not less than 180 days' notice to the Trustee and
the Holder Actuary (the "Redemption Notice") at the Payment Amount, expressed on
a per CI Note basis, as of the Redemption Date. When delivered, a Redemption
Notice is irrevocable. Upon delivery of the Redemption Notice, Reserve Reports
shall be prepared and the Contingent Interest shall be determined as provided
above.

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REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL

Upon the occurrence of a Change of Control, the Company will make an offer
(a "Change of Control Offer") to each Holder of CI Notes to repurchase all, but
not less than all, of such Holder's CI Notes at a purchase price equal to 100%
of the Payment Amount, on a pro rata basis (the "Change of Control Purchase
Price"). Within 15 days following the date on which the Change of Control
occurs, the Company will mail a notice to each Holder of CI Notes containing the
following information: (i) a Change of Control Offer is being made pursuant to
the Indenture covenant entitled "Purchase of Securities upon a Change of
Control" and that all CI Notes properly tendered will be accepted for payment;
(ii) the purchase price (if then determined) and the purchase date, which shall
be (1) no earlier than 180 days nor later than 190 days from the date of such
Change of Control or (2) such later date as may be necessary for the Company to
comply with requirements under the Exchange Act (in either case, a "Change of
Control Purchase Date"; provided that any such date shall be extended if and to
the extent required by the Indenture); (iii) any CI Notes not properly tendered
will continue to remain outstanding in accordance with the terms of the
Indenture; (iv) unless the Company defaults in the payment of the Change of
Control Purchase Price, all CI Notes accepted for payment pursuant to a Change
of Control Offer shall cease to accrue interest after a Change of Control
Purchase Date; (v) the procedures a Holder of CI Notes must follow to exercise
rights under the Indenture in connection with the Change of Control Offer and a
brief description of those rights; (vi) if CI Notes are to be settled in
Registered Common Stock, that delivery of such Stock will occur in lieu of
payment in cash; provided that such notice may state that such delivery is
subject to obtaining all necessary regulatory consents and approvals; and (vii)
Holders of CI Notes will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the third Business Day
preceding the Change of Control Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder and a statement that
such Holder is withdrawing his election to have such CI Notes purchased.

A Holder may exercise its Change of Control purchase rights upon (1)
delivery to any Paying Agent of a written notice (a "Change of Control Purchase
Notice") at any time prior to the close of business on the third Business Day
before the Change of Control Purchase Date, stating that such Holder accepts the
Company's offer to repurchase all of such Holder's CI Notes and (2) delivery of
such CI Notes to such Paying Agent at such office prior to, on or after the
Change of Control Purchase Date (together with all necessary endorsements), such
delivery being a condition to receipt by the Holder of the Change of Control
Purchase Price therefor. Each Paying Agent shall promptly notify the Company of
the receipt by the former of any and all Change of Control Purchase Notices and
any and all written notices of withdrawal thereof.

Upon receipt by any Paying Agent of a Change of Control Purchase Notice, the
Holder of the CI Note in respect of which such Change in Control Purchase Notice
was given shall thereafter be entitled to receive solely the Change of Control
Purchase Price with respect to such CI Note (unless such Change of Control
Purchase Notice is withdrawn pursuant to the Indenture). Such Change of Control
Purchase Price shall be paid to such Holder promptly following the later of the
Business Day following the Change of Control Purchase Date (provided the
conditions in the Indenture have been satisfied) and the time of delivery of
such CI Note to the relevant Paying Agent at the office of such Paying Agent by
the Holder thereof in the manner required by the Indenture.

On or prior to the Change of Control Purchase Date, the Company will, to the
extent permitted by law, (i) accept for payment all CI Notes properly tendered
pursuant to a Change of Control Offer and (ii) deposit with the Trustee or with
the Paying Agent an amount of money (or Registered Common Stock and cash in lieu
of any fractional shares) sufficient to pay the aggregate Change of Control
Purchase Price in respect of all CI Notes so tendered, in accordance with the
Indenture.

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The Company shall comply with all applicable tender offer rules and
regulations, including Rule 14e-1 under the Exchange Act, in connection with a
Change of Control Offer and may modify a Change of Control Offer to so comply.

The existence of a Holder's right to require the Company to repurchase such
Holder's CI Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.

The source of funds for any repurchase of CI Notes upon a Change of Control,
unless the CI Notes are to be settled in Registered Common Stock, will be the
Company's cash or cash generated from operations or other sources, including
borrowings, sales of assets or Capital Stock. However, there can be no assurance
that sufficient funds will be available at the time of any Change of Control to
make any required repurchases. Further, if the Company elects to settle the CI
Notes in Registered Common Stock, there can be no assurance that all necessary
approvals or other actions of regulatory authorities (which could include the
SEC, state securities regulators, insurance regulatory authorities or others)
will be obtainable in a timely manner. Any failure by the Company to repurchase
CI Notes tendered pursuant to a Change of Control Offer will be deemed an Event
of Default.

CERTAIN COVENANTS

Limitation on Incurrence of Indebtedness by Restricted Subsidiaries

The Indenture will provide that the Company will not permit any of its
Restricted Subsidiaries to incur, assume, guarantee or otherwise become directly
or indirectly liable for the payment of (collectively, "incur") any Indebtedness
other than Permitted Subsidiary Indebtedness; provided that the Company may
permit any Restricted Subsidiary to incur Indebtedness if, at the date of such
incurrence (on a pro forma basis) the ratio of (x) Senior Indebtedness to (y)
Consolidated Net Worth of the Company does not exceed 0.9 to 1.

For purposes of this restriction, "Permitted Subsidiary Indebtedness" means:

(i) Indebtedness of any Restricted Subsidiary outstanding on the date of
the Merger;

(ii) Acquired Indebtedness of any Restricted Subsidiary;

(iii) Indebtedness of any Restricted Subsidiary issued to or held by the
Company or a Wholly-Owned Restricted Subsidiary of the Company;

(iv) (A) Interest Swap Obligations of any Restricted Subsidiary, the
notional amount of which obligations do not exceed the aggregate principal
amount of the Indebtedness they are designed to protect and (B) obligations
pursuant to Currency Agreements entered into by any Restricted Subsidiary in
respect of its (x) assets or (y) obligations, as the case may be, that are
denominated in a currency other than U.S. dollars;

(v) Guaranteed Debt of a Restricted Subsidiary in respect of
Indebtedness of any other Restricted Subsidiary permitted to be incurred by
such other Subsidiary under the Indenture;

(vi) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from Guaranteed Debt
or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any Restricted Subsidiary pursuant to such
agreements, in any case incurred in connection with the disposition of any
business, assets or Restricted Subsidiary of the Company, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition; provided that the maximum aggregate liability in
respect of all such Indebtedness in the nature of such guarantee shall at

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no time exceed the gross proceeds actually received from the sale of such
business, assets or Restricted Subsidiary;

(vii) Indebtedness under performance, surety or appeal bonds; provided
that such performance, surety or appeal bonds are furnished in the ordinary
course of any Restricted Subsidiary's insurance or reinsurance business;

(viii) Any renewals, extensions, substitutions, refinancings or
replacements by any Restricted Subsidiary of any Indebtedness of a
Restricted Subsidiary permitted under the Indenture, including any
successive renewals, extensions, substitutions, refinancings or replacements
thereof so long as any such new Indebtedness (A) shall be in a principal
amount that does not exceed the principal amount so refinanced, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Indebtedness refinanced or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing, plus the amount of expenses incurred in
connection with such refinancing and (B) (x) in the case of Indebtedness
being refinanced which has an Average Life shorter than the CI Notes, such
renewal, extension, substitution, refinancing or replacement does not reduce
the Average Life or the final Stated Maturity of the principal of such
Indebtedness and (y) in all other cases, any such new Indebtedness has an
Average Life and final Stated Maturity that exceeds the Average Life and
final Stated Maturity of the CI Notes; provided that for purposes of this
clause (viii), the principal amount of any Indebtedness shall be deemed to
mean the principal amount thereof or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination; and

(ix) Indebtedness under any revolving credit facility of up to but not
in excess of an aggregate principal amount outstanding at any one time of
$10.0 million; provided that there is a period of 30 consecutive days in
each calendar year during which no such Indebtedness is outstanding; and
provided further that such $10.0 million shall be reduced to the extent of
any Indebtedness secured by Liens created or incurred under clause (a) of
the definition of "Permitted Liens."

Limitation on Liens Securing Company Indebtedness

The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien securing Indebtedness of the Company (other
than Permitted Liens), on any property or asset now owned or hereafter acquired,
or on any income or profits therefrom, or assign or convey any right to receive
income therefrom, unless all amounts due under the Indenture and the CI Notes
are secured on an equal and ratable basis with (or prior to) the obligations so
secured until such time as such obligations are no longer secured by a Lien.

For purposes of this restriction, "Permitted Liens" means:

(a) Liens securing Indebtedness of the Company with respect to any
revolving credit facility not exceeding $10.0 million in principal amount in
the aggregate at any one time outstanding (exclusive of any Lien permitted
by any other clause of this definition); provided that such $10.0 million
shall be reduced to the extent that any Indebtedness shall have been
incurred and shall be outstanding under clause (ix) of the definition of
"Permitted Subsidiary Indebtedness";

(b) Liens in favor of the Company or any Restricted Subsidiary;

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contemplation of, such merger or consolidation and such Liens do not extend
to any assets of the Company or any of its Restricted Subsidiaries other
than the shares or assets of the Person so acquired by, merged into or
consolidated with the Company or such Restricted Subsidiary;

(d) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company; provided that such
Liens were not incurred in connection with, or in contemplation of, such
acquisition and do not extend to any assets of the Company or any of its
Restricted Subsidiaries other than the property so acquired;

(e) Liens to secure the performance of statutory obligations, surety or
appeal bonds or performance bonds, or landlords', carriers', warehousemen's,
mechanics', suppliers', materialmen's or other like Liens, in any case
incurred in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate process of
law, if a reserve or other appropriate provision, if any, as is required by
GAAP shall have been made therefor;

(f) Liens existing on the date of the Merger;

(g) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;

(h) Liens with respect to obligations under Currency Agreements or
Interest Swap Obligations permitted under the Indenture;

(i) Liens to secure any extension, renewal, substitution, refinancing or
replacement (or successive extensions, renewal, substitution, refinancing or
replacements), in whole or in part, of any Indebtedness secured by Liens
referred to in any of clauses (a), (c), (d), (f), (j), (k) and (l) of this
definition; provided that any such Lien shall be limited to the same
property that secured the original Lien and the aggregate principal amount
of Indebtedness that is secured by such Lien shall not be increased to an
amount greater than the outstanding aggregate principal amount of the
Indebtedness being so extended, renewed, substituted, refinanced or replaced
(plus any premium and expenses incurred in connection therewith);

(j) Liens securing Indebtedness incurred to finance the construction or
purchase of, or repairs, improvements or additions to, property of the
Company; provided that (i) any such Lien may not extend to any other
property owned by the Company or any of its Restricted Subsidiaries, (ii)
such Lien is created prior to, at the time of or within 90 days after such
construction, purchase, repair, improvement or addition is completed and
(iii) the principal amount of the Indebtedness secured by such Lien does not
exceed 100% of the fair market cost of such construction, purchase, repair,
improvement or addition;

(k) Liens securing Indebtedness of a Restricted Subsidiary permitted to
be incurred under the Indenture or any guarantee by the Company thereof; and

(l) Liens securing Indebtedness of the Company provided, that at the
date that any such Lien is created or incurred (on a pro forma basis), the
ratio of (x) Senior Indebtedness to (y) Consolidated Net Worth of the
Company does not exceed 0.9 to 1.

Merger, Consolidation, or Sale of Assets

The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, in any transaction or series of transactions,
consolidate with or merge with or into any other Person (other than the Merger
and other than any such transaction with a Wholly-Owned Restricted Subsidiary of
the Company with a positive Consolidated Net Worth) or, directly or

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indirectly, sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its assets (determined on a consolidated basis for the
Company and its subsidiaries taken as a whole) in one or more related
transactions, including through a bulk reinsurance arrangement, to any Person
(other than a Wholly-Owned Restricted Subsidiary of the Company with a positive
Consolidated Net Worth) or group of affiliated Persons unless, at the time and
after giving effect thereto:

(i) (A) the Company shall be the continuing corporation (or, in the case
of any consolidation or merger of a Restricted Subsidiary, the Company shall
continue to have all of the obligations under the Indenture, including the
obligation to make due and punctual payment of the Payment Amount and the
performance of every covenant, agreement and obligation on the part of the
Company under the Indenture); or (B) the Person (if other than the Company)
formed by such consolidation, or into which the Company is merged or the
Person that acquires by sale or other disposition the assets of the Company,
substantially as an entirety (the "Surviving Entity"), is a corporation duly
organized and validly existing under the laws of the United States or any
state thereof and shall, in the case of clause (B), expressly assume, by
supplemental indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of the Company
under the Indenture;

(ii) immediately before and after such transaction, giving effect to
such transaction on a pro forma basis, no default or Event of Default shall
have occurred and be continuing;

(iii) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth (after giving pro forma effect to such
transaction but not including the accrual of deferred tax liabilities
resulting from the transaction) of the Company (or the Surviving Entity if
the Company is not the continuing obligor under the Indenture) is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction; provided that in the case of the merger or consolidation of any
Restricted Subsidiary with Consolidated Net Worth of less than 5% of the
Consolidated Net Worth of the Company with any other Person, this clause
(iii) shall not apply; and

(iv) if any of the property or assets of the Company or any Restricted
Subsidiary prior to such transaction would thereupon become subject to any
Lien securing Indebtedness of the Company, the outstanding CI Notes shall be
secured equally and ratably with (or prior to) the obligation or liability
secured by such Lien, unless the Company or such Restricted Subsidiary could
create such Lien without equally and ratably securing the CI Notes.

Notwithstanding the foregoing, the Indenture will provide that Piedmont may
consummate the Merger subsequent to the issuance of the CI Notes, and in the
event of such Merger, Chartwell shall expressly assume, by supplemental
indenture, all of the obligations of Piedmont under the Indenture.

The covenants in the Indenture provide some protection to holders in the
event of a proposed or actual acquisition, recapitalization or similar
transaction with respect to Chartwell or one of its principal subsidiaries which
would increase the amount of Chartwell's indebtedness outstanding at such time
or otherwise affect its capital structure or credit ratings. However, each of
the foregoing covenants is subject to a number of specified exceptions.
Therefore, depending on the particular facts and circumstances, such a
transaction might be possible notwithstanding the foregoing provisions of the
Indenture.

SETTLEMENT

At its option, Chartwell may settle the CI Notes by payment of shares of
common stock of Chartwell instead of cash. For purposes of settlement of the CI
Notes, such common stock would be valued at 85% of its average closing market
price over a specified period prior to the settlement date. However, Chartwell
may not settle the CI Notes in common stock unless (i) such stock is registered
under the Securities Act (or is otherwise freely tradeable other than by certain
affiliates

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of the issuer), (ii) such stock is listed on a national securities exchange or
NASDAQ and (iii) all CI Notes are settled in such common stock. Moreover,
Chartwell may not use common stock if the CI Notes are being settled following
acceleration thereof due to an event of default under the CI Notes Indenture.

Any decision by Chartwell to settle the CI Notes in shares of common stock
would depend on facts and circumstances existing at the time. Relevant
considerations could include, among others, recent market prices for the common
stock, management's view as to the intrinsic value of such stock, Chartwell's
cash position, and other economic and business factors deemed relevant.

SEC REPORTS

Under the terms of the Indenture, the Company will file with the Trustee,
within 15 days after it is required to file them with the SEC, copies of its
annual reports and of the information, documents and other reports which the
Company is required to file with the SEC pursuant to Section 13 or Section 15(d)
of the Exchange Act.

EVENTS OF DEFAULT AND REMEDIES

The Indenture will provide that each of the following constitutes an Event
of Default:

(i) the Company defaults in the payment of any amount due with respect
to any CI Note when the same becomes due and payable at maturity, upon
acceleration, redemption or mandatory repurchase (giving effect to any
period of extension permitted under the Indenture);

(ii) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture with respect to any CI
Note and such default or breach continues for a period of 60 consecutive
days after written notice to the Company by the Trustee or to the Company
and the Trustee by the Holders of 25% or more in aggregate Principal Amount
of the CI Notes;

(iii) an involuntary case or other proceeding shall be commenced against
the Company or any Principal Restricted Insurance Subsidiary with respect to
it or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other proceeding remains
undismissed and unstayed for a period of 60 days; or an order for relief
shall be entered against the Company or any Principal Restricted Insurance
Subsidiary under the federal bankruptcy laws as now or hereafter in effect;

(iv) the Company or any Principal Restricted Insurance Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Principal Restricted Insurance Subsidiary or for all or substantially all of
the property and assets of the Company or any Principal Restricted Insurance
Subsidiary or (C) effects any general assignment for the benefit of
creditors;

(v) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries whether such Indebtedness now exists or is created after the
date of the Indenture which default results in the acceleration of such
Indebtedness prior to its express maturity and the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness the maturity of which has been so accelerated, aggregates $10.0
million or more;

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(vi) a default occurs in the payment of any amount in excess of $1.0
million under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries whether
such Indebtedness now exists or is created after the date of the Indenture
which default extends beyond the grace period applicable to such default, if
any; or

(vii) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company
or any of its Restricted Subsidiaries and such judgments are not paid,
discharged or stayed for a period of 30 days after their entry, provided
that the aggregate of all such unpaid, undischarged or unstayed judgments
exceeds $1.0 million (net of any amount as to which a reputable insurance
company has accepted liability).

If an Event of Default (other than by reason of an event described in clause
(iii) or (iv) above) occurs and is continuing, the Trustee by written notice to
the Company, or the Holders of at least 25% in aggregate Principal Amount of the
then outstanding CI Notes by written notice to the Company and the Trustee, may
declare the unpaid principal of and accrued and unpaid interest on all the CI
Notes to be due and payable. Upon such declaration the principal and interest
shall be due and payable immediately. Notwithstanding the foregoing, in the case
of an Event of Default arising from events as set forth in clauses (iii) and
(iv) above, all outstanding CI Notes shall become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. The Holders of a majority in aggregate Principal Amount of the then
outstanding CI Notes, by written notice to the Trustee, may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived. If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy to collect the payment of principal and
interest on the CI Notes or to enforce the performance of any provision of the
CI Notes or the Indenture. Subject to certain limitations, Holders of a majority
in aggregate Principal Amount of the then outstanding CI Notes may direct the
Trustee in its exercise of any remedy available to it and any trust or power
conferred on it. The Trustee may withhold from holders of CI Notes notice of any
continuing default or Event of Default (except a default or Event of Default
relating to the payment of any amount with respect to the CI Notes) if it
determines that withholding notice is in their interest.

Holders of a majority in aggregate Principal Amount of the CI Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the CI Notes waive any existing default or Event of Default and its consequences
under the Indenture, except a continuing default or Event of Default in the
payment of the principal of or interest on the CI Notes (including in connection
with an offer to purchase) (provided that the Holders of a majority in aggregate
Principal Amount of the then outstanding CI Notes may rescind an acceleration
and its consequences, including any related payment default that resulted from
such acceleration). Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of the Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.

TRANSFER RESTRICTIONS

The CI Notes are subject to certain restrictions on transfer. During the
period beginning on the Issue Date and ending 90 days thereafter, any CI Note
may be transferred without restriction of any kind, subject to compliance with
the Securities Act (and any other applicable law). After such 90 day period, the
CI Notes may be transferred or assigned by a Holder, subject to compliance with
the Securities Act (and any other applicable law), only in the following
circumstances: (i) to any Affiliate of such Holder; (ii) to a trust, the
beneficiaries of which, or a corporation, limited liability

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company or partnership, at least 80% of the stockholders, members or general or
limited partners of which, are such Holder or his or her issue, adopted issue,
stepchild, parent, spouse or other lineal descendants; (iii) by will or the laws
of descent and distribution; (iv) to the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of such Holder; (v) by gift
without consideration of any kind; (vi) to any entity owning, at the time of
transfer, any of the CI Notes; (vii) to any entity offering to acquire, by
tender offer or otherwise, at least 25% of the CI Notes then outstanding; or
(viii) to the Company; provided that in the case of any transfer pursuant to
clause (vi) or (vii) above, any such transfer shall only be permitted during the
period of (a) 60 days commencing April 1, 1999; (b) 90 days prior to any
Settlement Date; and (c) at any time after an acceleration of the CI Notes
pursuant to the Indenture.

In addition to the foregoing, certain Piedmont stockholders who qualify as
"affiliates" (as used in Rule 144 under the Securities Act) of Piedmont, or,
following the Merger, of Chartwell, will be subject to restrictions on the
amount of CI Notes they may sell and the manner in which such sales may be made.
Such affiliates in general include directors and officers of Piedmont and
certain significant stockholders of Piedmont or Chartwell.

The CI Notes will not be listed on any stock exchange or on NASDAQ. It is
currently anticipated that during the Initial Period, Smith Barney will maintain
a list of any indications of interest to purchase or sell CI Notes that Smith
Barney may receive from time to time, provide recent price quotations based on
such list and will make a reasonable effort to intermediate as agent any such
purchase or sale of CI Notes, although such activity may be discontinued by
Smith Barney at any time. There can be no assurance that any market for the CI
Notes will develop during the Initial Period or, if any such market does
develop, as to the liquidity of any such market, nor can there be any assurance
as to the values at which the CI Notes will trade in any such market. Persons
interested in purchasing or selling CI Notes during the Initial Period may
contact the Special Equity Transactions Group of Smith Barney.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, STOCKHOLDERS AND
INCORPORATORS

No director, officer, employee, incorporator or present or future
stockholder, as such, of the Company or any successor shall have any liability,
either directly or through the Company or any successor, for any obligation of
the Company under the CI Notes, the Indenture, or any supplemental indenture or
because of any indebtedness evidenced thereby, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise. Each holder of the CI Notes, by accepting
such Note, waives and releases all such liability as part of the consideration
for the issue of the CI Notes.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company may, at any time, terminate (i) all its obligations under the CI
Notes and the Indenture ("legal defeasance option") or (ii) its obligations to
comply with certain restrictive covenants, including the covenants restricting
the incurrence of certain indebtedness and liens ("covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.

If the Company exercises its legal defeasance option, payment of the CI
Notes may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the CI Notes may not be
accelerated because of certain Events of Default (not including, among others,
Events of Default relating to non-payment, bankruptcy and insolvency events) or
because of the failure of the Company to comply with certain covenants specified
in the Indenture.

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The Company may exercise its legal defeasance option or its covenant
defeasance option only if: (1) the Company irrevocably deposits in trust with
the Trustee money or certain U.S. Government obligations for the payment of the
Payment Amount on the CI Notes to maturity or redemption, as the case maybe; (2)
the Company delivers to the Trustee a certain certificate from a nationally
recognized firm of independent certified public accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment will provide cash at such times and in such amounts as will be
sufficient to pay the Payment Amount when due on all the CI Notes to maturity or
redemption, as the case may be; and (3) and certain other conditions are met.

AMENDMENT, SUPPLEMENT AND WAIVER

Except as provided in the next two succeeding paragraphs, the Indenture and
the CI Notes may be amended or supplemented with the consent of Holders of at
least a majority in aggregate Principal Amount of the CI Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for CI Notes), and any existing default or compliance with any provision of the
Indenture or the CI Notes may be waived with the consent of Holders of a
majority in aggregate Principal Amount of the then outstanding CI Notes
(including consents obtained in connection with a tender offer or exchange offer
for CI Notes).

Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any CI Notes held by a nonconsenting Holder): (i) reduce the
aggregate Principal Amount of CI Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the Payment Amount or change the
fixed maturity of any CI Note or alter the provisions with respect to the
redemption of the CI Notes (other than provisions relating to the covenant
described under "Repurchase at the Option of Holders Upon A Change of Control"),
(iii) reduce the rate of or change the time for payment of interest on any CI
Note, (iv) waive a default or Event of Default in the payment of the Fixed
Amount or the Contingent Interest or interest on the CI Notes (except a
rescission of acceleration of the CI Notes by Holders of at least a majority in
aggregate Principal Amount of the CI Notes and a waiver of the payment default
that resulted from such acceleration), (v) make any CI Note payable in money
other than that stated in the CI Notes, (vi) make any change in the provisions
of the Indenture relating to waivers of past defaults or Events of Default or
the rights of Holders of CI Notes to receive payments of the Fixed Amount or the
Contingent Interest or interest on the CI Notes, (vii) waive a redemption
payment with respect to any CI Note (other than a payment required in connection
with a "Change of Control") or (viii) make any change in the foregoing amendment
and waiver provisions.

Notwithstanding the foregoing, without the consent of any holder of CI
Notes, the Company and the Trustee together may amend or supplement the
Indenture or the CI Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated CI Notes in addition to or in place of certificated
CI Notes, to provide for the assumption of the Company's obligations to holders
of the CI Notes in the case of a merger or consolidation or similar transaction
in accordance with the Indenture, to make any change that would provide any
additional rights or benefits to the holders of the CI Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.

CONCERNING THE TRUSTEE

Shawmut Bank Connecticut, N.A. is to be the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with respect to
the CI Notes.

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GOVERNING LAW

The Indenture and the CI Notes will be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
the choice of law rules thereof.

CERTAIN DEFINITIONS

Set forth below is a summary of certain defined terms used in the Indenture.
Reference is made to the Indenture for the full definitions of all such terms,
as well as any other capitalized terms used herein for which no definition is
provided.

"Acquired Indebtedness" means Indebtedness of a Person: (i) existing at the
time such Person becomes a Subsidiary (or any renewal, extension, substitution,
refinancing or replacement thereof at such time) or (ii) assumed in connection
with the acquisition of assets from another Person, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition, as the case may be.

"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person (except in cases where substantially
all of the control that would ordinarily be exercisable by virtue of ownership
of stock, other than the election of directors, has been eliminated by
applicable regulatory authorities). For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting stock, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing: (i) the sum of the products of
(A) the number of years (or portion thereof) from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness
multiplied by (B) the amount of such principal payment by (ii) the sum of all
such principal payments.

"Board of Directors" means either the Board of Directors of the Company or
any committee of such Board duly authorized to act under the Indenture.

"Board Resolution" means one or more resolutions of the board of directors
of the Company or any authorized committee thereof, certified by the secretary
or an assistant secretary to have been duly adopted and to be in full force and
effect on the date of certification, and delivered to the Trustee.

"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are authorized
or required by law or regulation to close in the City of New York.

"Capital Lease Obligation" of any Person means any obligations of such
Person and its Subsidiaries on a consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation; and the amount of Indebtedness represented by such
obligation will be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.

"Capital Stock" of any Person means any and all shares, interests,
participation, or other equivalent (however designated) of such Person's capital
stock and any rights (other than debt

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securities convertible into or exchangeable for capital stock), warrants or
options to purchase the foregoing whether now outstanding or issued after the
date of the Indenture.

"Change of Control" means (A) either (i) any transaction or series of
transactions occurring after the Merger in which any "person" or "group" (within
the meaning of Rule 13d-5 under the Exchange Act and Sections 13(d) and 14(d) of
the Exchange Act) (x) consisting of one or more of the holders (or their
Affiliates) of the Common Stock of Chartwell immediately prior to the Merger
becomes the direct or indirect "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), by way of merger, consolidation, other business
combination or otherwise, of greater than 66 2/3% of the total voting power (on
a fully-diluted basis as if all convertible securities had been converted)
entitled to vote in the election of directors of the Company or the Surviving
Entity (if other than the Company) or (y) other than the initial holders (or
their Affiliates) of the Common Stock of the Company immediately after the
Merger, becomes the direct or indirect "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), by way of merger, consolidation, other business
combination or otherwise, of greater than 50% of the total voting power (as
defined above) entitled to vote in the election of directors of the Company or
the Surviving Entity (if other than the Company); provided that this subclause
(y) shall not include any transaction in which the Company or the Surviving
Entity becomes or is a direct or indirect Wholly-Owned Restricted Subsidiary of
another entity (the "Parent"), if immediately following such transaction no
"person" or "group" would be the "beneficial owner" of greater than 50% of such
total voting power of the Parent or (ii) the Common Stock of the Company shall
cease to be listed on any national securities exchange or on NASDAQ; and (B)
within one year after the occurrence of any of the events described in clause
(A) above, (i) the individuals who immediately prior to the occurrence of such
event or events constituted the board of directors of the Company cease for any
reason to constitute a majority of the directors of the Company then in office
or (ii) the Chief Executive Officer and President of the Company (or an
individual or individuals holding positions of equivalent responsibility) at the
time of such event or events cease for any reason to hold such positions at the
Company, or if the Company is controlled by another Person, such officers do not
hold positions of equivalent responsibility at such other Person. In addition, a
Change of Control shall be deemed to have occurred if (a) the Company or any
Subsidiary sells, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of the Company and its Subsidiaries, considered
as a whole, or (b) the Company or any Subsidiary of the Company sells, conveys,
transfers, leases or otherwise disposes of all or substantially all of the
common stock of, or sells, conveys, transfers, leases or otherwise disposes of
all or substantially all of the assets of, RECO or Chartwell Reinsurance to
another Person or Persons in one transaction or a series of transactions,
including through a bulk reinsurance transaction or transactions; in each case
with respect to clauses (a) and (b) above, other than any transaction which is
specifically contemplated by the Merger Agreement or any sale, conveyance,
transfer, lease or other disposition to the Company or any Wholly-Owned
Restricted Subsidiary.

"Chartwell" means Chartwell Re Corporation, a Delaware corporation.

"Chartwell Reinsurance" means Chartwell Reinsurance Company, a Minnesota
corporation.

"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of the Indenture, including, without limitation, all
series and classes of such common stock.

"Company" means Piedmont Management Company Inc., a Delaware corporation,
and its successors and assigns. Chartwell Re Corporation shall be deemed to be
the successor to Piedmont Management Company Inc. after the Merger, and from and
after the Merger, "Company" shall mean Chartwell Re Corporation and its
successors and assigns.

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"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its Restricted Subsidiaries as determined in
accordance with GAAP consistently applied.

"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect such
Person or any of its Restricted Subsidiaries against fluctuations in currency
values or exchange rates.

"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.

"Fixed Amount" means the aggregate Principal Amount of the CI Notes plus
accreted interest thereon from the Issue Date through the Settlement Date (not
including any period of extension) at a rate of 8.0% per annum, compounded
annually.

"GAAP" means generally accepted accounting principles in the United States
of America at the date of any computation required or permitted hereunder;
provided that for purposes of calculation of the amount of Contingent Interest,
GAAP means generally accepted accounting principles in the United States of
America as in effect on the Determination Date.

"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person to the extent guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by such
Person through an agreement: (i) to pay or purchase such Indebtedness or to
advance or supply funds for the payment or purchase of such Indebtedness; (ii)
to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling such other Person to make
payment of such Indebtedness or to assure the holder of such Indebtedness
against loss; (iii) to supply funds to, or in any other manner invest in, such
other Person (including any agreement to pay for property or services to be
acquired by such other Person irrespective of whether such property is received
or such services are rendered); (iv) to maintain working capital or equity
capital of such other Person, or otherwise to maintain the net worth, solvency
or other financial condition of the debtor; or (v) otherwise to assure the
holder of such Indebtedness of such other Person against loss; provided that the
term "guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business, or any obligation or liability
of such other Person in respect of leasehold interests assigned by such other
Person to any other Person.

"Holder", "Holder of CI Notes", "Noteholder" or other similar term means the
registered holder of any CI Note.

"Indebtedness" means, with respect to any Person, without duplication: (i)
all obligations of such Person for borrowed money and all obligations of such
Person for the deferred purchase price of property or services, excluding any
trade payables and other accrued current liabilities incurred in the ordinary
course of business, in each case, if, and to the extent, any of the foregoing
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP; (ii) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, if, and to the extent, any of
the foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP; (iii) all obligations created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business and software license agreements or other software acquisition
agreements entered into in the ordinary course of business; (iv) all Capital
Lease Obligations of such Person; (v) all obligations referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv)

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above of other Persons and all dividends of other Persons, to the extent that
the payment thereof is secured by (or to the extent that the holder of such
obligations has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such obligations; (vi) all Guaranteed Debt
of such Person; (vii) all Redeemable Capital Stock issued by such Person valued
at the greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends; (viii) the net amount of all obligations
under Currency Agreements or Interest Swap Obligations of such Person; (ix) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other than obligations with
respect to letters of credit entered into in the ordinary course of the
insurance or reinsurance business of such Person to the extent that such letters
of credit are not drawn upon, or if and to the extent drawn upon, such drawing
is reimbursed not later than the 30th Business Day following a demand for
reimbursement following payment on the letter of credit) and (x) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (ix) above.
Indebtedness shall not include obligations under insurance, reinsurance or
retrocession contracts entered into in the ordinary course of business. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to the Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair
Market Value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.

"Interest Swap Obligations" means the obligations of any Person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such Person or any of its
subsidiaries against fluctuations in interest rates.

"Issue Date" means the date on which CI Notes are originally issued under
the Indenture.

"Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind.

"Maturity Date" means June 30, 2006 (subject to extension in accordance with
the Indenture).

"Non-Recourse Indebtedness" means Indebtedness as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support
(including any undertaking, agreement or instrument that would constitute
Indebtedness), unless the incurrence of such Indebtedness would have otherwise
been permitted hereunder, (b) is directly or indirectly liable, unless the
incurrence of such Indebtedness would have otherwise been permitted hereunder,
or (c) constitutes the lender.

"Payment Amount" means the sum of (i) the Fixed Amount, (ii) the Contingent
Interest and (iii) to the extent applicable, any Extension Interest.

"Person" means any individual, corporation, limited or general partnership,
limited liability company, joint venture, association, joint stock company,
trust, fund, unincorporated organization or government or any agency or
political subdivision thereof.

"Principal Amount" means, with respect to the CI Notes, in the aggregate,
$1,000,000.

145
<PAGE>
of the Company that may succeed, by merger, consolidation or otherwise, to all
or substantially all of the business of one or more of such persons specified in
(i), (ii) and (iii) above.

"pro rata" means, with respect to any CI Note, the ratio of the Principal
Amount of such CI Note to the aggregate Principal Amount of the CI Notes.

"RECO" means The Reinsurance Corporation of New York, a New York
corporation.

"Redeemable Capital Stock" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or exchangeable
or otherwise, is or upon the happening of an event or passage of time would be
required to be redeemed on or prior to the final Stated Maturity of the CI Notes
or is redeemable at the option of the holder thereof at any time prior to such
final Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity.

"Redemption Date" means the date fixed by the Company for optional
redemption of the CI Notes in accordance with the Indenture; provided that such
date shall be extended if and to the extent required by the Indenture.

"Registered Common Stock" means Common Stock of the Company registered under
the Securities Act (or other Common Stock of the Company that is freely
tradeable (other than by affiliates (within the meaning of Rule 144 under the
Securities Act) of the Company) without such registration; provided that in
connection with the settlement of the Payment Amount due under the CI Notes in
Common Stock without such registration, an unqualified opinion of a nationally
recognized law firm experienced in securities law matters is delivered by the
Company to the Trustee to such effect).

"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.

"Senior Indebtedness" means, without duplication, Indebtedness of all
Restricted Subsidiaries of the Company plus any Indebtedness of the Company to
the extent secured by Liens created or incurred under clauses (a), (c), (d),
(f), (i), (j) and (l) of the definition of "Permitted Liens."

"Settlement Date" means each of the Maturity Date; the Redemption Date; a
Change of Control Purchase Date; and in the event of acceleration of the CI
Notes pursuant to the Indenture (i) as the result of a bankruptcy or insolvency
event with respect to the Company or a Principal Restricted Insurance
Subsidiary, the date of such Event of Default, (ii) as the result of a failure
to pay when due any amount with respect to any CI Notes, the Settlement Date as
of which such payment was due or (iii) as the result of any Event of Default
other than those described in the foregoing clauses (i) and (ii), the date of
such acceleration.

"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of principal or of interest thereon, the date specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of principal or of interest is due and payable.

"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the outstanding Voting Stock
is owned, directly or indirectly, by such Person and one or more other
Subsidiaries of such Person.

146
<PAGE>
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; and (e) is a Person with respect to which neither the Company nor any
of its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Capital Stock or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant entitled "Limitation
on Incurrence of Indebtedness by Restricted Subsidiaries," the Company shall be
in default of such covenant). The Board of Directors of the Company may at any
time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant entitled
"Limitation on Incurrence of Indebtedness by Restricted Subsidiaries," and (ii)
no default or Event of Default would be in existence following such designation.

"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).

"Wholly-Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other equity
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly-Owned Restricted
Subsidiaries of such Person.

147
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is based upon the Code, the applicable Treasury
Regulations thereunder, judicial authority, and current administrative rulings
and practice as of the date hereof. The following discussion does not purport to
consider all aspects of Federal income taxation that may be relevant to
particular holders of CI Notes in light of their personal investment
circumstances or to certain types of holders of CI Notes subject to special
treatment under the Federal income tax laws (e.g., banks and life insurance
companies). The discussion is limited to those persons who are the initial
holders of the CI Notes who hold their Piedmont Common Stock and their CI Notes
as capital assets. As used in this discussion, "holder" means a beneficial owner
that is a citizen or resident of the U.S., a corporation or partnership
organized in or under the laws of the U.S., and an estate or trust the income of
which is subject to Federal income taxation regardless of its source. In
addition, the following description (i) does not consider the effect of any
applicable foreign, state, local or other tax laws and (ii) is not binding on
the IRS and no ruling from the IRS has been not sought or will be sought with
respect to such tax consequences.

THE FOLLOWING IS A SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF
THE DISTRIBUTION OF THE CI NOTES TO THE STOCKHOLDERS OF PIEDMONT, WITHOUT
REFERENCE TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR
STOCKHOLDER. STOCKHOLDERS OF PIEDMONT ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PRECISE FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES OF
THE DISTRIBUTION OF THE CI NOTES AND OF HOLDING AND DISPOSING OF THE CI NOTES.

CI Note Dividend Distributed with respect to the Piedmont Common Stock. The
fair market value of a CI Note distributed to a holder of Piedmont Common Stock
(including Piedmont Preferred stockholders who converted their Piedmont
Preferred Stock into Piedmont Common Stock) will be (i) a dividend taxable as
ordinary income to the extent of Piedmont's accumulated and current earnings and
profits (as determined for Federal income tax purposes), if any, allocable to
such holder's Piedmont Common Stock, (ii) a tax-free return of basis to the
extent, if any, the CI Note's fair market value exceeds Piedmont's accumulated
and current earnings and profits, if any (as determined for Federal income tax
purposes), allocable to such holder's Piedmont Common Stock and (iii) capital
gain (assuming the Piedmont Common Stock was held as a capital asset) to the
extent, if any, the portion of the CI Note not treated as a dividend exceeds
such holder's basis in its Piedmont Common Stock. Chartwell (as Piedmont's
successor in the Merger) will be required to report to stockholders on Form 1099
DIV its determination of the fair market value of the CI Notes and the portion
of such distribution that will be taxable as a dividend. Although Chartwell
intends to take account of the price quotations provided by Smith Barney (see
"DESCRIPTION OF CONTINGENT INTEREST NOTES--Transfer Restrictions") in making a
determination of the CI Notes' fair market value, Chartwell may decide to retain
an independent third-party to value the CI Notes. In such event, Chartwell may
report on Form 1099 DIV an amount inconsistent with such price quotations.
Stockholders should be aware, however, the IRS is not bound by the amount
reported on Form 1099 DIV and could assert that the fair market value of the CI
Notes is different from the reported amount. For a discussion of the tax
consequences of holding a CI Note see "Interest Income to CI Note Holders"
below.

Treatment of the CI Notes as Indebtedness. Although no transaction closely
comparable to that contemplated herein has been the subject of any Treasury
Regulation, revenue ruling or judicial decision, Piedmont, and Chartwell as
Piedmont's successor in the Merger, intend to treat the CI Notes as debt
obligations for Federal income tax purposes. While contrary characterizations
could be asserted by the IRS, recharacterizing the CI Notes as another property
right would generally only affect the timing of income accrual with respect to
the CI Notes. Amounts paid to the CI Note holders should generally be
characterized as ordinary income even if the CI Notes are treated as

148
<PAGE>
another property right. Holders should consult their own tax advisors regarding
the Federal, state, local, foreign and any other tax consequences resulting from
the characterization of the CI Notes as another property right.

The following discussion assumes that the CI Notes will be treated as debt
obligations of Piedmont, and Chartwell as Piedmont's successor in the Merger,
for Federal income tax purposes.

The CI Notes--Applicable Law. On January 27, 1994, the IRS issued final
regulations (the "OID Regulations") regarding the inclusion of original issue
discount in gross income by holders of debt instruments. The OID Regulations do
not include, however, a final version of the previously proposed regulations
relating to contingent payments. Subsequently, on December 15, 1994, the IRS
issued new proposed regulations regarding contingent payments (the "Proposed
Contingent Payment Regulations") that, if applicable, may require holders of the
CI Notes to accrue interest under the CI Notes in a manner different than
described below. However, the Proposed Contingent Payment Regulations by their
terms will be effective for debt instruments issued on or after the date that is
60 days after the date final regulations are published in the Federal Register.
Therefore, if the CI Notes are treated as debt instruments with contingent
payments issued before the effective date of the final regulations, the tax
treatment of the holders of the CI Notes should be governed by the principles of
tax common law, as applied to the Code provisions relating to inclusion of
income and other related matters.

EACH PROSPECTIVE HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO
THE APPLICATION OF THE FINAL REGULATIONS AND THE PROPOSED CONTINGENT PAYMENT
REGULATIONS (OR SUBSEQUENT VERSIONS THEREOF) TO THE CI NOTES.

Interest Income to CI Note Holders. As discussed above, since there are no
applicable Treasury Regulations governing the taxation of the CI Notes, the
taxation of income realized with respect to the CI Notes should be governed by
the principles of tax common law, as applied to the Code provisions relating to
income accrual and other related matters. Assuming that the CI Notes are treated
as debt obligations for Federal income tax purposes, the excess of (i) the sum
of all amounts payable under a CI Note other than the Contingent Interest over
(ii) the issue price of the CI Note (herein, the "Discount Amount") constitutes
original issue discount. A holder of a CI Note will be required to include the
Discount Amount in gross income using the constant yield method over the term of
the CI Note regardless of when such amounts are paid and regardless of the
holder's regular method of accounting.

The CI Notes will have an issue price equal to their fair market value
provided the CI Notes are traded on an established securities market within the
meaning of Section 1273 of the Code ("Publicly Traded"). If the CI Notes are not
Publicly Traded, the issue price of a CI Note should equal (i) the CI Note's
stated principal amount provided the CI Note bears "adequate stated interest"
(i.e., the CI Note's 8% stated interest exceeds the "Federal long-term rate" as
published by the IRS for the month the CI Note is distributed) or (ii) the
present-value of all amounts payable under the CI Note other than the Contingent
Interest discounted at the applicable Federal long-term rate to the date the CI
Notes are distributed if the CI Note does not bear adequate stated interest. In
addition, the CI Notes may have market discount or bond premium if the CI Notes
are not Publicly Traded, since in such case the holder's basis in a CI Note may
not equal the CI Note's issue price. While Smith Barney intends to provide
recent price quotations for the CI Notes (see "DESCRIPTION OF CONTINGENT
INTEREST NOTES--Transfer Restrictions"), there can be no assurance that the CI
Notes will be characterized as Publicly Traded debt instruments. Chartwell (as
Piedmont's successor in the Merger) will be required to file Form 8281 setting
forth, in addition to other information, the CI Notes' issue price and the
Discount Amount. The information provided on Form 8281 may be obtained from the
IRS, although it should be noted the IRS is not bound by the information
reported on Form 8281. For a discussion of the tax treatment of the distribution
of the

149
<PAGE>
CI Notes see "CI Note Dividend Distributed with respect to the Piedmont Common
Stock" above. Holders should consult their own tax advisors as to the
determination of the fair market value of the CI Notes, the issue price of the
CI Notes and the tax consequences resulting if the holder's basis in a CI Note
is not equal to the CI Note's issue price.

Under existing case law dealing with contingent payments, an accrual basis
holder of a CI Note would generally be required to include in gross income a
payment constituting contingent interest when the right to receive the payment
is fixed and the amount of the payment becomes determinable with reasonable
accuracy. Accordingly, the Contingent Interest would be includable as interest
in the gross income of an accrual basis holder when such amount is fixed. A cash
basis holder would include such amount in gross income when received. However,
there is no controlling authority on this point, and the IRS or a court might
impose different tax results.

Disposition of the CI Notes. If a CI Note is sold, exchanged or otherwise
disposed of, a holder generally will recognize gain or loss in an amount equal
to the difference between the amount realized on the sale, exchange or
disposition and the holder's adjusted basis in the CI Note. The adjusted basis
of a CI Note generally will equal the fair market value of the CI Note on the
date such note was distributed by Piedmont, increased by any original issue
discount (i.e., the Discount Amount), Contingent Interest or market discount
previously included in the holder's gross income, and reduced by any amortized
bond premium. Subject to the market discount rules, gain or loss on the sale or
other disposition of a CI Note will be capital gain or loss if the CI Note is
held as a capital asset, except to the extent a cash basis holder realizes
ordinary income attributable to Contingent Interest that has become fixed prior
to payment of such interest.

Long Term Capital Gain. Any capital gain recognized by a CI Note holder will
be long term capital gain if the CI Note was held more than one year.

Income Tax Rates. The top marginal income tax rate applicable to ordinary
income (including dividends) is 39.6% for individuals and 35% for corporations.
The Federal rate applicable to "net capital gains" (i.e., net gain from the sale
of capital assets held for more than one year reduced by any net loss from the
sale of capital assets held for one year or less) for individuals is 28%.
Congress has proposed legislation that would reduce the maximum individual
capital gains rate (to 19.8%) and the maximum corporate capital gains rate (the
House of Representatives has proposed a 25% rate and the U.S. Senate has
proposed a 28% rate). At this time, it is impossible to predict the outcome of
such proposals or whether the President will sign or veto any resulting
legislation.

Backup Withholding. Unless an exemption applies under the applicable law and
regulations, the Exchange Agent and the trustee (with respect to amounts due
under the CI Notes) will be required to withhold and will withhold 31% of any
reportable payment, unless the stockholder provides his tax identification
number (social security number in the case of an individual, or employer
identification number) and certifies that such number is correct. For this
purpose, backup withholding may be required with respect to (i) the CI Notes
distributed with respect to the Piedmont Common Stock and (ii) the amount of
interest paid (including original issue discount or Contingent Interest), if
any, on the CI Note for any calendar year. Each Piedmont stockholder should
complete and sign the substitute Form W-9 that will be included with the
transmittal form to be delivered to each Piedmont stockholder as soon as
practicable after the Merger so as to provide the information and certification
necessary to avoid backup withholding, unless such stockholder can prove, in a
manner satisfactory to the Exchange Agent and the trustee (with respect to
amounts due under the CI Notes), that withholding is not required. Amounts
withheld would be remitted to the IRS as a credit against the holder's Federal
income tax liability.

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<PAGE>
LEGAL MATTERS

The validity of the CI Notes of Piedmont to be issued to holders of Piedmont
prior to the Spin-off and the Merger and the federal income tax consequences to
Piedmont stockholders of the CI Notes distribution will each be passed upon by
Davis Polk & Wardwell, New York, New York, counsel for Piedmont.

EXPERTS

The consolidated financial statements and related financial statement
schedules of Piedmont as of December 31, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994 included in this Prospectus and
elsewhere in the Registration Statement, have been audited by Coopers & Lybrand
L.L.P., as set forth in their report thereon appearing elsewhere herein, and are
included in reliance on such report given upon the authority of such firm as
experts in accounting and auditing.

The consolidated financial statements and related financial statement
schedules of Chartwell as of December 31, 1994 and 1993 and for each of the
three years in the period ended December 31, 1994 included in this Prospectus
and elsewhere in the Registration Statement, have been audited by Deloitte &
Touche LLP, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance on such report given upon the authority of such firm as
experts in accounting and auditing.

151

<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
PIEDMONT MANAGEMENT COMPANY INC.
CONSOLIDATED FINANCIAL STATEMENTS OF PIEDMONT MANAGEMENT COMPANY INC.
Report of Independent Certified Public Accountants................................. F-2
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993
and 1992......................................................................... F-3
Consolidated Balance Sheets at December 31, 1994 and 1993.......................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1994, 1993 and 1992.............................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993
and 1992......................................................................... F-6
Notes to Consolidated Financial Statements for the Years Ended December 31, 1994,
1993 and 1992.................................................................... F-7
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF PIEDMONT MANAGEMENT COMPANY INC.
Consolidated Statements of Operations for the Three and Nine Months Ended June 30,
1995 and September 30, 1994 (Unaudited).......................................... F-24
Consolidated Balance Sheet at September 30, 1995 (Unaudited) and December 31,
1994............................................................................. F-25
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995,
and September 30, 1994 (Unaudited)............................................... F-26
Notes to Consolidated Financial Statements (Unaudited)............................. F-27

CHARTWELL RE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS OF CHARTWELL RE CORPORATION
Independent Auditors' Report....................................................... F-28
Consolidated Balance Sheets at December 31, 1994 and 1993.......................... F-29
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993
and 1992......................................................................... F-30
Consolidated Statements of Common Stockholders' Equity for the Years Ended December
31, 1994, 1993 and 1992.......................................................... F-31
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993
and 1992......................................................................... F-32
Notes to Consolidated Financial Statements for the Years Ended December 31, 1994,
1993 and 1992.................................................................... F-33
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
CHARTWELL RE CORPORATION
Condensed Consolidated Balance Sheets at September 30, 1995 (Unaudited) and
December 31, 1994................................................................ F-52
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
June 30, 1995 and June 30, 1994 (Unaudited)...................................... F-53
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30,
1995 and June 30, 1994 (Unaudited)............................................... F-54
Notes to the Condensed Consolidated Financial Statements (Unaudited)............... F-55
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Piedmont Management Company Inc.

We have audited the consolidated balance sheets of Piedmont Management
Company Inc. and Subsidiaries ("Piedmont") as of December 31, 1994 and 1993, and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. Our audits also
included the financial statement schedules of Piedmont listed in the Index on
page S-1. These financial statements and financial statement schedules are the
responsibility of Piedmont's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Piedmont Management Company Inc. and Subsidiaries as of December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.

As discussed in Notes 1 and 8 to the consolidated financial statements,
Piedmont changed its methods of accounting for income taxes and certain
investments in 1993.

COOPERS & LYBRAND L.L.P.

New York, New York
February 22, 1995

F-2
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
REINSURANCE OPERATIONS:
Gross premiums earned....................... $219,201,715 $203,976,885 $203,406,944
Ceded premiums earned....................... (89,829,998) (90,273,081) (86,417,745)
------------ ------------ ------------
Net premiums earned......................... 129,371,717 113,703,804 116,989,199
Net investment income....................... 18,397,686 17,004,922 17,918,340
Realized capital gains (Note 2)............. 381,852 7,049,882 4,227,070
------------ ------------ ------------
Total revenues.............................. 148,151,255 137,758,608 139,134,609
Losses and loss expenses.................... 198,081,224 162,715,079 230,340,526
Reinsurance recoveries...................... (84,356,237) (73,906,517) (122,793,560)
------------ ------------ ------------
Net losses and loss expenses (Note 9)....... 113,724,987 88,808,562 107,546,966
Acquisition and other underwriting
expenses...................................... 43,799,053 35,701,074 45,650,380
------------ ------------ ------------
Total expenses.............................. 157,524,040 124,509,636 153,197,346
------------ ------------ ------------
Reinsurance operating income (loss)......... (9,372,785) 13,248,972 (14,062,737)
------------ ------------ ------------
INVESTMENT ADVISORY OPERATIONS:
Advisory, counseling fees and other income.. 22,427,213 17,749,329 15,865,532
Service and marketing costs................. 17,897,688 15,935,675 14,543,341
------------ ------------ ------------
Investment advisory operating income........ 4,529,525 1,813,654 1,322,191
------------ ------------ ------------
PARENT COMPANY:
Investment and other income................. 832,842 720,885 491,558
Realized capital gains (Note 2)............. 368,215 20,331 4,724
Interest expense (Note 6)................... 436,744 473,835 665,020
Other corporate expenses.................... 1,867,916 1,555,961 1,672,934
------------ ------------ ------------
Parent company operating loss............... (1,103,603) (1,288,580) (1,841,672)
------------ ------------ ------------
Income (loss) before equity in net earnings
(losses) of investees, provision (credit)
for income taxes and cumulative effect of
change in accounting principle.............. (5,946,863) 13,774,046 (14,582,218)
------------ ------------ ------------
Equity in net earnings (losses) of investees
(Note 3).................................... (105,367) 2,765,870 1,770,246
------------ ------------ ------------
Provision (credit) for income taxes (Note 8):
Current..................................... (2,649,935) 3,847,873 (2,336,908)
Deferred.................................... (184,520) 955,700 1,884,361
------------ ------------ ------------
(2,834,455) 4,803,573 (452,547)
------------ ------------ ------------
Income (loss) before cumulative effect of
change in accounting principle.............. (3,217,775) 11,736,343 (12,359,425)
Cumulative effect of change in method of
accounting for income taxes (Notes 1 and 8). -- 6,937,545 --
------------ ------------ ------------
Net income (loss)............................. $ (3,217,775) $ 18,673,888 $(12,359,425)
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares outstanding........... 4,969,556 5,539,665 4,923,636
EARNINGS (LOSS) PER COMMON SHARE (NOTE 1):
Income (loss) per common share before
cumulative effect of change in accounting
principle................................. $(.65) $2.12 $(2.51)
Cumulative effect of change in method of
accounting for income taxes............... -- 1.25 --
Deduction for preferred dividends........... (.04) -- (.04)
Net income (loss) per share............... $(.69) $3.37 $(2.55)
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-3
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993

<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
ASSETS:
Fixed Income Securities:
Held-to-Maturity, at amortized cost (market: $8,818,353
and $12,004,522)....................................... $ 8,813,314 $ 11,207,080
Available-for-Sale, at market (amortized cost:
$262,325,625 and $239,784,047)......................... 244,335,744 242,660,457
Equity securities, at market (cost: $67,214,430 and
$47,042,340)........................................... 66,666,764 52,650,829
Short-term investments, at cost............................ 51,703,561 57,773,840
------------ ------------
Total investments (Notes 1, 2 and 6)................... 371,519,383 364,292,206
Cash....................................................... 9,066,870 6,727,821
Investments in and advances to investee companies (Note
3)....................................................... 4,634,527 22,976,515
Accrued interest and dividends receivable.................. 3,687,258 3,597,642
Reinsurance recoverable.................................... 170,278,300 152,971,490
Premiums receivable........................................ 35,602,712 23,604,724
Prepaid reinsurance premiums............................... 22,980,856 23,016,161
Deferred policy acquisition costs.......................... 10,896,632 7,580,350
Deferred income taxes (Note 8)............................. 21,799,010 11,133,700
Other assets............................................... 25,003,520 26,844,747
------------ ------------
Total assets........................................... $675,469,068 $642,745,356
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
Outstanding losses and loss expenses (Notes 1, 9 and 10)... $461,533,490 $433,810,307
Unearned premiums.......................................... 73,839,992 61,212,093
Loan payable (Note 6)...................................... 20,000,000 9,800,000
Expenses, taxes and other liabilities...................... 17,615,047 12,962,858
------------ ------------
Total liabilities...................................... 572,988,529 517,785,258
------------ ------------
Stockholders' equity:
Capital stock (Notes 4 and 5):
Preferred stock, $1 par value, authorized 2,000,000
shares; cumulative convertible Series A shares issued:
245,068 and 245,735 (aggregate liquidation value:
$5,614,678 and $5,434,271)............................. 245,068 245,735
Common stock, $.50 par value, authorized 12,000,000 shares;
shares issued: 5,250,539 and 5,210,255................... 2,625,269 2,605,127
Paid-in capital............................................ 28,007,604 27,632,122
Unrealized appreciation (depreciation) on investments and
foreign translation adjustment, net of deferred income
taxes (Notes 1 and 2).................................... (13,929,580) 5,534,748
Retained earnings (Note 11)................................ 87,254,678 90,664,866
Less cost of treasury stock (265,000 shares common, 53,000
shares preferred)........................................ (1,722,500) (1,722,500)
------------ ------------
Total stockholders' equity............................. 102,480,539 124,960,098
------------ ------------
Commitments and contingencies (Note 11)
Total liabilities and stockholders' equity............. $675,469,068 $642,745,356
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-4
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
PREFERRED STOCK:
Balance at January 1........................ $ 245,735 $ 248,171 $ 249,408
Conversion to common stock.................. (667) (2,436) (1,237)
------------ ------------ ------------
Balance at December 31...................... 245,068 245,735 248,171

COMMON STOCK:
Balance at January 1........................ 2,605,127 2,596,316 1,262,482
Exercise of stock options................... 19,475 6,375 3,750
Conversions................................. 667 2,436 1,330,084
------------ ------------ ------------
Balance at December 31...................... 2,625,269 2,605,127 2,596,316

PAID IN CAPITAL:
Balance at January 1........................ 27,632,122 27,511,624 27,457,249
Exercise of stock options................... 375,482 120,498 54,375
------------ ------------ ------------
Balance at December 31...................... 28,007,604 27,632,122 27,511,624

UNREALIZED APPRECIATION (DEPRECIATION):
Balance at January 1........................ 7,074,467 5,821,356 5,925,162
Change in investment value.................. (18,341,066) 1,253,111 (103,806)
------------ ------------ ------------
Balance at December 31...................... (11,266,599) 7,074,467 5,821,356

FOREIGN TRANSLATION ADJUSTMENT:
Balance at January 1........................ (1,539,719) (1,374,992) (842,000)
Change in translation adjustment............ (1,123,262) (164,727) (532,992)
------------ ------------ ------------
Balance at December 31...................... (2,662,981) (1,539,719) (1,374,992)

RETAINED EARNINGS:
Balance at January 1........................ 90,664,866 72,185,592 84,741,113
Net income (loss)........................... (3,217,775) 18,673,888 (12,359,425)
Preferred dividends (Note 4)................ (192,413) (194,614) (196,096)
------------ ------------ ------------
Balance at December 31...................... 87,254,678 90,664,866 72,185,592

COST OF TREASURY STOCK:
Balance at December 31...................... (1,722,500) (1,722,500) (1,722,500)
------------ ------------ ------------

TOTAL STOCKHOLDERS' EQUITY AT DECEMBER 31..... $102,480,539 $124,960,098 $105,265,567
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-5
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ (3,217,775) $ 18,673,888 $ (12,359,425)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Cumulative effect of accounting change... -- (6,937,545) --
Realized capital gains................... (750,067) (7,070,213) (4,231,794)
Outstanding losses and loss expenses..... 27,723,183 (13,956,458) 56,564,550
Unearned premiums........................ 12,627,899 1,355,701 (502,833)
Reinsurance recoverable.................. (17,306,810) 8,441,458 (42,172,291)
Premiums receivable...................... (11,997,988) 9,310,091 1,434,825
Prepaid reinsurance premiums............. 35,305 (2,819,693) (1,140,247)
Deferred acquisition costs............... (3,316,282) 1,267,330 924,320
Amortization of bond premium, net........ 495,604 1,555,324 2,990,615
Equity in net (earnings) losses of
investees.............................. 105,367 (2,765,870) (1,770,246)
Income taxes payable/recoverable......... (1,236,571) 3,834,416 (577,048)
Deferred income tax (benefit) expense.... (184,520) 955,700 1,884,361
Accrued interest and dividends........... (89,616) 455,827 (522,103)
Other items, net......................... 6,051,271 1,207,980 (3,162,598)
------------ ------------- -------------
Total cash flows from operating
activities............................... 8,939,000 13,507,936 (2,639,914)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Held-to-Maturity securities... (1,606,234) -- --
Purchases of Available-for-Sale
securities............................... (76,595,109) (251,240,980) (260,749,771)
Maturities of Held-to-Maturity
securities............................... 4,000,000 -- --
Maturities of Available-for-Sale
securities............................... 35,384,879 51,914,439 48,934,699
Sales of Available-for-Sale securities..... 18,311,595 162,727,128 205,091,958
Net (purchases) sales of Equity
securities............................... (2,760,320) 6,721,401 (4,830,949)
Net (purchases) sales/maturities of Short-
term investments......................... 6,070,279 9,008,238 15,442,844
------------ ------------- -------------
Total cash flows from investing
activities............................... (17,194,910) (20,869,774) 3,888,781

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................... 20,000,000 -- --
Repayment of loan.......................... (9,800,000) (2,100,000) (2,100,000)
Proceeds from exercise of stock options.... 394,959 126,873 58,125
------------ ------------- -------------
Total cash flows from financing
activities............................... 10,594,959 (1,973,127) (2,041,875)
Net increase (decrease) in cash.............. 2,339,049 (9,334,965) (793,008)
Cash balance, beginning of year.............. 6,727,821 16,062,786 16,855,794
------------ ------------- -------------
Cash balance, end of year.................... $ 9,066,870 $ 6,727,821 $ 16,062,786
------------ ------------- -------------
------------ ------------- -------------

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid.......................... $ -- $ 4,807,961 $ 1,345,569
Interest paid.............................. $ 436,744 $ 475,258 $ 693,277
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-6
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

The principal accounting policies upon which the financial statements are
based are summarized as follows:

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of
Piedmont Management Company Inc. (the "Company") and all of its majority owned
subsidiaries. All significant intercompany transactions and accounts are
eliminated in consolidation. Certain reclassifications have been made to conform
the prior years' presentation with 1994.

Investments in companies in which the Company owns 20 to 50 percent of the
voting common stock or has the ability to exercise significant influence over
the operating and financial policies of the investee are accounted for under the
equity method. See Note 3 for additional information.

Accounting Estimates:

The financial statements contain estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses as of the date of
the financial statements. Actual results could differ from such estimates.

Accounting Principles for Insurance Companies:

The accompanying financial statements present the Company's reinsurance
operations in conformity with GAAP which differ in certain respects from
statutory accounting practices prescribed or permitted by the insurance
departments of the states or territories in which the companies operate. A
summary of the significant policies followed by The Reinsurance Corporation of
New York (RECO) follows:

Reinsurance premiums are recognized as revenues ratably over the terms
of the related contracts. Unearned premiums are based on reports received
from ceding companies and underwriting associations. Prepaid reinsurance
premiums are recorded for reinsurance premiums ceded to other companies.
Premium adjustments on deposit and experience rated contracts are accrued on
an estimated basis, with adjustments reflected in results of operations
currently. Reinsurance recoverable as of December 31, 1994 and 1993 is
presented net of allowances for uncollectible balances in the amounts of
$1,148,394 and $771,289, respectively.

Deferred policy acquisition costs represent commissions and brokerage
expenses which are deferred and charged against income ratably over the
contract term. These deferred costs have been limited to the amount expected
to be recovered from future earned premiums, after consideration of
anticipated losses and other expenses related to those premiums and
anticipated investment income. Deferred policy acquisition costs which have
been amortized in each of the last three years were $24,383,828 in 1994;
$20,266,615 in 1993; and $31,706,470 in 1992.

F-7
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
The estimated liability for outstanding losses and loss expenses is
based on reports received from ceding companies and underwriting
associations. A provision is also included for losses incurred but not
reported, which is developed on the basis of historical experience. The
methods of determining such estimates and establishing such reserves are
continually reviewed and updated and any adjustments resulting therefrom are
currently reflected in results of operations. In establishing reserves for
IBNR, the company considers the potential effects of losses emanating from
environmental impairment and latent injury claims. Such claims are not,
however, susceptible to estimation utilizing traditional actuarial
techniques. Estimated reinsurance recoverable on outstanding losses and loss
expenses recorded for business ceded to other companies is deducted in the
development of the net liability. See Note 9 for further information.

