QUAKER STATE CORP, 10-Q, 1994-08-12

QUAKER STATE CORP
10-Q, 1994-08-12
PETROLEUM REFINING

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Mark One
X QUARTERLY REPORT UNDER SECTION 13 or 15(d)
----- OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1994.

TRANSITION REPORT PURSUANT TO SECTION 13 OR
----- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to _____________________

Commission File Number 1-2677

QUAKER STATE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 25-0742820
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

255 Elm Street
Oil City, Pennsylvania 16301
(Address of Principal Executive Offices)
(Zip Code)

(814) 676-7676
(Registrant's telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
--- ---

As of August 1, 1994, 27,339,077 shares of Capital Stock, par value $1.00
per share, of the registrant were outstanding.

<PAGE> 2

PART I.

FINANCIAL INFORMATION

<TABLE>
Consolidated Statement of Operations
Quaker State Corporation and Subsidiaries
<CAPTION>
Quarter Ended Six Months Ended
6/30/94 6/30/93 6/30/94 6/30/93
(in thousands except per share data, unaudited)
<S> <C> <C> <C> <C>
Revenues
Sales and operating revenues $168,192 $163,722 $343,670 $314,090
Other, net 1,445 2,136 3,093 4,029
169,637 165,858 346,763 318,119
Costs and expenses
Cost of sales and operating costs 111,661 111,936 223,675 215,398
Selling, general and administrative 43,031 42,438 92,727 79,556
Depreciation, depletion and amortization 7,878 6,874 15,465 13,838
Interest 1,200 1,508 2,403 3,056
163,770 162,756 334,270 311,848
Income from continuing operations before income taxes 5,867 3,102 12,493 6,271
Provision for (benefit from) income taxes
Current 4,455 2,010 8,075 4,130
Deferred (2,136) (1,202) (2,949) (1,984)
2,319 808 5,126 2,146
Income from continuing operations 3,548 2,294 7,367 4,125
Income from discontinued insurance
operations, net of taxes (Note 3) 1,521 2,087 3,285 3,659
Net income (loss) $ 5,069 $ 4,381 $ 10,652 $ 7,784
Per Share:
Income from continuing operations $.13 $.08 $.27 $.15
Discontinued insurance operations .06 .08 .12 .14
Net income (loss) per share $.19 $.16 $.39 $.29
Weighted average shares outstanding 27,360 27,204 27,358 27,187
Cash dividends paid per share $.10 $ .20 $.20 $.40
</TABLE>

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

<PAGE> 3
<TABLE>
Consolidated Statement of Cash Flows
Quaker State Corporation and Subsidiaries

<CAPTION>
For the six months ended June 30 1994 1993
(in thousands, unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 10,652 $ 7,784
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 15,465 13,838
Deferred income taxes and investment tax credit (121) 1,314
Increase (decrease) from changes in:
Receivables (6,336) 611
Inventories (5,182) 5,043
Other current assets (911) 7,460
Accounts payable 525 1,721
Accrued liabilities 1,687 (7,041)
Other (1,934) (7,456)
Changes in discontinued insurance operations 5,224 620
Net cash provided by operating activities 19,069 23,894
Cash flow from investing activities
Proceeds from disposal of property and equipment 1,544 1,222
Capital expenditures (11,555) (6,944)
Proceeds from sale of discontinued coal operation assets 1,568 --
Discontinued insurance operations
Proceeds from sale of bonds and securities 37,046 30,241
Purchase of bonds and securities (49,259) (36,248)
Net cash used in investing activities (20,656) (11,729)
Cash flow from financing activities
Dividends paid (5,457) (10,861)
Proceeds from notes payable 320 354
Payments on long-term debt (137) (17,844)
Net cash used in financing activities (5,274) (28,351)
Net decrease in cash and cash equivalents (6,861) (16,186)
Cash and cash equivalents at beginning of year:
Other than discontinued insurance operations 6,220 34,146
Discontinued insurance operations 9,408 7,202
Total cash and cash equivalents at beginning of year 15,628 41,348
Cash and cash equivalents at end of period:
Other than discontinued insurance operations 3,063 19,688
Discontinued insurance operations 5,704 5,474
Total cash and cash equivalents at end of period $ 8,767 $ 25,162
</TABLE>

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

<PAGE> 4

<TABLE>
Consolidated Balance Sheet
Quaker State Corporation and Subsidiaries
<CAPTION>
6/30/94 12/31/93*
(in thousands except share data) (unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,063 $ 6,220
Accounts and notes receivable, less allowance of
$2,430 at 6/30/94 and $1,679 at 12/31/93. 63,154 56,818
Inventories: (Note 2)
Crude oil 2,999 2,591
Finished and in-process petroleum products 26,897 23,225
Other 15,389 14,287
Total inventories 45,285 40,103
Deferred income taxes 18,496 18,375
Other current assets 16,811 17,468
Total current assets 146,809 138,984
Property, plant, and equipment, net of accumulated depreciation
and depletion of $351,403 at 6/30/94 and $345,851 at 12/31/93. 221,355 225,828
Other assets 80,026 82,903
Total assets other than insurance 448,190 447,715
Discontinued insurance assets
Investments 194,688 185,446
Cash 5,704 9,408
Premiums and other receivables 59,662 59,310
Deferred insurance acquisition costs 60,521 60,005
Other assets 19,344 21,793
Total discontinued insurance assets 339,919 335,962
Total assets $ 788,109 $ 783,677
Liabilities
Current Liabilities:
Accounts payable $ 36,825 $ 35,980
Accrued liabilities 73,148 67,339
Installments on long-term debt 152 262
Total current liabilities 110,125 103,581
Long-term debt, less debt payable within one year 51,161 51,188
Other long-term liabilities 171,550 179,054
Total liabilities other than insurance 332,836 333,823
Discontinued insurance liabilities
Unearned premiums 219,032 208,530
Policy claims 30,133 28,773
Due to reinsurance companies 4,550 6,897
Other liabilities 10,057 16,904
Total discontinued insurance liabilities 263,772 261,104
Commitments and contingencies (Note 4)
Stockholders' Equity
Capital stock, $1.00 par value; authorized shares, 37,500,000;
issued shares, 27,332,050 at 6/30/94 and 27,250,818 at 12/31/93 27,332 27,251
Treasury stock, 6,696 shares, at cost (92) --
Additional capital 64,146 63,044
Retained earnings 102,076 98,877
Cumulative foreign currency translation adjustment (661) 75
Unearned compensation (Note 6) (1,300) (497)
Total stockholders' equity 191,501 188,750
Total liabilities and stockholders' equity $ 788,109 $ 783,677
<FN>
*Amounts are from December 31, 1993 audited balance sheet and footnotes.

</TABLE>

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

<PAGE> 5
Other Financial Information
Quaker State Corporation and Subsidiaries

The sales and operating revenues and contributions to income from continuing
operations, by industry segment, are as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
6/30/94 6/30/93 6/30/94 6/30/93
(in thousands, unaudited)
<S> <C> <C> <C> <C>
Sales and Operating Revenue
Motor oil $112,366 $116,132 $235,047 $218,875
Fast lube 27,967 25,832 54,126 51,034
Natural gas E&P 7,940 6,581 15,603 13,608
Truck-Lite 26,558 20,833 51,218 41,759
Docks 754 712 1,447 1,410
Intersegment sales (7,393) (6,368) (13,771) (12,596)
Total sales and operating revenue $168,192 $163,722 $343,670 $314,090

Operating Profit
Motor oil $ 3,064 $ 5,503 $ 8,268 $ 9,387
Fast lube 1,478 613 2,779 958
Natural gas E&P 2,304 1,203 4,140 3,027
Truck-Lite 4,570 1,834 7,434 3,568
Docks 250 276 469 560
Total operating profit from continuing operations 11,666 9,429 23,090 17,500
Corporate income 732 693 1,253 811
Interest expense, net (1,159) (1,428) (2,318) (2,890)
Corporate expenses (5,372) (5,592) (9,532) (9,150)
Income from continuing operations before income taxes $ 5,867 $ 3,102 $ 12,493 $ 6,271
</TABLE>

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

<PAGE> 6
Notes To Consolidated Financial Statements
Quaker State Corporation and Subsidiaries
(unaudited)

1. In the opinion of management of Quaker State Corporation (the company),
the accompanying financial statements include all adjustments which are
necessary to a fair statement of the results for such periods. All of
these adjustments are of a normal recurring nature. These statements
should be read in conjunction with the financial statements included as a
part of the 1993 annual report on Form 10-K. In accordance with insurance
industry practice, the assets and liabilities for the insurance operations
have not been classified as current or noncurrent.

2. Inventories are stated at the lower of cost or market. Cost is determined
on the last-in, first-out (LIFO) basis for all crude oil, the majority of
company refined petroleum and vehicular lighting products; and on the
first-in, first-out (FIFO) basis for other inventories. The reserve to
reduce the carrying value of inventories from FIFO basis to LIFO basis
amounted to $19,387,000 at June 30, 1994, and $19,090,000 at December 31,
1993.

3. Heritage is an insurance holding company principally engaged, through its
subsidiaries, in the business of credit life, accident and health, and
special indemnity insurance closely associated with automobile sales.

On May 12,1994 the company and GE Capital Corporation signed a
definitive agreement for the sale of Quaker State's wholly owned Heritage
Insurance Group subsidary to GE Capital for $85,000,000 in cash. Under
the agreement, GE Captial will acquire 100 percent of the stock in
Heritage. Accordingly, the operating results of the insurance business
have been segregated and reported as a discontinued operation in the
accompanying Consolidated Statement of Operations for the period ending
June 30, 1994. Prior year and prior period financial statements have been
reclassified to conform to the current period presentation. The
transaction, subject to state and federal regulatory approval, is expected
to close in the third quarter this year. The company expects a gain from
this transaction.

Heritage's condensed income statements for the quarter and six months
ended June 30, 1994 and 1993 are presented below:

<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
(in thousands) 6/30/94 6/30/93 6/30/94 6/30/93
<S> <C> <C> <C> <C>
Premiums $ 23,439 $ 21,972 $ 47,777 $ 45,219
Net investment income* 3,041 3,113 5,736 6,273
Realized investment gains 120 1,978 103 2,645
Other, net 5,109 4,419 9,214 6,892
Total revenue 31,709 31,482 62,830 61,029
Policy and contract benefit expenses 14,480 13,115 28,138 25,881
Amortization of deferred policy acquisition costs 11,738 11,924 23,632 23,226
General and administrative costs 3,789 3,779 7,201 7,359
Income before income taxes 1,702 2,664 3,859 4,563
Provision for income taxes 181 577 574 904
Net income $ 1,521 $ 2,087 $ 3,285 $ 3,659
*Includes intercompany interest of $ 66 $ 112 $ 134 $ 225
</TABLE>

(more)

<PAGE> 7
Notes To Consolidated Financial Statements
Quaker State Corporation and Subsidiaries
(unaudited)

Effective January 1, 1994, the company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" which addresses the accounting and reporting for
investments in equity securities that have readily determinable values and
for investments in debt securities. This Standard did not have a material
impact on the company's financial position and results of operations.
The effect of reinsurance transactions on the Consolidated Statement of
Operations for premiums written and earned for the quarter and six months
ended June 30, 1994 are as follows (in thousand):

<TABLE>
<CAPTION>
For the quarter For the six months
ended 6/30/94 ended 6/30/94
Written Earned Written Earned
<S> <C> <C> <C> <C>
Direct Premiums $ 37,939 $ 30,756 $ 69,812 $ 61,362
Assumed Premiums 2,269 2,353 4,140 3,433
Ceded Premiums (10,038) (9,670) (18,012) (17,018)
Net Premiums $ 30,170 $ 23,439 $ 55,940 $ 47,777
</TABLE>

Recoveries of policy and contract benefit expense recognized under
reinsurance contracts for the quarter and six months ended June 30, 1994 and
1993 respectively, was $4,913,000 and $9,639,000, and $6,812,000 and
$15,929,000. For information regarding the nature and purpose of reinsurance
transactions, reference should be made to the 1993 Annual Report.

4. In December 1993, the United States of America commenced a lawsuit against
the company in the U.S. District Court for Northern West Virginia. The
complaint alleges the company violated the federal Resource Conservation
and Recovery Act and the federal Clean Air Act at the Congo refinery on
various dates starting in 1980 and seeks civil penalties as allowable
under federal law not to exceed $25,000 per day for each violation. The
company intends to vigorously defend itself in this lawsuit. However, the
ultimate outcome of this litigation cannot presently be determined. A
provision of $1,000,000 was established in the first quarter for costs
associated with the pending litigation.

In addition, the company has received notices from the EPA and others
that it is a "potentially responsible party" relative to certain waste
disposal sites identified by the EPA and may be required to share in the
cost of cleanup. The company has accrued for all matters which are
probable and can be reasonably estimated.

Contingent liabilities of an indeterminate amount exist in connection
with suits and claims arising in the ordinary course of business.

In April 1994, three purported class actions were commenced in the
Federal District Court for the Western District of Pennsylvania against
Witco Corporation, Quaker State Corporation and Pennzoil Company. The
complaints allege violations of Section 1 of the Sherman Act. The company
believes there is no basis for the allegations in the complaints and
intends to defend these matters vigorously.

In the opinion of management, all matters discussed above are
adequately accrued for or covered by insurance or, if not so provided for,
are without merit or the disposition is not anticipated to have a material
effect on the company's financial position; however, one or more of these
matters could have a material effect on future quarterly or annual results
of operations when resolved.

5. The effective income tax rate of 41% for continuing operations for the six
months ended June 30, 1994 is higher than the 35% federal rate due to
increased income and the added impact of state and foreign taxes. The 1994
six month effective tax rate of 41% for continuing operations is higher
than the 1993 restated effective tax rate of 21% due to higher income, an
enacted federal rate change in 1993 that increased the value of deferred
tax assets in 1993, 1993 net adjustments to valuation allowance and other
1993 credits.

(more)

<PAGE> 8
Notes To Consolidated Financial Statements
Quaker State Corporation and Subsidiaries
(unaudited)

6. On May 12, 1994 the company's stockholders approved the 1994 Stock
Incentive Plan. The number of shares which may be issued under this plan
is 1,250,000 and the plan includes stock options, alternative stock
appreciation rights, cash payment rights, restricted shares, performance
shares and other share awards. In 1994 65,800 restricted performance
shares were granted under this plan to key employees subject to forfeiture
if certain three year performance goals are not met. As a result of the
grant of these restricted shares, the company recorded $909,000 as
unearned compensation in the equity section of the Consolidated Balance
Sheet. This unearned compensation is being amortized on a straight line
basis as compensation expense over the performance cycle period.

7. On August 4, 1994 Quaker State Corporation and the Specialty Oil Companies
of Shreveport, Lousiana, announced that they signed definitive agreements
for Quaker State to acquire the privately owned Specialty Oil Companies
and related assets. The acquisition will be made through separate stock
exchange and cash merger agreements for an aggregate consideration of
4,000,000 newly issued shares of Quaker State common stock (believed to be
non-dilutive) and approximately $25,000,000 in cash and the assumption of
certain outstanding indebtedness of the acquired companies. Quaker State
has also agreed to purchase related assets for approximately $10,000,000.
The closing is expected to occur prior to the end of the third quarter,
subject to obtaining necessary third party consents and regulatory
approvals.

<PAGE> 9
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition

-------

The consolidated financial statements and related notes including
information about Quaker State Corporation's (the company) operations in
different segments included in this Form 10-Q should be read as an integral
part of this review.

-------

Quaker State Corporation reported second quarter net income of $5,069,000,
or $.19 per share compared to $4,381,000, or $.16 per share, in the same
quarter last year. Six month net income was $10,652,000, or $.39 per share,
versus $7,784,000, or $.29 per share in 1993. Sales and operating revenues from
continuing operations in 1994 were $168,192,000 and $343,670,000 for the
quarter and six months compared to $163,722,000 and $314,090,000 for the same
periods last year. Operating profits from continuing operations in 1994
increased 24%, to $11,666,000 in the second quarter and 32%, to $23,090,000,
for the first six months. The six month revenue, operating profit and net
income improvements are based primarily on sales volume increases at the major
business segments.

On May 12, 1994 the company and GE Capital Corporation signed a definitive
agreement for the sale of Quaker State's wholly owned Heritage Insurance Group
subsidiary to GE Capital Corporation for $85,000,000 in cash. According to the
agreement GE Capital Corporation will acquire 100 percent of the stock in
Heritage Insurance Group. As a result the insurance operations have been
accounted for as a discontinued operation on the Consolidated Statement of
Operations for the period ending June 30, 1994, and its operating results have
been segregated and reported as discontinued insurance operations. Prior year
and prior period financial statements have been reclassified to conform to this
presentation. The transaction, subject to state and federal regulatory
approval, is expected to close in the third quarter of this year. The company
expects a gain from this transaction (Refer to Note 3).

In the second quarter of 1994 the motor oil division revenues and
operating profits declined 3% and 44% to $112,366,000 and $3,064,000. A 9%
drop in branded motor oil sales volume and reduced refinery product margins for
gasoline, fuel oil and lube stock sales primarily accounts for the decline in
second quarter operating results. In the first six months of 1994 revenues
increased 7% over 1993, to $235,047,000. Branded motor oil volume increased 7%
for the six months to primarily account for the higher revenues. Six month
automotive consumer product sales increased 26% over 1993 while refinery lube
stock and fuels sales volumes increased 9% and 15% over last year. The average
sales price of refinery lube stocks and fuels declined 7% and 9% for the six
months ended June 30, 1994. Operating profits did not follow the six month
increase in

<PAGE> 10
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition

----------

revenues as they were down 12%, to $8,268,000. This resulted from increases in
expenses of approximately $10,400,000 for aggressive share-building marketing
expenses, higher selling expenses geared towards developing additional sales
volume and higher freight from additional volume. Results also include a
$1,000,000 charge to a reserve for probable expenses associated with the
December 1993 lawsuit filed against the company for alleged violations at the
Congo refinery (Refer to Note 4.). Increases since January 1, 1994 for the cost
of crude oil, packaging and additives also had a negative impact on operating
profits. A price increase for branded motor oil products announced to take
effect September 1 is expected to partially offset the negative impact of these
increased costs.

The fast lube segment reported second quarter operating profits of
$1,478,000 on sales and operating revenues of $27,967,000 compared to profits
of $613,000 on revenues of $25,832,000 last year. Year-to-date operating
profits were $2,779,000 on revenues of $54,126,000 compared to profits of
$958,000 on revenues of $51,034,000 last year. Car counts in 1994 increased 8%
and 7% for the three and six months ended June 30. A 10% decrease in
administrative expenses for the six months also contributed to the improved
results.

Operating profits in the second quarter and first six months of 1994 at
the natural gas exploration and production business were $2,304,000 and
$4,140,000 compared to $1,203,000 and $3,027,000 in 1993. Revenues increased
21% to $7,940,000 in the second quarter while year-to-date revenues of
$15,603,000 increased 15% over 1993. Natural gas sales volume increased 27% and
20% for the second quarter and first six months and included deliveries made
through the new Stagecoach pipeline, while average sales prices were up
approximately 6% for the period ending June 30, 1994. Second quarter and
year-to-date crude oil sales volumes were down 11% and average sales prices
were off 15% and 21%. The posted price of crude oil sold has improved from
$13.50 per barrel at the beginning of 1994 to $18.00 per barrel at June 30,
1994.

Truck-Lite operating profits in 1994 of $4,570,000 and $7,434,000
increased 149% and 108% over the second quarter and first six months of 1993.
Significantly higher sales volume in both the automotive and original equipment
truck and trailer businesses accounts for the improved operating results and
revenue increases of 27% for the quarter to $26,558,000 and 23% for the six
months to $51,218,000.

<PAGE> 11
QUAKER STATE CORPORATION AND SUBSIDIARIES
Discussion and Analysis of Results of Operations and Financial Condition

--------

Corporate interest expense of $2,318,000 for the first six months of 1994
is down 20% from last year due to lower average debt in 1994. Corporate
expenses of $9,532,000 for the first six months of 1994 are up 4% primarily due
to higher postretirement, performance incentive and legal expenses partially
offset by declines in salary and other employee benefit expenses.

Income, net of taxes, from discontinued insurance operations in the second
quarter was $1,521,000 compared to $2,087,000 in 1993. Year-to-date income was
$3,285,000 compared to $3,659,000 last year. A reduction in realized investment
gains of $1,858,000 and $2,542,000 for the three and six month periods ended
June 30, 1994, partially offset by improved operating results, accounts for the
decrease in income from discontinued insurance operations.

Cash provided by operations for the first six months of 1994 was
$19,069,000 compared to $23,894,000 in 1993. This decrease resulted from higher
working capital requirements. Net cash used by coal activities was $8,868,000
in the first six months. Investing activities included proceeds from the sale
of property and equipment of $3,112,000 of which $1,568,000 related to the
discontinued coal operations. Investing activities also included capital
expenditures of $11,555,000, proceeds from the sale of discontinued insurance
company bonds and securities of $37,046,000 and disbursements to purchase
insurance company bonds and securities of $49,259,000. Cash used in financing
activities was $5,274,000 and included payments of $5,457,000 for dividends.

On July 28, 1994 the Board of Directors of the company authorized a
quarterly dividend of 10 cents per share payable September 15 to shareholders
of record as of August 15, 1994.

On August 4, 1994, Quaker State Corporation and the Specialty Oil
Companies of Shreveport, Louisiana, announced that they signed definitive
agreements for Quaker State to acquire the privately owned Specialty Oil
Companies and related assets. The acquisition will be made through separate
stock exchange and cash merger agreements for an aggregate consideration of
4,000,000 newly issued shares of Quaker State common stock (believed to be
non-dilutive) and approximately $25,000,000 in cash and the assumption of
certain outstanding indebtedness of the acquired companies. Quaker state has
also agreed to purchase related assets for approximately $10,000,000. The
closing is expected to occur prior to the end of the third quarter, subject to
obtaining necessary third party consents and regulatory approvals.

<PAGE> 12

PART II
OTHER INFORMATION
QUAKER STATE CORPORATION AND SUBSIDIARIES

Item 1. LEGAL PROCEEDINGS.

Quaker State has previously reported (i) that in October 1990 it
commenced an action in the Circuit Court of the 18th Judicial District, DuPage
County, Illinois against Oil Express National, Inc. ("Oil Express") and certain
of its franchisees and principals and (ii) that in April 1992, Oil Express
filed a counterclaim and a third party claim in the proceeding against Quaker
State and its subsidiary Q Lube, Inc. The latest description of this
litigation appears in Quaker State's annual report on Form 10-K for the fiscal
year ended December 31, 1993. On May 2, 1994, this matter was settled by
payment of a nominal amount by Quaker State to Oil Express and all claims made
by all parties have been dismissed by stipulation.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On May 12, 1994, Quaker State held its Annual Meeting of Stockholders, at
which four items were submitted to a vote of security holders. The first item
voted upon was the election of directors, and the following individuals were
elected as directors, with the following votes for or withheld from as to each:

<TABLE>
<CAPTION>
Name Votes For Votes Withheld
- - ---- --------- --------------
<S> <C> <C>
Herbert M. Baum 22,765,144 963,284
Leonard M. Carroll 22,759,499 968,929
Conrad A. Conrad 22,774,916 953,512
Laurel Cutler 22,692,834 1,035,594
Homer M. Ellenburg 22,749,765 978,663
C. Frederick Fetterolf 22,759,016 969,412
Thomas A. Gardner 22,739,919 988,509
H. Bryce Jordan 22,697,203 1,031,225
W. Craig McClelland 22,747,649 980,779
Delbert J. McQuaide 22,748,591 979,837
Raymond A. Ross, Jr. 22,765,239 963,189
</TABLE>

The second matter submitted to a vote of security holders was approval
of the adoption of Quaker State's 1994 Stock Incentive Plan. On this second
matter, 20,326,545 shares were voted for the proposition, 3,025,178 shares
were voted against, and 376,705 shares abstained.

<PAGE> 13
QUAKER STATE CORPORATION

The third matter submitted to a vote of security holders was approval
of the adoption of Quaker State's 1994 Non-Employee Directors' Stock Option
Plan. On this third matter, 19,359,466 shares were voted for the proposition,
3,960,238 shares were voted against, and 408,724 shares abstained.

The fourth matter submitted to a vote of security holders was the
ratification of the appointment of the firm of Coopers & Lybrand as Quaker
State's independent auditors for the fiscal year ending December 31, 1994. On
this fourth matter, 23,439,959 shares were voted for the the proposition,
179,727 shares were voted against, and 108,742 shares abstained.

Item 5. OTHER INFORMATION.

On May 12, 1994, Quaker State signed a definitive agreement to sell its
subsidiary Heritage Insurance Group, Inc. to General Electric Capital
Corporation for $85,000,000 subject to certain possible adjustments and
regulatory approval. It is expected that the transaction will close before
September 30, 1994.

For further information with respect to this transaction, see the
information under the heading "Discussion and Analysis of Results of Operations
and Financial Condition" in Part I of this report on Form 10-Q and Note 3 of
Notes to Consolidated Financial Statements included in this report on
Form 10-Q.

On August 4, 1994, Quaker State announced that it had signed a definitive
agreement to acquire Specialty Oil Company and its affiliated companies through
separate stock exchange and cash merger agreements for an aggregate
consideration of 4,000,000 shares of Quaker State common stock, $25,000,000 in
cash, and the assumption of $30,000,000 in outstanding indebtedness of the
acquired companies. Quaker State also agreed to purchase certain related
assets for approximately $10,000,000. Specialty Oil Company and its affiliated
companies are engaged in lubricants manufacturing and services, marketing and
distribution of lubricants, and used oil collection and recycling.

For further information with respect to this transaction, see the
information under the heading "Discussion and Analysis of Results of Operations
and Financial Condition" in Part I of this report on Form 10-Q and Note 7
of Notes to Consolidated Financial Statements included in this report on
Form 10-Q.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) 2 Stock Purchase Agreement dated as of May 12, 1994 Among Quaker
State Corporation, QS Holding Company and General Electric Capital
Corporation With Respect to all of the Outstanding Capital Stock
of Heritage Insurance Group, Inc., filed herewith.

11 Computation of Net Income Per Share for the quarters and six
months ended June 30, 1994 and 1993, filed herewith.

(b) A report on Form 8-K was filed by Quaker State on May 6, 1994. The
report disclosed under Item 5 that on April 19, 1994, Lazy Oil, Inc.,
on behalf of itself and all others similarly situated, and John B.
Andreassi on behalf of himself and all others similarly situated,
commenced actions in the Federal District Court for the Western
District of Pennsylvania against Witco Corporation, Quaker State
Corporation and Pennzoil Company alleging violations of Section 1
of the Sherman Antitrust Act.

A report on Form 8-K was filed by Quaker State on May 12, 1994.
The report disclosed under Item 5 that on May 10, 1994,
Quaker State announced that it was negotiating an agreement with
General Electric Capital Corporation for the sale of Quaker State's
subsidiary Heritage Insurance Group, Inc. A definitive agreement
was signed on May 12, 1994 (see Item 5 above).

<PAGE> 14
QUAKER STATE CORPORATION AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

QUAKER STATE CORPORATION
(Registrant)

Date 8/10/94 By /s/ Herbert M. Baum
------- ----------------------
Herbert M. Baum
Chairman of the Board and
Chief Executive Officer

Date 8/10/94 By /s/ R. Scott Keefer
------- ----------------------
R. Scott Keefer
Vice President, Finance and
Chief Financial Officer

<PAGE> 15
QUAKER STATE CORPORATION

EXHIBIT LIST

The following Exhibits are required to be filed with this quarterly report
on Form 10-Q.

EXHIBIT NO. AND DOCUMENT

2. Stock Purchase Agreement Dated as of May 12, 1994
Among Quaker State Corporation, QS Holding Company
and General Electric Capital Corporation With Respect
to all of the Outstanding Capital Stock of Heritage
Insurance Group, Inc., filed herewith.

