FORM 10-K
                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549
(Mark One)
(X)  Annual Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For the fiscal year ended:  December 31, 1995 
( )  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 For the transition period from: ______ to ______
 
                              XEROX CORPORATION
            (Exact name of registrant as specified in its charter)
 
                                    1-4471
                           (Commission file number)
 
New York                                                            16-0468020
(State of incorporation)                  (I.R.S. Employer Identification No.)

P.O. Box 1600, Stamford, Connecticut                                     06904
(Address of principal executive offices)                            (Zip Code)

       Registrant's telephone number, including area code: (203) 968-3000
 
          Securities registered pursuant to Section 12(b) of the Act:
 
                                                       Name of Each Exchange
Title of Each Class                                    on Which Registered

Common Stock, $1 par value                             New York Stock Exchange
                                                       Chicago Stock Exchange
$3.6875 Ten-Year Sinking Fund Preferred Stock          New York Stock Exchange


       Securities registered pursuant to Section 12(g) of the Act:  None
 
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 (or for such shorter period 
that the registrant was required to file such reports), and (2) has been 
subject to such filing requirements for the past 90 days.
                                                       Yes: (X)  No: (  )
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 
of Regulation S-K is not contained herein, and will not be contained, to the 
best of registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-K or any amendment to 
this Form 10-K.
                                                       (  )

The aggregate market value of the voting stock of the registrant held by non-
affiliates as of February 29, 1996 was:                $15,511,301,091.


                            (Cover Page Continued)


Indicate the number of shares outstanding of each of the registrant's classes 
of common stock, as of the latest practicable date:
 
Class                                         Outstanding at February 29, 1996

Common Stock, $1 Par Value                                 108,621,646 Shares
Class B Stock, $1 Par Value                                      1,000 Shares


                      Documents Incorporated By Reference
 
Portions of the following documents are incorporated herein by reference:
 
                                                       Part of 10-K in
Document                                               Which Incorporated

Xerox Corporation 1995 Annual Report to Shareholders          I & II

Xerox Corporation Notice of 1996 Annual Meeting of             III
Shareholders and Proxy Statement (to be filed not 
later than 120 days after the close of the fiscal 
year covered by this report on Form 10-K).



                                    PART I


Item 1. Business

Overview

Xerox Corporation (Xerox or the Company) is The Document Company and a leader 
in the global document market, providing document services that enhance 
productivity.  References herein to "us" or "our" refer to Xerox and 
consolidated subsidiaries unless the context specifically requires otherwise.  
We distribute our products in the Western Hemisphere through divisions and 
wholly-owned subsidiaries. In Europe, Africa, the Middle East and parts of 
Asia including Hong Kong, India and China, we distribute through Rank Xerox 
Limited and related companies (Rank Xerox) in which we have an 80 percent 
financial interest and The Rank Organisation Plc (RO) has a 20 percent 
financial interest. In Japan and other areas of the Pacific Rim, Australia and 
New Zealand, document processing products are distributed by Fuji Xerox Co. 
Ltd. (Fuji Xerox), an unconsolidated joint venture, which is equally owned by 
Fuji Photo Film Company, Ltd. of Japan and Rank Xerox.  On February 28, 1995, 
we paid RO 620 million pounds sterling, or $972 million, to increase our 
financial interest in Rank Xerox to 80 percent from 67 percent.

In January 1996, we announced agreements to sell our remaining property and 
casualty insurance units to investor groups led by Kohlberg Kravis Roberts & 
Co. (KKR) and existing management for consideration totaling $2.7 billion.  We 
expect the transactions will close in the middle of this year.  As a result, 
results from insurance operations are now accounted for as discontinued 
operations and all prior periods have been restated.  Therefore, the Document 
Processing business is the only component of Continuing Operations.

Our Document Processing activities encompass developing, manufacturing, 
marketing, servicing and financing a complete range of document processing 
products and services designed to make offices around the world more 
productive.  We believe that documents will play a central role in business, 
government, education and other organizations far into the future and that 
efficient processing of documents offers significant opportunities for 
productivity improvements.  The financing of Xerox equipment is generally 
carried out by Xerox Credit Corporation (XCC) in the United States and 
internationally by foreign financing subsidiaries and divisions in most 
countries that we operate.  Document Processing operations employed 85,200 
people worldwide at year-end 1995.

In 1993, we announced a worldwide Document Processing restructuring program to 
significantly reduce the cost base and to improve productivity.  Our 
objectives were to reduce our worldwide work force by more than 10,000 
employees and to close or consolidate a number of facilities.  To date, the 
activities associated with the 1993 restructuring program have reduced 
employment by 12,000 and achieved pre-tax cost savings of approximately $650 
million in 1995 and $350 million in 1994. However, we have reinvested a 
portion of these savings to reengineer business processes, support the 
expansion in growth markets, and mitigate anticipated continuing pricing 
pressures.



Continuing Operations - Document Processing

The Document Processing Strategy

We believe that documents represent the knowledge base of an organization and 
will play a dynamic and central role in business, government, education and 
other organizations far into the future:

- -  Increasingly, documents are being created and stored in digital electronic 
form.

- -  The use of electronically created paper documents will continue to 
increase.

As The Document Company, we believe that by helping our customers navigate and 
manage the world of documents, we can help them improve their productivity and 
grow their businesses.  We help customers make documents better, make better 
documents, and work better with documents.

We create customer value by providing innovative document technologies, 
products, systems, services and solutions that allow our customers to:

- -  Move easily within and between the electronic and paper forms of documents.

- -  Scan, store, retrieve, view, revise and distribute documents electronically 
anywhere in an organization.

- -  Print or publish documents on demand, at the point closest to the need, 
including those locations of our customers' customers.

- -  Integrate the currently separate modes of producing documents, such as the 
data center, production publishing and office environments into a seamless, 
user-friendly enterprise-wide document systems network - with technology 
acting as an enabler.

We have formed alliances to bring together the diverse infrastructures that 
currently exist and to nurture the development of an open document services 
environment to support complementary products from our partners and customers.  
We are working with more than 50 industry organizations to make office, 
production and electronic printing an integrated, seamless part of today's 
digital work place.

Market Overview

Our total document processing revenues were $16.6 billion in 1995, of which 49 
percent were generated in the United States, 33 percent in Europe, and 18 
percent in the remainder of the world (excluding the unconsolidated $8.5 
billion of Fuji Xerox revenues in Japan and much of the Pacific Rim).

We have traditionally had a strong position in the black-and-white copying 
market, which is expected to grow at a rate approximating real economic growth 
in North America and Western Europe, and at a faster rate in the developing 
countries.  The remaining enterprise services market segments, which include 
production publishing, electronic printing, color copying and printing and 
digital office systems, are expected to grow at a substantially higher rate.  
With our many new product introductions over the past five years, our 
participation in the global document processing market has been considerably 
broadened and is expected to increase.  This growth will be driven by the 
transfer of document production from offset printing to digital publishing, 
the increase in customer requirements for network and distributed printing, 
accelerating demand for color documents and the combination of many document 
capabilities into digital office systems.

Xerox Focus

We believe that our success is due to our ability to continually improve the 
features and performance of our products based on meeting demonstrated 
customer needs, competitive pricing levels, our excellent reputation for 
performance and service, expanding sales coverage through agents and retail 
chains, extending our leadership position in the rapidly growing document 
outsourcing business, maintaining our strong market position in emerging 
markets and continuing to capitalize on the exploding home office market.  As 
a result, we believe we are well positioned to participate fully in the 
anticipated growth in the market segments in which we compete.

Black-and-White Copying

We estimate that the black-and-white copying market was approximately $35 
billion in 1995 and growing.  With about $10 billion in copier revenues, we 
expect our black-and-white copier business to grow faster than the industry. 

We market the broadest line of black-and-white copiers and duplicators in the 
industry, ranging from a three copies-per-minute personal copier to a 135 
copies-per-minute fully-featured duplicator to special copiers designed for 
large engineering and architectural drawings up to 3 feet by 4 feet in size.  
Many of our state-of-the-art products have improved ease of use, reliability, 
copy quality, job recovery and ergonomics as well as productivity-enhancing 
features, including zoom enlargement and reduction, highlight color, copying 
on both sides of the paper, and collating and stapling which allow the 
preparation of completed document sets.  The innovative copiers we introduced 
in 1995 include a high-speed copier for space-conscious offices and one 
specially designed to eliminate stress on bindings when books are copied.

We have a strong position with major accounts who demand a consistently high 
level of service worldwide.  Our competitive advantages include a focus on 
customer call response times, diagnostic equipment that is state-of-the-art 
and availability of twenty-four-hour-a-day, seven-day-a-week service.

We also are increasing our leadership position in small commercial accounts, 
the most competitive copier market segment, through marketing programs such as 
sales through independent agents, retail outlets and trade associations like 
the American Medical Association, which represents more than two million 
current and prospective customers.

The market for commercial copiers is expanding rapidly in emerging countries 
in Latin America, Eastern Europe, the Commonwealth of Independent States, 
Africa, China and India.  1995 revenues in all of these markets grew faster 
than the growth in the developed markets.

Enterprise Services Products

Our enterprise services products fall into four digital product categories:  
Production Publishing, Electronic Printing, Color Copying and Printing and 
Digital Office Systems.



Production Publishing

The era of production publishing was launched in 1990 when we announced the 
DocuTech family which was a major step beyond our traditional reprographics 
market into the publishing industry, a $100 billion market with enormous 
potential. With more than 10,000 systems installed all over the world, our 
production publishing revenues in 1995 were $1.4 billion.

Production publishing technology is increasingly replacing older, traditional 
offset printing as customers seek improved productivity and cost savings, 
faster turnaround of document preparation, and the ability to print documents 
"on demand."  We offer the widest range of solutions available in the 
marketplace - from dial-up lines through the Internet to state-of-the-art 
networks - and we are committed to expanding these print-on-demand solutions 
as new technology and applications are developed. 

The DocuTech family of digital publishers scans hard copy and converts it into 
digital documents, or accepts digital documents directly from networked 
personal computers or workstations.  A user-friendly electronic cut-and-paste 
workstation allows the manipulation of images or the creation of new 
documents.  For example, in only a few minutes, a page of word-processed text, 
received over a network, can be combined with a photograph which is scanned 
from hard copy and enhanced electronically:  cropped, positioned precisely, 
rotated, brightened or sharpened.  Digital masters can be prepared in a 
fraction of the time necessary to prepare offset plates, thereby allowing fast 
turnaround time.  DocuTech prints high-resolution (600 dots per inch) pages at 
up to 135 impressions per minute.  The in-line finisher staples completed sets 
or finishes booklets with covers and thermal-adhesive bindings.  Because the 
finished document can be stored as a digital document, hard copy documents can 
be printed on demand, or only as required, thus avoiding the long production 
runs and high storage and obsolescence costs associated with offset printing.  
The concept of print-on-demand took another major step in 1995 when we 
introduced the 6135 Production Publisher.  It makes print-for-one publishing 
practical; personalized publishing runs can now be as short as one or two 
prints.

Electronic Printing

We estimate that the electronic printing market was over $20 billion in 1995 
and is expected to grow to $25 billion in 1998.

This market has largely consisted of high-end host-connected printers and low-
end desktop printers.  We expect significant future growth for robust, fully 
featured printers serving multiple users on networks.  This growth will be 
driven by the increase in personal computers and workstations on networks, 
client-server processing, accelerating growth in the demand for enterprise-
wide distributed printing, and declining electronics costs.  These faster, 
more reliable printers will print collated multiple sets on both sides of the 
paper, insert covers and tabs, and staple or bind; but without the labor-
intensive steps of printing an original and manually preparing the documents 
on copiers.  In addition, documents can be printed on these printers from 
remote data center computers, enabling the efficiencies of distributing 
electronically and then printing, rather than printing paper documents and 
then distributing them.

We have had a strong position in the high-end, high-volume electronic printing 
market segment since 1977.  Our high-end electronic printing revenues were 
approximately $2 billion in 1995 and we expect this market to grow from almost 
$7 billion in 1995 to more than $9 billion in 1998.  We are well positioned to 
capitalize on the growth in the electronic printing market because of both our 
innovative technologies and our understanding of customer requirements for 
distributed printing from desktop and host computers.  Our goal is to 
integrate office, production and data-center electronic printing into a 
single, seamless, user-friendly network. 

Xerox pioneered and continues to be a worldwide leader in electronic laser 
printing, which combines computer, laser, communications and xerographic 
technologies.  We market a broad line of robust printers with speeds that 
range from five pages per minute (ppm) to the industry's fastest cut-sheet 
printer at 135 ppm, and continuous-feed production printers at speeds up to 
420 ppm.  Many of these printers have simultaneous interfaces that can be 
connected to multiple host computers as well as local area networks.

Breakthrough technology allows printing, in a single pass through our  
highlight color printers, black-and-white plus one customer-changeable color 
(as well as shades, textures and mixtures of each) at production speeds up to 
92 ppm.  Other manufacturers' highlight color printers require additional 
passes to add variable color, which increase cost, reduce speed and 
reliability and introduce the possibility of color misalignment.

Productivity-enhancing features include printing collated multiple sets on 
both sides of the paper, inserting covers and tabs, printing checks with 
magnetic ink character recognition (MICR), and stapling; all on cut sheet 
plain paper, with sizes up to 11 by 17 inches.

During 1995, we significantly expanded our opportunities with two major new 
printer series that will redefine our role in the electronic production 
printing industry.  With the DocuPrint CF Series family, we entered the market 
for very high-volume, continuous-feed printers at speeds up to 420 ppm.  The 
new DocuPrint IPS Series makes the IBM Advanced Function Presentation (AFP) 
architecture directly available to our production printing customers.

Color Copying and Printing

We estimate that the color copying and printing market was $14 billion in 1995 
and is expected to grow to $24 billion in 1998.  Our revenues from color 
products grew 45 percent in 1995 to $600 million.

The use of color originals in the office is accelerating.  Independent studies 
have concluded that color documents are more effective in communicating 
information and that decision maker performance improves with the use of color 
documents.  The vast majority of industry shipments of workstations and 
personal computers have color monitors, creating the need for economical, 
convenient and reliable, high-quality color copying and printing. 

Xerox entered the digital color market in 1991 with the introduction of the 
Xerox 5775 digital copier which is targeted at the production market segment.  
The 5775 copies high resolution full color at 7.5 ppm, black-and-white at 30 
ppm, and allows the colorizing of black-and-white documents.  The Xerox 4700 
is a highly cost-efficient, full-color 7.5 ppm electronic printer that also 
prints black-and-white at 30 ppm.  The 4700 prints complete collated documents 
incorporating both black-and-white and color pages in a single step and at 
optimum speeds.  It offers a broad array of connectivity options for both the 
office network and host computer environments.  The MajestiK color copier 
series, introduced in 1993, offers benchmark copy quality and 
price/performance, and prints full color at 6 ppm and black-and-white at 36 
ppm.  The MajestiK series is targeted at the expanding market for color in the 
office.  In 1994, we introduced the 4900 color laser printer for networked 
office groups printing at up to 1200 by 300 dpi resolution and three ppm for 
full color and 12 ppm for black-and-white.  During 1995, we introduced the 
XPrint family of networked desktop color laser printers using "Intelligent 
Color" technology allowing work groups to integrate color and black-and-white 
documents on a single printer at up to 600 x 600 dots per inch resolution.  We 
also introduced the Regal color copier/printer that provides MajestiK color 
copy quality at a fast 9 ppm speed for full color copying and printing.