RECO's statutory policyholders' surplus was $90,442,881 and $96,043,634
at December 31, 1994 and 1993, respectively. Statutory net income (loss) for
RECO was $(9,361,610) in 1994; $9,609,741 in 1993; and $(10,804,197) in
1992.

Investments:

At December 31, 1993 the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, the Company's investments in fixed income securities
have been categorized as either assets held to maturity or as available for
sale. Securities which are considered held to maturity are recorded at amortized
cost since the Company has both the ability and intent to hold such securities
until they mature. Fixed income securities designated as available for sale and
equity securities, both common and preferred, are carried at market values, with
changes in market values of these securities reflected in stockholders' equity,
net of applicable deferred income taxes. Short-term investments are stated at
cost which approximates market value and are comprised of securities which
mature in one year or less. The cost of investments sold is determined on the
specific identification basis. Investment income is recorded as earned.

Foreign Operations:

RECO conducts a portion of its reinsurance business in Canada which accounts
for substantially all of its foreign operations. Translation adjustments,
resulting from the translation of financial statements denominated in foreign
currencies to U.S. dollars, are carried as a separate component of stockholders'
equity. Foreign currency assets and liabilities are translated at the exchange
rates in effect at the balance sheet date. Results of operations are translated
at average exchange rates during the period for revenue and expenses. The
foreign operations are not material.

Employee and Retiree Benefit Plans:

The Company, along with its wholly owned subsidiaries, is the sponsor of a
defined contribution employee savings plan. The plan qualifies under section
401(k) of the Internal Revenue Code and allows participating employees to
contribute up to 10% of their annual salary to the plan. The Company matches and
contributes an amount equal to one half of the first 6% of annual salary

F-8
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
contributed by the employee. Company contributions fully vest to employees at
the end of five years. The annual amounts contributed by the Company and its
subsidiaries to the plan were $222,720 in 1994; $222,677 in 1993; and $221,514
in 1992.

The Company, along with its wholly owned subsidiaries, is the sponsor of a
defined benefit pension plan covering substantially all employees. See Note 12
for further information. The Company also maintains non-qualified supplemental
benefits plans for certain employees. These plans replace the portion of
benefits that exceed the limitations established by the Internal Revenue Code
for tax qualified benefit plans. The amount charged to expense relating to these
plans was $81,069 in 1994; $41,085 in 1993; and $40,344 in 1992.

The Company, along with its wholly owned subsidiaries, provides retired
employees the option of continuing health and life insurance benefits through
various welfare benefit plans in which the retiree shares in the cost. See Note
13 for further information.

Results Per Common Share:

Losses per common share in 1994 and 1992 were computed based on the weighted
average number of common shares outstanding excluding the effect of common stock
equivalents which would be anti-dilutive. Dividends of $.04 per share were
accrued in 1994 and 1992 on cumulative convertible Series A preferred stock and
were deducted in arriving at loss per common share.

Earnings per common share and common equivalent share in 1993 were computed
based upon the weighted average number of common shares outstanding, assuming
full conversion of outstanding shares of cumulative convertible Series A
preferred stock and the number of shares issuable on the exercise of stock
options. Proceeds from the exercise of such stock options are assumed to be used
to repurchase outstanding shares of common stock under the treasury stock
method. There is no significant difference between primary and fully-diluted
earnings (loss) per common share.

Federal Income Taxes:

The Company and its wholly owned subsidiaries file a consolidated federal
income tax return. Deferred income taxes (benefits) are provided on temporary
differences between financial statement and taxable income. Effective January 1,
1993 the Company changed its method of accounting for income taxes to comply
with Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS 109). See Note 8 for further information.

F-9
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. INVESTMENTS

Net investment income, primarily interest and dividends, is applicable to
the following sources:

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1994 1993 1992
----------- ----------- -----------
Fixed income securities.......................... $16,078,795 $14,757,325 $13,708,596
Equity securities................................ 2,590,433 1,722,777 2,115,722
Short term investments........................... 1,581,206 2,204,720 1,949,106
Other............................................ 885,188 673,443 1,982,351
----------- ----------- -----------
Total investment income.......................... 21,135,622 19,358,265 19,755,775
Investment expenses.............................. 1,726,317 1,506,956 1,227,513
----------- ----------- -----------
Net investment income............................ $19,409,305 $17,851,309 $18,528,262
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The following table presents an analysis of the Company's pre-tax realized
investment gains (losses) and the change in unrealized gains (losses), net of
applicable deferred income taxes:

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Proceeds on sales of available-for-sale
securities.................................... $ 18,311,595 $162,727,128 $205,091,958
------------ ------------ ------------
------------ ------------ ------------
Realized investment gains (losses):
FIXED INCOME SECURITIES:
Gross realized gains...................... $ 91,037 $ 3,482,964 $ 3,200,485
Gross realized losses..................... (448,094) (658,162) (518,210)
------------ ------------ ------------
Net realized gains (losses)................. (357,057) 2,824,802 2,682,275
EQUITY SECURITIES:
Net realized gains........................ 1,107,124 4,245,411 1,549,519
------------ ------------ ------------
Net realized investment gains............... 750,067 7,070,213 4,231,794
Change in unrealized gains (losses):
Fixed maturities--available-for-sale...... (20,866,202) 1,831,685 (769,708)
Equity securities and investee companies.. (7,955,653) 2,401,674 (559,176)
Deferred income (tax) credit.............. 10,480,791 (2,980,248) 1,225,078
------------ ------------ ------------
(18,341,064) 1,253,111 (103,806)
------------ ------------ ------------
Total realized and change in unrealized gains
(losses) on investments..................... $(17,590,997) $ 8,323,324 $ 4,127,988
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-10
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. INVESTMENTS--(CONTINUED)
The cost and market values of fixed income and equity securities follow.

<TABLE>
<CAPTION>
ACTUAL GROSS GROSS
(AMORTIZED) UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
1994
HELD-TO-MATURITY SECURITIES
U.S. Government......................... $ 6,853,705 $ -- $ 23,731 $ 6,829,974
States, territories and political
subdivisions.......................... 1,909,609 31,053 2,283 1,938,379
Corporate............................... 50,000 -- -- 50,000
------------ ----------- ----------- ------------
Subtotal.............................. 8,813,314 31,053 26,014 8,818,353
------------ ----------- ----------- ------------
AVAILABLE-FOR-SALE SECURITIES
U.S. Government......................... 97,484,085 4,191 8,657,356 88,830,920
States, territories and political
subdivisions.......................... 23,505,112 237,619 918,823 22,823,908
Canadian Government..................... 14,060,118 103,299 962,117 13,201,300
Corporate............................... 102,047,630 19,961 6,217,173 95,850,418
Mortgage-backed......................... 25,228,680 87,346 1,686,828 23,629,198
------------ ----------- ----------- ------------
Subtotal.............................. 262,325,625 452,416 18,442,297 244,335,744
------------ ----------- ----------- ------------
Total fixed income securities........... $271,138,939 $ 483,468 $18,468,310 $253,154,097
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Total equity securities................. $ 67,214,430 $15,408,621 $15,956,287 $ 66,666,764
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------

1993
HELD-TO-MATURITY SECURITIES
U.S. Government......................... $ 9,251,986 $ 646,949 $ -- $ 9,898,935
States, territories and political
subdivisions.......................... 1,905,094 150,493 -- 2,055,587
Corporate............................... 50,000 -- -- 50,000
------------ ----------- ----------- ------------
Subtotal.............................. 11,207,080 797,442 -- 12,004,522
------------ ----------- ----------- ------------
AVAILABLE-FOR-SALE SECURITIES U.S.
GOVERNMENT.............................. 70,649,430 560,840 836,794 70,373,476
States, territories and political
subdivisions.......................... 24,995,598 974,018 127,230 25,842,386
Canadian Government..................... 15,144,959 1,206,985 -- 16,351,944
Corporate............................... 94,725,924 1,726,601 521,437 95,931,088
Mortgage-backed......................... 34,268,136 361,301 467,874 34,161,563
------------ ----------- ----------- ------------
Subtotal.............................. 239,784,047 4,829,745 1,953,335 242,660,457
------------ ----------- ----------- ------------
Total fixed income securities........... $250,991,127 $ 5,627,187 $ 1,953,335 $254,664,979
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Total equity securities................. $ 47,042,340 $ 6,493,823 $ 885,334 $ 52,650,829
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
F-11
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. INVESTMENTS--(CONTINUED)
The range of maturity for the Company's portfolio of fixed income securities
follow.

<TABLE><CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
------------------------------ ------------------------------
AMORTIZED COST MARKET VALUE AMORTIZED COST MARKET VALUE
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Due within one year.............. $ 50,000 $ 50,000 $ 32,288,002 $ 31,517,807
Due after one year through five
years.......................... 8,638,314 8,643,853 89,222,026 86,626,198
Due after five years through ten
years.......................... 125,000 125,000 51,104,059 46,694,555
Due after ten years.............. -- -- 61,548,075 53,105,340
Mortgage-backed.................. -- -- 25,228,680 23,629,198
Preferred sinking fund........... -- -- 2,934,783 2,762,646
-------------- ------------ -------------- ------------
$8,813,314 $ 8,818,853 $ 262,325,625 $244,335,744
-------------- ------------ -------------- ------------
-------------- ------------ -------------- ------------
</TABLE>

Investments carried at $27,002,121 were on deposit at December 31, 1994 as
required under certain state insurance laws or agreements with underwriting
pools. Excluding investments guaranteed by the federal government, the carrying
value of investments in notes issued by The Bank of New York, $14,395,909 and
common stock of The Navigators Group, Inc., $13,051,450, exceeded ten percent of
stockholders' equity.

3. INVESTEE COMPANIES

Continental National Corporation (CNC), which is owned 48% by RECO, is
accounted for under the equity method. In 1993 and 1992 The Navigators Group,
Inc. (Navigators), which was owned 17% by the Company, was also accounted for
under the equity method.

Navigators merged with several affiliated insurance agencies in 1994 and
issued additional common stock as part of the merger. As a result of the merger,
the Company's ownership of the common stock of Navigators decreased to 11% and
the Company discontinued accounting for the investment in Navigators under the
equity method and records its investment at publicly quoted market values as
part of its portfolio of equity securities.

The carrying value of RECO's equity investment in CNC was $4,634,527 at
December 31, 1994 and $5,301,597 at December 31, 1993. RECO also has loaned the
company $846,000. The loan bears interest at a rate of 10.5% per annum and is
due April 15, 1997. Accrued interest is due and payable quarterly.

F-12
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. INVESTEE COMPANIES--(CONTINUED)
Combined summarized financial information of the Company's equity basis
investee companies is as follows:

CONDENSED FINANCIAL INFORMATION OF INVESTEE COMPANIES

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
Invested assets................................ $32,092,270 $213,162,864 $195,389,194
Premiums receivable............................ 15,213,418 44,520,163 20,994,784
Total assets................................... 57,747,937 459,628,060 240,613,005
Outstanding losses and loss expenses........... 18,070,820 267,313,215 105,231,495
Unearned premium reserve....................... 14,575,793 58,384,785 22,401,208
Total liabilities.............................. 49,749,512 352,380,528 146,280,300
Total stockholders' equity..................... 7,998,425 107,247,532 94,332,705
Total revenues................................. 25,047,971 109,439,909 76,221,520
Total net income (loss)........................ (210,283) 9,702,346 6,566,385
</TABLE>

4. PREFERRED AND COMMON STOCK

The Series A Preferred Stock has a cumulative dividend rate of $1.00 per
year and is redeemable at the Company's option on 30 days' notice for $18.00 per
share plus accrued dividends. As a result of the suspension of dividends
occurring in 1989, $1,203,454 of preferred dividends were in arrears at December
31, 1994. Holders of shares of Series A Preferred Stock are entitled to $18.00
per share plus accrued dividends in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company. Such shares are also
convertible at any time at the option of the holder into two shares of Common
Stock of the Company. Shares which have been redeemed or exchanged have the
status of authorized but unissued shares and may be reissued as Series A
Preferred Stock or as part of a new series of Preferred Stock.

Holders of Series A Preferred Stock are entitled to vote with holders of
Common Stock together as one class on all matters on which the holders of Common
Stock are entitled to vote. Holders of Series A Preferred Stock, together with
holders of any other series of Preferred Stock of the Company, are entitled to a
separate class vote on (i) the creation or increase in the number of authorized
shares of any class or classes of stock ranking prior to such stock either as to
dividends or liquidation preference and (ii) the amendment of the Company's
Certificate of Incorporation in any manner adverse to the preferences, powers or
rights of such stock.

The Common Stock of the Company entitles the holder to one vote per share on
all matters subject to a vote of the stockholders and presently does not pay any
cash dividends.

5. STOCK OPTION PLANS

The Company has reserved 1,250,000 shares of common stock for issuance to
key employees under two non-qualified stock option plans established in 1979 and
1988. The plans also provide for the granting of stock appreciation rights to
certain employees holding options under each plan. The option price of any
option granted shall not be less than 100% of the fair market value of the
Company's common stock on the day the option is granted. The options granted may
be exercised

F-13
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. STOCK OPTION PLANS--(CONTINUED)
over a period of ten years, in accordance with the vesting provisions of the
plans, but in no event before a two year period from date of grant. Stock
appreciation rights entitle the holder to receive, upon exercise, a payment
(usually in the form one-half cash and one-half common stock of the Company)
which will not exceed the amount by which the fair market value of a share of
common stock on the date of exercise shall exceed the fair market value of a
share of common stock on the date of grant. A stock appreciation right may only
be granted if there shall be outstanding at least one option to which it
pertains. They are exercisable only during specific periods during the year and,
in no event, within six months of date of grant. Exercise of a stock
appreciation right surrenders, without exercise, the stock option to which it
pertains. The provision for the grant of stock appreciation rights was
eliminated effective with any grants made subsequent to May 1, 1991. The
following table contains additional information on the plans.

<TABLE><CAPTION>
STOCK
APPRECIATION
STOCK OPTIONS RIGHTS
----------------- -----------------
AVERAGE AVERAGE
SHARES PRICE SHARES PRICE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Outstanding January 1, 1992............................... 773,963 $11.97 228,763 $12.26
Shares granted.......................................... 108,500 9.81 -- --
Shares exercised........................................ 7,500 7.75 -- --
Shares cancelled........................................ 55,500 12.12 -- --
Outstanding December 31, 1992............................. 819,463 11.71 228,763 12.26
Shares exercised........................................ 32,350 10.37 22,600 11.29
Shares cancelled........................................ 21,400 12.84 8,400 12.66
Shares expired.......................................... 42,463 11.63 16,763 11.63
Outstanding December 31, 1993............................. 723,250 11.74 181,000 12.42
Shares granted.......................................... 118,000 14.75 -- --
Shares exercised........................................ 38,950 10.12 -- --
Shares cancelled........................................ 72,400 13.14 -- --
Shares expired.......................................... 3,000 11.56 -- --
Outstanding December 31, 1994............................. 726,900 12.18 181,000 12.42
</TABLE>

On December 31, 1994 there were 507,400 shares of exercisable stock options
and 174,500 shares of exercisable stock appreciation rights at prices ranging
from $7.75 to $16.63.

6. SENIOR TERM LOAN AGREEMENT

In December 1994, the Company arranged a new senior term loan agreement with
a commercial bank, borrowing $20.0 million and using the proceeds to retire an
existing loan and contribute additional capital to RECO. The term of the loan is
for five years and nine months with interest indexed to the prime rate or LIBOR,
which were 8.5% and 6.5%, respectively, on December 31, 1994, plus an additional
margin over either option. Principal payments for each year, 1995 through 2000,
are $1,050,000; $3,550,000; $3,800,000; $3,800,000; $3,800,000 and $4,000,000,
respectively.

The loan agreement contains affirmative and negative covenants including
provisions for maintaining minimum levels of net worth, statutory policyholders'
surplus of $90.0 million (actual

F-14
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. SENIOR TERM LOAN AGREEMENT--(CONTINUED)
policyholders' surplus was $90.4 million on December 31, 1994), limitations on
capital expenditures and certain investments, restrictions on additional
borrowings, minimum earnings requirements and restrictions on the payment of
dividends. Any material adverse change in the Company's business, financial
condition or results of operations constitutes a default under the loan
agreement.

The loan is collateralized by invested assets of the Company, including 100%
of the capital stock of RECO and LMC.

7. SEGMENT INFORMATION

The Company operates principally in two industries, reinsurance and
investment advisory services. The parent company oversees the operations of its
subsidiaries and provides them with capital, management and administrative
services. A summary of total revenues, operating income and the amount of
identifiable assets for each segment of the Company's business is set forth as
follows:

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Reinsurance Operations:
Net premiums earned....................... $129,371,717 $113,703,804 $116,989,199
Net investment income..................... 18,397,686 17,004,922 17,918,340
Realized capital gains.................... 381,852 7,049,882 4,227,070
------------ ------------ ------------
Total reinsurance revenues................ 148,151,255 137,758,608 139,134,609
Investment Advisory Operations.............. 22,427,213 17,749,329 15,865,532
Parent Company.............................. 1,201,057 741,216 496,282
------------ ------------ ------------
Total revenues.......................... $171,779,525 $156,249,153 $155,496,423
------------ ------------ ------------
------------ ------------ ------------
OPERATING INCOME (LOSS):
Reinsurance Operations:
Underwriting loss......................... $(28,152,323) $(10,805,832) $(36,208,147)
Net investment income..................... 18,397,686 17,004,922 17,918,340
Realized capital gains.................... 381,852 7,049,882 4,227,070
------------ ------------ ------------
Total reinsurance operations............ (9,372,785) 13,248,972 (14,062,737)
Investment Advisory Operations............ 4,529,525 1,813,654 1,322,191
Parent Company............................ (1,103,603) (1,288,580) (1,841,672)
Equity in net income (loss) of
investees............................... (105,367) 2,765,870 1,770,246
------------ ------------ ------------
Total operating income (loss)........... $ (6,052,230) $ 16,539,916 $(12,811,972)
------------ ------------ ------------
------------ ------------ ------------
ASSETS:
Reinsurance Operations.................... $667,162,587 $621,418,344 $613,487,629
Investment Advisory Operations............ 10,241,422 7,682,038 7,568,105
Parent Company............................ 134,178,432 139,620,845 118,502,128
Adjustments and eliminations.............. (136,113,373) (125,975,871) (99,722,755)
------------ ------------ ------------
Total assets.............................. $675,469,068 $642,745,356 $639,835,107
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-15
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. TAXES ON INCOME

On January 1, 1993, the Company adopted SFAS 109 which requires recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in a company's financial statements or tax
returns. Under this method, deferred tax assets and liabilities and the related
expenses and benefits are determined based upon the difference between financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse. As permitted under SFAS 109, prior years' financial statements were not
restated. The effect of adoption, a change in accounting principle, resulted in
a cumulative benefit of $6.9 million, $1.25 per share, in 1993.

Income tax expense in 1993 included a revaluation of current and deferred
tax balances necessitated by the passage in August 1993 of the Revenue
Reconciliation Act. This Act had the effect of increasing corporate income tax
rates from 34% to 35% retroactive to January 1. The net effect of the
revaluation was a benefit to earnings of $444,000, $0.08 per share. At December
31, 1994 and 1993 current federal income taxes recoverable were $2,635,212 and
$1,398,641, respectively.

A reconciliation of income tax expense computed at the U.S. statutory rate
to the effective rate reflected in the financial statements follows.

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Expected tax rate................................................. (35.00)% 35.00% (34.00)%
Fresh start adjustment............................................ -- -- (4.94)
Undistributed equity in net income of investees................... -- -- (3.27)
Dividends received deduction...................................... (4.70) (3.01) (2.42)
Tax exempt interest............................................... (3.85) (1.65) (2.33)
Effects of alternative minimum tax................................ -- -- 20.81
Foreign operations, net........................................... -- -- 18.95
Other............................................................. (3.28) (1.30) 3.67
------ ------ ------
Effective tax rate................................................ (46.83)% 29.04% (3.53)%
------ ------ ------
------ ------ ------
</TABLE>
F-16
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. TAXES ON INCOME--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1993, and the provision for deferred income taxes under SFAS 109 for
the years ended December 31, 1994 and 1993 are as follows:

<TABLE>
<CAPTION>
1993 1994
BALANCE DEFERRED TAX BALANCE DEFERRED TAX BALANCE
JANUARY 1, 1993 (EXPENSE) BENEFIT DECEMBER 31, 1993 (EXPENSE) BENEFIT DECEMBER 31, 1994
--------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
DEFERRED TAX ASSETS:
Loss reserve
discount.......... $16,170,533 $ (124,371) $16,046,162 $ (436,240) $15,609,922
Unearned premium
reserve............ 2,696,875 (23,160) 2,673,715 886,424 3,560,139
Allowance for
uncollectible
reinsurance........ 908,984 (621,533) 287,451 131,987 419,438
Deferred
compensation....... 150,720 (28,666) 122,054 186,269 308,322
Pension plan
liability.......... 291,338 159,798 451,136 165,290 616,426
Net operating loss
carryforwards...... 2,036,253 59,890 2,096,143 -- 2,096,143
Alternative minimum
tax credit
carryforward....... -- -- -- 634,990 634,990
--------------- ----------------- ----------------- ----------------- -----------------
Total deferred
tax assets..... 22,254,703 (578,042) 21,676,661 1,568,720 23,245,380
DEFERRED TAX
LIABILITIES:
Deferred acquisition
costs.............. (3,008,211) 355,089 (2,653,122) (1,160,700) (3,813,822)
Accrued dividends... (243,657) 229,361 (14,296) (13,335) (27,631)
Excess of carrying
value over cost of
investments........ (3,523,051) (756,836) (4,279,887) (217,284) (4,497,171)
Earnings of majority
and investee
companies.......... (410,136) (205,272) (615,408) 7,119 (608,289)
--------------- ----------------- ----------------- ----------------- -----------------
Total deferred
tax
liabilities... (7,185,055) (377,658) (7,562,713) (1,384,200) (8,946,913)
--------------- ----------------- ----------------- ----------------- -----------------
Net deferred tax
asset before
unrealized
appreciation
(depreciation)...... 15,069,648 (955,700) 14,113,948 184,520 14,298,467
Deferred (taxes)
credits on
unrealized
appreciation
(depreciation)..... (1,511,764) (1,468,484) (2,980,248) 10,480,791 7,500,543
--------------- ----------------- ----------------- ----------------- -----------------
Net deferred tax
asset........... $13,557,884 $(2,424,184) $11,133,700 $10,665,311 $21,799,010
--------------- ----------------- ----------------- ----------------- -----------------
--------------- ----------------- ----------------- ----------------- -----------------
</TABLE>

The Company believes it will be able to realize the benefit of its net
deferred tax asset based largely upon estimates of future taxable income and
accordingly has not provided for a valuation allowance. The amount ultimately
realized, however, could be reduced if actual amounts of future taxable income
are reduced.

The components of the provision for deferred income taxes for 1992, prior to
adoption of SFAS 109, were as follows:

<TABLE>
<S> <C>
Loss reserve discount......................................................... $(2,887,848)
Unearned premium reserve...................................................... (518,168)
</TABLE>

F-17
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. TAXES ON INCOME--(CONTINUED)
<TABLE>
<S> <C>
Deferred acquisition costs.................................................... (122,509)
Effect of alternative minimum tax............................................. 2,779,672
Earnings of majority and investee companies................................... 187,240
Foreign tax credit............................................................ 2,428,136
Other......................................................................... 17,837
-----------
Deferred tax expense.......................................................... $ 1,884,361
-----------
-----------
</TABLE>

9. OUTSTANDING LOSSES AND LOSS EXPENSES

The following table includes a reconciliation of the changes in reserves for
outstanding losses and loss expenses, including net paid losses and loss
expenses, for each year in the two year period ended December 31, 1994. The
reserves are also adjusted each year to reflect revised estimates of ultimate
liability. The effect of such adjustments is reflected in each year's operating
results.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
Gross reserves for outstanding losses and loss expenses at
January 1.................................................. $433,810,307 $447,766,765
Ceded reserves for outstanding losses and loss expenses...... (138,077,490) (149,936,439)
------------ ------------
Net reserves for outstanding losses and loss expenses at
January 1.................................................. 295,732,817 297,830,326
Net losses and loss expenses incurred:
related to current year.................................... 104,589,334 76,264,729
related to prior years..................................... 9,135,653 12,543,833
------------ ------------
Total net losses and loss expenses incurred.............. 113,724,987 88,808,562
------------ ------------
Net paid losses and loss expenses: related to current year... (41,198,000) (33,705,000)
related to prior years..................................... (66,750,885) (57,201,071)
------------ ------------
Total net paid losses and loss expenses...................... (107,948,885) (90,906,071)
------------ ------------
Ceded reserves for outstanding losses and loss expenses...... 160,024,571 138,077,490
------------ ------------
Gross reserves for outstanding losses and loss expenses at
December 31................................................ $461,533,490 $433,810,307
------------ ------------
------------ ------------
</TABLE>

The foregoing table indicates net losses incurred in 1994 and relating to
prior years of $9.1 million, 3% of the net reserves carried for 1993. A
significant portion of the deficiency relates to casualty treaty excess of loss
and multi-line excess of loss business written in years 1985 and prior. RECO
ceased underwriting this business, which is characterized as "long tail"
liability business, subsequent to 1985. Instead it has concentrated on property
reinsurance, non-standard auto liability reinsurance and, in recent years, the
development of a primary book of insurance business. Included in this business
are "main street" property and liability lines, habitational risk and trucking
liability lines. The loss reserves on these classes of business have been
relatively stable.

F-18
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. REINSURANCE

On January 1, 1993 RECO adopted Statement of Financial Accounting Standards
No. 113, "Accounting and Reporting for Reinsurance" (SFAS 113). SFAS 113
specifies the accounting for the reinsuring (ceding) of insurance contracts and
eliminates the prior method of reporting of assets and liabilities relating to
reinsurance contracts net of the effects of reinsurance. Accordingly, reserves
for outstanding losses and unearned premiums are presented gross of reinsurance
in the balance sheet. Assets have been established for the ceded reinsurance
balances recoverable and prepaid reinsurance premiums. The effects of ceded
reinsurance on premiums earned and losses and loss expenses incurred are
presented in the statements of operations. The adoption of SFAS 113 does not
have a material impact on results of operations because RECO does not offer
retroactive forms of reinsurance.

Contingent liabilities exist with respect to reinsurance ceded, which would
become liabilities of RECO in the event the assuming companies were unable to
meet their obligations under reinsurance agreements. The company evaluates the
financial condition of its retrocessionaires and monitors concentrations of
credit risk arising from similar locations, activities or economic
characteristics of its retrocessionaires to minimize any exposure to significant
losses from insolvencies. The reinsurance recoverables related to paid losses
and loss expenses and outstanding losses and loss expenses was $170,278,300 and
$152,971,490 in 1994 and 1993, respectively. Amounts recoverable from any single
entity or company in excess of 5% of stockholders' equity as of December 31,
1994 were as follows: American Re-Insurance Company, $5.7 million; Continental
National Indemnity Company, $11.8 million; European International Insurance
Company Ltd., $14.0 million; Navigators Insurance Company, $8.4 million; and
Somerset Insurance Limited, $8.2 million.

The following table sets forth amounts of written premiums and ceded written
premiums at the dates indicated.

<TABLE><CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Direct premiums written....................... $ 88,081,501 $ 84,274,657 $ 66,824,352
Assumed premiums written...................... 143,748,114 121,057,929 137,928,353
------------ ------------ ------------
Gross premiums written........................ 231,829,615 205,332,586 204,752,705
Ceded premiums written........................ 89,794,693 93,092,774 89,406,588
------------ ------------ ------------
Net premiums written.......................... $142,034,922 $112,239,812 $115,346,119
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

In the normal course of its operations, RECO obtains working letters of
credit issued by banks on behalf of assuming reinsurers not authorized to do
business in RECO's state of domicile. The letter of credit serves as collateral
for the contingent liability which exists in the event the reinsurer does not
meet its obligations under a reinsurance agreement.

RECO's business is not dependent upon any significant reinsurance agreement.
During the normal course of its reinsurance operations, RECO assumes contracts
with retrospective adjustment features and all relevant amounts under the
contracts have been accrued in the financial statements. RECO is not a party to
any ceded reinsurance contracts containing retrospective adjustment features.

F-19
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. COMMITMENTS AND CONTINGENCIES

Leases:

The Company, its wholly owned subsidiaries and majority owned companies
lease their premises and certain equipment under several lease agreements, with
unaffiliated parties, expiring at various dates through 2004. The lease
agreements are non-cancelable operating leases which, in addition to minimum
rental payments, require the lessees to pay their portion of real estate taxes,
maintenance, other costs and escalation charges. The minimum rental payments
required under leases having initial or remaining non-cancelable terms in excess
of one year as of December 31, 1994 follow.

1995.................................................. $1,932,304
1996.................................................. $1,664,405
1997.................................................. $ 673,370
1998.................................................. $ 581,073
1999.................................................. $ 616,776
later years........................................... $2,274,350

Total rent expense was $2,191,266 in 1994; $2,227,853 in 1993; and
$2,335,326 in 1992.

Dividend Restrictions of Reinsurance Subsidiary:

Reinsurance companies domiciled in the State of New York may pay dividends
only out of their statutory earned surplus, as defined. The maximum amount of
cash dividends a company may pay out of its statutory earned surplus, without
prior regulatory approval, is subject to statutory restrictions imposed by New
York State insurance law. Generally, the maximum amount that may be paid in any
twelve month period without prior approval is the lesser of net investment
income as defined or 10% of statutory surplus to policyholders. At December 31,
1994, the maximum dividend RECO could pay was $9.0 million.

The amount of restricted net assets of consolidated subsidiaries
approximated $81.4 million at December 31, 1994. This restriction indirectly
limits the payment of dividends by the Company.

12. PENSION PLANS

The Company is the sponsor of a defined benefit pension plan covering its
employees and the employees of its wholly-owned subsidiaries. The funding policy
for the plan is to annually contribute the statutory required minimum amount as
actuarially determined.

F-20
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. PENSION PLANS--(CONTINUED)
The net periodic pension cost determined under Statement of Financial
Accounting Standards No. 87 for the pension plan includes the components which
are in the following table:

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost (benefits earned during the year).......... $ 361,114 $ 256,103 $ 244,349
Interest cost on projected benefit obligation........... 376,907 333,454 311,488
Actual return on assets................................. 31,387 (474,970) 31,962
Net amortization and deferral........................... (377,914) 137,441 (394,375)
--------- --------- ---------
Net periodic pension cost............................. $ 391,494 $ 252,028 $ 193,424
--------- --------- ---------
--------- --------- ---------
</TABLE>

The funded status and net pension liability were as follows:

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1994 1993
----------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested........................................................... $ 3,997,020 $4,087,211
Non-vested....................................................... 166,821 162,257
----------- ----------
Accumulated benefit obligation................................. $ 4,163,841 $4,249,468
----------- ----------
Projected benefit obligation..................................... 5,085,444 5,498,486
Plan assets at fair value........................................ 3,475,391 3,665,499
----------- ----------
Plan assets less than projected benefit obligation............... (1,610,053) (1,832,987)
Unrecognized prior service cost.................................. 152,558 191,122
Unrecognized net loss............................................ 628,366 1,135,303
Unrecognized net asset........................................... (289,054) (325,537)
----------- ----------
Net pension liability............................................ $(1,118,183) $ (832,099)
----------- ----------
----------- ----------
</TABLE>

The development of the foregoing projected benefit obligations was based
upon a discount rate of 8% in 1994 and 7% in 1993; a 6% average rate of increase
in employee compensation was used for each year. The expected long-term rate of
return on assets was 10%. Plan assets are invested primarily in bonds, stocks,
short-term securities and cash equivalents.

13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company's costs for providing postretirement benefits is accounted for
in accordance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
106). This Statement requires accrual of the expected costs of providing
postretirement benefits during the years an employee renders service to the
Company. An $846,000 accumulated benefit obligation existing at adoption of SFAS
106 (the transition obligation) is being deferred over twenty years. Financial
information on the Company's plan is as follows:

F-21
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS--(CONTINUED)
Accumulated unfunded postretirement benefit obligation:

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1993
---------- ----------
<S> <C> <C>
Retirees......................................... $ 628,000 $ 551,000
Eligible active participants..................... 133,000 168,000
Other active participants........................ 386,000 383,000
---------- ----------
Total............................................ $1,147,000 $1,102,000
---------- ----------
---------- ----------
</TABLE>

The components of net periodic postretirement benefit costs are as follows:

<TABLE><CAPTION>
YEARS ENDED DECEMBER 31,
----------------------
1994 1993
-------- --------
<S> <C> <C>
Accrued postretirement benefit cost on January 1 $217,000 $125,000
Service cost (benefits earned during the year).. 228,000 180,000
Benefits paid during the year................... (97,000) (88,000)
-------- --------
Accrued postretirement benefit cost on
December 31................................... $348,000 $217,000
-------- --------
-------- --------
</TABLE>

The discount rate used in determining the accumulated postretirement benefit
obligation was 8% in 1994 and 7% in 1993. The assumed health care cost trend
rate was 7.5% in each year. If the assumptions used in developing the health
care cost trend rate in each of the last two years were increased by 1%, the
effect on the accumulated postretirement benefit obligation would not be
material.

14. FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Company's financial instruments
are as follows:

<TABLE><CAPTION>
1994 1993
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents..... $ 9,066,870 $ 9,066,870 $ 6,727,821 $ 6,727,821
Fixed income securities....... 253,149,058 253,154,097 253,867,537 254,664,979
Equity securities............. 66,666,764 66,666,764 52,650,829 52,650,829
Short-term investments........ 51,703,561 51,996,247 57,773,840 58,373,504
Bank loan payable............. 20,000,000 20,000,000 9,800,000 9,800,000
</TABLE>

F-22
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

15. UNAUDITED QUARTERLY FINANCIAL DATA

The unaudited quarterly financial data for 1994 and 1993 follows:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994
RECO's net premiums earned......... $28,665,876 $27,773,317 $33,305,937 $39,626,587
RECO's net investment income....... 4,571,579 4,459,762 4,582,927 4,783,418
RECO's operating income (loss)..... (7,964,124) 431,987 (1,190,879) (649,769)
Investment advisory revenues....... 5,685,741 5,323,576 5,723,038 5,694,858
Investment advisory operating
income........................... 967,865 960,505 1,305,254 1,295,901
Income (loss) before tax and
investees........................ (7,256,657) 1,361,446 (266,800) 215,148
Investee company earnings
(losses)......................... (19,535) (31,465) (87,843) 33,476
Net income (loss).................. (4,425,388) 1,034,731 (45,100) 217,982
Net income (loss) per share........ (.90) .19 (.02) .04
COMMON STOCK PRICE RANGE:
High............................. $ 16.13 $ 14.13 $ 12.75 $ 12.25
Low.............................. $ 13.50 $ 11.50 $ 10.00 $ 10.75

1993
RECO's net premiums earned......... $31,690,269 $27,984,725 $28,162,022 $25,866,788
RECO's net investment income....... 5,183,825 4,028,783 4,056,838 3,735,476
RECO's operating income............ 5,350,747 989,856 4,520,919 2,387,450
Investment advisory revenues....... 3,863,350 4,294,468 4,633,233 4,958,278
Investment advisory operating
income (loss)...................... (9,511) 492,982 689,410 640,773
Income before tax and investees.... 5,050,182 1,068,734 4,899,662 2,755,468
Investee company earnings.......... 676,090 759,045 744,651 586,084
Income before cumulative effect of
change in accounting principle... $ 4,099,600 $ 1,494,862 $ 4,527,860 $ 1,614,021
Cumulative effect of accounting
change........................... 6,937,545 -- -- --
----------- ----------- ----------- -----------
Net income......................... 11,037,145 $ 1,494,862 $ 4,527,860 $ 1,614,021
Income per share before cumulative
effect of change in accounting
principle........................ $ .76 $ .28 $ .83 $ .29
Cumulative effect of accounting
change........................... 1.29 -- -- --
----------- ----------- ----------- -----------
Net income per share............... $ 2.05 $ .28 $ .83 $ .29
Common stock price range:
High............................. $ 12.75 $ 14.75 $ 16.25 $ 16.50
Low.............................. $ 10.25 $ 9.50 $ 13.25 $ 13.75
</TABLE>

Computations of earnings (loss) per share for each quarter are independent
due to the different amounts of average shares outstanding in each period. In
1994, certain quarterly per share results were reduced by dividends accrued on
Series A Preferred Stock, as to include this convertible security and other
common stock equivalents in the computation would be anti-dilutive. Only
weighted averages shares outstanding are considered in periods resulting in a
net loss.

F-23
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE><CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REINSURANCE OPERATIONS:
Gross premiums earned.................. $ 53,497,586 $ 58,558,954 $161,593,922 $159,103,593
Ceded premiums earned.................. (23,090,378) (25,253,017) (68,602,921) (69,358,463)
------------ ------------ ------------ ------------
Net premiums earned.................... 30,407,208 33,305,937 92,991,001 89,745,130
Net investment income.................. 4,261,554 4,582,927 14,556,810 13,614,268
Realized capital gains................. 2,149,273 226,277 3,434,420 940,752
------------ ------------ ------------ ------------
Total revenues......................... 36,818,035 38,115,141 110,982,231 104,300,150
Losses and loss expenses............... 75,964,268 43,088,526 153,720,834 146,301,596
Reinsurance recoveries................. (21,463,546) (14,369,497) (53,710,835) (64,437,506)
------------ ------------ ------------ ------------
Net losses and loss expenses........... 54,500,722 28,719,029 100,009,999 81,864,090
Acquisition and other underwriting
expenses............................. 12,178,015 10,586,991 36,225,626 31,159,076
------------ ------------ ------------ ------------
Total expenses......................... 66,678,737 39,306,020 136,235,625 113,023,166
Reinsurance operating income (loss).... (29,860,702) (1,190,879) (25,253,394) (8,723,016)
INVESTMENT ADVISORY OPERATIONS:
Advisory, counseling fees and other
income............................... 5,383,549 5,723,038 15,825,768 16,732,355
Service and marketing costs............ 4,872,134 4,417,784 13,681,935 13,498,731
------------ ------------ ------------ ------------
Investment advisory operating income... 511,415 1,305,254 2,143,833 3,233,624
PARENT COMPANY:
Investment and other income............ 279,143 188,840 723,366 607,347
Realized capital gains (losses)........ -- -- (125) 368,215
Interest expense....................... 453,660 107,613 1,426,247 317,569
Other corporate expenses............... 1,603,322 462,402 2,346,539 1,330,612
------------ ------------ ------------ ------------
Parent company operating loss.......... (1,777,839) (381,175) (3,049,545) (672,619)
Income (loss) before equity in net
earnings (losses) of investees and
provision (credit) for income taxes.... (31,127,126) (266,800) (26,159,106) (6,162,011)
Equity in net earnings (losses) of
investees.............................. 40,291 (87,843) 283,821 (138,843)
------------ ------------ ------------ ------------
(31,086,835) (354,643) (25,875,285) (6,300,854)
Provision (credit) for income taxes:
Current................................ (1,606,964) (765,466) (529,587) (2,915,487)
Deferred............................... (9,199,263) 455,923 (8,804,180) 50,390
------------ ------------ ------------ ------------
(10,806,227) (309,543) (9,333,767) (2,865,097)
Net income (loss)...................... $(20,280,608) $ (45,100) $(16,541,518) $ (3,435,757)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Results per common share (Exhibit 1):
Net income (loss)........................ $ (4.07) $ (.01) $ (3.32) $ (.69)
Deduction for preferred dividends........ (.01) (.01) (.03) (.03)
------------ ------------ ------------ ------------
Net income (loss)...................... $ (4.08) $ (.02) $ (3.35) $ (.72)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-24
<PAGE>

PIEDMONT MANAGEMENT COMPANY INC.
CONSOLIDATED BALANCE SHEETS

<TABLE><CAPTION>
September 30, December 31,
1995 1994
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS:
Fixed Maturities:
Held-to-Maturity, at amortized cost (market:
$9,213,162 and $8,818,353)............................. $ 8,777,995 $ 8,813,314
Available-for-Sale, at market (amortized cost:
$239,469,877 and $262,325,625)......................... 237,172,352 244,335,744
Equity Securities, at market (cost:
$48,972,472 and $67,214,430)............................. 52,478,441 66,666,764
Short-Term Investments, at cost............................ 94,336,433 51,703,561
------------ ------------
Total investments...................................... 392,765,221 371,519,383
Cash....................................................... 10,342,988 9,066,870
Investments in and advances to investee companies.......... 5,155,745 4,634,527
Accrued interest and dividends receivable.................. 3,418,930 3,687,258
Reinsurance recoverable.................................... 172,765,393 170,278,300
Premiums receivable........................................ 32,542,665 35,602,712
Prepaid reinsurance premiums............................... 24,219,051 22,980,856
Deferred policy acquisition costs.......................... 12,649,199 10,896,632
Deferred income taxes...................................... 23,161,556 21,799,010
Other assets............................................... 26,731,160 25,003,520
------------ ------------
Total assets........................................... $703,751,908 $675,469,068
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
Outstanding losses and loss expenses....................... $487,627,991 $461,533,490
Unearned premiums.......................................... 77,553,005 73,839,992
Loan payable............................................... 19,500,000 20,000,000
Expenses, taxes and other liabilities...................... 19,435,228 17,615,047
------------ ------------
Total liabilities...................................... 604,116,224 572,988,529
------------ ------------
Stockholders' equity:
Capital stock:
Preferred stock, $1 par value, authorized 2,000,000
shares; cumulative convertible Series A shares issued:
244,936 and 245,068.................................... 244,936 245,068
Common stock, $.50 par value, authorized 12,000,000
shares; shares issued: 5,252,503 and 5,250,539......... 2,626,252 2,625,269
Paid-in capital............................................ 28,023,481 28,007,604
Unrealized depreciation on investments and foreign
translation adjustment, net of deferred income taxes..... (109,404) (13,929,580)
Retained earnings.......................................... 70,572,919 87,254,678
Less cost of treasury stock (265,000 shares common, 53,000
shares preferred)........................................ (1,722,500) (1,722,500)
------------ ------------
Total stockholders' equity............................. 99,635,684 102,480,539
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity............... $703,751,908 $675,469,068
------------ ------------
------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-25
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE><CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $(16,541,518) $ (3,435,757)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Realized capital gains............................. (3,434,295) (1,308,967)
Outstanding losses and loss expenses............... 26,094,501 23,087,664
Unearned premiums.................................. 3,713,013 10,928,927
Reinsurance recoverable.............................. (2,487,093) (17,479,279)
Premiums receivable.................................. 3,060,047 2,078,358
Prepaid reinsurance premiums......................... (1,238,195) (511,134)
Deferred acquisition costs........................... (1,752,567) (2,184,650)
Amortization of bond premium, net.................... 452,395 500,248
Equity in net (earnings) losses of investees......... (283,821) 138,843
Income taxes payable (recoverable)................... (529,587) (2,914,457)
Deferred income tax expense (benefit)................ (8,804,180) 50,390
Accrued interest and dividends....................... 268,328 (17,914)
Other items, net..................................... 815,568 (501,576)
------------ ------------
Total cash flows from operating activities............. (667,404) 8,430,696
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Held-to-Maturity securities............... -- (3,519,421)
Purchases of Available-for-Sale securities............. (49,169,365) (59,982,203)
Proceeds from maturity of Held-to-Maturity
securities........................................... -- 4,000,000
Proceeds from maturity of Available-for-Sale
securities........................................... -- 28,695,342
Proceeds from sale of Available-for-Sale securities.... 72,732,243 16,262,030
Net (purchases) sales of Equity Securities............. 21,533,421 (4,351,892)
Net (purchases) sales/maturities of Short-Term
investments.......................................... (42,669,502) 13,221,998
------------ ------------
Total cash flows from investing activities............. 2,426,797 (5,674,146)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans..................................... (500,000) (1,575,000)
Proceeds from exercise of stock options................ 16,725 303,558
------------ ------------
Total cash flows from financing activities............. (483,275) (1,271,442)
Net increase in cash..................................... 1,276,118 1,485,108
Cash balance, beginning of year.......................... 9,066,870 6,727,821
------------ ------------
Cash balance, end of period.............................. $ 10,342,988 $ 8,212,929
------------ ------------
------------ ------------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid.......................................... $ 1,056,230 $ 311,597
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

F-26
<PAGE>

PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)

1. BASIS OF PRESENTATION:

The interim financial information presented is unaudited. In the opinion of
Company management, all adjustments necessary to present fairly the consolidated
financial position and the results of operations for the interim periods have
been made. The financial statements should be read in conjunction with the
financial statements and related notes included elsewhere herein.

2. RESULTS PER COMMON SHARE:

In the nine months ended September 30, 1995 and 1994, loss per share was
based on the weighted average number of common shares outstanding, excluding the
effect of common stock equivalents which would be anti-dilutive. Dividends
accrued of $0.03 per share on cumulative convertible Series A preferred stock
were deducted in arriving at the net loss per share in each period.

3. MERGER AND SPIN-OFF:

On August 7, 1995, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Chartwell Re Corporation ("Chartwell"), pursuant
to which the Company agreed to merge (the "Merger") with and into Chartwell,
with Chartwell being the surviving corporation. Following the Merger, The
Reinsurance Corporation of New York, the Company's principal reinsurance
underwriting subsidiary ("RECO"), will become a subsidiary of Chartwell
Reinsurance Company, the reinsurance underwriting subsidiary of Chartwell.

In the Merger, holders of common and preferred stock of the Company will
receive newly-issued shares of common stock of Chartwell representing
approximately 45.25% of the outstanding common stock of the combined entity.
Chartwell intends to seek a stock exchange listing of its common stock effective
upon the closing of the Merger.

Prior to the Merger, Lexington Management Corporation (combined with the
Company's other asset management operations) will be spun-off to the Company's
stockholders in a tax-free transaction. Also prior to the Merger, stockholders
of the Company will receive a dividend of contingent interest notes of the
Company. The notes, which will mature on June 30, 2006, unless previously
redeemed, will not pay any interest to holders until maturity. The notes will
provide for payment of up to $57.0 million to holders at maturity, substantially
depending on the results, particularly loss reserve development, over time of
RECO's previously written business. The notes may be settled at maturity in
registered common stock. The notes will be assumed by Chartwell in the Merger.

The combined entity will be managed by Chartwell's current management team.
Four members of the Company's existing Board of Directors will become directors
of Chartwell upon the Merger. Pursuant to the Merger Agreement, the Company
increased RECO's reserves for losses incurred but not reported in respect of its
existing business by $32.5 million gross and $25.0 million net in the period
ended September 30, 1995.

The Merger is subject to the consent of the Company's and Chartwell's
stockholders, bank, regulatory and certain other approvals and certain other
conditions. The Merger is expected to be consummated in the fourth quarter of
1995.

F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Chartwell Re Corporation
Stamford, Connecticut

We have audited the accompanying consolidated balance sheets of Chartwell Re
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, common stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedules listed in the Index on
page S-1 with respect to Chartwell Re Corporation. These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules based on our audits.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Chartwell Re Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 2, 1995

F-28
<PAGE>
CHARTWELL RE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE><CAPTION>
1994 1993
-------- --------
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities:
Held for investment (market value 1994, $18,498; 1993,
$10,276).................................................... $ 18,982 $ 10,060
Available for sale (amortized cost 1994, $231,925; 1993,
$172,608)................................................... 218,871 173,669
Other investments............................................... 278 259
Cash and cash equivalents......................................... 37,005 35,738
-------- --------
Total investments and cash................................ 275,136 219,726
Accrued investment income......................................... 4,095 2,782
Premiums in process of collection................................. 38,565 27,123
Reinsurance recoverable: on paid losses 3,432 4,355
on unpaid losses.................................................. 35,432 33,618
Deferred policy acquisition costs................................. 5,607 2,627
Deferred income taxes............................................. 16,911 11,874
Deposits.......................................................... 6,321 6,542
Other assets...................................................... 24,660 8,947
-------- --------
$410,159 $317,594
-------- --------
-------- --------
LIABILITIES:
Loss and loss adjustment expenses................................. $232,733 $201,013
Unearned premiums................................................. 23,880 11,380
Other reinsurance balances........................................ 5,051 3,747
Accrued expenses and other liabilities............................ 17,156 3,643
Long term debt.................................................... 75,000 44,090
-------- --------
Total liabilities......................................... 353,820 263,873
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 13)
REDEEMABLE PREFERRED STOCK.......................................... 19,163
-------- --------
COMMON STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per share; authorized 6,000,000
shares; shares issued and outstanding 3,755,312 and 1,998,688 in
1994 and 1993, respectively..................................... 38 20
Additional paid-in capital........................................ 77,254 41,232
Net unrealized appreciation (depreciation) of investments......... (8,608) 697
Foreign currency translation adjustment........................... 14 (10)
Accumulated deficit............................................... (12,359) (7,381)
-------- --------
Total common stockholders' equity......................... 56,339 34,558
-------- --------
$410,159 $317,594
-------- --------
-------- --------
</TABLE>

See notes to consolidated financial statements.

F-29
<PAGE>
CHARTWELL RE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE><CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Premiums earned....................................... $ 102,698 $ 68,416 $ 36,926
Service revenue....................................... 1,622
Net investment income................................. 14,726 10,959 11,206
Net realized capital gains (losses)................... (3,794) 6,418 1,335
Other income.......................................... 57 54 70
--------- --------- ---------
Total revenues.................................... 115,309 85,847 49,537
--------- --------- ---------
LOSSES AND EXPENSES INCURRED:
Loss and loss adjustment expenses..................... 78,577 48,740 44,107
Policy acquisition costs.............................. 24,295 15,398 7,695
Other expenses........................................ 10,178 10,238 8,160
Interest and amortization............................. 7,379 4,708 3,591
--------- --------- ---------
Total losses and expenses incurred................ 120,429 79,084 63,553
--------- --------- ---------
Income (loss) before income taxes and
extraordinary item.................................. (5,120) 6,763 (14,016)
Income tax expense (benefit).......................... (1,685) 2,266 (4,695)
--------- --------- ---------
Income (loss) before extraordinary item............... (3,435) 4,497 (9,321)
Extraordinary item, net of income tax................. 465
--------- --------- ---------
Net income (loss)..................................... (3,900) 4,497 (9,321)
Less: Preferred dividends and accretion............... 1,078 1,405 1,152
--------- --------- ---------
Income (loss) attributable to common shares........... $ (4,978) $ 3,092 $ (10,473)
--------- --------- ---------
--------- --------- ---------
Income (loss) per common share........................ $(0.84) $0.62 $(7.56)

<CAPTION>
Weighted average number of common shares
outstanding......................................... 3,760,685 3,764,234 1,720,591
</TABLE>

See notes to consolidated financial statements.

F-30
<PAGE>
CHARTWELL RE CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year.............................. $ 20 $ 20 $ 10
Issuance of common stock.................................. 18 10
------- -------- --------
Balance at end of year.................................... 38 20 20
------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year.............................. 41,232 41,232 19,438
Issuance of common stock.................................. 36,105 20,962
Issuance of common stock warrants......................... 535
Excess of consideration received over redemption value of
Series C Preferred Stock.................................... 297
Cancellation of common stock.............................. (83)
------- -------- --------
Balance at end of year.................................... 77,254 41,232 41,232
------- -------- --------
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS,
NET OF TAX
Balance at beginning of year.............................. 697 (170)
Change in net unrealized appreciation (depreciation)...... (9,305) 867 (170)
------- -------- --------
Balance at end of year.................................... (8,608) 697 (170)
------- -------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year.............................. (10)
Change in net unrealized appreciation (depreciation)...... 24 (10)
------- -------- --------
Balance at end of year.................................... 14 (10)
------- -------- --------
ACCUMULATED DEFICIT
Balance at beginning of year.............................. (7,381) (10,473)
Accretion of discount on preferred stock.................. (30) (145) (66)
Net income (loss)......................................... (3,900) 4,497 (9,321)
Preferred dividends --Declared and Paid................... (1,612) (1,177) (794)
--Accrued................................................. 564 (83) (292)
------- -------- --------
Balance at end of year.................................... (12,359) (7,381) (10,473)
------- -------- --------
TOTAL COMMON STOCKHOLDERS' EQUITY
Balance at beginning of year.............................. 34,558 30,609 19,448
Issuance of common stock.................................. 36,123 20,972
Issuance of common stock warrants......................... 535
Excess of consideration received over redemption value of
Series C Preferred Stock.................................... 297
Change in net unrealized appreciation (depreciation)...... (9,305) 867 (170)
Accretion of discount on preferred stock.................. (30) (145) (66)
Net income (loss)......................................... (3,900) 4,497 (9,321)
Preferred dividends --Declared and Paid................... (1,612) (1,177) (794)
--Accrued................................................. 564 (83) (292)
Cancellation of common stock.............................. (83)
Translation adjustment.................................... 24 (10)
------- -------- --------
Balance at end of year.................................... $56,339 $ 34,558 $ 30,609
------- -------- --------
------- -------- --------
</TABLE>

See notes to consolidated financial statements.

F-31
<PAGE>
CHARTWELL RE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE><CAPTION>
1994 1993 1992
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (3,900) $ 4,497 $ (9,321)
Adjustments to reconcile net income to net cash
provided by operating activities:
Conversion incentive charged to net income........ 753
Net realized capital (gains) losses............... 3,794 (6,418) (1,336)
Deferred policy acquisition costs................. (2,980) (863) (702)
Deferred income taxes............................. (227) 4,904 (7,365)
Unpaid loss and loss adjustment expenses.......... 31,720 11,627 30,039
Unearned premiums................................. 12,500 2,336 2,805
Other reinsurance balances........................ 1,524 2,316 (3,599)
Reinsurance recoverable........................... (890) 669 (1,063)
Net change in receivables and payables............ (11,602) (9,524) (1,007)
Other, net........................................ (477) 624 35
--------- --------- ---------
Net cash provided by operating activities....... 30,215 10,168 8,486
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities.............. (9,167) (1,952) (5,633)
Purchases of available-for-sale securities............ (303,859) (372,942) (266,495)
Maturities of held-to-maturity securities............. 30 255 10
Maturities of available-for-sale securities........... 1,570 3,190 13,596
Sales of available-for-sale securities................ 238,646 354,433 247,600
--------- --------- ---------
Net cash used in investing activities........... (72,780) (17,016) (10,922)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from senior notes offering............... 71,934
Common stock.......................................... 20,972
Common stock warrants................................. 535
Series A Preferred stock issued....................... 100
Series B Preferred stock issued....................... 3,038
Series C Preferred stock (redeemed) issued............ (6) 304
Subordinated debentures............................... 18,066
Debt repayment........................................ (25,900) (1,600) (7,500)
Conversion incentive.................................. (1,537)
Dividends paid........................................ (828) (989) (794)
Deposits and other.................................... 145 (1,254) (5,572)
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................... 43,808 (3,843) 29,149
--------- --------- ---------
Effect of exchange rate on cash....................... 24 (10)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 1,267 (10,701) 26,713
Cash and cash equivalents at beginning of year.......... 35,738 46,439 19,726
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 37,005 $ 35,738 $ 46,439
--------- --------- ---------
--------- --------- ---------
</TABLE>

See notes to consolidated financial statements.

F-32
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

1. ACQUISITION

A funding vehicle, CRCA Inc., was established and financed by a private
investor group led by Wand Partners Inc. and including Michigan Mutual Insurance
Company for the sole purpose of acquiring the outstanding stock of Chartwell Re
Corporation (the Predecessor Company) from Northwestern National Life Insurance
Company (NWNL). Upon settlement under the terms of the Stock Purchase Agreement,
CRCA Inc. and the Predecessor Company immediately merged with Chartwell Re
Corporation (the Company) surviving under an amended Certificate of
Incorporation of the State or Delaware dated March 6, 1992.

The purchase price was determined based upon the December 31, 1991
historical balance sheet of the Predecessor Company. Risk, rewards and
management control passed to the acquirors effective January 1, 1992 (the
Acquisition Date). Informal regulatory approval was received in December 1991
with formal approval received in March 1992.

The acquisition was accounted for by the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, "Accounting for
Business Combinations". The purchase price was allocated to the tangible and
intangible assets and liabilities acquired based on respective fair values as of
the effective date of the acquisition which for accounting purposes was January
1, 1992.

The sources and applications of funds related to the acquisition were as
follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
Sources of Funds:
Cash:
Senior term loan............................................. $35,000
Preferred stock issued--Series A............................. 16,000
Common stock issued.......................................... 18,939
Common stock warrants issued................................. 61
-------
Total sources.............................................. $70,000
-------
-------
Applications of Funds:
Cash:
Payment for Predecessor Company common stock................. $66,708
Fees paid by CRCA, Inc....................................... 3,292
-------
Total applications......................................... $70,000
-------
-------
The purchase price consisted of the following:
Total purchase price paid in cash.............................. $66,708
Fees paid (A).................................................. 5,584
Book value of management's continuing interest (B)............. 451
-------
72,743
Less: January 1, 1992 historical book value of Predecessor
Company...................................................... 66,579
-------
Excess of purchase price over historical book value of net
assets acquired.............................................. $ 6,164
-------
-------
</TABLE>

F-33
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

1. ACQUISITION--(CONTINUED)
(A) Fees paid include both fees paid by the Company at the time of and after the
acquisition and those paid by the Predecessor Company which were paid and
capitalized prior to the Acquisition Date.

(B) The continuing equity ownership by the Predecessor Company's management
(approximately 4 percent of the common stock on a fully diluted basis) was
recognized at book value immediately prior to the acquisition.

Purchase accounting adjustments to reflect the fair value of assets and
liabilities acquired were as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
Increase (decrease) in assets:
Fixed maturity securities....................................... $3,923
Premiums in process of collection............................... (1,009)
Deferred income taxes........................................... 1,009
Other assets.................................................... 755
Accrued expenses and other liabilities............................ (836)
Stock issuance costs.............................................. 465
Goodwill.......................................................... 1,857
------
Total....................................................... $6,164
------
------
</TABLE>

An indemnification agreement (the Reserve Indemnification Agreement) was
entered into with NWNL, and its Parent Company, ReliaStar Financial Corp. (RLR)
(formerly The NWNL Companies, Inc.), which indemnifies the parties for
subsequent development in the December 31, 1991 balances of loss and loss
adjustment expenses, the statutory provision for uncollectible reinsurance and
the collectibility of reinsurance recoverable on losses paid, among other items,
up to an aggregate of $23.0 million (Note 10).

At December 31, 1994 and 1993, the consolidated balance sheet includes
assets related to the Reserve Indemnification Agreement of $4,129,000 and
$1,910,000, respectively, included in reinsurance recoverable on unpaid losses
and $3,692,000 and $2,928,000, respectively, included in other assets.

Pursuant to a securities purchase agreement dated December 31, 1992, the
Company completed a private placement of securities (the December 1992
financing) which raised net additional funds of $41.2 million. Securities issued
included: Subordinated Debentures (Note 12), Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Series C Preferred Stock (Note 14)
and Common Stock. The proceeds from the sale of securities were used to: (i)
decrease the principal amount of the Senior Term Loan (Note 12), and (ii)
increase the working capital of the Company's subsidiary, Chartwell Reinsurance
Company (Chartwell Reinsurance).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) BASIS OF PRESENTATION--The Company is in the business of reinsuring
property and casualty risks of insurance organizations under excess of loss and
pro-rata reinsurance contracts through its wholly owned subsidiary, Chartwell
Reinsurance. The Company, through its wholly owned subsidiary, Chartwell
Advisers Limited (Chartwell Advisers), which was incorporated in

F-34
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
September 1993, acts as the exclusive advisor to a non-affiliated company formed
to underwrite at Lloyd's of London (Lloyd's) through a group of wholly owned
subsidiaries that are limited liability corporate members of certain selected
Lloyd's syndicates.

The Company's consolidated financial statements, which include the accounts
of the Company and its subsidiaries, Chartwell Reinsurance and Chartwell
Advisers, have been prepared on the basis of generally accepted accounting
principles. All significant intercompany transactions and balances have been
eliminated.

(b) INVESTMENTS--Fixed maturity securities are categorized as either assets
held to maturity or as available for sale. Securities on deposit with state
regulatory authorities or held in trust under certain reinsurance agreements are
designated as held to maturity and are recorded at amortized cost. The Company
has both the ability and intent to hold these securities until their maturity.
All other fixed maturity securities are designated as available for sale. Fixed
maturity securities designated as available for sale are stated at aggregate
fair value with unrealized appreciation and depreciation reported as a separate
component of stockholders' equity.

Equity securities are stated at aggregate fair value. Fair value is
determined by available market information. Changes in the carrying value of
these securities are reflected in the aggregate as unrealized appreciation and
depreciation reported as a separate component of stockholders' equity. Mortgage
loans are carried at the outstanding principal amount.

Realized gains and losses on sales of securities are determined on the
specific-identification method. Investment income is recognized when earned.

(c) CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.

(d) PREMIUMS EARNED AND UNEARNED PREMIUMS--Premiums, net of reinsurance
ceded, are recognized as income ratably during the terms of the related
reinsurance contracts. Unearned and prepaid reinsurance premium reserves are
established to cover the unexpired portion of premiums written. Such reserves
are established based on reports received from ceding companies. Prepaid
reinsurance premiums are included in other assets.

Chartwell Reinsurance estimates and accrues for unreported premiums and
losses, as well as premium and commission adjustments on retrospectively rated
or other experience rated reinsurance contracts based on the difference between
total costs before and after the experience under the contract (the
with-and-without method). These estimates of experience to date are based on
statistical data with subsequent adjustments recorded in the period in which
they become known.

(e) DEFERRED POLICY ACQUISITION COSTS--Acquisition costs, comprised
primarily of commissions, are deferred and amortized over the period in which
the related premiums are earned.

(f) DEPOSITS--Deposits are those premiums paid in relation to reinsurance
contracts which do not qualify as a transfer of risk under the Company's
accounting policies. The deposits earn interest at the contractual amounts set
forth in the reinsurance contracts.

F-35
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(g) LOSS AND LOSS ADJUSTMENT EXPENSES--The liability for loss and loss
adjustment expenses is based on reports and individual case estimates received
from ceding companies and additional estimates provided by the Company's claim
department. The liability also includes an amount for loss and loss adjustment
expenses incurred but not reported based on past experience of Chartwell
Reinsurance and the reinsurance industry. These estimates are regularly reviewed
and, as new information becomes known, the liability is adjusted as necessary.
Such adjustments, if any, are reflected in results of operations in the period
in which they become known.

(h) INCOME TAXES--Since the Acquisition Date, the Company accounts for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". Deferred income tax assets result from
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements. These differences will result in
taxable or deductible amounts in the future years.

(i) GOODWILL--Goodwill, which is included in other assets, represents the
unamortized excess of purchase price over the fair value of net assets acquired
in the acquisition (Note 1). Goodwill is amortized on a straight line basis over
a period of forty years. Amortization charged to operations for each of the
years ended December 31, 1994, 1993 and 1992 was $46,438.

(j) INCOME (LOSS) PER COMMON SHARE--Historical earnings per share are not
presented because such information is not considered meaningful in light of the
$75,000,000 debt offering, the retirement of the senior term loan, the preferred
stock conversions and the exercise of Common Stock Warrants (the Offering) (Note
12). Pro forma loss per common and common equivalent share is presented based on
the weighted average number of common shares outstanding. Such computation
includes the conversion of the Series A and Series B Preferred Stock and the
exercise of the Common Stock Warrants (Note 15). Common equivalent shares from
the exercise of stock warrants and options have not been included as their
effect on earnings would be antidilutive.

(k) FOREIGN CURRENCY TRANSLATION--Translation adjustments resulting from the
translation of the financial statements of Chartwell Advisers denominated in
pounds sterling to U.S. dollars are reported as a separate component of
stockholders' equity. Assets and liabilities denominated in foreign currency are
translated at the exchange rates in effect at the balance sheet date. Results of
operations are translated at average exchange rates during each period.