11. Computation of Net Income Per Share for the
quarters and six months ended June 30, 1994 and
1993, filed herewith.

<PAGE> 1

Exhibit 2

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

STOCK PURCHASE AGREEMENT

Dated as of May 12, 1994

Among

QUAKER STATE CORPORATION,
QS HOLDING COMPANY,

and

GENERAL ELECTRIC CAPITAL CORPORATION

With Respect to all of the
Outstanding Capital Stock of

HERITAGE INSURANCE GROUP, INC.

================================================================================
<PAGE> 2
<TABLE>

TABLE OF CONTENTS

<CAPTION>
Page

ARTICLE I

DEFINITIONS

ARTICLE II

SALE OF SHARES AND CLOSING

<S> <C> <C>
2.1 Purchase and Sale of Shares . . . . . . . . . . . 12
2.2 Purchase Price . . . . . . . . . . . . . . . . . . 12
2.3 Final Interim Earnings . . . . . . . . . . . . . . 12
2.4 Closing . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLERS

3.1 Organization of the Sellers . . . . . . . . . . . 16
3.2 Authority . . . . . . . . . . . . . . . . . . . . 16
3.3 Organization of the Company and the
Subsidiaries . . . . . . . . . . . . . . . . . . . 16
3.4 Capital Stock . . . . . . . . . . . . . . . . . . 17
3.5 No Subsidiaries . . . . . . . . . . . . . . . . . 17
3.6 No Conflicts or Violations . . . . . . . . . . . . 17
3.7 Books and Records . . . . . . . . . . . . . . . . 19
3.8 GAAP Statements . . . . . . . . . . . . . . . . . 19
3.9 SAP Statements . . . . . . . . . . . . . . . . . . 19
3.10 Reserves . . . . . . . . . . . . . . . . . . . . . 21
3.11 Absence of Changes . . . . . . . . . . . . . . . . 21
3.12 No Undisclosed Liabilities . . . . . . . . . . . . 25
3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . 26
3.14 Litigation . . . . . . . . . . . . . . . . . . . . 31
3.15 Compliance With Laws . . . . . . . . . . . . . . . 32
3.16 Pension and Benefit Plans; ERISA . . . . . . . . . 33
3.17 Properties; Environmental . . . . . . . . . . . . 36
3.18 Contracts . . . . . . . . . . . . . . . . . . . . 39
3.19 Insurance Issued . . . . . . . . . . . . . . . . . 42
3.20 Threats of Cancellation or Downgrading . . . . . . 43
3.21 Licenses and Permits . . . . . . . . . . . . . . . 44
3.22 Operations Insurance . . . . . . . . . . . . . . . 44
3.23 Intercompany Liabilities . . . . . . . . . . . . . 44
3.24 Bank Accounts . . . . . . . . . . . . . . . . . . 45
3.25 Disclosure . . . . . . . . . . . . . . . . . . . . 45
</TABLE>

B-i

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

<S> <C> <C>
4.1 Organization . . . . . . . . . . . . . . . . . . . 45
4.2 Authority . . . . . . . . . . . . . . . . . . . . 45
4.3 No Conflicts or Violations . . . . . . . . . . . . 46
4.4 Litigation . . . . . . . . . . . . . . . . . . . . 46
4.5 Purchase for Investment . . . . . . . . . . . . . 47
4.6 Disclosure . . . . . . . . . . . . . . . . . . . . 47

ARTICLE V

COVENANTS OF SELLERS

5.1 Contract and Regulatory Approvals . . . . . . . . 47
5.2 HSR Filings . . . . . . . . . . . . . . . . . . . 48
5.3 Investigation by the Purchaser . . . . . . . . . . 48
5.4 No Negotiations . . . . . . . . . . . . . . . . . 48
5.5 Conduct of Business . . . . . . . . . . . . . . . 49
5.6 Financial Statements and Reports . . . . . . . . . 52
5.7 Investments . . . . . . . . . . . . . . . . . . . 53
5.8 Employee Matters . . . . . . . . . . . . . . . . . 54
5.9 Participation in Benefit Plans . . . . . . . . . . 55
5.10 No Charter Amendments . . . . . . . . . . . . . . 57
5.11 No Issuance of Securities . . . . . . . . . . . . 57
5.12 No Dividends . . . . . . . . . . . . . . . . . . . 57
5.13 No Disposal of Property . . . . . . . . . . . . . 58
5.14 No Breach or Default . . . . . . . . . . . . . . . 58
5.15 Indebtedness . . . . . . . . . . . . . . . . . . . 58
5.16 No Acquisitions . . . . . . . . . . . . . . . . . 59
5.17 Intercompany Liabilities . . . . . . . . . . . . . 59
5.18 Resignations of Directors . . . . . . . . . . . . 60
5.19 Tax Matters . . . . . . . . . . . . . . . . . . . 60
5.20 Use of Name . . . . . . . . . . . . . . . . . . . 61
5.21 Books and Records . . . . . . . . . . . . . . . . 61
5.22 Notice . . . . . . . . . . . . . . . . . . . . . . 61

ARTICLE VI

COVENANTS OF PURCHASER

6.1 Regulatory Approvals . . . . . . . . . . . . . . . 62
6.2 HSR Filings . . . . . . . . . . . . . . . . . . . 62
6.3 Notice . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>

ii
<PAGE> 4
<TABLE>

ARTICLE VII

CONDITIONS TO OBLIGATIONS OF THE PURCHASER

<S> <C> <C>
7.1 Representations and Warranties . . . . . . . . . . 63
7.2 Performance . . . . . . . . . . . . . . . . . . . 64
7.3 Officer's Certificates . . . . . . . . . . . . . . 64
7.4 HSR Act Approval . . . . . . . . . . . . . . . . . 64
7.5 No Injunction . . . . . . . . . . . . . . . . . . 64
7.6 No Proceeding or Litigation . . . . . . . . . . . 64
7.7 Consents and Authorizations . . . . . . . . . . . 65
7.8 No Adverse Change . . . . . . . . . . . . . . . . 65
7.9 Opinion of Counsel . . . . . . . . . . . . . . . . 66

ARTICLE VIII

CONDITIONS TO OBLIGATIONS OF THE SELLERS

8.1 Representations and Warranties . . . . . . . . . . 66
8.2 Performance . . . . . . . . . . . . . . . . . . . 66
8.3 Officer's Certificates . . . . . . . . . . . . . . 66
8.4 HSR Act Approval . . . . . . . . . . . . . . . . . 67
8.5 No Injunction . . . . . . . . . . . . . . . . . . 67
8.6 No Proceeding or Litigation . . . . . . . . . . . 67
8.7 Consents and Authorizations . . . . . . . . . . . 67
8.8 Opinions of Counsel . . . . . . . . . . . . . . . 68

ARTICLE IX

SURVIVAL OF PROVISIONS

9.1 Survival of Representations and Warranties . . . . 68
9.2 Pursuit of Claims . . . . . . . . . . . . . . . . 68

ARTICLE X

INDEMNIFICATION

10.1 Indemnification by the Sellers . . . . . . . . . . 69
10.2 Other Indemnification by the Sellers . . . . . . . 70
10.3 Indemnification by the Purchaser . . . . . . . . . 71
10.4 Indemnification Procedures . . . . . . . . . . . . 71
10.5 Tax Indemnification . . . . . . . . . . . . . . . 73
10.6 Tax Effect of Indemnification Payments . . . . . . 80
10.7 Limitation on Certain Indemnification . . . . . . 83

ARTICLE XI

TERMINATION

11.1 Termination . . . . . . . . . . . . . . . . . . . 84
11.2 Effect of Termination . . . . . . . . . . . . . . 84
</TABLE>

iii

ARTICLE XII

MISCELLANEOUS

<S> <C> <C>
12.1 Section 338(h)(10) Election . . . . . . . . . . . 85
12.2 Notices . . . . . . . . . . . . . . . . . . . . . 89
12.3 Noncompetition . . . . . . . . . . . . . . . . . . 90
12.4 Entire Agreement . . . . . . . . . . . . . . . . . 91
12.5 Expenses . . . . . . . . . . . . . . . . . . . . . 91
12.6 Public Announcements . . . . . . . . . . . . . . . 91
12.7 Confidentiality . . . . . . . . . . . . . . . . . 92
12.8 Brokers . . . . . . . . . . . . . . . . . . . . . 93
12.9 Further Assurances . . . . . . . . . . . . . . . . 93
12.10 Waiver . . . . . . . . . . . . . . . . . . . . . . 94
12.11 Amendment . . . . . . . . . . . . . . . . . . . . 94
12.12 Counterparts . . . . . . . . . . . . . . . . . . . 94
12.13 No Third Party Beneficiary . . . . . . . . . . . . 94
12.14 Governing Law . . . . . . . . . . . . . . . . . . 94
12.15 Binding Effect . . . . . . . . . . . . . . . . . . 94
12.16 No Assignment . . . . . . . . . . . . . . . . . . 94
12.17 Invalid Provisions . . . . . . . . . . . . . . . . 95
</TABLE>

<PAGE> 6

EXHIBIT LIST

Exhibit A List of Insurance Subsidiaries

Exhibit B List of Individuals Having Knowledge

Exhibit C List of Subsidiaries

Exhibit D Audit Adjustments

Exhibit E Permitted Investments

Exhibit F Knowledge Exceptions

Exhibit G-1 Form of Opinion of Reed Smith Shaw & McClay,
counsel to the Sellers

Exhibit G-2 Form of Opinion of General Counsel of the Sellers

Exhibit G-3 Form of Opinion of Lord, Bissell & Brook, counsel
to the Subsidiaries

Exhibit H-1 Form of Opinion of Weil, Gotshal & Manges, counsel
to the Purchaser

Exhibit H-2 Form of Opinion of Department Counsel of the
Purchaser

v
<PAGE> 7
STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement ("Agreement") is made and
entered into this 12th day of May, 1994 by and among Quaker
State Corporation, a Delaware corporation ("Quaker State"),
QS Holding Company, a Delaware corporation ("Holding"), and
General Electric Capital Corporation, a New York corporation
(the "Purchaser").

WHEREAS, Holding is a wholly owned subsidiary of Quaker
State;

WHEREAS, Holding owns 1,000 shares (the "Shares") of
common stock of Heritage Insurance Group, Inc., a Delaware
corporation (the "Company"), constituting all the issued and
outstanding capital stock of the Company; and

WHEREAS, Holding desires to sell the Shares to the
Purchaser, and the Purchaser desires to purchase the Shares
from Holding, on the terms and subject to the conditions set
forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual
covenants and agreements set forth in this Agreement, and
for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:

ARTICLE I

DEFINITIONS

The capitalized terms used herein will have the
following meanings.

"Accrued Tax Reserve" shall mean the sum of any speci-
fic reserve for current Taxes and any specific reserve for
contingent Taxes as reflected on the Expanded Year End GAAP
Financial Statements.

"Affiliate" shall mean any Person that directly, or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the Person
specified.
<PAGE> 8
"Agreement" shall mean this Stock Purchase Agreement,
together with the exhibits attached hereto and the
Disclosure Schedule.

"Annual Statement" shall mean, with respect to a
specified Subsidiary, the annual statement of such
Subsidiary filed with or submitted to the insurance
regulatory authority in the jurisdiction in which such
Subsidiary is domiciled (or, in the case of Heritage
Mechanical, in the State of Florida) on forms prescribed or
permitted by such authority.

"Asset Basis" shall have the meaning ascribed to it in
SECTION 12.1(D) hereof.

"Assets" shall mean all assets or properties of every
kind, nature, character, and description (whether real,
personal, mixed, tangible, or intangible) owned or leased by
a specified Person, including without limitation cash, cash
equivalents, securities, accounts and notes receivable, real
estate, equipment, furniture, and fixtures.

"Books and Records" shall mean all accounting,
financial reporting, Tax, business, marketing, corporate,
and other files, documents, instruments, papers, books, and
records of a specified Person, including without limitation
financial statements, budgets, projections, ledgers,
journals, deeds, title policies, manuals, minute books,
stock certificates and books, stock transfer ledgers,
Contracts, franchises, permits, agent and agency lists,
policyholder and Service Contract holder lists, investor
lists, registered representative lists, reports, computer
tapes, discs, and other files, retrieval programs, operating
data or plans, and environmental studies or plans.

"Business or Condition" shall mean the business,
prospects, condition (financial or otherwise), or Assets of
a specified Person.

"Closing" shall mean the closing of the transactions
contemplated by this Agreement as provided in SECTION 2.4
hereof.

"Closing Date" shall mean the later of (a) the third
business day following the date upon which the last of the
conditions set forth in ARTICLES VII and VIII hereof has
been satisfied or waived, or (b) such other date as the
Purchaser and the Sellers may agree upon in writing.

<PAGE> 9
"COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and the regulations
thereunder.

"Code" shall mean the Internal Revenue Code of 1986, as
amended (including without limitation any successor code),
and the rules and regulations promulgated thereunder.

"Company" shall mean Heritage Insurance Group, Inc., a
Delaware corporation.

"Company Employee" shall have the meaning ascribed to
it in SECTION 5.9 hereof.

"Company Employee Benefit Plans" shall have the meaning
ascribed to it in SECTION 3.16(A) hereof.

"Company Pension Plans" shall have the meaning ascribed
to it in SECTION 3.16(A) hereof.

"Company Stock Basis" shall have the meaning ascribed
to it in SECTION 12.1(D) hereof.

"Contract" shall mean any agreement, lease, sublease,
license, sublicense, promissory note, evidence of
indebtedness, insurance policy, annuity, or other contract
(whether written or oral).

"Damages" shall mean any and all monetary damages,
Liabilities, fines, fees, penalties, interest obligations,
losses, and expenses, including without limitation punitive,
treble, or other exemplary or extra contractual damages (but
only to the extent such punitive, treble, exemplary, or
extra contractual damages are claimed by a Person other than
the Sellers or the Purchaser), amounts paid in settlement,
interest, court costs, costs of investigation, fees and
expenses of attorneys, accountants, actuaries, environmental
consultants, engineers, and other experts, and other
expenses of litigation or of any claim, default, or
assessment.

"Disclosure Schedule" shall mean the disclosure
schedule dated the date hereof (which, as to ARTICLE III
hereof only, may be supplemented as to specific factual
items from time to time before the fifth business day prior
to the Closing Date) furnished by the Sellers to the
Purchaser and containing all lists, descriptions,

<PAGE> 10
exceptions, and other information and materials as are
required to be included therein pursuant to this Agreement.

"Election" shall have the meaning ascribed to it in
SECTION 12.1(A) hereof.

"Election Notice" shall have the meaning ascribed to it
in SECTION 12.1(B) hereof.

"Election Tax Cost" shall have the meaning ascribed to
it in SECTION 12.1(A) hereof.

"Employee Benefit Plan" shall have the meaning ascribed
to it in SECTION 3.16(A) hereof.

"Environmental Damages" shall mean any and all Damages
arising from or under any Environmental Law or any order or
Contract from or with any federal, state, or local
governmental authority.

"Environmental Law" shall mean any Law concerning
Releases into any part of the natural environment or
concerning activities that might result in damage to the
natural environment or any Law relating to the environment
or to protecting or improving the quality of the natural
environment and protecting public and employee health and
safety including without limitation the Comprehensive
Environment Response, Compensation, and Liability Act (42
U.S.C. sec. 9601 ET SEQ.), the Hazardous Materials Transporta-
tion Act (49 U.S.C. sec. 1801 ET SEQ.), the Resource
Conservation and Recovery Act (42 U.S.C. sec. 6901 ET SEQ.),
the Clean Water Act (33 U.S.C. sec. 1251 ET SEQ.), the Clean
Air Act (33 U.S.C. sec. 2601 ET SEQ.), the Toxic Substances
Control Act (15 U.S.C. sec. 2601 ET SEQ.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. sec. 36 ET
SEQ.), and the Occupational Safety and Health Act (29 U.S.C. sec
651 ET SEQ.) as such Laws have been amended, and the
regulations promulgated thereto, and any and all analogous
state or local statutes, in each case as now in effect.

"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended (including without
limitation any successor act), and the rules and regulations
promulgated thereunder.

"ERISA Affiliate" shall mean any Person under common
control (as defined in Section 414 of the Code), or treated
(under Section 414(b), (c), (m), or (o) of the Code) as a

<PAGE> 11
single employer, with the Sellers, the Company, or any
Subsidiary.

"Estimated Election Tax Cost" shall have the meaning
ascribed to it in SECTION 12.1(F) hereof.

"Expanded Year End GAAP Financial Statements" shall
mean the Year End GAAP Financial Statements audited by
Coopers & Lybrand and expanded to reflect the specific
reserves for current Taxes, contingent Taxes and deferred
Taxes.

"Final Determination" shall have the meaning ascribed
to it in SECTION 10.6(C) hereof.

"Final Interim Earnings" shall mean the amount that is
deemed to be Final Interim Earnings pursuant to SECTION
2.3(A), (B), (C), or (D) hereof, as the case may be.

"Foreign Subsidiaries" shall mean Westlake Insurance
Group, Ltd. and Westlake Insurance Company, Ltd.

"GAAP" shall mean generally accepted accounting
principles, consistently applied throughout the specified
period and in the comparable period in the immediately
preceding year.

"Hazardous Materials" shall mean any chemical, sub-
stance, material, or waste which is regulated as hazardous
by any local governmental authority in the jurisdictions in
which the Company or any Subsidiary conducts business, or by
the United States or other national government, including
without limitation (a) petroleum, petroleum products,
asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, flammable substances, explosives, and radioactive
materials, (b) any other material or substance which is now
defined as a "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste,"
"contaminant," "toxic waste," "pollutant," or "toxic
substance" under any provision of Environmental Law, and (c)
any other chemical, material, or substance, the exposure of
which is now prohibited, limited, or regulated by or under
any Environmental Law.

"Heritage Indemnity" shall mean Heritage Indemnity
Company, a California property and casualty insurance
corporation.

<PAGE> 12
"Heritage Life" shall mean Heritage Life Insurance
Company, an Arizona life insurance corporation.

"Heritage Mechanical" shall mean Heritage Mechanical
Breakdown Corporation, a Delaware corporation that is
licensed in Florida as a Motor Vehicle Service Agreement
Company.

"Holding" shall mean QS Holding Company, a Delaware
corporation.

"HSR Act" shall mean Section 7A of the Clayton Act
(Title II of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976), as amended (including without limitation any
successor act), and the rules and regulations promulgated
thereunder.

"Income Taxes" shall mean any Taxes based on, with
respect to, or measured by net or gross income (including
without limitation, withholding Taxes on gross income),
premiums, receipts, net worth, franchise, conduct of busi-
ness, or other similar items.

"Income Tax Return" shall mean any Tax Return required
to be supplied to a taxing authority in connection with
Income Taxes.

"Indemnitee" shall mean a Person claiming indemnifica-
tion under ARTICLE X hereof.

"Indemnifying Party" shall mean a Person against whom
claims of indemnification are being asserted under ARTICLE X
hereof.

"Insurance Agents" shall mean (i) employees and repre-
sentatives of financial institutions and automobile dealers
and other Persons who sell, as active agents for any Subsi-
diary, insurance policies, Service Contracts, or annuities
of any Subsidiary, and (ii) any Person who solicits any of
the foregoing to be agents of any Subsidiary.

"Insurance Subsidiaries" shall mean the corporations
listed on EXHIBIT A hereto.

"Intercompany Indebtedness" shall mean the $3 million
principal amount of indebtedness owed to Heritage Life by
Quaker State as of January 31, 1994 pursuant to the subor-
dinated promissory note due 1996.

6
<PAGE> 13
"Interim Earnings" shall mean the pre-tax operating
earnings reflected on the Interim Income Statement.

"Interim Income Statement" shall mean the unaudited
statement of income of the Company and its consolidated
subsidiaries for the period from January 1, 1994 through the
Closing Date as prepared by the Purchaser in accordance with
GAAP.

"IRS" shall mean the United States Internal Revenue
Service or any successor agency.

"Knowledge" shall mean the actual knowledge of the
representatives of the Sellers and the Company listed on
EXHIBIT B hereto, whose actual knowledge will be attributed
to the Sellers.

"Laws" shall mean all laws, statutes, ordinances,
regulations, and other pronouncements having the effect of
law of the United States of America, any foreign country, or
any domestic or foreign state, province, commonwealth, city,
county, municipality, territory, protectorate, possession,
court, tribunal, agency, government, department, commission,
arbitrator, board, bureau, or instrumentality thereof.

"Liabilities" shall mean all debts, obligations, and
other liabilities of a Person (whether absolute, accrued,
contingent, fixed, or otherwise, or whether due or to become
due).

"Lien" shall mean any mortgage, pledge, assessment,
security interest, lease, sublease, lien, adverse claim,
levy, charge, or other encumbrance of any kind, or any
conditional sale Contract, title retention Contract, or
other Contract to give any of the foregoing.

"Life Subsidiary" shall mean each Subsidiary that files
federal Income Tax Returns on the basis that such Subsidiary
is a life insurance company within the meaning of Section
816 of the Code.

"MAP Agreement" shall mean the Data Processing Agree-
ment dated as of February 15, 1994 between Heritage Life and
Management Applied Programming, Inc.

"Material Adverse Effect" shall mean a material adverse
effect on the Business or Condition of the Company and the
Subsidiaries taken as a whole.

<PAGE> 14
"Multiemployer Plan" shall have the meaning ascribed to
it in SECTION 3.16(A) hereof.

"Multiple Employer Plan" shall have the meaning
ascribed to it in SECTION 3.16(A) hereof.

"Other Taxes" shall mean all Taxes other than Income
Taxes.

"Other Tax Return" shall mean any Tax Return required
to be supplied to a taxing authority in connection with
Other Taxes.

"PBGC" shall mean the Pension Benefit Guaranty Corpora-
tion established under ERISA.

"P&C Subsidiary" shall mean each Subsidiary that files
federal Income Tax Returns on the basis that such Subsidiary
is an insurance company within the meaning of Section 831 of
the Code.

"Person" shall mean any natural person, corporation,
general partnership, limited partnership, proprietorship,
trust, or other entity.

"Phase III Tax Reimbursement" shall equal $984,563.

"Post-Closing Period" shall have the meaning ascribed
to it in SECTION 10.6(C) hereof.

"Pre-Closing Period" shall have the meaning ascribed to
it in SECTION 10.6(C) hereof.

"Purchase Price" shall have the meaning ascribed to it
in SECTION 2.2(A) hereof.

"Purchaser" shall mean General Electric Capital
Corporation, a New York corporation.

"Purchaser Party" shall mean the Purchaser, any
Affiliate of the Purchaser (including each of the Company
and the Subsidiaries after the Closing), or any officer,
director, or employee of the Purchaser or of any Affiliate
of the Purchaser.

"Quaker State" shall mean Quaker State Corporation, a
Delaware corporation.

<PAGE> 15
"Quarterly Statement" shall mean, with respect to a
specified Insurance Subsidiary, the quarterly statement of
such Insurance Subsidiary filed with or submitted to the
insurance regulatory authority in the state in which such
Insurance Subsidiary is domiciled on forms prescribed or
permitted by such authority.

"Realized" shall have the meaning ascribed to it in
SECTION 10.6(C) hereof.

"Release" shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching, or migration (including without
limitation, sudden, non-sudden, accidental, or non-
accidental) into the indoor or outdoor environment or into
or out of any property owned, operated, or leased by the
Company or any Subsidiary, including the movement of any
Hazardous Materials or other substances through or in the
air, soil, surface water, ground water, or property.

"SAP" shall mean the statutory accounting practices
required or permitted by the insurance regulatory authority
in the State of Florida in the case of Heritage Mechanical
and in their respective jurisdictions of domicile in the
case of the Insurance Subsidiaries, consistently applied
throughout the specified period and in the immediately prior
comparable period.

"Section 338 Liabilities" shall have the meaning
ascribed to it in SECTION 12.1(D) hereof.

"Section 807 Taxes" shall mean any and all Taxes
attributable to an adjustment under Section 807 of the Code
made with respect to a taxable period ending on or before
the Closing Date.

"Sellers" shall mean Quaker State and Holding.

"Seller Benefit Plans" shall have the meaning ascribed
to it in SECTION 3.16(A) hereof.

"Seller Consolidated or Combined Returns" shall have
the meaning ascribed to it in SECTION 10.5(E) hereof.

"Seller Party" shall mean the Sellers, any Affiliate of
the Sellers, or any officer, director, or employee of the
Sellers or of any Affiliate of the Sellers.

9
<PAGE> 16
"Service Contract" shall mean any Contract pursuant to
which the Company or any Subsidiary has agreed to indemnify,
reimburse, or pay for service performed on any product.

"Settlement Auditor" shall mean Ernst & Young or if
such firm is unable or unwilling to serve as Settlement
Auditor, such other of the "Big Six" nationally recognized
independent auditing firms (other than the regular auditing
firms for the Purchaser, the Sellers, the Company, or any
Subsidiary) that the Purchaser and the Sellers may agree
upon.

"Shares" shall mean 1,000 shares of common stock of the
Company, constituting all the issued and outstanding shares
of capital stock of the Company.

"Statement" shall have the meaning ascribed to it in
SECTION 10.5(B) hereof.

"Subsidiaries" shall mean the corporations listed on
EXHIBIT C hereto.

"Subsidiary Stock Basis" shall have the meaning
ascribed to it in SECTION 12.1(D) hereof.

"Tax Allocation Agreement" shall mean the Tax
Allocation Agreement dated October 19, 1992, as amended by
amendment dated March 3, 1994, between Quaker State, the
Company, and the Subsidiaries.

"Taxes" shall mean all taxes, charges, fees, levies, or
other similar assessments or Liabilities, including without
limitation (a) income, gross receipts, ad valorem, premium,
excise, real property, personal property, windfall profit,
sales, use, transfer, licensing, import, export,
withholding, employment, payroll, medicare, Phase III,
estimated and franchise taxes imposed by the United States
of America, any state, local, or foreign government, or any
subdivision, agency, or other similar Person of the United
States, or any such government; and (b) any interest, fines,
penalties, assessments, or additions to tax resulting from,
attributable to, or incurred in connection with any such tax
or any contest or dispute thereof.

"Tax Benefit" shall have the meaning ascribed to it in
SECTION 10.6(C) hereof.

<PAGE> 17
"Tax Claim" shall have the meaning ascribed to it in
SECTION 10.5(C) hereof.

"Tax Detriment" shall have the meaning ascribed to it
in SECTION 10.6(C) hereof.

"Tax Returns" shall mean any report, return, statement,
or other information required to be supplied to a taxing
authority in connection with Taxes.

"WARN" shall mean the Worker Adjustment and Retraining
Notification Act and any similar state or local "plant
closing" law.

"Wescal Settlement Agreement" shall mean the Settlement
Agreement, dated December 30, 1993, between Wescal and
Heritage Life Insurance Company.

"Year End GAAP Financial Statements" shall mean the
audited GAAP consolidated balance sheet of the Company and
its consolidated subsidiaries as of December 31, 1993 and
the related unaudited statements of income, shareholders'
interest, and cash flow of the Company and its consolidated
subsidiaries for the year then ended.

"Year End SAP Financial Statements" shall mean the
Annual Statement of each of Heritage Life and Heritage
Indemnity as of and for the year ended December 31, 1993.

Unless the context of this Agreement otherwise
requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number
also include the plural or singular number, respectively;
(c) the terms "hereof," "herein," "hereby," "hereto," and
derivative or similar words refer to this entire Agreement;
(d) the terms "ARTICLE" or "Section" refer to the specified
ARTICLE or Section of this Agreement; (e) the term "or"
means "and/or"; (f) the term "party" means, on the one hand,
the Purchaser, and on the other hand, the Sellers; (g) the
phrase "in the ordinary course of business and consistent
with past practice" refers to the business, operations,
affairs, and practice of the Company or the Subsidiaries, as
the case may be, in each case consistent with past practices
of such business, operations, and affairs and consistent
with all applicable Laws; (h) the phrase "commercially
reasonable efforts" does not include the expenditure of
funds other than customary expenditures in the ordinary

<PAGE> 18
course of business; and (i) all references to "dollars" or
"$" refer to currency of the United States of America.