Digital Office Systems

Our digital office systems, known as Document Centre Systems, were introduced 
in 1995 and bring the production publishing productivity to the office.  This 
new category of robust and extensible systems combines many capabilities - 
printing, scanning, faxing and copying documents - into a single digital 
resource that can be accessed from either a personal computer or on a walk-up 
basis.  With interactive software, a user can easily control the various steps 
of the document cycle - document input, management and output - from the 
desktop.  The seamless integration of services and interoperability will bring 
new levels of efficiency to the office.  These new systems are a portal to the 
network and allow office workers to navigate between digital and paper 
documents, share information and knowledge, and collaborate with other members 
of their work groups.  The multitasking architecture allows Document Centre 
Systems to perform multiple functions concurrently.

The two initial models in the Document Centre product family are equipped with 
integrated scanners for digital copying and printing services, accessible 
either from the PC desktop or from the user interface on the devices 
themselves.  The Document Centre System 35 is designed for work groups of up 
to 50 people, and copies and prints at 35 ppm with resolutions of up to 600 by 
2,400 dots per inch. It provides two-sided printing and several document 
finishing options.  The Document Centre System 20 is targeted for work groups 
of up to 20 people, and copies and prints at 20 ppm with 400 dots per inch 
resolution.  Fax services, from the desktop or at the device, are standard.

Other Products

We also offer a wide range of other document processing products including 
ink-jet and electrostatic printers, multifunction products, facsimile 
products, scanners, personal computer and workstation software, and integrated 
systems solutions.

We also sell cut-sheet paper to our customers for use in their Document 
Processing products.

Summary of Revenues by Product Category

The following table summarizes our revenues by major product category.  The 
revenues for black-and-white copiers and enterprise services products include 
equipment and supply sales, service and rental revenues, and finance income.  
These revenues exclude the impact of foreign currency exchange rate 
fluctuations which are shown combined with the revenues from paper and other 
products.

     Year ended December 31 (in billions)   1995       1994       1993
     Black-and-white copiers               $ 9.6      $ 9.5      $ 9.1
     Enterprise services products            4.1        3.5        2.9
     Paper, other products, currency         2.9        2.1        2.2
       Total revenues                      $16.6      $15.1      $14.2



Xerox Competitive Advantages

Although the document processing industry is highly competitive, we believe 
that we enjoy significant competitive advantages because of our dedication to 
customer satisfaction, our total quality management processes, our substantial 
on-going investment in research and development, and our large direct sales 
and service forces.

Customer Satisfaction

Our highest priority is customer satisfaction.  Our research shows that 
satisfied customers are far more likely to repurchase products and that the 
cost of selling a replacement product to a satisfied customer is far less than 
selling to a "new" customer.  We regularly survey customers on their 
satisfaction, measure the results, analyze the root causes of dissatisfaction, 
and take steps to correct any problems.

Because of our emphasis on customer satisfaction, we offer a Total 
Satisfaction Guarantee, one of the simplest and most comprehensive offered in 
any industry:  "If you are not satisfied with our equipment, we will replace 
it without charge with an identical model or a machine with comparable 
features and capabilities."  This guarantee applies for three years to 
equipment acquired from and continuously maintained by Xerox or its authorized 
agents.

Quality

We were an early pioneer in total quality management and are the only company 
to have won all three of the following prestigious quality awards:  the 
Malcolm Baldrige National Quality Award in the United States in 1989, the 
European Quality Award in 1992 and the Deming Prize in Japan, won by Fuji 
Xerox in 1980.  In addition, we have won top quality awards in Argentina, 
Australia, Belgium, Brazil, Canada, Colombia, France, Germany, Hong Kong, 
India, Ireland, Mexico, the Netherlands, Norway and the United Kingdom. Our 
"Leadership Through Quality" program has enabled us to significantly reduce 
our costs, accelerate the introduction of new products, improve customer 
satisfaction and increase market share.  Xerox products have been consistently 
rated among the world's best by independent testing organizations.

Research and Development

The Xerox research and development (R&D) program is directed toward the 
development of new products and capabilities in support of our document 
processing strategy.  Our research scientists are deeply involved in the 
formulation of corporate strategy and key business decisions.  They regularly 
meet with customers and have dialogues with our business divisions to ensure 
they understand customer requirements and are focused on products that can be 
commercialized.

In 1995, R&D expense was $951 million compared with $895 million in 1994 and 
$883 million in 1993. We expect to increase our investment in technological 
development in 1996 and over the longer term to maintain our premier position 
in the rapidly changing document processing market.  Our R&D spending is 
strategically coordinated with Fuji Xerox. The R&D investment by Fuji Xerox 
was approximately $600 million in 1995, bringing the total to approximately 
$1.5 billion.



Marketing

Xerox document processing products are principally sold directly to users by 
our worldwide sales force of approximately 12,000 employees.  We also market 
through a network of independent agents, dealers, distributors and value-added 
resellers and have arrangements with U.S. retail marketing channels, including 
Sears, Office Depot, Office Max, Service Merchandise, Staples, Wal-Mart, 
Costco, The Wiz, Price Club and MicroAge, to market low-end products not 
generally suited for distribution through our direct sales force.  These 
products are now sold through approximately 3,000 retail stores.

In 1991, Xerox International Partners (XIP), a 51 percent-owned partnership, 
was formed between Xerox and Fuji Xerox to supply printer engines to original 
equipment manufacturers.  XIP has also contracted to supply printer engines to 
resellers.

Service

We have a worldwide service force of approximately 26,000 employees.  In our 
opinion, this direct service force is a significant competitive advantage:  
the service force is continually trained on our new products and the 
diagnostic equipment is state-of-the-art.  Twenty-four-hour-a-day, seven-day-
a-week service is available in most metropolitan areas in the United States.  
We are able to guarantee a consistent level of service nationwide and 
worldwide because our service force is not focused exclusively on metropolitan 
areas and it does not rely on independent local dealers for service.

Revenues

Revenues from supplies, paper, service, rentals, facilities management and 
other revenues, and income from customer financing, which represented 67 
percent of total revenues in 1995, are derived from the installed base of 
equipment and are therefore less volatile than equipment sales revenues and 
provide significant stability to overall revenues.  Growth in these revenues 
is primarily a function of the growth in our installed population of 
equipment, usage and pricing. The balance of our revenues are derived from 
equipment sales.  These sales, which drive the non-equipment revenues, depend 
on the flow of new products and are more affected by economic cycles.

Most of our customers have their equipment serviced by and use supplies sold 
by us.  The market for cut-sheet paper is highly competitive and revenue 
growth is significantly affected by pricing.  Our strategy is to charge a 
spread over mill wholesale prices.  After a number of years of decline, rental 
revenues increased slightly in 1995.

Our document outsourcing business provides printing, publishing, duplicating 
and related services at almost 4,000 customer locations in 36 countries, 
including legal and accounting firms, financial institutions, insurance 
agencies and manufacturing companies.  Our revenues from these services, which 
are largely in the U.S., increased 50 percent to $900 million in 1995.

We offer our document processing customers financing of their purchases of 
Xerox equipment primarily through XCC in the United States, largely by wholly-
owned financing subsidiaries in Europe, and through divisions in Canada and 
Latin America.  Our financing operations have expanded over the past several 
years in recognition of customer demand and the associated profit 
opportunities.

While competition for this business from banks and other finance companies 
remains extensive, we actively market our equipment financing services on the 
basis of customer service, convenience and competitive rates.  Approximately 
80 percent of U.S. equipment sales and 70 percent of European equipment sales 
are financed through Xerox.  Over time, the growth rate of financing income is 
expected to correspond to the growth rate of equipment sales and trends in 
interest rates.

International Operations

Our international operations account for 51 percent of Document Processing 
revenues.  Xerox' largest interest outside the United States is the "Rank 
Xerox Companies" in which we have an 80 percent financial interest and The 
Rank Organisation Plc (RO) has a 20 percent financial interest. On February 
28, 1995, Xerox paid RO 620 million pounds sterling, or $972 million, to 
increase the Xerox financial interest in Rank Xerox to about 80 percent from 
67 percent.  Marketing and manufacturing operations are also conducted through 
joint ventures in India and China.  Marketing and manufacturing in the 
Americas Customer Operations organization are conducted through subsidiaries 
or distributors in 40 countries.  Marketing and manufacturing in Japan and 
other areas of the Pacific Rim, Australia and New Zealand are conducted by 
Fuji Xerox.

Xerox' financial results by geographical area for 1995, 1994 and 1993, which 
are presented on pages 35, 36, 58 and 59 of the Company's 1995 Annual Report 
to Shareholders, is hereby incorporated by reference in this document in 
partial answer to this item.

Discontinued Operations - Insurance and Other Financial Services and Third-
Party and Real-Estate

The discussion in the first ten paragraphs under the caption "Insurance and 
Other Financial Services" on pages 48 and 49 and under the caption 
"Discontinued Operations - Other Financial Services and Third-Party and Real-
Estate" on pages 52 and 53 set forth under the caption "Financial Review" in 
the Company's 1995 Annual Report to Shareholders is hereby incorporated by 
reference in this document in partial answer to this item.

Property and Casualty Reserves

Overview

Losses from claims and related claims handling and legal expense comprise the 
majority of costs from providing insurance products.  Therefore, unpaid losses 
and loss expenses is generally the largest liability on a property and 
casualty insurer's balance sheet.  However, because insurance coverage is 
provided for situations in which the certainty of loss cannot be predicted, 
ultimate losses which will be incurred on policies issued are difficult to 
estimate and are subject to constant reevaluation as new information becomes 
available.  Insurance companies utilize a variety of loss trending and 
analysis techniques to estimate anticipated ultimate losses and the time 
frames when claims are likely to be reported and paid.  These patterns vary 
significantly by type of insurance coverage and are affected by the economic, 
social, judicial and weather-related/geological conditions in different 
geographic areas.

In order to moderate the potential impact of unusually severe or frequent 
losses, insurers often cede (i.e., transfer) through reinsurance mechanisms a 
portion of their gross policy premiums to reinsurers in exchange for the 
reinsurer's agreement to share a portion of the covered losses with the 
insurer.  Although the ceding of insurance does not discharge the original 
insurer from its primary liability to its policyholder, the reinsurer that 
accepts the risk assumes an obligation to the original insurer.  The ceding 
insurer retains a contingent liability with respect to reinsurance ceded to 
the extent that the reinsurer might not be able to meet its obligations.

The net liability retained on individual risks varies by product and by the 
nature of the risk.  Insured liabilities are reinsured either by treaty, 
wherein reinsurers agree in advance to provide coverage above retained limits 
or for a specified percentage of losses attributable to specific products, or 
by facultative arrangements, wherein reinsurance is provided for individual 
risks based on individual negotiations.

Reserve provisions are established by the insurer to provide for the estimated 
level of claim payments which will be made under the policies it writes.  Over 
the policy period, as premiums are earned, a portion of the premiums is set 
aside as gross loss and loss expense reserves for incurred but not reported 
("IBNR") losses in anticipation of claims which will be incurred, net of 
anticipated salvage and subrogation.  IBNR reserves also include amounts to 
supplement case reserves, when established, to provide for potential further 
loss development.  In addition, gross reserves are established for internal 
and external loss adjustment expenses ("LAE") associated with handling the 
claims inventory.  These expenses are characterized as "allocated LAE" when 
they are attributable to a specific claim or series of claims and "unallocated 
LAE" when not similarly attributable.  When a claim is reported, case reserves 
are established on the basis of all pertinent information available at the 
time.  Legal defense costs that can be assigned to a related claim file and 
can be included as part of the loss under the contract are generally 
established as part of the gross case reserve.  Reinsurance recoverables on 
gross reserves are recorded for amounts that are anticipated to be recovered 
from reinsurers and are determined in a manner consistent with the liabilities 
associated with the reinsured policies.  Net reserves are gross reserves less 
anticipated reinsurance recoverables (net of uncollectible reinsurance)and 
salvage and subrogation on those reserves.

The effect of inflation on gross reserves is considered implicitly when 
estimating the liability for unpaid losses and loss expenses.  The effect of 
inflation on individual case basis reserves reflects the direction of economic 
price levels as they affect the individual claims being reserved.  

Estimates of the ultimate value of unpaid claims are based in part on 
historical data that reflect past inflation, as well as management's 
assessment of severity and frequency, industry trends and related costs.

Ridge Re Coverage

Under the terms of the Ridge Re reinsurance coverage and subject to the limits 
established for each insurance operating group, Ridge Re will reimburse the 
Insurance Companies within their respective insurance operating group for 85% 
of net increases, if any, to ultimate net unpaid loss and loss expenses and 
uncollectible reinsurance reserves which may develop on its 1992 and prior 
accident years as carried at December 31, 1992 (net of all salvage, 
subrogation and other recoverables).  At December 31, 1995, Ridge Re has 
accrued approximately $750 million of the $1,245 million maximum excess of 
loss reinsurance coverage estimated to be required based on actuarial 
projections.  The Ridge Re coverage is guaranteed by XFSI, and, subject to 
certain commutation provisions, remains in effect until all 1992 and prior 
accident year claims are paid.  Cessions to Ridge Re, while beneficial to the 
Remaining Talegen insurance operating groups and TRG, do not result in a 
benefit to the Insurance segment or consolidated Xerox accounts.  The Ridge Re 
coverage will continue in effect after the consummation of the sale to the KKR 
groups.

 Monitoring of Insurance Reserves

Gross and net reserves for business written in both current and prior years is 
continually monitored by the Remaining insurance companies, and Talegen senior 
management reviews these reserves on a periodic basis.  These reserves are 
also reviewed and certified on an annual basis by an outside actuary appointed 
by the Remaining insurance companies.  Overall reserve levels are impacted 
primarily by the types and amounts of insurance coverage currently being 
written and the trends developing from newly reported claims and claims which 
have been paid and closed.  Adjustments are made to reserves in the period 
they can be reasonably estimated to reflect evolving changes in loss 
development patterns and various other factors.  Such factors include 
increased damage awards by the courts, known changes in judicial 
interpretations of legal liability for asbestos-related, environmental and 
other latent exposure claims, changes in judicial interpretation of the scope 
of coverage provided by general liability and umbrella policies for 
"advertising injury," particularly in the area of "unfair competition," and 
other recently advanced new theories of liability.  Many of these judicial 
interpretations are still evolving.  Generally, the greater the projected time 
to settlement, the greater the complexity of estimating ultimate claim costs 
and the more likely that such estimates will change as new information becomes 
available.

Use of Reinsurance and Management of Reinsurance Collection

Most of the Remaining insurance companies made significant use of reinsurance 
during the 1970's and early 1980's.  Since that time, the Remaining insurance 
companies have generally increased the portion of business they retain while 
reducing the number of reinsurers used for their reinsurance contracts. During 
1995 and 1994, excluding the insurance operating groups sold, 85% and 63%, 
respectively, of total written premiums ceded to reinsurers were placed with 
approximately 30 reinsurers.

Talegen has a reinsurance security committee composed of senior management who 
approve those reinsurers with whom Talegen will do business. The criteria 
under which such approvals are granted have become increasingly restrictive 
over the past several years.

The potential uncollectibility of ceded reinsurance is an industry-wide issue.  
With respect to the management of recoveries due from reinsurers, the 
Remaining insurance companies operate under common guidelines for the early 
identification of potential collection problems and assign these cases to a 
specialized group under TRG staffed by "work-out" experts.  This unit 
aggressively pursues collection of reinsurance recoverables through mediation, 
arbitration and, where necessary, litigation to enforce the Remaining 
insurance companies contractual rights against reinsurers.  Nevertheless, 
periodically, it becomes necessary for management to adjust reserves for 
potential losses to reflect their ongoing evaluation of developments which 
affect recoverability, including the financial difficulties that some 
reinsurers can experience.  Based upon the review of financial condition and 
assessment of other available information, the Remaining insurance companies 
maintain a provision for uncollectible amounts due from reinsurers.  The 
balance of reinsurance recoverable is considered to be valid and collectible.