(l) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments", requires disclosures of the estimated fair market value
of certain financial instruments. In cases where quoted market prices are not
readily available, fair values are based on estimates that use present value or
other valuation techniques.

(m) RECLASSIFICATION--Certain 1993 account balances have been reclassified
to conform with the 1994 presentation.

F-36
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

3. INVESTMENTS

The amortized cost and estimated market values of investments in securities
with fixed maturities were as follows (In thousands):

<TABLE><CAPTION>
ESTIMATED
AMORTIZED GROSS UNREALIZED MARKET CARRYING
COST GAINS LOSSES VALUE AMOUNT
--------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1994
Held to Maturity:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies.... $ 18,837 $ 9 $ 494 $ 18,352 $ 18,837
Obligations of states and political
subdivisions.................................. 145 1 146 145
--------- ------ ---------- --------- --------
Subtotal........................................ 18,982 10 494 18,498 18,982
--------- ------ ---------- --------- --------
Available for Sale:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies.... 62,316 3,932 58,384 58,384
Obligations of states and political
subdivisions................................. 22,279 107 408 21,978 21,978
Debt securities issued by foreign
governments.................................. 4,520 471 4,049 4,049
Corporate securities........................... 61,127 12 2,727 58,412 58,412
Mortgage backed securities..................... 81,683 8 5,643 76,048 76,048
--------- ------ ---------- --------- --------
Subtotal........................................ 231,925 127 13,181 218,871 218,871
--------- ------ ---------- --------- --------
Total........................................... $ 250,907 $ 137 $ 13,675 $ 237,369 $237,853
--------- ------ ---------- --------- --------
--------- ------ ---------- --------- --------
DECEMBER 31, 1993
Held to Maturity:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies.... $ 9,915 $ 238 $ 24 $ 10,129 $ 9,915
Obligations of states and political
subdivisions................................. 145 2 147 145
--------- ------ ---------- --------- --------
Subtotal........................................ 10,060 240 24 10,276 10,060
--------- ------ ---------- --------- --------
Available for Sale:
U.S. Treasury securities and obligations of
U.S. government corporations and agencies.... 65,033 297 775 64,555 64,555
Obligations of states and political
subdivisions................................. 14,731 496 12 15,215 15,215
Debt securities issued by foreign
governments.................................. 2,058 36 2,022 2,022
Corporate securities........................... 45,514 1,141 164 46,491 46,491
Mortgage backed securities..................... 45,272 472 358 45,386 45,386
--------- ------ ---------- --------- --------
Subtotal........................................ 172,608 2,406 1,345 173,669 173,669
--------- ------ ---------- --------- --------
Total........................................... $ 182,668 $2,646 $ 1,369 $ 183,945 $183,729
--------- ------ ---------- --------- --------
--------- ------ ---------- --------- --------
</TABLE>

F-37
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

3. INVESTMENTS--(CONTINUED)
The amortized cost and estimated market value of securities with fixed
maturities at December 31, 1994 and 1993, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE><CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
December 31, 1994
Due in one year or less......................... $ 3,811 $ 3,788 $ 16,443 $ 16,113
Due after one year through five years........... 14,923 14,467 58,794 56,850
Due after five years through ten years.......... 31,179 29,353
Due after ten years............................. 248 243 43,826 40,507
Mortgage backed securities...................... 81,683 76,048
--------- --------- --------- ---------
$18,982 $18,498 $ 231,925 $ 218,871
--------- --------- --------- ---------
--------- --------- --------- ---------
December 31, 1993
Due in one year or less......................... $ 722 $ 723 $ 4,283 $ 4,281
Due after one year through five years........... 7,163 7,386 63,197 63,989
Due after five years through ten years.......... 1,926 1,906 18,804 19,885
Due after ten years............................. 249 261 42,993 42,238
Mortgage backed securities...................... 43,331 43,276
--------- --------- --------- ---------
$10,060 $10,276 $ 172,608 $ 173,669
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

Proceeds from sales of investments in securities with fixed maturities
(excluding security paydowns and calls) during 1994, 1993 and 1992, all of which
were classified as available for sale, were $234,082,000, $354,417,000 and
$242,839,000, respectively. Gross gains of $1,222,000, $7,136,000 and $2,869,000
and gross losses of $5,016,000, $718,000 and $1,524,000 were realized on those
sales during the years ended December 31, 1994, 1993 and 1992, respectively.

F-38
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

3. INVESTMENTS--(CONTINUED)
Major categories of net investment income for the years ended December 31,
1994, 1993 and 1992 were as follows (in thousands):

<TABLE><CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Investment income:
Fixed maturities............................................ $15,331 $11,435 $11,514
Equity securities........................................... 1 1 11
Mortgage loans.............................................. 19 21 21
Other....................................................... 7 72
------- ------- -------
Total investment income..................................... 15,351 11,464 11,618
Investment expenses......................................... (625) (505) (412)
------- ------- -------
Net investment income....................................... $14,726 $10,959 $11,206
------- ------- -------
------- ------- -------
Realized gains (losses) on investments:
Fixed maturities.......................................... $(3,794) $ 6,418 $ 1,345
Equity securities......................................... (10)
------- ------- -------
Net realized capital gains (losses)....................... $(3,794) $ 6,418 $ 1,335
------- ------- -------
------- ------- -------
</TABLE>

The net unrealized appreciation (depreciation) of invetments included as a
separate component of common stockholders' equity at December 31, 1994 and 1993
is as follows (in thousands):

<TABLE><CAPTION>
1994 1993
-------- ------
<S> <C> <C>
Difference between market value and amortized cost of
available for sale portfolio:
Fixed maturities................................... $(13,054) $1,061
Equity securities.................................. 8 7
-------- ------
(13,046) 1,068
Deferred tax benefit (expense)....................... 4,438 (371)
-------- ------
$ (8,608) $ 697
-------- ------
-------- ------
</TABLE>

Unrealized appreciation (depreciation) of investments in equity securities
at December 31, 1994, 1993 and 1992 includes gross unrealized gains of $11,000,
$8,000 and $10,000, respectively, and gross unrealized losses of $3,000, $600
and $200, respectively.

At December 31, 1994 and 1993, bonds with a carrying value of approximately
$3,268,000 and $3,336,000, respectively, were on deposit with state regulatory
authorities, as required by law. The Company also has cash and cash equivalents
and bonds totaling $10,507,000 and $8,571,000 in a trust held for the benefit of
two ceding companies at December 31, 1994 and 1993, respectively.

At December 31, 1994 the holding company had in excess of $7,000,000 held in
commercial paper of 90-days or less maturity and rated not less than A-1 as
defined by Standard & Poors or P-1 as defined by Moody's Investors Service, Inc.
in accordance with certain debt covenants executed in conjunction with the
Senior Notes. At December 31, 1994, the Company also had $14,653,000 of
investments held in collateral accounts subject to certain restrictions in
conjunction with a loan guarantee and a letter of credit arrangement which
allowed the Company to provide the initial capitalization for NLC Name No. 6
Limited, a corporate member of Lloyd's and thereafter to

F-39
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

3. INVESTMENTS--(CONTINUED)
participate in certain Lloyd's syndicates for the 1995 Underwriting Year.
Chartwell Advisers provides advisory services to the parent company of NLC Name
No. 6. The investment in NLC Name No. 6, which amount to $12,520,000, is
included in other assets with a corresponding amount included in other
liabilities for the loan guarantee and letter of credit arrangement.

At December 31, 1993 the Company had $10,875,000 of outstanding commitments
to purchase participations in Federal National Mortgage Association Pools that
had not yet been finalized. The fair value of these participation commitments
approximated cost. At December 31, 1994 the Company had no such commitments.

At December 31, 1994, the Company had loaned securities of approximately
$74,005,000 at fair market value under a security lending agreement administered
through First Trust, the Company's primary custodian. In connection with these
transactions, the Company holds as collateral securities with a fair value equal
to 102% of the fair value of the securities lent to others. Such collateral
securities are marked to market on a daily basis and borrowers are required to
supply additional collateral to prevent any collateral from falling below 100%
of the market value of the loaned securities.

4. FINANCIAL INSTRUMENTS

On April 8, 1994, the Company entered into an interest rate swap agreement
for other than trading purposes with Salomon Brothers Holding Company (Salomon)
to convert a portion of its 10.25% fixed rate Senior Notes (Note 12) to floating
rate based on the six-month London Interbank Offering Rate (LIBOR). The
agreement requires Salomon to pay the Company interest on a notional amount of
$37,500,000 at the fixed rate of 6.95% and the Company to pay interest at 4.44%
for the first year and thereafter at the six-month LIBOR which resets on a
semiannual basis. The interest differential to be received or paid under the
interest rate swap agreement is accrued over the life of the agreement as an
adjustment to the interest expense of the related notes. The swap terminates on
April 8, 2004. For the year ended December 31, 1994, the Company recorded a
reduction of interest expense of $685,000 in connection with this agreement.

The following methods were used in estimating fair value disclosures for
significant financial instruments. Cash equivalents approximate their carrying
amount due to the short duration of those investments. Fixed maturity securities
are based upon quoted market information. Long term debt at December 31, 1994 is
based upon current market price. Long-term debt and redeemable preferred stock
at December 31, 1993 approximates carrying value as such instruments were repaid
or converted to equity in connection with the Offering (Note 12). The interest
rate swap is estimated at the amount the Company would pay to terminate the
contract.

F-40
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

4. FINANCIAL INSTRUMENTS--(CONTINUED)
The carrying amounts and fair values of the Company's significant financial
instruments are as follows (in thousands):
<TABLE><CAPTION>
1994 1993
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents..... $ 37,005 $ 37,005 $ 35,738 $ 35,738
Fixed maturity securities..... 237,853 237,369 183,729 183,945
Long-term debt................ 75,000 66,000 44,090 44,090
Redeemable preferred stock.... 19,163 19,163
Interest rate swap............ (2,950)
</TABLE>

5. FEDERAL INCOME TAXES

The Company files a consolidated Federal income tax return with Chartwell
Reinsurance. The 1994 and 1992 current income taxes are based upon regular
taxable income while 1993 current income taxes are based upon alternative
minimum taxable income. In 1994 and 1993, net recoveries amounted to $1,218,000
and $2,124,000 while income taxes paid in 1992 amounted to $3,356,000.

As of December 31, 1994, the Company had available net operating loss
carryforwards for tax return purposes of approximately $10,005,000 which will
begin expiring in 2007.

The components of income tax expense (benefit) for the years ended December
31, 1994, 1993 and 1992 are as follows (in thousands):

<TABLE><CAPTION>
1994 1993 1992
------- ------ -------
<S> <C> <C> <C>
Current........................................ $(1,708) $ 443 $ 2,670
Deferred....................................... 23 1,823 (7,365)
------- ------ -------
Total Federal, foreign and state income tax
expense (benefit)............................ $(1,685) $2,266 $(4,695)
------- ------ -------
------- ------ -------
</TABLE>

The difference between actual income taxes and the income taxes computed by
applying the statutory Federal income tax rate of 34% to income before income
taxes for the years ended December 31, 1994, 1993 and 1992 is as follows (in
thousands):

<TABLE><CAPTION>
1994 1993 1992
------- ------ -------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory
rate........................................... $(1,742) $2,299 $(4,765)
Nontaxable investment income................... (238) (242) (308)
Nondeductible interest expense................. 256 282
Amortization of goodwill....................... 16 16 16
Other--net..................................... 23 193 80
------- ------ -------
$(1,685) $2,266 $(4,695)
------- ------ -------
------- ------ -------
</TABLE>

F-41
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

5. FEDERAL INCOME TAXES--(CONTINUED)
The deferred income tax expense (benefit) for the years ended December 31,
1994, 1993 and 1992 consisted of the following (in thousands):

<TABLE><CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Discounting of loss reserves.................. $ (710) $(1,302) $(1,369)
Deposit accounting............................ 554 705 (7,077)
Earned but not reported premiums, net of loss
and expense................................. 279 1,059 6
Reserve indemnification agreement............. 1,015 623 1,022
Deferred acquisition costs.................... 1,013 294 239
Unearned premiums............................. (716) (493) (115)
Employee benefits............................. 196 (213) 205
Difference between carrying value and tax
basis of investments sold..................... (71) (196) (823)
Tax benefit carryforwards..................... (2,371) 1,569
Other--net.................................... 834 (223) 547
------- ------- -------
$ 23 $ 1,823 $(7,365)
------- ------- -------
------- ------- -------
</TABLE>

The Deferred income tax asset at December 31, 1994 and 1993 consisted of the
following (in thousands):

<TABLE><CAPTION>
1994 1993
------- -------
<S> <C> <C>
Deferred tax assets:
Discounting of loss reserves......................... $13,856 $13,146
Unearned premiums.................................... 1,807 1,091
Employee benefits.................................... 118 314
Unrealized depreciation on investments............... 4,438
Deposit accounting................................... 85 639
Tax benefit carryforwards............................ 3,518 1,147
Other................................................ 600 495
------- -------
$24,422 $16,832
------- -------
Deferred tax liabilities:
Deferred acquisition costs........................... $ 1,906 $ 893
Earned but not reported premiums net of loss and
expense............................................ 1,678 1,400
Depreciation of equipment............................ 31 94
Unrealized appreciation on investments............... 371
Accrued market discount.............................. 722 121
Reserve indemnification agreement.................... 2,659 1,645
Other................................................ 515 434
------- -------
$ 7,511 $ 4,958
------- -------
Deferred income taxes, net........................... $16,911 $11,874
------- -------
------- -------
</TABLE>

F-42
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

5. FEDERAL INCOME TAXES--(CONTINUED)
Management believes it is more likely than not that the Company will
generate future taxable income to realize the benefits of the net deferred tax
asset. No valuation allowance has been recorded at December 31, 1994 or 1993.

6. EMPLOYEE BENEFIT PLANS

Eligible employees of the Company may participate in a defined contribution
plan (the "Plan") established by the Company. Under the Plan, the Company makes
matching contributions equal to 50% of the first 6% of the employee's
compensation which they elect to contribute. Amounts expensed under the Plan for
the years ended December 31, 1994, 1993 and 1992 were $72,000, $52,000 and
$44,000, respectively.

Certain members of management will receive a supplement to the Plan payable
at the earlier of age 65 or employment termination. The supplement will be equal
to the aggregate contributions made with respect to the employee to a trust
established by the Company. Annual contributions to the trust, which began in
1994, will be 13.5% to 20.0% of the employee's base salary as stated in their
employment agreements. The amount expensed in the current year for the 1994 and
1993 accrued obligation amounted to $168,000 and $125,000, respectively.

7. RELATED-PARTY TRANSACTIONS

In 1992, Wand Partners Inc. (Wand) and Michigan Mutual Insurance Company
(MMIC) (Note 1) entered into agreements with the Company whereby Wand and MMIC
provide financial and advisory services. The net amounts paid to Wand and MMIC
by the Company for these services were $313,000, $322,000 and $252,000 in 1994,
1993 and 1992, respectively.

During 1992 Chartwell Reinsurance entered into a reinsurance contract with a
related party. For the years ended December 31, 1994, 1993 and 1992, Chartwell
Reinsurance earned $4,359,000, $1,816,000 and $1,839,000 of premium on this
contract and incurred, prior to the effect of reinsurance ceded, $3,039,000,
$2,069,000 and $1,399,000 in loss and loss adjustment expense. At December 31,
1994 and 1993 the loss and loss adjustment expense liability for this contract
was $1,339,000 and $1,634,000 and unearned premiums were $1,562,000 and
$1,119,600, respectively.

8. RESTRICTION ON PAYMENT OF DIVIDENDS

The ability of the Company to pay cash dividends to shareholders is
dependent upon the amount of dividends received from Chartwell Reinsurance.
Chartwell Reinsurance's ability to pay cash dividends to the Company is, in
turn, restricted by law or subject to approval of the insurance regulatory
authorities of Minnesota, Chartwell Reinsurance's state of domicile. These
authorities recognize only statutory accounting practices for the ability of an
insurer to pay dividends to its shareholders.

Under the insurance laws of the State of Minnesota, payment of dividends by
Chartwell Reinsurance in any year is limited to the greater of: (i) 10% of
capital and surplus as of the prior year end as determined in accordance with
statutory accounting practices; or (ii) statutory net

F-43
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

8. RESTRICTION ON PAYMENT OF DIVIDENDS--(CONTINUED)
income from operations of the next preceding year excluding realized capital
gains. Notwithstanding the foregoing, Chartwell Reinsurance may pay dividends
only from its earned surplus, also known as unassigned funds. The maximum
dividend that can be paid without prior approval of the Minnesota Department of
Commerce in 1995 is $11,185,000.

The capital and surplus of Chartwell Reinsurance on the basis of statutory
accounting practices was $111,845,000 and $81,102,000 at December 31, 1994 and
1993, respectively. Net income of Chartwell Reinsurance based on statutory
accounting principles was $910,000, $6,105,000 and $5,044,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.

9. REINSURANCE CEDED

Chartwell Reinsurance cedes a portion of its risks by utilizing various
retrocessional contracts. Since Chartwell is contingently liable with respect to
reinsurance ceded in the event that a retrocessionaire is unable to meet its
obligations assumed under a retrocession agreement, Chartwell Reinsurance
regularly evaluates the financial condition of its reinsurers and monitors
concentration of credit risk with respect to amounts recoverable under these
contracts arising from similar activities, regions or economic characteristics.

The effect of reinsurance on premiums written and earned at December 31,
1994, 1993 and 1992 is as follows (in thousands):
<TABLE><CAPTION>
1994 1993 1992
------------------- ----------------- -----------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Reinsurance assumed.................... $116,396 $105,198 $70,129 $69,105 $42,343 $39,584
Reinsurance ceded...................... 2,434 2,500 302 689 2,721 2,658
-------- -------- ------- ------- ------- -------
Net premiums........................... $113,962 $102,698 $69,827 $68,416 $39,622 $36,926
-------- -------- ------- ------- ------- -------
-------- -------- ------- ------- ------- -------
</TABLE>

The effect of reinsurance on loss and loss adjustment expense for the years
ended December 31, 1994, 1993 and 1992 is a decrease of $4,095,000, $3,222,000
and $9,719,000, respectively.

The reinsurance recoverable balance on paid and unpaid losses and LAE was
$38,864,000 and $37,973,000 at December 31, 1994 and 1993, respectively, and was
attributable to retrocessional arrangements with approximately 123
retrocessionaires in both years. Amounts recoverable from any single entity or
company in excess of 2% of the total amount recoverable at December 31, 1994
were as follows: Centre Reinsurance (Bermuda) Limited, $15.4 million (39.6%);
NWNL, $4.1 million (10.6%); Kemper Reinsurance Company, $1.4 million (3.6%); and
Skandia America Reinsurance Corporation, $1.0 million (2.6%).

Included in deposits on the balance sheet at December 31, 1994 and 1993 is
$6,321,000 and $5,862,000, respectively, recoverable from one reinsurer.

In the normal course of business, Chartwell Reinsurance enters into trust
agreements effecting funds held arrangements or obtains letters of credit issued
by banks on behalf of the retrocessionaires which are not registered as
"authorized reinsurers" with the Minnesota State Insurance Department. The
letter of credit serves as collateral to the extent of their limit for the
contingent

F-44
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

9. REINSURANCE CEDED--(CONTINUED)

liability which exists in the event that the retrocessionaire is unable to meet
its obligations assumed under a retrocession agreement. Reinsurance recoverables
with "unauthorized reinsurers" totaled $20.8 million and $19.4 million at
December 31, 1994 and 1993, respectively. The respective portions collateralized
as described above were $18.2 million and $18.6 million.

10. PERMITTED STATUTORY ACCOUNTING PRACTICES

Cartwheel Reinsurance prepares its statutory financial statements in
accordance with accounting principles and practices prescribed or permitted by
the Minnesota State Insurance Department. Prescribed practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners (NAIC).
Permitted statutory accounting practices encompass all accounting practices that
are not prescribed; such practices differ from state to state, may differ from
company to company within a state, and may change in the future. Furthermore,
the NAIC has a project to codify statutory accounting practices, the result of
which is expected to constitute the only source of "prescribed" statutory
accounting practices. Accordingly, that project, which is expected to be
completed in 1995, will likely change the definitions of what comprises
prescribed versus permitted statutory accounting practices, and may result in
changes to the accounting policies that insurance and reinsurance enterprises
use to prepare their statutory financial statements.

During 1994, Chartwell Reinsurance received written approval from the
Minnesota Department of Commerce to record the receivable arising from the
Reserve Indemnification Agreement, which was entered into by Chartwell Re
Corporation and NWNL, in the statutory financial statements as a "Receivable
from Parent." Statutory accounting practices do not address the accounting for
this type of transaction that is passed down by the parent company. As of
December 31, 1994, that permitted transaction increased statutory surplus by
$7,397,000 over what it would have been had the transaction not been passed down
to Chartwell Reinsurance. This transaction has no effect on the consolidated
financial statements of the Company.

F-45
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

11. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE)

The following table presents a reconciliation of beginning and ending
reserve balance for the years indicated (in thousands):

<TABLE><CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Reserves for loss and LAE at beginning of year............ $201,013 $189,386 $159,348
Less reinsurance recoverables............................. 33,618 36,019 33,056
-------- -------- --------
Net balance at beginning of year.......................... 167,395 153,367 126,292
-------- -------- --------
Add provision for loss and LAE for claims occurring
during:
Current year.......................................... 77,716 48,929 43,473
Prior years........................................... 861 (189) 634
-------- -------- --------
Total incurred loss and LAE......................... 78,577 48,740 44,107
-------- -------- --------
Less losses and LAE payments for claims occurring during:
Current year.......................................... 18,997 9,056 7,958
Prior years........................................... 29,674 25,656 9,074
-------- -------- --------
Total paid loss and LAE............................. 48,671 34,712 17,032
-------- -------- --------
Net balance at end of year................................ 197,301 167,395 153,367
Plus reinsurance recoverables............................. 35,432 33,618 36,019
-------- -------- --------
Reserves for loss and LAE at end of year.................. $232,733 $201,013 $189,386
-------- -------- --------
-------- -------- --------
</TABLE>

The provision for loss and LAE is net of reinsurance of $5,246,000,
$4,248,000 and $7,447,000 in 1994, 1993 and 1992, respectively. As a result of
changes in estimates of insured events in prior years, the provision for loss
and LAE increased by $861,000 in 1994, decreased by $189,000 in 1993 and
increased by $634,000 in 1992. These amounts, which represent 0.4%, (0.1%) and
0.4% of the reserves at the beginning of 1994, 1993 and 1992, respectively, are
the result of normal reserve development inherent in the uncertainty of
establishing loss and LAE reserves.

Reserves include provisions for latent injury or toxic tort claims that
cannot be estimated with traditional reserving techniques. Case reserves,
including LAE, have been established upon notification of loss from ceding
companies. In addition, the Company establishes additional reserves in excess of
its share of the reserve established by the ceding company to cover exposures on
both known and unasserted claims. These reserves are periodically reviewed by
the Company's claims department. In the reserve setting process, Chartwell also
includes provisions for social inflation (i.e. awards by judges and juries that
have progressively increased in recent years) and evaluates the potential effect
of any legislative changes on its reserve liabilities. However, because of
inconsistent court decisions in federal and state jurisdictions and the wide
variation among insureds with respect to underlying facts and coverage,
uncertainty exists with respect to these claims as to liabilities of ceding
companies and, consequently, reinsurance coverage.

At December 31, 1994, Chartwell Reinsurance carried case reserves and
allocated LAE attributable to asbestos claims and environmental pollution claims
in the amount of $4,823,000 ($2,775,000 after reduction for reinsurance
recoverable). For the three years ended December 31, 1994, the effect of
asbestos and environmental pollution claims was not material to the Company's
results of operations. Management believes that the Company's exposure to
asbestos and

F-46
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

11. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE)--(CONTINUED)
environmental losses is lessened because of its relatively recent entry into the
reinsurance business in 1979, its low historical levels of premium volume prior
to 1985, the Reserve Indemnification Agreement and its retrocessional programs.

12. LONG-TERM DEBT

The components of long-term debt at December 31, 1994 and 1993 are as
follows (in thousands):

<TABLE><CAPTION>
1994 1993
------- -------
<S> <C> <C>
Senior notes........................................... $75,000
Senior term loan....................................... $25,900
Subordinated debentures................................ 18,190
------- -------
Total.................................................. $75,000 $44,090
------- -------
------- -------
</TABLE>

Senior note offering--On March 17, 1994, the Company completed a public
offering of 10.25% Senior Notes due 2004 having a total principal amount of
$75,000,000. Concurrently with the closing of the Offering, the outstanding
16,100 shares of Series A Preferred Stock and 3,500 shares of Series B Preferred
Stock were converted into 747,388 and 162,472 shares of Common Stock,
respectively, at a conversion price of approximately $21.54 per share. In
addition, the holders of the Debentureholder Warrants exercised their right to
purchase 855,680 shares of Common Stock at an exercise price of $22.00 per
share. All holders of the Debentureholder Warrants agreed to either surrender
their outstanding Debentures as payment for the exercise of the Debentureholder
Warrants or paid cash for such exercise. In the latter case, the holders of the
related Debentures agreed to concurrently receive an equal amount of cash as
repayment of their outstanding Debentures. The Company also redeemed the 607,256
shares of Series C Preferred Stock for a total redemption price of $6,073.

Upon consummation of the above transactions, each holder of the Series A
Preferred Stock, Series B Preferred Stock and the Debentures received a cash
payment equal to 4% of the aggregate liquidation preference of the preferred
stock or the aggregate principal amount of the Debentures held by such holders.
The Company also granted warrants to Wand Partners, Inc., the holders of the
Series A and Series B Preferred Stock and the holders of the Debentures to
purchase an aggregate of 188,946 shares of Common Stock of the Company (Note
15).

The net proceeds to the Company from the Offering were approximately
$71,933,750 after deducting expenses. Of the net proceeds, $30,000,000 was
contributed to the statutory surplus of Chartwell Reinsurance and $23,400,000
was used to retire the indebtedness outstanding under the senior term loan
(reduced from $25,900,000 at December 31, 1993 by a scheduled principal payment
on March 6, 1994). The remaining funds were initially retained by the Company
for general corporate purposes, which may include the payment of interest on the
Senior Notes or a future contribution to Chartwell Reinsurance.

F-47
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

12. LONG-TERM DEBT--(CONTINUED)
Due to the early extinguishment of debt, the Company has recognized an
extraordinary non-cash charge of approximately $465,000, after applicable
federal income tax effects of approximately $250,000, representing the write-off
of the remaining original debt issuance costs associated with the Senior term
loan.

Interest paid on the Senior Notes during 1994 was $3,509,000.

SENIOR TERM LOAN--In connection with the acquisition of Chartwell Re, the
Company borrowed $35,000,000 of senior debt (Note 1). Outstanding amounts under
the senior term loan bore interest at the prime rate of Morgan Guaranty Trust
Company of New York plus 1.5%. The indebtedness outstanding under the senior
term loan was retired upon consummation of the Offering. Interest paid on the
senior term loan during 1994, 1993 and 1992 was $382,000, $1,938,000 and
$2,222,000 respectively. A scheduled principal payment of $2,500,000 was made on
March 6, 1994.

SUBORDINATED DEBENTURES--At December 31, 1992, the Company issued
subordinated debentures, 607,256 detachable Common Stock Warrants (Note 15) and
607,256 shares of Series C Preferred Stock (Note 14) for total consideration of
$18,825,000. A discount of $759,000 was recorded on the subordinated debentures
to be amortized over the term of the debentures. Outstanding amounts at par
value under the subordinated debenture agreement bore interest at 12%. Interest
paid on the subordinated debentures during the years ended December 31, 1994 and
1993 amounted to $1,537,000 and $1,230,000, respectively.

In connection with the Offering, all subordinated debentures were either
surrendered as payment to exercise the debentureholder warrants or were repaid
in cash. The amount contributed to common stock and additional paid-in capital
upon conversion was approximately $9,000 and $17,196,000, respectively.

13. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES--The Company leases office space for its principal
executive offices under a non-cancelable, renewable operating lease expiring on
July 31, 2000. The rent expense has been accounted for on a straight-line basis
after amortization of a rent abatement allowance. The rental expense for 1994,
1993 and 1992 attributable to such lease was $579,000, $546,000 and $508,000,
respectively. The future minimum rental payments, exclusive of escalation
clauses, under the existing lease as of December 31, 1994 are as follows (in
thousands):

<TABLE>
<S> <C>
1995.............................................................. $ 556
1996.............................................................. 566
1997.............................................................. 576
1998.............................................................. 586
1999.............................................................. 596
2000 and thereafter............................................... 300
------
$3,180
------
------
</TABLE>

LINE OF CREDIT--During 1994, the Company negotiated and established a
$10,000,000 line of credit from one financial institution. As of December 31,
1994, all was unused.

F-48
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

14. REDEEMABLE PREFERRED STOCK

The components of redeemable preferred stock at December 31, 1993 are as
follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
Series A Preferred stock, par value $0.01 per share; authorized
18,000 shares; issued and outstanding 16,100 (aggregate
liquidation value $16,100,000)................................. $15,771
Series B Preferred stock, par value $0.01 per share; authorized
5,000 shares; issued and outstanding 3,500 (aggregate
liquidation value $3,500,000).................................. 3,386
Series C Preferred stock, par value $0.01 per share; authorized
1,000,000 shares; issued and outstanding 607,256 (stated at
aggregate liquidation value)................................... 6
-------
Total redeemable preferred stock............................. $19,163
-------
-------
</TABLE>

SERIES A PREFERRED STOCK

In 1992, the Company issued 16,100 shares of Series A Preferred Stock, which
was cumulative, mandatorily redeemable, and convertible, with a liquidation
preference value of $1,000 per share for consideration of $16,100,000. The
proceeds from the sale were used primarily to finance the acquisition and
associated costs. Dividends on the Series A Preferred Stock were payable
semi-annually and were earned on the liquidation preference value at the 26 week
Treasury Bill rate at the beginning of each dividend period plus 3%. Regular
dividends declared and paid on the Series A Preferred Stock for 1994 and 1993
were $491,000 and $989,000, respectively.

In connection with the Offering (Note 12) the Series A Preferred Stock was
converted into 747,388 shares of common stock.

SERIES B PREFERRED STOCK

On December 31, 1992, the Company issued 3,500 shares of Series B Preferred
Stock, which was cumulative, mandatorily redeemable, and convertible, with a
liquidation preference value of $1,000 per share for consideration of
$3,500,000. The proceeds were used as part of the December 1992 financing (Note
1). Regular dividends paid on the Series B Preferred Stock in 1994 were $328,000
of which $269,000 were accrued and added to the liquidation preference value in
1993.

In connection with the Offering, the Series B Preferred Stock was converted
into 162,472 shares of common stock.

SERIES C PREFERRED STOCK

On December 31, 1992 the Company issued 607,256 shares of Series C Preferred
Stock, which was mandatorily redeemable with a liquidation preference value of
$.01 per share for consideration of $304,000. The proceeds were used as part of
the December 1992 financing (Note 1). The Series C Preferred Stock were not
eligible for dividends or conversion rights. The stock was redeemed at $.01 per
share in connection with the Offering (Note 12).

F-49
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

14. REDEEMABLE PREFERRED STOCK--(CONTINUED)
The reconciliation of liquidation preference to amounts converted or
redeemed in connection with the Offering is as follows (in thousands):

<TABLE><CAPTION>
SERIES A SERIES B SERIES C
-------- -------- --------
<S> <C> <C> <C>
Liquidation preference...................... $ 16,100 $3,500 $6
Issuance costs.............................. (461) (462)
Accretion of discount....................... 66
--
-------- --------
Carrying amount at December 31, 1992........ 15,705 3,038 6
--
-------- --------
Accretion of discount....................... 66 79
Dividends accrued........................... 269
--
-------- --------
Carrying amount at December 31, 1993........ 15,771 3,386 6
--
-------- --------
Accretion of discount....................... 14 16
Dividends paid.............................. (269)
-------- --------
Converted to common stock................... $ 15,785 $3,133
--
-------- --------
-------- --------
Redeemed...................................... $6
--
--
</TABLE>

15. COMMON STOCK WARRANTS

In connection with the acquisition (Note 1), the Company issued 81,000
Common Stock Warrants for consideration of $60,750. These warrants are
exercisable at $21.00 per share, subject to adjustments, and expire on March 6,
2002.

In connection with the December 1992 financing (Note 1), the Company issued
607,256 detachable Common Stock Warrants in conjunction with the issuance of
Subordinated Debentures (Note 12) and Series C Preferred Stock (Note 14) for
consideration of $455,000. The Warrants were exercisable at a price ranging from
$22.00 to $31.00 subject to certain events. The Warrants were exercisable by
payments in cash, the surrender of Subordinated Debentures, or any combination
of such methods. Under the terms of the December 1992 financing, such surrender
of Subordinated Debentures causes the redemption of Series C Preferred Stock.
These warrants were exercised in connection with the Offering (Note 12).

In connection with the December 1992 financing, the Company issued 4,000
Common Stock Warrants exercisable at $21.00 per share expiring on January 15,
2003 and 101,477 Common Stock Warrants exercisable at $22.00 expiring on March
6, 2002 for consideration of $79,108.

On February 2, 1994, the Board of Directors of the Company approved the
issuance to Wand/Chartwell Investments, L.P. and to the holders of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock of
warrants to purchase an aggregate of 188,946 shares of Common Stock of the
Company. The warrants were granted to the foregoing parties pro rata in
accordance with the number of shares of common stock each such party would hold
upon consummation of the Offering (Note 12). Such warrants are exercisable at
any time within five years following an initial public offering of Common Stock
of the Company at an exercise price per share equal to the price per share of
the Common Stock in such initial public offering, subject to adjustment in
certain circumstances.

F-50
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

16. STOCK OPTION PLAN

The 1993 Stock Option Plan (the "Stock Option Plan") was adopted on October
15, 1993. Options to acquire 800,000 shares of Common Stock have been authorized
to be granted to officers, key employees and directors of the Company and its
designated subsidiaries pursuant to the Stock Option Plan. During 1994 and 1993,
options to acquire shares of Common Stock had been granted at exercise prices
per share ranging from $22 to the lesser of $30 or 120% of the offering price
per share to the public in an initial public offering of the Company's Common
Stock, except with respect to 10,000 shares of Common Stock for which the
exercise price per share is the lesser of $30 or the offering price per share to
the public in an initial public offering of the Company's Common Stock. The
options become exercisable at various dates with a portion of the options
becoming exercisable immediately upon completion of an initial public offering
of the Company's Common Stock. At December 31, 1994, options to purchase 164,520
shares of Common Stock were vested.

The number of options available to purchase shares of Common Stock at
December 31, 1994 and 1993 are as follows:

<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Outstanding, beginning of year......................... 627,600
Granted................................................ 10,000 627,600
Cancelled.............................................. 37,500
------- -------
Outstanding, end of year............................... 600,100 627,600
------- -------
------- -------
</TABLE>

An additional 81,300 options were granted to certain officers during the
first quarter of 1995. These newly issued options have an exercise price per
share of the lesser of $22 or 120% of the offering price per share to the public
in an initial public offering of the Company's Common Stock, but in no event
shall 120% of the offering price be less than the book value per share of the
Company, as determined by generally accepted accounting principles, at the time
of such offering. Other option terms are similar to the options granted
previously.

Also during the first quarter of 1995, the exercise price per share of
certain of the options previously set at the lesser of $30 or 120% of the
offering price per share to the public in an initial public offering of the
Company's Common Stock was amended to the lesser of $22 or 120% of the offering
price per share to the public in an initial public offering of the Company's
Common Stock, but in no event shall 120% of the offering price be less than the
book value per share of the Company, as determined by generally accepted
accounting principles, at the time of such offering.

F-51
<PAGE>
CHARTWELL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

17. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data is as follows (in thousands, except per
share data):

<TABLE><CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1994
Premiums earned..................................... $26,550 $20,806 $26,627 $28,715
Net investment income............................... 2,977 3,667 3,887 4,195
Net realized capital losses......................... (533) (2,929) (332) --
Income tax expense (benefit)........................ (881) (988) 144 40
Net income (loss)................................... (2,853) (1,836) 225 564
Common stockholders' equity......................... 62,761 58,999 57,087 56,339

FOR THE YEAR ENDED DECEMBER 31, 1993
Premiums earned..................................... $14,540 $19,261 $14,900 $19,715
Net investment income............................... 2,854 2,586 2,660 2,859
Net realized capital gains.......................... 1,758 1,348 2,262 1,050
Income tax expense.................................. 751 578 604 333
Net income.......................................... 1,458 1,070 1,580 389
Common stockholders' equity......................... 31,901 34,185 36,686 34,558
</TABLE>

* * * * *

F-52
<PAGE>
CHARTWELL RE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 1995 1994
(UNAUDITED) (AUDITED)
------------- ------------
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities:
Held for investment (market value September 30, 1995,
$20,888; December 31, 1994, $18,498).................... $ 20,491 $ 18,982
Available for sale (amortized cost September 30, 1995,
$265,303; December 31, 1994, $231,925) 267,269 218,871
Other investments........................................... 859 278
Cash and cash equivalents..................................... 24,522 37,005
------------- ------------
Total investments and cash.............................. 313,141 275,136
Premiums in process of collection............................. 54,195 38,565
Reinsurance recoverable....................................... 37,816 38,864
Deferred income taxes......................................... 11,986 16,911
Deferred policy acquisition costs............................. 7,035 5,607
Other assets.................................................. 36,766 35,076
------------- ------------
Total assets............................................ $ 460,939 $410,159
------------- ------------
------------- ------------

LIABILITIES:
Loss and loss adjustment expenses............................. $ 258,295 $232,733
Unearned premiums............................................. 30,837 23,880
Senior notes.................................................. 75,000 75,000
Accrued expenses and other liabilities........................ 26,144 22,207
------------- ------------
Total liabilities....................................... 390,276 353,820
------------- ------------

COMMON STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per share; authorized 6,000,000
shares; shares issued and outstanding September 30, 1995,
3,755,312 shares; December 31, 1994, 3,755,312 shares....... 38 38
Additional paid-in capital.................................... 77,254 77,254
Net unrealized appreciation (depreciation) of investments..... 1,167 (8,608)
Foreign currency translation adjustment....................... 20 14
Accumulated deficit........................................... (7,816) (12,359)
------------- ------------
Total common stockholders' equity....................... 70,663 56,339
------------- ------------
Total liabilities and stockholders' equity.............. $ 460,939 $410,159
------------- ------------
------------- ------------
</TABLE>

See notes to condensed consolidated financial statements.

F-53
<PAGE>
CHARTWELL RE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE><CAPTION>
NINE MONTH PERIOD NINE MONTH PERIOD
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Premiums earned........................... $25,988 $26,627 $87,355 $73,983
Net investment income..................... 5,375 3,887 14,743 10,531
Net realized capital gains (losses)....... 304 (333) 1,707 (3,794)
Other income.............................. 265 428 796 1,237
Total revenues.......................... 31,932 30,609 104,601 81,957
LOSSES AND EXPENSES INCURRED:
Loss and loss adjustment expenses......... 18,899 19,334 63,712 57,478
Policy acquisition costs.................. 6,353 6,526 20,598 17,012
Other expenses............................ 2,644 2,577 7,846 7,587
Interest and amortization................. 1,996 1,803 5,750 5,604
Total losses and expenses incurred...... 29,892 30,240 97,906 87,681
Income (loss) before income taxes and
extraordinary item........................ 2,040 369 6,695 (5,724)
Income tax expense (benefit)................ 577 144 2,152 (1,725)
Income (loss) before extraordinary item..... 1,463 225 4,543 (3,999)
Extraordinary item, net of income tax....... (465)
Net income (loss)........................... 1,463 225 4,543 (4,464)
Less: Preferred dividends and accretion..... 1,079
Income (loss) attributable to common
shares.................................... $1,463 $225) $4,543 $(5,543)
Income (loss) per common share.............. $0.39 $(0.06) $1.21 $(0.98)
Weighted average number of common shares
outstanding............................... 3,755,312 3,759,089 3,755,312 3,762,490
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See notes to condensed consolidated financial statements.

F-54
<PAGE>
CHARTWELL RE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE><CAPTION>
NINE MONTH PERIODS
ENDED SEPTEMBER 30,
---------------------
1995 1994
-------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net premiums collected............................................. $ 59,154 $ 56,233
Ceded premiums paid................................................ (3,306) (2,051)
Net losses & LAE................................................... (33,113) (29,433)
Overhead expenses.................................................. (7,769) (8,262)
Service fee income................................................. 796 1,238
Net income taxes (paid)/recovered.................................. (2,043) (502)
Interest received on investments................................... 14,712 11,012
Interest paid...................................................... (7,220) (5,429)
Other, net......................................................... 227 517
-------- ---------
Net cash provided by operating activities...................... 21,438 23,323
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities........................... (5,359) (2,808)
Purchases of available-for-sale securities......................... (237,505) (281,027)
Maturities of held-to-maturity securities.......................... 3,730 30
Maturities of available-for-sale securities........................ 830 1,570
Sales of available-for-sale securities............................. 204,627 237,296
-------- ---------
Net cash provided by (used in) investing activities............ (33,677) (44,939)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from senior notes offering............................ 71,934
Retirement of Series C Preferred stock............................. (6)
Retirement of senior term loan..................................... (23,400)
Debt repayment..................................................... (2,500)
Preferred dividends................................................ (828)
Conversion incentive............................................... (1,537)
Other, net......................................................... (250) 196
-------- ---------
Net cash provided by (used in) financing activities............ (250) 43,859
-------- ---------
Effect of exchange rate on cash.................................... 6 30
-------- ---------
Net increase in cash and cash equivalents............................ (12,483) 22,273
Cash and cash equivalents at beginning of year....................... 37,005 37,735
-------- ---------
Cash and cash equivalents at end of period........................... $ 24,522 $ 60,008
-------- ---------
-------- ---------
RECONCILIATION OF NET INCOME/(LOSS) TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income (loss).................................................. $ 4,543 $ (4,464)
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized capital (gains) losses.............................. (1,677) 3,794
Deferred policy acquisition costs................................ (1,428) (3,143)
Deferred income taxes............................................ (115) (1,377)
Unpaid loss and loss adjustment expenses......................... 25,562 23,956
Unearned premiums................................................ 6,957 12,446
Other reinsurance balances....................................... 3,968 3,702
Reinsurance recoverable.......................................... 1,047 357
Net change in receivables and payables........................... (15,214) (12,006)
Conversion incentive charged to net income....................... 753
Other, net....................................................... (2,205) (695)
-------- ---------
Net cash provided by operating activities...................... $ 21,438 $ 23,323
-------- ---------
-------- ---------
</TABLE>

See notes to condensed consolidated financial statements.

F-55
<PAGE>

CHARTWELL RE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited interim Condensed Consolidated Financial
Statements of Chartwell Re Corporation (the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included. Certain
balances in the 1994 financial statements have been reclassified to conform to
the 1995 presentation. Operating results for any interim period are not
necessarily indicative of results that may be expected for the full year. These
interim statements should be read in conjunction with the 1994 consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K as filed with the Securities and Exchange Commission.

2. INCOME (LOSS) PER COMMON SHARE

Actual earnings per share for the three and nine month periods ended
September 30, 1994 are not presented on the Condensed Consolidated Statements of
Operations because such information is not considered meaningful in light of the
$75,000,000 senior note offering, the retirement of the senior term loan, the
preferred stock conversions and the exercise of the debentureholder warrants
which occurred on March 17, 1994. Pro forma income (loss) per common and common
equivalent share is presented for the period based on the pro forma weighted
average number of common shares outstanding. Such computation includes the
conversion of the Series A and Series B Preferred Stock and the exercise of the
debentureholder warrants as if they had occurred on the first day of the period
presented. The pro forma adjustments include the elimination of a non-recurring
charge for the write-off of the unamortized balance of the deferred financing
costs resulting from the early extinguishment of the senior term loan. Such
charge was approximately $465,000 after tax at March 17, 1994. Also eliminated
is a $753,000 charge for a cash payment to the holders of the warrants upon
conversion. Common equivalent shares from the exercise of common stock warrants
and options have not been included as their effect on earnings would be
antidilutive.

3. EXTRAORDINARY ITEM

The obligation under the senior term loan was retired on March 17, 1994. Due
to this early extinguishment of debt, the Company recognized an extraordinary
non-cash charge in the first quarter of 1994 of approximately $465,000, after
applicable federal income tax effects of approximately $250,000, representing
the write-off of the remaining original debt issuance costs associated with the
senior term loan.

F-56
<PAGE>

CHARTWELL RE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(UNAUDITED)

4. DRAYTON COMPANY LIMITED

The Company acquired Drayton Company Limited (Drayton), a Bermuda-based
insurer on May 31, 1995. Under the terms of the Subscription Agreement, the
Company acquired 100% of Drayton's stock in exchange for a nominal cash payment.
Drayton's net assets after the transaction were approximately $500,000.
Drayton's liabilities are outstanding claims and "notices of circumstances"
associated with directors and officers liability coverage written for member
shareholders of the former captive. Drayton had been in run-off since 1992. The
transaction did not result in any material change in the Company's consolidated
balance sheet.

5. SUBSEQUENT EVENT

On August 7, 1995, the Company and Piedmont Management Company Inc.
(Piedmont) jointly announced that they have entered into a definitive agreement
to merge. As a result of the merger, Piedmont's principal insurance subsidiary,
The Reinsurance Corporation of New York (RECO), will become a subsidiary of
Chartwell Reinsurance Company, the reinsurance underwriting subsidiary of the
Company.

In the transaction, holders of common and preferred stock of Piedmont will
receive newly-issued shares of common stock of the Company representing 45.25%
of the outstanding stock of the combined entity. Holders of common stock of
Chartwell will retain common stock of Chartwell representing 54.75% of the
combined entity. Prior to the merger, Piedmont's asset management subsidiary,
Lexington Management Corporation (combined with Piedmont's other asset
management operations) will be spun-off to Piedmont's stockholders in a tax-free
transaction. Also prior to the merger, Piedmont stockholders will receive a
dividend of contingent interest notes of Piedmont. The notes, which will mature
on June 30, 2006 unless previously redeemed, will not pay interest before
maturity and will provide for payment of up to $57 million to holders at
maturity, substantially dependent on the results, particularly loss reserve
development, over time of RECO's previously written business included in the
merger. The notes may be settled in Chartwell common stock at the option of the
Company.

The transaction is subject to stockholder, bondholder, and regulatory
approval and certain other conditions and is expected to close in the fourth
quarter of 1995.

F-57

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses of the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions, all of which will be paid by Piedmont:

<TABLE>
<S> <C>
Registration fee............................................................ $345
Transfer and Registrar fees and expenses.................................... *
Trustee fees................................................................ *
Printing and engraving expenses............................................. *
Legal fees and expenses..................................................... *
Blue sky fees and expenses.................................................. *
Miscellaneous............................................................... *
----
TOTAL................................................................... $*
----
----
</TABLE>

- ------------

* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

(a) Section 145 of the DGCL empowers a corporation, subject to certain
limitations, to indemnify its directors and officers against actual and
reasonable expenses of defending litigation against them in their capacities as
directors and offices. As permitted in this Section, Article Tenth of the
Certificate of Incorporation of Piedmont provides that Piedmont shall indemnify
each person who was or is a director or officer of Piedmont who was or is made a
party to, or is involved in any threatened, pended or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director or officer of Piedmont or is
or was serving at the request of Piedmont as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to the fullest extent authorized or permitted by the DGCL. Nothing
contained in the Certificate of Incorporation shall affect or limit any rights
to indemnification to which directors, officers and employees may be entitled by
law under any By-law, agreement, vote of stockholders or disinterested directors
or otherwise.

Article VI of the By-laws of Piedmont provides that Piedmont shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director, officer, employee or agent of Piedmont or is or was serving at
the request of Piedmont as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the fullest extent and in the manner set forth and
permitted by the DGCL or any other applicable law, as from time to time in
effect. The By-laws provide that the foregoing indemnification shall not be
deemed exclusive of any other rights to which a person seeking indemnification
may be entitled under any By-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to actions in his official
capacity and as to actions in any other capacity while holding office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person.

II-1
<PAGE>
Under Article VI of the By-laws, Piedmont is authorized to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of Piedmont, or is or was serving at the request of Piedmont
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in such capacity, or arising out of his status as such,
whether or not Piedmont would have the power to indemnify him against liability
under the provision of the By-laws.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

None

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<C> <S>
2.1 --Agreement and Plan of Merger dated as of August 7, 1995, between Piedmont and
Chartwell. Incorporated by reference to Exhibit 2.1 to Chartwell's Registration
Statement on Form S-4 (File No. 33-97010).
2.2 --Form of Contribution and Distribution Agreement between Piedmont and a wholly owned
subsidiary of Piedmont. Incorporated by reference to Exhibit 2.2 to Chartwell's
Registration Statement on Form S-4 (File No. 33-97010).
3.1 --Certificate of Incorporation, including amendments, of Piedmont.
3.2 --By-laws of Piedmont.
3.3 --Restated Certificate of Incorporation of Chartwell. Incorporated by reference to
Exhibit 3.1 to Chartwell's Registration Statement on Form S-1 (File No. 33-75386).
3.4 --By-laws of Chartwell. Incorporated by reference to Exhibit 3.2 to Chartwell's
Registration Statement on Form S-1 (File No. 33-75386).
3.5 --Form of Restated Certificate of Incorporation of Chartwell. Incorporated by
reference to Exhibit 3.3 of Chartwell's Registration Statement on Form S-4 (File
No. 33-97010).
3.6 --Form of Amended and Restated By-laws of Chartwell. Incorporated by reference to
Exhibit 3.4 of Chartwell's Registration Statement on Form S-4 (File No. 33-97010).
4.1 --Form of CI Note (included in Exhibit 4.2).
4.2 --Form of Indenture between Piedmont and the trustee under the CI Notes.
4.3 --Form of First Supplemental Indenture among Piedmont, Chartwell and the trustee
under the CI Notes. Incorporated by reference to Exhibit J to Exhibit 2.1 to
Piedmont's Report on Form 8-K dated August 7, 1995.
5.1 --Opinion of Davis Polk & Wardwell as to the legality of the securities being
registered.
8.1 --Opinion of Davis Polk & Wardwell regarding certain tax matters.
10.1 --Form of Stockholders Agreement between Chartwell and the security holders named in
the schedule of holders attached thereto. Incorporated by reference to Exhibit F to
Exhibit 2.1 to Piedmont's Report on Form 8-K dated August 10, 1995.
10.2 --Form of Registration Rights Agreement between Chartwell and the security holders
named in the schedule of holders attached thereto. Incorporated by reference to
Exhibit I to Exhibit 2.1 to Piedmont's Report on Form 8-K dated August 10, 1995.
10.3 --1979 Stock Option Plan--Piedmont.
10.4 --1988 Piedmont Employee Stock Option Plan. Incorporated by reference to Piedmont's
Report on Form S-8 dated February 10, 1993.
10.4A --Amendment to 1979 and 1988 Stock Option Plan--Piedmont.
10.5 --Stock Option Plan of Chartwell. Incorporated by reference to Exhibit 10.14 to
Chartwell's Registration Statement on Form S-4 (File No. 33-97010).
10.6 --Piedmont Supplemental Benefits Plan. Incorporated by reference to Exhibit 10(c) to
Piedmont's Annual Report on Form 10-K for the year ended December 31, 1994.
10.6A --Executive Benefit Plan--Piedmont.
10.7 --Form of Tax Disaffiliation Agreement between Piedmont and a wholly owned subsidiary
of Piedmont.
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
10.8 --Employment Agreement between Chartwell and Richard E. Cole. Incorporated by
reference to Exhibit 10.19 to Chartwell's Registration Statement on Form S-1 (File
No. 33-75386).
10.9 --Employment Agreement between Chartwell and Steven J. Bensinger. Incorporated by
reference to Exhibit 10.20 to Chartwell's Registration Statement on Form S-1 (File
No. 33-75386).
10.10 --Employment Agreement between Chartwell and Jacques Q. Bonneau. Incorporated by
reference to Exhibit 10.21 to Chartwell's Registration Statement on Form S-1 (File
No. 33-75386).
10.11 --Employment Agreement between Chartwell and Michael H. Hayes. Incorporated by
reference to Exhibit 10.1 to Chartwell's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994.
10.12 --Form of Severance Compensation and Change in Control Agreement between Piedmont and
various Piedmont employees.
10.12A --Deferred Compensation Agreement between Piedmont and Robert M. DeMichele.
10.12B --Form of Stay Bonus Agreement between Piedmont and various Piedmont employees.
10.13 --Incentive Agreement with Jacques Q. Bonneau. Incorporated by reference to Exhibit
10.13 to Chartwell's Registration Statement on Form S-4 (File No. 33-97010).
10.14 --Holder Actuary Agreement.
10.15 --Credit Agreement between Piedmont and First Union National Bank of North Carolina,
dated December 29, 1994.
10.16 --Commitment Letter of Shawmut Bank Connecticut, N.A. to Chartwell. Incorporated by
reference to Exhibit 10.15 to Chartwell's Registration Statement on Form S-4 (File
No. 33-97010).
10.17 --Common Stock Purchase Warrant, dated March 6, 1992, issued by Chartwell to Wand
(Chartwell). Incorporated by reference to Exhibit 10.34 to Chartwell's Registration
Statement on Form S-1 (File No. 33-75386).
10.18 --Common Stock Purchase Warrant, dated December 31, 1992, issued by Chartwell to Wand
(Chartwell). Incorporated by reference as Exhibit 10.35 to Chartwell's Registration
Statement on Form S-1 (File No. 33-75386).
10.19 --Common Stock Purchase Warrant, dated December 31, 1992, issued by Chartwell to John
Sagan. Incorporated by reference to Exhibit 10.36 to Chartwell's Registration
Statement on Form S-1 (File No. 33-75386).
10.20 --Form of Common Stock Purchase Warrants, dated March 17, 1994, issued by Chartwell
to the holders of the Series A Stock, the Series B Stock and the Series C Stock.
Incorporated by reference to Exhibit 4.2 to Chartwell's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994.
10.21 --Form of Voting Agreement between Chartwell and certain persons holding or otherwise
having the power to vote certain of the shares of the Piedmont Common Stock and the
Piedmont Preferred Stock. Incorporated by reference to Chartwell's Registration
Statement on Form S-4 (File No. 33-97010).
10.22 --Form of Voting Agreement between Piedmont and certain persons holding or otherwise
having the power to vote certain of the shares of the Chartwell Common Stock.**
11.1 --Computation of Pro Forma Earnings per Share for the years ended December 31, 1994,
1993 and 1992--Piedmont. Incorporated by reference to Exhibit 11.2 to Chartwell's
Registration Statement on Form S-4 (File No. 33-97010).
11.2 --Computation of Pro Forma Earnings per Share for the quarters ended September 30,
1995 and 1994--Piedmont. Incorporated by reference to Exhibit 11.1 to Chartwell's
Registration Statement on Form S-4 File No. 33-97010).
11.3 --Computation of Pro Forma Earnings per Share for the years ended December 31, 1994,
1993 and 1992--Chartwell. Incorporated by reference to Exhibit 11.4 to Chartwell's
Registration Statement on Form S-4 File No. 33-97010).
11.4 --Computation of Pro Forma Earnings per Share for the quarters ended September 30,
1995 and 1994--Chartwell. Incorporated by reference to Exhibit 11.3 to Chartwell's
Registration Statement on Form S-4 File No. 33-97010).
12.1 --Statement setting forth the computation of the ratio of earnings to fixed charges--
Piedmont.**
21.1 --Subsidiaries of Piedmont. Incorporated by reference to Exhibit 22 to Piedmont's
Annual Report on Form 10-K for the year ended December 31, 1994.
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
21.2 --Subsidiaries of Chartwell. Incorporated by reference to Exhibit 21.1 to Chartwell's
Registration Statement on Form S-1 (File No. 33-75386).
23.1 --Consent of Davis Polk & Wardwell (included in Exhibit 5.1 and Exhibit 8.1).
23.2 --Consent of Deloitte & Touche LLP.
23.3 --Consent of Coopers & Lybrand L.L.P.
24.1 --Power of Attorney**
25.1 --Statement of Eligibility of Trustee on Form T-1.
28.1 --Annual Statement of Chartwell for December 31, 1994 as filed with the Department of
Commerce of the State of Minnesota. Incorporated by reference to Exhibit 28 to
Chartwell's Year End Report on Form 10-K for the year ended December 31, 1994.
28.2 --Schedule P of the Annual Statement of RECO for December 31, 1994 as filed with the
New York State Insurance Department. Incorporated by reference to Exhibit 28 to
Piedmont's Annual Report on Form 10-K for the year ended December 31, 1994.
</TABLE>

- ------------

** Previously filed.

(b) Financial Statement Schedules

<TABLE>
<S> <C>
PIEDMONT MANAGEMENT COMPANY INC.

Schedule I --Consolidated Summary of Investments other than Affiliates
Schedule II --Condensed Financial Information of Piedmont Statement of Operations--Parent
Company Only
Schedule II --Condensed Financial Information of Piedmont Condensed Balance Sheets-- Parent
Company Only
Schedule II --Condensed Financial Information of Piedmont Statements of Cash Flows-- Parent
Company Only
Schedule IV --Schedule of Reinsurance
Schedule VI --Supplementary Insurance Information Three Years Ended December 31, 1994

CHARTWELL RE CORPORATION
Schedule I --Summary of Investments-Other than Investments in Related Parties
Schedule II --Condensed Financial Information of Chartwell-Balance Sheet
Schedule II --Condensed Financial Information of Chartwell-Statement of Operations
Schedule II --Condensed Financial Information of Chartwell-Statement of Cash Flows
Schedule IV --Reinsurance
Schedule V --Valuation and Qualifying Accounts
Schedule VI --Supplemental Information Concerning Property/Casualty Insurance Operations
</TABLE>

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes that:

(1) For purposes 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 the time shall be deemed to be
the initial bona fide offering thereof.

(2) 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 provisions described in Item 14, 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 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 and will be governed by the final adjudication of such issue.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Piedmont
Management Company Inc. has duly caused this amendment to Registration Statement
No. 33-62919 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 9th day of
November, 1995.

PIEDMONT MANAGEMENT COMPANY INC.

By /s/ ROBERT M. DEMICHELE
...................................
Robert M. DeMichele
President and Chief Executive
Officer

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement No. 62919 has been signed by the following persons in
the capacities and on the dates indicated.

<TABLE><CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------------- ------------------

<S> <C> <C>
* Chairman of the Board of November 9, 1995
...................................... Directors
R. Randolph Richardson

* Vice Chairman of the Board of November 9, 1995
...................................... Directors
Stuart Smith Richardson

/s/ ROBERT M. DEMICHELE President & Director November 9, 1995
...................................... (Chief Executive Officer)
Robert M. DeMichele

* Senior Vice President November 9, 1995
...................................... (Principal Financial and
Peter J. Palenzona Accounting Officer)

* Director November 9, 1995
......................................
Sion A. Boney III

* Director November 9, 1995
......................................
Terence N. Deeks

* Director November 9, 1995
......................................
Haynes G. Griffin
</TABLE>

II-5
<PAGE>

<TABLE>
<S> <C> <C>
* Director November 9, 1995
......................................
William R. Miller

* Director November 9, 1995
......................................
L. Richardson Preyer

* Director November 9, 1995
......................................
Lunsford Richardson, Jr.

* Director November 9, 1995
......................................
Peter L. Richardson

* Director November 9, 1995
......................................
Carl H. Tiedemann

* Director November 9, 1995
......................................
Marion A. Woodbury

* /s/ ROBERT M. DEMICHELE
.....................................
By: Robert M.
DeMichele
Attorney-in-fact
</TABLE>

II-6
<PAGE>
INDEX TO SCHEDULES

<TABLE>
<S> <C>
PIEDMONT MANAGEMENT COMPANY

Schedule I--Consolidated Summary of Investments Other Than Affiliates................ S-2
Schedule II--Condensed Financial Information of Registrant Statement of Operations--
Parent Company Only................................................................ S-3
Schedule II--Condensed Financial Information of Registrant Condensed Balance
Sheets--Parent Company Only........................................................ S-4
Schedule II--Condensed Financial Information of Registrant Statements of Cash
Flows--Parent Company Only......................................................... S-5
Schedule IV--Schedule of Reinsurance................................................. S-6
Schedule VI--Supplementary Insurance Information Three Years Ended
December 31, 1994.................................................................. S-7

CHARTWELL RE CORPORATION
Schedule I--Summary of Investments--Other than Investments in Related Parties........ S-8
Schedule II--Condensed Financial Information of Registrant Balance Sheet............. S-9
Schedule II--Condensed Financial Information of Registrant Statement of Operations... S-10
Schedule II--Condensed Financial Information of Registrant Statement of Cash Flows... S-11
Schedule IV--Reinsurance............................................................. S-12
Schedule V--Valuation and Qualifying Accounts........................................ S-13
Schedule VI--Supplemental Information Concerning Property/Casualty Insurance
Operations......................................................................... S-14
</TABLE>
S-1
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
SCHEDULE I--CONSOLIDATED SUMMARY OF INVESTMENTS
OTHER THAN AFFILIATES
YEAR ENDED DECEMBER 31, 1994

<TABLE><CAPTION>
ACTUAL
(AMORTIZED) AMOUNT AT WHICH
TYPE OF INVESTMENT COST MARKET VALUE SHOWN IN BALANCE
- -------------------------------------------- ------------ ------------ ----------------
<S> <C> <C> <C>
Fixed Income Securities:

HELD TO MATURITY
U.S. Government........................... $ 6,853,705 $ 6,829,974 $ 6,853,705
States, territories and political
subdivisions............................ 1,909,609 1,938,379 1,909,609
Corporate................................. 50,000 50,000 50,000
------------ ------------ ----------------
Subtotal.............................. 8,813,314 8,818,353 8,813,314
------------ ------------ ----------------
AVAILABLE FOR SALE
U.S. Government........................... 97,484,085 88,830,920 88,830,920
States, territories and political
subdivisions............................ 23,505,112 22,823,908 22,823,908
Canadian Government....................... 14,060,118 13,201,300 13,201,300
Corporate................................. 80,337,347 75,173,263 75,173,263
Public Utilities.......................... 5,076,030 4,751,981 4,751,981
Mortgage-backed........................... 25,228,680 23,629,198 23,629,198
Other..................................... 16,634,253 15,925,174 15,925,174
------------ ------------ ----------------
Subtotal.............................. 262,325,625 244,335,744 244,335,744
------------ ------------ ----------------
Total fixed income securities......... 271,138,939 253,154,097 253,149,058
------------ ------------ ----------------
EQUITY SECURITIES:
Public utilities.......................... 39,638 36,063 36,063
Banks, trusts and insurance companies..... 22,483,427 18,733,150 18,733,150
Industrial and miscellaneous.............. 40,162,384 43,724,189 43,724,189
Non-redeemable preferred stock............ 4,528,981 4,173,362 4,173,362
------------ ------------ ----------------
Total equity securities............... 67,214,430 66,666,764 66,666,764
------------ ------------ ----------------
Short term investments...................... 51,703,561 51,996,247 51,703,561
------------ ------------ ----------------
Total investments..................... $390,056,930 $371,817,108 $371,519,383
------------ ------------ ----------------
------------ ------------ ----------------
</TABLE>

S-2
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS--PARENT COMPANY ONLY
THREE YEARS ENDED DECEMBER 31, 1994

<TABLE><CAPTION>
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Investment and other income...................... $ 917,870 $ 695,131 $ 521,995
Realized capital gains........................... 368,215 20,331 1,400,069
Equity in net earnings of investee............... -- 2,027,091 1,092,964
Corporate expenses, including interest........... 2,288,460 2,013,596 2,321,753
----------- ----------- ------------
Income (loss) before income tax (expense)
benefit, equity in net income (loss) of
subsidiaries and cumulative effect of change
in accounting principle...................... (1,002,375) 728,957 693,275
Income tax (expense) benefit..................... (15,190) (424,195) 1,319,489
----------- ----------- ------------
(1,017,565) 304,762 2,012,764
Equity in net income (loss) of subsidiaries
(dividends received aggregated $1,752,000,
$1,500,000 and $1,870,000)..................... (2,200,210) 11,431,581 (14,372,189)
----------- ----------- ------------
Income (loss) before cumulative effect of change
in accounting principle........................ (3,217,775) 11,736,343 (12,359,425)
Cumulative effect of change in method of
accounting for income taxes.................... -- 6,937,545 --
----------- ----------- ------------
Net income (loss)................................ $(3,217,775) $18,673,888 $(12,359,425)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ELSEWHERE HEREIN.