ARTICLE II

SALE OF SHARES AND CLOSING

2.1 PURCHASE AND SALE OF SHARES. Subject to the terms
and conditions, and in reliance upon the representations and
warranties, set forth in this Agreement, Holding agrees to
sell the Shares to the Purchaser and the Purchaser agrees to
purchase the Shares from Holding.

2.2 PURCHASE PRICE.

(a) The aggregate purchase price (the "Purchase
Price") for the Shares shall be (i) $85 million if the
Purchaser requests, pursuant to SECTION 5.15 hereof, Quaker
State to repay in full the Intercompany Indebtedness; or
(ii) $82 million if the Purchaser requests, pursuant to
SECTION 5.15 hereof, Heritage Life to forgive the
Intercompany Indebtedness. The Purchase Price will be
payable to Holding in cash at the Closing and will be
subject to adjustment as provided in SECTION 2.2(B) hereof.

(b) After the Closing, the Purchase Price will be
reduced as follows:

(i) If the Closing occurs on or before
June 30, 1994, the Purchase Price will be reduced by
the amount, if any, by which the Final Interim Earnings
exceed $4.6 million.

(ii) If the Closing occurs after June 30,
1994, the Purchase Price will be reduced by the amount,
if any, by which the Final Interim Earnings exceed the
sum of $4.6 million plus $800,000 for each calendar
month between July 1, 1994 and the Closing Date (pro-
rated for partial calendar months).

Any such adjustment will be payable by the Sellers to the
Purchaser, by wire transfer of immediately available funds,
within one business day after the determination of Final
Interim Earnings.

<PAGE> 19
2.3 FINAL INTERIM EARNINGS.

(a) As promptly as practicable after the Closing Date,
the Purchaser will deliver to the Sellers a copy of the
Interim Income Statement together with the Purchaser's
calculation of Interim Earnings. If the Purchaser's
calculation of Interim Earnings is less than or equal to
$4.6 million or, if applicable, the sum determined pursuant
to SECTION 2.2(B)(II) hereof, such calculation of Interim
Earnings will be deemed to be Final Interim Earnings.

(b) Within 30 business days after the Sellers' receipt
of the Interim Income Statement, if the Purchaser's
calculation of Interim Earnings exceeds $4.6 million or, if
applicable, the sum determined pursuant to SECTION
2.2(B)(II) hereof, the Sellers will provide the Purchaser
with written notice indicating whether the Sellers agree or
disagree with the Purchaser's calculation of Interim
Earnings. During such 30-day period, the Purchaser will
promptly provide to the Sellers (or their representatives)
such financial records and work papers of the Purchaser
relating to the Purchaser's calculation of Interim Earnings
as the Sellers may reasonably request. If the Sellers agree
with the Purchaser's calculation of Interim Earnings, or if
the Sellers fail to deliver to the Purchaser such written
notice within such 30-day period, the Purchaser's
calculation of Interim Earnings will be deemed to be Final
Interim Earnings.

(c) Within five business days after the Purchaser's
receipt of any notice of the Sellers' disagreement with the
Purchaser's calculation of Interim Earnings, the Purchaser
and the Sellers will begin good faith negotiations to
resolve such disagreement. If the Purchaser and the Sellers
are able to resolve such disagreement within ten business
days after such negotiations begin, the Purchaser's
calculation of Interim Earnings will be adjusted accordingly
to reflect such resolution and, as adjusted, will be deemed
to be Final Interim Earnings. If the Purchaser and the
Sellers are unable to resolve such disagreement within ten
business days after such negotiations begin, such
disagreement will be submitted to the Settlement Auditor for
resolution. The Purchaser and the Sellers will cooperate
with the Settlement Auditor to resolve such disagreement as
promptly as practicable. Each of the Purchaser and the
Sellers will pay one-half of the fees and expenses of the
Settlement Auditor.

<PAGE> 20
(d) The Settlement Auditor, in its sole discretion,
will determine (i) the nature and extent of the
participation by the Purchaser, the Sellers, and their
respective independent auditors in connection with the
resolution of any disagreement submitted to the Settlement
Auditor, (ii) the nature and extent of information that the
Purchaser and the Sellers may submit to the Settlement
Auditor for consideration in connection with such
resolution, and (iii) the personnel of the Settlement
Auditor who will review such information and resolve such
disagreement. The Settlement Auditor's resolution of any
such disagreement will be reflected in a written report
which will be delivered promptly to, and will be final and
binding upon, the Purchaser and the Sellers. The
Purchaser's calculation of Interim Earnings will be adjusted
accordingly to reflect such resolution and, as adjusted,
will be deemed to be Final Interim Earnings.

(e) Simultaneously with the Purchaser's delivery of
the Interim Income Statement, the Purchaser will deliver to
the Sellers its good faith calculation (which shall be made
in a manner consistent with Quaker State's prior practice)
of all Liabilities due from the Company or any Subsidiary to
Quaker State pursuant to the Tax Allocation Agreement for
the period beginning on January 1, 1994 and ending on the
Closing Date, setting forth (with reasonable specificity)
the bases for such calculation. Within 45 business days
after the Sellers' receipt thereof, the Sellers will provide
the Purchaser with written notice indicating whether the
Sellers agree or disagree with the Purchaser's calculation
of such Liabilities. If the Sellers agree with the
Purchaser's calculation of such Liabilities or if the
Sellers fail to deliver such written notice within such 45-
day period, the Company will pay to the Sellers the amount
of the Purchaser's calculation of such Liabilities within
five business days of such written notice of agreement or
the expiration of such 45-day period, and neither the
Purchaser, the Sellers, the Company, nor any Subsidiary
shall have any further Liability under the Tax Allocation
Agreement. If the Sellers provide written notice to the
Purchaser of any disagreement with the Purchaser's
calculation of such Liabilities, setting forth (with
reasonable specificity) the bases therefor, the Purchaser
and the Sellers will begin good faith negotiations to
resolve such disagreement. If the Purchaser and the Sellers
are able to resolve such disagreement within ten business
days after the Purchaser's receipt of notice of
disagreement, the Purchaser's calculation of such

<PAGE> 21
Liabilities will be adjusted accordingly to reflect such
resolution, the Company will pay to the Sellers the adjusted
amount within five business days after such resolution, and
neither the Purchaser, the Sellers, the Company, nor any
Subsidiary will have any further Liability under the Tax
Allocation Agreement. If the Purchaser and the Sellers are
unable to resolve any disagreement within ten business days
after the Purchaser's receipt of notice of disagreement, the
Purchaser and the Sellers will jointly request the
Settlement Auditor to resolve (in accordance with SECTIONS
2.3(D)(I), (II), and (III) hereof) any issue in dispute as
promptly as possible and will cooperate with the Settlement
Auditor to resolve such dispute. The Settlement Auditor
will make a determination with respect to any disputed
issue, and the amount of such Liabilities will be as
determined by the Settlement Auditor. Within five business
days after the Settlement Auditor's determination, the
Company will pay to the Sellers the amount determined by the
Settlement Auditor, and neither the Purchaser, the Sellers,
the Company, nor any Subsidiary will have any further
Liability under the Tax Allocation Agreement. Each of the
Purchaser and the Sellers will pay one-half of the fees and
expenses of the Settlement Auditor. No payment pursuant to
this SECTION 2.3(E) will affect any Purchaser Party's right
to indemnification pursuant to SECTION 10.5(A) hereof should
the amount of Taxes as ultimately determined (on audit or
otherwise), for the period beginning on January 1, 1994 and
ending on the Closing Date, exceed the amount determined
under this SECTION 2.3(E).

2.4 CLOSING.

(a) The Closing will take place at the offices of
Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York
10153, at 10:00 a.m., local time on the Closing Date.

(b) At the Closing, the Purchaser will (i) pay the
Purchase Price to Holding by wire transfer of immediately
available funds to such account as Holding specifies to the
Purchaser in writing at least two business days before the
Closing Date; and (ii) deliver to the Sellers such documents
and instruments required to be delivered by the Purchaser
under the terms of this Agreement.

(c) At the Closing, the Sellers will deliver to the
Purchaser (i) a certificate or certificates representing all
the Shares in appropriate form for transfer to the Purchaser
or accompanied by stock powers duly executed in blank; and

<PAGE> 22
(ii) such other documents and instruments required to be
delivered by the Sellers under the terms of this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLERS

The Sellers hereby jointly and severally represent and
warrant to the Purchaser as follows:

3.1 ORGANIZATION OF THE SELLERS. Each of Quaker State
and Holding is a corporation duly organized, validly
existing, and in good standing under the Laws of the State
of Delaware and has full corporate power and authority to
enter into this Agreement and to perform its obligations
under this Agreement.

3.2 AUTHORITY. The execution and delivery of this
Agreement by each Seller and the performance by such Seller
of its obligations under this Agreement have been duly and
validly authorized by all necessary corporate action on the
part of such Seller. This Agreement constitutes a legal,
valid, and binding obligation of each Seller and is
enforceable against such Seller in accordance with its
terms, except to the extent that (a) enforcement may be
limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium, or similar Laws now or hereafter
in effect relating to or limiting creditors' rights
generally and (b) the remedy of specific performance and
injunctive and other forms of equitable relief are subject
to certain equitable defenses and to the discretion of the
court or other similar Person before which any proceeding
therefor may be brought.

3.3 ORGANIZATION OF THE COMPANY AND THE SUBSIDIARIES.
Each of the Company and the Subsidiaries is a corporation
duly organized, validly existing, and in good standing under
the Laws of the jurisdiction set forth opposite such
entity's name on SECTION 3.3 of the disclosure schedule. To
the Knowledge of the Sellers, SECTION 3.3 of the Disclosure
Schedule contains a true and complete list of all
jurisdictions in which the Sellers, the Company, or any
Subsidiary has been notified in writing that an Insurance
Subsidiary is deemed to be commercially domiciled. To the
Knowledge of the Sellers, each of the Company and the
Subsidiaries is duly qualified or admitted to do business
and is in good standing as a foreign corporation in all

16
<PAGE> 23
jurisdictions in which the ownership, use, or leasing of its
Assets or the conduct or nature of its business makes such
qualification or admission necessary, except where the
failure to be so qualified or admitted and in good standing,
individually or in the aggregate with other such failures,
does not have or cannot reasonably be expected to have a
Material Adverse Effect. To the Knowledge of the Sellers,
SECTION 3.3 of the Disclosure Schedule contains a true and
complete list of all jurisdictions in which each of the
Company and the Subsidiaries is qualified or admitted to do
business as a foreign corporation.

3.4 CAPITAL STOCK. SECTION 3.4 of the Disclosure
Schedule contains a true and complete list of the
authorized, issued, and outstanding capital stock of each of
the Company and the Subsidiaries. All issued and
outstanding shares of capital stock of each of the Company
and the Subsidiaries are duly authorized, validly issued,
fully paid, nonassessable, and are owned beneficially and of
record as disclosed in SECTION 3.4 of the Disclosure
Schedule, free and clear of all Liens, other than Liens with
respect to state or local Taxes that are not yet due or
remain payable without penalty. The Shares constitute all
of the issued and outstanding capital stock of the Company.
Except as disclosed in SECTION 3.4 of the Disclosure
Schedule, there are no outstanding securities, obligations,
rights, subscriptions, warrants, options, phantom stock
rights, or (except for this Agreement) other Contracts that
give any Person the right to (a) purchase or otherwise
receive or be issued any shares of capital stock of the
Company or any Subsidiary or any security or Liability of
any kind convertible into or exchangeable for any shares of
capital stock of the Company or any Subsidiary or
(b) participate in the equity, income, or election of
directors or officers of the Company or any Subsidiary.

3.5 NO SUBSIDIARIES. Except for the Subsidiaries and
except as disclosed in SECTION 3.5 of the Disclosure
Schedule, (a) to the Knowledge of the Sellers, neither the
Company nor any Subsidiary owns the majority of the
outstanding voting capital stock of any Person or otherwise
controls any Person (excluding individuals), whether
directly or indirectly, whether through the ownership of
securities or proxy, or whether alone or in combination with
others; and (b) the Sellers have no other Affiliate (other
than the Company) that uses the word "Heritage" in its name.

<PAGE> 24
3.6 NO CONFLICTS OR VIOLATIONS. To the Knowledge of
the Sellers, the execution and delivery of this Agreement by
each Seller does not, and the performance by such Seller of
its obligations under this Agreement will not:

(a) subject to obtaining the approvals
contemplated by SECTIONS 5.1, 5.2, 6.1, and 6.2 hereof,
violate any term or provision of any Law (including
without limitation all applicable securities Laws but
excluding any antitrust Laws other than the HSR Act) or
any writ, judgment, decree, injunction, or similar
order applicable to the Sellers, the Company, or any
Subsidiary;

(b) conflict with or result in a violation or
breach of, or constitute (with or without notice or
lapse of time or both) a default under, any of the
terms, conditions, or provisions of the articles or
certificate of incorporation or bylaws of either
Seller, the Company, or any Subsidiary;

(c) result in the creation or imposition of any
Lien upon the Company or any Subsidiary or any of their
respective Assets which Lien individually or in the
aggregate with other Liens has or may reasonably be
expected to have a Material Adverse Effect;

(d) conflict with or result in a violation or
breach of, or constitute (with or without notice or
lapse of time or both) a default under, or give to any
Person any right of termination, cancellation,
acceleration, or modification in or with respect to,
any material Contract to which either Seller, the
Company, or any Subsidiary is a party or by which any
of their respective Assets may be bound, except as
disclosed in SECTION 3.6(D) of the Disclosure Schedule;

(e) require either Seller, the Company, or any
Subsidiary to obtain any consent, approval, or action
of, or make any filing with or give any notice to, any
Person, except (i) as disclosed in SECTION 3.6(E) of
the Disclosure Schedule, (ii) as contemplated in
SECTION 5.1, 5.2, 6.1, or 6.2 hereof, or (iii) those
which the failure to obtain, make, or give individually
or in the aggregate with other such failures does not
have or cannot reasonably be expected to have a
Material Adverse Effect or a material adverse effect on

<PAGE> 25
the validity or enforceability of this Agreement or on
the ability of the Sellers to perform their obligations
under this Aqreement.

3.7 BOOKS AND RECORDS. Except as disclosed in SECTION
3.7 of the Disclosure Schedule, to the Knowledge of the
Sellers, the minute books and other similar records of each
of the Company and the Subsidiaries contain a true and
complete record, in all material respects, of all actions
taken since January 1, 1991 at all meetings and by all
written consents in lieu of meetings of each of the
Company's and the Subsidiaries' stockholders, boards of
directors, and committees thereof. To the Knowledge of the
Sellers, such books and records have been maintained, in all
material respects, in accordance with good business and
bookkeeping practices.

3.8 GAAP STATEMENTS. The Sellers have previously
delivered to the Purchaser true and complete copies of the
following:

(a) the unaudited GAAP consolidated balance
sheets of the Company and its consolidated subsidiaries
as of December 31, 1991 and 1992 and the related
unaudited statements of income, shareholders' interest,
and cash flow of the Company and its consolidated
subsidiaries for each of the years then ended;

(b) the Year End GAAP Financial Statements; and

(c) the unaudited GAAP consolidating financial
statements of the Company and its consolidated
subsidiaries as of and for the year ended December 31,
1993 showing in reasonable detail the manner in which
the corresponding consolidated financial statements
were consolidated.

Except as disclosed in SECTION 3.8 of the Disclosure
Schedule, each such financial statement was prepared in
accordance with GAAP (except for the absence of notes) and
presents fairly the financial position of the Company and
its consolidated subsidiaries as of the respective dates
thereof and the related results of operations and cash flow
and shareholders' interest of the Company and its
consolidated subsidiaries for the respective periods covered
thereby.

<PAGE> 26
3.9 SAP STATEMENTS. The Sellers have previously
delivered to the Purchaser true and complete copies of the
following:

(a) the Annual Statements for each Insurance
Subsidiary as of and for the years ended December 31,
1991 and 1992;

(b) the Year End SAP Financial Statements;

(d) each Annual Statement that, to the Knowledge
of the Sellers, was filed in 1991, 1992, or 1993
separately or supplementally with any insurance
regulatory authority and which differs from the Annual
Statement for such year filed in the jurisdiction of
domicile of such Insurance Subsidiary; and

(e) the audited SAP balance sheet of each
Insurance Subsidiary as of December 31, 1990, 1991, and
1992 and the related audited summary of operations and
statements of change in capital and surplus and cash
flow of such Insurance Subsidiary for each of the years
then ended, together with the notes related thereto and
the reports thereon of Coopers & Lybrand.

To the Knowledge of the Sellers, each such statement
complied in all material respects with all applicable Laws
when so filed, and all material deficiencies with respect to
any such statement, of which the Sellers had Knowledge, have
been cured or corrected. Each statement (and the notes
related thereto) referred to in SECTION 3.9(A), (B), (C),
and (E) hereof was prepared in accordance with SAP and
presents fairly the financial position of the respective
Subsidiaries as of the respective dates thereof and the
related summaries of operations and changes in capital and
surplus and cash flow of the respective Subsidiaries for the
respective periods covered thereby. To the Knowledge of the
Sellers, each statement (including the notes related
thereto) referred to in SECTION 3.9(D) hereof was prepared
in accordance with the statutory accounting practices
required by the insurance regulatory authority in the
jurisdiction in which such statement was filed.

<PAGE> 27
3.10 RESERVES. To the Knowledge of the Sellers:

(a) Each statutory reserve and other similar
amount with respect to insurance, annuities, and
Service Contracts as established or reflected in the
respective December 31, 1993 Annual Statements of
Heritage Mechanical and the Insurance Subsidiaries (i)
was determined in accordance with SAP and generally
accepted actuarial assumptions, (ii) is in accordance
with the related Service Contracts, insurance policies,
and annuity Contracts and the related reinsurance,
coinsurance, and other similar Contracts of Heritage
Mechanical and the Insurance Subsidiaries, and (iii)
meets the requirements of the insurance Laws of each
applicable jurisdiction.

(b) Each reserve and other similar amount with
respect to Service Contracts as established or
reflected in the Year End GAAP Financial Statements was
determined in accordance with GAAP and reasonable
assumptions.

To the Knowledge of the Sellers, each of Heritage Mechanical
and the Insurance Subsidiaries owns assets that qualify as
legal reserve assets under applicable insurance Laws in an
amount at least equal to all such statutory reserves and
other similar amounts of such Subsidiary. Nothing contained
in this SECTION 3.10 will constitute a guaranty by the
Sellers of the adequacy of such reserves and other similar
amounts.

3.11 ABSENCE OF CHANGES. To the Knowledge of the
Sellers, since December 31, 1993, there has not been,
occurred, or arisen any change in the Business or Condition
of the Company or the Subsidiaries, except as disclosed in
SECTION 3.11 of the Disclosure Schedule; except for such
changes that individually or in the aggregate do not have or
cannot reasonably be expected to have a Material Adverse
Effect; and except for changes resulting from events,
changes, or effects of a general national or global scope.
To the Knowledge of the Sellers, except as disclosed in
SECTION 3.11 of the Disclosure Schedule, since December 31,
1993, each of the Company and the Subsidiaries has operated
only in the ordinary course of business and consistent with
past practice, and (without limiting the generality of the
foregoing) there has not been, occurred, or arisen:

<PAGE> 28
(a) any declaration, setting aside, or payment of
any dividend or other distribution in respect of the
capital stock of the Company or any Subsidiary or any
direct or indirect redemption, purchase, or other
acquisition by the Company or any Subsidiary of any
such stock or of any interest in or right to acquire
any such stock;

(b)(i) any employment, deferred compensation, or
other salary, wage, or compensation Contract entered
into between the Company or any Subsidiary and any of
its officers, directors, employees, agents,
consultants, or similar representatives, except in the
ordinary course of business and consistent with past
practice, (ii) any increase in the salary, wages, or
other compensation of any kind, whether current or
deferred, of any officer, director, or employee of the
Company or any Subsidiary, other than increases that
were made in the ordinary course of business and
consistent with past practice and that did not result
in an increase of more than 5% of the respective
salary, wages, or compensation of any such Person, or
(iii) any creation of any material Company Employee
Benefit Plan or any material contribution (other than
contributions in the ordinary course of business and
consistent with past practice), amendment, or
modification to any Company Employee Benefit Plan;

(c) any issuance, sale, or disposition by the
Company or any Subsidiary of any debenture, note,
stock, or other security issued by the Company or any
Subsidiary or any modification or amendment of any
right of the holder of any outstanding debenture, note,
stock, or other security issued by the Company or any
Subsidiary;

(d) any Lien created on or in any of the Assets
of the Company or any Subsidiary or any Lien assumed by
the Company or any Subsidiary with respect to any of
such Assets (other than Liens arising from Taxes that
are not yet due or remain payable without penalty or
are being contested in good faith and by appropriate
proceedings and for which adequate current reserves
have been established), which Lien secures Liabilities
that individually or in the aggregate exceed $250,000
or has or may reasonably be expected to have a Material
Adverse Effect:

<PAGE> 29
(e) any Liability involving the borrowing of
money or the incurrence of any deferred purchase price
obligation (other than trade credit incurred in the
ordinary course of business and consistent with past
practice) by the Company or any Subsidiary;

(f) any Liability incurred by the Company or any
Subsidiary in any transaction (other than pursuant to
any Service Contract, insurance policy, reinsurance
Contract, or annuity Contract) not involving the
borrowing of money which individually or in the
aggregate has or may reasonably be expected to have a
Material Adverse Effect;

(g) any damage, destruction, or loss (whether or
not covered by insurance) affecting any of the Assets
of the Company or any Subsidiary (other than claims
under any Service Contracts, insurance policies, or
annuity Contracts issued by any of the Subsidiaries),
which damage, destruction, or loss individually or in
the aggregate exceeds $250,000 or has or may reasonably
be expected to have a Material Adverse Effect;

(h) any work stoppage, strike, or union
organizational campaign (in process or threatened) at
or affecting the Company or any Subsidiary;

(i) any material change in any underwriting,
actuarial, investment, financial reporting, Tax, or
accounting practice or policy followed by the Company
or any Subsidiary or in any assumption underlying such
a practice or policy, or in any method of calculating
any bad debt, contingency, or other reserve for
financial reporting purposes or for any other tax or
accounting purposes;

(j) any payment, prepayment, discharge, or
satisfaction by the Company or any Subsidiary of any
Lien or Liability other than Liens or Liabilities that
were paid, discharged, or satisfied in the ordinary
course of business and consistent with past practice;

(k) any cancellation of any material Liability
owed to the Company or any Subsidiary by any other
Person

(l) any write-off or write-down of, or any
determination to write off or write down, the Assets of

<PAGE> 30
the Company or any Subsidiary or any portion thereof,
except for write-offs or write-downs that do not exceed
$250,000 individually or in the aggregate;

(m) any sale, transfer, or conveyance of any
investments, or any other Assets, of the Company or any
Subsidiary with a book value that individually or in
the aggregate exceeds $500,000, except in the ordinary
course of business and consistent with past practice
and except for sales of investments in accordance with
SECTION 5.7 hereof;

(n) any amendment, termination, waiver, disposal,
or lapse of, or other failure to preserve, any license,
permit, or other form of authorization of the Company
or any Subsidiary, the result of which individually or
in the aggregate has or may reasonably be expected to
have a Material Adverse Effect;

(o) any transaction or arrangement under which
the Company or any Subsidiary paid, lent, or advanced
any amount to or in respect of, or sold, transferred,
or leased any of its Assets or any services to,
(i) either Seller, (ii) any officer or director of the
Company, of any Subsidiary, of either Seller, or of any
Affiliate of either Seller (other than the Company or
the Subsidiaries), or (iii) any Affiliate of either
Seller (other than the Company or the Subsidiaries), of
the Company, or of any Subsidiary, except for payments
of salaries, wages, and other employee benefits to
officers or directors of the Company or any Subsidiary
in the ordinary course of business and consistent with
past practice and except for advances made to, or
reimbursements of, officers or directors of the Company
or any Subsidiary for travel and other business
expenses in reasonable amounts in the ordinary course
of business and consistent with past practice;

(p) any material amendment of, failure to perform
any of its obligations under, default under, waiver of
any right under, or termination (other than on the
stated expiration date) of, any Contract (other than
Contracts with Insurance Agents) that involves or may
reasonably be expected to involve the annual
expenditure or receipt by the Company or any Subsidiary
of more than $250,000 or that individually or in the
aggregate is material to the Business or Condition of
the Company and the Subsidiaries taken as a whole;

<PAGE> 31
(q) any decrease in the amount of, or any change
in the nature of, the Service Contracts, insurance
policies, or annuity Contracts in force of any
Subsidiary or any material change in the amount or
nature of the statutory reserves or other similar
amounts of any Subsidiary with respect to Service
Contracts, insurance policies, and annuity Contracts,
which decrease or change has or may reasonably be
expected to have a Material Adverse Effect;

(r) any amendment to the articles or certificate
of incorporation or bylaws of the Company or any
Subsidiary;

(s) any termination, amendment, or execution by
any Subsidiary of any material reinsurance,
coinsurance, or other similar Contract, as ceding or
assuming insurer;

(t) any expenditure or commitment for additions
to property, plant, or equipment of the Company or any
Subsidiary, which expenditure or commitment exceeds
$100,000 individually or in the aggregate;

(u) any amendment or introduction by any
Subsidiary of any insurance policy, Service Contract,
or annuity Contract other than in the ordinary course
of business and consistent with past practice;

(v) any change in any marketing relationship
between the Company or any Subsidiary and any other
Person through which the Company or the Subsidiaries
sell insurance policies, Service Contracts, or annuity
Contracts, which change individually or in the
aggregate has or may reasonably be expected to have a
Material Adverse Effect; or

(w) any Contract to take any of the actions
described in this SECTION 3.11 other than actions
expressly permitted under this SECTION 3.11.

3.12 NO UNDISCLOSED LIABILITIES. To the Knowledge of
the Sellers, there were no Liabilities against, relating to,
or affecting the Company or any Subsidiary as of
December 31, 1993 that are of a type required to be
disclosed on a balance sheet (or in the notes related
thereto) prepared in accordance with GAAP, except (a)
policyholder benefits payable in the ordinary course of

<PAGE> 32
business and consistent with past practice, (b) as disclosed
in SECTION 3.12 of the Disclosure Schedule, or (c) reflected
on the Year End GAAP Financial Statements. To the Knowledge
of the Sellers, since December 31, 1993, neither the Company
nor any Subsidiary has incurred any Liabilities, except (i)
as disclosed in SECTION 3.12 of the Disclosure Schedule, and
(ii) policyholder benefits payable, or other Liabilities
incurred, in the ordinary course of business and consistent
with past practice.

3.13 TAXES. To the Knowledge of the Sellers, except as
disclosed in SECTION 3.13 of the Disclosure Schedule:

(a) All Income Tax Returns and all material Other
Tax Returns required to be filed by or with respect to
each of the Company and the Subsidiaries have been duly
and timely filed, and all such Tax Returns are true and
complete in all material respects. Each of the Company
and the Subsidiaries (i) has duly and timely paid (or
there has been paid on their behalf) all material Taxes
that are due, or claimed or asserted by any taxing
authority to be due, from or with respect to it for the
periods covered by such Tax Returns or (ii) has duly
provided for all such Taxes in its Year End GAAP
Financial Statements and Year End SAP Financial
Statements. With respect to any period for which Tax
Returns have not yet been filed, or for which Taxes are
not yet due or owing, the Company or the Subsidiaries,
as the case may be, has made due and sufficient current
accruals for such Taxes in its Year End GAAP Financial
Statements and Year End SAP Financial Statements. Each
of the Company and the Subsidiaries has made (or there
has been made on their behalf) all required material
estimated Tax payments sufficient to avoid any
underpayment penalties.