Statutory and GAAP Reporting of Net Unpaid Losses and Loss Expenses

The liability for unpaid losses and loss expenses required by generally 
accepted accounting principles ("GAAP") includes various adjustments from the 
liability reported in accordance with Statutory Accounting Practices ("SAP").  
Because not all GAAP adjustments can be associated with subsequent 
developments of the liabilities on other than an arbitrary basis, developments 
on the loss and loss expense reserve development table are prepared in 
accordance with SAP.  The increase in 1995 in the difference between the GAAP 
unpaid loss and loss expense reserve and the corresponding SAP liabilities was 
principally caused by the application, by Xerox, of accounting principles 
applicable to discontinued operations which did not result in increased 
liabilities for SAP purposes at the Insurance operating subsidiary level.

Loss Development Data

In Note 9 on page 59 of the Company's 1995 Annual Report to Shareholders, 
which is hereby incorporated by reference in this document in partial answer 
to this item, the net liability for unpaid losses and loss expenses is 
reconciled for each of the years in the three-year period ended December 31, 
1995.  Included therein are current year and prior year development data.

As a result of claim activity during 1995 and after reflection of prior 
experience, it is management's judgment that the total liability for unpaid 
losses and loss expenses at December 31, 1995 is reasonably stated.

The loss and loss expense reserve development table illustrates the 
development of statutory balance sheet liabilities for 1985 through 1995 for 
the Remaining insurance companies gross of Ridge Re cessions.  Unpaid loss and 
loss expense reserves and accident year development have been restated to 
exclude the reserves of Constitution Reinsurance Corporation and Viking 
Insurance Company of Wisconsin, which were sold during 1995.  The first line 
of the table is the estimated liability for unpaid losses and loss expenses, 
net of reinsurance recoverable, recorded at the balance sheet date for each 
year.  The lower section of the table shows the updated amount of the 
previously recorded liability based on experience as of the close of each 
succeeding year.  The estimate is increased or decreased as more information 
becomes known about the claims until all claims are settled.  Deficiencies or 
redundancies represent aggregate changes in estimates as calculated on a 
statutory basis for all prior calendar years.  The effect as calculated under 
GAAP on income for the latest three years is shown in Note 9 on page 59 of the 
Company's 1995 Annual Report to Shareholders, which is hereby incorporated by 
reference in this document in partial answer to this item.  These changes in 
estimates have been reflected in Talegen's calendar year operating results.  
As the Remaining insurance companies recognize adjustments to reserves for 
changes in loss development patterns and various other factors, such as social 
and economic trends and known changes in judicial interpretation of legal 
liability, in the period in which they become known, it is not appropriate to 
extrapolate future redundancies or deficiencies based solely on this table.



Loss and Loss Expense Reserve Development

Year ended December 31 (in millions)     1985      1986      1987      1988 _
Liability for unpaid losses and loss
  expenses - GAAP (net of reinsurance) $ 3,498   $ 4,127   $ 4,824   $ 5,200
Increase (decrease) for GAAP adj.         (148)     (256)     (241)     (208)
Liability for unpaid losses and loss
  expense - SAP (net of reinsurance)     3,350     3,871     4,583     4,992

Paid (cumulative) as of:
  End of year                                -         -         -         -
  One year later                         1,169     1,187     1,323     1,246
  Two years later                        1,986     2,080     2,188     2,269
  Three years later                      2,596     2,701     2,933     3,043
  Four years later                       3,056     3,224     3,472     3,854
  Five years later                       3,450     3,611     4,150     4,053
  Six years later                        3,729     4,180     4,316     4,432
  Seven years later                      4,221     4,278     4,571     4,751
  Eight years later                      4,281     4,476     4,859
  Nine years later                       4,449     4,720
  Ten years later                        4,673

Liability estimated as of: 
  End of year                            3,350     3,871     4,583     4,992
  One year later                         3,397     3,893     4,681     5,052
  Two years later                        3,826     4,314     4,870     5,247
  Three years later                      4,051     4,527     5,168     5,171
  Four years later                       4,311     4,928     5,073     5,953
  Five years later                       4,681     4,803     5,832     5,903
  Six years later                        4,644     5,495     5,854     6,029
  Seven years later                      5,260     5,546     5,959     6,381
  Eight years later                      5,353     5,673     6,314
  Nine years later                       5,506     6,045
  Ten years later                        5,880

(Deficiency) redundancy                $(2,530)  $(2,174)  $(1,731)  $(1,389)

End of Year:
  Gross liability
  Reinsurance recoverable
  Net liability

One Year Later:
  Gross re-estimated liability
  Re-estimated recoverable
  Net re-estimated liability

Two Years Later:
  Gross re-estimated liability
  Re-estimated recoverable
  Net re-estimated liability

Three Years Later:
  Gross re-estimated liability
  Re-estimated recoverable
  Net re-estimated liability

Gross cumulative deficiency





  1989      1990      1991      1992      1993      1994      1995 _

$ 5,637   $ 5,848   $ 5,743   $ 6,109   $ 5,972   $ 5,618   $ 6,471
   (215)     (287)     (299)     (370)     (254)     (216)     (827)

  5,422     5,561     5,444     5,739     5,718     5,402     5,644


      -         -         -         -         -         -         -
  1,560     1,542     1,721     1,080     1,303     1,242
  2,635     2,882     2,518     2,153     2,264
  3,690     3,412     3,381     2,939
  4,018     4,062     4,008
  4,508     4,563
  4,887






  5,422     5,561     5,444     5,739     5,718     5,402     5,644
  5,611     5,658     6,340     5,734     5,711     5,944
  5,591     6,484     6,274     5,771     6,216
  6,408     6,370     6,326     6,230
  6,329     6,429     6,747
  6,428     6,803
  6,770





$(1,348)  $(1,242)  $(1,303)  $  (491)  $  (498)  $  (542)   $     -


                              $ 9,469   $ 8,526   $ 7,849   $ 8,143
                                3,730     2,808     2,447     2,499
                                5,739     5,718     5,402     5,644


                                9,444     8,590     8,616
                                3,710     2,879     2,672
                                5,734     5,711     5,944


                                9,482     9,316
                                3,711     3,100
                                5,771     6,216


                               10,188
                                3,958
                                6,230

                              $  (719)  $  (790)  $  (767)  $     -


Asbestos-Related, Environmental and Other Latent Exposure Claims

The discussion under the captions "Latent Exposures," "Reserves for the 
Remaining Insurance Companies" and "Latent Exposure Reserves" on pages 50 
through 52 in the Company's 1995 Annual Report to Shareholders is hereby 
incorporated by reference in this document in partial answer to this item.


I
tem 2. Properties

The Company owns a total of eleven principal manufacturing and engineering 
facilities and leases an additional such facility.  The domestic facilities 
are located in California, New York and Oklahoma, while the international 
facilities are located in Brazil, Canada, England, France, Holland and Mexico.  
The Company also has four principal research facilities; two are owned 
facilities in New York and Canada, and two are leased facilities in California 
and France.

In addition, within the Company, there are numerous facilities which encompass 
general offices, sales offices, service locations and distribution centers.  
The principal owned facilities are located in the United States, England, and 
Mexico.  The principal leased facilities are located in the United States, 
Brazil, Canada, England, Mexico, France, Germany and Italy.

The Company has closed and downsized numerous facilities as part of the 
worldwide Document Processing restructuring program announced in December 
1993. The facilities closed or downsized encompass general offices, sales 
offices, and distribution centers. The principal closed or downsized domestic 
facilities were located in California, Connecticut and Illinois.

The Company's Corporate Headquarters facility, located in Connecticut, is 
leased; a training facility, located in Virginia, is owned by the Company.  In 
the opinion of Xerox management, its properties have been well maintained, are 
in sound operating condition and contain all the necessary equipment and 
facilities to perform the Company's functions.


Item 3. Legal Proceedings

The information set forth under Note 14 "Litigation" on page 73 of the 
Company's 1995 Annual Report to Shareholders is incorporated by reference in 
this document in answer to this item.

On July 21, 1993, the Company was notified that it had been named as a 
respondent by the United States Environmental Protection Agency ("EPA") in a 
unilateral Comprehensive Environmental Response, Compensation and Liability 
Act ("CERCLA") section 106 (a) Administrative Order regarding the Metcoa 
Radiation Site in Pulaski, PA.  The Order directs the Company and 21 other 
companies to perform remedial work at the Site.  The order alleges that these 
parties are jointly and severally liable to perform the work.   Under CERCLA, 
a respondent that does not comply with the Order could be subject to a civil 
penalty of $25,000 for each day of noncompliance and be liable for punitive 
damages at least equal to treble the EPA's cost of cleaning up the Site.  The 
Company denies that it is liable to perform the work described in the Order. 


Item 4. Submission of Matters to a Vote of Security Holders

None.




                                   PART II


Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters

The information set forth under the following captions on the indicated pages 
of the Company's 1995 Annual Report to Shareholders is hereby incorporated by 
reference in this document in answer to this Item:

              Caption                                           Page No.

      Stock Listed and Traded                                      81
      Dividends and Stock Prices                                   81
      Ten Years in Review - Common Shareholders
        of Record at Year-End                                  80 and 81


Item 6. Selected Financial Data

The following information, as of and for the five years ended December 31, 
1995, as set forth and included under the caption "Ten Years in Review" on 
pages 80 and 81 of the Company's 1995 Annual Report to Shareholders, is hereby 
incorporated by reference in this document in answer to this Item:

        Revenues
        Income (loss) from continuing operations
        Primary earnings (loss) per common share from continuing operations
        Total assets
        Long-term debt
        Preferred stock
        Dividends declared


Item 7. Management's Discussion and Analysis of Financial Condition and 
        Results of Operations

The information set forth under the caption "Financial Review" on pages 33-40, 
42-45, and 47-53 of the Company's 1995 Annual Report to Shareholders other 
than the pictures and captions to the pictures is hereby incorporated by 
reference in this document in answer to this Item.


Item 8. Financial Statements and Supplementary Data

The consolidated financial statements of Xerox Corporation and subsidiaries 
and the notes thereto and the report thereon of KPMG Peat Marwick LLP, 
independent auditors, which appear on pages 32, 41, 46, 54-77, and 79 of the 
Company's 1995 Annual Report to Shareholders, are hereby incorporated by 
reference in this document in answer to this Item.  In addition, also included 
is the quarterly financial data included under the caption "Quarterly Results 
of Operations (Unaudited)" on page 78 of the Company's 1995 Annual Report to 
Shareholders.

The financial statement schedule required herein is filed as "Financial 
Statement Schedules" pursuant to Item 14 of this Report on Form 
10-K.


Item 9. Changes in and Disagreements with Accountants on Accounting and 
        Financial Disclosure

Not applicable.




                                   PART III

The information set forth in "Proposal 1--Election of Directors" in the 
Company's Notice of the 1996 Annual Meeting of Shareholders and Proxy 
Statement, to be filed pursuant to Regulation 14A not later than 120 days 
after the close of the fiscal year covered by this report on Form 10-K, is 
hereby incorporated by reference in this document in answer to this Part III.

Executive Officers of Xerox

The following is a list of the executive officers of Xerox, their current 
ages, their present positions and the year appointed to their present 
positions.  There are no family relationships between any of the executive 
officers named.

Each officer is elected to hold office until the meeting of the Board of 
Directors held on the day of the next annual meeting of shareholders, subject 
to the provisions of the By-Laws.
                                                             Year
                                                           Appointed
                                                          to Present   Officer
     Name           Age         Present Position           Position     Since_

Paul A. Allaire*     57    Chairman of the Board, Chief       1991       1983
                           Executive Officer and Chairman
                           of the Executive Committee

William F. Buehler   56    Executive Vice President and       1993       1991
                           Chief Staff Officer

A. Barry Rand        51    Executive Vice President,          1992       1986
                           Operations

Barry D. Romeril     52    Executive Vice President and       1993       1993
                           Chief Financial Officer

Stuart B. Ross       58    Executive Vice President;          1990       1979
                           Chairman and Chief Executive
                           Officer, Xerox Financial
                           Services, Inc.

Allan E. Dugan       55    Senior Vice President,             1992       1990
                           Corporate Strategic Services

John A. Lopiano      57    Senior Vice President; President,  1995       1993
                           Production Systems Group

Mark B. Myers        57    Senior Vice President, Corporate   1992       1989
                           Research and Technology 

David R. Myerscough  55    Senior Vice President;             1996       1989
                           Corporate Business Strategy


* Member of Xerox Board of Directors.


Executive Officers of Xerox, Continued

                                                             Year
                                                           Appointed
                                                          to Present   Officer
     Name           Age         Present Position           Position     Since_

Richard S. Paul      54    Senior Vice President and          1992       1989
                           General Counsel

Brian E. Stern       48    Senior Vice President; President,  1996       1993
                           Office Document Products Group

Eunice M. Filter     55    Vice President, Treasurer          1990       1984
                           and Secretary

Philip D. Fishbach   54    Vice President and Controller      1995       1990

James H. Lesko       44    Vice President; President,         1996       1993
                           Desktop Products Group

Carlos Pascual       50    Vice President; President,         1995       1994
                           U.S. Customer Operations


Each officer named above, with the exceptions of William F. Buehler and Barry 
D. Romeril, has been an officer or an executive of Xerox or its subsidiaries 
for at least the past five years.

Prior to joining Xerox in 1991, Mr. Buehler was Vice President, Network 
Systems Sales at the American Telephone & Telegraph Company (AT&T).  Mr. 
Buehler had been affiliated with AT&T since 1964.

Prior to joining Xerox in 1993, Mr. Romeril had been Group Finance Director at 
British Telecommunications PLC since 1988.  From 1987 to 1988 he was Finance 
Director at BTR, Plc.




                                    PART IV


Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

 (a)  (1) and (2)  The financial statements, independent auditors' reports 
      and Item 8 financial statement schedules being filed herewith or 
      incorporated herein by reference are set forth in the Index to Financial 
      Statements and Schedule included herein.

      (3)  The exhibits filed herewith or incorporated herein by reference are 
      set forth in the Index of Exhibits included herein.

 (b)  No Current Reports on Form 8-K were filed during the last quarter of the 
      period covered by this Report.

 (c)  The management contracts or compensatory plans or arrangements listed
      in the Index of Exhibits that are applicable to the executive officers
      named in the Summary Compensation Table which appears in Registrant's
      1996 Proxy Statement are preceded by an asterisk (*).



Pursuant to the requirements of Section 13 or 15(d) 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.

                                                 XEROX CORPORATION


                                            By:  /s/ Barry D. Romeril_________
                                                 Executive Vice President and 
                                                 Chief Financial Officer
March 28, 1996

Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
registrant and in the capacities and on the date indicated.