S-3
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS--PARENT COMPANY ONLY
DECEMBER 31, 1994 AND 1993

<TABLE><CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Investments in subsidiaries.................................. $115,285,765 $104,815,302
Fixed income securities, at amortized cost (market: $-- and
$4,028,760)................................................ -- 4,000,000
Equity securities, at market (cost: $8,776,062 and
$166,330).................................................. 6,543,095 466,088
Investment in investee company (equity basis)................ -- 10,052,713
Short-term investments, at cost.............................. 57,294 3,755,999
Cash......................................................... 1,748,886 47,072
Other assets................................................. 10,543,392 16,483,671
------------ ------------
Total assets............................................... $134,178,432 $139,620,845
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Loan payable................................................. $ 20,000,000 $ 9,800,000
Accrued taxes and expenses................................... 232,177 225,719
Other liabilities............................................ 11,465,716 4,635,028
------------ ------------
Total liabilities.......................................... 31,697,893 14,660,747
------------ ------------
Preferred stock.............................................. 245,068 245,735
Common stock................................................. 2,625,269 2,605,127
Paid in capital.............................................. 28,007,604 27,632,122
Unrealized appreciation (depreciation) of investments and
foreign translation adjustments, net of deferred income
taxes...................................................... (13,929,580) 5,534,748
Retained earnings............................................ 87,254,678 90,664,866
Less cost of treasury stock.................................. (1,722,500) (1,722,500)
------------ ------------
Total stockholders' equity............................. 102,480,539 124,960,098
------------ ------------
Total liabilities and stockholders' equity............. $134,178,432 $139,620,845
------------ ------------
------------ ------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ELSEWHERE HEREIN.

S-4
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS--PARENT COMPANY ONLY
THREE YEARS ENDED DECEMBER 31, 1994

<TABLE><CAPTION>
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $(3,217,775) $ 18,673,888 $(12,359,425)
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Cumulative effect of accounting change...... -- (6,937,545) --
Realized capital gains...................... (368,215) (20,331) (1,400,069)
Equity in net (income) loss of
subsidiaries.............................. 2,200,210 (11,431,581) 14,372,189
Equity in net earnings of investee.......... -- (2,027,091) (1,092,964)
Accrued taxes and expenses.................. 6,458 (5,709) 69,511
Other items, net............................ 321,547 169,472 680,843
----------- ------------ ------------
Total cash flows from operating activities.... (1,057,775) (1,578,897) 270,085
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Held-to-Maturity securities...... -- -- (4,000,000)
Maturities of Held-to-Maturity securities..... 4,000,000
Net (purchases) sales of Equity securities.... 440,925 (21,315) 2,506,170
Net sales/maturities of Short-term
investments................................. 3,698,705 2,018,646 1,441,317
Capital contribution to subsidiary............ (17,500,000) -- (45,000)
Advances to majority owned companies.......... (227,000) (30,000) --
----------- ------------ ------------
Total cash flows from investing activities.... (9,587,370) 1,967,331 (97,513)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends received from subsidiaries.......... 1,752,000 1,500,000 1,870,000
Proceeds from exercise of stock options....... 394,959 126,873 58,125
Proceeds from borrowings...................... 20,000,000 -- --
Repayment of loan............................. (9,800,000) (2,100,000) (2,100,000)
----------- ------------ ------------
Total cash flows from financing activities.... 12,346,959 (473,127) (171,875)
Net increase (decrease) in cash................. 1,701,814 (84,693) 697
Cash balance, beginning of year................. 47,072 131,765 131,068
----------- ------------ ------------
Cash balance, end of year....................... $ 1,748,886 $ 47,072 $ 131,765
----------- ------------ ------------
----------- ------------ ------------
</TABLE>

NOTE:

During 1993 the parent company executed a $10 million non-cash contribution to
the capital of RECO in the form of equity securities.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ELSEWHERE HEREIN.

S-5
<PAGE>

PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
THE REINSURANCE CORPORATION OF NEW YORK
SCHEDULE IV--SCHEDULE OF REINSURANCE

<TABLE>
<CAPTION>
PERCENTAGE OF
DIRECT EARNED EARNED NET EARNED
PREMIUMS PREMIUMS PREMIUMS PREMIUMS PREMIUMS
EARNED ASSUMED CEDED EARNED ASSUMED TO NET
----------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
1994............. $85,493,657 $133,708,058 $89,829,998 $129,371,717 103.4%
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
1993............. $78,177,837 $125,799,048 $90,273,081 $113,703,804 110.6%
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
1992............. $62,921,443 $140,485,501 $86,417,745 $116,989,199 120.1%
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>

S-6
<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.
AND SUBSIDIARIES
THE REINSURANCE CORPORATION OF NEW YORK
SCHEDULE VI--SUPPLEMENTARY INSURANCE INFORMATION
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE><CAPTION>
LOSSES AND AMORTIZATION
DEFERRED OUTSTANDING LOSS EXPENSES INCURRED OF DEFERRED
POLICY LOSSES AND NET ------------------------- POLICY PAID LOSSES
ACQUISITION LOSS UNEARNED PREMIUMS INVESTMENT RELATED TO RELATED TO ACQUISITION AND LOSS
COSTS EXPENSES PREMIUMS EARNED INCOME CURRENT YEAR PRIOR YEARS COSTS COSTS
----------- ------------ ----------- ------------ ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994..... $10,896,632 $461,533,490 $73,839,992 $129,371,717 $18,397,686 $104,589,334 $ 9,135,653 $24,383,828 $107,948,885
1993..... $ 7,580,350 $433,810,307 $61,212,093 $113,703,804 $17,004,922 $ 76,264,729 $12,543,833 $21,533,945 $ 90,906,071
1992..... $ 8,847,680 $447,766,765 $59,856,392 $116,989,199 $17,918,340 $ 93,750,044 $13,796,966 $31,706,470 $ 94,162,863

OTHER
OPERATING PREMIUMS
EXPENSES EXPENSES
----------- ------------
<S> <C> <C>
1994..... $19,415,225 $142,034,922
1993..... $14,167,129 $112,239,812
1992..... $13,943,910 $115,346,119
</TABLE>

-------------------
NOTES:

(1) Reserves attributable to Continental National Corporation are not
included as such amounts are less than 5% of the consolidated total.

S-7
<PAGE>
CHARTWELL RE CORPORATION
SCHEDULE I--SUMMARY OF INVESTMENTS--
OTHER THAN INVESTMENTS IN RELATED PARTIES
AT DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE><CAPTION>
COLUMN D
--------------
AMOUNT AT
COLUMN B COLUMN C WHICH SHOWN IN
-------- -------- THE BALANCE
COLUMN A COST VALUE SHEET
- ------------------------------------------------------ -------- -------- --------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
United States Government and government agencies
and authorities(1).............................. $152,965 $143,450 $143,935
States, municipalities and political
subdivisions(1)................................. 22,424 22,125 22,124
Foreign governments............................... 4,520 4,049 4,049
Public utilities..................................
Convertibles and bonds with warrants attached.....
All other corporate bonds......................... 70,998 67,745 67,745
Certificates of deposit.............................
Redeemable preferred stock..........................
-------- -------- --------------
Total fixed maturities........................ 250,907 237,369 237,853
-------- -------- --------------
Equity Securities:
Common stocks
Public utilities..................................
Banks, trust and insurance companies.............. 59 67 67
Industrial, miscellaneous and all other...........
Non-redeemable preferred stocks...................
-------- -------- --------------
Total equity securities....................... 59 67 67
-------- -------- --------------
Mortgage loans on real estate......................... 211 211 211
Real estate...........................................
Policy loans..........................................
Other long-term investments...........................
Short-term investments................................
-------- -------- --------------
Total investments............................. $251,177 $237,647 $238,131
-------- -------- --------------
-------- -------- --------------
</TABLE>

- ------------

(1) Balance sheet value differs from column B and C because category includes a
combination of securities "Held for Investment" and "Available for Sale".
See Notes 2b and 3 of the audited financial statements.

S-8
<PAGE>
CHARTWELL RE CORPORATION
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
(IN THOUSANDS)
<TABLE><CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS:
Investment in and receivable/payable from/to subsidiaries............ $110,545 $ 87,738
Cash and cash equivalents............................................ 10,508 7,184
Other assets......................................................... 13,199 5,249
-------- --------
$134,252 $100,171
-------- --------
-------- --------
LIABILITIES:
Senior Notes......................................................... $ 75,000
Senior term loan..................................................... $ 25,900
Subordinated debentures.............................................. 18,190
Other liabilities.................................................... 2,913 2,360
-------- --------
Total liabilities............................................ 77,913 46,450
-------- --------
REDEEMABLE PREFERRED STOCK:
Series A Preferred stock, par value $0.01 per share; authorized
18,000 shares; issued and outstanding 16,100 (aggregate liquidation
value $16,100,000)................................................. 15,771
Series B Preferred stock, par value $0.01 per share; authorized 5,000
shares; issued and outstanding 3,500 (aggregate liquidation value
$3,500,000......................................................... 3,386
Series C Preferred stock, par value $0.01 per share; authorized
1,000,000 shares; issued and outstanding 607,256 (stated at
aggregate liquidation value)....................................... 6
--------
Total redeemable preferred stock............................. 19,163
--------
COMMON STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per share; authorized 6,000,000 shares;
shares issued and outstanding 3,755,312 and 1,998,688 in 1994 and
1993 respectively.................................................. 38 20
Additional paid-in capital........................................... 77,254 41,232
Net unrealized appreciation (depreciation) of investments............ (8,608) 697
Foreign currency translation adjustment.............................. 14 (10)
Accumulated deficit.................................................. (12,359) (7,381)
-------- --------
Total common stockholders' equity............................ 56,339 34,558
-------- --------
$134,252 $100,171
-------- --------
-------- --------
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and the accompanying notes thereto.

S-9
<PAGE>
CHARTWELL RE CORPORATION
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
REVENUES:
Dividends from subsidiary...................................... $ 400 $ 2,290
Net investment income.......................................... $ 808 209 35
Other income................................................... 10 8 44
Realized gains (losses)........................................ (299)
------- ------- -------
Total revenues........................................... 519 617 2,369
------- ------- -------
EXPENSES:
Interest & amoritization....................................... 7,379 4,708 3,591
General expenses............................................... 2 2,262 (227)
------- ------- -------
Total expenses........................................... 7,381 6,970 3,364
------- ------- -------
Income (loss) before federal income taxes, equity in earnings
of subsidiaries and extraordinary item....................... (6,862) (6,353) (995)
------- ------- -------
Federal Income taxes:
Current...................................................... 66 (2,278) (722)
Deferred..................................................... (2,120) (2) (97)
------- ------- -------
Total income tax benefit................................. (2,054) (2,280) (819)
------- ------- -------
Loss before equity in net income (loss) of subsidiaries and
extraordinary item........................................... (4,808) (4,073) (176)
Equity in undistributed (loss) income of subsidiary ........... 1,373 8,570 (9,145)
------- ------- -------
Income (loss) before extraordinary item........................ (3,435) 4,497 (9,321)
Extraordinary item, net of tax................................. 465
------- ------- -------
Net income (loss).............................................. $(3,900) $ 4,497 $(9,321)
------- ------- -------
------- ------- -------
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and the accompanying notes thereto.

S-10
<PAGE>
CHARTWELL RE CORPORATION
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE><CAPTION>
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (3,900) $ 4,497 $ (9,321)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Equity in undistributed (income) loss of subsidiary..... (1,373) (8,570) 9,145
Other assets, liabilities, and income taxes, net........ 1,296 2,960 (2,866)
Conversion incentive charged to net income.............. 753
Net realized capital gains/losses....................... 299
Deferred income taxes................................... (892)
-------- ------- --------
Net cash (used in) operating activities............... (3,817) (1,113) (3,042)
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution to subsidiary.......................... (30,000) (231) (21,436)
Proceeds of investments sold................................ 11,691
Cost of investments acquired................................ (18,161)
-------- ------- --------
Net cash used in investing activities................. (36,470) (231) (21,436)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayment.............................................. (25,900) (1,600) (7,500)
Proceeds from issuance of stock and debt.................... 43,015
Net Proceeds from Senior Notes Offering..................... 71,934
Series C Preferred Stock redeemed........................... (6)
Conversion incentive........................................ (1,537)
Dividends paid.............................................. (828)
Other....................................................... 7
Preferred dividends paid.................................... (989) (794)
Retirement of common stock.................................. (83)
-------- ------- --------
Net cash provided by (used in) financing activities... 43,587 (2,589) 34,721
-------- ------- --------
Effect of exchange rate on cash............................. 24
-------- ------- --------
Increase (decrease) in cash and cash equivalents............ 3,324 (3,933) 10,243
Cash and cash equivalents, beginning of year................ 7,184 11,117 874
-------- ------- --------
Cash and cash equivalents, end of year...................... $ 10,508 $ 7,184 $ 11,117
-------- ------- --------
-------- ------- --------
</TABLE>

The condensed financial statements should be read in conjunction with the
consolidated financial statements and the accompanying notes thereto.

S-11
<PAGE>
CHARTWELL RE CORPORATION
SCHEDULE IV--REINSURANCE
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)

<TABLE><CAPTION>
COLUMN D COLUMN F
COLUMN C --------- ----------
COLUMN B --------- ASSUMED COLUMN E PERCENTAGE
-------- CEDED TO FROM -------- OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
COLUMN A AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- ------------------------------------ -------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
1994
Premiums earned:
Property and casualty insurance... $0 $ 2,500 $ 105,198 $102,698 102.4%
-- --------- --------- -------- ----------

Total premiums................ $0 $ 2,500 $ 105,198 $102,698 102.4%
-- --------- --------- -------- ----------
-- --------- --------- -------- ----------
1993
Premiums earned:
Property and casualty insurance... $0 $ 689 $ 69,105 $ 68,416 101.0%
-- --------- --------- -------- ----------
Total premiums................ $0 $ 689 $ 69,105 $ 68,416 101.0%
-- --------- --------- -------- ----------
-- --------- --------- -------- ----------
1992
Premiums earned:
Property and casualty insurance... $0 $ 2,658 $ 39,584 $ 36,926 107.2%
-- --------- --------- -------- ----------
Total premiums.............. $0 $ 2,658 $ 39,584 $ 36,926 107.2%
-- --------- --------- -------- ----------
-- --------- --------- -------- ----------
</TABLE>

S-12
<PAGE>
CHARTWELL RE CORPORATION
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)

<TABLE><CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------- ------------ ------------------------ ----------- ----------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER DEDUCTIONS-- END OF
PERIOD EXPENSES ACCOUNTS DESCRIBE PERIOD
------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Reinsurance recoverable:
Allowance for Uncollectible
Reinsurance (1)................. $2,767 $ 118 $2,649
Deposits:
FASB 113 Valuation Allowance(2) $1,802 $ 300 $1,502
Year Ended December 31, 1993:
Reinsurance recoverable:
Allowance for Uncollectible
Reinsurance (1)................. $2,631 $ 136 $2,767
Deposits:
FASB 113 Valuation
Allowance....................... $1,784 $ 18 $1,802
Year Ended December 31, 1992:
Reinsurance recoverable:
Allowance for Uncollectible
Reinsurance (1)................. $2,945 $ 314 $2,631
Deposits:
FASB 113 Valuation
Allowance....................... $1,784 $1,784
</TABLE>

- ------------

(1) The Company has a reinsurance agreement which protects the Company from
uncollectible reinsurance balances. Uncollectible amounts have been ceded to
said contract and are reflected as a reinsurance recoverable in the balance
sheet. Deductions to reserve represent subsequent collections of amounts
deemed uncollectible.

(2) Decrease in FASB 113 Valuation Allowance relates to a contract which was
commuted in 1994.

S-13
<PAGE>
CHARTWELL RE CORPORATION
SCHEDULE VI--SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE><CAPTION>
COLUMN H
---------------
CLAIMS AND
COLUMN C CLAIM
----------- ADJUSTMENT COLUMN I COLUMN J
COLUMN B RESERVES COLUMN D EXPENSES ------------ ----------
COLUMN A ----------- FOR UNPAID ----------- COLUMN G INCURRED AMORTIZATION PAID
- ---------- DEFERRED CLAIM AND DISCOUNT COLUMN E COLUMN F ---------- RELATED TO OF DEFERRED CLAIMS AND
AFFILIATION POLICY CLAIM IF ANY, -------- -------- NET --------------- POLICY CLAIM
WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED EARNED INVESTMENT CURRENT PRIOR ACQUISITION ADJUSTMENT
REGISTRANT COSTS EXPENSES(1) COLUMN C PREMIUMS PREMIUMS INCOME YEAR YEAR COSTS EXPENSES
- ---------- ----------- ----------- ----------- -------- -------- ---------- ------- ----- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years
Ended:
December
31,
1994.. $ 5,607 232,733 23,880 102,698 14,726 76,730 1,847 24,295 48,671
December
31,
1993.. $ 2,627 201,013 11,380 68,416 10,959 48,929 (189) 15,398 34,712
December
31,
1992.. $ 1,763 189,386 9,044 36,926 11,206 43,473 634 7,695 17,032

<CAPTION>
COLUMN A COLUMN K
- ---------- --------
AFFILIATIO OTHER NET
WITH OPERATING PREMIUMS
REGISTRANT EXPENSES WRITTEN
- ---------- --------- --------
<S> <C> <C>
Years
Ended:
December
31,
1994.. 10,178 $113,962
December
31,
1993.. 10,238 $ 69,827
December
31,
1992.. 8,160 $ 39,622
</TABLE>

- ------------
(1) The Company adopted SFAS No. 113 which, among other things, requires the
Company to record its reserves for unpaid losses and LAE without reduction
for amounts that would be recovered from retrocessionaires. The amount
recoverable from retrocessionaires is recorded as an asset on the Company's
balance sheet. The net of such asset and the reserves for loss and LAE is
$197.3 million, $167.4 million and $153.4 million at December 31, 1994, 1993
and 1992, respectively.

S-14

<PAGE>

INDEX TO EXHIBITS
-----------------

<PAGE>

- ------------

** Previously filed.

Exhibit 3.1

CERTIFICATE OF INCORPORATION

PIEDMONT MANAGEMENT COMPANY INC.

I, the undersigned, in order to form a corporation for

the purposes hereinafter stated, under and pursuant to the

provisions of the General Corporation Law of the State of

Delaware, being Title 8 Chapter 1 of the Delaware Code of 1953,

and the Acts amendatory thereof and supplementary thereto, do

hereby certify as follows:

FIRST: The name of the corporation is Piedmont
-----

Management Company Inc. (hereinafter called the "Corporation").

SECOND: The location of the registered office of the
------

Corporation in the State of Delaware is No. 100 West Tenth

Street, in the City of Wilmington, County of New Castle. The

name of its registered agent at that address is The Corporation

Trust Company.

THIRD: The purpose of the Corporation is to engage in
-----

any lawful act or activity for which corporations may be

organized under the General Corporation Law of Delaware.

FOURTH: The total number of shares of stock which the
------

Corporation shall have authority to issue is one thousand shares

of common stock of the par value of $1 per share.

<PAGE>

FIFTH: The name and address of the incorporator is as
-----

follows:

Name Address
---- -------

Frederick J. C. Butler 406 West 20th Street
New York, New York 10011

SIXTH: The powers of the incorporator shall terminate
-----

upon the filing of this Certificate of Incorporation. The names

and addresses of the persons who are to serve as directors of the

Corporation until the first annual meeting of stockholders or

until their successors are elected and qualify are set forth

below in accordance with Section 102(a)(6) of the General

Corporation Law of Delaware:

Name Address
---- -------

Frederick J.C. Butler 406 West 20th Street
New York, New York 10011
Richard E. Clark 18 Cranberry Street
Brooklyn, New York 11201
Morton Fearey 174 East 80th Street
New York, New York 10021

SEVENTH: In furtherance and not in limitation of the
-------

powers conferred by law, the Board of Directors of the

Corporation is expressly authorized:

(a) To make, alter, amend or repeal the By-Laws of the

Corporation.

(b) To direct and determine the use and disposition of

net profits or net assets in excess of capital; to set apart out

of any of the funds of the Corporation available for dividends a

reserve or reserves for any proper

<PAGE>

purpose; and to abolish any such reserve in the manner in which

it was created.

retirement or other types of incentive or compensation plans for

the employees (including officers and directors) of the

Corporation and to fix the amount of the profits to be

distributed or shared and to determine the persons to participate

in any such plans and the amounts of their respective

participations.

(d) From time to time to determine whether and to what

extent, and at what time and places and under what conditions and

regulations, the accounts and books of the Corporation (other

than the stock ledger), or any of them, shall be open to the

inspection of the stockholders; and no stockholder shall have any

right to inspect any account or book or document of the

Corporation, except as conferred by statute or authorized by the

Board of Directors or by a resolution of the stockholders.

(e) To authorize, and cause to be executed, mortgages

and liens upon the real and personal property of the Corporation.

EIGHTH: Whenever the vote of stockholders at a meeting
------

thereof is required or permitted to be taken for or in connection

with any corporate action by any provision of the General

Corporation Law of Delaware, the meeting and

<PAGE>

vote of stockholders may be dispensed with if the holders of

stock having not less than the minimum percentage of the vote

required by statute for the proposed corporate action shall

consent in writing to such corporate action being taken, provided

that prompt notice must be given to all stockholders of the

taking of such corporate action without a meeting and by less

than unanimous written consent.

NINTH: The Corporation reserves the right to amend,
-----

alter, change or repeal any provision contained in this

Certificate of Incorporation in the manner now or hereafter

prescribed by law, and all rights and powers conferred herein on

stockholders and directors are subject to this reserved power.

IN WITNESS WHEREOF, I have hereunto set my hand and seal,

the 5th day of March, 1968.

/s/ Frederick J. C. Butler (SEAL)
---------------------------

<PAGE>

STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )

FREDERICK J.C. BUTLER, being duly sworn, says:

That he is the person described in and who executed the

foregoing Certificate of Incorporation under Section 102 of the

General Corporation Law of Delaware and that it is his act and

deed and that the facts stated therein are true.

/s/ Frederick J.C. Butler
--------------------------
Frederick J.C. Butler

Subscribed and sworn to before
me this 5th day of March, 1968.

/s/ Andrew J. Cusak
-------------------------------

<PAGE>

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

PIEDMONT MANAGEMENT COMPANY INC.

_______

Pursuant to Section 241 of the General
Corporation Law of the State of Delaware

_______

We, the undersigned, Huger S. King and Robert W.

Middlebrook, being respectively President and Secretary of

Piedmont Management Company Inc., a corporation organized and

existing under the laws of the State of Delaware (the

"Corporation"), HEREBY CERTIFY as follows:

FIRST: That Article Fourth of the Certificate of

Incorporation is hereby amended in its entirety to read as

follows:

FOURTH: That total number of shares of all classes of
------

stock which the Corporation shall have authority to issue is

8,000,000 shares, of which 2,000,000 shares shall be Cumulative

Preferred Stock with a par value of $1 per share (the "Cumulative

Preferred Stock") and 6,000,000 shares shall be Common Stock with

a par value of $1 per share (the "Common Stock").

<PAGE>

SECTION A. PROVISIONS RELATING TO ALL SHARES OF

CUMULATIVE PREFERRED STOCK.

1. The Cumulative Preferred Stock may be issued, from

time to time, in one or more series, each of such series to have

such designations, preferences and relative, participating,

optional or other special rights, and qualifications, limitations

or restrictions thereof as are stated and expressed herein and in

the resolution or resolutions providing for the issue of such

series adopted by the Board of Directors of the Corporation as

hereinafter provided and as are not inconsistent herewith.

2. Authority is hereby expressly vested in and granted to

the Board of Directors of the Corporation, subject to the

provisions of this paragraph 2, to authorize the issue of one or

more series of Cumulative Preferred Stock and with respect to

each such series to fix, by resolution or resolutions providing

for the issue of such series, the following:

(a) the number of shares to constitute such series and

the distinctive designation thereof; provided, however, that,

unless

<PAGE>

otherwise stated in any such resolution or resolutions, such

number of shares may be decreased by the Board of Directors of

the Corporation in connection with any classification or

reclassification of unissued shares of Cumulative Preferred

Stock and such number of shares may be increased by the Board

of Directors of the Corporation in connection with any

classification of unissued shares of Cumulative Preferred

Stock.

(b) the annual dividend rate on the shares of such

series, the date or dates from which dividend shall accumulate

as herein provided and the date or dates on which dividends,

if declared, shall be payable.

redeemable, the limitations and restrictions with respect to

such redemptions and the amount, if any, in addition to any

accrued and unpaid dividends thereon which the holders of

shares of such series shall be entitled to receive upon the

redemption thereof, which amount may vary at different

redemption dates and may be different

<PAGE>

with respect to shares redeemed through the operation of any

purchase, retirement or sinking fund than with respect to

shares otherwise redeemed.

(d) the amount, if any, in addition to any accrued and

unpaid dividends thereon which the holders of shares of such

series shall be entitled to receive upon the liquidation,

dissolution or winding up of the Corporation, which amount may

vary depending on whether such liquidation, dissolution or

winding up is voluntary or involuntary and, if voluntary, may

vary at different dates.

(e) whether or not the shares of such series shall be

subject to the operation of a purchase, retirement or sinking

fund and, if so, the extent to and manner in which such

purchase, retirement or sinking fund shall be applied to the

purchase or redemption of the shares of such series for

retirement or to other corporate purposes and the terms and

provisions relative to the operation of the said fund or

funds.

(f) whether or not the shares of such series shall be

convertible into or exchangeable

<PAGE>

for shares of stock of any other class or classes, or of any

other series of the same class, and if so convertible or

exchangeable the price or prices or the rate or rates of

conversion or exchange and the method, if any, of adjusting

the same.

(g) the limitations and restrictions, if any, to be

effective while any shares of such series are outstanding upon

the payment of dividends or making of other distributions on,

and upon the purchase, redemption or other acquisition by the

Corporation or by any subsidiary of, the Common Stock or any

other class or classes of stock of the Corporation ranking on

a parity with or junior to the shares of such series either as

to dividends or upon liquidation.

(h) the conditions or restrictions, if any, upon the creation

of indebtedness of the Corporation or of any subsidiary or upon

the issue of any additional stock (including additional shares of

such series or of any other series or of any other class) ranking

on a parity with or prior to the shares of such

<PAGE>

series either as to dividends or upon liquidation.

(i) the voting powers, if any, of such series.

(j) any other preferences and relative, participating,

optional or other special rights, or qualifications,

limitations or restrictions thereof, as shall not be

inconsistent with this Article Fourth.

3. All shares of any one series of Cumulative Preferred

Stock shall be identical with each other in all respects, except

that shares of any one series issued at different times may

differ as to the dates from which dividends thereon shall be

cumulative; and all series shall rank equally and be identical in

all respects, except as permitted by the foregoing provisions of

paragraph 2 of the Section A.

4. Before any dividends (other than dividends payable in

shares of any class or classes of stock of the Corporation

ranking junior to the Cumulative Preferred Stock both as to

dividends and upon liquidation) on any class or classes of stock

of the Corporation

<PAGE>

ranking junior to the Cumulative Preferred Stock as to dividends

or upon liquidation shall be declared or paid or set apart for

payment, the holders of shares of Cumulative Preferred Stock of

each series shall be entitled to receive cash dividends, but only

when and as declared by the Board of Directors of the

Corporation, at the annual rate, and no more, fixed in the

resolution or resolutions adopted by the Board of Directors of

the Corporation providing for the issue of such series, payable

in each year on such date or dates as may be fixed in such

resolution or resolutions, to holders of record on such

respective date or dates as may be determined by the Board of

Directors of the Corporation in advance of the payment of each

particular dividend. With resect to each series of Cumulative

Preferred Stock such dividends shall be cumulative from the date

or dates fixed in the resolution or resolutions adopted by the

Board of Directors of the Corporation providing for the issue of

such series. No dividends shall be declared or paid or set apart

for payment on any series of Cumulative Preferred Stock in

respect of any dividend period (for the purposes of this Section

A the term "dividend period" shall mean the period between any

two consecutive dividend payment dates or, in connection with the

original issuance of shares,

<PAGE>

the period from the date from which dividends are cumulative to

the first dividend payment date) unless there shall likewise have

been declared or paid or set apart for payment on all shares of

Cumulative Preferred Stock of each other series at the time

outstanding like dividends for all dividend periods coinciding

with or ending before such dividend period, ratably in proportion

to the respective annual dividend rates fixed therefor as

hereinbefore provided. Accruals of dividends shall not bear

interest.

5. In the event of any liquidation, dissolution or winding

up of the Corporation, whether voluntary or involuntary, before

any payment or distribution of the assets of the Corporation

shall be made to or set apart for the holders of any class or

classes of stock of the Corporation ranking junior to the

Cumulative Preferred Stock upon liquidation, the holders of

shares of Cumulative Preferred Stock shall be entitled to receive

the amount payable on liquidation for such series as fixed in the

resolution or resolutions adopted by the Board of Directors of

the Corporation providing for the issue of such series, plus an

amount equal; to all dividends (whether or not earned or

declared) accrued and unpaid to the date of final distribution to

<PAGE>

Cumulative Preferred Stock, the Corporation, at the option of the

Board of Directors of the Corporation, may, except as provided in

paragraph 10 of this Section A, redeem at any time the whole or

from time to time any part of the Cumulative Preferred Stock of

any series at the time outstanding, at the redemption price or

prices stated in said resolution or resolutions, plus in every

case an amount equal to all accrued and unpaid dividends with

respect to each share so to be redeemed (the total sum so payable

on any such redemption being referred to in this Section A as the

"redemption price"). Notice of every such redemption shall be

mailed at least 30 days in advance of the date designated for

such redemption (the date designated for such redemption being

referred to in this Section A as the "redemption date") to the

holders of record of shares of Cumulative Preferred Stock so to

be redeemed at their respective addresses as the same shall

appear on the books of the Corporation. In order to facilitate

the redemption of any shares of Cumulative Preferred Stock that

may be chosen for redemption as provided in this paragraph 6, the

Board of Directors of the Corporation shall be authorized to

cause the transfer books of the Corporation to be closed as to

such shares at any time not exceeding sixty days prior to the

redemption date. In case of the redemption of a part only of any

series of Cumulative Preferred

<PAGE>

Stock at the time outstanding, the shares of such series so to be

redeemed shall be selected by lot or in such other manner as the

Board of Directors of the Corporation may determine.

7. If notice of redemption shall have been given as provided

in paragraph 6 of this Section A and if, on or before the

redemption date, the funds necessary for such redemption shall

have been set aside by the Corporation, separate and apart from

its other funds, in trust for the pro rata benefit of the holders

of the shares so called for redemption, then, from and after the

redemption date, notwithstanding that any certificates for shares

of Cumulative Preferred Stock so called for redemption shall not

have been surrendered for cancellation, the shares represented

thereby shall not be deemed to be outstanding, the right to

receive dividends thereon shall cease to accrue and all rights of

holders of the shares of Cumulative Preferred Stock so called for

redemption shall cease and terminate, excepting only the right to

receive the redemption price therefor, but without interest. Any

moneys so set aside by the Corporation and unclaimed at the end

of six years from the redemption date shall revert to the general

funds of the Corporation after which reversion the holders of

such shares so called for redemption shall look only to the

Corporation for payment of the redemption price, and such shares

shall still not be deemed to be outstanding.

<PAGE>

8. If notice of redemption shall have been given as

provided in paragraph 6 of this Section A and if, on or before

the redemption date, the Corporation shall deposit in trust, with

a bank or trust company in the Borough of Manhattan, The City of

New York, having a capital and surplus of at least $5,000,000,

the funds necessary for the redemption of the shares of

Cumulative Preferred Stock so called for redemption, to be

applied to the redemption of such shares, then, from and after

the date of such deposit, all shares of Cumulative Preferred

Stock so called for redemption shall not be deemed to be

outstanding and all rights of the holders of such shares of

Cumulative Preferred Stock shall cease and terminate, excepting

only the right to receive the redemption price therefor, but

without interest, and the right to exercise on or before the

redemption date any right of conversion or exchange not

theretofore otherwise expiring. Any funds so deposited which

shall not be required for such redemption because of the exercise

of any such right of conversion or exchange subsequent to the

date of such deposit shall be returned to the Corporation. In

case the holders of shares of Cumulative Preferred Stock which

shall have been called for redemption shall not, within one year

after the redemption date, claim the amount deposited with

respect to the redemption thereof, any such bank or trust company

shall, upon demand, pay over to the

<PAGE>

Corporation such unclaimed amounts and thereupon such bank or

trust company shall be relieved of all responsibility in respect

thereof to such holder and such holder shall look only to the

Corporation for the payment thereof. Any interest accrued on

funds so deposited shall be paid to the Corporation from time to

time. Any such unclaimed amounts paid over by any such bank or

trust company to the Corporation shall, for a period terminating

six years after the redemption date, be set aside by the

Corporation in the manner and with the same effect as if such

unclaimed amounts had been set aside under paragraph 7 of this

Section A.

9. Shares of Cumulative Preferred Stock which have been

issued and reacquired in any manner by the Corporation

(excluding, until the Corporation elects to retire them, shares

which are held as treasury shares but including shares redeemed,

shares purchased and retired (whether through the operation of a

purchase, retirement or sinking fund or otherwise) and shares

which, if convertible or exchangeable, have been converted into

or exchanged for shares of stock of any other class or

<PAGE>

classes) shall, upon compliance with any applicable provisions of

the General Corporation Law of the State of Delaware, have the

status of authorized and unissued shares of Cumulative Preferred

Stock and may be reissued as a part of the series of which they

were originally a part (if the terms of such series do not

prohibit such reissue) or as part of a new series of Cumulative

Preferred Stock to be created by resolution or resolutions of the

Board of Directors of the Corporation or as part of any other

series of Cumulative Preferred Stock the terms of which do not

prohibit such reissue.

10. If at any time the Corporation shall have failed to

pay dividends in full on the Cumulative Preferred Stock,

thereafter and until dividends in full, including all accrued and

unpaid dividends to the next preceding dividend payment date on

the Cumulative Preferred Stock outstanding, shall have been

declared and set apart for payment or paid, (a) the Corporation,

without the affirmative consent or vote of the holders of at

least 66-2/3% in interest of the Cumulative Preferred Stock at

the time outstanding, given in person or by proxy, either by

consent in writing or by resolution adopted at a special meeting

called for the purpose, the holders of the Cumulative

<PAGE>

Preferred Stock, regardless of series, consenting or voting (as

the case may be) separately as a class, shall not redeem less

than all the Cumulative Preferred Stock at such time outstanding,

other than in accordance with paragraph 13 of this Section A and

(b) neither the Corporation nor any subsidiary shall purchase any

Cumulative Preferred Stock except in accordance with a purchase

offer made in writing or by publication (as determined by the

Board of Directors) to all holders of Cumulative Preferred Stock

of all series upon such terms as the Board of Directors of the

Corporation, in their sole discretion after consideration of the

respective annual dividend rates and other relative rights and

preferences of the respective series, shall determine (which

determination shall be final and conclusive) will result in fair

and equitable treatment among the respective series; provided,

however, that (i) the Corporation, to meet the requirements of

any purchase, retirement or sinking fund provisions with respect

to any series, may use shares of such series acquired by it prior

to such failure and then held by it as treasury stock and (ii)

nothing shall prevent the Corporation from completing the

purchase or redemption of shares of Cumulative Preferred Stock

for

<PAGE>

which a purchase contract was entered into for any purchase,

retirement or sinking fund purposes, or the notice of redemption

of which was initially mailed, prior to such default.

11. So long as any of the Cumulative Preferred Stock is

outstanding, the Corporation will not:

(a) Without the affirmative consent or vote of the

holders of at least a majority of all the Cumulative Preferred

Stock at the time outstanding, given in person or by proxy,

either by consent in writing or by resolution adopted at a

special meeting called for the purpose, the holders of the

Cumulative Preferred Stock, regardless of series, consenting

or voting (as the case may be) separately as a class, (i)

create any class or classes of stock ranking prior to the

Cumulative Preferred Stock either as to dividends or upon

liquidation or increase the authorized number of shares of any

class or classes of stock ranking prior to the Cumulative

Preferred Stock either as to dividends or upon liquidation

(ii) amend, alter or repeal any of the provisions of this

Article Fourth so as adversely to affect the preferences,

special rights or powers of the Cumulative Preferred Stock; or

<PAGE>

(b) Without the affirmative consent or vote of the

holders of at least a majority of any series of the Cumulative

Preferred Stock at the time outstanding, given in person or by

proxy, either by consent in writing or by resolution adopted

at a special meeting called for the purpose, the holders of

such series of the Cumulative Preferred Stock consenting or

voting (as the case may be) separately as a class, amend,

alter or repeal any of the provisions of the resolutions or

resolutions adopted by the Board of Directors of the

Corporation providing for the issue of such series so as

adversely to affect the preferences, special rights or powers

of the Cumulative Preferred Stock of such series;

provided, however, that any consent or vote required by clause

(ii) of subparagraph (a) of this paragraph 11 may be made

effective by the filing of an appropriate amendment of this

Certificate of Incorporation without obtaining the consent or

vote of the holders of the Common Stock, the right to give such

consent or vote being expressly waived by holders of the Common

Stock, unless the action to be taken would adversely affect the

rights of the Common Stock; and provided further that any consent

or vote required by subparagraph (b) of this paragraph 11 may be

given and made effective by the filing of any

<PAGE>

appropriate amendment of this Certificate of Incorporation

without obtaining the vote or consent of the holders of any other

series of the Cumulative Preferred Stock or of the Common Stock,

the right to give such vote or consent being expressly waived by

all holders of such other series of Cumulative Preferred Stock

and of the Common Stock, unless the action to be taken would

adversely affect the preferences, rights or powers of such other

series of Cumulative Preferred Stock or of the Common Stock, as

the case may be.

12. The number of authorized shares of the Cumulative

Preferred Stock may be increased or decreased by the affirmative

vote of the holders of a majority of the shares of stock of the

Corporation having the right to vote, voting together as a single

class.

13. If in any case the amounts payable with respect to

any requirements to retire shares of the Cumulative Preferred

Stock are not paid in full in the case of all series with respect

to which such requirements exist, the number of shares to be

retired in each series shall be in proportion to the respective

amounts which would be payable on account of such requirements if

all amount payable in respect of such series were discharged in

full.

<PAGE>

14. Whenever, at any time, full accrued dividends as

aforesaid for all past dividend periods shall have been paid or

declared or set apart for payment on the then outstanding

Cumulative Preferred Stock, and after complying with all the

provisions with respect to any purchase, retirement or sinking

fund or funds for any one or more series of Cumulative Preferred

Stock, the Board of Directors of the Corporation may declare

dividends on any other class or classes of stock ranking junior

to the Cumulative Preferred Stock both as to dividends and upon

liquidation and the Cumulative Preferred Stock shall not be

entitled to share therein.

Upon any liquidation, dissolution or winding up of the

Corporation, after payment shall have been made in full to the

Cumulative Preferred Stock as provided in paragraph 5 of this

Section A, but not prior thereto, any other class or classes of

stock ranking junior to the Cumulative Preferred Stock upon

liquidation shall be entitled to receive any and all assets

remaining to be paid or distributed, and the Cumulative Preferred

Stock shall not be entitled to share therein.

<PAGE>

15. For the purposes of this Section A and of any

resolution or resolutions of the Board of Directors of the

Corporation providing for the issue of any series of Cumulative

Preferred Stock or of any certificate filed with the Secretary of

State of Delaware (unless otherwise provided in any such

resolution or certificate):

(a) The amount of dividends "accrued" on any share of

Cumulative Preferred Stock of any series at any dividend

payment date shall be deemed to be the amount of any unpaid

dividends accumulated thereon to and including such dividend

payment date, whether or not earned or declared, and the

amount of dividends "accrued" on any share of Cumulative

Preferred Stock of any series at any date other than a

dividend payment date shall be calculated as the amount of any

unpaid dividends accumulated thereon to and including the last

preceding dividend payment date, whether or not earned or

declared, plus an amount equivalent to the pro rata portion of

a dividend at the annual dividend

<PAGE>

rate fixed for the shares of such series for the period after

such last preceding dividend payment date to and including the

date as of which the calculation is made.

(b) Any class or classes of stock of the Corporation

shall be deemed to rank

(i) prior to the Cumulative Preferred Stock either

as to dividends or upon liquidation, if the holders of

such class or classes shall be entitled to the receipt of

dividends or of amounts distributable upon liquidation,

dissolution or winding up, as the case may be, in

preference or priority to the holders of the Cumulative

Preferred Stock;

(ii) on a parity with the Cumulative Preferred

Stock either as to dividends or upon liquidation, whether

or not the dividend rates, dividend payment dates, or

redemption or liquidation prices per share thereof be

different from those of the Cumulative Preferred Stock,

if the holders of such class or classes of stock shall be

entitled to the receipt of dividends or of amounts

distributable upon liquidation, dissolution

<PAGE>

or winding up, as the case may be, in proportion to their

respective dividend rates or liquidation prices, without

preference or priority one over the other with respect to

the holders of the Cumulative Preferred Stock;

(iii) junior to the Cumulative Preferred Stock

either as to dividends or upon liquidation, if the rights

of the holders of such class or classes shall be subject

or subordinate to the rights of the holders of the

Cumulative Preferred Stock in respect of the receipt of

dividends or of amounts distributable upon liquidation,

dissolution or winding up, as the case may be.

Without limiting the generality of the foregoing, so long as

any shares of Cumulative Preferred Stock shall be outstanding,

the Cumulative Preferred Stock shall be deemed to rank prior

to the Common Stock as to dividends and upon liquidation.

<PAGE>

SECTION B. PROVISIONS RELATING TO COMMON STOCK.

Each share of Common Stock shall be equal to every other

share of Common Stock in every respect. At all times each holder

of Common Stock of the Corporation shall be entitled to one vote

for each share of such stock standing in the name of such holder

on the books of the Corporation.

SECTION C. PROVISIONS RELATING TO ALL CLASSES OF
STOCK.

No holder of Cumulative Preferred Stock or Common Stock

as such shall have any preemptive right to subscribe to stock,

obligations, warrants, rights to subscribe to stock or other

securities of the Corporation of any class, whether now or

hereafter authorized.

SECOND: That the Corporation has not received any

payment for any of its stock and that the amendment to its

Certificate of Incorporation set forth above has been duly

adopted by all its directors in accordance with the provisions of

Section 241 of the General Corporation Law of the State of

Delaware.

IN WITNESS WHEREOF, this Certificate of Amendment has

been signed under the seal of the Corporation this 17th day of

May, 1968.

(SEAL) s/Hugar S. King
------------------------------
Hugar S. King, President

Attest:

s/Robert W. Middlebrook
------------------------------
Robert W. Middlebrook, Secretary

22
<PAGE>

STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )

On this 17th day of May, 1968, there personally came

before me ROBERT W. MIDDLEBROOK, one of the persons who executed

the foregoing certificate, known to me personally to be such, and

he duly executed said certificate before me and acknowledged that

it was his act and deed and the act and deed of Piedmont

Management Company Inc. and that the facts stated therein are

true.

IN WITNESS WHEREOF, I have hereunto set my hand and seal

of office the day and year aforesaid.

(SEAL)

s/Janet Donahoe
---------------------------
Janet Donahoe
Notary Public, State of New York
No. 41,0986200, Qual. in Queens Co.
Cert. Filed in New York County
Commission Expires March 30, 1969

<PAGE>
PIEDMONT MANAGEMENT COMPANY INC.

_________________

CERTIFICATE OF ADOPTION OF RESOLUTIONS

BOARD OF DIRECTORS

Pursuant to Section 151 of the General Corporation Law of
the State of Delaware providing for the designation,
preferences and relative, participating, optional
or other special rights, and qualifications,
limitations or restrictions thereof
of a series of

CUMULATIVE PREFERRED STOCK, $1 PAR VALUE

_________________

We, the undersigned, Huger S. King and Robert W. Middlebrook, being
respectively President and Secretary of Piedmont Management Company Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Corporation"), HEREBY CERTIFY that the following resolutions were duly adopted
by the Board of Directors of the Corporation at a meeting thereof duly held on
June 25, 1968:

RESOLVED, that this Board of Directors, pursuant to authority expressly
vested in it by the provisions of the Certificate of Incorporation, as amended,
of the Corporation, hereby authorizes the issue of the first series of
Cumulative Preferred Stock, $1 par value, of the Corporation and hereby fixes
the designation, relative rights, preferences and limitations thereof in
addition to those set forth in the said Certificate of Incorporation by amending
Article Fourth thereof to renumber Sections B and C to be Section C and D,
respectively, and to add a new Section B providing as follows:

SECTION B: Provisions Relating to Cumulative Preferred Stock,
Convertible Series A.

1. Number of Shares; Designation. 315,160 shares of the Cumulative
Preferred Stock of the Corporation are hereby constituted as a series of
Cumulative Preferred Stock designated as "$1.00 Cumulative Preferred Stock,
Convertible Series A" (hereinafter called "Series A").

2. Dividend Rate. The dividend rate of the shares of Series A shall be
$1.00 per share per annum payable semi-annually on the fifteenth day of April
and October in each year. In the case of the first issuance of shares of Series
A, dividends thereon shall be cumulative from June 30, 1968 and the initial
semi-annual dividend for such shares, based on the pro rata portion of the
annual dividend, shall be payable on the October 15 thereafter. In the case of
any subsequent issue of shares of Series A, dividends thereon shall be
cumulative from the semi-annual dividend payment date next preceding the date of
issuance of each share to which dividends on the shares of Series A have been
paid (or from June 30, 1968 in the case of shares issued on or prior to the
record date for the first dividend payment on the shares of Series A).
Notwithstanding the foregoing, if the date of any subsequent issuance of shares
of Series A is a semi-annual dividend payment date or a date between the record
date for the determination of holders of the shares of Series A entitled to
receive a semi-annual dividend and the date of payment of such semi-annual
dividend, dividends shall be cumulative from such semi-annual dividend payment
date, provided, however, that if the Corporation shall not pay a dividend on the
shares of Series A on such semi-annual dividend payment date, then dividends on
each share of any subsequent issuance of shares of Series A shall be

<PAGE>
cumulative from the semi-annual dividend payment date next preceding the date of
issuance of such share to which dividends on the shares of a Series A have been
paid.

3. Optional Redemption. Shares of Series A may be redeemed on the
terms and conditions specified in paragraphs 6 through 10 of Section A of
Article Fourth of the Certificate of Incorporation, in whole or in part, at any
time or from time to time on and after that date which is the fifth anniversary
of the date on which any shares of Series A are first issued, at the option of
the Corporation expressed by resolution of the Board of Directors, at a
redemption price of $18.00 per share plus an amount equal to all accrued and
unpaid dividends thereon.

4. Rights on Liquidation. In the event of any voluntary of involuntary
liquidation, dissolution or winding up of the Corporation, the holders of shares
of Series A then outstanding shall be entitled to be paid out of the assets of
the Corporation available for distribution to its stockholders an amount equal
to $18.00 per share plus an amount equal to all accrued and unpaid dividends
thereon to the date of payment.

5. Sinking Fund. Shares of Series A shall not be subject or entitled
to the benefit of a purchase, retirement or sinking fund.

6. Conversion. (a) Shares of Series A shall be convertible at the
option of the respective holders thereof at any time or from time to time on and
after the date on which any shares of Series A are first issued, at the office
or agency in the Borough of Manhattan in The City of New York maintained by the
Corporation for that purpose, into fully paid and non-assessable shares of
Common Stock at the rate of one share of Common Stock for each share of Series
A surrendered for conversion; provided, however, such right of conversion shall
cease and terminate, as to shares of Series A called for redemption, at the
close of business on the date fixed for redemption, unless default shall be made
in the payment of the redemption price. The rate set forth above at which
shares of Common Stock shall be deliverable in exchange for shares of Series A
upon conversion thereof is hereinafter referred to as the "basic conversion
rate" of Series A. The basic conversion rate shall be subject to adjustment
from time to time in certain instances as hereinafter provided. Upon conversion
the Corporation shall make no payment or adjustment on account of dividends
accrued or in arrears on shares of Series A surrendered for conversion.

Whenever reference is made in this paragraph 5 to the issue or sale of
shares of Common Stock, the term, "Common Stock" shall mean stock of the
Corporation of any class, whether now or hereafter authorized, which has the
right to participate in the distribution of either the assets or earnings of the
Corporation without limit as to amount or percentage. The Common Stock issuable
upon conversion of shares of Series A shall, however, be Common Stock, $1 par
value, as constituted at the date hereof, except as otherwise provided in
subparagraphs (b)(ii) and (b)(iii) of this paragraph 6.

Before any holder of shares of Series A shall be entitled to convert the
same into Common Stock he shall surrender the certificate or certificates for
such shares of Series A at the office or agency maintained as provided in this
subparagraph (a), which certificate or certificates if the Corporation shall so
request shall be duly endorsed to the Corporation or in blank, or accompanied by
proper instruments of transfer to the Corporation or in blank, and accompanied
by funds in the amount of any tax or taxes which may be payable in respect of
any transfer involved in the issue or delivery of any certificate or
certificates for shares of Common Stock in a name other than that of the
registered holder of the shares of Series A in respect of which such shares of
Common Stock are issued, and shall give written notice to the Corporation at
said office or agency that he elects so to convert such shares of Series A, and
shall state in writing therein the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued. Every such
notice of election to convert shall constitute a contract between the holder of
such shares of Series A and

<PAGE>
the Corporation, whereby such holder shall be deemed to subscribe for the number
of shares of Common Stock which he shall be entitled to receive upon such
conversion, and, in satisfaction of such subscription, to surrender the
certificate or certificates for the number of shares of Series A to be converted
and to release the Corporation from all liability thereunder, and whereby the
Corporation shall be deemed to agree that the surrender of the certificate or
certificates therefor and the extinguishment of liability thereon shall
constitute full payment of such subscription for the shares of Common Stock to
be issued upon such conversion.

As soon as practicable after such surrender of a certificate or
certificates for shares of Series A, accompanied by the written notice above
prescribed, the Corporation will issue and deliver to the person for whose
account such shares of Series A were so surrendered, or to his nominee or
nominees, a certificate or certificates for the number of full shares of Common
Stock to which he shall be entitled as aforesaid, together with an adjustment of
any fraction of a share as hereinafter provided in subparagraph (f) of this
paragraph 6. Subject to the following provisions of this subparagraph, such
conversion shall be deemed to have been made as of the date of such surrender of
a certificate or certificates for shares of Series A, accompanied by the written
notice above prescribed, and the person or persons entitled to receive Common
Stock issuable upon the conversion of such shares of Series A shall be treated
as the record holder or holders of such Common Stock on such date for all
purposes. The Corporation shall not be required to convert, and no surrender of
shares of Series A shall be effective for that purpose, while the stock transfer
books of the Corporation are closed for any purpose, but the surrender of shares
of Series A for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the reopening of such
books, but at the actual conversion rate in effect at the date of such
surrender.

(b) The basic conversion rate of shares of Series A shall be subject to
adjustment from time to time as follows (the basic conversion rate as so
adjusted from time to time being herein called the "actual conversion rate")
which adjustments shall be made to the nearest one-hundredth of a share of
Common Stock, or, if none, to the next lower one-hundredth:

(i) If the Corporation shall pay to the holders of Common Stock
issuable upon conversion of shares of Series A a dividend in shares of Common
Stock, the actual conversion rate in effect immediately prior to such
dividend shall be increased to an amount which shall bear the same relation
to the actual conversion rate in effect immediately prior to such dividend as
the total number of shares of Common Stock outstanding immediately after such
dividend shall bear to the total number of shares outstanding immediately
prior to such dividend, effective at the opening of business on the full
business day next following payment of such dividend.

(ii) If the Common Stock of the Corporation shall be subdivided into a
greater or combined into a lesser number of shares of Common Stock (whether
with or without par value), the actual conversion rate shall be increased in
the case of a subdivision or decreased in the case of a combination to an
amount which shall bear the same relation to the actual conversion rate in
effect immediately prior to such subdivision or combination as the total
number of shares of Common Stock outstanding immediately after such
subdivision or combination shall bear to the total number of shares of Common
Stock outstanding immediately prior to such subdivision or combination,
effective at the opening of business on the full business day next following
the effective date of such subdivision or combination.

(iii) In case of any capital reorganization or of any reclassification
of the Common Stock of the Corporation (other than a change in par value to
no par value or from no par value to par value or as a result of a stock
dividend or stock subdivision or combination) or in case of the consolidation
of the Corporation with or the merger of the Corporation into any other
corporation (other than a consolidation or merger in which the

<PAGE>
Corporation is the surviving corporation and which does not result in any
change in the Common Stock issuable upon conversion of shares of Series A) or
of the sale of the properties and assets of the Corporation as, or
substantially as, an entirety to any other corporation, each share of Series
A shall after such capital reorganization, reclassification of the Common
Stock, consolidation, merger or sale be convertible into the number of shares
of stock or other securities or property of the Corporation, or of the
corporation resulting from such consolidation or surviving such merger or to
which such sale shall be made, as the case may be, to which the Common Stock
issuable (at the time of such capital reorganization, reclassification of the
Common Stock, consolidation, merger or sale) upon conversion of such share of
Series A would have been entitled had it been so issued and outstanding at
the time of such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale; and in any case, the provisions set forth
herein with respect to the rights and interests thereafter of the holders of
the shares of Series A shall be appropriately adjusted so as to be
applicable, as nearly as may be reasonable, to any shares of stock or other
securities or property thereafter deliverable on the conversion of the shares
of Series A.

(c) Whenever the conversion rate shall be adjusted as provided in this
paragraph 6, the Corporation shall forthwith file at the office or agency
maintained for the conversion of shares of Series A as provided in
subparagraph (a) of this paragraph 6, a statement, signed by the Chairman of
the Board, the President or any Vice President and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary of the
Corporation, showing in detail the facts requiring such adjustment and the
actual conversion rate that shall be in effect after such adjustment. The
Corporation shall also cause a notice setting forth any such adjustments to
be sent by first class mail, postage prepaid, to each registered holder of
shares of Series A at his address appearing on the stock register. Where
appropriate, such notice may be given in advance and may be included as a
part of a notice required to be mailed under the provisions of subparagraph
(d) of this paragraph 6.

(d) If at any time:

(i) the Corporation shall declare any stock dividend upon its
Common Stock or make any distribution (other than cash dividends) to the
holders of shares of Common Stock; or

(ii) the Corporation shall offer for subscription pro rata to the
holders of shares of Common Stock any additional shares of any class or
any other rights;

then, and in any one or more of said cases, the Corporation shall give
notice, in the manner set forth in subparagraph (c) of this paragraph 6,
which notice shall specify the record date with respect to any such action.
Such notice shall be given at least fifteen days prior to the record date
with respect thereto. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any such action.

(e) Irrespective of any adjustments in the actual conversion rate (or
the number of shares of Common Stock into which each share of Series A is
convertible), shares of Series A theretofore or thereafter issued may
continue to express the basic conversion rate as is stated in the initially
issued shares of Series A.

(f) The Corporation shall not be required to issue a fractional
interest in a share of Common Stock or scrip upon conversion of shares of
Series A. As to any final fractional interest in a share of Common Stock
which a holder of one or more shares of Series A would otherwise be entitled
to receive upon conversion of shares of Series A in the same transaction, the
Corporation shall pay a cash adjustment in respect of such final fractional
interest in an amount equal to the same fraction of the market price per
share (as determined in a manner prescribed by the Board of Directors

<PAGE>
of the Corporation) at the close of business on the business day which next
precedes the date on which such shares are surrendered for conversion.

(g) The Corporation shall pay all documentary stamp taxes attributable
to the initial issuance of shares of Common Stock upon conversion of any
shares of Series A pursuant hereto provided, however, that the Corporation
shall not be required to pay any tax or taxes which may be payable in respect
of any transfer involved in the issue or delivery of any certificate or
certificates for shares of Common Stock in a name other than that of the
registered holder of shares of Series A in respect of which such shares of
Common Stock are issued.

(h) The Corporation shall at all times reserve and keep available, out
of its treasury stock or authorized and unissued stock, or both, solely for
the purpose of effecting the conversion of shares of Series A, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series A from time to time outstanding.

(i) Anything in this paragraph 6 to the contrary notwithstanding, the
Corporation shall not be required, except as hereinafter provided, to make
any adjustment of the actual conversion rate in any case in which the amount
by which the actual conversion rate would be reduced or increased in
accordance with the foregoing provisions would be less than one-twentieth of
a share of Common Stock, but in such case any adjustment that would otherwise
be required then to be made will be carried forward and made at the time and
together with the next subsequent adjustment which, together with any and all
such adjustments so carried forward, shall amount to more than one-twentieth
of a share of Common Stock. In the event of any stock dividend or
subdivision or combination of shares of Common Stock, said amount of one-
twentieth of a share (as theretofore decreased or increased) shall be
proportionately decreased or increased.

7. Voting. In addition to the voting rights provided with respect to
all shares of the Cumulative Preferred Stock, but subject to the provisions
of any applicable law, or of the By-Laws of the Corporation as from time to
time amended, with respect to the closing of the transfer books or the fixing
of a record date for the determination of stockholders entitled to vote, at
each meeting of stockholders of the Corporation each holder of record of
shares of Series A shall be entitled to one vote per share on each matter on
which the holders of record of the Common Stock and any other series of
Cumulative Preferred Stock entitled to vote with the Common Stock, and not by
classes, and each such record holder of shares of Series A shall be entitled
to notice of any such meeting of stockholders.

RESOLVED, that the number of shares of stock of $1.00 Cumulative Preferred
Stock, Convertible Series A, may be increased or decreased from time to time in
accordance with law, subject to the provisions of the Certificate of
Incorporation, as amended, of the Corporation.

IN WITNESS WHEREOF, this Certificate has been signed under the seal of the
Corporation this 27th day of June, 1968.

/s/ Huger S. King
-------------------------
Huger S. King, President

Attest:

/s/ Robert W. Middlebrook
- -------------------------------------
Robert W. Middlebrook, Secretary

<PAGE>
STATE OF NEW YORK }
ss:
COUNTY OF NEW YORK}

On this 27th day of June, 1968, there personally came before me Huger S.
King, one of the persons who executed the foregoing certificate, known to me
personally to be such, and he duly executed said certificate before me and
acknowledged that it was his act and deed and the act and deed of Piedmont
Management Company Inc. and that the facts stated therein are true.

IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.

/s/ Elizabeth Smigelsky
--------------------------------
ELIZABETH SMIGELSKY
Notary Public, State of New York
No. 03-9018603, Qual. in Queens Co.
Cert. Filed in New York County
Commission Expires March 30, 1970

<PAGE>
CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

PIEDMONT MANAGEMENT COMPANY INC.

Pursuant to Section 242 of the General
Corporation Law of the State of Delaware

Piedmont Management Company Inc., a corporation duly organized and

existing under the General Corporation Law of the State of Delaware (the

"Corporation"), does hereby certify as follows:

FIRST: That the first paragraph of Article Fourth of the Certificate of
-----

Incorporation of the Corporation is hereby amended in its entirety to read as

follows:

"FOURTH: The total number of shares of all classes of stock which the
------
Corporation shall have authority to issue is 14,000,000 shares, of which
2,000,000 shares shall be Cumulative Preferred Stock with a par value of $1
per share (the 'Cumulative Preferred Stock') and 12,000,000 shares shall be
Common Stock with a par value of $0.50 per share (the 'Common Stock')."

SECOND: That such Amendment has been proposed by the Board of Directors
------

of the Corporation

<PAGE>
and duly adopted by the holders of a majority of the Common Stock of the

Corporation and by the holders of a majority of the Cumulative Preferred Stock

of the Corporation at a meeting duly called and held on September 29, 1973, all

in accordance with the provisions of Section 242 of the General Corporation Law

of the State of Delaware.

THIRD: That effective upon the filing of this Certificate in the Office
-----

of the Secretary of State of the State of Delaware, each issued share of Common

Stock of the Corporation with a par value of $1 per share, including both shares

which are outstanding and treasury shares, shall, without any further action on

the part of the holder thereof, be changed into one share of Common Stock of the

Corporation with a par value of $0.50 per share, and each outstanding

certificate evidencing such shares of Common Stock with a par value of $1 per

share shall thereupon become and be deemed for all purposes to evidence the

ownership of one share of Common Stock with a par value of $0.50 per share and

there shall be distributed to each holder of record of Common Stock with a par

value of $1 per share immediately prior to the filing of this Certificate an

additional certificate representing one additional share of Common Stock with a

par value of $0.50 per share for each share of Common Stock with a par value of

$1 per share then held by such holder.

FOURTH: That the capital of the Corporation will not be reduced under
------

or by reason of said amendment.

<PAGE>
IN WITNESS WHEREOF, Piedmont Management Company Inc. has caused this
certificate to be duly executed by its President and Secretary and its corporate
seal to be affixed hereunto this the 29th day of September 1972.

Piedmont Management Company Inc.

By/s/ Walter B. Elcock
----------------------------
Walter B. Elcock, Jr.
President

Attest:/s/ Huger S. King
-------------------------
-
Huger S. King, Jr.
Secretary

State of Connecticut )
County of Fairfield ) ss.

On this the 29th day of September 1972, there personally came before me
Walter B. Elcock, Jr., one of the persons who executed the foregoing
certificate, known to me personally to be such, and he duly executed said
certificate before me and acknowledged that it was the act and deed of Piedmont
Management Company Inc. and that the facts stated therein are true.

IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.

/s/ Lynn M. Peters
-------------------------

LYNN M. PETERS
-------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES JANUARY 14, 1975

<PAGE>
CERTIFICATE OF CORRECTION

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

PIEDMONT MANAGEMENT COMPANY INC.

-----------------------

Pursuant to Section 103(f) of the General
Corporation Law of the State of Delaware

-----------------------

Piedmont Management Company Inc., a corporation duly organized and

existing under the General Corporation Law of the State of Delaware (the

"Corporation"), does hereby certify as follows:

FIRST: That a Certificate of Amendment to the Certificate of
-----

Incorporation of the Corporation (the "Certificate of Amendment") was filed in

the office of the Secretary of State of Delaware on the second day of October,

1972, and a copy thereof, certified by said Secretary of State, was filed for

record in the office of the Recorder

<PAGE>
of Deeds of New Castle County, Delaware, on the second day of October, 1972.

SECOND: That the Certificate of Amendment as so filed is an inaccurate
------

record of the corporate action taken and requires correction as permitted by

Section 103(f) of the General Corporation Law of the State of Delaware in that

the words "one share" in the seventh line of paragraph THIRD thereof should read

"two shares".