(b) There are no Liens with respect to Taxes upon
any of the Assets of the Company or any Subsidiary,
other than Liens with respect to Taxes that are not yet
due or remain payable without penalty or are being
contested in good faith and by appropriate proceedings
and for which adequate current reserves have been
established in accordance with GAAP.

(c) The statutory period for the assessment of
Taxes with respect to the United States federal Income
Tax Returns of each of the Company and the Subsidiaries
and of each affiliated group (within the meaning of the

<PAGE> 33
Code) of which the Company or any Subsidiary is or has
been a member for all periods through the respective
years specified in SECTION 3.13(C) of the Disclosure
Schedule has expired. The statutory period for the
assessment of Taxes with respect to the state, local,
and foreign Tax Returns of each of the Company and the
Subsidiaries and of each affiliated, consolidated,
combined, or unitary group of which the Company or any
Subsidiary is or has been a member for all periods
through the respective years specified in SECTION
3.13(C) of the Disclosure Schedule has expired. No
issue relating to the Company or any Subsidiary has
been raised in writing by any taxing authority in any
audit or examination with respect to taxable periods of
the Company or any Subsidiary ending on or after
December 31, 1984, which, by application of the same or
similar principles, could reasonably be expected to
result in a material deficiency for any subsequent
period (including periods subsequent to the Closing
Date). There are no outstanding agreements, waivers,
or arrangements extending the statutory period of
limitation applicable to any claim for, or the period
for the collection or assessment of, Taxes due from or
with respect to the Company or any Subsidiary for any
taxable period, and no power of attorney granted by the
Company or any Subsidiary with respect to Taxes is
currently in force. No closing agreement pursuant to
Section 7121 of the Code (or any predecessor provision)
or any similar provision of any state, local, or
foreign Law has been entered into by or with respect to
the Company or any Subsidiary.

(d) The Sellers have previously made available to
the Purchaser true and complete copies of each of
(i) any written audit reports issued by any taxing
authority within the last three years relating to the
United States federal, state, local, or foreign Taxes
due from or with respect to each of the Company and the
Subsidiaries and (ii) the United States federal, state,
local, and foreign Tax Returns, for each of the last
three taxable years, filed by each of the Company and
the Subsidiaries or (insofar as such returns relate to
the Company or any Subsidiary) filed by any affiliated,
consolidated, combined, or unitary group of which the
Company or any Subsidiary was then a member.

(e) No audit or other proceeding by any court,
governmental or regulatory authority, or similar Person

<PAGE> 34
is pending or (to the Knowledge of the Sellers)
threatened with respect to any Taxes due from or with
respect to the Company or any Subsidiary or any Tax
Return filed by or with respect to the Company or any
Subsidiary. No assessment of Tax (other than
assessments for Taxes not yet due) is proposed against
the Company or any Subsidiary or any of its Assets.

(f) No election under any of Sections 108, 168,
338, 441, 472, 1017, 1033, or 4977 of the Code (or any
predecessor provisions) is in effect with respect to
the Company or any Subsidiary. No consent to the
application of Section 341(f)(2) of the Code (or any
predecessor provision) has been made or filed by or
with respect to the Company or any Subsidiary or any of
its Assets. None of the Assets of the Company or any
Subsidiary is an asset or property that is or will be
required to be treated as being (i) owned by any Person
(other than the Company or the Subsidiaries) pursuant
to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect
immediately before the enactment of the Tax Reform Act
of 1986, or (ii) tax-exempt use property within the
meaning of Section 168(h)(1) of the Code.

(g) Neither the Company nor any Subsidiary is
currently subject to an agreement or requirement to
make any adjustment pursuant to Section 481(a) of the
Code (or any predecessor provision) by reason of any
change in any accounting method of the Company or such
Subsidiary, and there is no application pending with
any taxing authority requesting permission for any
changes in any accounting method of the Company or any
Subsidiary. The IRS has not proposed any such
adjustment or change in accounting method. SECTION
3.13(g) of the Disclosure Schedule sets forth all
adjustments under Section 807(f) and Section
807 (e) (7) (B) of the Code to which any Life Subsidiary
is subject.

(h) Neither the Company nor any Subsidiary has
been or is in violation (or with notice or lapse of
time or both, would be in violation) of any applicable
Law relating to the payment or withholding of Taxes.
Each of the Company and the Subsidiaries has duly and
timely withheld from employee salaries, wages, and
other compensation and paid over to the appropriate
taxing authorities all amounts required to be so

<PAGE> 35
withheld and paid over for all periods under all
applicable Laws.

(i) Except for the Tax Allocation Agreement and
except as specifically contemplated by this Agreement,
neither the Company nor any Subsidiary is a party to,
is bound by, or has any obligation under any Tax
sharing agreement or similar Contract. Notwithstanding
any disclosure contained in the Disclosure Schedule, at
the Closing, neither the Company nor any Subsidiary
will be a party to, be bound by, or have any obligation
under any Tax sharing agreement or similar Contract or
arrangement, except as specifically contemplated by
this Agreement.

(j) SECTION 3.13(j) of the Disclosure Schedule
sets forth the balance, as of December 31, 1993, of the
policyholders surplus account (as defined in Section
815 of the Code) of each Life Subsidiary.

(k) For the Tax year ended December 31, 1992, the
Sellers, the Company, and all the Subsidiaries (other
than the Foreign Subsidiaries) have joined in the
filing of a consolidated federal Income Tax Return.

(l) The insurance reserves with respect to
each Life Subsidiary set forth in all federal
Income Tax Returns of such Life Subsidiary for all
years since (and including) the year ended
December 31, 1984 were determined in all material
respects in accordance with Section 807 of the
Code.

(m) Except as disclosed in SECTION 3.13(m) of the
Disclosure Schedule, all life insurance contracts
issued by each Insurance Subsidiary that are subject to
Section 7702 of the Code qualify as "life insurance
contracts" within the meaning of Section 7702(a) of the
Code. No life insurance Contract issued by any
Insurance Subsidiary is a "modified endowment contract"
within the meaning of Section 7702A of the Code.

(n) All Contracts issued by each Life Subsidiary
that are subject to Section 817 of the Code have met
the diversification requirements applicable thereto
since the issuance of the Contract.

<PAGE> 36
(o) All annuity Contracts issued by each
Insurance Subsidiary that are subject to Section 72(s)
of the Code contain all of the necessary provisions of
Section 72(s) of the Code.

(p) Subject to Section 845(b) of the Code, each
Life Subsidiary is and for all taxable periods ending
on or after December 31, 1984 has been taxable as a
life insurance company within the meaning of Section
816 of the Code.

(q) There is no Contract, agreement, plan or
arrangement covering any Person that, individually or
collectively, could give rise to the payment of any
amount that would not be deductible by the Company or
any Subsidiary by reason of Section 280G of the Code.

(r) Neither Seller is a "foreign person" within
the meaning of Section 1445(b)(2) of the Code.

(s) The Tax treatment under the Code of all
insurance, annuity or investment policies, plans, or
Contracts; all financial products, employee benefit
plans, individual retirement accounts or annuities; or
any similar or related policy, Contract, plan, or
product, whether individual, group, or otherwise,
issued or sold by any of the Subsidiaries is and at all
times has been the same or not less favorable to the
purchaser, policyholder, or beneficiaries thereof than
the Tax treatment under the Code for which such
Contracts qualified or purported to qualify or which
the Subsidiaries represented could be obtained at the
time of its issuance, purchase, modification or
exchange, except to the extent that the Tax treatment
of any product of any Subsidiary is not less favorable
than the Tax treatment of substantially similar
products offered by other companies. For purposes of
this SECTION 3.13(s), the provisions of the Code
relating to the Tax treatment of such Contracts shall
include, but not be limited to, Sections 72, 79, 101,
104, 105, 106, 125, 130, 401, 402, 403, 404, 408, 412,
415, 419, 419A, 501, 505, 817, 818, 1035, 7702, and
7702A of the Code.

(t) The unpaid losses with respect to each
Insurance Subsidiary set forth in all federal Income
Tax Returns were based upon reasonable estimates and

<PAGE> 37
were discounted in all material respects in accordance
with Section 846 of the Code.

(u) Each P&C Subsidiary is, and for all taxable
periods ending on or after December 31, 1984 has been,
taxable as an insurance company for purposes of Section
831(a) of the Code.

(v) From and after August 15, 1984, the Sellers
have not filed with the IRS any request for a ruling
with respect to the Company, any Subsidiary, or any of
the products described in SECTION 3.13(s) hereof.

(w) No Foreign Subsidiary is, and for all taxable
periods ending on or after December 31, 1984 has been,
subject to taxation for Income Taxes or material Other
Taxes by any United States federal, state or local or
foreign governmental authority other than pursuant to
Sections 951 through 964 and 1296 of the Code.

For purposes of this SECTION 3.13, any reference to the
Company, a Subsidiary, an Insurance Subsidiary, a Life
Subsidiary, a P&C Subsidiary, or a Foreign Subsidiary shall
include any corporation (including without limitation
Sturdivant Life Insurance Company) which merged or was
liquidated with and into the Company, a Subsidiary, an
Insurance Subsidiary, a Life Subsidiary, a P&C Subsidiary,
or a Foreign Subsidiary.

3.14 LITIGATION. Except as disclosed in SECTION 3.14
of the Disclosure Schedule:

(a) There are no actions, suits, investigations,
arbitrations, or proceedings pending, or (to the
Knowledge of the Sellers) threatened, against either
Seller or any of their respective Assets, at law or in
equity, in, before, or by any Person, except such
actions, suits, investigations, arbitrations, or
proceedings that individually or in the aggregate do
not have or cannot reasonably be expected to have a
Material Adverse Effect or a material adverse effect on
the validity or enforceability of this Agreement or on
the ability of the Sellers to perform their obligations
under this Agreement.

(b) To the Knowledge of the Sellers, there are no
actions, suits, arbitrations, or regulatory
investigations or proceedings pending, or (to the

<PAGE> 38
Knowledge of the Sellers) threatened, against the
Company or any Subsidiary, or any of their respective
Assets, at law or in equity, in, before, or by any
Person, except such actions, suits, investigations,
arbitrations, or proceedings that individually or in
the aggregate do not have or cannot reasonably be
expected to have a Material Adverse Effect.

(c) There are no writs, judgments, decrees,
injunctions, or similar orders of any Person
outstanding against the Company or any Subsidiary or
any of their respective Assets.

3.15 COMPLIANCE WITH LAWS. To the Knowledge of the
Sellers, except as disclosed in SECTION 3.15 of the
Disclosure Schedule, neither the Company nor any Subsidiary
is, or has been since January 1, 1990, in violation (or with
or without notice or lapse of time or both would be in
violation) of any term or provision of any Law (which
violation individually or in the aggregate has or may
reasonably be expected to have a Material Adverse Effect) or
any writ, judgment, decree, injunction, or similar order
applicable to such entity or any of its Assets. Without
limiting the generality of the foregoing, to the Knowledge
of the Sellers:

(a) Each of the Company and the Subsidiaries has
duly and validly filed or caused to be filed all
reports, statements, documents, registrations, filings,
or submissions that were required by Law to be filed
with any Person (including without limitation rate
filings and policy form filings), except where the
failure to so file does not have or cannot reasonably
be expected to have a Material Adverse Effect. All
such filings complied with applicable Laws in all
material respects when filed and no material
deficiencies have been asserted by any Person with
respect to any such filings.

(b) The Sellers have previously delivered or made
available to the Purchaser the draft and final reports
reflecting the results of the most recent market
conduct and financial examination of each of the
Insurance Subsidiaries issued by the insurance
regulatory authorities. Except as disclosed in SECTION
3.15(b) of the Disclosure Schedule, all material
deficiencies or violations in such report have been

<PAGE> 39
resolved to the satisfaction of the insurance
regulatory authorities.

3.16 PENSION AND BENEFIT PLANS, ERISA.

(a) To the Knowledge of the Sellers, SECTION 3.16(a)
of the Disclosure Schedule discloses all "employee benefit
plans," as defined in Section 3(3) of ERISA, and any other
employee benefit arrangements or payroll practices,
including without limitation severance pay, sick leave,
vacation pay, salary continuation for disability, consulting
or other compensation agreements, retirement, deferred
compensation, bonus, stock purchase, hospitalization,
medical insurance, life insurance, and scholarship programs
("Employee Benefit Plans") maintained by either the Company
or any Subsidiary or to which either the Company or any
Subsidiary contributed or is obligated to contribute
thereunder for the benefit of the current or former
employees of the Company or any Subsidiary, other than
Seller Benefit Plans ("Company Employee Benefit Plans"),
including without limitation all "employee pension plans,"
as defined in Section 3(2) of ERISA which are subject to
Title IV of ERISA or Section 412 of the Code ("Company
Pension Plans"). None of the Company Employee Benefit Plans
is a "multiemployer plan" as defined in Section 4001(a)(3)
of ERISA ("Multiemployer Plan") or is or has been subject to
Section 4063 or 4064 of ERISA ("Multiple Employer Plan").
SECTION 3.16(a) of the Disclosure Schedule contains a true
and complete list of all Employee Benefit Plans sponsored by
or contributed to by the Sellers or to which there is an
obligation to contribute by the Sellers or any of their
Affiliates (other than Company Employee Benefit Plans) which
provide benefits to employees or former employees of the
Company or any Subsidiary or their beneficiaries ("Seller
Benefit Plans"). Notwithstanding the above, "Company
Employee Benefit Plans" and "Seller Benefit Plans" shall not
be deemed to include an Employee Benefit Plan which has been
terminated, and for which all Liabilities under such plan
have been satisfied, discharged, or assumed by another
Employee Benefit Plan.

(b) The Company Employee Benefit Plans intended to
qualify under Section 401 of the Code so qualify and the
trusts maintained pursuant thereto are exempt from federal
income taxation under Section 501 of the Code, and nothing
has occurred with respect to the operation of such plans
which could cause the loss of such qualification or

<PAGE> 40
exemption or the imposition of any Liability, penalty, or
Tax under ERISA or the Code.

(c) There are currently no Company Pension Plans and
there have not been, during the six years preceding the
Closing Date, any Company Pension Plans.

(d) True and complete copies of the documents
described in clauses (i) and (iv) below with respect to each
of the Seller Benefit Plans, and, to the Knowledge of the
Sellers, all of the following documents with respect to the
Company Employee Benefit Plans, have been made available or
delivered to the Purchaser by the Sellers: (i) any plans
and related trust documents, and amendments thereto,
(ii) the most recent Forms 5500, (iii) the last IRS
determination letter, (iv) summary plan descriptions, (v)
written communications to employees relating to the plans
which would increase the Liability thereunder, (vi) written
descriptions of all non-written agreements relating to the
plans, and (vii) the actuarial valuations and financial
statements for the last three plan years.

(e) To the Knowledge of the Sellers, there are no
actions, suits, investigations, arbitrations, or proceedings
pending against any Company Employee Benefit Plan, against
the Assets of any of the trusts under such plans or the plan
sponsor or the plan administrator, or against any fiduciary
of any Company Employee Benefit Plan with respect to the
operation of such plans (other than routine benefit claims),
and to the Knowledge of the Sellers, no facts exist that
could form the basis for any such action, suit,
investigation, arbitration, or proceeding.

(f) To the Knowledge of the Sellers, all amendments
and actions required to bring the Company Employee Benefit
Plans into conformity in all material respects with all of
the applicable provisions of ERISA and other applicable Laws
have been made or taken except to the extent that such
amendments or actions are not required by Law to be made or
taken until a date after the Closing Date.

(g) To the Knowledge of the Sellers and except as
disclosed in SECTION 3.16(G) of the Disclosure Schedule,
there is no material violation of ERISA or the Code with
respect to any Company Employee Benefit Plans and each
Company Employee Benefit Plan has been maintained, in all
material respects, in accordance with its terms and with all
provisions of ERISA (including rules and regulations

<PAGE> 41
thereunder) and other applicable Law, and neither the
Sellers, the Company, any Subsidiary, and, to the Knowledge
of the Sellers, any "party in interest," nor any
"disqualified person" with respect to the Company Employee
Benefit Plans has engaged in a "prohibited transaction"
within the meaning of Section 4975 of the Code or Section
406 of ERISA.

(h) To the Knowledge of the Sellers, neither the
Company nor any Subsidiary maintains retiree life and
retiree health insurance plans which (i) are Company
Employee Benefit Plans, (ii) are "welfare benefit plans"
within the meaning of Section 3(1) of ERISA, and
(iii) provide for continuing benefits or coverage for any
participant or any beneficiary of a participant except as
may be required under COBRA and at the sole expense of the
participant or the participant's beneficiary. To the
Knowledge of the Sellers, each of the Company and the
Subsidiaries which maintains a "group health plan" within
the meaning of Section 5000(b)(1) of the Code has complied
in all material respects with the notice and continuation
requirements of the Code, COBRA, and Part 6 of Subtitle B of
Title I of ERISA and the regulations thereunder.

(i) To the Knowledge of the Sellers, except as
expressly provided in this Agreement, neither the execution
and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any
payment becoming due to any employee of the Company or any
Subsidiary; (ii) increase any benefits otherwise payable
under any Company Employee Benefit Plan; or (iii) result in
the acceleration of the time of payment or vesting of any
such benefits, any of which would result in any Liability to
the Purchaser, the Company, or any Subsidiary which is not
reflected on the Year End GAAP Financial Statements or the
Interim Income Statement.

(j) To the Knowledge of the Sellers, neither the
Sellers, the Company, nor any Subsidiary has any Contract,
plan, or commitment, whether legally binding or not, to
create any additional Employee Benefit Plans or to modify
any existing Employee Benefit Plan, any of which would
result in any Liability to the Purchaser, the Company, or
any Subsidiary which is not reflected on the Year End GAAP
Financial Statements or the Interim Income Statement.

(k) To the Knowledge of the Sellers, except as
disclosed in SECTION 3.16(K) of the Disclosure Schedule, no

<PAGE> 42
stock or other security issued by the Sellers, the Company,
any Subsidiary, or any ERISA Affiliate forms or has formed a
material part of the Assets of any Company Employee Benefit
Plan.

(l) To the Knowledge of the Sellers, with respect to
any period for which any contribution or other payment to or
in respect of any Company Employee Benefit Plan is not yet
due or owing, each of the Company and the Subsidiaries has
made due and sufficient current accruals for such
contributions and other payments in accordance with GAAP and
SAP, and such current accruals are duly and fully provided
for in the Year End GAAP Financial Statements or the Interim
Income Statement.

(m) To the Knowledge of the Sellers, no labor
organization or group of employees of the Company or any
Subsidiary has made a pending demand for recognition or
certification, and there are no representation or
certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in
writing to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or
authority. To the Knowledge of the Sellers, there are no
organizing activities involving the Company or any
Subsidiary pending with any labor organization or group of
employees of the Company or any Subsidiary. To the
Knowledge of the Sellers, there are no strikes, work
stoppages, slowdowns, lockouts, material arbitrations,
material grievances, or other material labor disputes
pending or threatened in writing against or involving the
Company or any Subsidiary.

(n) There has been no "mass layoff" or "plant closing"
as defined by WARN with respect to the Company or the
Subsidiaries within the six months prior to the date hereof.
To the Knowledge of the Sellers, SECTION 3.16(N) of the
Disclosure Schedule contains a true and complete list of
employees of the Company or any Subsidiary whose employment
has been terminated during the six months prior to the date
hereof, specifying the date of such termination, last day of
employment, and location of employment.

3.17 PROPERTIES: ENVIRONMENTAL. To the Knowledge of
the Sellers, except as disclosed in SECTION 3.17 of the
Disclosure Schedule:

<PAGE> 43
(a) Each Insurance Subsidiary has good and valid
title to all debentures, notes, stocks, securities, and
other Assets that are of a type required to be
disclosed in Schedules B through DB of its Annual
Statement and that are owned by it, free and clear of
all Liens, other than Liens with respect to state or
local Taxes that are not yet due or remain payable
without penalty. Each of the Company and the
Subsidiaries (other than the Insurance Subsidiaries)
has good and valid title to all debentures, notes,
stocks, securities and other similar Assets that are
owned by it, free and clear of all Liens, other than
Liens with respect to state or local Taxes that are not
yet due or remain payable without penalty. The loan
portfolio of the Insurance Subsidiaries (including
without limitation the mortgage loans of the type
required to be disclosed in their respective Annual
Statements) is in all material respects collectible (as
a matter of contract Law) in accordance with the terms
of the loan documents related to such loan portfolio.

(b) SECTION 3.17(B) of the Disclosure Schedule
contains a true and complete list and description of
all real property owned by the Company or any
Subsidiary. The Company or the Subsidiaries own good
and indefeasible fee simple title to such real
property, free and clear of all Liens, except as
disclosed in SECTION 3.17(B) of the Disclosure
Schedule. No improvement on any such real property
owned encroaches upon the real property of any other
Person. The Company or a Subsidiary owns, or has a
valid right under Contract to use, adequate means of
ingress and egress to, from, and over all such real
property owned.

(c) SECTION 3.17(C) of the Disclosure Schedule
contains a true and complete list and description of
all real property leased by the Company or any
Subsidiary. The Company or the Subsidiaries have a
valid leasehold interest in all real property leased in
connection with the business, operations, or affairs of
the Company or the Subsidiaries. The Company or a
Subsidiary leases, or has a valid right under Contract
to use, adequate means of ingress and egress to, from,
and over all such real property leased.

(d) The Company or the Subsidiaries own good
title to, or have a valid leasehold interest in or have

<PAGE> 44
a valid right under Contract to use, all tangible
personal property that is material to the conduct of
the business, operations, or affairs of the Company or
the Subsidiaries, free and clear of all Liens, other
than customary Liens (including without limitation the
Assets reflected on the Year End GAAP Financial
Statements which have not been disposed of since
December 31, 1993 in the ordinary course of business
and consistent with past practice). All such material
tangible personal property is in good operating
condition and repair and is suitable for its current
uses.

(e) SECTION 3.17(E) of the Disclosure Schedule
contains a true and complete list and description of
(i) all marks, names, trademarks, service marks,
patents, patent rights, assumed names, logos, trade
secrets, copyrights, trade names, and service marks
that are material to the conduct of the business,
operations, or affairs of the Company or the
Subsidiaries, and (ii) all computer software, programs,
and similar systems owned by or licensed to the Company
or the Subsidiaries or material to the conduct of the
business, operations, or affairs of the Company or the
Subsidiaries. The Company or the Subsidiaries have,
and after the Closing will have, the right to use, free
and clear of any royalty or other payment obligations
or other Liens, such intellectual property and computer
software, programs, and similar systems. Neither the
Company nor any Subsidiary is in conflict with or in
violation or infringement of, nor has either Seller,
the Company, or any Subsidiary received any notice of
any conflict with or violation or infringement of or
any claimed conflict with, any asserted rights of any
other Person with respect to any such intellectual
property or computer software, programs, or similar
systems.

(f) No judicial or administrative proceedings are
pending or threatened against the Company or any
Subsidiary alleging the violation of any Environmental
Law, and neither the Sellers, the Company, nor any
Subsidiary has received any notice from any
governmental authority or other Person claiming any
violation of any Environmental Law or calling attention
to the need for any work, repairs, construction,
alterations, or installation on or in connection with
any real property owned, operated, or leased by the

<PAGE> 45
Company or any Subsidiary which has not been complied
with or otherwise resolved to the satisfaction of the
Person giving notice.

(g) Since August 15, 1984, all Hazardous
Materials used or generated by the Company or the
Subsidiaries have been stored, used, treated, and
disposed of by them or on their behalf in such manner
as not to result in Environmental Damages.

(h) There are no facts, circumstances, or
conditions relating to, arising from, associated with
or attributable to the real property currently or
formerly owned, operated, or leased by the Company or
the Subsidiaries or to the facilities or operations
thereon or to abutting properties (excluding facts,
circumstances, or conditions of which the Sellers have
no Knowledge that arose prior or subsequent to the
period of ownership, operation, or leasing by the
Company or the Subsidiaries) which are reasonably
likely to give rise to or result in Environmental
Damages.

(i) There is not now, and there has not been in
the past, on, in, or under any real property owned,
leased, or operated by the Company, or any Subsidiary
any underground storage tanks, above-ground storage
tanks, or man-made impoundments. There is not now on,
in, or under any such real property any (i) materials
containing friable asbestos, (ii) polychlorinated
biphenyls, or (iii) radioactive substances.

(j) The use of the underground storage tank
located on the real property owned by Heritage Life in
Wilkes County, North Carolina was discontinued on or
before March, 1980.

3.18 CONTRACTS. To the Knowledge of the Sellers,
SECTION 3.18 of the Disclosure Schedule contains a true and
complete list of each of the following Contracts or other
documents or arrangements (true and complete copies of which
have been, or promptly upon request by the Purchaser will
be, made available to the Purchaser), to which the Company
or any Subsidiary is a party or by which any of its Assets
is or may be bound:

(a) all employment, agency, consultation, or
representation Contracts or other Contracts of any type

<PAGE> 46
(including without limitation loans or advances) with
any present officer, director, employee, agent,
consultant, or other similar representative of the
Company or any Subsidiary (or former officer, director,
employee, agent, consultant or similar representative
of the Company or any Subsidiary if there exists any
present or future Liability with respect to such
Contract), other than Contracts (i) with such Persons
who do not receive compensation of $75,000 or more per
year, or (ii) with Insurance Agents of any Subsidiary;

(b) all Contracts with Insurance Agents that (i)
relate to the sale or distribution of insurance
policies, Service Contracts, or annuity Contracts
issued, reinsured, or underwritten by any Subsidiary,
and (ii) are not terminable by such Subsidiary without
premium or penalty upon notice of 180 days or less
(except as otherwise limited by applicable Law) or, by
their terms, provide for exclusivity (including without
limitation by territory, product, or distribution).

(c) all Contracts with any Person containing any
stipulation, provision, or covenant limiting, in any
material respect, the ability of such Person to compete
with or to provide products or services to the Company
or any Subsidiary or limiting the ability of the
Company or any Subsidiary to (i) sell any products or
services of any other Person, (ii) transact business or
engage in any line of business, or (iii) compete with
or to obtain products or services from any Person;

(d) all Contracts relating to the borrowing of
money by the Company or any Subsidiary, relating to the
deferred purchase price for property or services, or
relating to the direct or indirect guarantee by the
Company or any Subsidiary of any Liability that
individually or in the aggregate exceeds $250,000
(other than trade credit incurred in the ordinary
course of business and consistent with past practice),
including without limitation any Contract relating to
(i) the maintenance of compensating balances that are
not terminable without penalty upon not more than 60
calendar days' notice, (ii) any line of credit or
similar facility, (iii) the payment for property,
products, or services of any other Person, or (iv) the
obligation to take-or-pay, keep-well, make-whole, or

<PAGE> 47
maintain surplus or earnings levels or perform other
financial ratios or requirements;

(e) all Contracts pursuant to which the Company
or any Subsidiary has agreed to indemnify or hold
harmless any Person (other than indemnifications in the
ordinary course of business and consistent with past
practice);

(f) all leases or subleases of real property used
in the business, operations, or affairs of the Company
or any Subsidiary;

(g) all Contracts or arrangements (including
without limitation those relating to allocations of
expenses, personnel, services, or facilities) between
or among the Company or any Subsidiary and either
Seller or any Affiliate of either Seller (other than
the Company or the Subsidiaries);

(h) all reinsurance, coinsurance, or other
similar Contracts (including pursuant to which any
Insurance Subsidiary receives or has received surplus
relief);

(i) all outstanding proxies or powers of attorney
of the Company or any Subsidiary;

(j) all collective bargaining or similar labor
Contracts;

(k) all leases or subleases of personal property
that involve the payment or potential payment, pursuant
to the terms of such lease or sublease, by the Company
or any Subsidiary of more than $250,000 per year; and

(l) all other Contracts (other than Contracts
with Insurance Agents or Service Contracts, insurance
policies, and annuity Contracts issued, reinsured, or
underwritten by any Subsidiary) that involve the
payment or potential payment, pursuant to the terms of
such Contracts, by or to the Company or any Subsidiary
of more than $250,000 individually or in the aggregate
or that are otherwise material to the Business or
Condition of the Company or any Subsidiary.