March 28, 1996



    Signature                                 Title

Principal Executive Officer:

Paul A. Allaire                              /s/ Paul A. Allaire______________

                                             Chairman, Chief Executive Officer
                                             and Director


Principal Financial Officer:

Barry D. Romeril                             /s/ Barry D. Romeril_____________

                                             Executive Vice President and
                                             Chief Financial Officer


Principal Accounting Officer:

Philip D. Fishbach                           /s/ Philip D. Fishbach___________

                                             Vice President and Controller


Directors:


/s/ Robert A. Beck                                   Director


/s/ B. R. Inman                                      Director


/s/ Yotaro Kobayashi                                 Director


/s/ Ralph S. Larsen                                  Director


/s/ John D. Macomber                                 Director


/s/ George J. Mitchell                               Director


/s/ N. J. Nicholas, Jr.                              Director


/s/ John E. Pepper                                   Director


/s/ Martha R. Seger                                  Director


/s/ Thomas C. Theobald                               Director



Report of Independent Auditors



To the Board of Directors and Shareholders of Xerox Corporation


Under date of January 24, 1996, we reported on the consolidated balance sheets 
of Xerox Corporation and consolidated subsidiaries as of December 31, 1995 and 
1994 and the related consolidated statements of income and cash flows for each 
of the years in the three-year period ended December 31, 1995, as contained in 
the Xerox Corporation 1995 Annual Report to Shareholders on pages 32, 41, 46, 
and 54-77.  These consolidated financial statements and our report thereon are 
incorporated by reference in the 1995 Annual Report on Form 10-K.  In 
connection with our audits of the aforementioned consolidated financial 
statements, we also have audited the related financial statement schedule 
listed in the accompanying index.  This financial statement schedule is the 
responsibility of the Company's management.  Our responsibility is to express 
an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation 
to the basic consolidated financial statements taken as a whole, presents 
fairly, in all material respects, the information set forth therein.



                                                KPMG PEAT MARWICK LLP



Stamford, Connecticut
January 24, 1996




Index to Financial Statements and Schedule

Financial Statements:

   Consolidated statements of income of Xerox Corporation and subsidiaries for
     each of the years in the three-year period ended December 31, 1995

   Consolidated balance sheets of Xerox Corporation and subsidiaries as of 
     December 31, 1995 and 1994

   Consolidated statements of cash flows of Xerox Corporation and subsidiaries 
     for each of the years in the three-year period ended December 31, 1995


   Notes to consolidated financial statements

   Report of Independent Auditors

   Quarterly Results of Operations (unaudited)

      The above consolidated financial statements, related notes, report 
      thereon and the quarterly results of operations which appear on pages 
      32, 41, 46, 54-77, 78, and 79 of the Company's 1995 Annual Report to 
      Shareholders are hereby incorporated by reference in this document.

Commercial and Industrial (Article 5) Schedule:

II - Valuation and qualifying accounts


All other schedules are omitted as they are not applicable, or the information 
required is included in the financial statements or notes thereto.


 
                                                                  SCHEDULE II

Valuation and Qualifying Accounts
Year ended December 31, 1995, 1994 and 1993

                                           Additions
                             Balance at    charged to   Deductions,   Balance
                              beginning     costs and     net of       at end
(in millions)                 of period     expenses    recoveries   of period

1995
Allowance for Losses on:
   Accounts Receivable            $ 79          $ 81         $ 71         $ 89
   Finance Receivables             319           227          224          322
Deferred Tax Valuation 
   Allowance                        34             -           14           20

                                  $432          $308         $309         $431

1994
Allowance for Losses on:
   Accounts Receivable            $ 62          $ 70         $ 53         $ 79
   Finance Receivables             300           182          163          319
Deferred Tax Valuation 
   Allowance                        34             -            -           34

                                  $396          $252         $216         $432

1993
Allowance for Losses on:
   Accounts Receivable            $ 68          $ 51         $ 57         $ 62
   Finance Receivables             275           199          174          300
Deferred Tax Valuation 
   Allowance                         -            34            -           34

                                  $343          $284         $231         $396




Index of Exhibits

Document and Location
  
(3) (a) (1) Restated Certificate of Incorporation of Registrant filed by the 
            Department of State of New York on June 10, 1988.
  
            Incorporated by reference to Exhibit 3(a) to Registrant's 
            Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1988.
  
        (2) Certificate of Amendment dated July 7, 1989 to the Restated 
            Certificate of Incorporation.

            Incorporated by reference to Exhibit 3(a) to Registrant's 
            Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1989.

        (3) Certificate of Amendment dated October 10, 1994 to the Restated
            Certificate of Incorporation. 

            Incorporated by reference to Exhibit 3(a)(3) to Registrant's 
            Annual Report on Form 10-K for the Year Ended December 31, 1994.

        (4) Certificate of Amendment dated October 19, 1995 to the Restated
            Certificate of Incorporation. 

    (b)     By-Laws of Registrant, as amended through May 29, 1991.
  
            Incorporated by reference to Exhibit 3(b)(2) to Registrant's 
            Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1991.
  
(4) (a)     Indenture dated as of January 15, 1990 between Registrant and 
            BankAmerica National Trust Company (as successor in interest to
            Security Pacific National Trust Company (New York)) relating 
            to unlimited amounts of debt securities which may be issued 
            from time to time by Registrant when and as authorized by or
            pursuant to a resolution of Registrant's Board of Directors.

            Incorporated by reference to Exhibit 4(a) to Registration No. 
            33-33150.

    (b)     Indenture dated as of December 1, 1991 between Registrant and 
            Citibank, N.A. relating to unlimited amounts of debt securities 
            which may be issued from time to time by Registrant when and 
            as authorized by or pursuant to a resolution of Registrant's 
            Board of Directors.
  
            Incorporated by reference to Exhibit 4(a) to Registration No. 
            33-44597.




    (c)     Indenture dated as of March 1, 1988, as supplemented by the First 
            Supplemental Indenture dated as of July 1, 1988, between Xerox 
            Credit Corporation (XCC) and The First National Bank of Chicago 
            relating to unlimited amounts of debt securities which may be 
            issued from time to time by XCC when and as authorized by XCC's 
            Board of Directors or the Executive Committee of the Board of 
            Directors.

            Incorporated by reference to Exhibit 4(a) to XCC's Registration 
            Statement No. 33-20640 and to Exhibit 4(a)(2) to XCC's Current 
            Report on Form 8-K dated July 13, 1988.

    (d)     Indenture dated as of March 1, 1989, as supplemented by the First 
            Supplemental Indenture dated as of October 1, 1989, between XCC 
            and Citibank, N.A. relating to unlimited amounts of debt 
            securities which may be issued from time to time by XCC when and 
            as authorized by XCC's Board of Directors or Executive Committee 
            of the Board of Directors.
  
            Incorporated by reference to Exhibit 4(a) to XCC's Registration 
            Statement No. 33-27525 and to Exhibit 4(a)(2) to XCC's 
            Registration Statement No. 33-31367.
  
    (e)     Indenture dated as of October 1, 1991, as supplemented by the 
            First Supplemental Indenture dated as of May 1, 1992, between XCC 
            and Citibank, N.A. relating to unlimited amounts of debt 
            securities which may be issued from time to time by XCC when and 
            as authorized by XCC's Board of Directors or Executive Committee 
            of the Board of Directors.
  
            Incorporated by reference to Exhibit 4(a) to XCC's Registration 
            Statement No. 33-43470.

    (f)     Indenture dated as of May 1, 1994, between XCC and State Street 
            Bank and Trust Company (formerly, The First National Bank of 
            Boston) relating to unlimited amounts of debt securities which may 
            be issued from time to time by XCC when and as authorized by XCC's 
            Board of Directors or Executive Committee of the Board of 
            Directors.

            Incorporated by reference to Exhibit 4(a) to XCC's Registration
            Statement No. 33-53533 and to Exhibits 4(a)(1) and 4(a)(2) to
            XCC's Registration Statement No. 33-43470.

    (g)     Indenture dated as of October 2, 1995, between XCC and State 
            Street Bank and Trust Company relating to unlimited amounts of 
            debt securities which may be issued from time to time by XCC when 
            and as authorized by XCC's Board of Directors or Executive 
            Committee of the Board of Directors.

            Incorporated by reference to Exhibit 4(a) to XCC's Registration
            Statement No. 33-61481.

    (h)     Instruments with respect to long-term debt where the total amount 
            of securities authorized thereunder does not exceed 10% of the 
            total assets of the Registrant and its subsidiaries on a 
            consolidated basis have not been filed.  The Registrant agrees to 
            furnish to the Commission a copy of each such instrument upon 
            request. 
  
(10)        The management contracts or compensatory plans or arrangements 
            listed below that are applicable to the executive officers named 
            in the Summary Compensation Table which appears in Registrant's 
            1996 Proxy Statement are preceded by an asterisk (*).
 
   *(a)     Registrant's 1976 Executive Long-Term Incentive Plan, as amended 
            through February 4, 1991.
 
            Incorporated by reference to Exhibit (10)(a) to the Registrant's 
            Annual Report on Form 10-K for the Year Ended December 31, 1991.

   *(b)     Registrant's 1991 Long-Term Incentive Plan, as amended through 
            July 15, 1991.
 
            Incorporated by reference to Exhibit 10(b) to Registrant's 
            Quarterly Report on Form 10-Q for the Quarter Ended June 30, 
            1991.
  
    (c)     Registrant's Retirement Income Plan for Directors, as amended 
            through October 2, 1989.
 
            Incorporated by reference to Exhibit 10(n) to Registrant's 
            Quarterly Report on Form 10-Q for the Quarter Ended September 
            30, 1989.
  
   *(d)     Description of Registrant's Annual Performance Incentive Plan.

   *(e)     Registrant's 1993 Restatement of Unfunded Retirement Income 
            Guarantee Plan.

            Incorporated by reference to Exhibit 10(e) to Registrant's Annual
            Report on Form 10-K for the year ended December 31, 1993.

    (f)     Consent Order To Cease and Desist.  In the Matter of Xerox 
            Corporation, Before the Federal Trade Commission, Docket No. 
            8909 dated 3/29/75.
           
            Incorporated by reference to Exhibit I to Registrant's Report on 
            Form 8-K for July 1975.

   *(g)     1993 Restatement of Registrant's Unfunded Supplemental Retirement 
            Plan.

            Incorporated by reference to Exhibit 10(g) to Registrant's Annual
            Report on Form 10-K for the year ended December 31, 1993.

    (h)     Registrant's 1981 Deferred Compensation Plan, 1985 
            Restatement, as amended through April 2, 1990.

            Incorporated by reference to Exhibit 10(h) to Registrant's 
            Quarterly Report on Form 10-Q for the Quarter Ended March 31, 
            1990.

    (i)     Registrant's Restricted Stock Plan for Directors, as amended 
            through February 7, 1994.

            Incorporated by reference to Exhibit 10(i) to Registrant's Annual
            Report on Form 10-K for the Year Ended December 31, 1993.

   *(j)     Form of severance agreement entered into and to be entered into 
            with various executive officers.

            Incorporated by reference to Exhibit 10(j) to Registrant's 
            Quarterly Report on Form 10-Q for the Quarter ended June 30, 
            1989.

   *(k)     Registrant's Contributory Life Insurance Plan.

            Incorporated by reference to Exhibit 10(s) to Registrant's 
            Quarterly Report on Form 10-Q for the Quarter Ended June 30, 
            1989. 
 
    (l)     1996 Amendment and Restatement of Registrant's 1989 Deferred 
            Compensation Plan for Directors.

   *(m)     1993 Amendment and Restatement of Registrant's 1989 Deferred 
            Compensation Plan for Executives.

            Incorporated by reference to Exhibit 10(m) to Registrant's Annual
            Report on Form 10-K for the year ended December 31, 1993.

   *(n)     Executive Performance Incentive Plan.

            Incorporated by reference to Registrant's Notice of the 1995 
            Annual Meeting of Shareholders and Proxy Statement pursuant to
            Regulation 14A.

    (o)     Stock Purchase Agreement dated as of January 17, 1996 among 
            Registrant, Xerox Financial Services, Inc. (XFSI) and New Talegen 
            Holdings Corporation and Talegen Acquisition Corporation.  This 
            Agreement is for the sale of Talegen Holdings, Inc. and its 
            subsidiaries.  Copies of the exhibits to the Agreement will be 
            furnished upon request.  Copies of the schedules to the Agreement 
            will be furnished to the Commission upon request.

    (p)     Stock Purchase Agreement dated as of January 17, 1996 among 
            Registrant, XFSI and TRG Acquisition Corporation.  This Agreement 
            is for the sale of The Resolution Group, Inc.  Copies of the 
            exhibits to the Agreement will be furnished upon request.  Copies 
            of the schedules to the Agreement will be furnished to the 
            Commission upon request.

(11)        Statement re computation of per share earnings.
 
(12)        Computation of Ratio of Earnings to Fixed charges.
 
(13)        Pages 32 through 81 of Registrant's 1995 Annual Report
            to Shareholders.

(21)        Subsidiaries of the Registrant.

(23)        Consent of KPMG Peat Marwick LLP.

(28) P      Schedule P of Annual Statements to State Regulatory Authorities.

            Incorporated by reference to Exhibit (28) on the Form SE of 
            Registrant dated March 26, 1996.









                                                             EXHIBIT 3(a)(4)


                        Certificate of Amendment
                                of the
                      Certificate of Incorporation
                                  of
                           Xerox Corporation
           Under Section 805 of the Business Corporation Law

     We, the undersigned, Eunice M. Filter, Vice President and Martin S. 
Wagner, Assistant Secretary of Xerox Corporation (the "Corporation") hereby 
certify that:

     1.     The name of the Corporation is "XEROX CORPORATION".  The name 
under which the Corporation was formed is "THE HALOID COMPANY".

     2.     The Certificate of Incorporation was filed by the Department of 
State on April 18, 1906 under the name The Haloid Company.

     3.     The Certificate of Incorporation of the Corporation is hereby 
being amended pursuant to Section 805 of the BCL to (a) reduce the number 
of authorized shares of Cumulative Preferred Stock, par value $1.00 per 
share, of the Corporation ("Cumulative Preferred Stock") and (b) reduce the 
stated capital of the Corporation resulting from the elimination, pursuant 
to Section 515(e) of the BCL and subdivision 4 of Article FOURTH of the 
Certificate of Incorporation of the Corporation, of 1,000,000 shares of 
Cumulative Preferred Stock (consisting of 1,000,000 shares of the 
Corporation's $3.6875 Ten-Year Sinking Fund Preferred Stock, a series of 
Cumulative Preferred Stock) heretofore
 acquired by the Corporation by 
sinking fund redemptions.  Subdivision 4 of Article FOURTH of the 
Certificate of Incorporation of the Corporation prohibits the reissue of 
any shares of Cumulative Preferred Stock of any series redeemed or retired 
pursuant to a sinking fund and requires that such shares be eliminated in 
the manner provided by law from the authorized capital stock of the 
Corporation.

     4.     The lead-in paragraph of Article FOURTH of the Certificate of 
Incorporation of the Corporation reads as follows:

            "FOURTH:  The aggregate number of shares which the Corporation 
shall have the authority to issue is 350,000,000 shares of Common Stock, 
of the par value of $1.00 each (hereinafter referred to as "Common Stock"), 
600,000 shares of Class B Stock of the par value of $1.00 each (hereinafter 
referred to as "Class B Stock"), and 23,543,067 shares of Cumulative 
Preferred Stock, of the par value of $1.00 each (hereinafter referred to as 
"Cumulative Preferred Stock")."

     5.     The lead-in paragraph of Article FOURTH of the Certificate of 
Incorporation of the Corporation is hereby amended to read as follows:

            "FOURTH:  The aggregate number of shares which the Corporation 
shall have the authority to issue is 350,000,000 shares of Common Stock, of 
the par value of $1.00 each (hereinafter referred to as "Common Stock"), 
600,000 shares of Class B Stock of the par value of $1.00 each (hereinafter 
referred to as "Class B Stock"), and 22,543,067 shares of Cumulative 
Preferred Stock, of the par value of $1.00 each (hereinafter referred to as 
"Cumulative Preferred Stock")."

     6.     The stated capital of the Corporation is hereby reduced by 
$1,000,000, the amount represented by the shares of Cumulative Preferred 
Stock heretofore acquired by the Corporation by optional and sinking fund 
redemptions and thereafter cancelled or eliminated.