THIRD: That paragraph THIRD of the Certificate of Amendment is hereby
-----

corrected to read in its entirety as follows:

"THIRD: That effective upon the filing of this Certificate in the
-----
Office of the Secretary of State of the State of Delaware, each issued share
of Common Stock of the Corporation with a par value of $1 per share,
including both shares which are outstanding and treasury shares, shall,
without any further action on the part of the holder thereof, be changed into
two shares of Common stock of the Corporation with a par value of $0.50 per
share, and each outstanding certificate evidencing such shares of Common
Stock with a par value of $1 per share shall thereupon become and be deemed
for all purposes to evidence the ownership of one share of Common Stock with
a par value of $0.50 per share, and there shall be distributed to each holder
of record of Common Stock with a par value of $1 per share immediately prior
to the filing of this Certificate an additional Certificate representing one
additional share of Common Stock with a par value of $0.50 per share for each
share of Common Stock with a par value of $1 per share then held by such
holder."

Piedmont Management Company Inc.

By /s/ Walter B. Elcock, Jr.
-------------------------
Walter B. Elcock, Jr.
President

Attest:/ss Huger S. King, Jr.
------------------------
Huger S. King, Jr.
Secretary

State of Connecticut )
County of Fairfield ) ss.

On this the 17th day of October 1972, there personally came before me
Walter B. Elcock, Jr., one of the persons who executed the foregoing
certificate, known to me personally to be such, and he duly executed said
certificate before me and acknowledged that it was the act and deed of Piedmont
Management Company Inc. and that the facts stated therein are true.

IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.

/s/ Lynn M. Peters
--------------------------

LYNN M. PETERS
-------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES JANUARY 14, 1975

<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER OF
PIEDMONT HOLDING COMPANY INC. INTO
PIEDMONT MANAGEMENT COMPANY INC.
UNDER SECTION 907 OF THE NEW YORK BUSINESS
CORPORATION LAW AND SECTION 253 OF THE
DELAWARE CORPORATION LAW

PIEDMONT MANAGEMENT COMPANY INC, a Delaware corporation, hereby

certifies that:

1. PIEDMONT MANAGEMENT COMPANY INC. owns all the outstanding stock of

PIEDMONT HOLDING COMPANY INC., a New York corporation;

2. The Board of Directors of PIEDMONT MANAGEMENT COMPANY INC.

unanimously adopted at a meeting held on November 19, 1974 the resolutions set

forth in Exhibit A attached hereto authorizing the merger of PIEDMONT HOLDING

COMPANY INC., its wholly-owned subsidiary, into itself and the assumption all of

the obligations of said subsidiary;

3. PIEDMONT MANAGEMENT COMPANY INC. was incorporated under that name

in the State of Delaware on March 6, 1968 and filed its application for

authority to do business in the State of New York on April 8, 1963;

4. PIEDMONT HOLDING COMPANY INC. was incorporated under that name in

the State of New York on November 24, 1971;

5. Eight Thousand, Two Hundred and Eighty-Five (8,285) shares of One

Dollar par value common stock of PIEDMONT HOLDING

<PAGE>
COMPANY INC. are issued and outstanding and are owned by PIEDMONT MANAGEMENT

COMPANY INC., which number will not be subject to change prior to the effective

date of this merger;

6. The effective date of the merger of PIEDMONT HOLDING COMPANY INC.

into PIEDMONT MANAGEMENT COMPANY INC. shall be December 31, 1974;

7. This merger is permitted by the laws of the State of New York and

of the State of Delaware and is in compliance therewith;

8. PIEDMONT MANAGEMENT COMPANY INC. hereby consents to service of

process in the state of New York in any action or special proceeding for the

enforcement of any liability or obligation of PIEDMONT HOLDING COMPANY INC.;

9. PIEDMONT MANAGEMENT COMPANY INC. hereby designates the New York

Secretary of State as its agent in the State of New York upon whom process

against it may be served in the manner set forth in paragraph (b) of Section 306

of the New York Business Corporation Law, in any action or special proceeding

and further designates 10100 Santa Monica Boulevard, Los Angeles, California,

Attention: Treasurer, as the address to which the New York Secretary of State

shall mail a copy of any process served upon PIEDMONT MANAGEMENT COMPANY INC.

<PAGE>
IN WITNESS WHEREOF, PIEDMONT MANAGEMENT COMPANY INC. has executed this

certificate the 23 day of December, 1974.

PIEDMONT MANAGEMENT COMPANY INC.

By/s/ Walter B. Elcock, Jr.
------------------------------
President

By/s/ R. E. Davis
------------------------------
Secretary

<PAGE>
STATE OF California )
) ss.
COUNTY OF Los Angeles )

The undersigned, Walter B. Elcock, Jr., and R.F. Davis, state: That

they have read and signed the foregoing Certificate of Merger dated December 23,

1974 and know the contents thereof, including the exhibit attached thereto; and

that they are the officers of applicant and that the statements made in said

certificate of Merger and exhibit thereto are true.

Dated December 23, 1974 at Los Angeles, California.

I certify under penalty of perjury that the foregoing is true and

correct.

/s/ Walter B. Elcock, Jr.
-----------------------------

/s/ R. E. Davis
-----------------------------

Subscribed and sworn before me on December 23, 1974.

------------------------------
Notary Public in and for said
County and State

<PAGE>
RESOLVED: That, effective on December 31, 1974, this corporation merge Piedmont

Holding Company Inc., a New York corporation, and its wholly-owned subsidiary,

into itself and assume all obligations of said subsidiary pursuant to Section

253 of the Delaware Corporation Law and Section 907 of the New York Business

Corporation Law.

RESOLVED FURTHER: That the appropriate officers of this corporation be, and

they hereby are, authorized and directed to execute and file a Certificate of

Merger with the Delaware Secretary of State pursuant to Section 253(a) of the

Delaware Corporation Law and with the New York Department of State pursuant to

Section 907 of the New York Business Corporation Law, and to execute any and all

documents and to do any and all acts necessary and proper in order to consummate

said merger.

EXHIBIT A

<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION

PIEDMONT MANAGEMENT COMPANY INC., a corporation organized and existing

under and by virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY:

FIRST
-----

That at a meeting of the Board of Directors of Piedmont Management

Company Inc., resolutions were duly `adopted setting forth a proposed amendment

of the Certificate of Incorporation of said corporation, declaring said

amendment to be advisable and calling a meeting of the stockholders of said

corporation for consideration thereof. The amendment as set forth in such

resolutions is as follows:

<PAGE>
AMENDMENT TO THE CERTIFICATE
OF INCORPORATION OF
PIEDMONT MANAGEMENT COMPANY INC.

FIRST: That the first paragraph of Article Fourth of the Certificate of
Incorporation of the Corporation is hereby amended in its entirety to read:

FOURTH: The Corporation shall have authority to issue 20,000,000
shares, of which 2,000,000 shares shall be Cumulative Preferred Stock with a
par value of $1 per share (the "Cumulative Preferred Stock"), 6,000,000
shares shall be Class B Stock with a par value of $0.50 per share (the "Class
B Stock"), and 12,000,000 shares shall be Common Stock with a par value of
$0.50 per share (the "Common Stock").

SECOND: That Section B of such Article Fourth is hereby amended in its
entirety to read:

Section B.PROVISIONS RELATING TO COMMON STOCK AND CLASS B STOCK

1. Dividends, etc.

Subject to the rights of the holders of Cumulative Preferred Stock, and
subject to any other provisions of this Certificate of Incorporation, holders
of Common Stock and Class B Stock shall be entitled to receive such dividends
and other distributions in cash, stock of any corporation other than the
Corporation or property of the Corporation as may be declared thereon by the
Board of Directors from time to time out of assets or funds of the
Corporation legally available therefor and shall share equally on a per share
basis in all such dividends and other distributions, except as provided with
respect to cash dividends below, in the case of cash dividends, if at any
time a cash dividend is paid on either the Common Stock or the Class B Stock,
a cash dividend shall be paid on both the Common Stock and theClass B Stock.
The amount of the cash dividend per share of Class B Stock shall equal 80% of
the amount of the cash dividend paid on each share of the Common Stock
(rounded down, if necessary, to the nearest $.005). In the case of dividends
or other distributions payable in stock of the Corporation other than
Cumulative Preferred Stock, including distributions pursuant to stock splits
or divisions of stock of the Corporation other than Cumulative Preferred
Stock which occur after the initial issuance of shares of Class B Stock by
the Corporation, only shares of Common Stock shall be paid or distributed
with respect to Common Stock and only shares of Class B Common Stock in an
amount per share equal to the amount per share paid or distributed with
respect to the Common Stock shall be paid or distributed with respect to
Class B Stock. In the case of any combination or reclassification of the
Common Stock, the shares of the Class B Stock shall also be combined or
reclassified so that the number of shares of Class B Stock outstanding
immediately following such combination or reclassification shall bear the
same relationship to the number of shares outstanding immediately prior to
such combination or reclassification as the number of shares of Common Stock
outstanding immediately following such combination or reclassification bears
to the number of shares of Common Stock outstanding immediately prior to such
combination or reclassification.

2. Voting.

(a) At every meeting of the stockholders every holder of Common Stock
shall be entitled to one vote in person or by proxy for each share of Common
Stock standing in his or her name on the transfer books of the Corporation
and every holder of Class B Stock shall be

A-1

<PAGE>
entitled to ten votes in person or by proxy for each share of Class B Stock
standing in his or her name on the transfer books of the Corporation.

(b) The provisions of this Certificate of Incorporation shall not be
modified, revised, altered or amended, repealed or rescinded in whole or in
part, without the affirmative vote of the holders of a majority of the shares
of the Common Stock and the shares of the Class B Stock voting together as a
single class, provided, however, that with respect to any proposed amendment
to this Certificate of Incorporation which would increase or decrease the
number of authorized shares of either the Common Stock or the Class B Stock,
or alter or change the powers, preferences, relative voting power or dividend
or other special rights of the shares of the Common Stock or the Class B
Stock so as to affect them adversely, the approval of a majority of votes
entitled to be cast by the holders of the class affected by the proposed
amendment, voting separately as a class, shall be obtained in addition to the
approval of a majority of the votes entitled to be cast by the holders of the
Common Stock and the Class B Stock voting together without regard to class as
hereinbefore provided.

(c) Following the initial issuance of shares of Class B Stock, the
Corporation may not issue any additional shares of Class B Stock (except in
connection with stock splits and stock dividends; unless and until such
issuance is authorized by the holders of a majority of the shares of Common
Stock and of Class B Stock entitled to vote, each voting separately as a
class.

(d) In the event of any merger, consolidation or sale, conveyance,
lease, exchange or transfer of all or substantially all of the assets of the
Corporation with respect to which a vote of the stockholders of the
Corporation is required by law, the majority vote (or such higher vote as is
required by law or by this Certificate of Incorporation) of the holders of
the Common Stock and of the Class B Stock, each voting separately as a class,
shall be required to approve such merger, consolidation or sale of all or
substantially all the assets of the Corporation.

(e) Every reference in this Certificate of Incorporation to a majority
or other proportion of shares of stock shall refer to such majority or other
proportion of the votes to which such shares of stock are entitled.

(f) Except as may be otherwise required by law or by this article
Fourth, the holders of Common Stock and Class B Stock shall vote together as
a single class, subject to any voting rights which may be granted to holders
of Cumulative Preferred Stock.

3. Transfer.

(a) No person holding shares of Class B Stock of record (hereinafter
called a "Class B Holder") may transfer, and the Corporation shall not
register the transfer of, such shares of Class B Stock, whether by sale,
assignment, gift, bequest, appointment, operation of law or otherwise, except
to a Permitted Transferee. A Permitted Transferee shall mean, with respect
to each person from time to time shown as the record holder of shares of
Class B Stock:

(i) In the case of a Class B Holder who is a natural person,

(A) The spouse of such Class B Holder, any lineal descendant of a
great-grandparent of such Class B Holder and any spouse of such lineal
descendent (which lineal descendants, their spouses, the Class B Holder,
and his or her spouse are herein collectively referred to as "Class B
Holder's Family Members");

(B) The trustee of a trust (including a voting trust) solely for
the benefit of such Class B Holder and/or one or more of his or her
Permitted Transferees described in any subclause of this clause (i)
other than this subclause (B), provided that such trust may also grant a
general or special power of appointment to one or more of such Class B
Holder's Family Members and may permit trust assets to be used to pay
taxes, legacies and other obligations of the trust or of the estates of
one or

A-2

<PAGE>
more of such Class B Holder's Family Members payable by reason of the
death of any of such Class B Holder's Family Members:

(C) Any organization (hereinafter called a "Qualified Charitable
Organization") contributions to which are deductible for federal income,
estate or gift tax purposes or any split-interest trust described in
Section 4947 of the Internal Revenue Code of 1954, as amended, as it may
from time to time be amended; provided that such organization was
established by, or the majority of the trustees or directors of such
organization is comprised of, (1) such Class B Holder's Family Members
or (2) the Corporation or its present or former directors, officers or
employees;

(D) A corporation all of the beneficial ownership of outstanding
capital stock of which is entitled to vote for the election of directors
is owned by, or a partnership all of the beneficial ownership of the
partnership interests of which are entitled to participate in the
management of the partnership are held by, the Class B Holder or his or
her Permitted Transferees determined under this clause (i), provided
that if by reason of any change in the ownership of such stock or
partnership interests, such corporation or partnership would no longer
be a Permitted Transferee, all shares of Class B Stock then held by such
corporation or partnership shall, upon the election of the Corporation
given by written notice to such corporation or partnership, without
further act on anyone's part, be converted into shares of Common Stock
effective upon the date of the giving of such notice, and stock
certificates formerly representing such shares of Class B Stock shall
thereupon and thereafter be deemed to represent a like number of shares
of Common Stock:

(E) The estate of such Class B Holder, and

(F) The executor, administrator or personal representative of the
estate of such Class B Holder or the guardian of the estate of such
Class B Holder.

(ii) In the case of a Class B Holder holding the shares of Class B Stock
in question as trustee pursuant to a trust (other than a Qualified Charitable
Organization or a trust described in clause (iii) below), (A) any person
transferring Class B Stock to such trust and (B) any Permitted Transferee of
any such transferor determined pursuant to clause (i) above.

(iii) In the case of a Class B Holder holding the shares of Class B
Stock in question as trustee pursuant to a trust (other than a Qualified
Charitable Organization) which was irrevocable on the record date
(hereinafter in this paragraph 3 called the "Record Date") for determining
the persons to whom the Class B Stock is first issued by the corporation.
(A) any person to whom or for whose benefit principal may be distributed
either during or at the end of the term of such trust whether by power of
appointment or otherwise and (B) any Permitted Transferee of any such person
determined pursuant to clause (i) above.

(iv) In the case of a Class B Holder which is a Qualified Charitable
Organization holding record and beneficial ownership of the shares of Class B
Stock in question, any Class B Holder.

(v) In the case of a Class B Holder which is a corporation or
partnership (other than a Qualified Charitable Organization) acquiring record
and beneficial ownership of the shares of Class B Stock in question upon its
initial issuance by the Corporation, (A) any partner of such partnership, or
stockholder of such corporation, on the Record Date, (B) any person
transferring such shares of Class B Stock to such corporation or partnership
and (C) any Permitted Transferee determined under clause (i) above, of any
such person, partner, or stockholder referred to in subclauses (A) and (B) of
this clause (v).

A-3

<PAGE>
(vi) In the case of a Class B Holder which is a corporation or
partnership (other than a Qualified Charitable Organization or a corporation
or partnership described in clause (v) above) holding record and beneficial
ownership of the shares of Class B Stock in question, (A) any person
transferring such shares of Class B Stock to such corporation or partnership
and (B) any Permitted Transferee of any such transferor determined under
clause (i) above.

(vii) In the case of a Class B Holder which is the estate of a deceased
Class B Holder, or which is in the estate of a bankrupt or insolvent Class B
Holder, which holds record and beneficial ownership of the shares of Class B
Stock in question, a Permitted Transferee of such deceased, bankrupt or
insolvent Class B Holder as determined pursuant to clause (i), (ii), (iii),
(iv), (v) or (vi) above, as the case may be.

(b) Notwithstanding anything to the contrary set forth herein, any Class B
Holder may pledge such Holder's shares of Class B Stock to a pledgee pursuant to
a bona fide pledge of such shares as collateral security for indebtedness due to
the pledgee, provided that such shares shall not be transferred to or registered
in the name of the pledgee and shall remain subject to the provisions of this
paragraph 3. In the event of foreclosure or other similar action by the
pledgee, such pledged shares of Class B Stock may only be transferred to a
Permitted Transferee of the pledgor or be converted into shares of Common Stock,
as the pledgee may elect.

(i) The relationship of any person that is derived by or through legal
adoption shall be considered a natural one.

(ii) Each joint owner of shares of Class B Stock shall be considered a
"Class B Holder" of such shares.

(iii) A minor for whom shares of Class B Stock are held pursuant to a
Uniform Gifts to Minors Act or similar law shall be considered a Class B
Holder of such shares.

(iv) Unless otherwise specified, the term "person" means both natural
persons and legal entities.

(v) Without derogating from the election conferred upon the
Corporation pursuant to subclause (D) of clause (i) above, each reference to
a corporation shall include any successor corporation resulting from merger
or consolidation; and each reference to a partnership shall include any
successor partnership resulting from the death or withdrawal of a partner.

(d) Any transfer of shares of Class B Stock not permitted hereunder shall
result in the conversion of the transferee's share of Class B Stock into shares
of Common Stock, effective the date on which certificates representing such
shares are presented for transfer on the books of the Corporation. The
Corporation may, in connection with preparing a list of stockholders entitled to
vote at any meeting of stockholders, or as a condition to the transfer or the
registration of shares of Class B Stock on the Corporation's books, require the
furnishing of such affidavits, documents or other proof as it deems necessary to
establish that any person is the beneficial owner of shares of Class B Stock or
is a Permitted Transferee.

(e) Shares of Class B Stock shall be registered in the names of the
beneficial owners thereof and not in "street" or "nominee" name. For this
purpose, a "beneficial owner" of any shares of Class B Stock shall mean a person
who, or an entity which, possesses the power, either singly or jointly, to
direct the voting or disposition of such shares. The Corporation shall note on
the certificates for shares of Class B Stock the existence of the restrictions
on transfer imposed by this paragraph 3.

A-4

<PAGE>
4. Conversion Rights.

(a) Subject to the terms and conditions of the paragraph 4, each share of
Class B Stock shall be convertible at any time or from time to time, at the
option of the respective holder thereof, at the office of any transfer agent for
Class B Stock, and at such other place or places, if any, as the Board of
Directors may designate, or, if the Board of Directors shall fail so to
designate, at the principal office of the Corporation (attention of the
Secretary of the Corporation), into one fully paid and nonassessable share of
Common Stock. Upon conversion, the Corporation shall make no payment or
adjustment on account of dividends accrued or in arrears on Class B Stock
surrendered for conversion or on account of any dividends on the Common Stock
issuable on such conversion. Before any holder of Class B Stock shall be
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates for such Class B Stock at the office of said
transfer agent (or other place as provided above), which certificate or
certificates, if the Corporation shall so request, shall be duly endorsed to the
Corporation or in blank or accompanied by proper instrument of transfer to the
Corporation or in blank (such endorsements or instruments of transfer to be in
form satisfactory to the Corporation), and shall give written notice to the
Corporation at said office that he or she elects so to convert said Class B
Stock in accordance with the terms of this paragraph 4 and shall state in
writing therein the name or names in which he or she wishes the certificate or
certificates for Common Stock to be registered. Every such notice of election
to convert shall constitute a binding contract between the holder of such Class
B Stock and the Corporation, whereby the holder of such Class B Stock shall be
deemed to subscribe for the amount of Common Stock which he or she shall be
entitled to receive upon such conversion, and, in satisfaction of such
subscription, to deposit the Class B Stock to be converted and to release the
Corporation from all liability thereunder, and thereby the Corporation shall be
deemed to agree that the surrender of the certificate or certificates therefor
and the extinguishment of liability thereon shall constitute full payment of
such subscription for Common Stock to be issued upon such conversion. The
Corporation will, as soon as practicable after such deposit of a certificate or
certificates for Class B Stock accompanied by the written notice and the
statement above prescribed, issue and deliver at the office of said transfer
agent (or other place as provided above) to the person for whose account such
Class B Stock was so surrendered, or to his nominee or nominees, a certificate
or certificates for the number of full shares of Common Stock to which he shall
be entitled as aforesaid. Subject to the provisions of subsection (c) of this
paragraph 4, such conversion shall be deemed to have been made as of the date of
such surrender of the Class B Stock to be converted; and the person or persons
entitled to receive the Common Stock issuable upon conversion of such Class B
Stock shall be treated for all purposes as the record holder or holders of such
Common Stock on such date.

(b) The issuance of certificates for shares of Common Stock upon conversion
of shares of Class B Stock shall be made without charge for any stamp or other
similar tax in respect of such issuance. However, if any such certificate is to
be issued in a name other than that of the holder of the share or shares of
Class B Stock converted, the person or persons requesting the issuance thereof
shall pay to the Corporation the amount of any tax which may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.

(c) The Corporation shall not be required to convert Class B Stock, and no
surrender of Class B Stock shall be effective for that purpose, while the stock
transfer books of the Corporation are closed for any purpose; but the surrender
of Class B Stock for conversion during any period while such books are so closed
shall be deemed effective for conversion immediately upon the reopening of such
books, as if the conversion had been made on the date such Class B Stock was
surrendered.

(d) The Corporation will at all times reserve and keep available, solely for
the purpose of issue upon conversion of the outstanding shares of Class B Stock,
such number of shares of

A-5

<PAGE>
Common Stock as shall be issuable upon the conversion of all such outstanding
shares, provided that nothing contained herein shall be construed to preclude
the Corporation from satisfying its obligations in respect of the conversion of
the outstanding shares of Class B Stock by delivery of shares of Common Stock
which are held in the treasury of the Corporation. The Corporation covenants
that, if any shares of Common Stock required to be reserved for purposes of
conversion hereunder require registration with or approval of any governmental
authority under any federal or state law before such shares of Common Stock may
be issued upon conversion, the corporation will use its best efforts to cause
such shares to be duly registered or approved, as the case may be. The
Corporation will endeavor to list the shares of Common Stock required to be
delivered upon conversion prior to such delivery upon each national securities
exchange, if any, upon which the outstanding Common Stock is listed at the time
of such delivery. The Corporation covenants that all shares of Common Stock
which shall be issued upon conversion of the shares of Class B Stock will, upon
issue, be fully paid and nonassessable and not entitled to any preemptive
rights.

5. Liquidation Rights.

In the event of any dissolution, partial or complete liquidation or winding
up of the affairs of the Corporation, whether voluntary or involuntary, after
payment in full of the amounts required to be paid to the holders of Cumulative
Preferred Stock of all series pursuant to Section A of this Article Fourth, the
remaining assets and funds of the Corporation shall be divided amount and paid
ratably to the holders of Common Stock and Class B Stock (including those
persons who shall become holders of Common Stock by reason of converting their
shares of Class B Stock) as a single class. For the purposes of this paragraph
5, the voluntary sale, conveyance, issue, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation with
one or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.

THIRD: That Section C of such Article Fourth is hereby amended in its entirety
to read:

SECTION C. PROVISIONS RELATING TO ALL CLASSES OF STOCK

No holder of Cumulative Preferred Stock, Class B Stock or Common Stock shall
have any preemptive right to subscribe to stock, obligations, warrants, rights
to subscribe to stock or other securities of the Corporation of any class,
whether nor or hereafter authorized.

A-6

<PAGE>
SECOND
------

That thereafter, pursuant to resolution of its Board of Directors, a special

meeting of the stockholders of said corporation was duly called and held, upon

notice in accordance with Section 222 of the General Corporation Law of the

State of Delaware at which meeting the necessary number of shares as required by

statute were voted in favor of the amendment.

THIRD
-----

That said amendment was duly adopted in accordance with the provisions of

Section 242 of the General Corporation Law of the State of Delaware.

FOURTH
------

That the capital of said corporation shall not be reduced under or by reason

of said amendment.

IN WITNESS WHEREOF, said Piedmont Management Company Inc. has caused this

certificate to be signed by Robert M. DeMichele, its President, and Peter J.

Palenzona, its Secretary, this fifteenth day of September, 1986.

By:/s/ Robert M. DeMichele
--------------------------------
President

ATTEST:/s/ Peter J. Palenzona
----------------------------
Secretary

A-7

<PAGE>

PIEDMONT MANAGEMENT COMPANY INC.

CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION

Piedmont Management Company Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that:

1. The Certificate of Incorporation of the Corporation is hereby amended by
redesignating the Article identified as "NINTH" to be identified as "ELEVENTH"
and inserting two Articles identified as "NINTH" and "TENTH" immediately before
such redesignated Article "ELEVENTH."

(A) Article "NINTH" shall be and read as follows:

NINTH. A director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended.

No repeal or modification of the foregoing provisions of this Article
NINTH nor, to the fullest extent permitted by law, any modification of law,
shall adversely affect any right or protection of a director of their
Corporation existing at the time of such repeal or modification.

(b) Article "TENTH" shall be and read as follows:

TENTH. Each person who is or was a director or officer of the
Corporation (and the heirs, executors or administrators of such person) who
was or is made to party to, or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative

<PAGE>
or investigative, by reason of the fact that such person is or was a director
or officer of the Corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified
and held harmless by the Corporation to the fullest extent permitted by the
applicable law as the same exists or may hereafter be amended. The right to
indemnification conferred in this Article TENTH shall also include the right
to be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition to the fullest extent
authorized by applicable law as the same exists or may hereafter be amended.
The right to indemnification conferred in this Article TENTH shall be a
contract right.

The Corporation may, by action of its board of directors, provide
indemnification to such of the employees and agents of the Corporation to
such extent and to such effect as the board of directors shall determine to
be appropriate and authorized by applicable law as the same exists or may
hereafter be amended.

The Corporation may purchase and maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, employee or
agent of the corporation, or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any expense,
liability or loss incurred by such person in any such capacity, whether or
not the corporation would have the power to indemnify such person in any such
capacity and whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under applicable law as
the same exists or may hereafter be amended.

The rights and authority conferred in this Article TENTH shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation or By-Laws
of the Corporation, agreement, vote of stockholders or disinterested
directors or otherwise.

<PAGE>
No repeal or modification of the foregoing provisions of this Article
TENTH nor, to the fullest extent permitted by law, any modification of law,
shall adversely affect any right or protection of a director or officer (and
their heirs, executors or administrators of such person) of the Corporation
existing at the time of such repeal or modification.

2. The aforesaid amendments were duly adopted in accordance with the

applicable provisions of Section 242 of the General Corporation Law of the State

of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be

signed and attested on May 23, 1987.

(SEAL)

PIEDMONT MANAGEMENT COMPANY, INC.

By/s/ Robert M. DeMichele
-----------------------
Robert M. DeMichele
President

ATTEST:

By/s/ Peter J. Palenzona
----------------------
Peter J. Palenzona
Secretary

<PAGE>
CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

PIEDMONT MANAGEMENT COMPANY INC., a corporation organized and existing

under and by virtue of the General Corporation Law of the State of Delaware,

DOES HEREBY CERTIFY:

FIRST
-----

That at a meeting of the Board of Directors of Piedmont Management

Company Inc., resolutions were duly adopted setting forth a proposed amendment

to the Certificate of Incorporation of said corporation, declaring said

amendment to be advisable and submitting said amendment to all stockholders for

consideration at the 1992 annual meeting of stockholders. The amendment as set

forth in such resolutions is as follows:

<PAGE>
AMENDMENT TO THE CERTIFICATE
OF INCORPORATION OF
PIEDMONT MANAGEMENT COMPANY INC.

I, the undersigned, Robert M. DeMichele, President of Piedmont
Management Company Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certify:

FIRST: Set forth below is the text of the proposed amendment to Section
B of Article Fourth of the Certificate of Incorporation of the Corporation to
effect the reclassification described in the Proxy Statement:

As of May 28, 1992, 2,583,854 shares of Class B Stock were issued and
outstanding. The 2,583,854 outstanding shares of Class B Stock with a par
value of $0.50 per share are hereby changed into 2,583,854 shares of Common
Stock with a par value of $0.50 per share. The terms upon which such change
is made are as follows:

Each share of such previously issued Class B Stock with a par value
of $0.50 per share is changed into one share of Common Stock with a par
value of $0.50 per share.

Each holder of a certificate representing issued shares of Class B
Stock at the close of business on the date this Amendment to the
Certificate of Incorporation is accepted for filing by the Secretary of
State of the State of Delaware (the "Effective Date") shall be entitled,
upon surrender of such certificate to the Corporation or its Transfer
Agent for cancellation together with a properly completed Letter of
Transmittal, to receive new certificates representing the shares of
Common Stock to which the holder has become entitled as a result of the
reclassification.

If any Class B holder fails to so surrender his or her
certificates, the shares represented by such certificates will
nevertheless automatically be changed into the appropriate number of
shares of Common Stock and the certificates not so surrendered shall be
deemed to represent the number of shares of Common Stock such holder
would have received had such certificates been surrendered.

SECOND: That the first paragraph of Article Fourth of the Certificate
of Incorporation of the Corporation is hereby amended in its entirety to read:

<PAGE>
FOURTH: The Corporation shall have authority to issue 14,000,000 shares
of which 2,000,000 shares shall be Cumulative Preferred Stock with a par
value of $1.00 per share (the "Cumulative Preferred Stock") and 12,000,000
shares shall be Common Stock with a par value of $0.50 per share (the "Common
Stock").

THIRD: That Section B of such Article Fourth is hereby amended in its
entirety to read:

Section B. Provision Relating to Common Stock

Each share of Common Stock shall be equal to every other share
of Common Stock in every respect. At all times each holder of
Common Stock of the Corporation shall be entitled to one vote for
each share of such stock standing in the name of such holder on the
books of the corporation.

FOURTH: That Section C of such Article Fourth is hereby amended in its
entirety to read:

Section C. Provision Relating to All Classes of Stock

No holder of Cumulative Preferred Stock or Common Stock shall
have any preemptive right to subscribe to stock, obligations,
warrants, rights to subscribe to stock, or other securities of the
Corporation of any class, whether now or hereafter authorized.

<PAGE>
SECOND
------

That thereafter, pursuant to the resolution of its Board of Directors,

the annual meeting of stockholders of said corporation was duly called and held,

upon notice in accordance with Section 222 of the General Corporation Law of the

State of Delaware at which meeting the necessary number of shares as required by

statute were voted in favor of the amendment.

THIRD
-----

That said amendment was duly adopted in accordance with the provisions

of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, said Piedmont Management Company Inc. has caused

this certificate to be signed by Robert M. DeMichele, its President, and Peter

J. Falenzona, its Secretary, this 28th day of May, 1992.

By: /s/ Robert M. DeMichele
-----------------------------
President
(seal)
ATTEST:/s/ Peter J. Palenzona
-------------------------
Secretary

Exhibit 3.2

BY-LAWS

PIEDMONT MANAGEMENT COMPANY INC.

(As amended, effective April 29, 1969 and March 26, 1975)

____________

ARTICLE I

Section 1. Annual Meeting. The annual meeting of
--------------

stockholders of the Corporation shall be held on such date

(other than a legal holiday) in May at such time and such

place within or without the State of Delaware as may be

fixed from time to time by the Board of Directors for the

purpose of electing directors and for the transaction of

such other proper business as may be brought before the

meeting.

Section 2. Special Meetings. Special meetings of
----------------

stockholders may be called by the Board of Directors or The

Nominating and Proxy Committee on such date (other than a

legal holiday) at such time and such place within or without

the State of Delaware as may be stated in the notice of

meeting; provided, however, that any special meeting called

for the purpose of electing directors shall be held at the

place last fixed by the Board of Directors pursuant to

Section 1 of this Article I unless the Board of Directors

shall fix a different place for the holding of such meeting.

<PAGE>

Section 3. Notice of Meetings. Notice of the
------------------

time and place of every meeting of stockholders shall be

delivered personally or mailed not less than ten days nor

more than fifty days prior thereto to each stockholder of

record entitled to vote at the meeting at such address as

appears on the stock ledger of the Corporation, unless he

shall have filed with the Secretary of the Corporation a

written request that notices intended for him be directed to

another address, in which case such notice shall be directed

to him at the address designated in such request. Every

notice of a special meeting of stockholders, besides stating

the time and place of the meeting, shall state briefly the

objects or purposes thereof. Notices of any meeting of

stockholders shall not be required to be given to any

stockholder who shall attend such meeting in person or by

proxy unless such attendance is for the express purpose of

objecting, at the beginning of the meeting, to the

transaction of any business because the meeting is not

lawfully called or convened; and, if any stockholder shall,

in person or by attorney thereunto authorized, in writing or

by telegraph, cable or wireless, waive notice of any meeting

of stockholders, whether prior to or after such meeting,

notice thereof need not be given to him.

If a meeting is adjourned to another time or place

and if any announcement of the adjourned time and place is

made at the meeting, it shall not be necessary to give

notice of the adjourned meeting unless the adjournment is

for more than thirty days or the Board of Directors, after

adjournment, fixes a new record date for the adjourned

meeting.

<PAGE>

Section 4. Quorum. The holders of record of a
------

majority of the stock issued and outstanding, and entitled

to vote thereat, present in person or by proxy, shall be

requisite and shall constitute a quorum at all meetings of

stockholders for the transaction of business, except as

otherwise provided by law, by the Certificate of

Incorporation or by these By-Laws. In the absence of a

quorum, any officer entitled to preside at, or act as

Secretary of, such meeting shall have the power to adjourn

the meeting from time to time until a quorum shall be

constituted. At such adjourned meeting at which a quorum

shall be present any business may be transacted which might

have been transacted at the meeting as originally called,

but only those stockholders entitled to vote at the meeting

as originally called shall be entitled to vote at any

adjournment or adjournments thereof.

Section 5. Voting. At any meeting of
------

stockholders every stockholder having the right to vote

shall be entitled to vote in person or by proxy appointed by

an instrument in writing subscribed by such stockholder and

bearing a date not more than three years prior to said

meeting, unless said instrument provides for a longer

period. Each stockholder shall have one vote for each share

of stock having voting power registered in his name on the

books of the Corporation.

It shall be the duty of the officer who shall have

charge of the stock ledger of the Corporation to prepare and

make at least ten days before

<PAGE>

every meeting of stockholders a complete list of the

stockholders entitled to vote at said meeting arranged in

alphabetical order and showing the address of each

stockholder and the number of shares registered in the name

of each stockholder. Such list shall be open to the

examination of any stockholder, for any purpose germane to

the meeting, during ordinary business hours for a period of

at least ten days prior to the meeting, either at a place

within the city where the meeting is to be held, which place

shall be specified in the notice of the meeting, or, if not

so specified, at the place where the meeting is to be held.

The list shall be produced and kept at the time and place of

the meeting during the whole time thereof, and subject to

the inspection of any stockholder who may be present. The

original or duplicate stock ledger shall be the only

evidence as to who are the stockholders entitled to examine

such list or the books of the Corporation or to vote in

person or by proxy at such meeting.

At all elections of directors by the stockholders

the voting shall be by ballot, and upon the demand of any

stockholder entitled to vote the vote upon any other matter

shall be by ballot. All elections and questions shall be

decided by the vote of the holders of a majority of the

stock having voting power present in person or by proxy,

except as otherwise provided by law, by the Certificate of

Incorporation or by these By-Laws.

Section 6. Judges. All votes by ballot at any
------

meeting of stockholders shall be conducted by two judges

appointed for the purpose, either

<PAGE>

by the Board of Directors or by the Chairman of the meeting.

The judges shall decide upon the qualification of voters,

count the votes and declare the result.

Section 7. The Nominating and Proxy Committee.
----------------------------------

(a) There is hereby created a committee of

stockholders to be known as THE NOMINATING AND PROXY

COMMITTEE. The Committee shall consist of three members, of

whom at least two members, at the time of their election,

shall each own directly or indirectly a minimum of 1,000

shares of Common Stock of the Corporation and the third of

which shall hold or have held any one of the offices of

President, Chairman of the Board of Directors, Chairman of

the Executive Committee or Chairman of the Finance Committee

or shall have served for at least five years as a member of

the Board of Directors. Such number of shares shall be

proportionately increased to reflect a subdivision of the

Common Stock which increases the number of shares

theretofore outstanding by 25% or more. Members of the

Committee shall act without compensation and may without

disqualification be officers, directors, or employees of the

Corporation. At each annual meeting of stockholders, the

members of the Committee shall be elected by the

stockholders to hold office until the annual meeting of

stockholders following their election and until their

successors are elected and shall have qualified; provided,

however, that the members of the Committee to hold office

until the first annual meeting of stockholders shall be

elected by the affirmative vote of a majority of the entire

Board of Directors. In case a vacancy

<PAGE>

or vacancies shall occur in the membership of the Committee,

such vacancy shall be filled by the survivor or surviving

members.

(b) The Nominating and Proxy Committee shall

represent the stockholders and have authority to solicit

proxies for the election of directors and on all other

matters coming before the stockholders. The Committee, to

the exclusion of the Board of Directors acting in such

capacity, shall have authority to designate nominees for

directors and, through one or more of its members, to cast

all votes represented by proxies received by it for the

election of directors and upon such other matters as may

come before an annual or special meeting of stockholders.

notice of an annual or special meeting of stockholders, the

Secretary of the Corporation shall give notice to The

Nominating and Proxy Committee of such contemplated action

and the Committee shall within ten days after the receipt of

such notice deliver to the Secretary of the Corporation a

written statement containing its proxy-soliciting material,

which shall, under the direction of the Secretary, be

prepared in proper form and released to the stockholders.

Any cost of the Committee incurred in connection with the

solicitation of proxies shall be borne by the Corporation.

(d) The Nominating and Proxy Committee shall

appoint the certified public accountants for the

Corporation.

<PAGE>

(e) This Section may not be repealed or amended

except pursuant to the affirmative vote of a majority of the

stockholders.

ARTICLE II

CAPITAL STOCK

Section 1. Stock Certificates. The certificates
------------------

for stock of the Corporation shall be numbered and shall be

entered in the books of the Corporation as they are issued.

They shall exhibit the holder's name and number of shares

owned by him and shall be signed by the Chairman of the Board

of Directors or the President or a Vice President and the

Treasurer or an Assistant Treasurer or the Secretary or an

Assistant Secretary. If any such certificate is countersigned

(1) by a transfer agent other than the Corporation or its

employee, or (2) by a registrar other than the Corporation or

its employee, the signatures of such officers of the

Corporation may be facsimiles. In case any officer of the

Corporation, transfer agent or registrar who has signed, or

whose facsimile signature has been placed upon, any such

certificate shall have ceased to be such officer, transfer

agent or registrar before such certificate is issued, it may

be issued by the Corporation with the same effect as if he or

it were such officer, transfer agent or registrar at the date

of issue.

Section 2. Lost, Stolen or Destroyed Certificates.
--------------------------------------

Any person claiming a certificate for stock to be lost, stolen

or destroyed shall make an affidavit or affirmation of that

fact and, if the Board of Directors so requires, shall

<PAGE>

advertise the same, and the Board of Directors may, in its

discretion, require the owner of the lost, stolen or destroyed

certificate, or his legal representative, to deliver to the

Corporation a bond of indemnity in such amount, upon such

terms and secured by such surety as the Board of Directors in

its discretion may require. A new certificate of the same

tenor and for the same number of shares as the one alleged to

be lost, stolen or destroyed may be issued without requiring

any bond when, in the judgement of the Board of Directors, it

is proper so to do.

Section 3. Registrations of Transfers of Stock.
-----------------------------------

Registrations of transfers of stock shall be made on the books

of the Corporation by the registered holder thereof, or by his

attorney thereunto authorized by power of attorney duly

executed and filed with the Secretary of the Corporation or

with a transfer agent, and on surrender of the certificate or

certificates for such stock properly endorsed and the payment

of all taxes thereon. The person in whose name shares of

stock stand on the books of the Corporation shall be deemed

the owner thereof for all purposes as regards the Corporation;

provided, however, that whenever any transfer of shares shall

be made for collateral security, and not absolutely, it shall

be so expressed in the entry of transfer if, when the

certificates are presented to the Corporation for transfer,

both the transferor and the transferee request the Corporation

to do so.

Section 4. Record Date of Stockholders. For the
---------------------------

purpose of determining the stockholders entitled to notice of

or to vote at any meeting of stockholders or any adjournment

thereof, or to express consent to corporate action in writing

without a meeting, or entitled to receive payment of any

dividend or other distribution or allotment of any rights, or

entitled to exercise any rights in respect of any change,

conversion or exchange

<PAGE>

of stock or for the purpose of any other lawful action, the

Board of Directors may fix, in advance, a date as a record

date for any such determination of stockholders. Such record

date shall not be more than sixty nor less than ten days

before the date of such meeting, nor more than sixty days

prior to any other action.

Section 5. Dividends. Dividends upon the capital
---------

stock of the Corporation, subject to the provisions of law and

of the Certificate of Incorporation, if any, may be declared

by the Board of Directors at any regular or special meeting.

Dividends may be paid in cash, in property, or in shares of

capital stock.

ARTICLE III

BOARD OF DIRECTORS

Section 1. Powers and Duties of the Board of
---------------------------------

Directors. The property and business of the Corporation shall
---------

be managed by the Board of Directors, which shall be empowered

to exercise all such powers of the Corporation and do all such

lawful acts and things as are not by law, or by the

Certificate of Incorporation or by these By-Laws directed or

required to be exercised or done by the stockholders. Without

limiting the generality of the foregoing, the Board of

Directors shall:

(a) Approve the objective, policies,

long-range plans and budgets for the Corporation and

its subsidiary companies and keep sufficiently

informed of their operations and conditions

affecting the industry to enable it to revise said

objectives, policies, long-range plans and budgets

as needed when conditions change.

(b) Directly, or through its Executive

Personnel

<PAGE>

Committee, select the executive personnel most competent

to execute said objectives, policies and plans; keep

sufficiently informed of their performance to enable it

to make changes as needed to make the best use of

executive personnel; and develop the proper quality and

quantity of executive personnel for the future to carry

out the long-range objectives and plans of the

Corporation and its subsidiary companies.

Section 2. Number and Term of Office. The Board of
-------------------------

Directors shall be not less than three nor more than fifteen

in number and the directors shall be divided into three equal,

as nearly as may be, classes; the term of office of those of

the first class is to expire at the annual meeting of

stockholders to be held during 1970, the term of office of

those of the second class is to expire at the annual meeting

of stockholders to be held during 1971 and the term of office

of those of the third class is to expire at the annual meeting

of stockholders to be held during 1972. At each annual

meeting of stockholders, commencing with the annual meeting of

stockholders to be held during 1970, each successor of the

directors of the class whose term shall have expired at such

annual meeting of stockholders shall be elected for a term to

expire at the third annual meeting of stockholders next

following his election and until his successor shall be

elected and shall qualify; provided, however, that any vacancy

occurring for any reason other than by expiration of term of

office shall be filled only for the unexpired term of office;

and provided, further, however, that upon any increase in the

number of directors constituting the Board of Directors, the

additional directors shall be divided among the three classes

of directors so that the number of directors in each class is

equal, as nearly as may be, to the number of directors in each

other class. The number of directors which shall

<PAGE>

constitute the Board of Directors for any given year shall be

fixed by the Nominating and Proxy Committee in the

proxy-soliciting material sent to stockholders entitled to

vote at the annual meeting. The Nominating and Proxy

Committee may also increase (but not exceeding the maximum

number of directors allowable under this Section 2) the number

of directors at any time after the annual meeting of

stockholders for any year but prior to the forwarding of

proxy-soliciting material to the stockholders of the

Corporation for the next annual stockholders meeting or any

proposed special stockholders meeting of the Corporation, by

such committee adopting a resolution which increases the size

of the Board of Directors by the additional number of

directors indicated in such resolution. Any vacancy occurring

during the year for any reason other than by expiration of

term of office, and any newly created directorship resulting

from an increase in the number of directors constituting the

Board of Directors, may be filled by a majority of the

directors then in office, upon the recommendation of the

Nominating and Proxy Committee.

Section 3. Meetings. The directors may hold their
--------

meetings within or without the State of Delaware at such

places as they from time to time determine. Each newly

elected Board of Directors may meet at such place as shall be

fixed for the annual meeting of stockholders and as promptly

as practicable thereafter, without the necessity of giving

notice thereof. Regular meetings of the Board of Directors

may be held without notice at such time and place as shall be

determined by the Board of Directors.

<PAGE>

Special meetings of the Board of Directors may be

called by the Chairman of the Board of Directors or, in his

absence, by the President, on one day's notice, to each

director, either personally or by mail, telegraph, cable or

wireless; such meetings also shall be called by the Secretary

in like manner and on like notice at the written request of

three directors.

Prior to the meetings of the Board of Directors, the

Chairman of the Board of Directors or, in his absence, the

President, shall prepare an agenda of the meeting which shall

be distributed to the directors before the meeting.

Section 4. Quorum and Manner of Acting. Except as
---------------------------

may otherwise be provided by law, by the Certificate of

Incorporation or by these By-Laws, one third of the members of

the Board of Directors shall constitute a quorum for the

transaction of business. If there be less than a quorum at

any meeting, a majority of those present may adjourn the

meeting from time to time. Notice of any adjourned meeting

need not be given.

At all meetings of directors, a quorum being

present, all matters shall be decided by the affirmative vote

of a majority of the directors present, except as otherwise

required by law, by the Certificate of Incorporation or by

these By-Laws.

Section 5. Compensation of Directors. Directors,
-------------------------

as such, shall

<PAGE>

not receive any stated salary for their services, but by

resolution of the Board of Directors a fixed sum and expenses

of attendance, if any, may be allowed for attendance of

regular and special meetings of the Board of Directors;

provided, however, that nothing herein contained shall be

construed to preclude any director from serving the

Corporation in any other capacity and receiving compensation

therefore. Members of special or standing committees may be

allowed like compensation for attending committee meetings.

Section 6. Action Without Meeting. Any action
----------------------

required or permitted to be taken at any meeting of the Board

of Directors or of any committee may be taken without a

meeting if a written consent thereto is signed by all members

of the Board of Directors or of the committee, as the case may

be, and such written consent is filed with the minutes or

proceedings of the Board of Directors or committee.

ARTICLE IV

COMMITTEES

Section 1. Executive Personnel Committee.
-----------------------------

(a) There shall be created a committee to be known

as the EXECUTIVE PERSONNEL COMMITTEE. The Committee shall be

composed of the Chairman of the Board of Directors, who shall

be Chairman of the Committee, and the President, who shall be

members by virtue of their office. The Board

<PAGE>

of Directors may fill vacancies and elect not more than two

additional members from among the Board of Directors by

resolution passed by a majority of the entire Board of

Directors. The Committee shall prescribe its own rules of

procedure.

(b) The Executive Personnel Committee shall have

authority to supervise the employment, placement and promotion

of employees of the Corporation and its subsidiary companies

in executive and management positions; to prescribe the

functions and supervise the performance of such employees; to

act as a salary committee with authority to fix the

compensation of such employees; and to grant contracts of

employment to such employees on such terms, including terms of

retirement, and subject to such conditions, qualifications and

contingencies as the Committee shall prescribe.

have authority, with the approval of the contracting employee,

to change or modify the provisions of any contract of

employment whenever made, if and when in the opinion of the

Committee any such change or modification shall be deemed

desirable.

(d) Subject to review and approval by the Board of

Directors, the Executive Personnel Committee shall have

authority to formulate personnel policies for the Corporation

and its subsidiary companies. The Committee also shall review

from time to time the administration of such policies,

including such employee benefit arrangements, as are presently

in effect or shall be adopted.

(e) Until further action by the stockholders at an

annual meeting or

<PAGE>

a special meeting called for that purpose, the Executive

Personnel Committee shall have direct authority to administer

without further action of the Board of Directors any bonus

funds of the Corporation or its subsidiary companies and may

distribute the same at such times and in such amounts and to

such persons as it may determine in order to serve the best

interests of the Corporation or its subsidiary companies.

(f) Any and all actions of the Executive Personnel

Committee relating to salaries, employment and retirement

contracts, special bonuses and other special individual

benefits affecting a member of the Committee shall be subject

to the approval of the Board of Directors.

(g) The Board of Directors may from time to time by

resolution delegate to the Executive Personnel Committee

authority over any other matters relating to the personnel of

the Corporation and its subsidiary companies not covered by

the foregoing provisions of this Section.

Section 2. Audit Committee.
---------------

(a) There shall be created a committee to be known

as the AUDIT COMMITTEE. The members of the Committee shall be

nominated annually by the Nominating and Proxy Committee and

appointed by the Board of Directors. The Committee shall

consist of at least one director and such other qualified

personnel as may be considered desirable.

<PAGE>

(b) The Audit Committee shall be responsible for

engaging the Certified Public Accountants appointed by the

Nominating and Proxy Committee to audit the books, records and

accounts of the Corporation and its subsidiary companies and

for reviewing the adequacy and scope of the audits and

reporting its actions to the Nominating and Proxy Committee

and the Board of Directors. Such Committee shall be

responsible for carrying out such other duties as may be

assigned from time to time by the Nominating and Proxy

Committee and the Board of Directors.

Section 3. Other Committees. There shall be such
----------------

other committees as the Board of Directors may from time to

time designate. Each committee shall have such authority and

shall perform such duties as may from time to time be

prescribed by the Board of Directors.

ARTICLE V

OFFICERS

Section 1. Election and Duties of Officers. The
-------------------------------

Board of Directors, as soon as may be after the annual meeting

of stockholders, shall elect a Chairman of the Board of

Directors, a President, a Secretary and a Treasurer and may

elect one or more Vice Presidents and such other officers as

it may deem proper. Any two offices may be held by the same

person.

The Chairman of the Board of Directors, subject to

the supervision of

<PAGE>

the Board of Directors, shall be responsible for seeing that

the Corporation and its subsidiary companies carry out the

objectives, policies, long-range plans and budgets adopted by

the Board of Directors. The Chairman of the Board of

Directors shall also be Chairman of the Executive Personnel

Committee. The Chairman or, in his absence, the President

shall preside at all meetings of the Board of Directors.

The President shall be responsible to the Board of

Directors for the overall management of the Corporation and

its subsidiary companies in accordance with the objectives,

policies, long-range plans and budgets adopted by the Board of

Directors and the Executive Personnel Committee and shall be

responsible for seeing that proper action is taken to carry

out said decisions of the Board of Directors and the Executive

Personnel Committee. The President shall be the chief

personnel officer of the Corporation and shall be responsible

to the Board of Directors and the Executive Personnel

Committee for seeing that the Corporation and its subsidiary

companies are properly organized and staffed and that proper

programs are carried out to provide an adequate supply of

executive personnel to meet future needs.

Subject to such limitations as the Board of

Directors or the Executive Personnel Committee may from time

to time prescribe, the officers of the Corporation shall have

such powers and duties as generally pertain to their

respective offices as well as such powers and duties as are

prescribed by these By-Laws and

<PAGE>

as may be conferred from time to time by the Board of

Directors or the Executive Personnel Committee.

Section 2. Tenure. The term of office of all
------

officers shall be until their respective successors are chosen

and shall qualify; but any officers may be removed at any time

by the Board of Directors.

Section 3. Salaries. The salaries of the executive
--------

officers and other executive personnel shall be fixed from

time to time by the Executive Personnel Committee, except that

the salaries of the members of the Executive Personnel

Committee shall be fixed by the Board as provided in Section

1(f) of Article IV.

ARTICLE VI

INDEMNIFICATION

Section 1. Proceeding Directly Against Indemnified
---------------------------------------

Party. The Corporation shall indemnify any person who was or
-----

is a party or is threatened to be made a party to any

threatened, pending or completed action, suit or proceeding,

whether civil, criminal, administrative or investigative

(other than an action by or in the right of the Corporation)

by reason of the fact that he is or was a director, officer,

employee or agent of the Corporation, or is or was serving at

the request of the Corporation as a director, officer,

employee or agent of another corporation, partnership, joint

venture, trust or other enterprise, against expenses

<PAGE>

(including attorneys' fees) judgments, fines and amounts paid

in settlement actually and reasonably incurred by him in

connection with such action, suit or proceeding if he acted in

good faith and in a manner he reasonably believed to be in or

not opposed to the best interests of the Corporation, and,

with respect to any criminal action or proceeding, had no

reasonable cause to believe his conduct was unlawful. The

termination of any action, suit or proceeding by judgment,

order, settlement, conviction, or upon a plea of nolo

contendere or its equivalent, shall not, of itself, create a

presumption that the person did not act in good faith and in a

manner which he reasonably believed to be in or not opposed to

the best interests of the corporation, and, with respect to

any criminal action or proceeding, had reasonable cause to

believe that his conduct was unlawful.

Section 2. Proceeding by or in the Right of the
------------------------------------

Corporation Against Indemnified Party. The Corporation shall
-------------------------------------

indemnify any person who was or is a party or is threatened to

be made a party to any threatened, pending or completed action

or suit by or in the right of the Corporation to procure a

judgment in its favor by reason of the fact that he is or was

a director, officer, employee or agent of the Corporation, or

is or was serving at the request of the Corporation as a

director, officer, employee or agent of another corporation,

partnership, joint venture, trust or other enterprise against

expenses (including attorneys' fees) actually and reasonably

incurred by him in connection with the defense or settlement

of such action or suit if he acted in good faith and in a

manner he reasonably

<PAGE>

believed to be in or not opposed to the best interests of the

Corporation and except that no indemnification shall be made

in respect of any claim, issue or matter as to which such

person shall have been adjudged to be liable for negligence or

misconduct in the performance of his duty to the Corporation

unless and only to the extent that the Court of Chancery or

the court in which such action or suit was brought shall

determine upon application that, despite the adjudication of

liability but in view of all the circumstances of the case,

such person is fairly and reasonably entitled to indemnity for

such expenses which the Court of Chancery or such other court

shall deem proper.

Section 3. Amount of Indemnification. To the
-------------------------

extent that a director, officer, employee or agent of the

Corporation has been successful on the merits or otherwise in

defense of any action, suit or proceeding referred to in

Section 1 and Section 2 of this Article VI, or in defense of

any claim, issue or matter therein, he shall be indemnified

against expenses (including attorneys' fees) actually and

reasonably incurred by him in connection therewith.

Section 4. Authorization of Indemnification. Any
--------------------------------

indemnification under Section 1 and Section 2 of this Article

VI (unless ordered by a court) shall be made by the

Corporation only as authorized in the specific case upon a

determination that indemnification of the director, officer,

employee or agent is proper in the circumstances because he

has met the applicable standard of conduct set forth in

Section 1 and Section 2 of this Article VI. Such

determination

<PAGE>

shall be made (a) by the Board of Directors by a majority vote

of a quorum consisting of directors who were not parties to

such action, suit or proceeding, or (b) if such a quorum is

not obtainable, or, even if obtainable a quorum of

disinterested directors so directs, by independent legal

counsel in a written opinion, or (c) by the stockholders.

Section 5. Advance Payment. Expenses incurred in
---------------

defending a civil or criminal action, suit or proceeding may

be paid by the Corporation in advance of the final disposition

of such action, suit or proceeding as authorized by the Board

of Directors in the specific case upon receipt of an

undertaking by or on behalf of the director, officer, employee

or agent to repay such amount unless it shall ultimately be

determined that he is entitled to be indemnified by the

Corporation as authorized in this section.

Section 6. Indemnification Hereunder Not Exclusive.
---------------------------------------

The indemnification provided by this Article VI shall not be

deemed exclusive of any other rights to which those seeking

indemnification may be entitled under any By-Law, agreement,

vote of stockholders or disinterested directors or otherwise,

both as to action in his official capacity and as to action in

another capacity while holding such office, and shall continue

as to a person who has ceased to be a director, officer,

employee or agent and shall inure to the benefit of the heirs,

executors and administrators of such a person.

<PAGE>

Section 7. Insurance. The Corporation shall have
---------

power to purchase and maintain insurance on behalf of any

person who is or was a director, officer, employee or agent of

the Corporation, or is or was serving at the request of the

Corporation as a director, officer, employee or agent of

another corporation, partnership, joint venture, trust or

other enterprise against any liability asserted against him

and incurred by him in any such capacity, or arising out of

his status as such, whether or not the Corporation would have

the power to indemnify him against such liability under the

provisions of this Article VI.

ARTICLE VII

MISCELLANEOUS

Section 1. Offices. The Corporation may have an
-------

office or offices other than the principal office at such

other places as the Board of Directors may from time to time

appoint or the business of the Corporation may require, and

the books of the Corporation may be kept at such office or

offices within or without the State of Delaware as may be

appropriate to the operation of the business of the

Corporation.

Section 2. Seal. The corporate seal shall have
----

inscribed thereon the name of the Corporation, the year of its

organization, and the words "Corporate Seal, Delaware." Said

seal may be used by causing it or a facsimile thereof to be

impressed or affixed or reproduced or otherwise.

<PAGE>

Section 3. Fiscal Year. The fiscal year of the
-----------

Corporation shall be as specified by the Board of Directors.

Section 4. Checks. All checks or demands for money
------

and notes of the Corporation shall be signed by such officer

or officers or such other person or persons as the Board of

Directors may from time to time designate.

ARTICLE VIII

AMENDMENTS

Section 1. These By-Laws may be altered or amended

or repealed by the affirmative vote of a majority of the stock

entitled to vote thereat, at any annual or special meeting of

stockholders, provided notice of the proposed alteration or

amendment or repeal be contained in the notice of such

meeting. These By-Laws also may be altered or amended or

repealed, except for Section 7 of Article I, by the

affirmative vote of a majority of the Board of Directors at

any regular or special meeting, provided written notice of the

proposed alteration, amendment, or repeal is given to each

director and to each member of The Nominating and Proxy

Committee not less than thirty days before the day on which

such meeting is to be held.

Exhibit A

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

PIEDMONT MANAGEMENT COMPANY INC.
as the Company

and

SHAWMUT BANK CONNECTICUT, N.A.
as the Trustee

___________________________________

Indenture

Dated as of ________ __, 1995

___________________________________

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

<PAGE>

TABLE OF CONTENTS*

Page

RECITALS OF THE COMPANY

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 Definitions. . . . . . . . . . . . . . 1
-----------
SECTION 1.2 Other Definitions. . . . . . . . . . . 16
-----------------
SECTION 1.3 Incorporation by Reference of
-----------------------------
Trust Indenture Act . . . . . . . . . . 17
-------------------
SECTION 1.4 Rules of Construction . . . . . . . . . 18
---------------------

ARTICLE 2

THE SECURITIES

SECTION 2.1 Form and Dating . . . . . . . . . . . . 18
---------------
SECTION 2.2 Execution and Authentication . . . . . 18
----------------------------
SECTION 2.3 Amount Limited . . . . . . . . . . . . 19
--------------
SECTION 2.4 Denomination and Date of
------------------------
Securities; Payments of
-----------------------
Interest . . . . . . . . . . . . . . . 19
--------
SECTION 2.5 Registrar and Paying Agent;
---------------------------
Agents Generally . . . . . . . . . . . 19
----------------
SECTION 2.6 Paying Agent to Hold Money in
-----------------------------
Trust . . . . . . . . . . . . . . . . . 20
-----
SECTION 2.7 Transfer Restrictions;
----------------------
Transfer and Exchange . . . . . . . . . 21
---------------------
SECTION 2.8 Replacement Securities . . . . . . . . 22
----------------------
SECTION 2.9 Outstanding Securities . . . . . . . . 23
----------------------
SECTION 2.10 Temporary Securities . . . . . . . . . 24
--------------------
SECTION 2.11 Cancellation . . . . . . . . . . . . . 24
------------
SECTION 2.12 CUSIP Numbers . . . . . . . . . . . . . 25
-------------
SECTION 2.13 Limited Extension of
--------------------
Settlement Date. . . . . . . . . . . . 25
---------------

ARTICLE 3

REDEMPTION

SECTION 3.1 Notices. . . . . . . . . . . . . . . . 26
-------
SECTION 3.2 Notice of Redemption . . . . . . . . . 26
--------------------

--------------------
*Note: The Table of Contents shall not for any
purposes be deemed to be a part of the
Indenture.