To the Knowledge of the Sellers, each Contract or
arrangements disclosed or required to be disclosed in

<PAGE> 48
SECTION 3.18 of the Disclosure Schedule is in full force and
effect and constitutes a legal, valid, and binding
obligation of the Company or a Subsidiary, as the case may
be, of each other party thereto in accordance with its
terms, except to the extent that enforcement may be limited
by or subject to any bankruptcy, reorganization, moratorium,
or similar Laws now or hereafter in effect relating to or
limiting creditors' rights generally. To the Knowledge of
the Sellers, neither the Sellers, the Company, nor any
Subsidiary has received any written notice of termination or
intention to terminate from any other party to such
Contract. To the Knowledge of the Sellers, neither the
Company, any Subsidiary, nor any other party to such
Contract is in violation or breach of or default under any
such Contract (or with or without notice or lapse of time or
both, would be in violation or breach of or default under
any such Contract), which violation individually or in the
aggregate has or may reasonably be expected to have a
Material Adverse Effect.

3.19 INSURANCE ISSUED. To the Knowledge of the
Sellers, except as required by Law or except as disclosed in
SECTION 3.19 of the Disclosure Schedule:

(a) All outstanding Service Contracts, insurance
policies, and annuity Contracts issued, reinsured, or
underwritten by Heritage Mechanical or the Insurance
Subsidiaries are, to the extent required under
applicable Laws, on forms and at rates and commissions
approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and
not objected to by such authority within the period
provided for objection, except where the failure to
obtain such approval or make such filing does not have
or cannot reasonably be expected to have a material
adverse effect on the Business or Condition of the
Company or any Subsidiary.

(b) All Service Contract, insurance policy, or
annuity Contract benefits payable by Heritage
Mechanical or the Insurance Subsidiaries or by any
other Person that is a party to or bound by any
reinsurance, coinsurance, or other similar Contract
with any of the Subsidiaries have in all material
respects been paid in accordance with the terms of the
Service Contract, insurance policy, annuity Contracts,
and other Contracts under which they arose, except for

<PAGE> 49
such benefits for which the Subsidiaries believe there
is a reasonable basis to contest payment.

(c) No outstanding Service Contract, insurance
policy, or annuity Contract issued, reinsured, or
underwritten by any Subsidiary entitles the holder
thereof or any other Person to receive dividends,
distributions, or other benefits based on the revenues
or earnings of any Subsidiary or any other Person.

(d) The underwriting standards utilized and
ratings applied by each of Heritage Mechanical and the
Insurance Subsidiaries and by any other Person that is
a party to or bound by any reinsurance, coinsurance, or
other similar Contract with the Subsidiaries conform in
all material respects to industry accepted practices
and to the standards and ratings required pursuant to
the terms of the respective reinsurance, coinsurance,
or other similar Contracts.

(e) All amounts to which each Subsidiary is
entitled under reinsurance, coinsurance, or other
similar Contracts (including without limitation amounts
based on paid and unpaid losses) are fully collectible
(as a matter of contract Law).

(f) Each Insurance Agent, at the time such agent
wrote, sold, or produced business for Heritage
Mechanical or any Insurance Subsidiary, was duly
licensed as an Insurance Agent (for the type of
business written, sold, or produced by such Insurance
Agent) in the particular jurisdiction in which such
agent wrote, sold, or produced such business, except
where the failure to be so licensed does not or cannot
reasonably be expected to have a Material Adverse
Effect.

3.20 THREATS OF CANCELLATION OR DOWNGRADING. To the
Knowledge of the Sellers, except as disclosed in SECTION
3.20 of the Disclosure Schedule, since December 31, 1993, no
policyholder or group of affiliated policyholders that
individually or in the aggregate accounted for 5% or more of
the Service Contract income, insurance premium, or annuity
considerations, of the Company and the Subsidiaries taken as
a whole for the year ended December 31, 1993, has terminated
or threatened to terminate its relationship with the Company
or any Subsidiary. To the Knowledge of the Sellers,
A.M. Best Company, Inc. has not threatened to downgrade any

<PAGE> 50
rating assigned to any Insurance Subsidiary to a rating
below the rating assigned to such Insurance Subsidiary for
1993.

3.21 LICENSES AND PERMITS. To the Knowledge of the
Sellers, except as disclosed in SECTION 3.21 of the
Disclosure Schedule:

(a) Each of the Subsidiaries owns or validly
holds all licenses, permits, approvals, authorizations,
certificates, and similar documents or instruments that
are material to its business, operations, and affairs.
SECTION 3.21(A) of the Disclosure Schedule contains a
true and complete list of all jurisdictions in which
each Subsidiary is licensed to transact insurance or
motor vehicle service business.

(b) All such licenses, franchises, permits,
approvals, authorizations, exemptions, classifications,
certificates, registrations, and similar documents or
instruments are valid, binding, and in full force and
effect.

3.22 OPERATIONS INSURANCE. To the Knowledge of the
Sellers, SECTION 3.22 of the Disclosure Schedule contains a
true and complete list and description of all material
liability, property, workers compensation, directors and
officers liability, and other similar insurance Contracts
that insure the business, operations, or affairs of each of
the Company and the Subsidiaries or affect or relate to the
ownership, use, or operations of any of the Assets of each
of the Company and the Subsidiaries. All such insurance is
in full force and effect and (to the Knowledge of the
Sellers) is with financially sound and reputable insurers;
PROVIDED, HOWEVER, that the Sellers may terminate, effective
as of the Closing Date, all insurance coverage which has
been obtained by and for the benefit of either Seller or any
Affiliate of either Seller (other than the Company or the
Subsidiaries) and that also insures the Company and the
Subsidiaries (and their respective Assets, operations, and
directors, officers, and employees).

3.23 INTERCOMPANY LIABILITIES. Except as disclosed in
SECTION 3.23 of the Disclosure Schedule, (a) neither the
Sellers nor any of their Affiliates (other than the Company
or any Subsidiary) provides or causes to be provided to the
Company or any Subsidiary any material products, services,
equipment, facilities, or similar items, and (b) there are

<PAGE> 51
no material Liabilities between the Company or any
Subsidiary and either Seller or any Affiliate of either
Seller (other than the Company or any Subsidiary). To the
Knowledge of the Sellers, except as disclosed in SECTION
3.23 of the Disclosure Schedule, since December 31, 1993,
such intercompany Liabilities have been paid in the ordinary
course of business and consistent with past practice;
PROVIDED, HOWEVER, that the Sellers will settle intercompany
accounts in accordance with SECTION 5.17 hereof.

3.24 BANK ACCOUNTS. To the Knowledge of the Sellers,
SECTION 3.24 of the Disclosure Schedule contains (a) a true
and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial
institutions at which each of the Company and the Subsidi-
aries has an account or safe deposit box or maintains a
banking, custodial, trading, trust, or other similar
relationship and (b) a true and complete list and
description of each such account, box, and relationship.

3.25 DISCLOSURE. To the Knowledge of the Sellers, no
representation or warranty made by either Seller in this
Agreement, in the Disclosure Schedule, or in any certificate
furnished by either Seller to the Purchaser in connection
with this Agreement or the transactions contemplated hereby
contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements
herein or therein not misleading in light of the
circumstances in which they were made.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

The Purchaser hereby represents and warrants to the
Sellers as follows:

4.1 ORGANIZATION. The Purchaser is a corporation duly
organized, validly existing, and in good standing under the
Laws of the State of New York and has full corporate power
and authority to enter into this Agreement and to perform
its obligations under this Agreement.

4.2 AUTHORITY. The execution and delivery of this
Agreement by the Purchaser and the performance by the
Purchaser of its obligations under this Agreement have been
duly and validly authorized by all necessary corporate

<PAGE> 52
action on the part of the Purchaser. This Agreement
constitutes a legal, valid, and binding obligation of the
Purchaser and is enforceable against the Purchaser in
accordance with its terms, except to the extent that
(a) enforcement may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium, or
similar Laws now or hereafter in effect relating to or
limiting creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defenses
and to the discretion of the court or other similar Person
before which any proceeding therefor may be brought.

4.3 NO CONFLICTS OR VIOLATIONS. The execution and
delivery of this Agreement by the Purchaser do not, and the
performance by the Purchaser of its obligations under this
Agreement will not:

(c) require the Purchaser to obtain any consent,
approval, or action of, or make any filing (except as
required by applicable securities Laws) with or give
any notice to, any Person except (i) as contemplated in
SECTION 6.1 or 6.2 hereof or (ii) those which the
failure to obtain, make, or give individually or in the
aggregate with other such failures does not have or
cannot reasonably be expected to have a material
adverse effect on the validity or enforceability of
this Agreement or on the ability of the Purchaser to
perform its obligations under this Agreement.

4.4 LITIGATION. There are no actions, suits,
arbitrations, or regulatory investigations or proceedings
pending, or (to the knowledge of the Purchaser) threatened,

<PAGE> 53
against the Purchaser, at law or in equity, in, before, or
by any Person that individually or in the aggregate have or
may reasonably be expected to have a material adverse effect
on the validity or enforceability of this Agreement or on
the ability of the Purchaser to perform its obligations
under this Agreement.

4.5 PURCHASE FOR INVESTMENT. The Shares will be
acquired by the Purchaser for its own account for the
purpose of investment. The Purchaser has sufficient
knowledge and experience in financial and business matters
to evaluate the merits and risks of its investment in the
Shares. The Purchaser will refrain from transferring or
otherwise disposing of any of the Shares, or any interest
therein, in such manner as to violate any registration
provision of the securities Laws.

4.6 DISCLOSURE. No representation or warranty made by
the Purchaser in this Agreement or in any certificate
furnished by the Purchaser to the Sellers in connection with
this Agreement or the transactions contemplated hereby
contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements
herein or therein not misleading in light of the
circumstances in which they were made.

ARTICLE V

COVENANTS OF SELLERS

The Sellers jointly and severally covenant and agree
with the Purchaser that, at all times before the Closing,
the Sellers will comply with all covenants and provisions of
this ARTICLE V, except to the extent the Purchaser may
otherwise consent in writing or to the extent otherwise
required or permitted by this Agreement.

5.1 CONTRACT AND REGULATORY APPROVALS. The Sellers
will take, and will cause each of the Company and the
Subsidiaries to take, (a) all commercially reasonable steps
necessary or desirable, and proceed diligently and in good
faith and use all commercially reasonable efforts, to obtain
as promptly as practicable all approvals and consents
required of any Person under all Contracts to which the
Company or any Subsidiary is a party (including without
limitation all Contracts involving indebtedness of the
Company or any Subsidiary) to consummate the transactions

<PAGE> 54
contemplated hereby, (b) take all commercially reasonable
steps necessary or desirable, and proceed diligently and in
good faith and use all commercially reasonable efforts, to
obtain as promptly as practicable all approvals,
authorizations, and clearances of governmental and
regulatory authorities required of each of the Sellers, the
Company, and the Subsidiaries to consummate the transactions
contemplated hereby, (c) provide such other information and
communications to such governmental and regulatory
authorities as the Purchaser or such authorities may
reasonably request, and (d) cooperate with the Purchaser in
obtaining, as promptly as practicable, all approvals,
authorizations, and clearances of governmental or regulatory
authorities and other Persons required of the Purchaser to
consummate the transactions contemplated hereby, including
without limitation any required approvals of the insurance
regulatory authorities in Bermuda and the States of Arizona,
California, and Florida.

5.2 HSR FILINGS. The Sellers will (a) take promptly
all actions necessary to make the filings required of the
Sellers or its Affiliates under the HSR Act, (b) comply at
the earliest practicable date with any request for
additional information received by the Sellers or its
Affiliates from the Federal Trade Commission or Antitrust
Division of the Department of Justice pursuant to the HSR
Act, (c) cooperate with the Purchaser in connection with the
Purchaser's filings under the HSR Act, and (d) request early
termination of the applicable waiting period.

5.3 INVESTIGATION BY THE PURCHASER. The Sellers will
provide, and will cause the Company and the Subsidiaries to
provide, the Purchaser, its counsel, accountants, actuaries,
and other representatives with full access, upon prior
notice and during normal business hours, to all facilities,
officers, employees, agents, accountants, actuaries, Assets,
and Books and Records of the Company and the Subsidiaries
and will furnish the Purchaser and such other Persons with
all such information and data (including without limitation
copies of Contracts, Company Employee Benefit Plans, and
other Books and Records) concerning the business,
operations, and affairs of the Company and the Subsidiaries
as the Purchaser or any of such other Persons reasonably may
request.

5.4 NO NEGOTIATIONS. The Sellers will refrain and
will cause each other Person acting for or on behalf of the
Sellers to refrain from taking, directly or indirectly, any

<PAGE> 55
action (a) to seek or encourage any offer (including in
connection with any proposed public offering of securities)
or proposal from any Person to acquire any Assets (other
than in ordinary course of business and consistent with past
practice) or shares of capital stock or other securities of
the Company or any Subsidiary, (b) to merge, consolidate, or
combine, or to permit any other Person to merge, consolidate
or combine, with the Company or any Subsidiary, (c) to
liquidate, dissolve, or reorganize the Company or any
Subsidiary in any manner, (d) to acquire or transfer any
Assets (other than in ordinary course of business and
consistent with past practice) or shares of capital stock or
other securities of the Company or any Subsidiary, except as
contemplated by the terms of this Agreement, (e) to
negotiate or reach any agreement or understanding (whether
or not such agreement or understanding is absolute,
revocable, contingent, or conditional) for, or otherwise to
attempt to consummate, any such acquisition, transfer,
merger, consolidation, combination, or reorganization, or
(f) to furnish or cause to be furnished any information with
respect to the Company or any Subsidiary to any Person
(other than the Purchaser) that, to the Knowledge of the
Sellers, is in the process of attempting or considering any
such acquisition, transfer, merger, consolidation,
combination, liquidation, dissolution, or reorganization.
Notwithstanding the foregoing, this SECTION 5.4 will not
apply to any proposal, offer, or acquisition (whether by
merger, consolidation, or other combination) involving all
or substantially all the Assets or capital stock of either
Seller, it being agreed and understood that any such
acquirer of either Seller would acquire such Seller subject
to its obligations under this Agreement. If either Seller
receives from any Person (other than the Purchaser) any
offer, proposal, or informational request that is subject to
this SECTION 5.4 (after giving effect to the immediately
preceding sentence), the Sellers will promptly so advise the
Purchaser, will promptly advise such Person by written
notice of the terms of this SECTION 5.4, and will promptly
deliver a copy of such notice to the Purchaser.

5.5 CONDUCT OF BUSINESS. The Sellers will cause the
Company and the Subsidiaries to conduct their business only
in the ordinary course and consistent with past practice.
Without limiting the generality of the foregoing and unless
the Purchaser otherwise consents:

(a) The Sellers will cause each of the Company
and the Subsidiaries to use all commercially reasonable

<PAGE> 56
efforts to (i) preserve intact (in all material
respects) the present business organization,
reputation, and policyholder relations of each of the
Company and the Subsidiaries, (ii) keep available (in
all material respects) the services of the present
officers, directors, employees, agents, consultants,
and other similar representatives of each of the
Company and the Subsidiaries, (iii) maintain in full
force and effect all material Contracts, documents, and
arrangements referred to in SECTION 3.18 hereof (except
that the Sellers may amend any of the prepayment or
termination provisions contained in the MAP Contract
provided that such amendment does not increase the fee
payable upon such termination), and (iv) maintain each
rating classification assigned as of the date hereof to
each Insurance Subsidiary by A.M. Best Company, Inc.

(b) The Sellers will cause each of the Company
and the Subsidiaries to (i) maintain all material
licenses, qualifications, and authorizations of each of
the Company and the Subsidiaries to do business in each
jurisdiction in which it is so licensed, qualified, or
authorized, (ii) maintain all material Assets of each
of the Company and the Subsidiaries in good working
order and condition, ordinary wear and tear excepted,
and (iii) continue (in all material respects) all
current marketing and selling activities relating to
the business, operations, and affairs of each of the
Company and the Subsidiaries.

(c) The Sellers will cause each of the Company
and the Subsidiaries to cause the Books and Records of
each of the Company and the Subsidiaries to be
maintained in accordance with GAAP and SAP in the case
of the financial Books and Records and in a prudent
manner in the case of all other Books and Records. The
Sellers will not permit (except as otherwise required
by this Agreement, SAP, or GAAP) a material change in
any underwriting, investment, actuarial, financial
reporting, Tax, or accounting practice or policy of the
Company or any Subsidiary or in any assumption
underlying such a practice or policy, or in any method
of calculating any bad debt, contingency, or other
reserve for financial reporting purposes or for other
accounting purposes (including without limitation any
practice, policy, assumption, or method relating to or
affecting the determination of each of the Insurance
Subsidiaries' insurance or annuities in force, premium

<PAGE> 57
or investment income, reserves or other similar
amounts, or operating ratios with respect to expenses,
losses, or lapses). The Sellers will cause the Company
to refrain from making any of the audit adjustments set
forth on EXHIBIT D hereto.

(d) The Sellers will cause each of the Company
and the Subsidiaries (i) to prepare properly and to
file duly and validly all Tax Returns required to be
filed with any governmental or regulatory authorities
with respect to the business, operations, or affairs of
such entity, and (ii) to pay duly and fully all Taxes
indicated by such Tax Returns or otherwise levied or
assessed upon such entity or any of its Assets, and to
withhold or collect and pay to the proper taxing
authorities or hold in separate bank accounts for such
payment all Taxes that such entity is required to so
withhold or collect and pay, unless such Taxes are
being contested in good faith and adequate reserves
therefor have been established and reflected in the
Books and Records of such entity in accordance with
GAAP and SAP.

(e) The Sellers will cause (i) all reserves and
other similar amounts with respect to Service
Contracts, insurance policies, and annuity Contracts
established or reflected in the Books and Records of
each Subsidiary to be established and reflected on a
basis consistent with those reserves and other similar
amounts and reserving methods followed by such
Subsidiary at December 31, 1993; and (ii) each
Subsidiary to continue to own assets that qualify as
legal reserve assets under all applicable insurance
Laws in an amount at least equal to all of such
Subsidiary required reserves and other similar amounts.

(f) The Sellers will use, and will cause each of
the Company and the Subsidiaries to use, all
commercially reasonable efforts to maintain in full
force and effect substantially the same levels of
coverage as the insurance afforded under the Contracts
listed in SECTION 3.22 of the Disclosure Schedule.

(g) The Sellers will cause each of the
Subsidiaries to refrain from entering into any surplus
relief or financial reinsurance Contract. The Sellers
will cause each of the Subsidiaries to refrain from
entering into any other reinsurance, coinsurance, or

51
<PAGE> 58
similar Contract, whether as reinsurer or reinsured,
other than in the ordinary course of business and
consistent with past practice.

(h) The Sellers will cause each of the Company
and the Subsidiaries to refrain from entering into any
Contract (other than Contracts with Insurance Agents or
Service Contracts, annuity Contracts, or insurance
policies issued, reinsured, or underwritten by any
Subsidiary) that involves the payment or potential
payment, pursuant to the terms of such Contract, by or
to the Company or any Subsidiary of more than $250,000
individually or in the aggregate or that is material to
the Business or Condition of the Company or any
Subsidiary.

(i) Except as disclosed on SECTION 5.5(I) of the
Disclosure Schedule, the Sellers will cause each of the
Company and the Subsidiaries to refrain from entering
into any Contract with any Insurance Agent that
provides, by its terms, for exclusivity (including
without limitation by territory, product, or
distribution) or that is not terminable by its terms
within 180 days by the Company or a Subsidiary, as the
case may be, without premium or penalty.

(j) The Sellers will cause each of the Company
and the Subsidiaries to continue to comply, in all
material respects, with all Laws applicable to the
business, operations, or affairs of such entity.

5.6 FINANCIAL STATEMENTS AND REPORTS.

(a) As promptly as practicable after becoming
available, the Sellers will deliver to the Purchaser true
and complete copies of the following:

(i) the audited SAP balance sheet of each
Insurance Subsidiary as of December 31, 1993 and the
related audited summary of operations and statements of
change in capital and surplus and cash flow of such
Insurance Subsidiary for the year then ended, together
with the notes relating thereto and the report thereon
of Coopers & Lybrand, which financial statements (and
the notes relating thereto) will be prepared in
accordance with SAP and will present fairly the
financial position of such Insurance Subsidiary as of
December 31, 1993 and the related summary of operations

<PAGE> 59
and changes in capital and surplus and cash flow
of such Insurance Subsidiary for the year then ended;

(ii) the Quarterly Statement filed by each
Insurance Subsidiary for each calendar quarter ending
after December 31, 1993;

(iii) the unaudited GAAP consolidated balance sheet
of the Company and its consolidated subsidiaries as of
each month ending after December 31, 1993 and the
related statements of income, shareholders' interest,
and cash flow of the Company and its consolidated
subsidiaries for such month then ending, which finan-
cial statements will be prepared in accordance with
GAAP (except for the absence of notes and subject to
normal year-end adjustments) and will present fairly
the financial position of the Company and its consoli-
dated subsidiaries as of each date thereof and the
related results of operations and cash flow and share-
holders' interest of the Company and its consolidated
subsidiaries for each period covered thereby, subject
to normal year-end adjustments; and

(iv) the Expanded Year End GAAP Financial State-
ments.

(b) As promptly as practicable, the Sellers will
deliver to the Purchaser true and complete copies of such
other financial statements and related management reports as
may be prepared by the Sellers or any Affiliate of the
Sellers and as relate to the operations of the Company or
any Subsidiary.

5.7 INVESTMENTS. The Sellers will cause each of the
Company and the Subsidiaries to invest its future cash flow,
any cash from matured and maturing investments, any cash
proceeds from the sale of Assets, and any cash funds
currently held by such entity exclusively in the type of
assets described on EXHIBIT E hereto, except as otherwise
required by Law or except as required to provide cash (in
the ordinary course of business and consistent with past
practice) to meet such entity's reasonably anticipated
current obligations. The Sellers will cause the Company and
the Insurance Subsidiaries to take such actions as are
necessary to ensure that the Assets of each Insurance
Subsidiary that are classified as nonadmitted under SAP or
by the applicable insurance regulatory authorities for such
Insurance Subsidiary do not at any time exceed by a material
amount the respective amounts of nonadmitted assets for such
Insurance Subsidiary as of December 31, 1993. Notwithstand-

<PAGE> 60
ing the foregoing, the Sellers will cause the Company
and the Subsidiaries to refrain from selling or
otherwise disposing of any Assets of the Company or any
Subsidiary which will result in the realization, from
March 31, 1994 through the Closing Date, of capital gains
(without giving effect to reduction thereof by realized
capital losses and without giving effect to FASB 115
unless the Company classifies all or any portion of its
securities portfolio as "trading securities") in excess
of (a) $1,000,000 in the aggregate, if the Closing
occurs on or before June 30, 1994 and (b) $1.5 million
in the aggregate, if the Closing occurs after
June 30. 1994.

5.8 EMPLOYEE MATTERS. Except as may be required by
Law, the Sellers will refrain, and will cause the Company
and the Subsidiaries to refrain, from directly or
indirectly:

(a) making any representation or promise, oral or
written, to any officer, director, or employee of the
Company or any Subsidiary concerning any Employee
Benefit Plan, except for Employee Benefit Plan mate-
rials distributed to such Persons in the ordinary
course of business and consistent with past practice;

(b) making any change to, or amending in any way,
the Contracts, salaries, wages, or other compensation
of any officer, director, or employee of the Company or
any Subsidiary whose annual compensation exceeds
$75,000, except for changes or amendments that (a) are
made in the ordinary course of business and consistent
with past practice, (b) do not and will not result in
increases of more than 5% in the salary, wages, or
other compensation of any such Person, and (c) do not
and will not exceed, in the aggregate, 5% of the total
salaries, wages, and other compensation of all
employees of such entity;

(c) adopting, entering into, amending, altering,
or terminating, partially or completely, (i) any
Company Employee Benefit Plan or (ii) any Seller
Benefit Plan which would cause the Company or any
Subsidiary to make additional payments;

(d) adopting, entering into, amending, altering,
or terminating, partially or completely, any employ-
ment, agency, consultation, or representation Contract
that is, or had it been in existence on the effective

<PAGE> 61
date of this Agreement would have been, required to be
disclosed in SECTION 3.18(A) of the Disclosure
Schedule;

(e) approving any general or company-wide pay
increases for officers, directors, employees, agents,
consultants, or other similar representatives of the
Company or any Subsidiary, except in the ordinary
course of business and consistent with past practice;

(f) entering into any Contract with any officer,
director, or employee of the Company or any Subsidiary
that is not terminable, without penalty or other
Liability, upon not more than 60 calendar days' notice;

(g) assuming, entering into, amending, altering,
or terminating any labor or collective bargaining
Contract to which the Company or any Subsidiary;

(h) hiring any officer, director, employee, agent
(excluding Insurance Agents), consultant, or other
similar representative of the Company or any Subsidiary
whose annual compensation exceeds $75,000; or

(i) implementing a "mass layoff" or "plant clos-
ing" as defined by WARN with respect to the Company or
any Subsidiary.

5.9 PARTICIPATION IN BENEFIT PLANS.

(a) Except as otherwise provided in this SECTION 5.9,
the Sellers will take, and will cause each ERISA Affiliate
and each other Affiliate of the Sellers to take, such
corporate and other action as is necessary with respect to
any Seller Benefit Plan to terminate, as of the Closing
Date, the active participation thereunder by each present
officer, director, employee, agent, consultant, or other
similar representative of the Company or any Subsidiary
("Company Employee"). Seller agrees to continue to pay
long-term disability benefits as in effect under any Seller
Benefit Plan prior to the Closing to any former Company
Employee which benefits began prior to Closing.

(b) Effective as of the Closing, the active participa-
tion of any Company Employee in any Seller Benefit Plan will
terminate and no further benefits will accrue under any
Seller Benefit Plan with respect to any Company Employee or
any beneficiary of any Company Employee. No provision of

<PAGE> 62
this SECTION 5.9 will create any right in any Company
Employee or any beneficiary of any Company Employee. The
Sellers will amend, or will cause its Affiliates to amend,
each Seller Benefit Plan which is a "pension plan" within
the meaning of Section 3(2) of ERISA, or any successor plan
thereto, to recognize, for vesting purposes only, each
Company Employee's service with the Purchaser (or any
successor thereto) as service with the Sellers or one of
their Affiliates; PROVIDED, HOWEVER, that no such amendment
shall be necessary with respect to such plan if (i) Company
Employees are already fully vested in their accrued benefits
under such plan or (ii) they become fully vested in their
accrued benefits under such plan because of a partial termi-
nation which results from the transaction contemplated under
this Agreement. The Purchaser or its Affiliates will recog-
nize each Company Employee's service prior to the Closing
with the Sellers, the Company, and the Subsidiaries (to the
extent recognized under the Sellers' corresponding plans) as
service with the Purchaser or its Affiliates in connection
with (i) any waiting period and eligibility requirements
under any "welfare benefit plan," and (ii) any eligibility
and vesting requirements under any "pension plan" in which
such Company Employees elect to participate and which is
made available by the Purchaser or any of its Affiliates
after the Closing. The Purchaser shall provide for, or
shall cause the Company and its Subsidiaries to provide for,
pension, welfare, and fringe benefits for each Company
Employee from and after the Closing Date which are compar-
able to those provided to similarly situated employees of
the Purchaser; PROVIDED, HOWEVER, that nothing contained in
this Agreement shall restrict the Purchaser or its Affi-
liates after the Closing Date from amending, modifying, or
terminating any or all of such benefits in its sole dis-
cretion. Any group medical plan provided for Company
Employees from and after the Closing Date shall not contain
any pre-existing condition, limitation or exclusion appli-
cable to their participation therein and shall give each
Company Employee credit toward applicable deductibles and
annual out-of-pocket limits for expenses incurred prior to
Closing during the applicable plan year. Except in connec-
tion with "direct rollovers," as contemplated under Section
401(a)(31) of the Code and permitted by the terms of
"pension plans" sponsored by the Purchaser or one of its
Affiliates, there shall be no transfer of assets or
Liabilities from any Seller Benefit Plan to any plan
sponsored by the Purchaser, the Company, any Subsidiary, or
any Affiliate of the Purchaser in connection with or as a
result of the transactions contemplated by this Agreement.