     7.     The foregoing amendment of the Certificate of Incorporation of 
the Corporation was authorized by the Board of Directors of the Corporation 
at a meeting duly called and held on February 6, 1995.

     IN WITNESS WHEREOF, we have subscribed this document on the date set 
forth below and do hereby affirm, under the penalties of perjury, that the 
statements contained therein have been examined by us and are true and 
correct.


Date: October 19, 1995                 /s/ Eunice M. Filter
                                       ----------------------------
                                       Name:  Eunice M. Filter
                                       Title: Vice President

                                       /s/ Martin S. Wagner
                                       ----------------------------
                                       Name:  Martin S. Wagner
                                       Title: Assistant Secretary







                                                           EXHIBIT 10(d)

Annual Performance Incentive Plan

Under the Annual Performance Incentive Plan, executive officers of the 
Company may be entitled to receive performance related cash payments 
provided that annual, Committee-established performance objectives are 
met.  At the beginning of the year, the Executive Compensation and 
Benefits Committee approves for each officer not participating in the 
Executive Performance Incentive Plan, an annual incentive target and 
maximum opportunity expressed as a percentage of annual base salary.  
The Committee also establishes overall Document Processing threshold, 
target and maximum measures of performance and associated payment 
schedules.  For 1995, the performance measures are profit before tax 
(30%), return on assets (20%), cash generation (20%) and customer and 
employee satisfaction (30%).  Additional goals are also established for 
each officer that includes business unit specific and/or individual 
performance goals and objectives.  The weights associated with each 
business unit specific or individual performance goal and objective used 
vary and range from 10 percent to 55 percent of the total.  Actual 
performance payments are subject to approval
 by the Committee following 
the end of the year.






                                                                 Exhibit 10(l)

                                                           As amended through
                                                             February 5, 1996

                              XEROX CORPORATION 
                 1989 DEFERRED COMPENSATION PLAN FOR DIRECTORS
                       1996 AMENDMENT AND RESTATEMENT 


     Preamble.     This Plan is a private unfunded nonqualified deferred 
compensation arrangement for Directors and all rights shall be governed by and 
construed in accordance with the laws of New York, except where preempted by 
federal law.  It is intended to provide a vehicle for setting aside funds for 
retirement. 

     Section 1.     Effective Date.  The original effective date of the Plan 
is January 1, 1989. The effective date of this amendment and restatement is 
May 16, 1996. 

     Section 2.     Eligibility.  Any Director of Xerox Corporation (the 
"Company") who is not an officer or employee of the Company or a subsidiary of 
the Company is eligible to participate in the Plan.  A participant who 
terminates an election to defer receipt of compensation is not eligible to 
participate again in the Plan until twelve months after the effective date of 
such termination. 

     Section 3.     Deferred Compensation Account.  There shall be established 
for each participant a deferred compensation account. 

     Section 4.     Amount of Deferral. 

     (a)  A participant may elect to defer receipt of all or a specified part, 
expressed
 either in terms of a fixed dollar amount or a percentage, of the 
cash compensation otherwise payable to the participant for serving on the 
Company's Board of Directors or committees of the Board of Directors.  Any 
amount deferred is credited to the participant's deferred compensation account 
on the date such amount is otherwise payable. 

     (b)  In addition to the foregoing, there shall be credited to the 
deferred compensation accounts of each person who is serving as a Director on 
May 15, 1996 a sum computed by the Company as the present value of his or her 
accrued benefit under the Company's Retirement Income Plan For Directors, if 
any, as of such date and each such Director shall be given notice of such 
amount.  The amount so computed shall be final and binding on the Company and 
each such Director.  Within 30 days of giving such notice, each such Director 
shall make an election on a form provided by the Company as to the 
hypothetical investment of such amount and the payment methods as permitted 
under Sections 6 and 8 hereof as in effect on such date under the 
administrative rules adopted by the Administrator.

     Section 5.     Time of Election to Defer.  The election to defer will be 
made prior to the individual's commencement of services as a Director for 
amounts to be earned for the remainder of the calendar year.  In the case of 
an individual currently serving as a Director, the election to defer must be 
made prior to December 31, of any year for amounts to be earned in a 
subsequent calendar year or years.  An election to totally terminate deferrals 
may be made at any time prior to the relevant payment date. 

     Section 6.     Hypothetical Investment.  Deferred compensation is assumed 
to be invested, without charge, in the  Balanced Fund, Income Fund, U.S. Stock 
Fund, International Stock Fund, Small Company Stock Fund or Xerox Stock Fund 
(the "Funds") established under the Xerox Corporation Profit Sharing and 
Savings Plan (the "Profit Sharing Plan") as elected by the participant; 
provided, however, that the Administrator, as hereinafter defined, shall have 
the right from time to time, without adversely affecting participants' 
accruals in deferred compensation accounts, to substitute for the Income Fund 
other hypothetical fixed return investments for the deferred compensation.

     Elections to make hypothetical investments in any one or more of the 
Funds shall be subject to administrative rules adopted by the Administrator 
from time to time. 

     No shares of Xerox stock will ever actually be issued to a participant 
under the Plan. 

     Section 7.     Value of Deferred Compensation Accounts and Installment 
Payments.  The value of each participant's deferred compensation account shall 
reflect all amounts deferred, and gains and losses from the hypothetical 
investments, and shall be determined on the last day of each month (the 
"Valuation Dates").  Hypothetical investments in the Profit Sharing Plan shall 
be valued as of the valuation date under such Plan coincident with or last 
preceding the Valuation Date under this Plan.  The value of hypothetical 
investments not made under the Profit Sharing Plan shall be determined as of 
each Valuation Date by the best information available to the Administrator. 

     Section 8.     Manner of Electing Deferral.  A participant may elect to 
defer compensation by giving written notice to the Administrator on a form 
provided by the Company, which notice shall include (1) the amount and/or 
percentage to be deferred; (2) if more than one is offered under the Plan, the 
hypothetical investment applicable to the amount deferred; (3) the number of 
installments for the payment of the deferred compensation; and (4) the date of 
the first installment payment.  A participant may elect a single method of 
payment for (A) termination of service as a Director, (B) death, (C) 
disability or (D) while still in service as a Director, or separate methods of 
payment for each of these events, provided, however, that the amount credited 
to deferred compensation accounts under Section 4(b) shall not be payable 
while in service as a Director.  The Administrator may adopt rules of general 
applicability regarding commencement and duration of payments under the Plan 
which may be elected by participants. 

     Section 9.     Payment of Deferred Compensation.  No withdrawal may be 
made from the participant's deferred compensation account, except as provided 
under this Section and Sections 10 and 11. 

     The value of a participant's deferred compensation account is payable in 
cash in annual installments on February 15 or August 15 following the first 
occurrence of one of the events elected under Section 8 or following a fixed 
period after one of such events based on the value of the participant's 
deferred compensation account as of the second preceding Valuation Date. 

     Unless otherwise elected by a participant with the written approval of 
the Administrator, payments of deferred compensation shall be made pursuant to 
the following formula:  the amount of the first payment shall be a fraction of 
the value of the participant's deferred compensation account on the second 
preceding Valuation Date, the numerator of which is one and the denominator of 
which is the total number of installments elected, and the amount of each 
subsequent payment shall be a fraction of the value on the second Valuation 
Date preceding each subsequent payment date, the numerator of which is one and 
the denominator of which is the total number of installments elected minus the 
number of installments previously paid.  There shall be added to each payment 
determined in accordance with the foregoing, imputed interest for a period of 
one month at the same annual rate credited to accounts invested in the Income 
Fund under the Profit Sharing Plan for the month of December or June, as the 
case may be.  Any other payment method selected with the written approval of 
the Administrator must in all events provide for payments in substantially 
equal installments. 

     Section 10.     Acceleration of Payment for Hardship. 

     (a)     For Hardship. Upon written approval from the Board of Directors, 
a participant may be permitted to receive all or part of his accumulated 
benefits if, in the discretion of the Board of Directors,  it is determined 
that an emergency event beyond the participant's control exists and which 
would cause such participant severe financial hardship if the payment of his 
benefits were not approved.  Any such distribution for hardship shall be 
limited to the amount needed to meet such emergency.  A participant who makes 
a hardship withdrawal cannot reenter the Plan for twelve months after the date 
of withdrawal.

     (b)     Upon a Change in Control.  Within 5 days following the occurrence 
of a change in control of the Company (as hereinafter defined), each 
participant shall be entitled to receive a lump sum payment equal to the value 
of his deferred compensation account.  For purposes hereof, a "change in 
control of the Company" shall be deemed to have occurred if (A) any "person", 
as such term is used in Sections 13(d) and 14(d) of the Securities Exchange 
Act of 1934, as amended (the "Exchange Act") other than the Company, any 
trustee or other fiduciary holding securities under an employee benefit plan 
of the Company, or any company owned, directly or indirectly, by the 
shareholders of the Company in substantially the same proportions as their 
ownership of stock of the Company, is or becomes the "beneficial owner" (as 
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 
securities of the Company representing 20 percent or more of the combined 
voting power of the Company's then outstanding securities; or (B) during any 
period of two consecutive years, individuals who at the beginning of such 
period constitute the Board, including for this purpose any new director 
(other than a director designated by a person who has entered into an 
agreement with the Company to effect a transaction described in this Section)  
whose election or nomination for election by the Company's shareholders was 
approved by a vote of at least two-thirds of the directors then still in 
office who were directors at the beginning of the period or whose election or 
nomination for election was previously so approved, cease for any reason to 
constitute a majority thereof.

     Section 11.     Other Penalized Withdrawals.  Notwithstanding the 
provisions of Sections 9 and 10, a participant may be permitted to receive all 
or part of his accumulated benefits at any time provided that (A) the 
Administrator approves such distribution in his or her sole discretion, and 
(B) the participant forfeits a portion of his account balance equal to a 
percentage of the amount distributed.  The percentage reduction shall be the 
greater of (A) six percent, or (B) a percentage equal to one-half of the prime 
interest rate, as determined by the Administrator. 

     Section 12.     Time Of Hypothetical Investment.  The amount in the 
participant's deferred compensation account as of each Valuation Date which 
has not been previously deemed invested shall be deemed invested in a 
hypothetical investment on such date, based on the value of the hypothetical 
investment on such date. 

     Section 13.     Participant's Rights Unsecured.  The benefits payable 
under this Plan shall be unfunded.  Consequently, no assets shall be 
segregated for purposes of this Plan and placed beyond the reach of the 
Company's general creditors.  The right of any participant to receive future 
installments under the provisions of the Plan shall be an unsecured claim 
against the general assets of the Company. 

     Section 14.     Statement of Account.  Statements will be sent to each 
participant during February and August and more frequently if the 
Administrator so determines as to the value of their deferred compensation 
accounts as of the end of December and June, respectively. 

     Section 15.     Assignability.  No right to receive payments hereunder 
shall be transferable or assignable by a participant, except by will or by the 
laws of descent and distribution.  

     In the event of a participant's death without having an election under 
Section 8 (B) in effect regarding payment of his account after death, the 
value of the participant's deferred compensation account shall be determined 
as of the Valuation Date coincident with or immediately following death and 
such amount shall be paid in a single payment to the participant's estate (a) 
the first January 15 or July 15 following such Valuation Date, or (b) if such 
payment cannot be made at the time specified in (a), it shall be made within 
30 days after the participant's death.  There shall be added to such payment, 
interest for the full calendar months elapsed following such Valuation Date to 
the payment date at the same annual rate credited to accounts invested in the 
Income Fund under the Profit Sharing Plan for the month of such Valuation 
Date. 

     In the event of a participant's death after installment payments have 
commenced to be paid, the balance of the deferred compensation account shall 
be paid to the participant's estate.

     Section 16.     Business Days.  In the event any date specified herein 
falls on a Saturday, Sunday or legal holiday, such date shall be deemed to 
refer to the next business day thereafter. 

     Section 17.     Administration.  The Plan shall be administered by the 
Vice President of the Company having responsibility for human resources (the 
"Administrator").  The Administrator shall have the authority to adopt rules 
and regulations for carrying out the plan, and interpret, construe and 
implement the provisions of the Plan. 

     Section 18.     Amendment.  The Plan may at any time or from time to time 
be amended, modified or terminated by the Board of Directors or the Executive 
Committee of the Board of Directors of the Company. Upon termination the 
Administrator in his or her sole discretion may pay out account balances to 
participants.  No amendment, modification or termination shall, without the 
consent of a participant, adversely affect such participant's accruals in 
his/her deferred compensation account.







                                                                 Exhibit 10(o)







                           STOCK PURCHASE AGREEMENT



                         dated as of January 17, 1996



                                    among



                              XEROX CORPORATION



                       XEROX FINANCIAL SERVICES, INC.



                                     and



                       NEW TALEGEN HOLDINGS CORPORATION



                                     and



                        TALEGEN ACQUISITION CORPORATION















                             TABLE OF CONTENTS


                                                                    Page

                                 ARTICLE I

                                DEFINITIONS

1.1   Defined Terms                                                 1
1.2   Other Defined Terms                                          10
1.3   Other Definitional Provisions                                10

                                ARTICLE II

          PURCHASE AND SALE OF STOCK AND PREFERRED SECURITIES

2.1   Transfer of Stock                                            11
2.2   Consideration for Stock                                      11
2.3   Transfer of Debentures                                       11
2.4   Consideration for Debentures                                 11
2.5   Transfer of Preferred Securities.                            11
2.6   Consideration for Preferred Securities                       11
2.7   Adjustments                                                  12

                              ARTICLE III

                               CLOSING

3.1   Closing                                                      12
3.2   Documents to be Delivered                                    13

                               ARTICLE IV

           REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER

4.1   Organization of Seller and Parent                            14
4.2   Organization of the Company                                  14
4.3   Capital Stock                                                14
4.4   Authorization                                                15
4.5   Subsidiaries                                                 15
4.6   Ridge Re                                                     17
4.7   Absence of Certain Changes or Events                         18
4.8   Title to Assets, Etc.                                        21
4.9   Contracts and Commitments                                    22
4.10  No Conflict or Violation                                     23
4.11  Consents and Approvals                                       24
4.12  Financial Statements                                         25
4.13  Litigation                                                   26
4.14  Liabilities                                                  26
4.15  Investments                                                  27
4.16  Reserves                                                     28
4.17  Compliance with Law; Permits; Regulatory Matters             28
4.18
  No Brokers                                                   29
4.19  No Other Agreements to Sell the Assets or the Company        29
4.20  Proprietary Rights                                           30
4.21  Employee Benefit Plans                                       30
4.22  Employment-Related Matters                                   34
4.23  Transactions with Certain Persons                            34
4.24  Taxes                                                        34
4.25  Reinsurance and Retrocessions                                36
4.26  1992/93 Restructuring                                        36
4.27  Capital Commitments                                          36
4.28  Environmental Laws                                           36
4.29  Acquisition for Investment                                   37

                             ARTICLE V

         REPRESENTATIONS AND WARRANTIES OF BUYER AND HOLDINGS

5.1   Organization of Buyer and Holdings                           37
5.2   Authorization                                                37
5.3   No Conflict or Violation                                     38
5.4   No Brokers                                                   39
5.5   Acquisition for Investment                                   39
5.6   Organizational Documents                                     39
5.7   Capitalization of Buyer                                      39
5.8   Consents and Approvals                                       40
5.9   Financial Obligations                                        40
5.10  Solvency                                                     40
5.11  Trust                                                        40