<PAGE>

SECTION 3.3 Effect of Notice of
-------------------
Redemption . . . . . . . . . . . . . . 27
----------
SECTION 3.4 Deposit of Redemption or
------------------------
Purchase Price . . . . . . . . . . . . 27
--------------
SECTION 3.5 No Securities Redeemed or
-------------------------
Purchased in Part . . . . . . . . . . . 28
-----------------
SECTION 3.6 Optional Redemption . . . . . . . . . . 28
-------------------
SECTION 3.7 Mandatory Redemption . . . . . . . . . 28
--------------------

ARTICLE 4

COVENANTS

SECTION 4.1 Payment of Securities . . . . . . . . . 28
---------------------
SECTION 4.2 Maintenance of Records;
-----------------------
Compliance with Laws; Access
----------------------------
and Cooperation . . . . . . . . . . . . 29
---------------
SECTION 4.3 Reports by the Company . . . . . . . . 30
----------------------
SECTION 4.4 Maintenance of Office or
------------------------
Agency . . . . . . . . . . . . . . . . 30
------
SECTION 4.5 Negative Pledge . . . . . . . . . . . . 31
---------------
SECTION 4.6 Purchase of Securities upon a
-----------------------------
Change of Control . . . . . . . . . . . 31
-----------------
SECTION 4.7 Limitation on Indebtedness . . . . . . 33
--------------------------
SECTION 4.8 Certificate to Trustee . . . . . . . . 33
----------------------

ARTICLE 5

CONSOLIDATION, MERGER, CONVEYANCE,

SECTION 5.1 When Company May Merge, Etc. . . . . . 34
----------------------------
SECTION 5.2 Successor Substituted . . . . . . . . . 36
---------------------

ARTICLE 6

DEFAULT AND REMEDIES

SECTION 6.1 Events of Default . . . . . . . . . . . 36
-----------------
SECTION 6.2 Acceleration . . . . . . . . . . . . . 38
------------
SECTION 6.3 Other Remedies . . . . . . . . . . . . 38
--------------
SECTION 6.4 Waiver of Past Defaults . . . . . . . . 38
-----------------------
SECTION 6.5 Control by Majority . . . . . . . . . . 39
-------------------
SECTION 6.6 Limitation on Suits . . . . . . . . . . 39
-------------------
SECTION 6.7 Rights of Holders of
--------------------
Securities to Receive
---------------------
Payment . . . . . . . . . . . . . . . . 40
-------
SECTION 6.8 Collection Suit by Trustee . . . . . . 40
--------------------------
SECTION 6.9 Trustee May File Proofs of
--------------------------
Claim . . . . . . . . . . . . . . . . . 40
-----
SECTION 6.10 Priorities . . . . . . . . . . . . . . 41
----------
SECTION 6.11 Undertaking for Costs . . . . . . . . . 41
---------------------

ii
<PAGE>

ARTICLE 7

TRUSTEE

SECTION 7.1 General . . . . . . . . . . . . . . . . 42
-------
SECTION 7.2 Certain Rights of Trustee . . . . . . . 42
-------------------------
SECTION 7.3 Individual Rights of Trustee . . . . . 44
----------------------------
SECTION 7.4 Trustee's Disclaimer . . . . . . . . . 45
--------------------
SECTION 7.5 Notice of Default . . . . . . . . . . . 45
-----------------
SECTION 7.6 Reports by Trustee to
---------------------
Holders . . . . . . . . . . . . . . . . 45
-------
SECTION 7.7 Compensation and Indemnity . . . . . . 45
--------------------------
SECTION 7.8 Replacement of Trustee . . . . . . . . 46
----------------------
SECTION 7.9 Successor Trustee by Merger,
----------------------------
Etc. . . . . . . . . . . . . . . . . . 48
----
SECTION 7.10 Eligibility . . . . . . . . . . . . . . 48
-----------
SECTION 7.11 Money Held in Trust . . . . . . . . . . 48
-------------------

ARTICLE 8

DISCHARGE OF INDENTURE

SECTION 8.1 Satisfaction and Discharge of
-----------------------------
Indenture . . . . . . . . . . . . . . . 48
---------
SECTION 8.2 Application by Trustee of
-------------------------
Funds Deposited for Payment
---------------------------
of Securities . . . . . . . . . . . . . 49
-------------
SECTION 8.3 Repayment of Moneys Held by
---------------------------
Paying Agent . . . . . . . . . . . . . 49
------------
SECTION 8.4 Return of Moneys Held by
------------------------
Trustee and Paying Agent
------------------------
Unclaimed for Three Years . . . . . . . 49
-------------------------
SECTION 8.5 Defeasance . . . . . . . . . . . . . . 50
----------
SECTION 8.6 Covenant Defeasance . . . . . . . . . . 51
-------------------

ARTICLE 9

AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 9.1 Without Consent of Holders of
-----------------------------
Securities . . . . . . . . . . . . . . 52
----------
SECTION 9.2 With Consent of Holders of
--------------------------
Securities . . . . . . . . . . . . . . 53
----------
SECTION 9.3 Compliance with Trust
---------------------
Indenture Act . . . . . . . . . . . . . 55
-------------
SECTION 9.4 Revocation and Effect of
------------------------
Consents . . . . . . . . . . . . . . . 55
--------
SECTION 9.5 Notation on or Exchange of
--------------------------
Securities . . . . . . . . . . . . . . 55
----------
SECTION 9.6 Trustee to Sign Amendments,
---------------------------
etc . . . . . . . . . . . . . . . . . . 56
---

iii
<PAGE>

ARTICLE 10

DETERMINATION OF THE PAYMENT AMOUNT

SECTION 10.1 Determination of the
--------------------
Contingent Amount . . . . . . . . . . . 56
-----------------
SECTION 10.2 Holder Actuary; Compensation
----------------------------
and Indemnity . . . . . . . . . . . . . 56
-------------
SECTION 10.3 Company Actuary . . . . . . . . . . . . 57
---------------
SECTION 10.4 Preparation of Reserve
----------------------
Reports . . . . . . . . . . . . . . . . 58
-------
SECTION 10.5 Resolution of Disputes;
-----------------------
Arbitration . . . . . . . . . . . . . . 59
-----------
SECTION 10.6 Annual Review of Reserves And
-----------------------------
Claims . . . . . . . . . . . . . . . . 60
------
SECTION 10.7 Settlement in Stock . . . . . . . . . . 61
-------------------

ARTICLE 11

MISCELLANEOUS

SECTION 11.1 Trust Indenture Act of 1939 . . . . . . 61
---------------------------
SECTION 11.2 Notices . . . . . . . . . . . . . . . . 62
-------
SECTION 11.3 Certificate and Opinion as to
-----------------------------
Conditions Precedent . . . . . . . . . 63
--------------------
SECTION 11.4 Statements Required in
----------------------
Certificate or Opinion . . . . . . . . 63
----------------------
SECTION 11.5 Rules by Trustee, Paying
------------------------
Agent or Registrar . . . . . . . . . . 64
------------------
SECTION 11.6 Payment Date Other Than a
-------------------------
Business Day . . . . . . . . . . . . . 64
------------
SECTION 11.7 Governing Law . . . . . . . . . . . . . 64
-------------
SECTION 11.8 No Adverse Interpretation of
----------------------------
Other Agreements . . . . . . . . . . . 64
----------------
SECTION 11.9 Successors . . . . . . . . . . . . . . 64
----------
SECTION 11.10 Duplicate Originals . . . . . . . . . . 64
-------------------
SECTION 11.11 Separability . . . . . . . . . . . . . 64
------------
SECTION 11.12 Table of Contents, Headings,
----------------------------
Etc. . . . . . . . . . . . . . . . . . 64
----
SECTION 11.13 Incorporators, Stockholders,
----------------------------
Officers and Directors of
-------------------------
Company Exempt from
-------------------
Individual Liability . . . . . . . . . 65
--------------------
SECTION 11.14 Judgment Currency . . . . . . . . . . . 65
-----------------

SIGNATURES

Exhibit A - Form of Security
Exhibit B - Calculation of Contingent Amount
Exhibit C - Registration Rights

<PAGE>

INDENTURE, dated as of ________ __, 1995, between
Piedmont Management Company Inc., a Delaware corporation, as
the Company, and Shawmut Bank Connecticut, N.A., a national
association, as Trustee.

RECITALS OF THE COMPANY

WHEREAS, the Company has duly authorized the issue
of its Contingent Interest Notes Due June 30, 2006
(collectively, the "Securities"), which Securities consist
of (i) an aggregate principal amount of $1,000,000 plus
interest accreting thereon from the date of issuance as
provided herein at a rate of 8.0% per annum, compounded
annually, and (ii) aggregate contingent interest of up to
$55,000,000 as determined pursuant to Article 10, and, to
provide, among other things, for the authentication,
delivery and administration thereof, the Company has duly
authorized the execution and delivery of this Indenture; and

WHEREAS, all things necessary to make this Inden-
ture a valid indenture and agreement according to its terms
have been done;

NOW, THEREFORE:

In consideration of the premises, the Company and
the Trustee mutually covenant and agree for the equal and
proportionate benefit of the respective holders from time to
time of the Securities as follows:

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 Definitions.
-----------

"Acquired Indebtedness" means Indebtedness of a
Person: (i) existing at the time such Person becomes a
Subsidiary (or any renewal, extension, substitution,
refinancing or replacement thereof at such time) or (ii)
assumed in connection with the acquisition of assets from
another Person, other than Indebtedness incurred in
connection with, or in contemplation of, such Person
becoming a Subsidiary or such acquisition, as the case may
be.

"Adverse Reserve Development" has the meaning set
forth in Exhibit B.

<PAGE>

"Affiliate" means, with respect to any specified
Person, any other Person directly or indirectly controlling
or controlled by or under direct or indirect common control
with such specified Person (except in cases where
substantially all of the control that would ordinarily be
exercisable by virtue of ownership of stock, other than the
election of directors, has been eliminated by applicable
regulatory authorities). For the purposes of this
definition, "control" when used with respect to any
specified Person means the power to direct the management
and policies of such Person, directly or indirectly, whether
through the ownership of voting stock, by contract or
otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.

"Average Life" means, as of the date of
determination, with respect to any Indebtedness, the
quotient obtained by dividing: (i) the sum of the products
of (A) the number of years (or portion thereof) from the
date of determination to the dates of each successive
scheduled principal payment of such Indebtedness multiplied
by (B) the amount of such principal payment by (ii) the sum
of all such principal payments.

"Board of Directors" means either the Board of
Directors of the Company or any committee of such Board duly
authorized to act hereunder.

"Board Resolution" means one or more resolutions
of the board of directors of the Company or any authorized
committee thereof, certified by the secretary or an
assistant secretary to have been duly adopted and to be in
full force and effect on the date of certification, and
delivered to the Trustee.

"Business Day" means any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a
day on which banking institutions are authorized or required
by law or regulation to close in The City of New York.

"Capital Lease Obligation" of any Person means any
obligations of such Person and its Subsidiaries on a
consolidated basis under any capital lease of real or
personal property which, in accordance with GAAP, has been
recorded as a capitalized lease obligation; and the amount
of Indebtedness represented by such obligation will be the
capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall
be the date of the last payment of rent or any other amount
due under such lease prior to the first date upon which such

<PAGE>

lease may be terminated by the lessee without payment of a
penalty.

"Capital Stock" of any Person means any and all
shares, interests, participation, or other equivalent
(however designated) of such Person's capital stock and any
rights (other than debt securities convertible into or
exchangeable for capital stock), warrants or options to
purchase the foregoing whether now outstanding or issued
after the date hereof.

<PAGE>

at the Company, or if the Company is controlled by another
Person, such officers do not hold positions of equivalent
responsibility at such other Person. In addition, a Change
of Control shall be deemed to have occurred if (a) the
Company or any Subsidiary sells, conveys, transfers, leases
or otherwise disposes of all or substantially all of the
assets of the Company and its Subsidiaries, considered as a
whole, or (b) the Company or any Subsidiary of the Company
sells, conveys, transfers, leases or otherwise disposes of
all or substantially all of the common stock of, or sells,
conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of, RECO or Chartwell
Reinsurance to another Person or Persons in one transaction
or a series of transactions, including through a bulk
reinsurance transaction or transactions, in each case with
respect to clauses (a) and (b) above, other than any
transaction which is specifically contemplated by the Merger
Agreement or any sale, conveyance, transfer, lease or other
disposition to the Company or any Wholly-Owned Restricted
Subsidiary.

"Chartwell" means Chartwell Re Corporation, a
Delaware corporation.

"Chartwell Reinsurance" means Chartwell
Reinsurance Company, a Minnesota corporation.

"Commission" means the Securities and Exchange
Commission, as from time to time constituted, created under
the Exchange Act or, if at any time after the execution of
this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such
time.

"Common Stock" means, with respect to any Person,
any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-
voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture,
including, without limitation, all series and classes of
such common stock.

"Company" means Piedmont Management Company Inc.,
a Delaware corporation, and its successors and assigns.
Chartwell shall be deemed to be the successor to Piedmont
Management Company Inc. after the Merger, and from and after
the Merger, "Company" shall mean Chartwell and its
successors and assigns.

<PAGE>

"Company Actuary" means the actuary appointed by
the Company pursuant to Section 10.3.

"Consolidated Net Worth" of any Person means the
consolidated stockholders' equity of such Person and its
Restricted Subsidiaries as determined in accordance with
GAAP consistently applied.

"Contingent Amount" has the meaning set forth in
Exhibit B.

"Corporate Trust Office" means the office of the
Trustee at which the corporate trust business of the Trustee
shall, at any particular time, be principally administered,
which office is, at the date as of which this Indenture is
dated, located at New York, New York.

"Currency Agreement" means any foreign exchange
contract, currency swap agreement or other similar agreement
or arrangement designed to protect such Person or any of its
Restricted Subsidiaries against fluctuations in currency
values or exchange rates.

"Determination Date" has the meaning set forth in
Exhibit B.

"Exchange Act" means the Securities Exchange Act
of 1934, as amended.

"Fair Market Value" means, with respect to any
asset or property, the sale value that would be obtained in
an arm's-length transaction between an informed and willing
seller under no compulsion to sell and an informed and
willing buyer.

"Fixed Amount" means the aggregate Principal
Amount plus accreted interest thereon from the Issue Date
through the Settlement Date (not including any period of
extension pursuant to Section 2.13) at a rate of 8.0% per
annum, compounded annually.

"GAAP" means generally accepted accounting
principles in the United States of America at the date of
any computation required or permitted hereunder; provided
that for purposes of calculation of the Contingent Amount
GAAP means generally accepted accounting principles in the
United States of America as in effect on the Determination
Date.

"Guaranteed Debt" of any Person means, without
duplication, all Indebtedness of any other Person to the

<PAGE>

extent guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly
by such Person through an agreement: (i) to pay or purchase
such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness; (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase
or sell services, primarily for the purpose of enabling such
other Person to make payment of such Indebtedness or to
assure the holder of such Indebtedness against loss;
(iii) to supply funds to, or in any other manner invest in,
such other Person (including any agreement to pay for
property or services to be acquired by such other Person
irrespective of whether such property is received or such
services are rendered); (iv) to maintain working capital or
equity capital of such other Person, or otherwise to
maintain the net worth, solvency or other financial
condition of the debtor; or (v) otherwise to assure the
holder of such Indebtedness of such other Person against
loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit, in either case in
the ordinary course of business, or any obligation or
liability of such other Person in respect of leasehold
interests assigned by such other Person to any other Person.

"Holder", "holder of Securities", "Securityholder"
or other similar terms means the registered holder of any
Security.

"Holder Actuary" means the actuary appointed to
represent the interests of the Holders of the Securities
pursuant to the Holder Actuary Agreement dated the date
hereof between the Holder Actuary and the Company.

"Indebtedness" means, with respect to any Person,
without duplication: (i) all obligations of such Person for
borrowed money and all obligations of such Person for the
deferred purchase price of property or services, excluding
any trade payables and other accrued current liabilities
incurred in the ordinary course of business, in each case,
if, and to the extent, any of the foregoing would appear as
a liability upon a balance sheet of such Person prepared in
accordance with GAAP; (ii) all obligations of such Person
evidenced by bonds, notes, debentures or other similar
instruments, if, and to the extent, any of the foregoing
would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP; (iii) all
obligations created or arising under any conditional sale or
other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of
default are limited to repossession or sale of such

<PAGE>

property), but excluding trade accounts payable arising in
the ordinary course of business and software license
agreements or other software acquisition agreements entered
into in the ordinary course of business; (iv) all Capital
Lease Obligations of such Person; (v) all obligations
referred to in (but not excluded from) clause (i), (ii),
(iii) or (iv) above of other Persons and all dividends of
other Persons, to the extent that the payment thereof is
secured by (or to the extent that the holder of such
obligations has an existing right, contingent or otherwise,
to be secured by) any Lien, upon or in property (including,
without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or
become liable for the payment of such obligations; (vi) all
Guaranteed Debt of such Person; (vii) all Redeemable Capital
Stock issued by such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends; (viii) the net amount of all
obligations under Currency Agreements or Interest Swap
Obligations of such Person; (ix) all obligations for the
reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit entered
into in the ordinary course of the insurance or reinsurance
business of such Person to the extent that such letters of
credit are not drawn upon, or if and to the extent drawn
upon, such drawing is reimbursed not later than the 30th
Business Day following a demand for reimbursement following
payment on the letter of credit) and (x) any amendment,
supplement, modification, deferral, renewal, extension or
refunding of any liability of the types referred to in
clauses (i) through (ix) above. Indebtedness shall not
include obligations under insurance, reinsurance or
retrocession contracts entered into in the ordinary course
of business. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock
as if such Redeemable Capital Stock were purchased on any
date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is
based upon, or measured by, the Fair Market Value of such
Redeemable Capital Stock, such Fair Market Value shall be
determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.

"Indenture" means this instrument as originally
executed and delivered or, if amended or supplemented as
herein provided, as so amended or supplemented.

<PAGE>

"Interest Swap Obligations" means the obligations
of any Person pursuant to any interest rate swap agreement,
interest rate collar agreement or other similar agreement or
arrangement designed to protect such Person or any of its
subsidiaries against fluctuations in interest rates.

"Issue Date" means the date on which Securities
are originally issued under the Indenture.

"Lien" means any mortgage, charge, pledge, lien,
security interest or encumbrance of any kind.

"Maturity Date" means June 30, 2006 (subject to
any extension pursuant to Section 2.13).

"Merger" means the merger of the Company with and
into Chartwell pursuant to an Agreement and Plan of Merger
dated as of August 7, 1995 between the Company and Chartwell
(the "Merger Agreement").

"Non-Recourse Indebtedness" means Indebtedness as
to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support (including any
undertaking, agreement or instrument that would constitute
Indebtedness), unless the incurrence of such Indebtedness
would have otherwise been permitted hereunder, (b) is
directly or indirectly liable, unless the incurrence of such
Indebtedness would have otherwise been permitted hereunder,
or (c) constitutes the lender.

"Officer" means, with respect to the Company, the
chairman of the board of directors, the president or chief
executive officer, any vice president, the chief financial
officer, the treasurer or any assistant treasurer, or the
secretary or any assistant secretary.

"Officers' Certificate" means a certificate signed
in the name of the Company by the Chairman of the Board of
Directors or the President or any Vice President and by the
Chief Financial Officer, Treasurer or the Secretary or any
Assistant Secretary of the Company and delivered to the
Trustee. Each such certificate shall comply with
Section 314 of the Trust Indenture Act of 1939 to the extent
applicable and include the statements provided for in
Section 11.4, if and to the extent required thereby.

"Opinion of Counsel" means an opinion in writing
signed by legal counsel who may be an employee of or counsel
to the Company or who may be other counsel satisfactory to
the Trustee. Each such opinion shall comply with Section
314 of the Trust Indenture Act and include the statements

<PAGE>

provided for in Section 11.4, if and to the extent required
thereby.

"Payment Amount" means the sum of (i) the Fixed
Amount, (ii) the Contingent Amount and (iii) to the extent
applicable, any Extension Interest.

"Permitted Liens" means:

(a) Liens securing Indebtedness of the Company
with respect to any revolving credit facility not
exceeding $10.0 million in principal amount in the
aggregate at any one time outstanding (exclusive of any
Lien permitted by any other clause of this definition);
provided that such $10.0 million shall be reduced to
--------
the extent that any Indebtedness shall have been
incurred and shall be outstanding under clause (ix) of
the definition of "Permitted Subsidiary Indebtedness";

(b) Liens in favor of the Company or any
Restricted Subsidiary;

(c) Liens on shares of capital stock or property
of a Person existing at the time such Person is
acquired by or merged into or consolidated with the
Company or any Restricted Subsidiary of the Company,
provided that such Liens were not incurred in
connection with, or in contemplation of, such merger or
consolidation and such Liens do not extend to any
assets of the Company or any of its Restricted
Subsidiaries other than the shares or assets of the
Person so acquired by, merged into or consolidated with
the Company or such Restricted Subsidiary;

(d) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted
Subsidiary of the Company; provided that such Liens
were not incurred in connection with, or in
contemplation of, such acquisition and do not extend to
any assets of the Company or any of its Restricted
Subsidiaries other than the property so acquired;

(e) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance
bonds, or landlords', carriers', warehousemen's,
mechanics', suppliers', materialmen's or other like
Liens, in any case incurred in the ordinary course of
business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate process
of law, if a reserve or other appropriate provision, if

<PAGE>

any, as is required by GAAP shall have been made
therefor;

(f) Liens existing on the date of the Merger;

(g) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that
are being contested in good faith by appropriate
proceedings promptly instituted and diligently
concluded; provided that any reserve or other
appropriate provision as shall be required in
conformity with GAAP shall have been made therefor;

(h) Liens with respect to obligations under
Currency Agreements or Interest Swap Obligations
permitted under the Indenture;

(i) Liens to secure any extension, renewal,
substitution, refinancing or replacement (or successive
extensions, renewal, substitution, refinancing or
replacements), in whole or in part, of any Indebtedness
secured by Liens referred to in any of clauses (a),
(c), (d), (f), (j), (k) and (l); provided that any such
--------
Lien shall be limited to the same property that secured
the original Lien and the aggregate principal amount of
Indebtedness that is secured by such Lien shall not be
increased to an amount greater than the outstanding
aggregate principal amount of the Indebtedness being so
extended, renewed, substituted, refinanced or replaced
(plus any premium and expenses incurred in connection
therewith);

(j) Liens securing Indebtedness incurred to
finance the construction or purchase of, or repairs,
improvements or additions to, property of the Company;
provided that (i) any such Lien may not extend to any
--------
other property owned by the Company or any of its
Restricted Subsidiaries, (ii) such Lien is created
prior to, at the time of or within 90 days after such
construction, purchase, repair, improvement or addition
is completed and (iii) the principal amount of the
Indebtedness secured by such Lien does not exceed 100%
of the fair market cost of such construction, purchase,
repair, improvement or addition;

(k) Liens securing Indebtedness of a Restricted
Subsidiary permitted to be incurred under this
Indenture or any guarantee by the Company thereof; and

(l) Liens securing Indebtedness of the Company
provided, that at the date that any such Lien is

<PAGE>

created or incurred (on a pro forma basis), the ratio
of (x) Senior Indebtedness to (y) Consolidated Net
Worth of the Company does not exceed 0.9 to 1.

"Permitted Subsidiary Indebtedness" means:

(i) Indebtedness of any Restricted Subsidiary
outstanding on the date of the Merger;

(ii) Acquired Indebtedness of any Restricted
Subsidiary;

(iii) Indebtedness of any Restricted Subsidiary
issued to or held by the Company or a Wholly-Owned
Restricted Subsidiary of the Company;

(iv) (A) Interest Swap Obligations of any
Restricted Subsidiary, the notional amount of which
obligations do not exceed the aggregate principal
amount of the Indebtedness they are designed to protect
and (B) obligations pursuant to Currency Agreements
entered into by any Restricted Subsidiary in respect of
its (x) assets or (y) obligations, as the case may be,
that are denominated in a currency other than U.S.
dollars;

(v) Guaranteed Debt of a Restricted Subsidiary in
respect of Indebtedness of any other Restricted
Subsidiary permitted to be incurred by such other
Subsidiary under this Indenture;

(vi) Indebtedness arising from agreements
providing for indemnification, adjustment of purchase
price or similar obligations, or from Guaranteed Debt
or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any
Restricted Subsidiary pursuant to such agreements, in
any case incurred in connection with the disposition of
any business, assets or Restricted Subsidiary of the
Company, other than guarantees of Indebtedness incurred
by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the
purpose of financing such acquisition; provided that
--------
the maximum aggregate liability in respect of all such
Indebtedness in the nature of such guarantee shall at
no time exceed the gross proceeds actually received
from the sale of such business, assets or Restricted
Subsidiary;

(vii) Indebtedness under performance, surety or
appeal bonds; provided that such performance, surety or
--------

<PAGE>

appeal bonds are furnished in the ordinary course of
any Restricted Subsidiary's insurance or reinsurance
business;

(viii) Any renewals, extensions, substitutions,
refinancings or replacements by any Restricted
Subsidiary of any Indebtedness of a Restricted
Subsidiary permitted under this Indenture, including
any successive renewals, extensions, substitutions,
refinancings or replacements thereof so long as any
such new Indebtedness (A) shall be in a principal
amount that does not exceed the principal amount so
refinanced, plus the amount of any premium required to
be paid in connection with such refinancing pursuant to
the terms of the Indebtedness refinanced or the amount
of any premium reasonably determined by the Company as
necessary to accomplish such refinancing, plus the
amount of expenses incurred in connection with such
refinancing and (B) (x) in the case of Indebtedness
being refinanced which has an Average Life shorter than
the Securities, such renewal, extension, substitution,
refinancing or replacement does not reduce the Average
Life or the final Stated Maturity of the principal of
such Indebtedness and (y) in all other cases, any such
new Indebtedness has an Average Life and final Stated
Maturity that exceeds the Average Life and final Stated
Maturity of the Securities; provided that for purposes
of this clause (viii), the principal amount of any
Indebtedness shall be deemed to mean the principal
amount thereof or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration thereof,
such lesser amount as of the date of determination; and

(ix) Indebtedness under any revolving credit
facility of up to but not in excess of an aggregate
principal amount outstanding at any one time of $10.0
million; provided that there is a period of 30
--------
consecutive days in each calendar year during which no
such Indebtedness is outstanding; and provided further
----------------
that such $10.0 million shall be reduced to the extent
of any Indebtedness secured by Liens created or
incurred under clause (a) of the definition of
"Permitted Liens".

"Person" means any individual, corporation,
limited or general partnership, limited liability company,
joint venture, association, joint stock company, trust,
fund, unincorporated organization or government or any
agency or political subdivision thereof.

<PAGE>

"Principal Amount" means, with respect to the
Securities, in the aggregate, $1,000,000.

"Principal Restricted Insurance Subsidiary" means
(i) Chartwell Reinsurance; (ii) RECO; (iii) any other
insurance company Restricted Subsidiary of the Company that
becomes a "significant subsidiary" as defined in Regulation
S-X, as promulgated by the Commission; and (iv) any other
Subsidiary of the Company that may succeed, by merger,
consolidation or otherwise, to all or substantially all of
the business of one or more of such persons specified in
(i), (ii) and (iii) above.

"pro rata" means, with respect to any Security,
the ratio of the principal amount of such Security to the
aggregate principal amount of the Securities.

"Protected Business" has the meaning set forth in
Exhibit B.

"RECO" means The Reinsurance Corporation of New
York, a New York corporation.

"Redeemable Capital Stock" means any Capital Stock
that, either by its terms, by the terms of any security into
which it is convertible or exchangeable or otherwise, is or
upon the happening of an event or passage of time would be
required to be redeemed on or prior to the final Stated
Maturity of the Securities or is redeemable at the option of
the holder thereof at any time prior to such final Stated
Maturity, or is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity.

"Redemption Date" means the date fixed for
optional redemption of the Securities in accordance with
Article 3 of the Indenture; provided that such date shall be
--------
extended if and to the extent required by Section 2.13.

"Registered Common Stock" means Common Stock of
the Company registered under the Securities Act of 1933, as
amended (or other Common Stock of the Company that is freely
tradeable (other than by affiliates (within the meaning of
Rule 144 under the Securities Act) of the Company) without
such registration; provided that in connection with the
--------
settlement of the Payment Amount due under the Securities in
Common Stock without such registration, an unqualified
opinion of a nationally recognized law firm experienced in
securities law matters is delivered by the Company to the
Trustee to such effect).

<PAGE>

"Responsible Officer" when used with respect to
the Trustee means the chairman of the board of directors,
any vice chairman of the board of directors, the chairman of
the trust committee, the chairman of the executive
committee, any vice chairman of the executive committee, the
president, any vice president (whether or not designated by
numbers or words added before or after the title "vice
president"), the cashier, the secretary, the treasurer, any
trust officer, any assistant trust officer, any assistant
vice president, any assistant cashier, any assistant
secretary, any assistant treasurer, or any other officer or
assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at
the time shall be such officers, respectively, or to whom
any corporate trust matter is referred because of his
knowledge of and familiarity with the particular subject.

"Restricted Subsidiary" of a Person means any
Subsidiary of the referent Person that is not an
Unrestricted Subsidiary.

"Securities Act" means the Securities Act of 1933,
as amended.

"Security" or "Securities" means any Contingent
Interest Note Due June 30, 2006 authenticated and delivered
under this Indenture.

"Senior Indebtedness" means, without duplication,
Indebtedness of all Restricted Subsidiaries of the Company
plus any Indebtedness of the Company to the extent secured
by Liens created or incurred under clauses (a), (c), (d),
(f), (i), (j) and (l) of the definition of "Permitted
Liens".

"Settlement Date" means each of the Maturity Date;
the Redemption Date; a Change of Control Purchase Date; and,
in the event of acceleration of the Securities pursuant to
this Indenture, as a result of a bankruptcy or insolvency
event with respect to the Company or a Principal Restricted
Insurance Subsidiary, the date of such Event of Default,
(ii) as the result of a failure to pay when due any amount
with respect to any Securities, the Settlement Date as of
which such payment was due or (iii) as the result of any
Event of Default other than those described in the foregoing
clauses (i) and (ii), the date of such acceleration.

"Stated Maturity" means, when used with respect to
any Indebtedness or any installment of principal or of
interest thereon, the date specified in such Indebtedness as
the fixed date on which the principal of such Indebtedness

<PAGE>

or such installment of principal or of interest is due and
payable.

"Subsidiary" means, with respect to any Person,
any corporation, association or other business entity of
which more than 50% of the outstanding Voting Stock is
owned, directly or indirectly, by such Person and one or
more other Subsidiaries of such Person.

"Tax Benefit" has the meaning set forth in
Exhibit B.

"Trust Indenture Act" means the Trust Indenture
Act of 1939 as in force at the date as of which this
Indenture was originally executed.

"Trustee" means the entity identified as "Trustee"
in the first paragraph hereof and shall also include any
successor trustee.

"Unrestricted Subsidiary" means (i) any Subsidiary
that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution; but
only to the extent that such Subsidiary: (a) is designated
an Unrestricted Subsidiary prior to formation, creation or
acquisition; (b) except in the case of any newly acquired
Subsidiary, has total assets at the time of formation or
creation with a fair market value not exceeding $1,000; (c)
has no Indebtedness other than Non-Recourse Indebtedness;
(d) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary
of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not
Affiliates of the Company; and (e) is a Person with respect
to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Capital Stock or (y) to maintain or
preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results.
Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions.
If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be

<PAGE>

incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant entitled
"Limitation on Indebtedness," the Company shall be in
default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary
and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant entitled
"Limitation on Indebtedness," and (ii) no default or Event
of Default would be in existence following such designation.

"Voting Stock" means stock of the class or classes
pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least
a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time
stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).

"Wholly-Owned Restricted Subsidiary" of any Person
means a Restricted Subsidiary of such Person all of the
outstanding Capital Stock or other equity ownership
interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more
Wholly-Owned Restricted Subsidiaries of such Person.

SECTION 1.2 Other Definitions. Each of the
-----------------
following terms is defined in the section set forth opposite
such term:
Term Section
---- -------

Arbitration Cost 10.5
Authenticating Agent 2.2
cash transaction 7.3
Change of Control Offer 4.6
Change of Control Purchase Date 4.6
Change of Control Purchase Notice 4.6
Change of Control Purchase Price 4.6
Event of Default 6.1
Existing Records 4.2
Extension Interest 2.13
Fair Value 10.7
finally determined 2.13
Holder Actuary Cost 10.2
Independent Actuary 10.5
Judgment Currency 11.14
Paying Agent 2.5

<PAGE>

record date 2.4
Registrar 2.5
Registration Rights 10.7
Report Date 10.6
Required Currency 11.14
Reserve Report 10.4
Security Register 2.5
self-liquidating paper 7.3
Surviving Entity 5.1
Trigger Date 10.4.

In addition, certain terms relating to the
definition and calculation of the Contingent Amount are
defined in Exhibit B attached to the Indenture.

SECTION 1.3 Incorporation by Reference of Trust
-----------------------------------
Indenture Act. Whenever this Indenture or any supplemental
-------------
indenture refers to a provision of the Trust Indenture Act,
the provision is incorporated by reference in and made a
part of this Indenture or such supplemental indenture. The
following terms used in this Indenture or any supplemental
indenture that are defined by the Trust Indenture Act have
the following meanings:

"indenture securities" means the Securities;

"indenture security holder" means a Holder or a
Securityholder;

"indenture to be qualified" means this Indenture;

"indenture trustee" or "institutional trustee"
means the Trustee; and

"obligor" on the indenture securities means the
Company or any other obligor on the Securities.

All other terms used in this Indenture or any
supplemental indenture that are defined by the Trust
Indenture Act, defined by reference in the Trust Indenture
Act to another statute or defined by a rule of the
Commission and not otherwise defined herein have the
meanings assigned to them therein unless the context
otherwise requires.

SECTION 1.4 Rules of Construction. Unless the
---------------------
context otherwise requires in this Indenture or any
supplemental indenture:

(i) an accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP;

<PAGE>

(ii) words in the singular include the plural, and
words in the plural include the singular;

(iii) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision;

(iv) all references to Sections or Articles refer
to Sections or Articles of this Indenture unless
otherwise indicated; and

(v) use of masculine, feminine or neuter pronouns
should not be deemed a limitation, and the use of any
such pronouns should be construed to include, where
appropriate, the other pronouns.

ARTICLE 2

THE SECURITIES

SECTION 2.1 Form and Dating. The Securities
---------------
and Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, which is hereby
incorporated in and expressly made a part of this Indenture,
with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this
Indenture and may have imprinted or otherwise reproduced
thereon such legend or legends or endorsements, not
inconsistent with the provisions of this Indenture, as may
be required to comply with any law, or with any rules of any
securities exchange or usage, all as may be determined by
the officers executing such Securities as evidenced by their
execution of the Securities.

SECTION 2.2 Execution and Authentication. Two
----------------------------
Officers shall execute the Securities for the Company by
facsimile or manual signature in the name and on behalf of
the Company. The seal of the Company, if any, shall be
reproduced on the Securities. If an Officer whose signature
is on a Security no longer holds that office at the time the
Security is authenticated, the Security shall nevertheless
be valid.

The Trustee, at the expense of the Company, may
appoint an authenticating agent (the "Authenticating Agent")
--------------------
to authenticate Securities. The Authenticating Agent may
authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the
Trustee includes authentication by such Authenticating
Agent.

<PAGE>

A Security shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of
authentication on the Security. The signature shall be
conclusive evidence that the Security has been authenticated
under this Indenture.

SECTION 2.3 Amount Limited. Subject to Section
--------------
2.8, the aggregate principal amount of Securities which may
be authenticated and delivered under this Indenture is
limited to $1,000,000 plus interest accreting thereon from
the Issue Date as provided herein at a rate of 8.0% per
annum, compounded annually. The Securities are general
unsecured obligations of the Company and shall rank equally
and pari passu with all other unsecured and unsubordinated
debt of the Company.

SECTION 2.4 Denomination and Date of Securi-
--------------------------------
ties; Payments of Interest. The Securities shall be
--------------------------
issuable as registered Securities in denominations as the
Company and the Trustee shall from time to time determine;
provided that in no event shall the minimum denomination
--------
exceed $1,000.

Each Security shall be dated the date of its
authentication. The principal amount of the Securities
shall bear interest from the date, and such interest shall
be payable on the date, as set forth herein or in the
Security.

SECTION 2.5 Registrar and Paying Agent; Agents
----------------------------------
Generally. The Company shall maintain an office or agency
---------
where Securities may be presented for registration, regis-
tration of transfer or for exchange (the "Registrar") and an
---------
office or agency where Securities may be presented for
payment (the "Paying Agent"), which shall be in the Borough
------------
of Manhattan, The City of New York. The Company shall cause
the Registrar to keep a register of the Securities and of
their registration, transfer and exchange (the "Security
--------
Register"). No transfer of a Security shall be registered
--------
unless such transfer was permitted under Section 2.7. The
Company or the Trustee may require any Person requesting
such registration to present appropriate evidence
establishing the compliance of such transfer with Section
2.7 before permitting such registration of transfer. The
Company may have one or more additional Paying Agents or
transfer agents with respect to the Securities.

The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture. The
agreement shall implement the provisions of this Indenture
and the Trust Indenture Act that relate to such Agent. The

<PAGE>

Company shall give prompt written notice to the Trustee of
the name and address of any Agent and any change in the name
or address of an Agent. If the Company fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such.
The Company may remove any Agent upon written notice to such
Agent and the Trustee; provided that no such removal shall
--------
become effective until (i) the acceptance of an appointment
by a successor Agent to such Agent as evidenced by an appro-
priate agency agreement entered into by the Company and such
successor Agent and delivered to the Trustee or (ii) notifi-
cation to the Trustee that the Trustee shall serve as such
Agent until the appointment of a successor Agent in accor-
dance with clause (i) of this proviso. The Company or any
affiliate of the Company may act as Paying Agent or Regis-
trar; provided that neither the Company nor an affiliate of
--------
the Company shall act as Paying Agent in connection with the
defeasance of the Securities or the discharge of this Inden-
ture under Article 8.

The Company initially appoints the Trustee as
Registrar, Paying Agent and Authenticating Agent. If, at
any time, the Trustee is not the Registrar, the Registrar
shall make available to the Trustee ten days prior to each
Settlement Date and at such other times as the Trustee may
reasonably request the names and addresses of the Holders as
they appear in the Security Register.

SECTION 2.6 Paying Agent to Hold Money in
-----------------------------
Trust. Not later than 10:00 a.m. New York City time on each
-----
due date of any amount due with respect to the Securities,
the Company shall deposit with the Paying Agent money in
immediately available funds (or as provided in Section 10.7,
shares of Registered Common Stock and cash in lieu of
fractional shares) sufficient to pay or satisfy such amount.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall
hold in trust for the benefit of the Holders of such
Securities or the Trustee all money or securities held by
the Paying Agent for the payment of any amount due with
respect to the Securities and shall promptly notify the
Trustee of any default by the Company in making any such
payment. The Company at any time may require a Paying Agent
to pay all money or securities held by it to the Trustee and
account for any funds or securities disbursed, and the
Trustee may at any time during the continuance of any
payment default, upon written request to a Paying Agent,
require such Paying Agent to pay all money or securities
held by it to the Trustee and to account for any funds or
securities disbursed. Upon doing so, the Paying Agent shall
have no further liability for the money or securities so
paid over to the Trustee. If the Company or any affiliate

<PAGE>

of the Company acts as Paying Agent, it will, on or before
each due date of any amount due with respect to the
Securities, segregate and hold in a separate trust fund for
the benefit of the Holders thereof a sum of money (or
Registered Common Stock and cash in lieu of any fractional
shares) sufficient to pay such amount so becoming due until
such sum of money (or Registered Common Stock and cash in
lieu of fractional shares) shall be paid to such Holders or
otherwise disposed of as provided in this Indenture, and
will promptly notify the Trustee in writing of its action or
failure to act as required by this Section.

SECTION 2.7 Transfer Restrictions; Transfer and
-----------------------------------
Exchange. Subject to compliance with the Securities Act and
--------
any other applicable law, any Security may be transferred
without restriction of any kind during the period beginning
on the Issue Date and ending ninety (90) days from the Issue
Date. After such ninety (90) day period, none of the
Securities shall be transferred or assigned, except that
Securities may be transferred, subject to compliance with
the Securities Act, and any other applicable law, by a
Holder at any time:

(a) to any Affiliate of such Holder;

(b) to a trust, the beneficiaries of which, or a
corporation, limited liability company or
partnership, at least 80% of the
stockholders, members or general or limited
partners of which, are such Holder or his or
her issue, adopted issue, stepchild, parent,
spouse or other lineal descendants;

(d) to the heirs, executors, administrators,
testamentary trustees, legatees or
beneficiaries of such Holder;

(e) by gift without consideration of any kind;

(f) to any entity owning, at the time of
transfer, any of the Securities;

(g) to any entity offering to acquire, by tender
offer or otherwise, at least 25% of the
Securities then outstanding; or

(h) to the Company;

<PAGE>

provided that in the case of any transfer pursuant to
subsection (f) or (g) above, any such transfer shall only be
permitted during the period of (i) 60 days commencing April
1, 1999; (ii) 90 days prior to any Settlement Date; and
(iii) at any time after an acceleration of the Securities
pursuant to Section 6.2.

At the option of the Holder thereof, Securities
may be exchanged for a Security or Securities having
authorized denominations and an equal aggregate Principal
Amount as such Securities to be exchanged. Any such
exchange shall occur by the surrender of such Securities to
be exchanged at the agency of the Company that shall be
maintained for such purpose in accordance with Section 2.5
and upon payment, if the Company shall so require, of the
charges hereinafter provided. Whenever any Securities are
so surrendered for exchange, the Company shall execute, and
the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.

All Securities presented for registration of
transfer, exchange, redemption or payment shall be duly
endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company
and the Trustee duly executed by, the holder or his attorney
duly authorized in writing.

The Company may require payment of a sum
sufficient to cover any tax or other governmental charge
that may be imposed in connection with any exchange or
registration of transfer of Securities. No service charge
shall be made for any such transaction.

All Securities issued upon any transfer or
exchange of Securities shall be valid obligations of the
Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Securities surrendered
upon such transfer or exchange.

SECTION 2.8 Replacement Securities. If a
----------------------
defaced or mutilated Security is surrendered to the Trustee
or if a Holder claims that its Security has been lost,
destroyed or wrongfully taken, the Company shall issue and
the Trustee shall authenticate a replacement Security
bearing a number not contemporaneously outstanding. If
required by the Trustee or the Company, an indemnity bond
must be furnished that is sufficient in the judgment of both
the Trustee and the Company to protect the Company, the
Trustee and any Agent from any loss that any of them may
suffer if a Security is replaced. The Company may charge
such Holder for its reasonable expenses and the reasonable

<PAGE>

expenses of the Trustee (including without limitation
attorneys' fees and expenses) in replacing a Security. In
case any such mutilated, defaced, lost, destroyed or
wrongfully taken Security has become or is about to become
due and payable, the Company in its discretion may pay such
Security instead of issuing a new Security in replacement
thereof.

Every replacement Security is an additional
obligation of the Company and shall be entitled to the
benefits of this Indenture.

To the extent permitted by law, the foregoing
provisions of this Section are exclusive with respect to the
replacement or payment of mutilated, destroyed, lost or
wrongfully taken Securities.

SECTION 2.9 Outstanding Securities. Securities
----------------------
outstanding at any time are all Securities that have been
authenticated by the Trustee except for those canceled by
it, those delivered to it for cancellation and those
described in this Section as not outstanding.

If a Security is replaced pursuant to Section 2.8,
it ceases to be outstanding unless and until the Trustee and
the Company receive proof satisfactory to them that the
replaced Security is held by a holder in due course.

If the Paying Agent (other than the Company or an
affiliate of the Company) holds on the maturity date or any
redemption date or date for repurchase of the Securities
money sufficient (or Registered Common Stock and cash in
lieu of any fractional shares) to pay Securities payable or
to be redeemed or repurchased on that date, then on and
after that date such Securities cease to be outstanding and
interest on them shall cease to accrue.

A Security does not cease to be outstanding
because the Company or one of its affiliates holds such
Security, provided that, in determining whether the Holders
--------
of the requisite Principal Amount of the outstanding
Securities have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Securities
owned by the Company or any affiliate of the Company shall
be disregarded and deemed not to be outstanding, except
that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Securities as to
which a Responsible Officer of the Trustee has received
written notice to be so owned shall be so disregarded. Any
Securities so owned which are pledged by the Company, or by

<PAGE>

any affiliate of the Company, as security for loans or other
obligations, otherwise than to another such affiliate of the
Company, shall be deemed to be outstanding, if the pledgee
is entitled pursuant to the terms of its pledge agreement
and is free to exercise in its or his discretion the right
to vote such Securities, uncontrolled by the Company or by
any such affiliate.

SECTION 2.10 Temporary Securities. Until
--------------------
definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary
Securities. Temporary Securities shall be substantially in
the form of definitive Securities but may have insertions,
substitutions, omissions and other variations determined to
be appropriate by the Officers executing the temporary
Securities, as evidenced by their execution of such
temporary Securities. If temporary Securities are issued,
the Company will cause definitive Securities to be prepared
without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of
such temporary Securities at the office or agency of the
Company designated for such purpose pursuant to Section 4.2,
without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities the
Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like Principal Amount of
definitive Securities. Until so exchanged, the temporary
Securities shall be entitled to the same benefits under this
Indenture as definitive Securities.

SECTION 2.11 Cancellation. The Company at any
------------
time may deliver to the Trustee for cancellation any
Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee for cancellation
any Securities previously authenticated hereunder which the
Company has not issued and sold. The Registrar, any
transfer agent and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer,
exchange or payment. The Trustee shall cancel and destroy
all Securities surrendered for transfer, exchange, payment
or cancellation and shall deliver a certificate of
destruction to the Company. The Company may not issue new
Securities to replace Securities it has paid in full or
delivered to the Trustee for cancellation.

SECTION 2.12 CUSIP Numbers. The Company in
-------------
issuing the Securities may use "CUSIP" and "CINS" numbers
(if then generally in use), and the Trustee shall use CUSIP
numbers or CINS numbers, as the case may be, in notices of

<PAGE>

redemption or exchange as a convenience to Holders and no
representation shall be made as to the correctness of such
numbers either as printed on the Securities or as contained
in any notice of redemption or exchange.

SECTION 2.13 Limited Extension of Settlement
-------------------------------
Date. Except in the event of acceleration of the Securities
----
pursuant to Section 6.2, in the event that, despite the best
efforts of the Company, (i) any of the Company, the Holder
Actuary, the Independent Actuary or any accounting firm is
unable to perform in a timely manner its responsibilities
hereunder with respect to the calculation of the Contingent
Amount, and as a result such amount has not been finally
determined as of any Settlement Date, or (ii) the Commission
or any other regulatory authority has not provided any
consent or approval needed in connection with the settlement
of the Securities on or prior to the Settlement Date
(including any such consent or approval necessary in order
to permit the Company to settle the Securities in Registered
Common Stock pursuant to Section 10.7), then, in any such
case, the Settlement Date shall be automatically extended
until the earlier of (x) the second Business Day after the
date on which the Contingent Amount has been finally
determined or such consent or approval has been obtained, as
applicable, and (y) 180 days from the Settlement Date. For
these purposes, the Contingent Amount shall be "finally
determined" on the date that the Contingent Amount has been
determined pursuant to either Subsection 10.4(d) or
Subsection 10.5(b) of this Indenture. The Holders of the
Securities shall be entitled to receive interest ("Extension
Interest") on the sum of the Fixed Amount and the Contingent
Amount in respect of any such extension at an interest rate
per annum, compounded annually, equal to (i) 8% for the
first 60 days of any such extension; (ii) 10% for 61 to 120
days of any such extension; and (iii) 12% for 121 to 180
days of any such extension. Extension Interest may be
settled in Registered Common Stock to the extent permitted
by Section 10.7. In the event that payment of amounts due
with respect to the Securities shall not have been made
within 180 days from the Settlement Date or following
acceleration of the Securities upon any Event of Default,
Extension Interest on the sum of the Fixed Amount and the
Contingent Amount shall accrue at the rate of 12% per annum,
compounded annually.

<PAGE>

ARTICLE 3

REDEMPTION

SECTION 3.1 Notices. If the Company elects to
-------
redeem Securities pursuant to the optional redemption
provisions of Section 3.6 hereof, it shall furnish to the
Trustee and the Holder Actuary, at least 180 days but not
more than 190 days before a Redemption Date, an Officers'
Certificate setting forth (i) the Section of this Indenture
pursuant to which the redemption shall occur and (ii) the
Redemption Date. In addition, promptly following
determination of the Contingent Amount pursuant to Article
10, the Company shall notify the Holder Actuary and Trustee
of the redemption price.

SECTION 3.2 Notice of Redemption. At least
--------------------
140 days but not more than 150 days before a Redemption
Date, the Company shall mail or cause to be mailed, by first
class mail, a notice of redemption to each Holder whose
Securities are to be redeemed at its registered address.

The notice shall identify the Securities to be
redeemed and shall state:

(a) the Redemption Date;

(b) the redemption price (including accrued
interest to the Redemption Date); provided
that if at the time of such notice the
Contingent Amount has not yet been
determined, the Company shall separately mail
or cause to be mailed a notice to each Holder
of the redemption price promptly following
determination of the Contingent Amount;

(c) if Securities are to be settled in Registered
Common Stock pursuant to Section 10.7, that
delivery of such Stock will occur in lieu of
payment in cash; provided that such notice
--------
may state that such delivery is subject to
obtaining all necessary regulatory consents
and approvals;

(d) the name and address of the Paying Agent;

(e) that Securities called for redemption must be
surrendered to the Paying Agent to collect
the redemption price;

<PAGE>

(f) that, unless the Company defaults in making
such redemption payment, interest on
Securities called for redemption ceases to
accrue on and after the Redemption Date;

(g) the paragraph of the Securities and/or
Section of this Indenture pursuant to which
the Securities called for redemption are
being redeemed; and

(h) that no representation is made as to the
correctness or accuracy of the CUSIP number,
if any, listed in such notice or printed on
the Securities.

At the Company's request, the Trustee shall give
the notice of redemption in the Company's name and at its
expense; provided that the Company shall have delivered to
the Trustee, at least 165 days prior to the Redemption Date,
an Officers' Certificate requesting that the Trustee give
such notice and setting forth the information to be stated
in such notice as provided in the preceding paragraph.

SECTION 3.3 Effect of Notice of Redemption.
------------------------------
Once the Officers' Certificate is furnished to the Trustee
and Holder Actuary pursuant to Section 3.1 of the Indenture,
Securities called for redemption become irrevocably due and
payable on the Redemption Date at the redemption price. A
notice of redemption may not be conditional.

SECTION 3.4 Deposit of Redemption or Purchase
---------------------------------
Price. With respect to any Redemption Date or Change of
-----
Control Purchase Date (as defined in Section 4.6), the
Company shall deposit with the Paying Agent money (or
Registered Common Stock and cash in lieu of any fractional
shares) in accordance with Section 2.6 of the Indenture.
The Trustee or the Paying Agent shall promptly return to the
Company any money (or Registered Common Stock) deposited
with the Trustee or the Paying Agent by the Company in
excess of the amounts necessary to pay the redemption or
purchase price of, and accrued interest on, all Securities
to be redeemed or purchased.

If Securities called for redemption or tendered in
a Change of Control Offer are paid or if the Company has
deposited with the Paying Agent money (or Registered Common
Stock) sufficient to pay the redemption or purchase price
of, and unpaid and accrued interest, if any, on all
Securities to be redeemed or purchased on the Redemption
Date or Change of Control Purchase Date, interest shall
cease to accrue on the Securities or the portions of

<PAGE>

Securities called for redemption or tendered and not
withdrawn in a Change of Control Offer (regardless of
whether certificates for such securities are actually
surrendered), and the only remaining right of the Holder
with respect to such Security or portion thereof shall be to
receive such payment upon proper presentation and surrender
of the Securities. If any Security called for redemption or
subject to a Change of Control Offer shall not be so paid
upon surrender for redemption or purchase because of the
failure of the Company to comply with the preceding
paragraph, interest shall be paid from the Redemption Date
or Change of Control Purchase Date until paid at the rate
provided in Section 2.13 hereof.

SECTION 3.5 No Securities Redeemed or Purchased
-----------------------------------
in Part. The Company shall not redeem or purchase less than
-------
all of any Security.

SECTION 3.6 Optional Redemption. The
-------------------
Securities shall not be redeemable at the Company's option
prior to the third anniversary of the Issue Date.
Thereafter, the Securities shall be subject to redemption at
the option of the Company, in whole but not in part, upon
notice given pursuant to Section 3.1 of the Indenture, at
100% of the Payment Amount.

SECTION 3.7 Mandatory Redemption. Except as
--------------------
set forth below under Section 4.6, the Company shall not be
required to make mandatory redemption or sinking fund
payments with respect to the Securities.

ARTICLE 4

COVENANTS

SECTION 4.1 Payment of Securities. The Company
---------------------
will duly and punctually pay any and all amounts due under
the Securities in accordance with the terms of the
Securities and this Indenture. Amounts due under this
Indenture shall be considered paid on the date due if the
Paying Agent holds on that date money sufficient, or subject
to Section 10.7, Registered Common Stock and cash in lieu of
any fractional shares sufficient, to pay or satisfy all
amounts then due.

The Company shall pay interest on overdue amounts,
including, to the extent lawful, interest on overdue
interest, at the applicable rate per annum set forth in
Section 2.13.

<PAGE>

SECTION 4.2 Maintenance of Records; Compliance
----------------------------------
with Laws; Access and Cooperation. (a) The Company shall
---------------------------------
and shall cause each Subsidiary to keep proper and true
books of record and account, in which full and correct
entries shall be made of all financial transactions and the
assets and business of the Company and each Subsidiary.

(b) The Company shall and shall cause each of its
Subsidiaries to comply with all statutes, laws, ordinances
or government rules and regulations to which it is subject,
except where a failure to do so, singly or in the aggregate
is not likely to have a materially adverse effect upon the
business, prospects, assets or condition (financial or
otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole.

(c) The Company shall cause RECO to maintain the
books and records with respect to Protected Business in
sufficient detail and consistent with the level of detail
contained in the books and records of RECO in existence on
the Issue Date (the "Existing Records"). In preparing such
books and records, the Company shall cause RECO to maintain
records by class of business consistent with the Existing
Records. The Company agrees to allow the Holder Actuary and
Independent Actuary, if any, (and associated agents and
accounting firms) reasonable access, during normal business
hours, to the books and records (including tax returns,
statements, reports, forms, claim files, and related
documentation) and personnel of the Company, including
Chartwell Reinsurance and RECO, during the period that the
Securities are outstanding. With respect to the Holder
Actuary, prior to its review in connection with preparing
the Holder Actuary's Reserve Report, such access shall be
provided only during a limited period during each year as
shall be reasonable and adequate to review the annual
reports referred to in Section 10.6 and to review the
Company's compliance during the previous year with the
matters referred to under Section 10.6. The Company agrees
that such access will be designed to assure that the Holder
Actuary will obtain full and adequate information regarding
the adjustment, settlement and/or defense of any claims,
disputes or other matters arising out of the Protected
Business.

(d) The Company agrees to act, and to cause RECO
to act, in a commercially reasonable manner (i) in the
investigation, adjustment, settlement or defense of any
claims, disputes or other matters arising out of Protected
Business and (ii) in deciding whether or not, and on what
terms, any insurance or reinsurance contracts to the extent
constituting Protected Business should be commuted.

<PAGE>

Protected Business may be commuted by the Company and its
Subsidiaries in the ordinary course of business; provided
that the Company shall not permit RECO to commute any treaty
or group of treaties with a single issuer involving a
payment of $1,500,000 or more unless such commutation has
been approved in writing by the Holder Actuary, such
approval not to be unreasonably withheld. The Holder
Actuary shall respond to any commutation request within a
reasonable period of time taking into account the facts and
circumstances involved. If the Holder Actuary fails to so
respond, the Holder Actuary shall be deemed to have
consented to such commutation.

SECTION 4.3 Reports by the Company. The
----------------------
Company covenants to file with the Trustee, within 15 days
after the Company is required to file the same with the
Commission, copies of the annual reports and of the
information, documents, and other reports which the Company
may be required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Exchange Act.

SECTION 4.4 Maintenance of Office or Agency.
-------------------------------
The Company will maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may
be surrendered for registration of transfer or exchange or
for presentation for payment and where notices and demands
to or upon the Company in respect of the Securities and this
Indenture may be served. The Company hereby initially
designates the Corporate Trust Office of the Trustee,
located in the Borough of Manhattan, The City of New York,
as such office or agency of the Company. The Company will
give prompt written notice to the Trustee of the location,
and any change in the location, of such office or agency.
If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 11.2.

The Company may also from time to time designate
one or more other offices or agencies where the Securities
may be presented or surrendered for any or all such purposes
and may from time to time rescind such designations;
provided that no such designation or rescission shall in any
--------
manner relieve the Company of its obligation to maintain an
office or agency in the Borough of Manhattan, The City of
New York for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or
rescission and of any change in the location of any such
other office or agency.

<PAGE>

SECTION 4.5 Negative Pledge. The Company shall
---------------
not, and shall not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer
to exist any Lien securing Indebtedness of the Company
(other than Permitted Liens) on any property or asset now
owned or hereafter acquired, or on any income or profits
therefrom, or assign or convey any right to receive income
therefrom, unless all amounts due under the Indenture and
the Securities are secured on an equal and ratable basis
with (or prior to) the obligations so secured until such
time as such obligations are no longer secured by a Lien.

SECTION 4.6 Purchase of Securities upon a
-----------------------------
Change of Control. (a) If there shall have occurred a
-----------------
Change of Control, the Company shall make an offer (a
"Change of Control Offer") to each Holder of Securities to
repurchase all, but not less than all, of such Holder's
Securities at a purchase price equal to 100% of the Payment
Amount, on a pro rata basis (the "Change of Control Purchase
Price").

(b) Within 15 days following the date on which
the Change of Control occurs, the Company shall mail a
notice to each Holder of Securities stating:

(1) that a Change of Control Offer is being made
pursuant to Section 4.6 of the Indenture and that all
Securities properly tendered will be accepted for
payment;

(2) the purchase price (if then determined) and
the purchase date, which shall be (i) no earlier than
180 days nor later than 190 days from the date of such
Change of Control or (ii) such later date as may be
necessary for the Company or to comply with
requirements under the Exchange Act (such date, or such
later date, a "Change of Control Purchase Date";
provided that any such date shall be extended if and to
--------
the extent required by Section 2.13);

(3) that any Securities not properly tendered
will continue to remain outstanding in accordance with
the terms of the Indenture;

(4) that, unless the Company defaults in the
payment of the Change of Control Purchase Price, all
Securities accepted for payment pursuant to a Change of
Control Offer shall cease to accrue interest after a
Change of Control Purchase Date;

<PAGE>

(5) the procedures a Holder of Securities must
follow to exercise rights under this Section 4.6 and a
brief description of those rights;

(6) if Securities are to be settled in Registered
Common Stock pursuant to Section 10.7, that delivery of
such Stock will occur in lieu of payment in cash;
provided that such notice may state that such delivery
--------
is subject to obtaining all necessary regulatory
consents and approvals; and

(7) that Holders of Securities will be entitled
to withdraw their election if the Paying Agent
receives, not later than the close of business on the
third Business Day preceding the Change of Control
Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the
Holder and a statement that such Holder is withdrawing
his election to have such Securities purchased.

(c) A Holder may exercise its rights specified in
Section 4.6(a) upon (1) delivery to any Paying Agent of a
written notice (a "Change of Control Purchase Notice") at
any time prior to the close of business on the third
Business Day before the Change of Control Purchase Date,
stating that such Holder accepts the Company's offer to
repurchase all of such Holder's Securities and (2) delivery
of such Securities to such Paying Agent at such office prior
to, on or after the Change of Control Purchase Date
(together with all necessary endorsements), such delivery
being a condition to receipt by the Holder of the Change of
Control Purchase Price therefor. Each Paying Agent shall
promptly notify the Company of the receipt by the former of
any and all Change of Control Purchase Notices and any and
all written notices of withdrawal thereof.

(d) Upon receipt by any Paying Agent of a Change
of Control Purchase Notice, the Holder of the Security in
respect of which such Change in Control Purchase Notice was
given shall thereafter be entitled to receive solely the
Change of Control Purchase Price with respect to such
Security (unless such Change of Control Purchase Notice is
withdrawn pursuant to Section 4.6(g)). Such Change of
Control Purchase Price shall be paid to such Holder promptly
following the later of the Business Day following the Change
of Control Purchase Date (provided the conditions in Section
4.6(c) have been satisfied) and the time of delivery of such
Security to the relevant Paying Agent at the office of such
Paying Agent by the Holder thereof in the manner required by
Section 4.6(c).

<PAGE>

(e) On or prior to the Change of Control Purchase
Date, the Company shall, to the extent lawful, (i) accept
for payment all Securities properly tendered pursuant to a
Change of Control Offer and (ii) deposit with the Trustee or
with the Paying Agent money (or Registered Common Stock and
cash in lieu of any fractional shares) in accordance with
Section 3.4 of this Indenture.

(f) The Company shall comply with applicable
tender offer rules, including Rule 14e-1 under the Exchange
Act, in connection with a Change of Control Offer and may
modify a Change of Control Offer to so comply. The
provisions of this Section 4.6 shall be deemed modified to
the extent in conflict with any applicable laws or
regulations.

(g) A Change of Control Purchase Notice may be
withdrawn before or after delivery by the Holder to the
relevant Paying Agent at the office of such Paying Agent of
the Security to which such Change of Control Purchase Notice
relates, by means of a written notice of withdrawal (by
telegram, telex, facsimile transmission or letter) received
by such Paying Agent at such office not later than three
Business Days prior to the Change of Control Purchase Date,
specifying, as applicable:

(1) the name of such Holder and

(2) a statement that such Holder is withdrawing
his election to have such Securities
purchased.

Each Paying Agent will promptly return to the
prospective Holders thereof any Securities with respect to
which a Change of Control Purchase Notice has been withdrawn
in compliance with this Indenture.

SECTION 4.7 Limitation on Indebtedness. The
--------------------------
Company shall not permit any of its Restricted Subsidiaries
to incur, assume, guarantee or otherwise become directly or
indirectly liable for the payment of (collectively, "incur")
any Indebtedness other than Permitted Subsidiary
Indebtedness; provided that the Company may permit any
--------
Restricted Subsidiary to incur Indebtedness if at the date
of such incurrence (on a pro forma basis) the ratio of (x)
Senior Indebtedness to (y) Consolidated Net Worth of the
Company does not exceed 0.9 to 1.

SECTION 4.8 Certificate to Trustee. The
----------------------
Company will furnish to the Trustee annually, on or before a
date not more than four months after the end of its fiscal

<PAGE>

year (which, on the date hereof, is a calendar year), a
certificate (which need not contain the statements required
by Section 11.4) from its principal executive, financial or
accounting officer as to his or her knowledge of the
compliance of the Company with all conditions and covenants
under this Indenture (such compliance to be determined
without regard to any period of grace or requirement of
notice provided under this Indenture) which certificate
shall comply with the requirements of the Trust Indenture
Act.

ARTICLE 5

CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE

SECTION 5.1 When Company May Merge, Etc. (a)
----------------------------
The Company shall not and shall not permit any Restricted
Subsidiary to, in any transaction or series of transactions,
consolidate with or merge with or into any other Person
(other than the Merger and other than any such transaction
with a Wholly-Owned Restricted Subsidiary of the Company
with a positive Consolidated Net Worth) or, directly or
indirectly, sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its assets
(determined on a consolidated basis for the Company and its
subsidiaries taken as a whole) in one or more related
transactions, including through a bulk reinsurance
arrangement, to any Person (other than a Wholly-Owned
Restricted Subsidiary of the Company with a positive
Consolidated Net Worth) or group of affiliated Persons
unless, at the time and after giving effect thereto:

(i) (A) the Company shall be the continuing
corporation (or, in the case of any consolidation or
merger of a Restricted Subsidiary, the Company shall
continue to have all of the obligations under this
Indenture, including the obligation to make due and
punctual payment of the Payment Amount and the
performance of every covenant, agreement and obligation
on the part of the Company under this Indenture); or
(B) the Person (if other than the Company) formed by
such consolidation, or into which the Company is merged
or the Person that acquires by sale or other
disposition the assets of the Company, substantially as
an entirety (the "Surviving Entity"), is a corporation
duly organized and validly existing under the laws of
the United States or any state thereof and shall, in
the case of clause (B), expressly assume, by
supplemental indenture, executed and delivered to the

<PAGE>

Trustee, in form reasonably satisfactory to the
Trustee, all the obligations of the Company under the
Indenture;

(ii) immediately before and after such
transaction, giving effect to such transaction on a pro
forma basis, no default or Event of Default shall have
occurred and be continuing;

(iii) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net
Worth (after giving pro forma effect to such
transaction but not including the accrual of deferred
tax liabilities resulting from the transaction) of the
Company (or the Surviving Entity if the Company is not
the continuing obligor under the Indenture) is at least
equal to the Consolidated Net Worth of the Company
immediately before such transaction; provided that in
--------
the case of the merger or consolidation of any
Restricted Subsidiary with Consolidated Net Worth of
less than 5% of the Consolidated Net Worth of the
Company with any other Person, clause (iii) of this
Section 5.1(a) shall not apply; and

(iv) if any of the property or assets of the
Company or any Restricted Subsidiary prior to such
transaction would thereupon become subject to any Lien
securing Indebtedness of the Company, the outstanding
Securities shall be secured equally and ratably with
(or prior to) the obligation or liability secured by
such Lien, unless the Company or such Restricted
Subsidiary could create such Lien without equally and
ratably securing the Securities.

(b) Notwithstanding anything in this Section
5.1(a) to the contrary, the Company may consummate the
Merger subsequent to the issuance of the Securities, and in
the event of such Merger, Chartwell shall expressly assume,
by supplemental indenture, executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, all
of the obligations of the Company under the Indenture.

(c) In connection with the Merger or any
consolidation, merger, transfer or lease contemplated
hereby, the Company shall deliver to the Trustee an
Officers' Certificate and an Opinion of Counsel, each
stating that the Merger or such consolidation, merger,
transfer or lease and the supplemental indenture in respect
thereto comply with the provisions described herein and that
all conditions precedent provided for in the Indenture
relating to such transaction have been complied with.

<PAGE>

SECTION 5.2 Successor Substituted. Upon the
---------------------
Merger or any consolidation or merger or any sale,
assignment, transfer, lease or conveyance or other
disposition of all or substantially all of the assets of the
Company in accordance with the provisions described in
Section 5.1, the successor Person formed by such
consolidation or into which the Company is merged or to
which such sale, assignment, conveyance, transfer, lease or
other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of
the Company under the Indenture with the same effect as if
such successor Person had been named as the Company therein.
When a successor assumes all the obligations of its
predecessor under the Indenture and the Securities, the
predecessor will be released from those obligations;
provided that, in the case of a transfer by lease, the
predecessor corporation shall not be released from the
payment of any amount under the Securities.