<PAGE> 63
Nothing in the preceding sentence or in SECTION 5.9(A) shall
be construed as prohibiting (i) the payment from such Seller
Benefit Plans of benefits accrued or claims incurred prior
to the Closing Date thereunder or (ii) the application of
future amendments under such Seller Benefit Plans to
benefits accrued prior to the Closing Date thereunder
(including, by way of example and not of limitation, cost of
living adjustments, or amendments related to the time or
form in which distribution of accrued benefits is to be
made).

(c) Neither the Purchaser, the Company, the Subsi-
diaries, nor any of their Affiliates shall assume any
obligations under or with respect to any Seller Benefit
Plan, other than any Company Employee Benefit Plan.

(d) The Purchaser's obligation to provide any benefit
package to the Company Employees as set forth in this
SECTION 5.9 is subject to the approval of the GE Pension
Board, which approval has been requested and will not be
unreasonably withheld.

5.10 NO CHARTER AMENDMENTS. The Sellers will cause
each of the Company and the Subsidiaries to refrain from
amending its articles or certificate of incorporation or
bylaws and from taking any action with respect to any such
amendment.

5.11 NO ISSUANCE OF SECURITIES. Except as disclosed in
SECTION 5.11 of the Disclosure Schedule, the Sellers will
cause each of the Company and the Subsidiaries to refrain
from authorizing or issuing any shares of its capital stock
or other equity securities or entering into any Contract or
granting any option, warrant, or right calling for the
authorization or issuance of any such shares or other equity
securities, or creating or issuing any securities directly
or indirectly convertible into or exchangeable for any such
shares or other equity securities, or issuing any options,
warrants, or rights to purchase any such convertible
securities.

5.12 NO DIVIDENDS. Except as disclosed in SECTION 5.12
of the Disclosure Schedule, the Sellers will cause each of
the Company and the Subsidiaries to refrain from declaring,
setting aside, or paying any dividend or other distribution
in respect of its capital stock and from directly or
indirectly redeeming, purchasing, or otherwise acquiring any

57
<PAGE> 64
of its capital stock or any interest in or right to acquire
any such stock.

5.13 NO DISPOSAL OF PROPERTY. Except as expressly
permitted in this Agreement, the Sellers will cause each of
the Company and the Subsidiaries to refrain from (a) dispos-
ing of any Assets of the Company or any Subsidiary and from
permitting any of such Assets to be subjected to any Liens,
except to the extent any such disposition or any such Lien
is made or incurred in the ordinary course of the business
and consistent with past practice, (b) selling any material
part of its insurance policies, Service Contracts, or
annuity Contracts in force, operations, or business to any
third party (other than sales of insurance policies, Service
Contracts, and annuity Contracts in the ordinary course of
business and consistent with past practice), (c) entering
into any Contracts obligating the Company or any Subsidiary
to administer the operations of any Person other than the
Company or any Subsidiary, and (d) entering into any
Contracts permitting any Person other than the Company or
any Subsidiary to administer the operations of the Company
or any Subsidiary.

5.14 NO BREACH OR DEFAULT. The Sellers will cause each
of the Company and the Subsidiaries to refrain from violat-
ing, breaching, or defaulting, and from taking or failing to
take any action that (with or without notice or lapse of
time or both) would constitute a violation, breach, or
default, under any term or provision of any Contract to
which the Company or any Subsidiary is a party or by which
any of its Assets is or may be bound, except for such
violations, breaches, defaults, actions, or failures that
individually or in the aggregate do not have and cannot
reasonably be expected to have a Material Adverse Effect.

5.15 INDEBTEDNESS. Except in the ordinary course of
business and consistent with past practice, the Sellers will
cause each of the Company and the Subsidiaries to refrain
from (a) creating, incurring, assuming, guaranteeing, or
otherwise becoming liable for any Liability, (b) cancelling,
paying, agreeing to cancel or pay, or otherwise providing
for a complete or partial discharge in advance of a
scheduled payment date with respect to any Liability, and
(c) waiving any right to receive any direct or indirect
payment or other benefit under any Liability owing to it.
Notwithstanding the foregoing and subject to SECTION 2.2(A)
hereof, upon the request of the Purchaser on or before
Closing Date, the Sellers will (i) cause Heritage Life to

<PAGE> 65
forgive (as of the Closing Date) the repayment by Quaker
State of the Intercompany Indebtedness, or (ii) pay the
Intercompany Indebtedness in full on the Closing.

5.16 NO ACQUISITIONS. The Sellers will cause each of
the Company and the Subsidiaries to refrain from (a) merg-
ing, consolidating, or otherwise combining or agreeing to
merge, consolidate, or otherwise combine with any other
Person, or (b) acquiring or agreeing to acquire blocks of
business or all or substantially all of the Assets or
capital stock or other equity securities of any other
Person.

5.17 INTERCOMPANY LIABILITIES.

(a) Neither the Company nor any Subsidiary will enter
into any Contract or, except as required by any Contract or
transaction disclosed in SECTION 5.17 of the Disclosure
Schedule, engage in any material transaction with either
Seller or any Affiliate of either Seller (other than the
Company or any Subsidiary). Except as otherwise specifi-
cally provided herein and except as provided in SECTION 5.17
of the Disclosure Schedule, on the Closing Date the Sellers
will terminate and will cause the Affiliates of the Sellers
(other than the Company or the Subsidiary) to terminate each
Contract between the Company or any Subsidiary and either
Seller or any such Affiliate.

(b) At least five business days prior to the Closing
Date, the Sellers shall deliver to the Purchaser (i) their
good faith calculation of all Liabilities due from the
Company or any Subsidiary to Quaker State pursuant to the
Tax Allocation Agreement for all periods ending on or before
December 31, 1993, setting forth (with reasonable specifi-
city) the bases for such calculation and determined on the
basis that payments pursuant to the Wescal Settlement
Agreement would be deductible by the Company only as and
when paid; and (ii) a true and complete list and description
(including amounts) of all Liabilities (other than pursuant
to the Tax Allocation Agreement) between the Company or any
Subsidiary and either Seller or any Affiliate of either
Seller (other than the Company or any Subsidiary) to be
outstanding on the Closing Date. On the Closing Date, such
Liabilities shall be paid. Within 30 business days after
the receipt by the Purchaser of such calculation and
description, the Purchaser will provide the Sellers with
written notice indicating whether the Purchaser agrees or
disagrees with the Sellers' calculation and amounts of such

<PAGE> 66
Liabilities. If the Purchaser agrees with the Sellers'
calculation and amounts of such Liabilities or if the
Purchaser fails to deliver to the Sellers such written
notice within such 30-day period, then no adjustment shall
be made. If the Purchaser provides written notice to the
Sellers of any disagreement with the Sellers' calculation or
amounts of such Liabilities, setting forth (with reasonable
specificity) the bases therefor, the Purchaser and the
Sellers will begin good faith negotiations to resolve such
disagreement. If the Purchaser and the Sellers are able to
resolve such disagreement within ten business days after the
Sellers' receipt of notice of disagreement, the Sellers'
calculation or amounts, as the case may be, will be adjusted
accordingly to reflect such resolution and the Sellers will
pay to the Company any excess of the amount of such
Liabilities as paid at or prior to the Closing Date and the
adjusted amount within five business days of such resolu-
tion. If the Purchaser and the Sellers are unable to
resolve any such disagreement within ten business days after
the Sellers' receipt of notice of disagreement, the
Purchaser and the Sellers will jointly request the Settle-
ment Auditor to resolve (in accordance with SECTIONS
2.3(D)(I), (II), and (III) hereof) any issue in dispute as
promptly as possible and will cooperate with the Settlement
Auditor to resolve such disagreement. The Settlement
Auditor will make a determination with respect to any
disputed issue, and the amount of such Liabilities will be
as determined by the Settlement Auditor. Within five
business days after the Settlement Auditor's determination,
the Sellers shall pay to the Company any excess of the
amount of such Liabilities as paid at or prior to the
Closing Date and the amount determined by the Settlement
Auditor. Each of the Purchaser and the Sellers will pay
one-half of the fees and expenses of the Settlement Auditor.
No payment pursuant to this SECTION 5.17(B) will affect any
Purchaser Party's right to indemnification pursuant to
SECTION 10.5(A) hereof should the amount of Taxes as
ultimately determined (on audit or otherwise), for the
periods ending on or before December 31, 1993, exceed the
amount determined under this SECTION 5.17(B).

5.18 RESIGNATIONS OF DIRECTORS. The Sellers will cause
such members of the boards of directors and such officers of
the Company and the Subsidiaries as are designated by the
Purchaser to tender, effective at the Closing, their resig-
nations from such boards of directors or from such offices.

<PAGE> 67
5.19 TAX MATTERS. The Sellers will refrain, and will
cause each of the Company and the Subsidiaries to
refrain from making, filing, or entering into (whether
before or after the Closing) any election, consent, or
agreement described in SECTION 3.13(F) or SECTION 3.13(G)
hereof with respect to the Company or any Subsidiary or any
of their respective Assets, except for extensions of the
statute of limitations with respect to Tax Returns of an
affiliated, consolidated, combined or unitary group with
respect to which Quaker State is the common parent and those
Tax Returns set forth in SECTION 5.19 of the Disclosure
Schedule. The Sellers will refrain from making an election
to reattribute any losses of the Company or any Subsidiary
under Treasury Regulation Section 1.1502-20(g). The Sellers
will calculate unpaid losses with respect to each Insurance
Subsidiary set forth in the federal Income Tax Return for
the year ended December 31, 1993 and for the period ending
on the Closing Date based upon reasonable estimates and
determined in all material respects in accordance with
Section 846 of the Code. The Sellers will determine
insurance reserves with respect to each Life Subsidiary for
the year ended December 31, 1993 and for the period ending
on the Closing Date in all material respects in accordance
with Section 807 of the Code. For the Tax year ended
December 31, 1993 and the period ending on the Closing Date,
the Sellers, the Company, and all the Subsidiaries (other
than the Foreign Subsidiaries) will be included in the same
consolidated federal Income Tax Return.

5.20 USE OF NAME. From and after the Closing Date, the
Sellers will refrain, and will cause their Affiliates to
refrain, from using in the conduct of their respective
business, operations, or affairs the name "Heritage" or any
derivation thereof that is deceptively similar thereto.

5.21 BOOKS AND RECORDS. On the Closing Date, the
Sellers will deliver to the Purchaser or will make available
to the Purchaser all Books and Records of each of the
Company and the Subsidiaries other than duplicate or
derivative copies thereof in the possession of the Sellers
or any of their Affiliates (other than the Company or any
Subsidiary) or any of their respective agents or representa-
tives. If (at any time after the Closing) either Seller
discovers in its possession or under its control any other
Books and Records of the Company or any Subsidiary, the
Sellers will forthwith deliver such Books and Records to the
Purchaser.

<PAGE> 68
5.22 NOTICE. The Sellers will notify the Purchaser
promptly in writing of, and contemporaneously will provide
the Purchaser with true and complete copies of any and all
information or documents relating to, any event, trans-
action, or circumstance occurring after the date hereof of
which the Sellers have Knowledge and that causes or will
cause any covenant or agreement of the Sellers under this
Agreement to be breached in any material respect or that
renders or will render untrue in any material respect any
representation or warranty of the Sellers contained in this
Agreement (without giving effect to any "Knowledge" qualifi-
cations contained in such representation or warranty).

ARTICLE VI

COVENANTS OF PURCHASER

The Purchaser covenants and agrees with the Sellers
that, at all times before the Closing, the Purchaser will
comply with all covenants and provisions of this ARTICLE VI,
except to the extent the Sellers may otherwise consent in
writing or to the extent otherwise required or permitted by
this Agreement.

6.1 REGULATORY APPROVALS. The Purchaser will (a) take
all commercially reasonable steps necessary or desirable,
and proceed diligently and in good faith and use all
commercially reasonable efforts, to obtain as promptly as
practicable all approvals, authorizations, and clearances of
governmental and regulatory authorities required of the
Purchaser to consummate the transactions contemplated
hereby, including without limitation any required approvals
of the insurance regulatory authorities in Bermuda and the
States of Arizona, California, and Florida (b) provide such
other information and communications to such governmental
and regulatory authorities as the Sellers or such authori-
ties may reasonably request, and (c) cooperate with the
Sellers, the Company, and the Subsidiaries in obtaining, as
promptly as practicable, all approvals, authorizations, and
clearances of governmental or regulatory authorities
required of the Sellers, the Company, or the Subsidiaries to
consummate the transactions contemplated hereby.

6.2 HSR FILINGS. The Purchaser will (a) take promptly
all actions necessary to make the filings required of the
Purchaser or its Affiliates under the HSR Act, (b) comply at
the earliest practicable date with any request for addi-

<PAGE> 69
tional information received by the Purchaser or its Affiliates
from the Federal Trade Commission or Antitrust Division of the
Department of Justice pursuant to the HSR Act, (c) cooperate
with the Sellers in connection with the Sellers' filings under
the HSR Act, and (d) request early termination of the applicable
waiting period.

6.3 NOTICE. The Purchaser will notify the Sellers
promptly in writing of, and contemporaneously will provide
the Sellers with true and complete copies of any and all
information or documents relating to, any event,
transaction, or circumstance occurring after the date hereof
of which the Purchaser has knowledge and that causes or will
cause any covenant or agreement of the Purchaser under this
Agreement to be breached in any material respect or that
renders or will render untrue in any material respect any
representation or warranty of the Purchaser contained in
this Agreement.

ARTICLE VII

CONDITIONS TO OBLIGATIONS OF THE PURCHASER

The obligations of the Purchaser hereunder are subject
to the fulfillment, at or before the Closing, of each of the
following conditions (all or any of which may be waived in
whole or in part by the Purchaser). The Sellers will use
all commercially reasonable efforts to (a) fulfill, at or
before the Closing, such of the following conditions (or
portions thereof) over which it has control, and (b) cause
the representations and warranties made by the Sellers in
this Agreement to be true at all times before the Closing
Date.

7.1 REPRESENTATIONS AND WARRANTIES. The represen-
tations and warranties made by the Sellers in this Agree-
ment, in the certificates delivered by the Sellers pursuant
to this Agreement and in the Disclosure Schedule shall be
true in all material respects as of the date hereof and
shall be true in all material respects on and as of the
Closing Date as though such representations and warranties
were made on and as of the Closing Date without giving
effect to any "Knowledge" qualifications contained in such
representations or warranties (except for the "Knowledge"
qualifications specified on EXHIBIT F hereto).
Notwithstanding the foregoing, (a) the representations
contained in SECTIONS 3.11(V) and 3.20 hereof will not be

<PAGE> 70
required to be true in all material respects on and as of
the Closing Date, and (b) if the Purchaser requests,
pursuant to SECTION 5.15 hereof, Heritage Life to forgive
the Intercompany Indebtedness, the representation contained
in the last sentence of SECTION 3.20 hereof will not be
required to be true in all material respects on and as of
the Closing Date. There shall not be an aggregate
difference, which has or may reasonably be expected to have
a Material Adverse Effect, between the representations and
warranties made by the Sellers as of the date hereof (except
the representations contained in SECTIONS 3.11(V) and 3.20
hereof) and such representations and warranties made as of
the Closinq Date.

7.2 PERFORMANCE. The Sellers shall have performed and
complied in all material respects with all agreements,
covenants, obligations, and conditions required by this
Agreement to be so performed or complied with by the Sellers
at or before the Closing.

7.3 OFFICER'S CERTIFICATES. Each Seller shall have
delivered to the Purchaser a certificate of an officer of
such Seller, dated the Closing Date, certifying as to the
fulfillment of the conditions set forth in SECTIONS 7.1,
7.2, 7.4, 7.5, 7.6, 7.7(B) and 7.8 hereof. In addition,
each Seller shall have delivered to the Purchaser a
certificate, dated the Closing Date and executed by the
secretary or any assistant secretary of such Seller,
certifying that such Seller has duly and validly taken all
corporate action necessary to authorize its execution and
delivery of this Agreement and its performance of its
obligations under this Agreement, and that the resolutions
(true and complete copies of which shall be attached to the
certificate) of the board of directors of such Seller with
respect to this Agreement and the transactions contemplated
hereby have been duly and validly adopted and are in full
force and effect.

7.4 HSR ACT APPROVAL. All waiting periods applicable
to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.

7.5 NO INJUNCTION. There shall not be in effect on
the Closing Date any writ, judgment, injunction, decree, or
similar order of any court or similar Person restraining,
enjoining, or otherwise preventing consummation of any of
the transactions contemplated by this Agreement.

<PAGE> 71
7.6 NO PROCEEDING OR LITIGATION. There shall not be
instituted, pending, or (to the knowledge of the Purchaser
or the Sellers) threatened any action, suit, investigation,
or other proceeding in, before, or by any court,
governmental or regulatory authority, or other Person to
(a) restrain, enjoin, or otherwise prevent consummation of
any of the transactions contemplated by this Agreement or
(b) recover any Damages or obtain other relief (which the
Purchaser believes may reasonably be expected to have a
Material Adverse Effect or a material adverse effect on the
Business or Condition of the Purchaser) as a result of this
Agreement or any of the transactions contemplated hereby.

7.7 CONSENTS AND AUTHORIZATIONS.

(a) All orders, consents, permits, authorizations,
approvals, and waivers of every Person disclosed pursuant to
SECTION 4.3(C) hereof and necessary to permit the Purchaser
to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby (including
without limitation any requisite action of the insurance
regulatory authorities in Bermuda and the States of Arizona,
California and Florida) shall have been obtained and shall
be in full force and effect.

(b) All orders, consents, permits, authorizations,
approvals, and waivers of every Person disclosed pursuant to
SECTION 3.6(E) hereof and necessary to permit the Sellers to
perform their obligations under this Agreement and to
consummate the transactions contemplated hereby shall have
been obtained and shall be in full force and effect.

7.8 NO ADVERSE CHANGE. Except as disclosed in SECTION
3.11 of the Disclosure Schedule, since December 31, 1993,
there shall not have been, occurred, or arisen any change
in, or any event (including without limitation any damage,
destruction, or loss whether or not covered by insurance),
condition, or state of facts of any character (other than
events, changes, conditions or facts of a general national
or global scope) that individually or in the aggregate has
or may reasonably be expected to have a Material Adverse
Effect. The loss by the Company or the Subsidiaries of
business from Insurance Agents shall not constitute a
Material Adverse Effect unless, during any full calendar
month commencing after the date hereof until the Closing
Date, the number of Service Contracts produced by Insurance
Agents is less than 85% of the average monthly number of

65
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Service Contracts produced by Insurance Agents in February,
March, and April of 1994.

7.9 OPINION OF COUNSEL. The Sellers shall have
delivered to the Purchaser the opinion, dated the Closing
Date, of Reed Smith Shaw & McClay, as counsel to the
Sellers, of the General Counsel of the Sellers, and of Lord,
Bissell & Brook, counsel to the Subsidiaries, to the effect
set forth in EXHIBITS G-1, G-2, and G-3 hereto,
respectively.

ARTICLE VIII

CONDITIONS TO OBLIGATIONS OF THE SELLERS

The obligations of the Sellers hereunder are subject to
the fulfillment, at or before the Closing, of each of the
following conditions (all or any of which may be waived in
whole or in part by the Sellers). The Purchaser will use
all commercially reasonable efforts to (a) fulfill, at or
before the Closing, such of the following conditions (or
portions thereof) over which it has control, and (b) cause
the representations and warranties made by the Purchaser in
this Agreement to be true at all times before the Closing
Date.

8.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Purchaser in this
Agreement shall be true in all material respects as of the
date hereof and shall be true in all material respects on
and as of the Closing Date as though such representations
and warranties were made on and as of the Closing Date.

8.2 PERFORMANCE. The Purchaser shall have performed
and complied in all material respects with all agreements,
covenants, obligations, and conditions required by this
Agreement to be so performed or complied with by the
Purchaser at or before the Closing.

8.3 OFFICER'S CERTIFICATES. The Purchaser shall have
delivered to the Sellers a certificate of an officer of the
Purchaser, dated the Closing Date, certifying as to the
fulfillment of the conditions set forth in SECTIONS 8.1,
8.2, 8.4, 8.5, 8.6, and 8.7(B) hereof. In addition, the
Purchaser shall have delivered to the Sellers a certificate,
dated the Closing Date and executed by the secretary or any
assistant secretary of the Purchaser, certifying that the
Purchaser has duly and validly taken all corporate action

<PAGE> 73
necessary to authorize its execution and delivery of this
Agreement and its performance of its obligations under this
Agreement, and that the resolutions (true and complete
copies of which shall be attached to the certificate) of the
board of directors of the Purchaser with respect to this
Agreement and the transactions contemplated hereby have been
duly and validly adopted and are in full force and effect.

8.4 HSR ACT APPROVAL. All waiting periods applicable
to this Agreement and the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.

8.5 NO INJUNCTION. There shall not be in effect on
the Closing Date any writ, judgment, injunction, decree, or
similar order of any court or similar Person restraining,
enjoining, or otherwise preventing consummation of any of
the transactions contemplated by this Agreement.

8.6 NO PROCEEDING OR LITIGATION. There shall not be
instituted, pending, or (to the knowledge of the Purchaser,
either Seller, the Company, or any Subsidiary) threatened
any action, suit, investigation, or other proceeding in,
before, or by any court, governmental or regulatory
authority, or other Person to (a) restrain, enjoin, or
otherwise prevent consummation of any of the transactions
contemplated by this Agreement; or (b) recover any Damages
or obtain other relief (which the Sellers believe may
reasonably be expected to have a material adverse effect on
the Business or Condition of the Sellers) as a result of
this Agreement or any of the transactions contemplated
hereby.

8.7 CONSENTS AND AUTHORIZATIONS.

(a) All orders, consents, permits, authorizations,
approvals, and waivers of every Person disclosed pursuant to
SECTION 3.6(E) hereof and necessary to permit the Sellers to
perform their obligations under this Agreement and to
consummate the transactions contemplated hereby shall have
been obtained and shall be in full force and effect.

(b) All orders, consents, permits, authorizations,
approvals, and waivers of every Person disclosed pursuant to
SECTION 4.3(C) hereof and necessary to permit the Purchaser
to perform its obligations under this Agreement and to
consummate the transactions contemplated hereby (including
without limitation any requisite action of the insurance
regulatory authorities in Bermuda and in the States of

<PAGE> 74
Arizona, California, and Florida) shall have been obtained
and shall be in full force and effect.

8.8 OPINIONS OF COUNSEL. The Purchaser shall have
delivered to the Sellers the opinions, dated the Closing
Date, of Weil, Gotshal & Manges, counsel to the Purchaser,
and of the Department Counsel of the Purchaser, to the
effect set forth in EXHIBITS H-1 and H-2 hereto,
respectively.

ARTICLE IX

SURVIVAL OF PROVISIONS

9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Subject to SECTION 9.2 and ARTICLES X and XI hereof, the
representations and warranties respectively made by the
Sellers and the Purchaser in this Agreement, in the
Disclosure Schedule, and in any certificate delivered
pursuant to this Agreement will survive the Closing, and
will remain in full force and effect thereafter:

(a) until 60 days after the expiration of all
applicable statutes of limitations (including all
periods of extension, whether automatic or permissive)
in the case of the representations and warranties of
the Sellers set forth in SECTIONS 3.4, 3.13 (other than
SECTION 3.13(S) hereof), 3.16, and 3.17(F), (G), (H),
(I), and (J) hereof; and

(b) until the second anniversary of the Closing
Date in the case of all other representations and
warranties.

9.2 PURSUIT OF CLAIMS. Notwithstanding the foregoing,
any representation, warranty, covenant, or agreement as to
which a bona-fide claim for indemnification has been
asserted in accordance with ARTICLE X hereof during the
applicable survival period set forth in SECTION 9.1 hereof
will (with respect to such claim) survive, and such claim
may be pursued, beyond the expiration of such survival
period until such claim is resolved by final, nonappealable
judgment or by settlement.

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<PAGE> 75
ARTICLE X

INDEMNIFICATION

10.1 INDEMNIFICATION BY THE SELLERS. Subject to the
provisions of SECTIONS 10.4, 10.6, and 10.7 hereof and
ARTICLES IX and XI hereof, the Sellers jointly and severally
will indemnify and hold harmless each Purchaser Party
(whether or not such Purchaser Party owns any Shares) in
respect of any and all Damages resulting from or relating to
each of the following:

(a) any breach by either Seller of any represen-
tation, warranty, covenant, or agreement made by such
Seller in this Agreement, in the Disclosure Schedule,
or in any certificate delivered by such Seller in
connection with this Agreement without giving effect to
any "Knowledge" qualifications (except for the "Knowl-
edge" qualifications specified on EXHIBIT F hereto)
contained in such representations or warranties, except
for the breach by the Sellers of SECTION 3.13 (other
than SECTION 3.13(S) hereof), 5.5(D), 5.19, or 10.5
hereof which will be governed by Section 10.5 hereof;

(b) any Liability of the Sellers, the Company,
any Subsidiary, or any ERISA Affiliate related to any
Employee Benefit Plan, including without limitation any
Multiemployer Plan or Multiple Employer Plan, main-
tained by, contributed to, or obligated to be contri-
buted to, at any time, by the Sellers, the Company, any
Subsidiary, or any ERISA Affiliate (other than a Com-
pany Employee Benefit Plan which is disclosed on
SECTION 3.16(A) of the Disclosure Schedule or which
would be disclosed on SECTION 3.16(A) of the Disclosure
Schedule but for the last sentence in SECTION 3.16(A)
of the Agreement), including without limitation:

(i) any Liability to the PBGC under Title IV
of ERISA;

(ii) any Liability relating to a
Multiemployer Plan;

(iii) any Liability with respect to non-
compliance with ERISA and other applicable Laws
and the notice and benefit continuation require-
ments of COBRA;

<PAGE> 76
(iv) any Liability with respect to any
action, suit, claim, or proceeding by any Person
against the Purchaser, the Company, any
Subsidiary, any Employee Benefit Plan, or any
fiduciary or former fiduciary of any Employee
Benefit Plan; and

(v) any Liability arising under or with
respect to the severance of any employees of the
Company or any Subsidiary on or before the Closing
Date (including without limitation Liabilities
under or with respect to WARN);

(c) the employment or termination of employment
(including constructive termination) by either Seller,
the Company, or any Subsidiary of any individual
(including without limitation any employee of the
Company or any Subsidiary) attributable to any action
or inaction occurring before the Closing Date; and

(d) the dispute between Heritage Life and John
Alden Life Insurance Company as disclosed in SECTION
3.12 of the Disclosure Schedule; PROVIDED, HOWEVER,
that such indemnification will only be required for
Damages in excess of $250,000 after giving effect to
any amounts collected by Heritage Life in connection
with (i) the lawsuit styled HERITAGE LIFE INSURANCE
COMPANY V. ARISTAR LIFE INSURANCE COMPANY, JOHN ALDEN
LIFE INSURANCE COMPANY, ET AL, Case No. BC002175 in the
Superior Court for the County of Los Angeles,
California, (ii) any arbitration award relating
thereto, or (iii) the reinsurance receivable from
American Equitable Life Insurance Company relating
thereto.