                            ARTICLE VI

           ACTIONS BY PARENT, SELLER, HOLDINGS AND BUYER
                       PRIOR TO THE CLOSING

6.1   Maintenance of Business and Preservation of Permits 
      and Services                                                 42
6.2   Additional Financial Statements                              42
6.3   Certain Prohibited Transactions                              43
6.4   Investigation by Buyer                                       43
6.5   Consents                                                     44
6.6   Notification of Certain Matters                              45
6.7   No Solicitations                                             45
6.8   Cooperation; Accounting and Other Matters                    46
6.9   Investment Portfolio                                         46
6.10  Reinsurance Agreements                                       47
6.11  Dividends                                                    47
6.12  Seller Notes                                                 48
6.13  Leesburg Training Facility                                   48
6.14  Reserves and Book-Up                                         49
6.15  Rating Agency Presentations                                  49
6.16  Certain Admitted Assets                                      49
6.17  Intercompany Accounts                                        49
6.18  Certain Required Transfer                                    50
6.19  Financing                                                    50
6.20  Dividends Received by TRG                                    50
6.21  Capital Contribution by Seller                               51
6.22  TOPrS                                                        51
6.23  Subsidiary Credit Agreements                                 51

                            ARTICLE VII

           CONDITIONS TO OBLIGATIONS OF PARENT AND SELLER

7.1   Representations, Warranties and Covenants                    51
7.2   HSR Act                                                      52
7.3   No Governmental or Other Proceeding; Illegality              52
7.4   Consents                                                     52
7.5   Opinion of Counsel                                           52
7.6   Certificates                                                 52
7.7   Corporate Documents                                          52
7.8   TRG Closing                                                  53
7.9   Registration Rights Agreement                                53
7.10  Solvency Matters                                             53
7.11  Capitalization                                               53
7.12  Company Certificates                                         53
7.13  Subsidiary Releases                                          53

                             ARTICLE VIII

            CONDITIONS TO OBLIGATIONS OF HOLDINGS AND BUYER

8.1   Representations, Warranties and Covenants                    53
8.2   Consents                                                     54
8.3   HSR Act                                                      55
8.4   No Governmental or Other Proceeding; Illegality              55
8.5   Opinion of Counsel                                           55
8.6   Certificates                                                 55
8.7   Corporate Documents                                          56
8.8   TRG Closing                                                  56
8.9   Financing                                                    56
8.10  No Material Adverse Effect.                                  56
8.11  No Change in Rating                                          56
8.12  Resignation of Officers and Directors                        56
8.13  Transfer Taxes                                               56
8.14  Seller Notes                                                 56
8.15  Leesburg Training Facility Amount                            56
8.16  Reserves and Book-Up                                         57
8.17  Ridge Re Endorsements.                                       57
8.18  Guarantees                                                   57

                              ARTICLE IX

        ACTIONS BY PARENT, SELLER, AND BUYER AFTER THE CLOSING

9.1   Books and Records                                            57
9.2   First Quadrant Final Sale, Viking Sale and
      Constitution Re Sale                                         57
9.3   Covenants Regarding the Securities                           58
9.4   Crostex/Camfex Purchase Money Notes                          58
9.5   Certain Employee Benefit Matters                             58
9.6   Transfer Taxes                                               59
9.7   Dividends Received by TRG                                    59
9.8   Ridge Re                                                     59
9.9   Further Assurances                                           59

                              ARTICLE X

                           INDEMNIFICATION

10.1   Survival of Representations and Warranties                  59
10.2   Indemnification                                             60
10.3   Indemnification Procedures                                  63
10.4   Insurance Proceeds and Tax Limitations                      64
10.5   Tax Indemnification                                         65

                             ARTICLE XI

                            MISCELLANEOUS

11.1   Termination                                                 65
11.2   Confidentiality                                             67
11.3   Parent Option                                               67
11.4   Assignment                                                  68
11.5   Notices                                                     68
11.6   Choice of Law                                               69
11.7   Entire Agreement; Amendments and Waivers                    69
11.8   Counterparts                                                70
11.9   Invalidity                                                  70
11.10  Headings                                                    70
11.11  Expenses                                                    70
11.12  [Intentionally Omitted]                                     70
11.13  Joint and Several                                           70
11.14  No Third Party Beneficiaries.                               70

                                  Exhibits

Exhibit A     Form of Indenture
Exhibit B     Investment Policy
Exhibit C     Form of TOPrS Side Letter
Exhibit D     Form of Trust Agreement
Exhibit E-1   Form of Opinion of Simpson Thacher & Bartlett
Exhibit E-2   Form of Opinion of King & Spalding
Exhibit E-3   Form of Opinion of Richards, Layton & Finger
Exhibit F     Form of Registration Rights Agreement
Exhibit G     Form of Company Certificates
Exhibit H     Form of Insurance Subsidiary Releases
Exhibit I-1   Form of Opinion of Skadden, Arps, Slate, Meagher & Flom
Exhibit I-2   Form of Opinion of Richard S. Paul
Exhibit I-3   Form of Opinion of Richard N. Frasch
Exhibit I-4   Form of Opinion of Cox & Wilkinson
Exhibit I-5   Form of Opinion of LeBoeuf, Lamb, Greene & MacRae
Exhibit I-6   Form of Opinion of Indiana counsel
Exhibit I-7   Form of Opinion of New Jersey counsel
Exhibit J     Form of Ridge Re Endorsements
Exhibit K     Form of Parent Guarantees
Exhibit L     Form of Parent and Seller Guarantees 
Exhibit M     Term Sheet for Holdings Common Stock 














                       STOCK PURCHASE AGREEMENT


STOCK PURCHASE AGREEMENT dated as of January 17, 1996 among Xerox Corporation, 
a New York corporation ("Parent"), Xerox Financial Services, Inc., a Delaware 
corporation and a wholly-owned subsidiary of Parent ("Seller"), New Talegen 
Holdings Corporation, a Delaware corporation ("Holdings"), and Talegen 
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary 
of Holdings ("Buyer").


                                RECITALS

Seller is the beneficial and record owner of 1,000 shares of common stock, par 
value $1.00 per share, of Talegen Holdings, Inc., a Delaware corporation (the 
"Company"), constituting all of the issued and outstanding capital stock (the 
"Stock") of the Company.  

Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, 
all of the Stock subject to the terms and conditions of this Agreement.

Parent is the sole stockholder of Seller and desires that Seller sell to Buyer 
all of the Stock, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements 
contained herein and for other good and valuable consideration the receipt and 
adequacy of which are hereby acknowledged, the parties hereto agree as 
follows:follows:
 
                               ARTICLE I

                              DEFINITIONS

1.1  Defined Terms.  As used herein, the terms below shall have the following 
meanings:

  "Affiliate" shall mean a Person that directly or indirectly through one or 
more intermediaries controls, is controlled by or is under common control with 
the Person specified.  For purposes of this definition and the definition of 
"Subsidiary" set forth below, the term "control" (including the terms 
"controlling," "controlled by" and "under common control with") of a Person 
means the possession, direct or indirect, of the power to (i) vote 50% or more 
of the voting securities of such Person or (ii) direct or cause the direction 
of the management and policies of such Person, whether by contract or 
otherwise.

  "Agreement" shall mean this Stock Purchase Agreement (together with all 
schedules and exhibits referenced herein), as amended, modified or 
supplemented from time to time.

  "Ancillary Agreements" shall mean, collectively, the Ridge Re Endorsements, 
the Guarantees, the Tax Agreement and the TOPrS Side Letter.

  "Apprise" shall mean Apprise Corp., a New Jersey corporation and a direct 
wholly-owned subsidiary of the Company.

  "Balance Sheet Date" shall mean June 30, 1995.

  "Cash Equivalents" shall mean (a) securities with maturities of one year or 
less from the date of acquisition issued or fully guaranteed or insured by the 
United States Government or any agency thereof, (b) certificates of deposit 
and eurodollar time deposits with maturities of one year or less from the date 
of acquisition and overnight bank deposits of any commercial bank having 
capital and surplus in excess of $500,000,000, (c) repurchase obligations of 
any commercial bank satisfying the requirements of clause (b) of this 
definition, having a term of not more than 30 days with respect to securities 
issued or fully guaranteed or insured by the United States government, (d) 
commercial paper of a domestic issuer rated at least A-2 by S&P or P-2 by 
Moody's, (e) securities with maturities of one year or less from the date of 
acquisition issued or fully guaranteed by any state, commonwealth or territory 
of the United States, by any political subdivision or taxing authority of any 
such state, commonwealth or territory or by any foreign government, the 
securities of which state, commonwealth, territory, political subdivision, 
taxing authority or foreign government (as the case may be) are rated at least 
A by S&P or A by Moody's, (f) securities with maturities of one year or less 
from the date of acquisition backed by standby letters of credit issued by any 
commercial bank satisfying the requirements of clause (b) of this definition 
or (g) shares of money market mutual or similar funds which invest exclusively 
in assets satisfying the requirements of clauses (a) through (f) of this 
definition.

  "CFI" shall mean Crum & Forster Holdings, Inc., a Delaware corporation and a 
direct wholly-owned subsidiary of the Company.

  "CGI" shall mean Coregis Group, Inc., a Delaware corporation and a direct 
wholly-owned subsidiary of the Company.

  "Closing Date" shall mean the date on which the Closing occurs.

  "Code" shall have the meaning ascribed in the Tax Agreement.

  "Company GAAP Financial Statements" shall mean the audited Consolidated 
Balance Sheets of the Company (or its predecessors) as of December 31, 1994 
and 1993 and the Consolidated Statements of Operations, Consolidated 
Statements of Shareholder's Equity and Consolidated Statements of Cash Flows 
of the Company (or its predecessors) for each of the three fiscal years 
included in the three-year period ended December 31, 1994, prepared in 
accordance with GAAP, together with the notes thereon and the related reports 
of KPMG Peat Marwick LLP.

  "Company Interim Financial Statements" shall mean the unaudited Consolidated 
Balance Sheets and the unaudited Consolidated Statements of Operations, 
Consolidated Statements of Shareholder's Equity and Consolidated Statements of 
Cash Flows of the Company for the nine-month periods ended September 30, 1994 
and 1995, together with the notes thereon.

  "Constitution Re" shall mean Constitution Re Corporation, a Delaware 
corporation.

  "Constitution Re Sale" shall mean the sale of the capital stock of 
Constitution Re pursuant to the Stock Purchase Agreement dated December 16, 
1994 between the Company and EXOR America Inc., as amended by an amendment 
dated December 22, 1994.

  "Contracts" shall mean all agreements, contracts, commitments and 
undertakings (other than contracts of insurance or reinsurance or retrocession 
agreements) to which the Company or any of the Subsidiaries is a party, an 
obligor or a beneficiary and (i) the performance or non-performance of which 
is individually or, with respect to any related series of agreements, in the 
aggregate, material to the Company and the Subsidiaries, taken as a whole, or 
(ii) which provide for an aggregate purchase price or payments of more than 
$1,000,000 under any agreement during any two-year period (or $1,000,000 in 
the aggregate, during any two-year period, in the case of any related series 
of agreements).

  "Convention Statements" shall mean (i) the annual convention statements and 
the quarterly statement of each Insurance Subsidiary as filed with the 
insurance regulatory authorities in its jurisdiction of domicile for the years 
ended December 31, 1992, 1993 and 1994 and for the quarterly period ended 
September 30, 1995, and (ii) the annual convention statements of Ridge Re as 
filed with the insurance regulatory authorities in Bermuda for the period from 
December 14, 1992 to December 31, 1993 and for the year ended December 31, 
1994.

  "Credit Corp." shall mean Xerox Credit Corporation, a Delaware corporation 
and a wholly-owned subsidiary of Seller.

  "Crostex/Camfex Contracts" shall mean all contracts, agreements or 
arrangements of the Company or any Subsidiary relating to the real property 
and improvements located at (i) 255 California Street, San Francisco, 
California, (ii) 5724 W. Los Positos Blvd., Pleasonton, California, (iii) 299 
Madison Avenue, Morris Township, New Jersey, (iv) 305 Madison Avenue, Morris 
Township, New Jersey and (v) 4040 North Central Expressway, Dallas, Texas, 
including, without limitation, any notes held by the Company or any Subsidiary 
(the "Crostex/Camfex Purchase Money Notes").

  "Debentures" shall mean the debentures to be issued pursuant to the 
Indenture.

  "Encumbrances" shall mean any claim, lien (statutory or other), pledge, 
option, charge, easement, security interest, right-of-way, encroachment, 
encumbrance, mortgage, or other rights of third parties.

  "Environmental Laws" shall mean any and all applicable Federal, state or 
local laws or regulations relating to the protection of the environment or of 
human health as it may be affected by the environment.

  "Environmental Permit" shall mean any license, permit, order, consent, 
approval, registration, authorization, qualification or filing required under 
any Environmental Law.

  "Environmental Report" shall mean any report, study, assessment, audit, or 
other similar document that addresses any issue of actual or potential 
noncompliance with, or actual or potential liability under, any Environmental 
Law that may in any way affect the Company or any Subsidiary other than to the 
extent such document addresses any issue of actual or potential noncompliance 
with, or actual or potential liability under, any Environmental Law by reason 
of any policy of insurance, reinsurance, indemnity, guaranty or assumption of 
liability of any party entered into by the Company or any Insurance 
Subsidiary.

  "Envision" shall mean Envision Claims Management Corporation, a New Jersey 
corporation and a direct wholly-owned subsidiary of TRG.

  "Excluded Activities" shall mean, with respect to the Company and the 
Subsidiaries, activities relating to insurance reserves, claims under, related 
to or in respect of insurance policies or any disputes related thereto, loss 
adjustments and loss adjustment expenses and reinsurance receivables, 
provided, however, that "Excluded Activities" shall not be deemed to include 
any (i) of the matters covered by the representations contained in Section 
4.6, 4.9(c), 4.12 (to the extent it applies to Ridge Re) or 4.26 or other 
representations regarding Ridge Re or the Ridge Re Treaties or Ridge Re 
Endorsements or (ii) actions, suits, proceedings or claims pending by any 
governmental or regulatory authority to the extent based upon a violation of 
any law, statute, ordinance, rule or regulation.

  "Filoli" shall mean Filoli Information Systems Company, a Delaware 
corporation.

  "First Quadrant" shall mean First Quadrant Corp., a New Jersey corporation.

  "First Quadrant Asset Sale" shall mean the sale of certain assets of First 
Quadrant pursuant to an Asset Purchase Agreement dated as of August 11, 1995 
between First Quadrant and American Re Asset Management, Inc. 

  "First Quadrant Final Sale" shall mean the sale of the capital stock of 
First Quadrant by the Company.

  "GAAP" shall mean generally accepted accounting principles in the United 
States of America in effect from time to time.

  "GAAP Subsidiaries" shall mean Apprise, CFI, CGI, Envision, II and WSG.

  "Guarantees" shall mean the guarantees referred to in Section 8.18.

  "Holdings Common Stock" shall mean common stock, par value $.01 per share, 
of Holdings.

  "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 
1976, as amended.

  "II" shall mean Industrial Indemnity Holdings, Inc., a Delaware corporation 
and a direct wholly-owned subsidiary of the Company.

  "IIC" shall mean Industrial Indemnity Company, a California corporation and 
direct wholly-owned subsidiary of II.

  "Indenture" shall mean the Indenture to be dated as of the Closing Date 
between Holdings and the trustee named therein, (i) with the terms of the 
Debentures, the covenants and events of default set forth in Exhibit A and 
(ii) otherwise substantially in the form of Exhibit A, except, in the case of 
clause (ii), for such changes required by the trustee thereunder which do not 
have an adverse effect on the holders of the Debentures or the Preferred 
Securities.

  "Information Returns" shall have the meaning ascribed in the Tax Agreement.