ARTICLE 6

DEFAULT AND REMEDIES

SECTION 6.1 Events of Default. An "Event of
----------------- --------
Default" shall occur with respect to the Securities if:
-------

(a) the Company defaults in the payment of any
amount due with respect to any Security when the same
becomes due and payable at maturity, upon acceleration,
redemption or mandatory repurchase (giving effect to
any period of extension under Section 2.13);

(b) the Company defaults in the performance of or
breaches any other covenant or agreement of the Company
in this Indenture with respect to any Security and such
default or breach continues for a period of 60
consecutive days after written notice to the Company by
the Trustee or to the Company and the Trustee by the
Holders of 25% or more in aggregate Principal Amount of
the Securities;

(c) an involuntary case or other proceeding shall
be commenced against the Company or any Principal
Restricted Insurance Subsidiary with respect to it or
its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect seeking the
appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any
substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and

<PAGE>

unstayed for a period of 60 days; or an order for
relief shall be entered against the Company or any
Principal Restricted Insurance Subsidiary under the
federal bankruptcy laws as now or hereafter in effect;

(d) the Company or any Principal Restricted
Insurance Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to
the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of
or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar
official of the Company or any Principal Restricted
Insurance Subsidiary or for all or substantially all of
the property and assets of the Company or any Principal
Restricted Insurance Subsidiary or (C) effects any
general assignment for the benefit of creditors;

(e) a default occurs under any mortgage,
indenture or instrument under which there may be issued
or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries whether such
Indebtedness now exists or is created after the date of
this Indenture which default results in the
acceleration of such Indebtedness prior to its express
maturity and the principal amount of any such
Indebtedness, together with the principal amount of any
other such Indebtedness the maturity of which has been
so accelerated, aggregates $10.0 million or more;

(f) a default occurs in the payment of any amount
in excess of $1.0 million under any mortgage, indenture
or instrument under which there may be issued or by
which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries whether such
Indebtedness now exists, or is created after the date
of this Indenture which default extends beyond the
grace period applicable to such default, if any; or

(g) a final judgment or final judgments for the
payment of money are entered by a court or courts of
competent jurisdiction against the Company or any of
its Restricted Subsidiaries and such judgments are not
paid, discharged or stayed for a period of 30 days
after their entry, provided that the aggregate of all
such unpaid, undischarged or unstayed judgments exceeds
$1.0 million (net of any amount as to which a reputable
insurance company has accepted liability).

<PAGE>

SECTION 6.2 Acceleration. If an Event of
------------
Default (other than an Event of Default specified in clauses
(c) and (d) of Section 6.1 hereof) occurs and is continuing,
the Trustee by written notice to the Company, or the Holders
of at least 25% in aggregate Principal Amount of the then
outstanding Securities by written notice to the Company and
the Trustee may declare the unpaid principal of and accrued
and unpaid interest on all the Securities to be due and
payable. Upon such declaration the principal and interest
shall be due and payable immediately. If an Event of
Default specified in clause (c) or (d) of Section 6.1 hereof
occurs, all outstanding Securities shall ipso facto become
and be immediately due and payable without any declaration
or other act on the part of the Trustee or any Holder. The
Holders of a majority in aggregate Principal Amount of the
then outstanding Securities, by written notice to the
Trustee, may rescind an acceleration and its consequences if
the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except
nonpayment of principal or interest that has become due
solely because of the acceleration) have been cured or
waived.

SECTION 6.3 Other Remedies. If an Event of
--------------
Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal and
interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.

The Trustee may maintain a proceeding even if it
does not possess any of the Securities or does not produce
any of them in the proceeding. A delay or omission by the
Trustee or any Holder of a Security in exercising any right
or remedy accruing upon an Event of Default shall not impair
the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.

SECTION 6.4 Waiver of Past Defaults. Holders
-----------------------
of a majority in aggregate Principal Amount of the
Securities then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Securities waive any
existing default or Event of Default and its consequences
under this Indenture, except a continuing default or Event
of Default in the payment of the principal of or interest
on, the Securities (including in connection with an offer to
purchase) (provided that the Holders of a majority in
aggregate Principal Amount of the then outstanding
Securities may rescind an acceleration and its consequences,
including any related payment default that resulted from
such acceleration). Upon any such waiver, such default

<PAGE>

shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend
to any subsequent or other default or Event of Default or
impair any right consequent thereon.

SECTION 6.5 Control by Majority. Holders of a
-------------------
majority in aggregate Principal Amount of the then
outstanding Securities may direct the time, method and place
of conducting any proceeding for exercising any remedy
available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture or
that the Trustee determines may be unduly prejudicial to the
rights of other Holders or that may involve the Trustee in
personal liability. The Trustee may take any other action
which it deems proper which is not inconsistent with any
such direction.

SECTION 6.6 Limitation on Suits. A Holder of a
-------------------
Security may pursue a remedy with respect to this Indenture
or the Securities if:

(a) the Holder gives to the Trustee written
notice of a continuing Event of Default or the Trustee
receives such notice from the Company;

(b) the Holders of at least 25% in aggregate
Principal Amount of the then outstanding Securities make a
written request to the Trustee to pursue the remedy;

(c) such Holder or Holders offer and, if
requested, provide to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;

(d) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer
and, if requested, the provision of indemnity; and

(e) during such 60-day period the Holders of a
majority in aggregate Principal Amount of the then
outstanding Securities do not give the Trustee a direction
inconsistent with the request.

A Holder of a Security may not use this Indenture to
prejudice the rights of another Holder of a Security or to
obtain a preference or priority over another Holder of a
Security.

<PAGE>

SECTION 6.7 Rights of Holders of Securities to
----------------------------------
Receive Payment. Notwithstanding any other provision of
---------------
this Indenture, the right of any Holder of a Security to
receive payment of principal of and interest on the
Security, on or after the respective due dates expressed in
the Security (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.

SECTION 6.8 Collection Suit by Trustee. If an
--------------------------
Event of Default specified in Section 6.1(a) hereof occurs
and is continuing, the Trustee is authorized to recover
judgment in its own name and as trustee of an express trust
against the Company or any other obligor for the whole
amount of principal of and interest remaining unpaid on the
Securities and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be
sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel.

SECTION 6.9 Trustee May File Proofs of Claim.
--------------------------------
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel) and the Holders allowed in any judicial proceedings
relative to the Company (or any other obligor upon the
Securities), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute
any money or other property payable or deliverable on any
such claims and any custodian in any such judicial
proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee
under Section 7.07 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the
same shall be secured by a Lien on, and shall be paid out
of, any and all distributions, dividends, money, securities
and other properties that the Holders may be entitled to
receive in such proceeding whether in liquidation or under

<PAGE>

any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the
Securities or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any
such proceeding.

SECTION 6.10 Priorities. If the Trustee
----------
collects any money pursuant to this Article, it shall pay
out the money in the following order:

First: to the Trustee, its agents and
attorneys for amounts due under Section 7.7 hereof,
including payment of all compensation, expense and
liabilities incurred, and all advances made, by the
Trustee and the costs and expenses of collection, and
to the Holder Actuary, its agents and attorneys for
amounts due under Section 10.2 hereof, including
payment of all compensation, expense and liabilities
incurred by the Holder Actuary and the costs and
expenses of collection;

Second: to Holders for amounts due and
unpaid on the Securities, ratably, without preference
or priority of any kind, according to the amounts due
and payable on the Securities; and

Third: to the Company or to such party as
a court of competent jurisdiction shall direct.

The Trustee may fix a record date and payment date
for any payment to Holders pursuant to this Section 6.10.

SECTION 6.11 Undertaking for Costs. In any suit
---------------------
for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action
taken or omitted by it as a Trustee, a court in its
discretion may require the filing by any party litigant in
the suit of an undertaking to pay the costs of the suit, and
the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and
good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.7 hereof,
or a suit by Holders of more than 10% in aggregate Principal
Amount of the then outstanding Securities.

<PAGE>

ARTICLE 7

TRUSTEE

SECTION 7.1 General. The duties and
-------
responsibilities of the Trustee shall be as provided by the
Trust Indenture Act and as set forth herein.
Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, unless it receives
indemnity satisfactory to it against any loss, liability or
expense. Whether or not therein expressly so provided,
every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the
Trustee shall be subject to the provisions of this
Article 7.

SECTION 7.2 Certain Rights of Trustee. Subject
-------------------------
to Trust Indenture Act Sections 315(a) through (d):

(i) the Trustee may rely and shall be protected
in acting or refraining from acting upon any
resolution, certificate, Officers' Certificate, Opinion
of Counsel (or both), statement, instrument, opinion,
report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness
or other paper or document believed by it to be genuine
and to have been signed or presented by the proper
person or persons. The Trustee need not investigate
any fact or matter stated in the document, but the
Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as
it may see fit;

(ii) before the Trustee acts or refrains from
acting, it may require an Officers' Certificate and/or
an Opinion of Counsel, which shall conform to Section
11.4. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on
such certificate or opinion. Subject to Sections 7.1
and 7.2, whenever in the administration of the trusts
of this Indenture the Trustee shall deem it necessary
or desirable that a matter be proved or established
prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may,
in the absence of negligence or bad faith on the part
of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to

<PAGE>

the Trustee, and such certificate, in the absence of
negligence or bad faith on the part of the Trustee,
shall be full warrant to the Trustee for any action
taken, suffered or omitted by it under the provisions
of this Indenture upon the faith thereof;

(iii) the Trustee may act through its attorneys and
agents not regularly in its employ and shall not be
responsible for the misconduct or negligence of any
agent or attorney appointed with due care;

(iv) any request, direction, order or demand of
the Company mentioned herein shall be sufficiently
evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically
prescribed); and any Board Resolution may be evidenced
to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;

(v) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by
this Indenture at the request, order or direction of
any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities that might
be incurred by it in compliance with such request or
direction;

(vi) the Trustee shall not be liable for any
action it takes or omits to take in good faith that it
believes to be authorized or within its rights or
powers or for any action it takes or omits to take in
accordance with the direction of the Holders in
accordance with Section 6.5 relating to the time,
method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this
Indenture;

(vii) the Trustee may consult with counsel and the
written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance
thereon; and

(viii) prior to the occurrence of an Event of
Default hereunder and after the curing or waiving of
all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters
stated in any resolution, certificate, Officers'

<PAGE>

Certificate, Opinion of Counsel, Board Resolution,
statement, instrument, opinion, report, notice,
request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or
document unless requested in writing so to do by the
Holders of not less than a majority in aggregate
Principal Amount of the Securities then outstanding;
provided that, if the payment within a reasonable time
--------
to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such
expenses or liabilities as a condition to proceeding.

SECTION 7.3 Individual Rights of Trustee. The
----------------------------
Trustee, in its individual or any other capacity, may become
the owner or pledgee of Securities and may otherwise deal
with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the
same with like rights. However, the Trustee is subject to
Trust Indenture Act Sections 310(b) and 311. For purposes
of Trust Indenture Act Section 311(b)(4) and (6), the
following terms shall mean:

(a) "cash transaction" means any transaction in
----------------
which full payment for goods or securities sold is made
within seven days after delivery of the goods or securities
in currency or in checks or other orders drawn upon banks or
bankers and payable upon demand; and

(b) "self-liquidating paper" means any draft,
----------------------
bill of exchange, acceptance or obligation which is made,
drawn, negotiated or incurred by the Company for the purpose
of financing the purchase, processing, manufacturing,
shipment, storage or sale of goods, wares or merchandise and
which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or
merchandise or the receivables or proceeds arising from the
sale of the goods, wares or merchandise previously
constituting the security, provided the security is received
by the Trustee simultaneously with the creation of the
creditor relationship with the Company arising from the
making, drawing, negotiating or incurring of the draft, bill
of exchange, acceptance or obligation.

SECTION 7.4 Trustee's Disclaimer. The recitals
--------------------
contained herein and in the Securities (except the Trustee's
certificate of authentication) shall be taken as statements
of the Company and not of the Trustee and the Trustee

<PAGE>

assumes no responsibility for the correctness of the same.
Neither the Trustee nor any of its agents (i) makes any
representation as to the validity or adequacy of this
Indenture or the Securities or (ii) shall be accountable for
the Company's use or application of the proceeds from the
Securities.

SECTION 7.5 Notice of Default. If any default
-----------------
or Event of Default with respect to the Securities occurs
and is continuing and if such default or Event of Default is
known to the actual knowledge of a Responsible Officer with
the Corporate Trust Department of the Trustee, the Trustee
shall give to each Holder of Securities notice of such
default or Event of Default within 90 days after it occurs
to all Holders of Securities in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act,
unless such default or Event of Default shall have been
cured or waived before the mailing or publication of such
notice; provided that, except in the case of a default or
--------
Event of Default in the payment of any amount with respect
to any Security, the Trustee shall be protected in
withholding such notice if the Trustee in good faith
determines that the withholding of such notice is in the
interests of the Holders.

SECTION 7.6 Reports by Trustee to Holders.
-----------------------------
Within 60 days after each June 30, beginning with June 30,
1996, the Trustee shall mail to each Holder as and to the
extent provided in Trust Indenture Act Section 313(c) a
brief report dated as of such June 30, if required by Trust
Indenture Act Section 313(a).

SECTION 7.7 Compensation and Indemnity. The
--------------------------
Company shall pay to the Trustee such reasonable
compensation as shall be agreed upon in writing from time to
time for its services. The compensation of the Trustee
shall not be limited by any law on compensation of a Trustee
of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket
expenses, disbursements and advances incurred or made by the
Trustee. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents, counsel
and other persons not regularly in its employ.

The Company shall indemnify the Trustee for, and
hold it harmless against, any loss or liability or expense
incurred by it without willful misconduct, negligence or bad
faith on its part arising out of or in connection with the
acceptance or administration of this Indenture and the
Securities and the performance of duties under this
Indenture and the Securities, including the costs and

<PAGE>

expenses of defending itself against or investigating any
claim or liability and of complying with any process served
upon it or any of its officers in connection with the
exercise or performance of any of its powers or duties under
this Indenture and the Securities.

To secure the Company's payment obligations in
this Section 7.7, the Trustee shall have a lien prior to the
Securities on all money or property held or collected by the
Trustee, in its capacity as Trustee, except money or
property held in trust to pay any amount with respect to the
Securities.

The obligations of the Company under this Section
to compensate and indemnify the Trustee and each predecessor
Trustee and to pay or reimburse the Trustee and each
predecessor Trustee for expenses, disbursements and advances
shall constitute additional indebtedness hereunder and shall
survive the satisfaction and discharge of this Indenture or
the rejection or termination of this Indenture under
bankruptcy law. Such additional indebtedness shall be a
senior claim to that of the Securities upon all property and
funds held or collected by the Trustee as such, except funds
held in trust for the benefit of the Holders of particular
Securities or coupons, and the Securities are hereby
subordinated to such senior claims. If the Trustee renders
services and incurs expenses following an Event of Default
under Section 6.1(c) or Section 6.1(d) hereof, the parties
hereto and the holders by their acceptance of the Securities
hereby agree that such expenses are intended to constitute
expenses of administration under any bankruptcy law.

SECTION 7.8 Replacement of Trustee. A
----------------------
resignation or removal of the Trustee as Trustee with
respect to the Securities and appointment of a successor
Trustee as Trustee with respect to the Securities shall
become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.8.

The Trustee may resign as Trustee with respect to
the Securities at any time by so notifying the Company in
writing. The Holders of a majority in aggregate Principal
Amount of the outstanding Securities may remove the Trustee
or a successor Trustee as Trustee with respect to the
Securities by so notifying the Trustee in writing and may
appoint a successor Trustee with respect thereto with the
consent of the Company. The Company may remove the Trustee
as Trustee with respect to the Securities if: (i) the
Trustee is no longer eligible under Section 7.10 of this
Indenture; (ii) the Trustee is adjudged a bankrupt or
insolvent; (iii) a receiver or other public officer takes

<PAGE>

charge of the Trustee or its property; or (iv) the Trustee
becomes incapable of acting; (v) within 10 days of the
Merger, the Company notifies the Trustee and the Holder
Actuary in writing of its intent to remove such Trustee and
nominates a successor Trustee; provided that the Holder
--------
Actuary must consent to the appointment of such successor
Trustee, which consent shall not be unreasonably withheld.

If the Trustee resigns or is removed as Trustee
with respect to the Securities, or if a vacancy exists in
the office of Trustee with respect to the Securities for any
reason, the Company shall promptly appoint a successor
Trustee with respect thereto. If the successor Trustee with
respect to the Securities does not deliver its written
acceptance required by the next succeeding paragraph of this
Section 7.8 within 30 days after the retiring Trustee
resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in aggregate Principal Amount of
the outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor
Trustee with respect thereto.

A successor Trustee with respect to the Securities
shall deliver a written acceptance of its appointment to the
retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien
provided for in Section 7.7, (i) the retiring Trustee shall
transfer all property held by it as Trustee in respect of
the Securities to the successor Trustee, (ii) the
resignation or removal of the retiring Trustee in respect of
the Securities shall become effective and (iii) the
successor Trustee shall have all the rights, powers and
duties of the Trustee in respect of the Securities under
this Indenture. A successor Trustee shall mail notice of
its succession to each Holder of Securities.

Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully
and certainly vesting in and confirming to such successor
Trustee all such rights, powers and trusts referred to in
the preceding paragraph.

The Company shall give notice of any resignation
and any removal of the Trustee with respect to the
Securities and each appointment of a successor Trustee in
respect of the Securities to all Holders of Securities.
Each notice shall include the name of the successor Trustee
and the address of its Corporate Trust Office.

Notwithstanding replacement of the Trustee with
respect to the Securities pursuant to this Section 7.8, the

<PAGE>

Company's obligations under Section 7.7 shall continue for
the benefit of the retiring Trustee.

SECTION 7.9 Successor Trustee by Merger, Etc.
---------------------------------
If the Trustee consolidates with, merges or converts into,
or transfers all or substantially all of its corporate trust
business to, another corporation or national banking
association, the resulting, surviving or transferee
corporation or national banking association without any
further act shall be the successor Trustee with the same
effect as if the successor Trustee had been named as the
Trustee herein.

SECTION 7.10 Eligibility. This Indenture shall
-----------
always have a Trustee who satisfies the requirements of
Trust Indenture Act Section 310(a). The Trustee shall have
a combined capital and surplus of at least $25,000,000 as
set forth in its most recent published annual report of
condition.

SECTION 7.11 Money Held in Trust. The Trustee
-------------------
shall not be liable for interest on any money received by it
except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law and
except for money held in trust under Article 8 of this
Indenture.

ARTICLE 8

DISCHARGE OF INDENTURE

SECTION 8.1 Satisfaction and Discharge of
-----------------------------
Indenture. If at any time (a) (i) all Outstanding
---------
Securities shall have become due and payable and the Company
shall have irrevocably deposited with the Trustee or Paying
Agent on or immediately prior to the date due money (or
Registered Common Stock and cash in lieu of any fractional
shares) sufficient to pay all amounts with respect to all of
the Securities outstanding hereunder, as and when the same
shall have become due and payable, or (ii) the Company shall
have delivered to the Trustee for cancellation all
Securities theretofore authenticated (other than any
Securities which shall have been destroyed, lost or stolen
and which shall have been replaced or paid as provided in
Section 2.8) and (b) in either case, the Company shall also
pay or cause to be paid all sums payable hereunder by the
Company, then this Indenture shall cease to be of further
effect (except as to (i) the rights, obligations and
immunities of the Trustee hereunder, (ii) Sections 8.3 and

<PAGE>

8.4 and (iii) the Registration Rights set forth in Exhibit
C), and the Trustee, on demand of the Company accompanied by
an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company, shall execute proper
instruments acknowledging such satisfaction of and
discharging this Indenture. The Company agrees to reimburse
the Trustee for any costs or expenses thereafter reasonably
and properly incurred and to compensate the Trustee for any
services thereafter reasonably and properly rendered by the
Trustee in connection with this Indenture or the Securities.

SECTION 8.2 Application by Trustee of Funds
-------------------------------
Deposited for Payment of Securities. Subject to Section
-----------------------------------
8.4, all moneys deposited with the Trustee under this
Indenture shall be held in trust and applied by it to the
payment, either directly or through any paying agent
(including the Company acting as its own paying agent), to
the holders of the particular Securities for the payment or
redemption of which such moneys have been deposited with the
Trustee, of all sums due and to become due thereon; but such
money need not be segregated from other funds except to the
extent required by law.

SECTION 8.3 Repayment of Moneys Held by Paying
----------------------------------
Agent. In connection with the satisfaction and discharge of
-----
this Indenture all moneys then held by any paying agent
under the provisions of this Indenture shall, upon demand of
the Company, be repaid to it or paid to the Trustee and
thereupon such paying agent shall be released from all
further liability with respect to such moneys.

SECTION 8.4 Return of Moneys Held by Trustee
--------------------------------
and Paying Agent Unclaimed for Three Years. Any moneys (or
------------------------------------------
Registered Common Stock) deposited with or paid to the
Trustee or any paying agent for the payment on any Security
and not applied but remaining unclaimed for three years
after the date upon which such Payment Amount shall have
become due and payable, shall, upon the written request of
the Company and unless otherwise required by mandatory
provisions of applicable escheat or abandoned or unclaimed
property law, be repaid to the Company by the Trustee or
such paying agent, and the holder of such Security shall,
unless otherwise required by mandatory provisions of
applicable escheat or abandoned or unclaimed property laws,
thereafter look only to the Company for any payment which
such holder may be entitled to collect, and all liability of
the Trustee or any paying agent with respect to such moneys
(or Registered Common Stock) shall thereupon cease.

SECTION 8.5 Defeasance. Except as provided
----------
below, the Company will be deemed to have paid and will be

<PAGE>

discharged from any and all obligations in respect of the
Securities and the provisions of this Indenture will no
longer be in effect with respect to the Securities (and the
Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same); provided that the
--------
following conditions shall have been satisfied:

(A) the Company has irrevocably deposited in
trust with the Trustee as trust funds solely for the
benefit of the Holders of the Securities, for payment
of the Payment Amount, money or U.S. Government
Obligations (as defined below) or a combination thereof
sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee,
without consideration of any reinvestment and after
payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by
the Trustee, to pay and discharge the Payment Amount on
the outstanding Securities on the Maturity Date
(irrevocably provided for under arrangements
satisfactory to the Trustee);

(B) such deposit will not result in a breach or
violation of, or constitute a default under, this
Indenture or any other material agreement or instrument
to which the Company is a party or by which it is
bound;

(D) the Company shall have delivered to the
Trustee (1) either (x) a ruling directed to the Trustee
received from the Internal Revenue Service to the
effect that the Holders of the Securities will not
recognize income, gain or loss for federal income tax
purposes as a result of the Company's exercise of its
option under this Section 8.5 and will be subject to
federal income tax on the same amount and in the same
manner and at the same times as would have been the
case if such deposit and defeasance had not occurred or
(y) an Opinion of Counsel to the same effect as the
ruling described in clause (x) above and (2) an Opinion
of Counsel to the effect that the Holders of the
Securities of such series have a valid security
interest in the trust funds subject to no prior liens
under the Uniform Commercial Code, as in effect in each
applicable jurisdiction (the "UCC"); and

<PAGE>

(E) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in
each case stating that all conditions precedent
provided for herein relating to the defeasance
contemplated by this Section 8.5 of the Securities have
been complied with.

For these purposes, "U.S. Government Obligations"
means securities that are (i) direct obligations of the
United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of an agency
or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America,
and shall also include a depository receipt issued by a bank
or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on
or principal of any such U.S. Government Obligation held by
such custodian for the account of the holder of a depository
receipt; provided that (except as required by law) such
--------
custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by
such depository receipt.

The Company's obligations in Sections 2.2 through
2.13, 4.2, 4.3, 4.4, 7.7, 7.8, 8.3, 8.4 and 10.2 through
10.6 with respect to the Securities shall survive until such
Securities are no longer outstanding. Thereafter, only the
Company's obligations in Sections 7.7, 8.3 and 8.4 shall
survive.

SECTION 8.6 Covenant Defeasance. The Company
-------------------
may omit to comply with any term, provision or condition set
forth in Sections 4.5, 4.6 or 4.7, and such omission shall
be deemed not to be an Event of Default under clause (b) of
Section 6.1, with respect to the outstanding Securities if:

(i) the Company has irrevocably deposited in
trust with the Trustee as trust funds solely for the
benefit of the Holders of the Securities, for payment
of the Payment Amount, money or U.S. Government
Obligations or a combination thereof sufficient, in the
opinion of a nationally recognized firm of independent
public accountants expressed in a written certification
thereof delivered to the Trustee, without consideration
of any reinvestment and after payment of all federal,
state and local taxes or other charges and assessments
in respect thereof payable by the Trustee, to pay and

<PAGE>

discharge the Payment Amount on the outstanding
Securities on the Maturity Date (irrevocably provided
for under arrangements satisfactory to the Trustee);

(ii) such deposit will not result in a breach or
violation of, or constitute a default under, this
Indenture or any other material agreement or instrument
to which the Company is a party or by which it is
bound;

(iii) no Default with respect to the Securities
shall have occurred and be continuing on the date of
such deposit;

(iv) the Company has delivered to the Trustee an
Opinion of Counsel to the effect that (A) the Holders
of the Securities have a valid security interest in the
trust funds subject to no prior liens under the UCC and
(B) such Holders will not recognize income, gain or
loss for federal income tax purposes as a result of
such deposit and covenant defeasance and will be
subject to federal income tax on the same amount and in
the same manner and at the same times as would have
been the case if such deposit and defeasance had not
occurred; and

(v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in
each case stating that all conditions precedent
provided for herein relating to the covenant defeasance
contemplated by this Section 8.6 of the Securities have
been complied with.

ARTICLE 9

AMENDMENTS, SUPPLEMENTS AND WAIVERS

SECTION 9.1 Without Consent of Holders of
-----------------------------
Securities. Notwithstanding Section 9.2 of this Indenture,
----------
the Company and the Trustee may amend or supplement this
Indenture or the Securities without the consent of any
Holder of a Security:

(a) to cure any ambiguity, defect or
inconsistency;

(b) to provide for uncertificated Securities in
addition to or in place of certificated Securities;

<PAGE>

the case of a merger, consolidation or other transaction
pursuant to Article 5 hereof;

(d) to make any change that would provide any
additional rights or benefits to the Holders of the
Securities or that does not adversely affect the legal
rights hereunder of any Holder of the Security; or

(e) to comply with requirements of the Commission
in order to effect or maintain the qualification of this
Indenture under the Trust Indenture Act.

Upon the request of the Company accompanied by a
resolution of the Board of Directors of the Company
authorizing the execution of any such supplemental
indenture, and upon receipt by the Trustee of the documents
described in Section 9.6 hereof, the Trustee shall join with
the Company in the execution of any amended or supplemental
indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee
shall not be obligated to enter into such amended or
supplemental indenture that affects its own rights, duties
or immunities under this Indenture or otherwise.

SECTION 9.2 With Consent of Holders of
--------------------------
Securities. Except as provided below in this Section 9.2,
----------
the Company and the Trustee may amend or supplement this
Indenture or the Securities with the consent of the Holders
of at least a majority in aggregate Principal Amount of the
Securities then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the
Securities), and, subject to Sections 6.4 and 6.7 hereof,
any existing default or Event of Default (other than a
default or Event of Default in the payment of any amount due
under the Securities, except a payment default resulting
from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Securities may
be waived with the consent of the Holders of a majority in
aggregate Principal Amount of the then outstanding
Securities (including consents obtained in connection with a
tender offer or exchange offer for the Securities).

Upon the request of the Company accompanied by a
resolution of the Board of Directors of the Company
authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee
of evidence reasonably satisfactory to the Trustee of the
consent of the Holders of Securities as aforesaid, and upon
receipt by the Trustee of the documents described in Section
9.6 hereof, the Trustee shall join with the Company in the

<PAGE>

execution of such amended or supplemental indenture unless
such amended or supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such amended or
supplemental indenture.

It shall not be necessary for the consent of the
Holders of Securities under this Section 9.2 to approve the
particular form of any proposed amendment or waiver, but it
shall be sufficient if such consent approves the substance
thereof.

After an amendment, supplement or waiver under
this Section becomes effective, the Company shall mail to
the Holders of Securities affected thereby a notice briefly
describing the amendment, supplement or waiver. Any failure
of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity
of any such supplemental indenture or waiver. Subject to
Sections 6.4 and 6.7 hereof, the Holders of a majority in
aggregate Principal Amount of the Securities then
outstanding may waive compliance in a particular instance by
the Company with any provision of this Indenture or the
Securities. Without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Security
held by a non-consenting Holder):

(a) reduce the aggregate Principal Amount of
Securities whose Holders must consent to an amendment,
supplement or waiver;

(b) reduce the Payment Amount or change the fixed
maturity of any Security or alter the provisions with
respect to the redemption of the Securities (other than the
provisions of Sections 4.6);

(d) waive a default or Event of Default in the
payment of the Fixed Amount or the Contingent Amount or
interest on the Securities (except a rescission of
acceleration of the Securities by the Holders of at least a
majority in aggregate Principal Amount thereof and a waiver
of the payment default that resulted from such
acceleration);

(e) make any Security payable in money other than
that stated in the Securities;

<PAGE>

(f) make any change in the provisions of this
Indenture relating to waivers of past defaults or Events of
Default or the rights of Holders of Securities to receive
payments of the Fixed Amount or the Contingent Amount or
interest on the Securities;

(g) waive a redemption payment with respect to
any Security (other than a payment required by Section 4.6);
or

(h) make any change in Section 6.4 or 6.7 hereof
or in Section 9.1 or in this Section 9.2 hereof.

SECTION 9.3 Compliance with Trust Indenture
-------------------------------
Act. Every amendment to this Indenture or the Securities
---
shall be set forth in a supplemental indenture that complies
with the Trust Indenture Act as then in effect.

SECTION 9.4 Revocation and Effect of Consents.
---------------------------------
Until an amendment, supplement or waiver becomes effective,
a consent to it by a Holder is a continuing consent by the
Holder and every subsequent Holder of a Security or portion
of a Security that evidences the same debt as the consenting
Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or
subsequent Holder of a Security may revoke the consent as to
its Security if the Trustee receives written notice of
revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or
waiver becomes effective in accordance with its terms and
thereafter binds every Holder.

The Company may, but shall not be obligated to,
fix a record date for determining which Holders must consent
to such amendment or waiver. If the Company fixes a record
date, the record date shall be fixed at (i) the later of 30
days prior to the first solicitation of such consent or the
date of the most recent list of Holders furnished to the
Trustee prior to such solicitation pursuant to Section 2.05
or (ii) such other date as the Company shall designate.

SECTION 9.5 Notation on or Exchange of
--------------------------
Securities. The Trustee may place an appropriate notation
----------
about an amendment, supplement or waiver on any Security
thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new
Securities that reflect the amendment, supplement or waiver.

Failure to make the appropriate notation or issue
a new Security shall not affect the validity and effect of
such amendment, supplement or waiver.

<PAGE>

SECTION 9.6 Trustee to Sign Amendments, etc.
-------------------------------
The Trustee shall sign any amendment or supplemental
indenture authorized pursuant to this Article 9 if the
amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. The Company may
not sign an amendment or supplemental indenture until the
Board of Directors of the Company approves it. In executing
any amended or supplemental indenture, the Trustee shall be
entitled to receive and (subject to Section 7.1 hereof)
shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that the
execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.

ARTICLE 10

DETERMINATION OF THE PAYMENT AMOUNT

SECTION 10.1 Determination of the Contingent
-------------------------------
Amount. On any Settlement Date, the Payment Amount shall be
------
paid pro rata to the Holders of the Securities as provided
in this Indenture. The Contingent Amount shall be
determined as provided in this Article 10 and in Exhibit B
hereto, which is hereby incorporated in and expressly made a
part of this Indenture. The Payment Amount shall be paid in
cash or, subject to Section 10.7, Registered Common Stock.

SECTION 10.2 Holder Actuary; Compensation and
--------------------------------
Indemnity. (a) On the Issue Date, the Company shall
---------
appoint Ernst & Young LLP as Holder Actuary to represent the
interests of the Holders of the Securities as provided in
Indenture and pursuant to the Holder Actuary Agreement dated
the date hereof between the Company and the Holder Actuary.

The reasonable fees and expenses of the Holder
Actuary incurred in connection with the performance of its
duties under this Indenture, and the reasonable fees and
expenses of any necessary agents engaged by the Holder
Actuary in connection therewith (the "Holder Actuary Cost"),
shall be promptly paid in full by Company; provided that the
--------
Company shall have no obligation to pay the Holder Actuary
Cost to the extent that such cost exceeds $50,000 in any one
year (or $200,000 in any year which includes a Settlement
Date).

The Company shall indemnify the Holder Actuary and
any predecessor Holder Actuary for, and hold it harmless
against, any loss or liability or expense incurred by it
without willful misconduct, negligence or bad faith on its
part arising out of or in connection with the performance of

<PAGE>

its duties as Holder Actuary under this Indenture, the
Securities or the Holder Actuary Agreement, including the
costs and expenses of defending itself against or
investigating any claim or liability and of complying with
any process served upon it or any of its officers in
connection with the exercise or performance of any of its
powers or duties under this Indenture, the Securities or the
Holder Actuary Agreement.

The obligations of the Company under this Section
to compensate and indemnify the Holder Actuary and each
predecessor Holder Actuary and to pay or reimburse the
Holder Actuary and each predecessor Holder Actuary as set
forth in this Section shall constitute additional
indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture or the rejection or
termination of this Indenture under bankruptcy law. If the
Holder Actuary renders services and incurs expenses
following an Event of Default under Section 6.1(c) or
Section 6.1(d) hereof, the parties hereto and the holders by
their acceptance of the Securities hereby agree that such
expenses are intended to constitute expenses of
administration under any bankruptcy law.

(b) In the event of the resignation of the Holder
Actuary or any other circumstance whereby the Holder Actuary
shall cease to perform or otherwise not be available to
perform its duties under this Indenture, the Trustee shall
select a successor Holder Actuary, which successor actuary
shall be a nationally recognized property and casualty
actuarial firm which has had no relationship with the
Company during the greater of (i) the 5 years preceding the
Issue Date and (ii) the period during which the Securities
have been outstanding.

SECTION 10.3 Company Actuary. (a) The Company
---------------
shall appoint an actuary to act as Company Actuary under
this Article 10. The Company Actuary may be, but shall not
be not required to be, an employee of the Company. The
Company may replace the Company Actuary at any time for any
reason; provided that any such action does not and would not
--------
likely result in an extension of the Settlement Date under
Section 2.13. The Trustee and the Holder Actuary shall be
promptly notified in writing of the appointment, resignation
or discharge of the Company Actuary. The fees and expenses
of the Company Actuary shall be paid by the Company without
any adjustment to the Contingent Amount.

SECTION 10.4 Preparation of Reserve Reports.
------------------------------
(a) Promptly following (i) the occurrence of a Change
of Control, (ii) an acceleration of the Securities pursuant

<PAGE>

to Section 6.2 following an Event of Default, (iii) delivery
of a notice of redemption to the Trustee under Section 3.1,
and (iv) December 31, 2005 (each a "Trigger Date"), the
Company shall notify the Trustee, the Holder Actuary and the
Company Actuary of:

(a) the Settlement Date (without regard to any
extension under Section 2.13);

(b) whether or not the Securities are to be
settled in Registered Common Stock pursuant
to Section 10.7; and

In addition, promptly following the Trigger Date,
the Company shall furnish to the Company Actuary and the
Holder Actuary the information or access to the information
referred to in Section 4.2 to allow each such Actuary to
prepare a report (each a "Reserve Report") reflecting
calculation of the Contingent Amount as of the applicable
Settlement Date.

(b) In accordance with and to the extent set
forth in Exhibit B, each Reserve Report, including
calculation of the Contingent Amount, shall be prepared
independently by each Actuary. Such calculation shall be
made in accordance with Exhibit B and, as set forth in
Exhibit B, shall take account of the Tax Benefit resulting
from the Adverse Reserve Development.

The Tax Benefit may be calculated with the
assistance of (i) in the case of the Company Actuary, an
accountant selected by the Company who may be a Company
employee and (ii) in the case of the Holder Actuary, an
accountant selected by such Holder Actuary. The calculation
of any items relevant to the determination of the Tax
Benefit pursuant to Exhibit B shall be made in a manner that
is consistent with the manner in which any comparable
adjustments to reserves are reported or have been reported
by the Company for federal income tax purposes. From the
Trigger Date to the Settlement Date (including any extension
thereof pursuant to Section 2.13), the Company shall provide
each of the Holder Actuary and the Independent Actuary (and
any of their agents) access to the books and records of the
Company and each Subsidiary of the Company as provided in
Section 4.2.

<PAGE>

(c) Each Reserve Report shall include in
reasonable detail an explanation of the methodology used in
such Report and all supporting calculations of Adverse
Reserve Development (as defined in Exhibit B). Each Actuary
shall use its best efforts to deliver its Reserve Report to
the other Actuary at least 105 calendar days prior to the
Settlement Date.

(d) If the calculation of the Contingent Amount
set forth in the Holder Actuary's Reserve Report (i) does
not differ from that set forth in the Company Actuary's
Reserve Report or (ii) differs from that set forth in the
Company Actuary's Reserve Report and the amount of the
difference does not exceed $3,000,000, then the Contingent
Amount set forth in the Company Actuary's Reserve Report
shall be the Contingent Amount for purposes of settlement of
the Securities.

SECTION 10.5 Resolution of Disputes;
-----------------------
Arbitration. (a) If the calculation of the Contingent
-----------
Amount set forth in the Holder Actuary's Reserve Report
differs from that set forth in the Company Actuary's Reserve
Report and the amount of the difference exceeds $3,000,000,
the Company and the Holder Actuary shall use their
reasonable best efforts to resolve this difference. If,
however, the difference cannot be resolved within 30
calendar days after delivery of the later to be delivered of
either the Company Actuary or Holder Actuary Reserve Report,
the Company and the Holder Actuary shall thereafter jointly
appoint an independent third party actuary, which shall be a
nationally recognized property and casualty actuarial firm,
with no relationship to the Company, the Trustee, the Holder
Actuary or any holder of 5% or more of the Securities (the
"Independent Actuary") to resolve said dispute. If the
parties cannot agree on the appointment of an Independent
Actuary within 10 calendar days, then the Company and the
Holder Actuary shall each select two actuarial firms meeting
the requirements set forth in the preceding sentence. Each
of the Company and Holder Actuary shall then be entitled to
reject one of the two selections of the other party. The
Independent Actuary shall then be chosen at random from the
remaining two selections. The Independent Actuary shall
have the authority to engage an independent third party
accountant with no relationship to the Company, the Trustee,
the Holder Actuary or any beneficial owner of 10% or more of
the Securities to resolve any disagreement with respect to
the calculation of the Tax Benefit.

(b) Not later than 30 days prior to any
Settlement Date, the Independent Actuary shall prepare and
deliver to the Company, the Trustee, the Company Actuary and

<PAGE>

the Holder Actuary its calculation of the Contingent Amount.
This calculation shall be prepared in accordance with the
guidelines set forth in Exhibit B. Based on the foregoing,
the Independent Actuary will determine which of (i) the
Contingent Amount set forth in the Company Actuary's Reserve
Report and (ii) the Contingent Amount set forth in the
Holder Actuary's Reserve Report, is, in the judgment of the
Independent Actuary, the best estimate of the Contingent
Amount. The amount so selected will be the Contingent
Amount for purposes of settlement of the Securities.

(c) The reasonable fees and expenses of the
Independent Actuary incurred in connection with this
Indenture, and the reasonable fees and expenses of any
necessary agents engaged by the Independent Actuary in
connection therewith, shall be promptly paid in full by
Company; provided that 50% of all such fees and expenses
--------
(the "Arbitration Cost") shall be deducted from the
Contingent Amount as provided in Exhibit B. Notwithstanding
the foregoing, the Independent Actuary shall have discretion
to apportion such fees and expenses differently between the
parties as the Independent Actuary deems equitable under the
circumstances based upon its views as to the relative
accuracy of the Contingent Amount contained in the Reserve
Reports prepared by each of the Company Actuary and the
Holder Actuary. The Arbitration Cost shall not be subject
to the limits relating to the Holder Actuary Cost set forth
above under Section 10.2(a).

SECTION 10.6 Annual Review of Reserves And
-----------------------------
Claims. Within 90 calendar days following December 31 of
------
each calendar year prior to the Settlement Date, other than
December 31, 2005 (each such December 31, a "Report Date"),
the Company shall deliver to the Holder Actuary and to the
Trustee a written statement setting forth in reasonable
detail, including all supporting calculations and
methodology, the Adverse Reserve Development calculated as
of the Report Date for such year. In addition, each year
the Company Actuary shall provide to the Holder Actuary and
the Trustee a written report stating that all such amounts
have been calculated in accordance with the guidelines set
forth in Exhibit B hereto. Annually following delivery of
each Report, the Company shall cause the Company Actuary to
meet with the Holder Actuary and review in detail with the
Holder Actuary the Adverse Reserve Development occurring
during such calendar year. Following each such annual
meeting, the Holder Actuary shall provide a written report
to the Company Actuary expressing any material issues that
have come to its attention regarding the Company's
calculation of the Adverse Reserve Development. All
statements and reports of the Company, the Company Actuary

<PAGE>

and the Holder Actuary under this Section 10.6 shall be
solely for informational purposes, shall be non-binding and
may not be used or considered for any purpose in any
arbitration.

SECTION 10.7 Settlement in Stock. (a) The
-------------------
Company shall have the right to satisfy the Payment Amount
due to Holders under the Securities, whether at maturity,
upon redemption or upon the occurrence of a Change of
Control, in Registered Common Stock; provided that (i) at
--------
the time of payment such stock is quoted for trading on any
U.S. national securities exchange or on The NASDAQ Stock
Market and (ii) the Payment Amount of all Securities is able
to be satisfied through the delivery of Registered Common
Stock. In connection therewith, the Company shall not be
required to issue fractional shares of common stock, and
instead may pay cash in lieu of any such fractional shares.
The Company shall not have the right to pay the Payment
Amount due under the Securities in Registered Common Stock
if an Event of Default has occurred and is continuing.

(b) For purposes of any such payment, such
Registered Common Stock shall be valued at 85.0% of its Fair
Value. For these purposes, "Fair Value" of such Registered
Common Stock shall mean the average of the closing sales or
last reported sales prices of such Common Stock of the
Company for the 20 trading days immediately preceding the
date that is five trading days prior to the Settlement Date.
Holders on the Settlement Date who receive upon repayment of
the Securities Common Stock of the Company and who as of
such date are or could reasonably be considered Affiliates
of the Company shall have registration rights (the
"Registration Rights") set forth in Exhibit C to this
Indenture.

ARTICLE 11

MISCELLANEOUS

SECTION 11.1 Trust Indenture Act of 1939. This
---------------------------
Indenture shall incorporate and be governed by the
provisions of the Trust Indenture Act that are required to
be part of and to govern indentures qualified under the
Trust Indenture Act.

SECTION 11.2 Notices. Any notice or
-------
communication shall be sufficiently given if written and
(a) if delivered in person when received or (b) if mailed by
first class mail 5 days after mailing, or (c) as between the
Company and the Trustee if sent by facsimile transmission,

<PAGE>

when transmission is confirmed, in each case addressed as
follows:

if to the Company:
-----------------

Piedmont Management Company Inc.
80 Maiden Lane, 20th Floor
New York, New York 10038
Telecopy: (212) 262-4658
Attention: Chief Financial Officer

if to the Trustee:
-----------------

Shawmut Bank Connecticut, N.A.
____________
New York, New York _______
Telecopy: (212) ___-____
Attention: [Corporate Trust Administration]

The Company or the Trustee by written notice to
the other may designate additional or different addresses
for subsequent notices or communications.

Any notice or communication shall be sufficiently
given to Holders by mailing to such Holders at their
addresses as they shall appear on the Security Register.
Notice mailed shall be sufficiently given if so mailed
within the time prescribed. Copies of any such
communication or notice to a Holder shall also be mailed to
the Trustee and each Agent at the same time.

Failure to mail a notice or communication to a
Holder or any defect in it shall not affect its sufficiency
with respect to other Holders. Except as otherwise provided
in this Indenture, if a notice or communication is mailed in
the manner provided in this Section 11.2, it is duly given,
whether or not the addressee receives it.

Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the
event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance
upon such waiver.

In case it shall be impracticable to give notice
as herein contemplated, then such notification as shall be
made with the approval of the Trustee shall constitute a
sufficient notification for every purpose hereunder.

<PAGE>

SECTION 11.3 Certificate and Opinion as to
-----------------------------
Conditions Precedent. Upon any request or application by
--------------------
the Company to the Trustee to take any action under this
Indenture, the Company shall furnish to the Trustee:

(i) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if
any, provided for in this Indenture relating to the
proposed action have been complied with; and

(ii) an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent
have been complied with.

SECTION 11.4 Statements Required in Certificate
----------------------------------
or Opinion. Each certificate or opinion with respect to
----------
compliance with a condition or covenant provided for in this
Indenture shall include:

(i) a statement that each person signing such
certificate or opinion has read such covenant or
condition and the definitions herein relating thereto;

(ii) a brief statement as to the nature and scope
of the examination or investigation upon which the
statement or opinion contained in such certificate or
opinion is based;

(iii) a statement that, in the opinion of each such
person, he has made such examination or investigation
as is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition
has been complied with; and

(iv) a statement as to whether or not, in the
opinion of each such person, such condition or covenant
has been complied with; provided that, with respect to
--------
matters of fact, an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public
officials.

The Company, the Trustee and any agent of the
Company or the Trustee may deem and treat the person in
whose name any Security shall be registered upon the
Security Register as the absolute owner of such Security
(whether or not such Security shall be overdue and
notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment of or on
account of such Security and for all other purposes; and
neither the Company nor the Trustee nor any agent of the

<PAGE>

Company or the Trustee shall be affected by any notice to
the contrary.

SECTION 11.5 Rules by Trustee, Paying Agent or
---------------------------------
Registrar. The Trustee may make reasonable rules for action
---------
by or at a meeting of Holders. The Paying Agent or
Registrar may make reasonable rules for its functions.

SECTION 11.6 Payment Date Other Than a Business
----------------------------------
Day. If any date for payment of any amount due on any
---
Security shall not be a Business Day at any place of
payment, then payment of principal of or interest on such
Security, as the case may be, need not be made on such date,
but may be made on the next succeeding Business Day at any
place of payment with the same force and effect as if made
on such date and no interest shall accrue in respect of such
payment for the period from and after such date.

SECTION 11.7 Governing Law. The internal laws
-------------
of the State of New York shall govern this Indenture and the
Securities.

SECTION 11.8 No Adverse Interpretation of Other
----------------------------------
Agreements. This Indenture may not be used to interpret
----------
another indenture or loan or debt agreement of the Company
or any Subsidiary of the Company. Any such indenture or
agreement may not be used to interpret this Indenture.

SECTION 11.9 Successors. All agreements of the
----------
Company in this Indenture and the Securities shall bind its
successors. All agreements of the Trustee in this Indenture
shall bind its successors.

SECTION 11.10 Duplicate Originals. The parties
-------------------
may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together
represent the same agreement.

SECTION 11.11 Separability. In case any
------------
provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

SECTION 11.12 Table of Contents, Headings, Etc.
---------------------------------
The Table of Contents and headings of the Articles and
Sections of this Indenture have been inserted for
convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of
the terms and provisions hereof.

<PAGE>

SECTION 11.13 Incorporators, Stockholders,
----------------------------
Officers and Directors of Company Exempt from Individual
--------------------------------------------------------
Liability. No recourse under or upon any obligation,
---------
covenant or agreement contained in this Indenture or any
indenture supplemental hereto, or in any Security or any
coupons appertaining thereto, or because of any indebtedness
evidenced thereby, shall be had against any incorporator, as
such or against any past, present or future stockholder,
officer, director or employee, as such, of the Company or of
any successor, either directly or through the Company or any
successor, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any
legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the
acceptance of the Securities by the holders thereof and as
part of the consideration for the issue of the Securities.

SECTION 11.14 Judgment Currency. The Company
-----------------
agrees, to the fullest extent that it may effectively do so
under applicable law, that (a) if for the purpose of
obtaining judgment in any court it is necessary to convert
the sum due in respect of the Securities (the "Required
--------
Currency") into a currency in which a judgment will be
--------
rendered (the "Judgment Currency"), the rate of exchange
-----------------
used shall be the rate at which in accordance with normal
banking procedures the Trustee could purchase in The City of
New York the Required Currency with the Judgment Currency on
the day on which final unappealable judgment is entered,
unless such day is not a Business Day, then, to the extent
permitted by applicable law, the rate of exchange used shall
be the rate at which in accordance with normal banking
procedures the Trustee could purchase in The City of New
York the Required Currency with the Judgment Currency on the
Business Day preceding the day on which final unappealable
judgment is entered and (b) its obligations under this
Indenture to make payments in the Required Currency (i)
shall not be discharged or satisfied by any tender, or any
recovery pursuant to any judgment (whether or not entered in
accordance with subsection (a)), in any currency other than
the Required Currency, except to the extent that such tender
or recovery shall result in the actual receipt, by the
payee, of the full amount of the Required Currency expressed
to be payable in respect of such payments, (ii) shall be
enforceable as an alternative or additional cause of action
for the purpose of recovering in the Required Currency the
amount, if any, by which such actual receipt shall fall
short of the full amount of the Required Currency so
expressed to be payable and (iii) shall not be affected by
judgment being obtained for any other sum due under this
Indenture.

<PAGE>

SIGNATURES

IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed, all as of the date first
written above.

(SEAL) PIEDMONT MANAGEMENT COMPANY
INC.
Attest:

_____________________

By:
---------------------------
Name:
Title:

(SEAL) SHAWMUT BANK CONNECTICUT,
N.A., as Trustee
Attest:

_____________________

By:
---------------------------
Name:
Title:

<PAGE>

STATE OF ________ )
)
COUNTY OF ________ )

BEFORE ME, the undersigned authority, on this __
day of ________, 1995, personally appeared ____________,
____________ of Piedmont Management Company Inc., a Delaware
corporation, known to me (or proved to me by introduction
upon the oath of a person known to me) to be the person and
officer whose name is subscribed to the foregoing
instrument, and acknowledged to me that he/she executed the
same as the act of such corporation for the purposes and
consideration herein expressed and in the capacity therein
stated.

GIVEN UNDER MY HAND AND SEAL THIS ____ DAY OF
________, 1995.

(SEAL)

________________________________
NOTARY PUBLIC, STATE OF ________
Print Name:_____________________
Commission Expires:_____________

STATE OF NEW YORK )
)
COUNTY OF NEW YORK )

BEFORE ME, the undersigned authority, on this
_______ day of ________, 1995, personally appeared
_________________, _______________ of Shawmut Bank
Connecticut, N.A., a national association, known to me (or
proved to me by introduction upon the oath of a person known
to me) to be the person and officer whose name is subscribed
to the foregoing instrument, and acknowledged to me that
he/she executed the same as the act of such trust for the
purposes and consideration herein expressed and in the
capacity therein stated.

GIVEN UNDER MY HAND AND SEAL THIS _____ DAY OF
________, 1995.

(SEAL)
________________________________
NOTARY PUBLIC, STATE OF NEW YORK
Print Name:_____________________
Commission Expires:_____________

<PAGE>

Exhibit A

[FORM OF FACE OF SECURITY]

No. $[principal amount]*

Piedmont Management Company Inc.
Contingent Interest Notes Due June 30, 2006.

Piedmont Management Company Inc., a Delaware
corporation (such company, and its successors and assigns
under the Indenture hereinafter referred to, being herein
called the "Company"), for value received, hereby promises
to pay to ________________ or registered assigns, on the
relevant Settlement Date (as defined in the Indenture), the
following amounts (the "Payment Amount"):

(1) the principal amount of this Security plus
interest on such principal amount from the Issue
Date through the Settlement Date at a rate of 8.0%
per annum, compounded annually, at the Company's
office or agency for said purpose in New York, New
York, on the relevant Settlement Date (as defined
in the Indenture);

(2) the pro rata portion (as defined below) of the
Contingent Amount, as defined in the Indenture
(the "Indenture"), dated as of __________ __, 1995
between the Company and Shawmut Bank Connecticut,
N.A., as trustee (the "Trustee"), at the Company's
office or agency for said purpose in New York, New
York, on the relevant Settlement Date; and

(3) the pro rata portion (as defined below) of the
Extension Interest (as defined in the Indenture),
if any, at the Company's office or agency for said
purpose in New York, New York, on the relevant
Settlement Date.

For these purposes, "pro rata portion" means the
ratio of the principal amount of this Security to the
aggregate principal amount of all of the Securities issued
under the Indenture.

--------------------
*The dollar amount indicated is the principal amount of
the Security. In addition to the principal amount, the
Holder of this Security shall receive such other amounts as
indicated in this Security.

<PAGE>

Payment of the Payment Amount due under this
Security shall be made in such coin or currency of the
United States of America as at the time of payment shall be
legal tender for the payment of public and private debts
("U.S. Currency"); provided that under certain circumstances
--------
as set forth in the Indenture such payment may be made in
Registered Common Stock (as defined in the Indenture).

Reference is made to the further provisions set
forth on the reverse hereof. Such further provisions shall
for all purposes have the same effect as though fully set
forth at this place.

Capitalized terms used herein without definition
shall have the same meaning as in the Indenture.

IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate seal.

Dated: ___________ __, 1995

[Seal]
______________________________

______________________________

<PAGE>

[FORM OF REVERSE OF SECURITY]

Piedmont Management Company Inc.
Contingent Interest Notes Due June 30, 2006

1. Interest
--------

The Company promises to pay interest on the
principal amount of this Security from the Issue Date
through the Settlement Date at a rate of 8.0% per annum,
compounded annually.

In the event that Extension Interest, if any,
shall become due and payable on this Security pursuant to
the Indenture, the Company promises to pay such Extension
Interest in accordance with the terms and rates set forth in
Section 2.13 of the Indenture.

2. Method of Payment
-----------------

The Company through the Paying Agent shall pay any
Payment Amount on this Security to the registered holder of
this Security on any Settlement Date. Except as otherwise
provided in the Indenture, the Holder of this Security must
surrender this Security to the Paying Agent to collect any
Payment Amount. Payment of the Payment Amounts due under
this Security shall be made in U.S. Currency; provided that
--------
under certain circumstances as set forth in the Indenture
such payment may be made in Registered Common Stock (as
defined in the Indenture).

3. Paying Agent and Registrar
--------------------------

Initially, the Trustee will act as Paying Agent
and Registrar. The Company may appoint and change any
Paying Agent, Registrar or transfer agent without prior
notice to the Holder of this Security. The Company may have
one or more additional Paying Agents or transfer agents with
respect to this Security. The Company or any affiliate of
the Company may act as Paying Agent or Registrar to the
Holder of this Security.

4. Indenture
---------

The Company issued the Securities under the
Indenture. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by

<PAGE>

reference to the Trust Indenture Act of 1939 (15 U.S.C.
------
Sec.Sec. 77aaa-77bbbb) as in effect on the date of the Indenture
(the "Act"). The Securities are subject to all such terms,
and Holders of the Securities are referred to the Indenture
and the Act for a statement of those terms.

Subject to Section 2.8 of the Indenture, the
aggregate principal amount of Securities which may be
authenticated and delivered under the Indenture is limited
to $1,000,000 plus interest accreting thereon from the Issue
Date through the Settlement Date at a rate of 8.0% per
annum, compounded annually. The Securities are general
unsecured obligation of the Company and rank equally and
pari passu with all other unsecured and unsubordinated debt
of the Company.

5. Optional Redemption
-------------------

(a) The Securities are subject to redemption, in
whole but not in part, at any time on or after the third
anniversary of the Issue Date, at 100% of the Payment
Amount, upon not less than 180 nor more than 190 days'
notice furnished to the Trustee and the Holder Actuary
pursuant to Section 3.1 of the Indenture. Once such notice
is furnished, Securities called for redemption become
irrevocably due and payable on the Redemption Date at the
redemption price. A notice of redemption may not be
conditional.

(b) Notice of redemption will be mailed, by either
the Company or the Trustee as determined pursuant to the
terms of the Indenture, at least 140 days but not more than
150 days before the Redemption Date to each Holder of a
Security to be redeemed at the address of such Holder as it
appears in the Security Register. Such notice of redemption
shall state all such matters as may be required to be stated
pursuant to Section 3.2 of the Indenture.

(c) Except as set forth in Section 4.6 of the
Indenture, the Company shall not be required to make
mandatory redemption or sinking fund payments with respect
to the Securities.

6. Purchase of Securities upon a Change of Control
-----------------------------------------------

(a) In the event that a Change of Control (as
defined in the Indenture) occurs, the Company shall make a
Change of Control Offer to each Holder of Securities to

<PAGE>

repurchase all, but not less than all, of such Holder's
Securities at a purchase price equal the Change of Control
Purchase Price on the Change of Control Purchase Date.

(b) Within 15 days following the date on which
the Change of Control occurs, the Company shall mail a
notice to each Holder of Securities stating that a Change of
Control Offer is being made pursuant to the Indenture and
such other matters as may be required to be stated pursuant
to Section 4.6 of the Indenture.

(c) A Holder may accept the Change of Control
Offer upon (1) delivery to any Paying Agent of a written
Change of Control Purchase Notice at any time prior to the
close of business on the third Business Day before the
Change of Control Purchase Date, stating that such Holder
accepts the Company's offer to repurchase all of such
Holder's Securities and (2) delivery of such Securities to
such Paying Agent at such office prior to, on or after the
Change of Control Purchase Date (together with all necessary
endorsements), such delivery being a condition to receipt by
the Holder of the Change of Control Purchase Price therefor.

(d) A Change of Control Purchase Notice may be
withdrawn before or after delivery by the Holder to the
relevant Paying Agent at the office of such Paying Agent of
the Security to which such Change of Control Purchase Notice
relates, by means of a written notice of withdrawal (by
telegram, telex, facsimile transmission or letter) received
by such Paying Agent at such office not later than three
Business Days prior to the Change of Control Purchase Date,
specifying, as applicable:

(1) the name of such Holder and

(2) a statement that such Holder is withdrawing
his election to have such Securities
purchased.

Each Paying Agent will promptly return to the
prospective Holders thereof any Securities with respect to
which a Change of Control Purchase Notice has been withdrawn
in compliance with the Indenture.

7. Deposit of Redemption or Purchase Price
---------------------------------------

If the Company has deposited with the Paying Agent
money (or Registered Common Stock, if permitted under the
Indenture) sufficient to pay the redemption or purchase
price of, and unpaid and accrued interest, if any, on all

<PAGE>

Securities to be redeemed or purchased on the Redemption
Date or Change of Control Purchase Date, interest shall
cease to accrue on the Securities or the portions of
Securities called for redemption or tendered and not
withdrawn in a Change of Control Offer (regardless of
whether certificates for such securities are actually
surrendered), and the only remaining right of the Holder
with respect to such Security or portion thereof shall be to
receive such payment upon proper presentation and surrender
of the Securities.

8. Exchange
--------

This Security is in registered form and in a
denomination that the Company and the Trustee have
determined. A Holder may only transfer or exchange this
Security in accordance with the Indenture. A Holder may be
required to, among other things, furnish appropriate
endorsements or transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture.

9. Persons Deemed Owners
---------------------

10. Amendment, Waiver
-----------------

The Indenture permits, with certain exceptions as
therein provided, the amendment or supplement thereof with
the consent of the Holders of a majority in aggregate
Principal Amount of the Securities then outstanding at the
time of such amendment or supplement. The Indenture also
contains provisions permitting the Holders of a majority in
aggregate Principal Amount of the then outstanding
Securities to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under
the Indenture and their consequences. A consent to an
amendment, supplement or waiver by or on behalf of the

<PAGE>

Holder of the Security is conclusive and binding upon such
Holder and upon every subsequent Holder of the Security or
portion of the Security that evidences the same debt as the
consenting Holder's Security, even if notation of such
consent is not made upon the Security.

11. Defaults and Remedies
---------------------

The Securities have the Events of Default as set
forth in Section 6.1 of the Indenture. If an Event of
Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate Principal Amount of the
Securities, subject to certain limitations, may declare all
the Securities to be due and payable immediately. Certain
events of bankruptcy or insolvency are Events of Default and
shall result in the Securities being due and payable
immediately upon the occurrence of such Events of Default.

Holders of Securities may not enforce the
Indenture or the Securities except as provided in the
Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a
majority in aggregate Principal Amount of the then
outstanding Securities may direct the Trustee in its
exercise of any trust or power. The Holders of a majority
in aggregate Principal Amount of the then outstanding
Securities, by written notice to the Trustee, may rescind an
acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or
interest that has become due solely because of the
acceleration) have been cured or waived. Except in the case
of a default or Event of Default in the payment of any
amount with respect to any Security, the Trustee shall be
protected in withholding notice of such default or Event of
Default from the Holders, if the Trustee in good faith
determines that the withholding of such notice is in the
interests of the Holders. The above description of Events
of Default and remedies is qualified by reference, and
subject in its entirety, to the more complete description
thereof contained in the Indenture.

12. Trustee Dealings with the Company or Its Affiliates
---------------------------------------------------

The Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and
may otherwise deal with the Company or its Affiliates with
the same rights it would have if it were not the Trustee.

<PAGE>

Any Agent may do the same with like rights. However, the
Trustee is subject to Trust Indenture Act Sections 310(b)
and 311.

13. No Recourse Against Others
--------------------------

No recourse under or upon any obligation, covenant
or agreement contained in this Indenture or any indenture
supplemental hereto, or in any Security or any coupons
appertaining thereto, or because of any indebtedness
evidenced thereby, shall be had against any incorporator, as
such or against any past, present or future stockholder,
officer, director or employee, as such, of the Company or of
any successor, either directly or through the Company or any
successor, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any
legal or equitable proceeding or otherwise, all such
liability being expressly waived and released by the
acceptance of the Securities by the Holders thereof and as
part of the consideration for the issue of the Securities.

14. Authentication
--------------

This Security shall not be valid or obligatory
until an authorized officer of the Trustee (or an
Authenticating Agent) manually signs the certificate of
authentication below.

15. Governing Law
-------------

The internal laws of the State of New York shall
govern the Indenture and this Security.

The Company will furnish to the Holder of this
Security upon written request and without charge to such
Holder a copy of the Indenture which has in it the text of
this Security in larger type. Requests may be made to the
Company at the address set forth in the Indenture.

<PAGE>

[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]

This is one of the Securities described in the
within-mentioned Indenture.

SHAWMUT BANK CONNECTICUT,
N.A., as Trustee

________________________
Authorized Officer

<PAGE>

Exhibit B

Calculation of
Contingent Amount
-----------------

With respect to any Settlement Date, the Contingent Amount
shall be calculated in accordance with the following
definitions:

Contingent Amount: With respect to any Settlement
Date, the amount equal to:

(A) (x) the sum of (i) the
Maximum Interest and (ii) the
Tax Benefit minus (y) the
Adverse Reserve Development;
provided that in no event will
--------
the amount resulting from this
clause (A) be less than the
Minimum Amount or greater than
the Maximum Interest

minus

(B) the sum of (i) the Actuary
Cost and (ii) the Arbitration
Cost.

Maximum Interest: With respect to any Settlement
Date, the amount equal to $55.0
million discounted back from the
Maturity Date to the applicable
Settlement Date at a rate of 8.0%
compounded annually.

Adverse Reserve
Development: For any Determination Date, the
amount equal to:

(A) (i) Incurred Loss and
Allocated Loss Expense
Development plus (ii)
Commission Development minus
Earned Premium Development, in
each case as of the applicable
Determination Date;

minus

<PAGE>

(B) $25.0 million.