10.2 OTHER INDEMNIFICATION BY THE SELLERS.

(a) Subject to the provisions of SECTIONS 10.4, 10.6
and 10.7 hereof and ARTICLES IX and XI hereof, the Sellers
jointly and severally will indemnify and hold harmless each
Purchaser Party (whether or not such Purchaser Party owns
any Shares) in respect of any and all Environmental Damages
resulting from or relating to the underground storage tank
located on the real property owned by Heritage Life in
Wilkes County, North Carolina.

(b) Subject to SECTIONS 10.6 and 10.7 hereof and
ARTICLE IX hereof, if, after the Closing, Heritage Life

<PAGE> 77
terminates the MAP Contract, the Sellers jointly and
severally will, promptly after request by Heritage Life,
reimburse Heritage Life (or its designee) for any and all
prepayment or termination fees payable under the MAP
Contract (including any such fee renegotiated by the Sellers
after the date hereof), less an amount equal to the product
obtained after multiplying $40,000 by the number of months
remaining from the date of termination of the MAP Contract
until March 31, 1996.

10.3 INDEMNIFICATION BY THE PURCHASER. Subject to the
provisions of SECTIONS 10.4, 10.6 and 10.7 hereof and
ARTICLE IX hereof, the Purchaser will indemnify and hold
harmless each Seller Party (whether or not such Seller Party
sells any Shares) in respect of any and all Damages
resulting from or relating to any breach by the Purchaser of
any representation, warranty, covenant, or agreement made by
the Purchaser in this Agreement or in any certificate
delivered by the Purchaser in connection with this
Agreement.

10.4 INDEMNIFICATION PROCEDURES.

(a) If an Indemnitee becomes aware of any matter that
it believes is indemnifiable pursuant to SECTION 10.1,
10.2(A), or 10.3 hereof and such matter involves (i) any
claim made against the Indemnitee by any person or entity
other than a Purchaser Party or a Seller Party or (ii) the
commencement of any action, suit, investigation,
arbitration, or similar proceeding against the Indemnitee by
any Person other than a Purchaser Party or a Seller Party,
the Indemnitee will give the Indemnifying Party prompt
written notice of such claim or the commencement of such
action, suit, investigation, arbitration, or similar
proceeding. Such notice will (A) provide (with reasonable
specificity) the basis on which indemnification is being
asserted, (B) set forth the actual or estimated amount of
Damages for which indemnification is being asserted, if
known, and (C) be accompanied by copies of all relevant
pleadings, demands, and other papers served on the
Indemnitee.

(b) The Indemnifying Party will have a period of 30
days after the delivery of each notice required by
SECTION 10.4(A) hereof during which to respond to such
notice. If the Indemnifying Party elects to defend the
claim described in such notice or does not respond within
such 30-day period, the Indemnifying Party will be obligated

<PAGE> 78
to compromise or defend (and will control the defense of)
such claim, at its own expense and by counsel chosen by the
Indemnifying Party and reasonably satisfactory to the
Indemnitee. The Indemnitee will cooperate fully with the
Indemnifying Party and counsel for the Indemnifying Party in
the defense against any such claim, and the Indemnitee will
have the right to participate at its own expense in the
defense of any such claim. If the Indemnifying Party
responds within such 30-day period and elects not to defend
such claim, the Indemnitee will be free to compromise or
defend (and control the defense of) such claim and to pursue
such remedies as may be available to the Indemnitee under
applicable Law.

(c) Any compromise or settlement of any claim (whether
defended by the Indemnitee or by the Indemnifying Party)
will require the prior written consent of the Indemnitee and
the Indemnifying Party (which consent will not be
unreasonably withheld). If, however, the Indemnitee refuses
to consent to a bona fide offer of compromise or settlement
that the Indemnifying Party desires to accept, the
Indemnitee may continue to pursue such claim, free of any
participation by the Indemnifying Party, at the sole expense
of the Indemnitee. In such event, the obligation of the
Indemnifying Party to the Indemnitee will equal the lesser
of (i) the amount of the offer of compromise of settlement
that the Indemnifying Party desired to accept, PLUS the
reasonable out-of-pocket expenses (except for expenses
resulting from the Indemnitee's participation in any defense
controlled by the Indemnifying Party) incurred by the
Indemnitee before the date the Indemnifying Party notified
the Indemnitee of the offer of compromise or settlement, or
(ii) the actual out-of-pocket amount that the Indemnitee is
obligated to pay as a result of the Indemnitee's continued
pursuit of such claim, PLUS the reasonable out-of-pocket
expenses incurred by the Indemnitee after the Indemnifying
Party notified the Indemnitee of the offer of compromise or
settlement, MINUS the reasonable out-of-pocket expenses
incurred by the Indemnifying Party after such notice date.

(d) If an Indemnitee becomes aware of any matter that
it believes is indemnifiable pursuant to SECTION 10.1,
10.2(A), or 10.3 hereof and such matter involves a claim
made by any Purchaser Party or Seller Party, the Indemnitee
will give the Indemnifying Party prompt written notice of
such claim. Such notice will (i) provide (with reasonable
specificity) the bases for which indemnification is being
asserted and (ii) set forth the actual or estimated amount

<PAGE> 79
of Damages for which indemnification is being asserted. The
Indemnifying Party will have a period of 30 days after the
delivery of each notice required by this SECTION 10.4(D)
during which to respond to such notice. If the Indemnifying
Party accepts (in writing) full responsibility for the claim
described in such notice, the actual or estimated amount of
Damages reflected in such notice will be conclusively deemed
a Liability that the Indemnifying Party owes, and will pay
(in cash) upon demand, to the Indemnitee. If the
Indemnifying Party has disputed such claim or does not
respond within such 30-day period, the Indemnifying Party
and the Indemnitee agree to proceed in good faith to
negotiate a resolution of such dispute. If all such
disputes are not resolved through negotiations within 30
days after such negotiations begin, either the Indemnifying
Party or the Indemnitee may initiate litigation to resolve
such disputes. If the Indemnifying Party does not respond
within 30 days after delivery of any claim notice required
by this SECTION 10.4(D), the Indemnitee may initiate
litigation to resolve such claim.

10.5 TAX INDEMNIFICATION.

(a) The Sellers will be responsible for, will pay or
cause to be paid, and will indemnify and hold harmless each
Purchaser Party from and against any and all Damages for or
in respect of each of the following:

(i) any and all Taxes with respect to any
affiliated, consolidated, combined or unitary Tax
Return that included the Company or any Subsidiary (or
any predecessor) for any taxable period (or portion
thereof) of the Company or any Subsidiary ending on or
before the Closing Date;

(ii) any and all Taxes with respect to any
separate Tax Returns of the Company or any Subsidiary
(or any predecessor) for any taxable period (or portion
thereof) of the Company or any Subsidiary ending on or
before December 31, 1993;

(iii) any and all Taxes resulting from the Company
or any Subsidiary having been (or ceasing to be)
included in any affiliated, consolidated, combined, or
unitary Tax Return that included the Company or any
Subsidiary (or any predecessor) for any taxable period
(or portion thereof) ending on or prior to the Closing
Date (including without limitation any Liability for

<PAGE> 80
Taxes resulting from a "deferred intercompany
transaction," within the meaning of Treasury Regulation
Section 1.1502-13(a)(2) (or any analogous or similar
provision under state, local or foreign Law), that
occurred on or prior to the Closing Date);

(iv) any and all Taxes of any member of an
affiliated, consolidated, combined, or unitary group
(other than the Company or any Subsidiary) of which the
Company or any Subsidiary (or any predecessor) is or
was a member on or prior to the Closing Date, by reason
of the Liability of the Company or any Subsidiary
pursuant to Treasury Regulation Section 1.1502-6(a) or
any analogous or similar state, local or foreign Law;

(v) any breach by the Sellers of any
representation, warranty, or covenant contained in
SECTION 3.13 (other than SECTION 3.13(S) hereof),
5.5(D), 5.19, or 10.5 hereof;

(vi) any and all Taxes allocated to the Seller
pursuant to SECTION 10.5(B) hereof; and

(vii) any and all Section 807 Taxes;

PROVIDED, HOWEVER, that (A) no claim by a Purchaser Party
for indemnification pursuant to SECTION 10.5(A)(I) through
(VI) hereof may be made unless and until the Purchaser Party
has incurred Damages in respect of Taxes in excess of the
Accrued Tax Reserve (if any) reflected on the Expanded Year
End GAAP Financial Statements and audited by Coopers &
Lybrand (less any amounts paid or credited to Sellers with
respect thereto) and (B) no claim by a Purchaser Party for
indemnification pursuant to SECTION 10.5(A)(VII) may be made
unless and until the Purchaser Party has incurred Damages in
respect of Taxes in excess of the Liability for Section 807
Taxes (if any) that has been specifically taken into account
in calculating deferred Taxes as specifically reflected on
the Expanded Year End GAAP Financial Statements and audited
by Coopers & Lybrand (less any amounts paid or credited to
Sellers with respect thereto).

(b) Taxes with respect to any separate Tax Return of
the Company or any Subsidiary attributable to the taxable
period of the Company or a Subsidiary beginning before the
Closing Date and ending on or before December 31, 1993 shall
be allocated (i) to the Sellers for the period up to and
including December 31, 1993 to the extent such Taxes exceed

<PAGE> 81
the specific amount reserved therefor on the Expanded Year
End GAAP Financial Statements and not paid or credited to
the Sellers, and (ii) to the Purchaser (A) for the period up
to and including December 31, 1993 to the extent such Taxes
do not exceed the specific amount reserved therefor on the
Expanded Year End GAAP Financial Statements and not paid or
credited to the Sellers and (B) for the period subsequent to
December 31, 1993. With respect to any separate Tax Return
required to be filed by the Purchaser for a taxable period
of the Company or any Subsidiary beginning before the
Closing Date and ending on or before December 31, 1993, the
Purchaser shall provide the Sellers with a statement setting
forth the amount of Tax that is allocable to the Sellers
pursuant to this SECTION 10.5(B) (the "Statement") at least
20 business days prior to the due date for filing of such
Tax Return (including extensions). The Statement shall
provide (with reasonable specificity) the bases on which
such Taxes were allocable to Sellers. Within five business
days after Sellers' receipt of the Statement, the Sellers
will provide Purchaser with written notice indicating
whether the Sellers agree or disagree with the Statement.
If the Sellers notify Purchaser in writing of agreement with
the Statement or if Sellers fail to deliver such written
notice within such five-day period, then not later than five
business days before the due date for payment of Taxes with
respect to such Tax Return, the Sellers shall pay to the
Purchaser an amount equal to the Taxes shown on the
Statement that are allocable to the Sellers pursuant to this
SECTION 10.5(B). In the event the Sellers provide written
notice to the Purchaser of any disagreement with the
Statement, setting forth (with reasonable specificity) the
bases therefor, the parties will negotiate in good faith to
resolve such disagreement. If the parties are able to
resolve such disagreement within five business days after
the Purchaser's receipt of notice of disagreement, then the
Taxes allocable to the Sellers will be adjusted accordingly
and Sellers shall pay such amount to the Purchaser no later
than five business days before the due date for the payment
of Taxes with respect to such Tax Return. In the event the
parties are unable to resolve any disagreement within five
business days following the Purchaser's receipt of notice of
disagreement, the parties shall jointly request the
Settlement Auditor to resolve (in accordance with SECTION
2.3(D)(I), (II), and (III) hereof) any issue in dispute as
promptly as possible and shall cooperate with the Settlement
Auditor to resolve such disagreement. If the Settlement
Auditor is unable to make a determination with respect to
any disputed issue within five business days prior to the

<PAGE> 82
due date (including extensions) for the filing of the Tax
Return in question, then the Purchaser may file such Tax
Return on the due date (including extensions) therefor
without such determination having been made.
Notwithstanding the filing of such Tax Return, the
Settlement Auditor shall make a determination with respect
to any disputed issue, and the amount of Taxes that are
allocated to Sellers pursuant to SECTION 10.5(B) hereof
shall be as determined by the Settlement Auditor. The fees
and expenses of the Settlement Auditor shall be paid one-
half by the Purchaser and one-half by the Sellers. In the
case of a dispute, (i) the Sellers shall pay to the
Purchaser not later than five business days before the due
date for the payment of Taxes with respect to such Tax
Return, the amount of Taxes as to which there is no
disagreement and (ii) the Sellers shall pay to the Purchaser
not later than five business days after notice to the
Sellers of resolution thereof, any remaining amounts
allocable to the Sellers as shown in such notice. No
payment pursuant to this SECTION 10.5(B) will affect any
Purchaser Party's right to indemnification pursuant to
SECTION 10.5(A) hereof should the amount of Taxes as
ultimately determined (on audit or otherwise), for the
periods covered by such Tax Returns and which are the
responsibility of the Sellers, exceed the amount of the
Sellers' payment under this SECTION 10.5(B).

(c) The Company, the particular Subsidiary, or the
Purchaser will promptly notify the Sellers of the
commencement of any claim, audit, examination, or other
proposed change or adjustment by any taxing authority
concerning any Tax or other Damages covered by SECTION
10.5(A) hereof ("Tax Claim"). The Sellers shall have the
right (i) to represent the Company or any Subsidiary's
interests in any Tax audit or administrative or court
proceeding relating, in the case of any affiliated,
consolidated, combined or unitary Tax Return that included
the Company or any Subsidiary, to taxable periods of the
Company or any Subsidiary ending on or prior to the Closing
Date and, in the case of all other Tax Returns, relating to
taxable periods of the Company or any Subsidiary ending on
or prior to December 31, 1993, and (ii) to employ counsel of
its choice at its expense; PROVIDED that if the results of
such Tax audit or proceeding would have a material adverse
effect on the Company and its Subsidiaries taken as a whole
for any taxable period including or ending after the Closing
Date, then the Seller and the Purchaser shall jointly
control the defense and settlement of any such Tax audit or

<PAGE> 83
proceeding and each party shall cooperate with the other
party at its own expense and there shall be no settlement or
closing or other agreement with respect thereto without the
consent of the other party, which consent will not be un-
reasonably withheld. The Sellers shall promptly notify the
Purchaser if it decides not to control the defense or set-
tlement of any such Tax audit or administrative or court
proceeding and the Purchaser thereupon shall be permitted to
defend and settle such Tax audit or proceeding. In the
event of a Final Determination in any such Tax audit or
proceeding which results in Taxes due under Section 815 of
the Code attributable to the balance of the policyholders
surplus account of any Life Subsidiary on the Closing Date
in a taxable period covered by such audit or proceeding
(other than, in the case of the taxable period commencing on
January 1, 1994 and ending on the Closing Date, Taxes so due
as a result of the Election), then, no later than five days
following such Final Determination, the Sellers shall pay to
the Purchaser an amount equal to the Phase III Tax Reim-
bursement.

(d) The Sellers will promptly notify the Purchaser of
the commencement of any claim, audit, examination, or other
proposed change or adjustment by any taxing authority which
may specifically affect the Company or any Subsidiary or
their Tax attributes, and the Sellers shall keep the
Purchaser duly informed of the progress thereof.

(e) The Sellers shall include, or cause to be
included, the Company and the Subsidiaries (other than any
Foreign Subsidiary) in (i) the United States consolidated
federal Income Tax Return of Quaker State for the taxable
periods of each of the Company and such Subsidiaries ending
on December 31, 1993 and ending on the Closing Date, and
(ii) all other consolidated and all affiliated, combined, or
unitary Tax Returns of Quaker State, Holding or their
Affiliates (other than those including only the Company or
any Subsidiary) for the taxable period of each of the
Company and such Subsidiaries ending (or the portion of any
taxable year ending) on December 31, 1993 and ending on the
Closing Date to the extent permitted by applicable Law.
Such Tax Returns referred to in clauses (i) and (ii) above
are referred to as "Seller Consolidated or Combined
Returns." The Sellers shall properly prepare or cause to be
properly prepared, and timely file or cause to be timely
filed, all Seller Consolidated or Combined Returns which
include the Company or any Subsidiary (other than any
Foreign Subsidiary) or their respective Assets or operations

<PAGE> 84
for all taxable periods of the Company and such Subsidiaries
ending on or prior to the Closing Date (which Tax Returns
shall include the Company and such Subsidiaries and the
reportable items from the assets or operations of the
Company and such Subsidiaries through and including the
Closing Date). The Seller also shall properly prepare or
cause to be properly prepared, and timely file or cause to
be timely filed, all other Tax Returns of or which include
the Company or any Subsidiary or its Assets or operations
required to be filed on or prior to the Closing Date. The
Tax Returns referred to in the two preceding sentences shall
be prepared in a manner consistent with past practices, and
the Sellers shall pay or cause to be paid all Taxes shown as
due on such Tax Returns or otherwise levied or assessed upon
the Company or any Subsidiary or any of their Assets on or
prior to the Closing Date (other than Taxes which are being
contested in good faith and by appropriate proceedings and
for which adequate current reserves have been established in
accordance with GAAP). The Sellers shall, subsequent to the
Closing Date, provide written notice to the Purchaser of the
filing of any amended Tax Return or claim for refund with
respect to any consolidated, affiliated, combined, or
unitary Tax Return relating to any taxable period ending on
or prior to the Closing Date which would specifically affect
the Company or any Subsidiary or their Tax attributes and,
if such filing would have a material adverse effect on the
Company and the Subsidiaries taken as a whole for any
taxable period including or ending after the Closing Date,
the Sellers will not make such filing without the consent of
the Purchaser, which consent will not be unreasonably
withheld. The Sellers shall have the right to prepare and
file, at their expense, any claim for refund with respect to
any separate Tax Returns of the Company or any Subsidiary
relating to taxable periods of the Company or any Subsidiary
ending on or prior to December 31, 1993 (other than a claim
for refund arising by reason of the carryback of any item
incurred after December 31, 1993), subject to the
Purchaser's consent to the filing thereof, which consent
will not be unreasonably withheld. The Purchaser shall be
responsible for filing all Tax Returns required to be filed
by or on behalf of the Company and the Subsidiaries, or with
respect to their Assets and operations, after the Closing
Date other than Seller Consolidated or Combined Returns.
The Sellers and the Purchaser shall cooperate fully with
each other and make available to each other in a timely
fashion such Tax data and other information as may be
reasonably required by the Seller or the Purchaser for the
preparation of any Tax Returns required to be prepared and

<PAGE> 85
filed (or caused to be prepared and filed) by the Sellers or
the Purchaser hereunder, or in connection with the prepara-
tion or filing of any election, consent or certification.

(f) The Sellers and the Purchaser will provide to each
other, and the Purchaser will cause each of the Company and
the Subsidiaries to provide to the Sellers, full access, at
any reasonable time and from time to time, at the business
location at which the Books and Records are maintained,
after the Closing Date, to such Tax data of each of the
Company and the Subsidiaries as the Sellers or the
Purchaser, as the case may be, may from time to time
reasonably request and will furnish, and request the
independent accountants and legal counsel of the Sellers,
the Purchaser, the Company, or any Subsidiary to furnish to
the Sellers or Purchaser, as the case may be, such
additional Tax and other information and documents in the
possession of such Persons as the Sellers or the Purchaser
may from time to time reasonably request. In particular,
the Sellers will provide to the Purchaser, to the extent
requested by the Purchaser, true and complete copies of all
separate Tax Returns (and related workpapers) of each of the
Company and the Subsidiaries and such portions of the
affiliated, consolidated, combined or unitary Tax Returns of
affiliated groups of which the Company or any Subsidiary was
a member (and related workpapers), in each case to the
extent such returns or such portions related exclusively to
the Company or any Subsidiary or are relevant to any
asserted Liability against the Company or any Subsidiary
pursuant to Treasury Regulation Section 1.1502-6 or any
analogous rule.

(g) The Sellers shall be responsible for, shall pay or
cause to be paid, and shall indemnify and hold harmless
Purchaser, the Company and any Subsidiary from and against
any Liability arising under any Tax sharing, Tax indemnity,
Tax allocation or similar Contracts (whether or not written)
to which the Company or any Subsidiary, any predecessor of
the Company or any Subsidiary, or any transferor to the
Company or any Subsidiary, is a party or is obligated
thereunder, in each case on or prior to the Closing Date.
Neither the Sellers, the Purchaser, the Company nor any
Subsidiary shall have any liability to the Company or any
Subsidiary pursuant to the Tax Allocation Agreement after
the Closing Date except as specifically contemplated under
this Agreement.

<PAGE> 86
(h) Any refund of Taxes received (or utilized as a
credit against Taxes due for taxable periods beginning on or
after the Closing Date) by the Company or any Subsidiary
after the Closing Date shall be retained by the Company or
such Subsidiary. In the event the Company or any Subsidiary
shall receive a refund of Taxes after the Closing Date (or
utilize such refund as a credit against Taxes due for
taxable periods beginning on or after the Closing Date) with
respect to a separate Tax Return of the Company or such
Subsidiary relating to a taxable period ending on or prior
to December 31, 1993 (other than a refund arising by reason
of a carryback of any item incurred after December 31,
1993), then the amount of such refund, net of Taxes payable
on receipt thereof (reduced as set forth in SECTION 10.6(B)
hereof), shall reduce any indemnity payment otherwise due
(or shall be reimbursed by Purchaser to the Sellers to the
extent of any prior indemnity payments made) by Sellers to
Purchaser under SECTION 10.5(A)(II) hereof.

(i) Any dispute as to any matter covered by this
SECTION 10.5 shall be resolved by the Settlement Auditor in
accordance with the provisions set forth in SECTIONS
2.3(D)(I), (II), and (III) hereof. Each of the Purchaser
and the Sellers will pay one-half of the fees and expenses
of the Settlement Auditor.

10.6 TAX EFFECT OF INDEMNIFICATION PAYMENTS.

(a) The Sellers and the Purchaser agree that any
payment made under ARTICLE X hereof will be treated by the
parties on their Tax Returns as an adjustment to the
aggregate consideration for the Shares. If, notwithstanding
such treatment by the parties, any indemnity payment is
determined to be taxable to any Purchaser Party by any
taxing authority, the Sellers shall indemnify the Purchaser
for any Taxes payable by such Purchaser Party by reason of
the receipt of such indemnity payment (including any
payments under this SECTION 10.6), determined at a Tax rate
equal to 35%.

(b) An indemnity payment otherwise due and payable
hereunder (other than an indemnity payment covered by
SECTION 10.6(C) hereof) shall be decreased (but not below
zero) to the extent of any net actual reduction in Tax
Liability that is actually realized by the Indemnitee upon
its payment of an indemnifiable loss as determined by the
Indemnitee, determined at a Tax rate equal to 35%.

<PAGE> 87
(c) In the event of any Final Determination with
respect to any Income Tax Return of (or which include) the
Company or any Subsidiary which has the effect of a Tax
Detriment (or Tax Benefit) to the Company or such Subsidiary
for any taxable period ending on or before the Closing Date
(in the case of any affiliated, consolidated, combined or
unitary Income Tax Return that included the Company or such
Subsidiary) or ending on or before December 31, 1993 (in the
case of any separate Income Tax Return of the Company or
such Subsidiary) (each a "Pre-Closing Period") and a
correlative Tax Benefit (or Tax Detriment) to the Company or
such Subsidiary for any taxable period ending after the
Closing Date (or after December 31, 1993 in the case of a
separate Tax Return) (each a "Post-Closing Period"), the
Purchaser shall pay to the Sellers (or Sellers shall pay to
the Purchaser) an amount equal to any such correlative Tax
Benefit (or Tax Detriment) Realized by the Company or such
Subsidiary in any Post-Closing Period.

For purposes of this Agreement, (i) "Tax Benefit"
means, in the case of any Income Tax Return, the amount by
which the Tax liability payable and owing to the appropriate
taxing authority is actually reduced by loss, deduction,
refund or credit, determined as set forth below (appropriate
payments shall be made between the parties to take account
of subsequent changes in the Tax Benefit (e.g., to reflect
changes in the Tax Benefit if a loss, deduction, refund or
credit is subsequently disallowed)), (ii) "Tax Detriment"
means, in the case of any Income Tax Return, the amount by
which the Tax liability payable and owing to the appropriate
taxing authority is actually increased, determined as set
forth below, plus any interest due to such government or
jurisdiction relating to such increase in Tax liability
(appropriate payments shall be made between the parties to
take account of subsequent changes in the Tax Detriment),
(iii) a Tax Benefit shall be deemed to have been "Realized"
at the time any refund of taxes attributable to such Tax
Benefit is actually received or applied against other Taxes
due or, if earlier, at the time of filing an Income Tax
Return (other than an amended return or claim for refund) on
which the loss, deduction, or credit that gave rise to such
Tax Benefit is actually applied in reduction of Taxes that
would otherwise be due and (iv) a Tax Detriment shall be
deemed to have been "Realized" at the time additional Taxes
are payable (upon audit, pursuant to a court determination
or otherwise) with respect to the income that gave rise to
such Tax Detriment or, if earlier, at the time of filing of

<PAGE> 88

an Income Tax Return on which the income that gave rise to
such Tax Detriment is reported.

For purposes of the determination of the amount of any
Tax Benefit or Tax Detriment, it shall be assumed that (i)
any Tax Detriment of the Company or any Subsidiary shall be
subject to a Tax at a 35% rate; (ii) any Tax Benefit of the
Company or any Subsidiary will currently reduce income that
is taxable at a 35% rate (provided that in the event that
the Company or any Subsidiary (or any consolidated group of
which it is a member) is actually subject to the alternative
minimum tax in any taxable period (an "AMT Period"), then
any Tax Benefit Realized in such AMT Period shall be
calculated using a 20% Tax rate and, in such taxable period
as the Company or such Subsidiary (or such group) is not
actually subject to the alternative minimum tax, an
additional payment shall be made with respect to any Tax
Benefit Realized in such AMT Period calculated at a 15% Tax
rate (it being understood that the Company or such
Subsidiary (or such group) shall not be considered subject
to the alternative minimum tax in a taxable period in which
it utilizes credits under Section 53 of the Code); (iii) the
Company or any Subsidiary shall have sufficient taxable
income to use any Tax Benefit in the respective taxable
periods in which such Tax Benefit first arose; and (iv) the
failure of the Company or any Subsidiary to claim a Tax
Benefit shall not preclude any payment otherwise properly
due to the Sellers hereunder, unless such failure is
pursuant to the written advice of independent counsel or is
inconsistent with a Final Determination. For purposes of
this Agreement, "Final Determination" shall mean (A) a
decision, judgment, decree, or other order by any court of
competent jurisdiction, which decision, judgment, or decree
or other order has become final, (B) a closing agreement
entered into under Section 7121 of the Code, or any other
settlement agreement which is final and binding upon the
Sellers, the Company, any Subsidiary or the Purchaser, as
the case may be, and the relevant taxing authority and
entered into in accordance with SECTION 10.5 hereof in
connection with an administrative or judicial proceeding, or
(C) the expiration of the time for instituting a claim for
refund, or if such a claim was filed, the expiration of the
time for instituting suit with respect thereto.

(d) All amounts for which any Indemnitee seeks
indemnification hereunder will be computed net of
(i) insurance proceeds received (net of any Taxes payable by
the Indemnitee by reason of the receipt of such insurance

<PAGE> 89
proceeds) with respect thereto, and (iii) any amounts
recovered (net of any Taxes payable by the Indemnitee by
reason of the receipt of such amounts) from any third
parties based on claims the Indemnitee has against such
third parties which reduce the Damages that would otherwise
be sustained. Each Indemnitee agrees to take all
commercially reasonable steps to pursue, or assign to the
Indemnifying Party, such claims or rights it may have
against any third party which would materially reduce the
amount of Damages otherwise incurred by such Indemnitee.
For the purposes of this SECTION 10.6(D), Taxes payable
shall be determined assuming a Tax rate equal to 35%.