  "Insurance Subsidiaries" shall mean the Subsidiaries listed on Schedule 
1.1A.

  "Investment Policy" shall mean, with respect to certain Subsidiaries, the 
policy for each such Subsidiary set forth on Exhibit B.

  "KKR" shall mean Kohlberg Kravis Roberts & Co.

  "Knowledge of Seller" shall mean (i) with respect to matters relating to 
Parent or Seller, actual knowledge of any officer of Parent, Seller or Ridge 
Re set forth in Schedule 1.1B, and (ii) with respect to any matters relating 
to the Company or any Subsidiary, actual knowledge of any such officer of 
Parent or Seller, or the actual knowledge of the persons set forth in Schedule 
1.1C.

  "Material Adverse Effect" with respect to any Person shall mean a material 
adverse effect on the business, financial condition, assets or operations of 
such Person, but shall exclude any effect resulting from general economic 
conditions.

  "Materials of Environmental Concern" shall mean any waste, pollutant, or 
contaminant or substance (including, without limitation, petroleum or 
petroleum products, asbestos or asbestos-containing materials, urea-
formaldehyde insulation, polychlorinated biphenyls, odors, radioactivity, and 
electro-magnetic fields) regulated by or under, or which may otherwise give 
rise to liability under, any Environmental Law.

  "Moody's" shall mean Moody's Investors Service, Inc.

  "1992/93 Restructuring" shall mean the restructuring of the Company and its 
subsidiaries pursuant to the Restructuring Agreement dated as of September 3, 
1993 among Seller, Ridge Re, the Company and certain of the Subsidiaries.

  "Permits" shall mean all licenses, permits, orders, consents, approvals, 
registrations, authorizations, qualifications and filings with and under all 
Federal, state, local or foreign laws and governmental or regulatory bodies 
and all industry or other non-governmental self-regulatory organizations 
(including, without limitation, Environmental Permits).

  "Person" shall mean an individual, a partnership, a joint venture, a 
corporation, a business trust, a limited liability company, a trust, an 
unincorporated organization, a government or any department or agency thereof 
or any other entity.

  "Preferred Securities" shall mean the Trust Originated Preferred Securities 
to be issued pursuant to the Trust Agreement.

  "Qualified Transferee" shall mean a corporation (or the wholly-owned direct 
or indirect subsidiary thereof) which, as of the date of the consummation of a 
sale pursuant to Section 9.8, is an insurance company engaged in the business 
of reinsurance and has at least $2 billion in assets and a rating of "A+" or 
better by A.M. Best.

  "Ridge Re" shall mean Ridge Reinsurance Limited, a Bermuda corporation and a 
wholly-owned subsidiary of Seller.

  "Ridge Re Endorsements" shall mean the endorsements to the Ridge Re Treaties 
referred to in Section 8.17.

  "Ridge Re GAAP Financial Statements" shall mean the audited Consolidated 
Balance Sheets of Ridge Re as of December 31, 1994 and 1993 and the related 
Statements of Operations and Retained Earnings and Cash Flows for the year 
ended December 31, 1994 and the period from December 14, 1992 to December 31, 
1993, prepared in accordance with GAAP, together with the notes thereon and 
the related reports of KPMG Peat Marwick LLP.

  "Ridge Re Interim Financial Statements" shall mean the unaudited 
Consolidated Balance Sheet of Ridge Re as of September 30, 1995, and the 
related Statements of Operations and Retained Earnings for the nine-month 
periods ended September 30, 1994 and September 30, 1995.

  "Ridge Re Treaties" shall mean the agreements, as amended by the applicable 
Endorsement No. 1 thereto, contained in Schedule 1.1D. 

  "S&P" shall mean Standard and Poor's Rating Group.

  "Securities" shall mean (a) the Preferred Securities and (b) any shares of 
Holdings Common Stock purchased by Seller in accordance with Section 11.3.

  "Statutory Accounting Principles" shall mean, as applied to any Subsidiary, 
the statutory accounting practices prescribed or permitted by the jurisdiction 
of domicile of such Subsidiary.

  "Subsidiaries" shall mean all corporations, partnerships, joint ventures or 
other entities which the Company controls, directly or indirectly through one 
or more intermediaries.  See definition of "Affiliate" in this Section 1.1 for 
the meaning of "control."

  "Subsidiary GAAP Financial Statements" shall mean the audited Consolidated 
Balance Sheets of each of the GAAP Subsidiaries as of December 31, 1994 and 
December 31, 1993 and the Consolidated Statements of Operations, Consolidated 
Statements of Shareholder's Equity and Consolidated Statements of Cash Flows 
of each such Subsidiary for each of the three fiscal years included in the 
three-year period ended December 31, 1994 (except 1992 financial statements 
for Apprise and Envision), prepared in accordance with GAAP together with the 
notes thereon and the related reports of KPMG Peat Marwick LLP.

  "Subsidiary Interim Financial Statements" shall mean the unaudited 
Consolidated Balance Sheets of each of the GAAP Subsidiaries as of September 
30, 1995, and the unaudited Consolidated Statements of Shareholder's Equity 
and Consolidated Statements of Cash Flows of each such Subsidiary for the 
nine-month periods ended September 30, 1994 and 1995, together with the notes 
thereon.

  "Tax Agreement" shall mean the Tax Allocation and Indemnification Agreement 
dated as of the date hereof among Parent, Seller, the Company, Holdings and 
Buyer.

  "Tax Returns" shall have the meaning ascribed in the Tax Agreement.

  "Taxes" shall have the meaning ascribed in the Tax Agreement.

  "Third Party Amount" shall mean any amount paid by the transferee (which may 
be Seller or any of its Affiliates (other than the Company or any Subsidiary)) 
to the Company or the Subsidiaries of all or a portion of the Seller Notes or 
Leesburg Training Facility, as the case may be, pursuant to Sections 6.12 or 
6.13.

  "Third Party Expenses" shall mean all expenses paid or payable by Buyer or 
Holdings to other Persons in connection with the transactions contemplated by 
this Agreement, the Ancillary Agreements and the Financing Documents other 
than expenses contingent upon a payment to Buyer or Holdings or which are not 
payable unless there has been a breach of this Agreement by Parent, Seller, 
the Company or any Subsidiary, but shall in no event include any amount 
payable to KKR or its Affiliates (other than to Am-Re Consultants, Inc. in 
connection with reserve analyses) or any officer, director or employee of the 
Company or the Subsidiaries.

  "TOPrS Side Letter" shall mean the letter among an investment partnership 
affiliated with Holdings, Holdings and Seller to be dated the Closing Date, 
substantially in the form of Exhibit C.

  "TRG" shall mean The Resolution Group, Inc., a Delaware corporation and a 
direct wholly-owned subsidiary of Seller.

  "TRG Acquisition" shall mean TRG Acquisition Corporation, a Delaware 
corporation.

  "TRG Agreement" shall mean the Stock Purchase Agreement dated as of the date 
hereof among Parent, Seller and TRG Acquisition, as amended, modified or 
supplemented from time to time, which contemplates that TRG Acquisition will 
purchase all of the outstanding capital stock of TRG from Seller, subject to 
the terms and conditions thereof.

  "TRG Dividend Replacement Amount" shall mean an amount equal to (i) 
$15,000,000 plus (ii) $7,500,000 for each calendar quarter from July 1, 1996 
to the Closing Date, provided that if the Closing Date is in the middle of a 
calendar quarter the amount for such calendar quarter shall be pro rated from 
the first day of such calendar quarter to the Closing Date based on actual 
number of days elapsed.

  "Trust" shall mean the Delaware business trust referred to in the Trust 
Agreement.

  "Trust Agreement" shall mean the Amended and Restated Trust Agreement to be 
dated the Closing Date between Holdings and the trustees named therein (the 
"Trustees"), (i) with the terms of Preferred Securities set forth in Exhibit D 
and (ii) otherwise substantially in the form of Exhibit D, except, in the case 
of clause (ii), for such changes required by the Property Trustee (as defined 
in the Trust Agreement) which do not have an adverse effect on the holders of 
the Debentures or the Preferred Securities.

  "Underwriter Letter" shall mean that certain letter dated January 17, 1996 
between a nationally recognized underwriter and Buyer stating that such 
underwriter is highly confident that Buyer will be able to obtain funds 
referenced therein, before underwriting discounts and commissions, from the 
sale of subordinated debt of Buyer.

  "Underwritten Notes" shall mean the subordinated debt securities of Buyer 
issued by Buyer in an offering underwritten by a nationally recognized 
underwriter pursuant to the Underwriter Letter.

  "Viking" shall mean Viking Insurance Holdings, Inc., a  Delaware 
corporation.

  "Viking Sale" shall mean the sale of the capital stock of Viking pursuant to 
a Stock Purchase Agreement dated as of April 26, 1995 between the Company and 
Guaranty National Corporation.

  "WSG" shall mean Westchester Specialty Group, Inc., a Delaware corporation 
and a direct wholly-owned subsidiary of the Company.

1.2  Other Defined Terms.  The following terms shall have the meanings defined 
for such terms in the Sections set forth below:

Term                                    Section

"AARG"                                  4.7
"Actions"                               4.13
"A.M. Best"                             6.15
"Assets"                                4.8
"Closing"                               3.1
"Common Securities"                     2.4
"Company Plans"                         4.21
"Confidentiality Agreement"             6.4
"Crostex/Camfex Purchase Money Notes"   1.1
"Damages"                               10.2
"ERISA"                                 4.21
"ESOP"                                  9.5
"Excluded Business"                     10.2
"Exchange Act"                          4.11
"Financing"                             5.3
"Financing Documents"                   5.3
"Indemnitee"                            10.3
"Indemnitor"                            10.3
"Indenture"                             6.19
"Intellectual Property"                 4.20
"Leesburg Training Facility Amount"     6.13
"Leesburg Training Facility"            6.13
"Liabilities"                           4.14
"Long Term Incentive Program"           4.7
"Notice"                                10.3
"Personnel"                             4.13
"Section 4.5 Subsidiaries"              4.5
"Securities Act"                        4.3
"Seller Notes"                          4.23
"Subsidiary Credit Agreements"          4.14
"TRG Contributed Dividends"             6.20
"Trustees"                              1.1

1.3  Other Definitional Provisions.  (a)  The words "hereof", "herein" and 
"hereunder" and words of similar import when used in this Agreement shall 
refer to this Agreement as a whole and not to any particular provision of this 
Agreement, and Section, Schedule and Exhibit references are to this Agreement 
unless otherwise specified.

(b)  The meanings given to terms defined herein shall be equally applicable to 
both the singular and plural forms of such terms.

                               ARTICLE II

            PURCHASE AND SALE OF STOCK AND PREFERRED SECURITIES

2.1  Transfer of Stock.  Upon the terms and subject to the conditions 
contained herein, Seller will sell, convey, transfer, assign and deliver to 
Buyer, and Buyer will acquire from Seller on the Closing Date, all of the 
Stock for the consideration set forth in Section 2.2.

2.2  Consideration for Stock.  Upon the terms and subject to the conditions 
contained herein, as consideration for the purchase of the Stock, on the 
Closing Date Buyer will pay to Seller cash in an amount equal to 
$1,750,000,000, payable by wire transfer in immediately available funds to an 
account which Seller will designate in writing to Buyer no less than two 
business days prior to the Closing Date, subject to adjustment as described in 
Section 2.7(a).

2.3  Transfer of Debentures.  Simultaneously with Buyer making the payment 
provided for in Section 2.2, (i) Holdings will issue Debentures to Trust in 
the aggregate principal amount of $450,000,000, subject to adjustment as 
described in Sections 2.7(a) and 2.7(b), and (ii) Holdings will issue 
additional Debentures to Trust in an aggregate principal amount equal to the 
aggregate liquidation amount of the common securities referred to in clause 
(ii) of Section 2.4.

2.4  Consideration for Debentures.  As consideration for the purchase of the 
Debentures, on the Closing Date, Holdings and Buyer will cause Trust (i) to 
pay to Holdings cash in an amount equal to $450,000,000, payable by intrabank 
transfer (at a bank to be mutually agreed) in immediately available funds to 
an account which Holdings will designate in writing to Trust no less than two 
business days prior to the Closing Date, subject to adjustment as described in 
Sections 2.7(a) and 2.7(b), and (ii) to issue and deliver to Holdings common 
securities of Trust ("Common Securities") with a liquidation amount of 3% of 
the aggregate liquidation amount of securities of Trust which will be 
outstanding at Closing (after giving effect to the issuance of Preferred 
Securities provided for in Section 2.5).  

2.5  Transfer of Preferred Securities.  Simultaneously with the payments 
provided for in Sections 2.2 and 2.4, Holdings and Buyer will cause Trust to 
issue and deliver to Seller, and Seller will acquire from Trust, Preferred 
Securities with an aggregate liquidation amount of $450,000,000, subject to 
adjustment as described in Sections 2.7(a) and 2.7(b).

2.6  Consideration for Preferred Securities.  As consideration for the 
purchase of the Preferred Securities, on the Closing Date Seller will pay to 
Trust cash in an amount equal to $450,000,000, payable by intrabank transfer 
(at a bank to be mutually agreed) in immediately available funds to an account 
which Buyer will designate in writing to Seller no less than two business days 
prior to the Closing Date, subject to adjustment as described in Sections 
2.7(a) and 2.7(b).

2.7  Adjustments.  (a)  If the Closing shall not have occurred on or prior to 
July 1, 1996, the amount of cash payable by Buyer to Seller pursuant to 
Section 2.2, the principal amount of Debentures to be issued by Holdings 
pursuant to Section 2.3, the amount of cash payable by Trust pursuant to 
Section 2.4, the aggregate liquidation amount of Preferred Securities to be 
issued by the Trust pursuant to Section 2.5 and the amount of cash payable by 
Seller pursuant to Section 2.6 shall each be increased by $10,000,000 for each 
full calendar month until the Closing Date, and with respect to any partial 
calendar month commencing with July 1, 1996 until the Closing Date, by an 
amount equal to the product obtained by multiplying $10,000,000 by a fraction 
the numerator of which is equal to the number of days in such partial month 
which have elapsed prior to the Closing Date and the denominator of which is 
equal to the number of calendar days in such month.

(b)  To the extent that IIC shall not have paid an extraordinary dividend to 
II after the date hereof but prior to the Closing Date, the principal amount 
of Debentures to be issued by Holdings pursuant to Section 2.3, the amount of 
cash payable by Trust pursuant to Section 2.4, the aggregate liquidation 
amount of Preferred Securities to be issued by Trust pursuant to Section 2.5 
and the amount of cash payable by Seller pursuant to Section 2.6 shall each be 
increased by $50,000,000, and to the extent that IIC shall have paid an 
extraordinary cash dividend of less than $50,000,000 to II after the date 
hereof but prior to the Closing Date, the principal amount of Debentures to be 
issued by Holdings pursuant to Section 2.3, the amount of cash payable by 
Trust pursuant to Section 2.4, the aggregate liquidation amount of Preferred 
Securities to be issued by Trust pursuant to Section 2.5 and the amount of 
cash payable by Seller pursuant to Section 2.6 shall each be increased to the 
extent any such dividend is less than $50,000,000.

                              ARTICLE III

                                CLOSING

3.1  Closing.  The closing of the transactions contemplated herein (the 
"Closing") shall take place as soon as practicable but in no event later than 
five business days after satisfaction or waiver of the conditions set forth in 
Articles VII and VIII, and shall be held at 9:00 a.m. local time on the 
Closing Date at the offices of Simpson Thacher & Bartlett, 425 Lexington 
Avenue, New York, New York 10017, unless the parties hereto otherwise agree.  
The parties agree that the effective time of the Closing for Federal income 
tax purposes shall be at the close of business on the Closing Date.