Incurred Loss and
Allocated Loss
Expense Development: Shall mean:

(1) the sum of the
development of incurred
losses and allocated loss
expenses for each
calendar year beginning
with the calendar year
ending December 31, 1996
through the calendar year
ending on the
Determination Date,
reflected on RECO's
Statutory Annual
Statement, Schedule P -
Part 2 - Summary (one
year development column
of Incurred losses and
allocated loss expenses)
with respect to the
Protected Business for
accident years 1994 and
prior;

plus

(3) the sum of 25% of the
development of incurred

<PAGE>

losses and allocated loss
expenses for each
calendar year beginning
with the calendar year
ending December 31, 1996
through the calendar year
ending on the
Determination Date,
reflected on RECO's
Statutory Annual
Statement, Schedule P -
Part 2 - Summary (one
year development column
of incurred losses and
allocated loss expenses)
with respect to all
business for accident
year 1995;

plus

(4) any GAAP adjustment
related to the provision
for uncollectible
reinsurance of incurred
losses and allocated loss
expenses applicable to
the Protected Business.

Earned Premium
Development: Shall mean estimated ultimate
premiums recorded in the GAAP
financial statements of the Company
through the Determination Date
minus estimated ultimate premiums
recorded in the GAAP financial
statements of the Company through
March 31, 1995, in each case with
respect to retrospectively rated
casualty treaty excess contracts
included in the Protected Business.

Commission Development: Shall mean the estimated ultimate
commissions recorded in the GAAP
financial statements of the Company
through the Determination Date
minus estimated ultimate
commissions recorded in the GAAP
financial statements of the Company
through March 31, 1995 with respect

<PAGE>

to the contracts applicable to the
Protected Business.

Verification: In determining any component of
Incurred Loss and Allocated Loss
Expense Development, Earned Premium
Development or Commission
Development, whether as reflected
on RECO's Statutory Annual
Statement or on RECO's GAAP
financial statements, each such
component shall be subject to
verification by the Holder Actuary
and the Company Actuary against the
books and records of RECO.

Actuary Cost: With respect to any Settlement
Date, if the sum of (x) the amount
determined pursuant to clause (A)
of the definition of "Contingent
Amount" above and (y) the Fixed
Amount is equal to or less than
$10.0 million, 50% of the Holder
Actuary Cost, and if such amount is
greater than $10.0 million, 100% of
the Holder Actuary Cost.

Determination Date: With respect to the final Maturity
Date, December 31, 2005, and with
respect to any other Settlement
Date, December 31 of the year
immediately preceding (i) a Change
of Control, (ii) an acceleration of
the Securities pursuant to Section
6.2 of the Indenture following an
Event of Default, and (iii)
delivery of a notice of redemption
to the Trustee under Section 3.1 of
the Indenture.

Protected Business: All insurance and reinsurance
business, however denominated, as
to which premiums earned have been
reflected on the books of RECO on
or prior to March 31, 1995.

GAAP: U.S. generally accepted accounting
principles as in effect on the
Determination Date. Subject to
"Applicable Standards" and "Certain
Changes" below, all amounts shall

<PAGE>

be calculated in accordance with
GAAP.

Tax Benefit: For any Settlement Date, means
without duplication the sum of (A)
the "Actual Tax Benefit" (as
defined below) of the Adverse
Reserve Development and (B) the
"Deferred Tax Benefit" (as defined
below) of the Adverse Reserve
Development. The Actual Tax
Benefit shall be equal to the
difference between the amount of
United States federal income tax
payable by the affiliated group of
which the Company is the common
parent with respect to all taxable
periods beginning on (or including)
March 31, 1995 and ending on the
applicable Determination Date (the
"Taxable Period") and the amount of
United States federal income tax
that would have been payable with
respect to such Taxable Period in
the absence of such Adverse Reserve
Development. The Deferred Tax
Benefit shall be equal to the
deferred tax asset reflected on the
GAAP consolidated financial
statements of the Company as of the
applicable Determination Date
attributable to the Adverse Reserve
Development, after taking account
of the valuation allowance, if any,
with respect thereto (to the extent
such valuation allowance is not
allocable to a specific component
of the deferred tax asset, it shall
be apportioned ratably); provided
--------
that the Settlement Date is the
Maturity Date. In the event that
the Settlement Date is not the
Maturity Date, the Deferred Tax
Benefit shall be equal to the
product of (i) the maximum
corporate United States federal
income tax rate as of the
applicable Determination Date and
(ii) the amount of the Adverse
Reserve Development which did not

<PAGE>

result in an Actual Tax Benefit
during the Taxable Period.

Minimum Amount: For any Settlement Date, an amount
equal to the lesser of (x) the Tax
Benefit and (y) $10.0 million minus
the Fixed Amount.

Further Provisions
------------------

Applicable Standards: The components of Adverse Reserve
Development in the aggregate are to
be determined and calculated in
accordance with generally accepted
actuarial standards of practice as
applied in the insurance industry,
from time to time, including but
not limited to Actuarial Standard
of Practice #9 of the Actuarial
Standards Board (specifically,
Documentation and Disclosure in
Property and Casualty Ratemaking,
Loss Reserving, and Valuation), as
amended from time to time. Both
the Company Actuary and the Holder
Actuary are to be bound by these
standards in the determination of
Adverse Reserve Development.

Certain Changes: In determining any component of
Adverse Reserve Development, there
shall be taken into account, as
appropriate, changes in insurance
industry standards, generally
accepted accounting principles,
generally accepted actuarial
standards and changes in prevailing
law. Without limiting the
foregoing, in the event of any
legislative reform that has the
effect of reducing any liability
that relates to Protected Business,
the Adverse Reserve Development
shall be appropriately reduced.
Conversely, in the event of any
legislative reform that has the
effect of substantially
transforming any liability that
relates to Protected Business into
a charge that would not be included
in the definition of "Adverse

<PAGE>

Reserve Development" appropriate
adjustment shall be made to include
the amount of such charge in the
calculation of the Contingent
Amount.

Consistency: Each year Adverse Reserve
Development at RECO shall be
established on a basis and using a
methodology that is no more
conservative than those used to
determine reserves and assets for
the other insurance and reinsurance
on the books of the Company and its
other subsidiaries.

<PAGE>

Exhibit C

REGISTRATION RIGHTS

Holders on the Settlement Date who receive upon
repayment of the Securities Common Stock of the Company and
who as of such date are or could reasonably be considered
Affiliates of the Company (collectively, the "Stockholders"
and individually a "Stockholder") shall have the
registration rights set forth in this Exhibit C
(hereinafter, the "Agreement"):

ARTICLE I

DEFINITIONS

SECTION 1.1. Definitions. As used in this
-----------
Agreement, the following terms shall have the following
meanings:

"Affiliate" shall mean any person that directly,
---------
or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the
Company.

"Business Day" shall mean any day except a
------------
Saturday, Sunday or other day on which commercial banks in
the City of New York are authorized by law or executive
order to close.

"Disadvantageous Condition" shall have the meaning
-------------------------
given such term in Section 3.1(a)(i) hereof.

"Exchange Act" shall mean the Securities Exchange
------------
Act of 1934, as amended.

"Minimum Registration Amount" shall mean, in the
---------------------------
event that the Company exercises its right to satisfy the
Payment Amount due to the holders of CI Notes under the
Indenture in Registered Common Stock pursuant to Section
10.7 of the Indenture, 25% or more of the total number of
shares of Common Stock of the Company issued to the
Stockholders in such satisfaction.

"NASD" shall mean the National Association of
----
Securities Dealers, Inc.

"NASDAQ" shall mean the National Association of
------
Securities Dealers Automated Quotation System.

<PAGE>

"Other Stockholders" shall have the meaning given
------------------
such term in Section 3.1(a)(i) hereof.

"Person" shall mean an individual, a corporation,
------
a partnership, an association, a joint-stock company, a
trust, any unincorporated organization, or a government or
political subdivision thereof.

"Priority Securities" shall have the meaning given
-------------------
such term in Section 3.1(a)(i) hereof.

"Registrable Securities" shall mean, in the event
----------------------
that the Company exercises its right to satisfy the Payment
Amount due to the holders of CI Notes under the Indenture in
Registered Common Stock pursuant to Section 10.7 of the
Indenture, the shares of Common Stock of the Company issued
to the Stockholders in such satisfaction, other than Rule
144 Securities (as defined herein) which may be distributed
to the public pursuant to Rule 144(k) under the Securities
Act; provided, however, that such securities shall cease to
-------- -------
be Registrable Securities if and when (A) a registration
statement with respect to the disposition of such securities
shall have become effective under the Securities Act and
such securities shall have been disposed of pursuant to such
effective registration statement, (B) such securities shall
have been otherwise transferred, if new certificates or
other evidence of ownership for such securities not bearing
a legend restricting further transfer and not subject to any
stop transfer order or other restrictions on transfer shall
have been delivered by the Company, and subsequent
disposition of such securities shall not require
registration or qualification of such securities under the
Securities Act, or (C) such securities shall have ceased to
be outstanding.

"Registration Expenses" shall mean all expenses
---------------------
incident to the Company's performance of or compliance with
its obligations under Article III of this Agreement,
including, without limitation, all SEC and stock exchange or
NASD registration and filing fees and expenses, fees and
expenses of compliance with applicable state securities or
"blue sky" laws (including, without limitation, reasonable
fees and disbursements of counsel for the underwriters in
connection with "blue sky" qualifications of the Registrable
Securities), printing expenses, messenger and delivery
expenses, the fees and expenses incurred in connection with
the listing of such securities to be registered on each
securities exchange or national market system on which such
securities are listed, fees and disbursements of counsel for
the Company and all independent auditors (including the
expenses of any "comfort" letters required by or incident to

<PAGE>

such performance and compliance), the fees and disbursements
of underwriters customarily paid by issuers or sellers of
securities (including the fees and expenses of any
"qualified independent underwriter" required by the NASD),
the reasonable fees of one counsel retained in connection
with each such registration by the holders of a majority of
the Registrable Securities being registered, and the
reasonable fees and expenses of any special experts retained
by the Company in connection with such registration (but not
including any underwriting discounts or commissions or
transfer taxes, if any, attributable to the sale of
Registrable Securities by holders of such Registrable
Securities).

"Requesting Stockholders" shall have the meaning
-----------------------
given such term in Section 3.1(a)(i) hereof.

"SEC" shall mean the Securities and Exchange
---
Commission.

"Securities Act" shall mean the Securities Act of
--------------
1933, as amended.

All capitalized terms used and not defined herein shall have
the meaning assigned to them in the Indenture.

ARTICLE II

REPRESENTATIONS

SECTION 2.1. The Company represents to the
Stockholders that it has full legal right, power and
authority to enter into and perform its obligations under
this Agreement, and the consummation by the Company of the
transactions contemplated by this Agreement have been or
will be duly authorized by the Company. This Agreement is a
valid, binding and enforceable agreement of the Company.

ARTICLE III

REGISTRATION RIGHTS

SECTION 3.1. Registration Rights. The
-------------------
Stockholders shall have the right to register their
Registrable Securities in accordance with the following
provisions.

<PAGE>

(a) Registration on Request.
-----------------------

(i) For a period of two years after the
Settlement Date, at any time and from time to time,
upon the written request of Stockholders holding
Registrable Securities equal to at least the Minimum
Registration Amount (the "Requesting Stockholders")
that the Company effect the registration under the
Securities Act of an amount of Registrable Securities
held by them equal to at least the Minimum Registration
Amount, the Company will promptly give written notice
to all other Stockholders of Registrable Securities
(the "Other Stockholders") that a request for
registration has been received with respect to the
Minimum Registration Amount. For a period of 15 days
following delivery of such notice, the Other
Stockholders may request that the Company also register
their Registrable Securities and after the expiration
of such 15 day period, the Company shall notify all
Stockholders of the number of Registrable Securities to
be registered. Thereupon, the Company will use its
best efforts to cause the prompt registration under the
Securities Act, subject to the provisions of this
Section 3.1, of (A) the Registrable Securities which
the Requesting Stockholders have requested the Company
to register and (B) all other Registrable Securities
which the Company has been requested to register by the
Other Stockholders, and in connection therewith,
prepare and file on such appropriate form as the
Company, in its reasonable discretion, shall determine,
a registration statement under the Securities Act to
effect such registration; provided, however, that the
-----------------
Company shall not be obligated to effect such
registration in the event that the aggregate offering
price of (A) the Registrable Securities which the
Requesting Stockholders have requested the Company to
register, (B) all other Registrable Securities which
the Company has been requested to register by the Other
Stockholders and (C) all other securities to be
registered in such registration is less than
$10,000,000.

With respect to any registration statement
filed, or to be filed, pursuant to this Section
3.1(a)(i), if the Company shall furnish to the
Requesting Stockholders and the Other Stockholders a
certified resolution of the Board of Directors stating
that in the Board of Directors' good faith judgment it
would (because of the existence of, or in anticipation
of, any acquisition or financing, merger, sale of
assets, capitalization or other similar corporate

<PAGE>

activity, or the unavailability for reasons beyond the
Company's control of any required audited financial
statements, or any other event or condition of similar
significance to the Company) be materially
disadvantageous (a "Disadvantageous Condition") to the
Company or its stockholders for such a registration
statement to be maintained effective, or to be filed
and become effective, and setting forth the general
reasons for such judgment, the Company shall be
entitled to cause such registration statement to be
withdrawn and the effectiveness of such registration
statement terminated, or, in the event no registration
statement has yet been filed, shall be entitled not to
file any such registration statement, until such
Disadvantageous Condition no longer exists (notice of
which the Company shall promptly deliver to the
Requesting Stockholders and the Other Stockholder);
provided, however, that the Company shall not be
--------
entitled to delay any such registration statement
pursuant to the foregoing (A) for more than a total of
180 days or (B) more than once during any 12 month
period. Upon receipt of any such notice of a
Disadvantageous Condition, such Requesting Stockholders
and Other Stockholders will forthwith discontinue use
of the prospectus contained in such registration
statement and, if so directed by the Company, each such
Stockholder will deliver to the Company all copies,
other than permanent file copies then in such
Stockholder's possession, of the prospectus then
covering such Registrable Securities current at the
time of receipt of such notice, and, in the event no
registration statement has yet been filed, all drafts
of the prospectus covering such Registrable Securities.
In the event that the Company shall give any notice of
a Disadvantageous Condition, the Company shall at such
time as it in good faith deems appropriate file a new
registration statement covering the Registrable
Securities that were covered by such withdrawn
registration statement, and such registration statement
shall be maintained effective for such time as may be
necessary so that the period of effectiveness of such
new registration statement shall be such time as may be
otherwise required by Section 3.1(a)(iii).

Requesting Stockholders holding a majority of
the Registrable Securities held by all Requesting
Stockholders may, at any time prior to the effective
date of the registration statement relating to such
registration, revoke such request, without liability to
any of the other Requesting Stockholders or the Other

<PAGE>

Stockholders, by providing a written notice to the
Company revoking such request.

(ii) Number of Registrations; Expenses. The
---------------------------------
Company shall not be obligated to effect more than one
registration in any nine-month period of Registrable
Securities pursuant to requests from Requesting
Stockholders under this Section 3.1(a) and, in any
event, no more than two such registrations during the
term of this Agreement. Each Stockholder shall pay all
underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of
such Stockholder's Registrable Securities pursuant to
this Section 3.1(a). Notwithstanding any other
provisions contained in this Section 3.1(a), the
Company shall not be required to register any
Registrable Securities pursuant to an effective
registration statement in connection with a request for
such registration made in accordance with this Section
3.1(a) if the previous registration statement with
respect to any request made pursuant to this Section
3.1(a) became effective less than 180 days prior to
such request.

(iii) Effective Registration Statement. A
--------------------------------
registration requested pursuant to this Section 3.1(a)
shall not be deemed to have been effected unless the
registration statement relating thereto (A) has become
effective under the Securities Act and at least 50% of
the Registrable Securities of the Stockholders included
in such registration have actually been sold
thereunder, and (B) has remained effective for a period
of at least 180 days (or such shorter period in which
all Registrable Securities of the Requesting
Stockholders and the Other Stockholders included in
such registration have actually been sold thereunder);
provided, however, that if any effective registration
-------- -------
statement requested pursuant to this Section 3.1(a) is
discontinued in connection with a Disadvantageous
Condition, such registration statement shall not be
included as one of the registrations which may be
requested pursuant to Section 3.1(a) hereof if less
than 80% of all the Registrable Securities included in
such registration have been sold thereunder; provided
--------
further, that if after any registration statement
-------
requested pursuant to this Section 3.1(a) becomes
effective (A) such registration statement is subject to
any stop order, injunction or other order or
requirement of the SEC or other government agency or
court due to the actions or omissions to act of the
Company and (B) less than 80% of all of the Registrable

<PAGE>

Securities included in such registration have been sold
thereunder, or less than 80% of the Registrable
Securities of a particular Requesting Stockholder
included in such registration have been sold
thereunder, such registration statement shall not be
included as one of the registrations which such
Requesting Stockholders are entitled to request
pursuant to Section 3.1(a)(ii).

(iv) Selection of Underwriters. If any
-------------------------
requested registration pursuant to this Section 3.1(a)
is in the form of an underwritten offering, the
Stockholders holding a majority of the Registrable
Securities in respect of which registration has been
requested shall have the right to select the investment
banker and manager or co-managers that will administer
the offering, subject to the consent of the Company,
which consent shall not be unreasonably withheld.

(v) Pro Rata Participation in Requested
-----------------------------------
Registration. If a requested registration pursuant to
------------
this Section 3.1(a) involves an underwritten offering
and the managing underwriter shall advise the Company
that, in its view, the number of equity securities
requested to be included in such registration exceeds
the largest number of securities which can be sold
without having a material adverse effect on such
offering, including the price at which such securities
can be sold, the number of Registrable Securities
requested to be registered by the Requesting
Stockholders and the Other Stockholders included by the
Company in such registration shall be allocated pro
rata among the Requesting Stockholders and the Other
Stockholders on the basis of the relative number of
shares of Registrable Securities owned by them;
provided, however, that if in any such underwritten
-------- -------
offering the Company includes in such registration
statement less than 80% of the Registrable Securities
requested to be included therein by any Requesting
Stockholder, then such registration statement shall not
be included as one of the registrations which the
Requesting Stockholders are entitled to request
pursuant to Section 3.1(a)(ii).

(b) Incidental Registration.
-----------------------

(i) For a period of five years from the
Settlement Date, if the Company at any time proposes to
register any of its equity securities (the "Priority
Securities") under the Securities Act (other than a
registration (A) relating to shares of Common Stock of

<PAGE>

the Company issuable upon exercise of employee stock
options or in connection with any employee benefit or
similar plan of the Company, (B) in connection with an
acquisition by the Company of another company or (C)
pursuant to Section 3.1(a) hereof) in a manner which
would permit registration of Registrable Securities for
sale to the public under the Securities Act (whether or
not for sale for its own account), it shall each such
time, subject to the provisions of Section 3.1(b)(ii)
hereof, give prompt written notice to all holders of
record of Registrable Securities of its intention to do
so and of such Stockholders' rights under this Section
3.1(b), at least 30 days prior to the anticipated
filing date of the registration statement relating to
such registration. Such notice shall offer all such
Stockholders the opportunity to include in such
registration statement such number of Registrable
Securities as each such Stockholder may request. Upon
the written request of any such Stockholder made within
20 days after the receipt of the Company's notice
(which request shall specify the number of Registrable
Securities intended to be disposed of by such
Stockholder and the intended method of disposition
thereof), the Company will use its best efforts to
effect the registration under the Securities Act of all
Registrable Securities which the Company has been so
requested to register by the Stockholders thereof;
provided, that (A) if such registration involves an
--------
underwritten offering, all holders of Registrable
Securities requesting to be included in the Company's
registration must sell their Registrable Securities to
the underwriters selected by the Company on the same
terms and conditions as apply to the Company; and (B)
if, at any time after giving written notice of its
intention to register any securities pursuant to this
Section 3.1(b)(i) and prior to the effective date of
the registration statement filed in connection with
such registration, the Company shall determine for any
reason not to register such securities, the Company
shall give written notice to all holders of Registrable
Securities and shall thereupon be relieved of its
obligation to register any Registrable Securities in
connection with such registration (without prejudice,
however, to rights of Stockholders under Section 3.1(a)
hereof). If a registration pursuant to this Section
3.1(b)(i) involves an underwritten public offering, any
holder of Registrable Securities requesting to be
included in such registration may elect, in writing
prior to the effective date of the registration
securities filed in connection with such registration,
not to register such Registrable Securities in

<PAGE>

connection with such registration. No registration
effected under this Section 3.1(b) shall relieve the
Company of its obligations to effect registrations upon
request under Section 3.1(a) hereof. The Company shall
pay all Registration Expenses in connection with each
registration of Registrable Securities requested
pursuant to this Section 3.1(b). However, each
Stockholder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the
sale or disposition of such Stockholder's Registrable
Securities pursuant to a registration statement
effected pursuant to this Section 3.1(b).

(ii) Priority in Incidental Registrations.
------------------------------------
If a registration pursuant to this Section 3.1(b)
involves an underwritten offering and the managing
underwriter advises the Company that, in its good faith
view, the number of equity securities (including all
Registrable Securities) which the Company, the
Stockholders and any other Persons intend to include in
such registration exceeds the largest number of
securities which can be sold without having a material
adverse effect on such offering, including the price at
which such Registrable Securities can be sold, the
Company will include in such registration (A) first,
all the Priority Securities to be sold for the
Company's own account; (B) second, to the extent that
the number of Priority Securities is less than the
number of Registrable Securities which the underwriter
has advised the Company can be sold in such offering
without having the material adverse effect referred to
above, as many Registrable Securities requested to be
included in such registration by the Stockholders
pursuant to Section 3.1(b)(i) hereof, provided that if
the number of Registrable Securities requested to be
included in such registration by the Stockholders
pursuant to Section 3.1(b)(i) hereof, together with the
number of Priority Securities, exceeds the number which
the Company has been advised can be sold in such
offering without having the material adverse effect
referred to above, the number of such Registrable
Securities requested to be included in such
registration by the Stockholders pursuant to Section
3.1(b)(i) hereof shall be allocated pro rata among all
such requesting Stockholders on the basis of the
relative number of Registrable Securities owned by
them; and (C) third, to the extent that the number of
Priority Securities and Registrable Securities, as
contemplated by (A) and (B) above, is less than the
number of Registrable Securities which the underwriter
has advised the Company can be sold in such offering

<PAGE>

without having the material adverse effect referred to
above, the number of equity securities requested to be
included in such registration by Persons other than the
Stockholders shall be allocated among such other
Persons on a basis as determined (or to be determined)
by the Company and such other Persons.

(i) If any registration of Registrable
Securities shall be in connection with an underwritten
public offering, upon the request of the managing
underwriter each holder of Registrable Securities
agrees not to effect any sale or distribution,
including any private placement or any sale pursuant to
Rule 144 or any successor provision, under the
Securities Act, of any Registrable Securities, and not
to effect any such sale or distribution of any other
equity security of the Company or of any security
convertible into or exchangeable or exercisable for any
equity security of the Company (in each case, other
than as part of such underwritten public offering)
during the seven days prior to, and during the 120 day
period which begins on, the effective date of such
registration statement (except as part of such
registration), provided that each holder of Registrable
Securities has received written notice of such
registration at least two Business Days prior to the
anticipated beginning of the seven day period referred
to above.

(ii) If any registration of Registrable
Securities shall be in connection with an underwritten
public offering, the Company agrees (A) not to effect
any sale or distribution of any of its equity
securities or of any security convertible into or
exchangeable or exercisable for any equity security of
the Company (other than any such sale or distribution
of such securities in connection with any merger or
consolidation by the Company or any Affiliate or the
acquisition by the Company or an Affiliate of the
capital stock or substantially all of the assets of any
other Person or in connection with an employee stock
ownership or other benefit plan) during the seven days
prior to, and during the 120 day period which begins
on, the effective date of such registration statement
(except as part of such registration) and (B) that any
agreement entered into after the date hereof pursuant
to which the Company issues or agrees to issue any
privately placed equity securities shall contain a
provision under which the holders of such securities

<PAGE>

agree not to effect any sale or distribution of any
such securities during the period referred to in the
foregoing clause (i), including any sale pursuant to
Rule 144 under the Securities Act (except as part of
such registration, if permitted).

(d) Registration Procedures. In connection with
-----------------------
any offering of Registrable Securities registered pursuant
to this Section 3.1, the Company shall:

(i) Prepare and file with the SEC within 90
days after receipt of a request for registration, a
registration statement on any form for which the
Company then qualifies or which counsel for the Company
shall deem appropriate, and which form shall be
available for the sale of the Registrable Securities in
accordance with the intended methods of distribution
thereof, and use its best efforts to cause such
registration statement to become and remain effective
as provided herein, provided that before filing with
--------
the SEC a registration statement or prospectus or any
amendments or supplements thereto, the Company will (A)
furnish to one counsel selected by the holders of a
majority of the Registrable Securities covered by such
registration statement copies of all such documents
proposed to be filed for said counsel's review and
comment and (B) notify each Stockholder of Registrable
Securities covered by such registration statement of
any stop order issued or threatened by the SEC and take
all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.

(ii) Prepare and file with the SEC such
amendments and supplements to such registration
statement and the prospectus used in connection
therewith as may be necessary to keep such registration
statement effective for a period of not less than 180
days or such shorter period which will terminate when
all Registrable Securities covered by such registration
statement have been sold (but not before the expiration
of the 90 day period referred to in Section 4(3) and
Rule 174 of the Securities Act, or any successor
thereto, if applicable), and comply with the provisions
of the Securities Act with respect to the disposition
of all securities covered by such registration
statement during such period in accordance with the
intended methods of disposition by the sellers thereof
set forth in such registration statement.

(iii) Furnish to each holder and each
underwriter, if any, of Registrable Securities covered

<PAGE>

by such registration statement such number of copies of
such registration statement, each amendment and
supplement thereto (in each case including all exhibits
thereto), and the prospectus included in such
registration statement (including each preliminary
prospectus), in conformity with the requirements of the
Securities Act, and such other documents a any
Stockholder may reasonably request in order to
facilitate the disposition of the Registrable
Securities owned by such Stockholder.

(iv) Use its best efforts to register or
qualify such Registrable Securities under such other
state securities or "blue sky" laws of such
jurisdictions as any holder, and underwriter, if any,
of Registrable Securities covered by such registration
statement reasonably requests and do any and all other
acts and things which may be reasonably necessary or
advisable to enable such Stockholder and each
underwriter, if any, to consummate the disposition in
such jurisdictions of the Registrable Securities owned
by such Stockholder; provided that the Company will not
--------
be required to (A) qualify generally to do business in
any jurisdiction where it would not otherwise be
required to qualify but for this clause (iv), (B)
subject itself to taxation in any such jurisdiction or
(C) consent to general service of process in any such
jurisdiction.

(v) Use its best efforts to cause the
Registrable Securities covered by such registration
statement to be registered with or approved by such
other governmental agencies or authorities as may be
necessary by virtue of the business and operations of
the Company to enable the holder or holders thereof to
consummate the disposition of such Registrable
Securities.

(vi) Immediately notify each holder of such
Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the
Securities Act of the happening of any event which
comes to the Company's attention if as a result of such
event the prospectus included in such registration
statement contains an untrue statement of a material
fact or omits to state any material fact required to be
stated therein or necessary to make the statements
therein not misleading; and the Company will promptly
prepare and furnish to such Stockholder a supplement or
amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable

<PAGE>

Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading.

(vii) Use its best efforts to cause all such
Registrable Securities to be listed on a national
securities exchange (including NASDAQ) and on each
securities exchange on which similar securities issued
by the Company may then be listed, and enter into such
customary agreements including a listing application
and indemnification agreement in customary form, and to
provide a transfer agent and registrar for such
Registrable Securities covered by such registration
statement no later than the effective date of such
registration statement.

(viii) Enter into such customary agreements
(including an underwriting agreement in customary form)
and take all such other actions as the holders of a
majority of the Registrable Securities being covered by
such registration statement or the underwriters
retained by such Stockholders, if any, reasonably
request in order to expedite or facilitate the
disposition of such Registrable Securities, including
customary representations, warranties, indemnities and
agreements.

(ix) Make available for inspection by any
holder of Registrable Securities covered by such
registration statement, any underwriter participating
in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent
retained by any such Stockholder or underwriter
(collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and
properties of the Company and its subsidiaries, if any,
as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause
the Company's and its Affiliates' officers, directors
and employees to supply all information and respond to
all inquiries reasonably requested by any such
Inspector in connection with such registration
statement.

(x) Use its best efforts to obtain a
"comfort" letter from the Company's independent public
accountants in customary form and covering such matters
of the type customarily covered by "comfort" letters as

<PAGE>

the holders of a majority in interest of the
Registrable Securities being sold reasonably request.

(xi) Use its best efforts to obtain an
opinion of outside counsel for the Company covering
substantially the same matters with respect to such
registration statement (and the prospectus included
therein) as are customarily covered in opinions of
issuer's counsel and delivered to underwriters in
underwritten public offerings of securities, and such
other legal matters as the holders of a majority in
interest of the Registrable Securities being sold
reasonably request.

(xii) Otherwise use its best efforts to
comply with all applicable rules and regulations of the
SEC, and make available to the Stockholders, as soon as
reasonably practicable, an earnings statement covering
a period of at least twelve months, beginning with the
first month after the effective date of the
registration statement (as the term "effective date" is
defined in Rule 158(c) under the Securities Act), which
earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158
thereunder.

It shall be a condition precedent to the
obligation of the Company to take any action with respect to
securities of a holder of Registrable Securities that such
Stockholder shall furnish to the Company such information
regarding the securities held by such Stockholder and the
intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection
with the action taken by the Company.

Each holder of Registrable Securities agrees that,
upon receipt of any notice from the Company of the happening
of any event of a kind described in Section 3.1(d)(vi)
hereof, such Stockholder will forthwith discontinue
disposition of Registrable Securities until such
Stockholder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.1(d)(vi)
hereof, and, if so directed by the Company, such Stockholder
will deliver to the Company (at the Company's expense) all
copies (including, without limitation, any and all drafts),
other than permanent file copies, then in such Stockholder's
possession of the existing prospectus covering such
Registrable Securities. In the event the Company shall give
any such notice, the period mentioned in Section 3.1(d)(ii)
hereof shall be extended by the greater of (A) three months
or (B) the number of days during the period from and

<PAGE>

including the date of the giving of such notice pursuant to
Section 3.1(d)(vi) hereof to and including the date when
each Stockholder of Registrable Securities covered by such
registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section
3.1(d)(vi) hereof.

(e) Indemnification.
---------------

(i) Indemnification by the Company. In the
------------------------------
event of any registration of any securities of the
Company under the Securities Act pursuant to this
Agreement, the Company will indemnify and hold
harmless, to the full extent permitted by law, each of
the holders of any Registrable Securities covered by
such registration statement, their respective directors
and officers, general partners, limited partners and
managing directors, each other Person who participates
as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls,
is controlled by or is under common control with any
such Stockholder or any such underwriter within the
meaning of the Securities Act (and directors, officers,
controlling Persons, partners and managing directors of
any of the foregoing), against any and all losses,
claims, damages or liabilities, joint or several, and
expenses (including any amounts paid in any settlement
effected with the Company's consent, which consent will
not be unreasonably withheld) to which such
Stockholder, any such director or officer or general or
limited partner or managing director or any such
underwriter or controlling Person may become subject
under the Securities Act, state securities or "blue
sky" laws, common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses arise out
of or are based upon (A) any untrue statement or
alleged untrue statement of any material fact
contained, on the effective date thereof, in any
registration statement under which such securities were
registered under the Securities Act, any preliminary,
final or summary prospectus contained therein, or any
amendment or supplement thereto, (B) any 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 (C) any violation
or alleged violation by the Company of any federal,
state or common law rule or regulation applicable to
the Company and relating to action required of or
inaction by the Company in connection with any such
registration. The Company shall reimburse each such

<PAGE>

Stockholder and each such director, officer, general
partner, limited partner, managing director or
underwriter and controlling Person for any legal or any
other expenses reasonably incurred by them in
connection with investigating or defending such loss,
claim, liability, action or proceeding, provided, that
--------
the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense
arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged
omission made in such registration statement or
amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance
upon and in conformity with written information
furnished to the Company through an instrument duly
executed by such Stockholder in its capacity as a
Stockholder in the Company or any such director,
officer, general or limited partner, managing director
or underwriter specifically stating that it is for use
in the preparation thereof; and, provided further, that
-------- -------
the Company shall not be liable to any holder of
Registrable Securities, any Person who participates as
an underwriter in the offering or sale of Registrable
Securities, if any, or any other Person, if any, who
controls such underwriter within the meaning of the
Securities Act, pursuant to this Section with respect
to any preliminary prospectus or the final prospectus
or the final prospectus as amended or supplemented, as
the case may be, to the extent that any such loss,
claim, damage or liability of such underwriter or
controlling Person results from the fact that such
underwriter sold Registrable Securities to a Person to
whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final
prospectus or of the final prospectus as then amended
or supplemented, whichever is most recent, if the
Company has previously furnished copies thereof to such
underwriter and such final prospectus, as then amended
or supplemented, had corrected any such misstatement or
omission. The indemnity provided for herein shall
remain in full force and effect regardless of any
investigation made by or on behalf of such Stockholder
or any such director, officer, general partner, limited
partner, managing director, underwriter or controlling
Person and shall survive the transfer of such
securities by such Stockholder.

(ii) Indemnification by the Stockholders and
---------------------------------------
Underwriters. The Company may require, as a condition
------------
to including any Registrable Securities in any

<PAGE>

registration statement filed in accordance with the
provisions hereof, that the Company shall have received
an undertaking reasonably satisfactory to it from the
holders of such Registrable Securities or any
underwriter, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in
paragraph (i) above) the Company and its directors,
officers, controlling Persons and all other prospective
sellers and their respective directors, officers,
general and limited partners, managing directors, and
their respective controlling Persons with respect to
any statement or alleged statement in or omission or
alleged omission from such registration statement, any
preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity
with written information furnished to the Company or
its representatives through an instrument duly executed
by or on behalf of such Stockholder or underwriter
specifically stating that it is for use in the
preparation of such registration statement,
preliminary, final or summary prospectus or amendment
or supplement, or a document incorporated by reference
into any of the foregoing. Such indemnity shall remain
in full force and effect regardless of any
investigation made by or on behalf of the Company or
any of the Stockholders, underwriters, or any of their
respective directors, officers, general or limited
partners, managing directors or controlling Persons and
shall survive the transfer of such securities by such
Stockholder, provided, however, that no such
-------- -------
Stockholder shall be liable in the aggregate for any
amounts exceeding the product of the sale price per
Registrable Security and the number of Registrable
Securities being sold pursuant to such registration
statement or prospectus by such Stockholder.

(iii) Notices of Claims, Etc. Promptly
-----------------------
after receipt by an indemnified party hereunder of
written notice of the commencement of any action or
proceeding with respect to which a claim for
indemnification may be made pursuant to this Section,
such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party,
promptly give written notice to the indemnifying party
of the commencement of such action, provided that the
--------
failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying
party of its obligations under the preceding sections
of this Section, except to the extent that the

<PAGE>

indemnifying party is actually materially prejudiced by
such failure to give notice. In case any such action
is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying
parties may exist in respect of such claim, the
indemnifying party will be entitled to participate in
and, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, to
the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, 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 for any legal or other expenses
subsequently incurred by the latter in connection with
the defense thereof, unless in such indemnified party's
reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect
of such claim after the assumption of the defense
thereof, and the indemnifying party will not be subject
to any liability for any settlement made without its
consent (which consent shall not be unreasonably
withheld). No indemnifying party will consent to entry
of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such
claim or litigation. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a
claim will not be obligated to pay the fees and
expenses of more than one counsel in any single
jurisdiction for all parties indemnified by such
indemnifying party with respect to such claim, unless
in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified
party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses
of such additional counsel or counsels as may be
reasonably necessary. Notwithstanding anything to the
contrary set forth herein, and without limiting any of
the rights set forth above, in any event any party will
have the right to retain, at its own expense, counsel
with respect to the defense of a claim.

(iv) Other Indemnification. Indemnification
---------------------
similar to that specified in the preceding Sections of
this Section (with appropriate modifications) shall be
given by the Company and each holder of Registrable
Securities with respect to any required registration or

<PAGE>

other qualification of securities under any federal or
state law or regulation or governmental authority other
than the Securities Act.

(v) Contribution. In order to provide for
------------
just and equitable contribution in circumstances in
which the indemnity agreement provided for in this
Section is for any reason held to be unenforceable
although applicable in accordance with its terms, the
Company, the Stockholders and the underwriters shall
contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated
by such indemnity agreement incurred by the Company,
the Stockholders and the underwriters, in such
proportions that the underwriters are responsible for
that portion represented by the percentage that the
underwriting discount appearing on the cover page of
the prospectus bears to the initial public offering
price appearing thereon and the Company and the
Stockholders are responsible for the balance; provided,
--------
however, that no Person guilty of fraudulent
-------
misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such
fraudulent misrepresentation. As between the Company
and the Stockholders, such parties shall contribute to
the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity
agreement in such proportion as shall be appropriate to
reflect (A) the relative benefits received by the
Company, on the one hand, and the holders of the
Registrable Securities included in the offering on the
other hand, from the offering of the Registrable
Securities and any other securities included in such
offering, and (B) the relative fault of the Company, on
the one hand, and the holders of the Registrable
Securities included in the offering, on the other, with
respect to the statements or omissions which resulted
in such loss, liability, claim, damage or expense, or
action in respect thereof, as well as any other
relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and
the holders of the Registrable Securities on the other,
with respect to such offering shall be deemed to be in
the same proportion as the sum of the total purchase
price paid to the Company in respect of the Registrable
Securities plus the total net proceeds from the
offering of any securities included in such offering
(net of underwriting discounts and commissions before
deducting expenses) received by the Company bears to
the amount by which the total net proceeds from the

<PAGE>

offering of Registrable Securities (net of underwriting
discounts and commissions before deducting expenses)
received by the holders of the Registrable Securities
with respect to such offering exceeds the purchase
price paid to the Company in respect of the Registrable
Securities, and in each case the net proceeds received
from such offering shall be determined as set forth on
the table to the cover page of the prospectus. The
relative fault shall be determined by reference to,
among other things, whether the untrue or alleged
untrue statement of a material fact or omission or
alleged omission to state a material fact relates to
information supplied by the Company or the holders of
the Registrable Securities, the intent of the parties
and their relative access to information and the
Company and the holders of the Registrable Securities
agree that it would not be just and equitable if
contribution pursuant to this Section were to be
determined by pro rata allocation or by any other
method of allocation which does not take into account
the equitable considerations referred to herein.
Notwithstanding anything to the contrary contained
herein, the Company and the Stockholders agree that any
contribution required to be made by a Stockholder
pursuant to this Section 3.1(e)(v) shall not exceed the
net proceeds from the offering of Registrable
Securities (net of underwriting discounts and
commissions before deducting expenses) received by such
Stockholder with respect to such offering. For
purposes of this Section, each Person, if any, who
controls a Stockholder or an underwriter within the
meaning of Section 15 of the Securities Act shall have
the same rights to contribution as such Stockholder or
underwriter, and each director of the Company, each
officer of the Company who signed the registration
statement, and each Person, if any, who controls the
Company within the meaning of Section 15 of the
Securities Act shall have the same rights to
contribution as the Company.

(vi) Rule 144. The Company agrees that it
--------
will file in a timely manner all reports required to be
filed by it pursuant to the Exchange Act, and, if at
any time the Company is not required to file such
reports, it will make available to the public, to the
extent required to permit the sale of shares by any
Stockholder pursuant to Rule 144, current information
about itself and its activities as contemplated by Rule
144 under the Securities Act, as such Rule may be
amended from time to time. Notwithstanding the
foregoing, the Company may deregister any class of its

<PAGE>

equity securities under Section 12 of the Exchange Act
or suspend its duty to file reports with respect to any
class of its securities pursuant to Section 15(d) of
the Exchange Act if it is then permitted to do so
pursuant to the Exchange Act and the rules and
regulations thereunder. For purposes of this Agreement
"Rule 144 Securities" are Registrable Securities which
are of a class which is registered under Section 12 of
the Exchange Act and which may be publicly sold
pursuant to the provisions of Rule 144 under the
Securities Act.

ARTICLE IV

MISCELLANEOUS

SECTION 4.1. Effective Date. This Agreement
--------------
shall become effective as of the date that the shares of
Common Stock covered by this Agreement are distributed to
Stockholders.

SECTION 4.2. Headings. The headings in this
--------
Agreement are for convenience of reference only and shall
not control or affect the meaning or construction of any
provisions hereof.

SECTION 4.3. Entire Agreement, Further
-------------------------
Assurances. This Agreement constitutes the entire agreement
----------
and understanding of the parties hereto in respect of the
subject matter contained herein, and there are no
restrictions, promises, representations, warranties,
covenants, or undertakings with respect to the subject
matter hereof, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties hereto
with respect to the subject matter hereof. In the event
that after the date hereof, any further action by any party
hereto is necessary to carry out the provisions of this
Agreement, each such party shall take all such necessary
action.

SECTION 4.4. Notices. Any notice, request,
-------
instruction or other document to be given hereunder by any
party hereto to another party hereto shall be in writing,
shall be delivered personally, sent by registered mail,
postage prepaid, return receipt requested, by overnight
courier service or by facsimile transmission (with
appropriate confirmation) to the address or number of the
party set forth below, or to such other address or number as
the party to whom notice is to be given may provide in a
written notice to the Company, a copy of which written

<PAGE>

notice shall be on file with the Secretary of the Company.
No notice shall be effective except upon actual delivery.

If to the Company:

to its address set forth in its latest filing with
the SEC.

If to a Stockholder:

to the address for such holder as set forth on the
books of the Company's transfer agent with respect
to the Securities.

SECTION 4.5. Applicable Law. The laws of the
--------------
State of Delaware shall govern the interpretation, validity
and performance of the terms of this Agreement, regardless
of the law that might be applied under applicable principles
of conflicts of law.

SECTION 4.6. Consent to Jurisdiction. Each party
-----------------------
hereto agrees to the non-exclusive jurisdiction of any state
or Federal court within the State of Delaware, with respect
to any claim or cause of action, whether in law or equity
arising under or relating to this Agreement, and waives
personal service of any and all process upon it, and
consents that all services of process be made by registered
mail, to the address of the party as set forth in Section
4.4, or to such other address as the party to whom notice is
to be given may provide in a written notice to the Company,
a copy of which written notice shall be on file with the
Secretary of the Company and service so made shall be deemed
to be completed when received. Each party hereto waives any
objection based on forum non conveniens and waives any
objection to venue of any action instituted hereunder. Each
party hereto waives trial by jury in any action brought
hereunder. Each party hereto agrees that a final judgment
in any such action shall be conclusive and may be enforced
in any other jurisdiction by suit on the judgment or in any
other manner provided by law. Nothing in this paragraph
shall affect the right of any party hereto to serve legal
process in any other manner permitted by law. To the extent
that any party hereto has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal
process with respect to itself or its property, such party
hereby waives such immunity in respect of its obligations
hereunder.

SECTION 4.7. Severability. The invalidity,
------------
illegality or unenforceability of one or more of the
provisions of this Agreement in any jurisdiction shall not

<PAGE>

affect the validity, legality or enforceability of the
remainder of this Agreement in such jurisdiction or the
validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it
being intended that all rights and obligations of the
parties hereunder shall be enforceable to the fullest extent
permitted by law.

SECTION 4.8. Agreement to be Filed. A copy of
---------------------
this Agreement shall be filed with the Secretary of the
Company and kept with the records of the Company.

SECTION 4.9. Other Agreements. Nothing contained
----------------
in this Agreement shall be deemed to be a waiver of, or
release from, any obligations any party hereto may have
under, or any restrictions on the transfer of the Common
Stock of the Company imposed by, any other agreement.

SECTION 4.10. Successors; Assigns; Transferees.
--------------------------------
The provisions of this Agreement shall be binding upon and
accrue to the benefit of the parties hereto and, except as
set forth below, their respective successors and assigns.
Notwithstanding the foregoing, neither this Agreement nor
any right, remedy, obligation or liability arising hereunder
or by reason hereof shall be assignable by the Company or
any Stockholder except concurrently with a transfer of its
Common Stock of the Company (other than a transfer pursuant
to a public offering under the Securities Act or pursuant to
Rule 144 under the Securities Act) and then only if, at such
time, the Person to whom such transfer is proposed to be
made shall execute a counterpart of this Agreement, and such
other documents as are necessary to confirm such Person's
agreement to become a party to, and to be bound by, all
terms and conditions of this Agreement.

SECTION 4.11. Defaults. A default by any party
--------
to this Agreement in such party's compliance with any of the
conditions or covenants hereof or performance of any of the
obligations of such party hereunder shall not constitute or
excuse a default by any other party.

SECTION 4.12. Term. This Agreement shall
----
terminate upon the first to occur of (i) the liquidation or
dissolution of the Company, or (ii) five years from the
Settlement Date to the extent the registration rights
hereunder have not theretofore been exercised.

SECTION 4.13. Amendments. This Agreement may be
----------
amended, modified, waived or supplemented only by written
instrument executed by the Company and any Stockholder whose
rights hereunder would be adversely affected thereby;

<PAGE>

provided that the sale or transfer by a Stockholder of
--------
Common Stock of the Company (and, as a result, the
purchaser's or transferee's becoming a party hereto) shall
not be deemed an amendment, modification, waiver or
supplement of this Agreement.

SECTION 4.14. Waiver and Consent. No action
------------------
taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking
such action of compliance with any representations,
warranties, covenants or agreements contained herein. The
waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach, and no failure by any
party to exercise any right or privilege hereunder shall be
deemed a waiver of such party's rights to exercise the same
at any subsequent time or times hereunder.

SECTION 4.15. Recapitalization, Exchanges, and
--------------------------------
Similar Actions Affecting the Common Stock. The provisions
------------------------------------------
of this Agreement shall apply, to the full extent set forth
herein, with respect to the Common Stock of the Company and
to any and all shares of capital stock of the Company or any
successor which may be issued in respect of, in exchange
for, or in substitution of the Common Stock of the Company.

SECTION 4.16. Counterparts. This Agreement may
------------
be executed in two or more counterparts, each of which shall
be deemed an original but all of which shall constitute one
and the same Agreement.

EXHIBIT 5.1

November 9, 1995

Re: Registration Statement on Form S-1
(Registration No. 33-62919)
----------------------------------

Piedmont Management Company Inc.
80 Maiden Lane, 20th Floor
New York, NY 10038

Dear Ladies and Gentlemen:

We have acted as special counsel to Piedmont Management Company
Inc. (the "Company") in connection with the Company's Registration
Statement on Form S-1 (file No. 33-62919) (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, for the registration of the distribution by the
Company of its Contingent Interest Notes due 2006 (the "CI Notes"). The CI
Notes will be issued under an indenture (the "Indenture") between the
Company and Shawmut Bank Connecticut, N.A., as trustee (the "Trustee").

We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable for purposes of this opinion.

Based upon the foregoing, we are of the opinion that when the CI
Notes have been duly authorized, executed, authenticated, issued and
delivered in accordance with the indenture, such CI Notes will constitute
valid and binding obligations of the Company.

In connection with the opinion expressed above, we have assumed
that, at or prior to the time of the delivery of any CI Notes, (i) the
Board of Directors shall have duly authorized the issuance and distribution
of the CI Notes and such authorization shall not have been modified or
rescinded; (ii) the Registration Statement shall have been declared
effective and such effectiveness shall not have

<PAGE>

Piedmont Management
Company Inc. 2 November 9, 1995

been terminated or rescinded; (iii) the Indenture shall have been duly
authorized, executed and delivered by the Company and the Trustee and shall
have been qualified under the Trust Indenture Act of 1939, as amended; and
(iv) there shall not have occurred any change in law affecting the validity
or enforceability of the CI Notes.

We are members of the Bar of the State of New York and our
opinion is limited to the laws of the State of New York and the Federal
laws of the United States.

This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other
purpose or relied upon by or furnished to any other person without our
prior written consent.

We consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to Davis Polk & Wardwell in the
prospectus contained therein.

Very truly yours,

/s/ Davis Polk & Wardwell

EXHIBIT 8.1

November 9, 1995

Re: Registration Statement on Form S-1
(Registration No. 33-97010)
----------------------------------

Piedmont Management Company Inc.
80 Maiden Lane, 20th Floor
New York, NY 10038

Dear Ladies and Gentlemen:

We have acted as special counsel to Piedmont Management Company
Inc. (the "Company") in connection with the Proxy State/Prospectus dated
November 9, 1995 (the "Proxy Statement") contained in Amendment No. 2 to
the Registration Statement on Form S-4 (File No. 33-97010) (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended.

We have prepared the discussion contained under the caption
"Federal Income Tax Considerations" in the Proxy Statement. Such
discussion accurately reflects our opinion as to the material federal
income tax consequences applicable to holders of the Company's Common Stock
with respect to the Spinoff and the Merger (as defined in the Registration
Statement).

We consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to Davis Polk & Wardwell in the
proxy statement contained therein.

Very truly yours,

/s/ Davis Polk & Wardwell

Exhibit 10.3

PIEDMONT MANAGEMENT COMPANY INC.
--------------------------------

1979 EMPLOYEE STOCK OPTION PLAN
-------------------------------

1. Purpose.
-------

The purpose of this Plan is to promote the growth and

profitability of Piedmont Management Company Inc., a Delaware

Corporation (hereinafter called the "Company"), by providing the

means whereby it may continue to attract and retain highly

talented persons as key employees and give them an additional

incentive to exert their best efforts on behalf of the Company.

2. Authority to Grant Stock Options and Terms Thereof.
--------------------------------------------------

(a) A Committee of disinterested members of the Board

of Directors of the Company, appointed in accordance with

paragraph 9 of this Plan (hereinafter called the "Committee"),

may from time to time on or after the effective date of this Plan

and prior to August 21, 1989, grant to officers and other key

salaried employees of the Company or of any of its subsidiaries

(hereinafter called "Eligible Employees") stock options for the

purchase of shares of the Company's Common Stock, par value 50

cents per share (hereinafter called "Common Stock"), which in the

aggregate shall not exceed the sale or issuance of 250,000 shares

of Common Stock. The term "Option", as used in the singular

herein, shall mean the right

<PAGE>

to purchase a single share of Common Stock of the Company on the

terms and subject to the conditions provided herein.

(b) Options shall be evidenced by stock option

agreements in the form of Appendix A hereto, or in such other

form and not inconsistent with this Plan as the Committee shall

approve from time to time, which agreements shall contain in

substance the following terms and conditions:

(i) The purchase price per share of Common Stock

deliverable upon the exercise of an Option shall not be less than

100 percent of the fair market value of such Stock on the day the

Option is granted as determined by the Committee but in no event

less than the par value of such Stock.

(ii) The stock option agreement shall specify the

number of shares to which it pertains.

(iii) At the time an Option is granted, the

Committee shall fix the period within which it may be exercised

which shall not be more than ten (10) years from the date of

grant. In no event, however, may an Option be exercised within

24 months of the date of grant.

(iv) The purchase price for shares of Common Stock

under Options shall, at the time of purchase, be paid for in

full. A holder of an Option shall have none of the rights of a

stockholder until the share of Common Stock is issued to him

following exercise of the Option and upon receipt by the Company

of payment therefor.

<PAGE>

3. Authority to Grant Stock Appreciation Rights and
------------------------------------------------
Terms Thereof.
-------------

(a) The Committee may also, in its sole and entire

discretion, grant Stock Appreciation Rights with respect to and

pertaining to: (i) options simultaneously granted or previously

granted under this Plan and still outstanding; or (ii) out-

standing non-qualified options granted prior to August 1979 under

stock option plans of the Company which were adopted prior to

1979. The term "Stock Appreciation Right", as used in the

singular herein, shall mean a right granted hereunder to receive,

upon the exercise thereof in accordance herewith, a payment which

will not exceed the amount by which the fair market value of a

share of Common Stock on the date of exercise shall exceed the

fair market value of a share of Common Stock on the date of

grant. The Committee shall have discretion to place further

limits on the amount of the payment so to be received on the

exercise of such right. The payment so to be received on

exercise of such right shall be one-half in the form of cash and

one-half in the form of Common Stock of the Company, unless the

Committee provides otherwise. The Committee shall have

discretion to make the payment so to be received all cash, all

Common Stock of the Company, or any portions of cash and such

Common Stock that the Committee shall determine.

(b) No Stock Appreciation Right may be granted unless

there shall be, immediately following such grant, at least one

option to which such Stock Appreciation Right pertains, and no

<PAGE>

option may pertain to more than one Stock Appreciation right.

The Committee shall have discretion as to the number of options

to which each Stock Appreciation Right shall pertain, which

number, together with a description of such options, shall be set

forth in the stock appreciation rights agreement covering such

Stock Appreciation Rights. All options pertaining to a Stock

Appreciation Right shall have been granted at the same time.

Stock Appreciation Rights granted hereunder shall be evidenced by

stock appreciation rights agreements in the form set forth in

Appendix B hereto or in such other form as the Committee shall

approve from time to time and which shall not be inconsistent

with this Plan.

otherwise provided in this Plan, be exercisable at the same time

and in the same manner as the options to which they pertain.

(d) A Stock Appreciation Right shall be exercisable

only if an option to which it pertains is surrendered and

extinguished without exercise and only at such time or times and

only to the extent that such option proposed to be surrendered in

connection with such exercise shall be exercisable. Exercise of

a Stock Appreciation Right shall be deemed automatically to

involve such surrender and extinguishment.

(e) Stock Appreciation Rights are to be exercisable

only during the 10 day periods (the "Exercise Periods") beginning

on the third business day following the release of a summary

statement of the Comany's quarterly or annual sales and

<PAGE>

earnings and ending on the twelfth business day following said

date. Stock Appreciation Rights may not be exercised within six

months of date of grant.

(f) Upon exercise of a Stock Appreciation Right, the

holder thereof shall be entitled to receive the payment described

in subparagraph (a) of this paragraph 3.

4. Effect of Termination of Option Without Exercise.
------------------------------------------------

Any share of Common Stock subject to an Option which,

for any reason, expires, lapses or is forfeited or terminated

unexercised as to such share, may again be subjected to an option

under this Plan; however, to the extent an Option is surrendered

on exercise of a Stock Appreciation Right pursuant to paragraph

3(d) hereof, such share of Common Stock which otherwise would

have been issued upon the exercise of such option may not be

subject to the grant of further Option.

5. Death of Optionee.
-----------------

In the event of the death of an optionee while in the

employ of the Company or its subsidiaries, any unexpired Option

or Stock Appreciation Right theretobefore granted to such

optionee shall be exercisable only within a period of one year

after the date of death (but not later than the expiration date

of such Option or Stock Appreciation Right) and only to the

extent such Option or Stock Appreciation Right could have been

exercised on the date of death. All Options and

<PAGE>

Stock Appreciation Rights to the extent not exercisable on the

date of death shall be forfeited.

6. Termination of Employment and Leave of Absence.
----------------------------------------------

(a) If an optionee shall cease to be employed by the

Company or its subsidiaries for any reason (other than death or

discharge for cause), any unexpired Option (or Stock Appreciation

Right) theretobefore granted to such optionee shall be

exercisable only within such period as may be fixed by the

Committee, such period however not to exceed three months

beginning the day following the date of termination of employment

(but not later than the expiration date of such Option or Stock

Appreciation Right), and only to the extent such Option or Stock

Appreciation Right could have been exercised on the date of

termination of employment. All Options and Stock Appreciation

Rights to the extent not exercisable on the date of termination

of employment shall be cancelled and may not be exercised.

Notwithstanding any other provision contained herein, in the

event the optionee is discharged for cause prior to the exercise

of Options or Stock Appreciation Rights granted hereunder, all

rights and benefits with respect to such Options and Stock

Appreciation Rights so granted hereunder to such optionee and

remaining unexercised shall be cancelled and may not be

exercised. The term "discharge for cause" shall mean discharge

for: (i) willful malfeasance or gross negligence on the part of

the optionee in the performance of his duties as an

<PAGE>

officer or employee of the Company; (ii) the commission by the

optionee of embezzlement, fraud or any crime involving moral

turpitude; or (iii) conduct on the part of the optionee which the

Committee in good faith determines has reflected so seriously on

his public reputation as to prejudice substantially the business

interests of the Company if he were retained as an employee of

the Company.

(b) In the case of any employee on an approved leave

of absence, the Committee may make such provision respecting

continuance of the Option and Stock Appreciation Rights as it may

deem equitable, except that in no event shall an Option or Stock

Appreciation Right be exercised after the expiration of the

exercise period.

7. Nontransferability.
------------------

All Options and Stock Appreciation Rights granted under

this Plan shall be nontransferable by the optionee, otherwise

than by will or the laws of descent and distribution, and shall

be exercisable, during his lifetime, only by him.

8. Stock-Dividends, Recapitalizations, Etc.
---------------------------------------

In the event of a recapitalization, stock split, stock

dividend, combination or exchange of shares, merger,

consolidation, reorganization or liquidation, or any other change

in the corporate structure or shares of the Company, the

Committee may make such equitable adjustments as it in its,

<PAGE>

sole discretion may deem appropriate in the number and kind of

shares authorized by the Plan and, with respect to outstanding

Options or Stock Appreciation Rights, in the number and kind of

shares covered thereby and in the exercise price.

9. Administration of Plan.
----------------------

This Plan shall be administered by the Committee, which

shall be appointed by the Board of Directors and shall consist

only of three or more persons who shall be disinterested members

of the Board. For the purpose of this paragraph, a member shall

be deemed to be "disinterested"'only if such member is not, at

the time his discretion as a Committee member is exercised,

eligible, and has not at any time within one year prior thereto

been eligible, for selection as a person to whom stock may be

allocated or to whom Options and Stock Appreciation Rights may be

granted pursuant to the Plan or any other plan of the Company or

any of its affiliates entitling the participants thereto to

acquire stock or stock options or stock appreciation rights of

the Company or any of its affiliates. The Committee may adopt

such rules and regulations under the Plan and may interpret the

language hereunder, as it deems necessary, which rules and

interpretation shall be binding upon all Eligible Employees and

optionees.

10. General Restriction.
-------------------

Prior to the delivery of any shares of Common Stock of

the Company to any optionee upon exercise of an Option or

<PAGE>

of a Stock Appreciation Right, he shall, if so requested by the

Committee, state in writing that he is acquiring the shares for

investment purposes only and not with a view to, or for sale in

connection with, any distribution thereof; provided, however,

that if such shares are registered pursuant to the Securities Act

of 1933, as amended, such investment representation shall not be

required. The optionee shall comply with all regulations and

requirements of any regulatory authority having control over or

supervision of the issuance of or delivery of Common Stock of the

Company and in connection therewith shall execute any required

documents. Each Option and each Stock Appreciation Right shall

be subject to the requirement that, if at any time the Committee

shall determine, in its discretion, that the listing,

registration or qualification of the shares subject to such

Option or Stock Appreciation Right upon any securities exchange

or under any state or federal law, or the consent or approval of

any government regulatory body, is necessary or desirable as a

condition of, or in connection with, the granting of such option

or Stock Appreciation Right or the issue or purchase of shares

thereunder, such Option or Stock Appreciation Right may not be

exercised in whole or in part unless such listing, registration,

qualification, consent or approval shall have been effected or

obtained free of any conditions not acceptable to the Committee.

<PAGE>

11. Withholding Taxes.
-----------------

Whenever under the Plan shares are to be issued in

satisfaction of Options granted thereunder, or shares issued or

cash payments made upon exercise of Stock Appreciation Rights,

the Company shall have the right to require the recipient to

remit to the Company or to retain from cash amounts otherwise

payable an amount sufficient to satisfy federal, state and local

withholding tax requirements prior to the delivery of any

certificate or certificates for such shares or any such cash.

12. Effective Date Approval by Shareholders.
---------------------------------------

The effective date of this Plan shall be the date of

its approval by the Board of Directors of the Company. The Plan

shall be subject to the approval of the holders of a majority of

the outstanding shares of common stock of the Company, however,

and any grant of Options or Stock Appreciation Rights hereunder

shall be subject to such shareholder approval. No Option or

Stock Appreciation Right granted hereunder may be exercised until

such approval is obtained.

13. Amendment and Termination.
-------------------------

The Board of Directors may at any time amend, modify,

alter, or terminate this Plan, except that no such amendment may

be made, without prior approval of the shareholders of the

Company, which would materially (i) increase the benefits

<PAGE>

accruing to participants under this Plan, (ii) increase the

number of securities which may be issued under this Plan, or

(iii) modify the requirements as to eligibility for participation

in this Plan.

<PAGE>

Exhibit A

PIEDMONT MANAGEMENT COMPANY INC.
--------------------------------

AMENDED AND RESTATED 1979 EMPLOYEE STOCK OPTION PLAN
----------------------------------------------------

1. Purpose.
-------

The Purpose of this Plan is to promote the growth and

profitability of Piedmont Management Company Inc., a Delaware

Corporation (hereinafter called the "Company"), by providing the

means whereby it may continue to attract and retain highly

talented persons as key employees and give them an additional

incentive to exert their best efforts on behalf of the Company.

2. Authority to Grant Stock Options and Terms Thereof.
--------------------------------------------------

(a) A Committee of disinterested members of the Board

of Directors of the Company, appointed in accordance with

paragraph 9 of this Plan (hereinafter called the "Committee"),

may from time to time on or after the effective date of this Plan

and prior to August 21, 1989, grant to officers and other key

salaried employees of the Company or of any of its subsidiaries

(hereinafter called "Eligible Employees") stock options for the

purchase of shares of the Company's Common Stock, par value 50

cents per share (hereinafter called "Common Stock'), which in the

aggregate shall not exceed the sale or issuance of 550,000 shares

of Common Stock. The term "Option", as used in the singular

herein, shall mean the right

<PAGE>

to purchase a single share of Common Stock of the Company on the

terms and subject to the conditions provided herein.

(b) Options shall be evidenced by stock option

agreements in the form of Appendix A hereto, or in such other

form and not inconsistent with this Plan as the Committee shall

approve from time to time, which agreements shall contain in

substance the following terms and conditions:

(i) The purchase price per share of Common Stock

deliverable upon the exercise of an Option shall not be less than

100 percent of the fair market value of such Stock on the day the

Option is granted as determined by the Committee but in no event

less than the par value of such Stock.

(ii) The stock option agreement shall specify the

number of shares to which it pertains.

(iii) At the time an Option is granted, the Committee

shall fix the period within which it may be exercised which shall

not be more than ten (10) years from the date of grant. In no

event, however, may an Option be exercised within 24 months of

the date of grant.

(iv) The purchase price for shares of Common Stock

under Options shall, at the time of purchase, be paid for in

full. A holder of an Option shall have none of the rights of a

stockholder until the share of Common Stock is issued to him

following exercise of the Option and upon receipt by the

-2-

<PAGE>

Company of payment therefor.

3. Authority to Grant Stock Appreciation Rights and
------------------------------------------------
Terms Thereof.
-------------

(a) The Committee may also, in its sole and entire

discretion, grant Stock Appreciation Rights with respect to and

pertaining to: (i) options simultaneously granted or previously

granted under this Plan and still outstanding; or (ii)

outstanding non-qualified options granted prior to August 1979

under stock option plans of the Company which were adopted prior

to 1979. The term "Stock Appreciation Right", as used in the

singular herein, shall mean a right granted hereunder to receive,

upon the exercise thereof in accordance herewith, a payment which

will not exceed the amount by which the fair market value of a

share of Common Stock on the date of exercise shall exceed the

fair market value of a share of Common Stock on the date of

grant. The Committee shall have discretion to place further

limits on the amount of payment so to be received on the exercise

of.such right. The payment so to be received on exercise of such

right shall be one-half in the form of cash and one-half in the

form of Common Stock of the Company, unless the Committee

provides otherwise. The Committee shall have discretion to make

the payment so to be received all cash, all Common Stock of the

Company, or any portions of cash and such Common Stock that the

Committee

-3-

<PAGE>

shall determine.