10.7 LIMITATION ON CERTAIN INDEMNIFICATION.

(a) No claim by the Sellers, on the one hand, and the
Purchaser, on the other hand, for indemnification under
SECTION 10.1(A), 10.1(C), 10.1(D), 10.2, or 10.3 hereof may
be made unless and until the Sellers or the Purchaser, as
the case may be, has incurred Damages relating to
indemnification pursuant to such provisions (other than for
breach of SECTION 3.4 or 3.16 hereof) in excess of $250,000
in the aggregate, at which time, all amounts of Damages in
excess of $250,000 may be claimed and recovered as provided
in this Agreement; provided, however, that (whether or not
Damages in excess of $250,000 have been incurred)
indemnification under SECTION 10.1 hereof may be claimed at
any time (subject to SECTION 9.1 hereof), and full recovery
may be had, for all Damages resulting from any
misrepresentation or breach of warranty of SECTIONS 3.4 and
3.16 hereof by either Seller.

(b) Notwithstanding anything to the contrary contained
in this Agreement, the Indemnifying Parties will not be
liable, under any circumstances, to the Indemnitees for
indemnification under SECTION 10.1(A), 10.1(C), 10.1(D),
10.2, or 10.3 hereof in an aggregate amount in excess of the
sum of 100% of the first $50 million of Damages and 50% of
the next $50 million of Damages; PROVIDED, HOWEVER, that
(whether or not Damages in excess of such amounts have been
incurred) indemnification under SECTION 10.1 hereof may be
claimed at any time (subject to SECTION 9.1 hereof), and
full recovery may be had, for all Damages resulting from
misrepresentation or breach of warranty of SECTIONS 3.4 and
3.16 hereof by either Seller

<PAGE> 90
ARTICLE XI

TERMINATION

11.1 TERMINATION. Without limiting the rights or
remedies that any party hereto may otherwise have, this
Agreement may be terminated, and the transactions
contemplated hereby may be abandoned:

(a) at any time before the Closing by
written agreement of the Sellers and the Purchaser;
or

(b) at any time after September 30, 1994
by the Sellers or the Purchaser if the transactions
contemplated by this Agreement have not been
consummated on or before such date and such failure to
consummate is not caused by a breach of this Agreement
(or any representation, warranty, covenant, or
agreement included herein) by the party electing to
terminate pursuant to this SECTION 11.1(B).

11.2 EFFECT OF TERMINATION. If this Agreement is
validly terminated pursuant to SECTION 11.1 hereof, (a) the
obligation of the Purchaser to purchase the Shares and the
obligation of Holding to sell the Shares will terminate,
(b) the provisions of SECTIONS 12.5, 12.7, and 12.8 hereof
will continue to apply following any such termination, and
(c) no party hereto will be relieved of any Liability for
Damages that such party may have to the other party by
reason of such party's breach of this Agreement (or any
representation, warranty, covenant, or agreement included
herein); PROVIDED, HOWEVER, that upon the breach by any
party of any representation or warranty included herein,
such breaching party will be liable to the other party
hereto only for the out-of-pocket expenses (not to exceed
$750,000) incurred by such other party in connection with
this Agreement and the transactions contemplated hereby.

<PAGE> 91
ARTICLE XII

MISCELLANEOUS

12.1 SECTION 338(H)(10) ELECTION.

(a) The Purchaser may elect, at the Purchaser's sole
option, to file an election under Section 338(h)(10) of the
Code and under any comparable provisions of state, local, or
foreign Law with respect to the purchase of the Shares and
may include in such election any of the Subsidiaries as the
Purchaser may determine (collectively the "Election"). The
Sellers shall join and shall cause any Affiliate to join, in
both cases at the request of the Purchaser, in the Election.
If the Election is made, the Purchase Price shall be
increased by the sum of (i) the Election Tax Cost plus (ii)
the Phase III Tax Reimbursement and the Sellers and the
Purchaser shall report, in connection with the determination
of Taxes, the transactions contemplated by this Agreement in
a manner consistent with the Election, the calculation of
the Election Tax Cost, and the calculation of the Phase III
Tax Reimbursement, including the reasonable determination by
the Purchaser, taking into account the reasonable input of
the Sellers, of the fair market value of the Assets of the
Company and the Subsidiaries and the allocation of the
deemed purchase price of the Assets of the Company and the
Subsidiaries within the meaning of Section 338(h)(10) of the
Code and the Treasury Regulations promulgated thereunder.

(b) The Purchaser shall notify the Sellers in writing
of the Purchaser's intention to file the Election no later
than fifteen days prior to the due date for the filing of
the Election (the "Election Notice").

(c) The term "Election Tax Cost" shall mean the
product obtained after multiplying 35% by the excess of (i)
the net gain recognized by the Company and the Subsidiaries
as a consequence of the Election (excluding from such net
gain, however, all distributions from policyholders surplus
account of Heritage Life pursuant to Section 815 of the
Code) over (ii) the net gain that would have been recognized
by Holding on the sale of the Shares if the Election had not
been made. For purposes of the computation of the Election
Tax Cost, net gain shall be computed based upon the Purchase
Price, as adjusted pursuant to SECTION 2.2 hereof but
without regard to any other purchase price adjustments under
this Agreement plus, in the case of SECTION 12.1(C)(I)
hereof, the liabilities (within the meaning of Section

<PAGE> 92
338(h)(10) of the Code and the Treasury Regulations
promulgated thereunder) of the Company and the Subsidiaries
that are included in the Election.

(d) Within thirty days after the execution of this
Agreement, the Sellers will provide to the Purchaser (i) a
computation of the Election Tax Cost computed as of the
Closing Date, (ii) a schedule setting forth Holding's
adjusted stock basis in the Shares ("Company Stock Basis")
as of the Closing Date and the Company's adjusted tax basis
in the shares of each Subsidiary (collectively, "Subsidiary
Stock Basis") as of the Closing Date, (iii) a schedule
setting forth the adjusted tax basis of the Company and the
Subsidiaries in the Assets of the Company and the
Subsidiaries broken down by major category of Assets ("Asset
Basis") as of the Closing Date, and (iv) a schedule setting
forth the liabilities (within the meaning of Section
338(h)(10) of the Code and the Treasury Regulations
thereunder) of the Company and the Subsidiaries ("Section
338 Liabilities") as of the Closing Date. The computation
of such items shall be based upon the Sellers' (or the
Company's or any Subsidiaries') Books and Records and Tax
Returns (as filed on or prior to the date hereof) for all
periods through the date hereof and, for the period from the
date hereof through the Closing Date, shall be based upon
the best available information and projections as of the
date of the computations. Upon the request of the
Purchaser, the Sellers agree to promptly provide the
Purchaser with such additional information as the Purchaser
shall deem appropriate in order for the Purchaser to verify
the Sellers' computation of the Election Tax Cost, Company
Stock Basis, Subsidiary Stock Basis, Asset Basis, and
Section 338 Liabilities. The Purchaser shall be permitted
to review the Books and Records of the Sellers (to the
extent relevant to the determination of the Election Tax
Cost, Company Stock Basis, Subsidiary Stock Basis, Asset
Basis or Section 338 Liabilities), the Company, and the
Subsidiaries (including Tax Returns or, in the case of
affiliated, consolidated, combined, or unitary Tax Returns,
the relevant portions thereof) for the purpose of verifying
to the Purchaser's satisfaction the Sellers' computations of
the Election Tax Cost, Company Stock Basis, Subsidiary Stock
Basis, Asset Basis, and Section 338 Liabilities.

(e) The Sellers and the Purchaser shall negotiate in
good faith with the goal of reaching agreement on the amount
of the Election Tax Cost on or before the Closing Date. If
the Sellers and the Purchaser are unable to resolve any

<PAGE> 93
disputes with respect to the Election Tax Cost, Company
Stock Basis, Subsidiary Stock Basis, Asset Basis, or Section
338 Liabilities on or before the Closing Date, then any
remaining disputed items will be submitted to the Settlement
Auditor for resolution. The Sellers and the Purchaser will
cooperate with the Settlement Auditor to resolve the
remaining disputed items. The Sellers and the Purchaser
will each pay one-half of the fees and expenses of the
Settlement Auditor. The Settlement Auditor's resolution of
any such disputed items will be reflected in a written
report which will be delivered promptly to, and will be
final and binding upon, the Sellers and the Purchaser.

(f) If, on or before the Closing Date, (i) the
Purchaser shall have delivered the Election Notice to the
Sellers and (ii) the Sellers and the Purchaser shall have
agreed on the Election Tax Cost, then, on the Closing Date
(x) the Sellers shall execute and deliver to the Purchaser
five copies of Internal Revenue Service Form 8023 provided
by the Purchaser (the "Election Forms") and (y) the
Purchaser shall pay to the Sellers the sum of the Election
Tax Cost and the Phase III Tax Reimbursement.

(g) If, on or before the Closing Date, (i) Purchaser
shall not have delivered the Election Notice to the Sellers
or (ii) any items in dispute with respect to the Election
Tax Cost, Company Stock Basis, Subsidiary Stock Basis, Asset
Basis, or Section 338 Liabilities remain unresolved on the
Closing Date, then on the Closing Date, (x) the Sellers
shall execute and deposit the Election Forms and (y) the
Purchaser shall deposit $2,934,563 (the "Deposit"), in both
cases with an Escrow Agent reasonably acceptable to the
Sellers and the Purchaser pursuant to an Escrow Agreement
reasonably acceptable to the Sellers and the Purchaser. The
Escrow Agreement shall provide, among other things, that the
Escrow Agent shall release the Election Forms to the
Purchaser upon the payment (net of the Deposit, which shall
be released to the Sellers upon the release of the Election
Forms to the Purchaser) to the Sellers of the Election Tax
Cost as finally determined; PROVIDED, HOWEVER, that if the
Election Tax Cost has not been finally determined by the
tenth business day preceding the due date for the filing of
the Election, the Escrow Agreement shall provide that the
Escrow Agent shall release the Election Forms to the
Purchaser and shall release the Deposit to the Sellers on
the tenth business day preceding the due date for the filing
of the Election. The Escrow Agreement shall also provide
that, in the event the Purchaser provides written notice to

<PAGE> 94
the Escrow Agent that the Election will not be filed, the
Escrow Agent shall return the Election Forms to the Sellers
and shall return the Deposit to the Purchaser. The Escrow
Agreement shall provide further that the Deposit shall be
invested in obligations of the United States or certificates
of deposits or commercial paper of such corporations as the
Sellers and the Purchaser shall agree and the interest
earned thereon (net of fees and expenses) shall be payable,
upon release of the Deposit, to the Sellers if the Election
is made and to the Purchaser if the Election is not made.

(h) Upon the final determination by the Settlement
Auditor of the Election Tax Cost, if in dispute when the
Deposit is released by the Escrow Agent, then within ten
days of such determination the Sellers shall pay to the
Purchaser the excess of the amount paid pursuant to the
Escrow Agreement over the Election Tax Cost as finally
determined, or the Purchaser shall pay to the Sellers the
excess of the Election Tax Cost as finally determined over
the Estimated Election Tax Cost, as the case may be.

(i) The Purchaser shall be responsible for the
preparation and filing of all forms and documents required
in connection with the Election. The Purchaser shall
provide the Sellers with copies of (i) any necessary
corrections, amendments, or supplements to Form 8023, (ii)
all attachments required to be filed therewith pursuant to
applicable Treasury Regulations, and (iii) any comparable
forms and attachments with respect to any applicable state,
foreign, or local elections being made pursuant to the
Election. The Sellers shall execute and deliver to the
Purchaser within five days of receipt such documents or
forms as are required by any Tax Laws to properly complete
the Election. The Sellers and the Purchaser shall cooperate
fully with each other and make available to each other such
Tax data and other information as may be reasonably required
by the Sellers or the Purchaser in order to timely file the
Election and any other required statements or schedules.
The Sellers shall promptly execute and deliver to the
Purchaser any amendments made to Form 8023 (and any
comparable state, local and foreign forms) subsequent to the
filing of the Election and any attachments which are
required to be filed under applicable Law.

(j) The Sellers shall comply with all of the
requirements of Section 338(h)(10) of the Code and the
Treasury Regulations thereunder. The Sellers shall take no
action which is inconsistent with the requirements for

<PAGE> 95
filing the Election under the Code and the applicable
Treasury Regulations.

(k) To the extent permitted by state and local Laws,
the principles and procedures of this SECTION 12.1 shall
also apply with respect to a Section 338(h)(10) election or
equivalent or comparable provision under state, local, or
foreign Law, including, without limitation an election under
Section 338(g) of the Code or equivalent or comparable
provision under state, local, or foreign Law (PROVIDED, that
in the case of any election under Section 338(g) of the Code
or equivalent or comparable provision under state, local or
foreign law, Purchaser shall be responsible for any Taxes
payable with respect thereto). The Sellers covenant and
agree that to the extent that an election similar to a
Section 338(h)(10) election under the Code is optional under
any state, local, or foreign Law, the Sellers shall join in
any such election as requested in writing by the Purchaser.

12.2 NOTICES. Any notice or other communication given
pursuant to this Agreement must be in writing and
(a) delivered personally, (b) sent by telefacsimile or other
similar facsimile transmission, (c) delivered by overnight
express, or (d) sent by registered or certified mail,
postage prepaid, as follows:

(i) If to the Sellers:

Quaker State Corporation
255 Elm Street
Oil City, Pennsylvania 16301
Attention: General Counsel
Facsimile number: 814-676-7030

(ii) If to the Purchaser:

General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attention: Marc G. Metcalf
Ambrose Murphy, Esq.
Facsimile number: 203-357-6969

89
<PAGE> 96
with a copy to:

Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
Facsimile number: 212-310-8007

All notices and other communications required or permitted
under this Agreement that are addressed as provided in this
SECTION 12.2 will (A) if delivered personally or by
overnight express, be deemed given upon delivery; (B) if
delivered by telefacsimile or similar facsimile
transmission, be deemed given when electronically confirmed;
and (C) if sent by registered or certified mail, be deemed
given when received. Any party from time to time may change
its address for the purpose of notices to that party by
giving a similar notice specifying a new address, but no
such notice will be deemed to have been given until it is
actually received by the party sought to be charged with the
contents thereof.

12.3 NONCOMPETITION. The Sellers will refrain, and
will cause their present and future Affiliates (other than
the Company and the Subsidiaries) to refrain, from directly
or indirectly:

(a) employing, engaging, or seeking to employ or
engage, at any time before the fifth anniversary of the
Closing Date, any Person who is an officer, director,
employee, Insurance Agent, or similar representative of
the Company or any Subsidiary on the date hereof or on
the Closing Date, unless such officer, director,
employee, Insurance Agent, or other similar
representative (i) resigns voluntarily (without any
solicitation from the Seller or any of their
Affiliates), or (ii) is terminated by the Company or
any Subsidiary after the Closing Date;

(b) utilizing or attempting to utilize any
information regarding Service Contract holders,
policyholders, officers, directors, employees, agents,
consultants, or other similar representatives of any
Subsidiary for the purposes of causing or attempting to
cause (i) any policyholder or Service Contract holder
to replace or terminate any insurance policy, Service
Contract, or annuity Contract issued, reinsured, or
underwritten by any Subsidiary, in whole or in part,

<PAGE> 97
with products or services of any other Person at any
time, (ii) any reinsurer to terminate any reinsurance,
coinsurance, or other similar Contract, or to sever a
relationship, with any Subsidiary at any time, or
(iii) any Insurance Agent, consultant, or other similar
representative (including without limitation any
automobile dealership) of any Subsidiary to resign or
sever a relationship with such Subsidiary at any time;

(c) issuing, underwriting, or reinsuring or
attempting to issue, underwrite, or reinsure any
Service Contract, insurance policy, or annuity
Contract, or otherwise engaging in the insurance,
Service Contract, or annuity business other than the
lubrication warranty business, at any time before the
fifth anniversary of the Closing Date, in the United
States of America; and

(d) selling or offering to sell, administering,
or endorsing any insurance policy, Service Contract, or
annuity Contract issued or underwritten by any Person,
or otherwise engaging in the insurance agency or
Service Contract sales business in the United States of
America other than the lubrication warranty business,
at any time before the fifth anniversary of the Closing
Date.

12.4 ENTIRE AGREEMENT. Except for documents executed
by the Sellers and the Purchaser pursuant hereto, this
Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter of
this Agreement, and this Agreement contains the sole and
entire agreement between the parties hereto with respect to
the subject matter hereof.

12.5 EXPENSES. Except as otherwise expressly provided
in this Agreement (including without limitation as provided
in ARTICLE X hereof), each of the Sellers and the Purchaser
will pay its own costs and expenses in connection with this
Agreement and the transactions contemplated hereby.

12.6 PUBLIC ANNOUNCEMENTS. At all times at or before
the Closing, the Sellers and the Purchaser will each consult
with the other before issuing or making any reports,
statements, or releases to the public with respect to this
Agreement or the transactions contemplated hereby and will
use good faith efforts to agree on the text of a joint
public report, statement, or release or will use good faith

<PAGE> 98
efforts to obtain the other party's approval of the text of
any public report, statement, release to be made solely on
behalf of a party. If the Sellers and the Purchaser are
unable to agree on or approve any such public report,
statement, or release and such report, statement, or release
is, in the opinion of legal counsel to a party, required by
Law or appropriate to discharge such party's disclosure
obligations, then such party may make or issue the legally
required or appropriate report, statement, or release. Any
such report, statement, or release approved or permitted to
be made pursuant to this SECTION 12.6 may be disclosed or
otherwise provided by the Seller or the Purchaser to any
Person, including without limitation to any employee or
customer of either party hereto and to any governmental or
regulatory authority.

12.7 CONFIDENTIALITY. For a period of four years after
the date hereof, (a) each of the Purchaser and the Sellers
will refrain, and will cause its respective officers,
directors, employees, agents, and other representatives to
refrain, from disclosing to any other Person any
confidential documents or confidential information
concerning the other party hereto furnished to it in
connection with this Agreement or the transactions
contemplated hereby and will use such documents and
information only for the purposes of this Agreement and the
transactions contemplated hereby and not for any other
purpose; and (b) the Sellers will refrain, and will cause
their respective officers, directors, employees, agents, and
other representatives to refrain, from disclosing to any
Person any confidential documents or confidential
information concerning the Company or the Subsidiaries
unless, in the case of either clause (a) or (b) above,
(i) such disclosure is compelled by judicial or
administrative process or by other requirements of Law
(including without limitation in connection with obtaining
necessary insurance regulatory approvals) and notice of such
disclosure is furnished to such other party hereto;
(ii) either party hereto deems it advisable (upon advice of
such party's legal counsel) to disclose any such
confidential documents or information in connection with the
requirements of any securities Law; or (iii) such
confidential documents or information can be shown to have
been (A) previously known by the party hereto receiving such
documents or information, (B) in the public domain through
no fault of such receiving party, or (C) later acquired by
such receiving party from other public sources.

<PAGE> 99
12.8 BROKERS. The Sellers jointly and severally will
indemnify and hold harmless each Purchaser Party in respect
of any and all claims or demands for commission,
compensation, or other Damages by any broker, finder, or
other agent (whether or not a present or former employee or
agent of the Sellers, the Company, or any Subsidiary)
claiming to have been engaged by either Seller, the Company,
or any Subsidiary in connection with the transactions
contemplated by this Agreement, and the Sellers will bear
the cost of the reasonable out-of-pocket expenses incurred
by each Purchaser Party in investigating, defending against,
or appealing any such claim or demand. The Purchaser will
indemnify and hold harmless each Seller Party in respect of
any and all claims or demands for commission, compensation,
or other Damages by any broker, finder, or other agent
(whether or not a present or former employee or agent of the
Purchaser) claiming to have been engaged by the Purchaser in
connection with the transactions contemplated by this
Agreement, and the Purchaser will bear the cost of the
reasonable out-of-pocket expenses incurred by each Seller
Party in investigating, defending against, or appealing any
such claim or demand.

12.9 FURTHER ASSURANCES. The Sellers and the Purchaser
agree that, from time to time after the Closing, upon the
reasonable request of the other, they will cooperate and
will cause their respective Affiliates to cooperate with
each other to effect the orderly transition of the business,
operations, and affairs of the Company and the Subsidiaries.
Without limiting the generality of the foregoing, (a) the
Sellers will provide, and will cause its Affiliates to
provide, representatives of the Purchaser reasonable access
to all Books and Records of the Seller and its Affiliates
reasonably requested by the Purchaser in the preparation of
any post-Closing financial statements, reports, or Tax
Returns of the Company or any Subsidiary; (b) the Purchaser
will provide representatives of the Sellers reasonable
access to all pre-Closing Books and Records of the Company
or any Subsidiary reasonably requested by the Seller in the
preparation of any post-Closing financial statements,
reports, or Tax Returns of the Seller; and (c) each party
hereto will execute such documents and instruments as the
other party hereto may reasonably request containing terms
and conditions mutually satisfactory to each party hereto to
further effectuate the terms hereof. The Sellers agree to
retain, in accordance with their standard practice, all
Books and Records of the Sellers and their Affiliates that
relate to the Company or any Subsidiary. The Purchaser

<PAGE> 100
agrees to retain, and to cause the Company and the
Subsidiaries to retain, in accordance with their standard
practice, all Books and Records of the Purchaser and its
Affiliates that relate to the Company or any Subsidiary.

12.10 WAIVER. Any term or condition of this Agreement
may be waived in writing at any time by the party that is
entitled to the benefit thereof. A waiver on one occasion
will not be deemed to be a waiver of the same or any other
breach or nonfulfillment on a future occasion. All
remedies, either under this Agreement, or by Law or
otherwise afforded, will be cumulative and not alternative.

12.11 AMENDMENT. This Agreement may be modified or
amended only by a writing duly executed by or on behalf of
the Sellers and the Purchaser.

12.12 COUNTERPARTS. This Agreement may be executed
simultaneously in any number of counterparts, each of which
will be deemed an original, but all of which will constitute
one and the same instrument.

12.13 NO THIRD PARTY BENEFICIARY. The terms and
provisions of this Agreement are intended solely for the
benefit of the Sellers, the Purchaser, each Seller Party,
each Purchaser Party, and their respective successors and
permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any
other Person.

12.14 GOVERNING LAW. This Agreement will be governed
by and construed and enforced in accordance with the Laws of
the State of New York (without regard to the principles of
conflict of laws) applicable to a Contract executed and
performable in such state.

12.15 BINDING EFFECT. This Agreement is binding upon
and will inure to the benefit of the parties and their
respective successors and permitted assigns.

12.16 NO ASSIGNMENT. Neither this Agreement nor any
right or obligation hereunder or part hereof may be assigned
by any party hereto without the prior written consent of the
other party hereto (and any attempt to do so will be void),
except (a) as otherwise specifically provided herein; (b)
that the Purchaser may assign all or any part of its rights
or obligations hereunder to one or more of its Affiliates
without the consent of the Seller; PROVIDED, HOWEVER, that

<PAGE> 101
upon such assignment, the Purchaser will not be deemed to be
released from any of its obligations hereunder; (c) that one
or more Affiliates of the Purchaser may, without the consent
of the Seller, purchase from Heritage Indemnity Company all
the outstanding capital stock of Heritage Mechanical at the
Closing; PROVIDED, HOWEVER, that upon such purchase, the
Purchaser will not be deemed to be released from any of its
obligations hereunder; and (d) that the Purchaser may,
without the consent of the Sellers, assign its rights to
indemnification under SECTION 10 2(A) hereof to any Person;
PROVIDED, HOWEVER, that any indemnification by the Sellers
to any such assignee will be subject to SECTION 10.7(A)
hereof.

12.17 INVALID PROVISIONS. If any provision of this
Agreement is held to be illegal, void, or unenforceable by
any court of competent jurisdiction, (a) such provision will
have no force or effect; and (b) the remaining provisions of
this Agreement will remain in full force and effect and will
not be affected by the illegal, void, or unenforceable
provision.

<PAGE> 102
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered as of the date first written above by
the duly authorized officers of the Sellers and the
Purchaser.

QUAKER STATE CORPORATION

By: /s/ Conrad A. Conrad
-------------------------
Name: Conrad A. Conrad
-----------------------
Title: President and COO
----------------------

QS HOLDING COMPANY

By: /s/ R.S. Keefer
-------------------------
Name: R. S. Keefer
-----------------------
Title: President
----------------------

GENERAL ELECTRIC CAPITAL
CORPORATION

By: /s/ Diane M. Martin
-------------------------
Name: Diane M. Martin
-----------------------
Title: As Attorney-in-fact
----------------------

<PAGE> 103
Stock Purchase Agreement dated as of May 12, 1994 among Quaker
State Corporation, QS Holding Company and General Electric
Capital Corporation with respect to all of the outstanding
Capital Stock of Heritage Insurance Group, Inc.
___________________________________________________________

List of omitted Exhibits and Schedules
- - --------------------------------------

Omitted Exhibits
- - -----------------

Power of Attorney

Exhibit A List of Insurance Subsidiaries

Exhibit B List of Individuals Having Knowledge

Exhibit C List of Subsidiaries

Exhibit D Audit Adjustments

Exhibit E Permitted Investments

Exhibit F Knowledge Exceptions

Exhibit G-1 Form of Opinion of Reed Smith Shaw & McClay,
counsel to the Sellers

Exhibit G-2 Form of Opinion of General Counsel of the Sellers

Exhibit G-3 Form of Opinion of Lord, Bissell & Brook, counsel
to the Subsidiaries

Exhibit H-1 Form of Opinion of Weil, Gotshal & Manges, counsel
to the Purchaser

Exhibit H-2 Form of Opinion of Department Counsel of the
Purchaser

<PAGE> 104
Omitted Schedules

3.3 Listing of states of organization, foreign qualification for Heritage
Insurance Group, Inc. ("Heritage") and subsidiaries

3.4 Authorized, issued, outstanding and ownership of Capital Stock of
Heritage and subsidiaries

3.5 Listing of majority ownership or control of other entities by Heritage

3.6 Conflicts with Material Contracts and list of government filings needed

3.7 List of matters outside Heritage Books and Records

3.8 Description of audit adjustments to Heritage financial statements

3.11 Listing of Material changes in Heritage business or condition since
December 31, 1993

3.12 Listing of undisclosed liabilities

3.13 Listing of tax matters

3.14 Listing of litigation

3.15 Listing of matters related to compliance with laws

3.16 Listing of Heritage pension and benefit plans

3.17 Listing of matters related to Heritage property, listing of owned and
leased real property, intellectual property and environmental matters

3.18 Listing of contracts of Heritage and subsidiaries

3.19 Listing of matters related to insurance issued by Heritage and
subsidiaries

3.20 List of threats of cancellation or downgrading of rating (blank)

3.21 List of licenses and permits

3.22 Listing of insurance coverage

3.23 Listing of intercompany liabilities

3.24 List of bank accounts

5.5 List of exclusive contracts with insurance agents

5.11 Listing of securities issuance by Heritage and subsidiaries

5.12 Listing of dividend payments and redemptions by Heritage and subsidiaries

5.17 Listing of intercompany liabilities

5.19 Listing of tax matters

Quaker State hereby agrees to furnish supplementally a copy of any
omitted exhibit or schedule to the Commission upon request.

<PAGE> 1

Exhibit 11

Computation of Net Income Per Share
Quaker State Corporation and Subsidiaries

<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
6/30/94 6/30/93 6/30/94 6/30/93
(in thousands except per share data, unaudited)
<S> <C> <C> <C> <C>
1. Net income (loss) $5,069 $4,381 $10,652 $7,784

2. Average number of shares of capital stock outstanding 27,256 27,182 27,268 27,165

3. Shares issuable upon exercise of dilutive stock
options outstanding during the period, based on
average market prices 104 22 90 22

4. Shares issuable upon exercise of dilutive stock
options outstanding during the period, based on
higher of average or period-end market prices 104 22 90 22

5. Average number of capital and capital equivalent
shares outstanding (2 + 3) 27,360 27,204 27,358 27,187

6. Average number of capital shares outstanding,
assuming full dilution (2 + 4) 27,360 27,204 27,358 27,187

7. Net income (loss) per capital and capital equivalent share
(1 divided by 5) $.19 $.16 $.39 $.29

8. Net income (loss) per capital share assuming full dilution
(1 divided by 6) $.19 $.16 $.39 $.29

</TABLE>

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