3.2  Documents to be Delivered.  To effect the transfers referred to in 
Sections 2.1, 2.3 and 2.5 and the delivery of the consideration described in 
Sections 2.2, 2.4 and 2.6 hereof, Seller and Buyer shall, and Holdings and 
Buyer shall cause Trust to, on the Closing Date, deliver the following:

(a)  Seller shall deliver to Buyer certificate(s) evidencing the Stock, free 
and clear of any Encumbrances of any nature whatsoever (except Encumbrances 
arising as a result of any action taken by Buyer or any of its Affiliates), 
duly endorsed in blank for transfer or accompanied by stock powers duly 
executed in blank.

(b)  Buyer shall deliver to Seller immediately available funds as provided in 
Section 2.2.

(c)  Holdings shall issue Debentures to Trust as provided in Section 2.3.

(d)  Trust shall deliver to Holdings immediately available funds as provided 
in clause (i) of Section 2.4.

(e)  Trust shall deliver to Holdings certificate(s) evidencing Common 
Securities as provided in clause (ii) of Section 2.4.

(f)  Trust shall deliver to Seller certificate(s) evidencing the Preferred 
Securities as provided in Section 2.5, free and clear of any Encumbrances of 
any nature whatsoever (except Encumbrances arising as a result of any action 
taken by Seller or any of its Affiliates) in the form of one or more 
certificates in the name of Seller.

(g)  Seller shall deliver to Trust immediately available funds as provided in 
Section 2.6.

(h)  Seller and Buyer shall each deliver all documents required to be 
delivered pursuant to Articles VII and VIII.

(i)  All instruments and documents executed and delivered to Buyer pursuant 
hereto shall be in form and substance, and shall be executed in a manner, 
reasonably satisfactory to Buyer.  All instruments and documents executed and 
delivered to Seller pursuant hereto shall be in form and substance, and shall 
be executed in a manner, reasonably satisfactory to Seller.

                               ARTICLE IV

           REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER


Parent and Seller hereby represent and warrant to Buyer and Holdings as 
follows:

4.1  Organization of Seller and Parent.  Seller is duly organized, validly 
existing and in good standing under the laws of the State of Delaware and has 
full corporate power and authority to conduct its business as it is presently 
being conducted and to own the Stock.  Parent is 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 conduct its business as it is presently 
being conducted.

4.2  Organization of the Company.  The Company is duly organized, validly 
existing and in good standing under the laws of the State of Delaware and has 
full corporate power and authority to conduct its business as it is presently 
being conducted and to own, lease and operate its properties and assets.  The 
Company is duly qualified or otherwise authorized as a foreign corporation to 
conduct the business conducted by it and is in good standing in each 
jurisdiction in which such qualification or authorization is necessary under 
the applicable law and where the failure to be so qualified or otherwise 
authorized, individually or in the aggregate, would have a Material Adverse 
Effect on the Company and the Subsidiaries, taken as a whole.  Seller has 
provided to Buyer a complete and correct copy of the certificate of 
incorporation, bylaws and other organizational documents of the Company and 
the minute books of the Company.  The Company's minute books include copies of 
minutes of all meetings of the directors or shareholders of the Company held 
on or after January 1, 1993 and complete and accurate copies of all 
resolutions passed by the directors or actions by written consent of the 
shareholders on or after January 1, 1993.

4.3  Capital Stock.  The Company has authorized 1,000 shares of common stock, 
$1.00 par value, 1,000 shares of which are issued and outstanding, and no 
shares of any other class or series of capital stock are authorized, issued or 
outstanding.  All of the shares of the Stock have been duly and validly 
authorized and issued, and are fully paid and nonassessable.  Seller owns of 
record and beneficially all of the Stock free and clear of all Encumbrances, 
including without limitation, any agreement, understanding or restriction 
affecting the voting rights or other incidents of record or beneficial 
ownership pertaining to the Stock; provided that Parent and Seller make no 
representation in this sentence regarding the ability of Seller to transfer or 
otherwise dispose of such Stock without registration or qualification under, 
or in compliance with, applicable Federal or state securities laws to a Person 
who is not an "accredited investor" (as defined in Rule 501 of Regulation D 
under the Securities Act of 1933, as amended (the "Securities Act")) or 
without compliance with applicable insurance laws.  There are no 
subscriptions, options, warrants, calls, commitments, preemptive rights or 
other rights of any kind outstanding for the purchase of, nor any securities 
convertible or exchangeable for, any equity interests of the Company.  There 
are no restrictions upon the voting or transfer of any shares of the Stock 
pursuant to the Company's Certificate of Incorporation or Bylaws or any 
agreement or other instrument to which the Company or Seller is a party or by 
which the Company or Seller is bound.  Upon consummation of the transactions 
contemplated by this Agreement, Buyer will acquire from Seller good and 
marketable title to such Stock, free and clear of all Encumbrances, except 
Encumbrances arising as a result of any action taken by Buyer or any of its 
Affiliates; provided that Parent and Seller make no representation regarding 
the ability of any Person other than Seller to transfer or otherwise dispose 
of such Stock without registration or qualification under, or in compliance 
with, applicable Federal securities or state securities or insurance laws.

4.4  Authorization.  Each of Parent and Seller has all necessary corporate 
power and authority to enter into this Agreement and the Ancillary Agreements 
to which it is or will be a party, and has taken all corporate action 
necessary to consummate the transactions contemplated hereby and thereby and 
to perform its obligations hereunder and thereunder.  This Agreement and the 
Tax Agreement have each been duly executed and delivered by each of Seller and 
Parent.  Assuming the due execution of this Agreement and the Tax Agreement by 
Holdings and Buyer, each of this Agreement and the Tax Agreement is a legal, 
valid and binding obligation of each of Seller and Parent enforceable in 
accordance with its terms, subject to the effects of bankruptcy, insolvency, 
fraudulent conveyance, reorganization, moratorium and other similar laws 
relating to or affecting creditors' rights generally, general equitable 
principles (whether considered in a proceeding in equity or at law) and an 
implied covenant of good faith and fair dealing.  Subject to the occurrence of 
the Closing, the Guarantees and the TOPrS Side Letter will be duly executed 
and delivered by Parent and Seller, as applicable, on the Closing Date.  Upon 
execution and delivery by Parent or Seller, as the case may be, each Guarantee 
and the TOPrS Side Letter will be a legal, valid and binding obligation of 
such Person enforceable in accordance with its terms, subject to the effects 
of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium 
and other similar laws relating to or affecting creditors' rights generally, 
general equitable principles (whether considered in a proceeding in equity or 
at law) and an implied covenant of good faith and fair dealing, assuming, in 
the case of the TOPrS Side Letter, the due execution of such letter by 
Holdings and the partnership party thereto.

4.5  Subsidiaries.  Schedule 4.5 sets forth a complete and accurate list of 
all of the Subsidiaries, other than Subsidiaries which are not Insurance 
Subsidiaries and which do not hold any assets (including capital stock) with a 
fair market value in excess of $1,000 or insurance licenses (the "Section 4.5 
Subsidiaries").  Schedule 4.5 also contains the jurisdiction of incorporation 
or formation of each of the Section 4.5 Subsidiaries, each jurisdiction in 
which such Subsidiary is licensed, qualified or otherwise authorized to 
conduct insurance business, the number of shares of capital stock of any 
Section 4.5 Subsidiary which is a corporation issued and outstanding and the 
percentage ownership interest of the Company in each such Subsidiary.  All 
outstanding shares of capital stock of such Subsidiaries have been duly and 
validly authorized and are fully paid and nonassessable.  Except as set forth 
on Schedule 4.5, all such outstanding shares are owned by the Company and/or 
one or more of its Subsidiaries free and clear of any Encumbrances, including, 
without limitation, any agreement, understanding or restriction affecting the 
voting rights or other incidents of record or beneficial ownership pertaining 
to such shares; provided that Parent and Seller make no representation in this 
sentence regarding the ability of Seller to transfer or otherwise dispose of 
such shares without registration or qualification under, or in compliance 
with, applicable Federal securities or state securities laws to a Person who 
is not an "accredited investor" (as defined in Rule 501 under the Securities 
Act) or without compliance with applicable insurance laws.  Except as set 
forth on Schedule 4.5, there are no subscriptions, options, warrants, calls, 
commitments, preemptive rights or other rights of any kind outstanding for the 
purchase of, nor any securities convertible or exchangeable for, any equity 
interests of any of the Section 4.5 Subsidiaries.  Schedule 4.5 contains true 
and complete copies of all agreements and other instruments pursuant to which 
the Company or any Section 4.5 Subsidiary is obligated or required, under any 
circumstance, to make contributions to the capital of any Subsidiary.  Each of 
the Insurance Subsidiaries is a corporation duly licensed, organized, validly 
existing and in good standing under the jurisdiction of its organization and 
each of the other Subsidiaries is a corporation duly organized, validly 
existing and in good standing under the jurisdiction of its organization, in 
each case, with corporate power to own its properties and conduct its business 
as now being conducted and is duly licensed (in the case of the Insurance 
Subsidiaries), qualified and in good standing to transact business in each 
jurisdiction (as listed in Schedule 4.5) where, by virtue of its business 
carried on or properties owned, it is required to be so licensed (in the case 
of the Insurance Subsidiaries) or qualified and where the failure to be so 
licensed (in the case of the Insurance Subsidiaries) or qualified, 
individually or in the aggregate, would have a Material Adverse Effect on the 
Company and the Subsidiaries, taken as a whole.  To the extent requested of 
Seller by Buyer, Seller has made available to Buyer a complete and correct 
copy of the certificates of incorporation, bylaws and other organizational 
documents of each Section 4.5 Subsidiary and the minute books of each such 
Subsidiary.  The minute books include copies of minutes of all meetings of the 
directors or shareholders of each such Subsidiary held on or after January 1, 
1993 and complete and accurate copies of all resolutions passed by the 
directors or actions by written consent of the shareholders on or after 
January 1, 1993.

4.6  Ridge Re.  (a)  Ridge Re is duly organized, validly existing and in good 
standing under the laws of Bermuda and has full corporate power and authority 
to conduct its business as it is presently being conducted and to own, lease 
and operate its properties and assets.  Ridge Re is duly licensed, qualified 
or otherwise authorized as an alien corporation to conduct the reinsurance 
business conducted by it and is in good standing in each jurisdiction in which 
such license, qualification or authorization is necessary under the applicable 
law and where the failure to be so licensed, qualified or otherwise 
authorized, individually or in the aggregate, would have a Material Adverse 
Effect on the Company and the Subsidiaries, taken as a whole.

(b)  Seller owns of record and beneficially all of the outstanding capital 
stock of Ridge Re free and clear of all Encumbrances, including without 
limitation, any agreement, understanding or restriction affecting the voting 
rights or other incidents of record or beneficial ownership pertaining to such 
shares; provided that Parent and Seller make no representation in this 
sentence regarding the ability of Seller to transfer or otherwise dispose of 
such shares without registration or qualification under, or in compliance 
with, applicable Federal or state securities laws to a Person who is not an 
"accredited investor" (as defined in Rule 501 of Regulation D under the 
Securities Act) or without compliance with applicable insurance laws.  There 
are no subscriptions, options, warrants, calls, commitments, preemptive rights 
or other rights of any kind outstanding to which Parent, Seller, Ridge Re or 
any of their respective Affiliates is a party for the purchase of, nor any 
securities convertible or exchangeable for, any equity interests of Ridge Re, 
except as set forth in Schedule 4.6.  Schedule 4.6 contains a true and 
complete list of all agreements and other instruments pursuant to which 
Parent, Seller or any Affiliate is obligated or required, under any 
circumstance, to make contributions to the capital of Ridge Re.

(c)  Each of Ridge Re and each Insurance Subsidiary has all necessary 
corporate authority to enter into the Ridge Re Endorsements to which it will 
be a party and has taken all necessary corporate authority to consummate the 
transactions contemplated thereby and to perform its obligations thereunder.  
Subject to the occurrence of the Closing, each of the Ridge Re Endorsements 
will be duly executed and delivered by Ridge Re in Bermuda and by the 
Insurance Subsidiaries parties thereto.  Upon execution and delivery by the 
parties thereto, each of the Ridge Re Treaties, as amended by the applicable 
Ridge Re Endorsement, will be a legal, valid and binding obligation of Ridge 
Re, enforceable in accordance with its terms, subject to the effects of 
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and 
other similar laws relating to or affecting creditors' rights generally, 
general equitable principles (whether considered in a proceeding in equity or 
at law) and an implied covenant of good faith and fair dealing.

4.7  Absence of Certain Changes or Events.  To the Knowledge of Seller, except 
as expressly contemplated by this Agreement or as described on Schedule 4.7 or 
reflected in the Company Interim Financial Statements, since June 30, 1995, 
there has not been any:

(a)  change in the business, condition (financial or otherwise), Permits, 
assets, Liabilities, working capital, earnings or operations of the Company or 
any Subsidiary, except for changes which have not, individually or in the 
aggregate, had or are not reasonably likely to have a Material Adverse Effect 
on the Company and the Subsidiaries, taken as a whole;

(b)  acquisition of material assets or properties or of securities or business 
of any other Person by the Company or any Subsidiary (in each case, other than 
acquisitions in the ordinary course of business consistent with past practice) 
or any merger, consolidation or amalgamation involving the Company or any 
Subsidiary, except (i) the acquisition of Cash Equivalents as part of the 
process of converting substantially all of the Company and the Subsidiaries' 
investment portfolio into cash and Cash Equivalents prior to the date of this 
Agreement and the reinvestment thereof in accordance with the Investment 
Policy after the date of this Agreement and (ii) the purchase by the Company 
of preferred stock of Filoli for a purchase price of $2,500,000;

(c)  sale, assignment, lease or transfer of (i) the Crostex/Camfex Contracts, 
the Seller Notes (except transfers in accordance with, and to the extent 
Parent and Seller comply with, Section 6.12) or any interest in the Leesburg 
Training Facility (except transfers in accordance with, and to the extent 
Parent and Seller comply with, Section 6.13) or (ii) any other material assets 
(including any portion of the investment portfolio) of the Company or any 
Subsidiary, other than in the case of (ii) (W) in the ordinary course of 
business consistent with past practices, (X) converting substantially all of 
the Company and the Subsidiaries' investment portfolio into cash and Cash 
Equivalents prior to the date of this Agreement and dispositions of securities 
in accordance with the Investment Policy after the date of this Agreement, (Y) 
the First Quadrant Asset Sale and (Z) the First Quadrant Final Sale;

(d)  incurrence by the Company or any Subsidiary of any indebtedness for 
borrowed money or incurrence, assumption or guarantee of, or any other act to 
become responsible for, any obligations of any other Person, or making of 
loans or advances by the Company or any Subsidiary to any Person (including, 
without limitation, any broker or agent), except (i) advances to American All 
Risk Group ("AARG") to the extent required under a credit agreement in effect 
on the date hereof, a true and complete copy of which has been previously made 
available to Buyer, (ii) loans by IIC to Filoli in an aggregate principal 
amount of up to $17,500,000, (iii) loans to employees made in the ordinary 
course of business consistent with past practice for relocation expenses and 
(iv) the issuance of insurance policies in the ordinary course of business 
consistent with past practice;

(e)  cancellation of any indebtedness or waiver or compromise of any rights 
(including agent balances) having a value to the Company or any Subsidiary of 
$500,000 or more, including the Seller Notes and the Crostex/Camfex Purchase 
Money Notes, whether or not in the ordinary course of business (other than 
settlements in the ordinary course of business of claims and salvage and 
subrogation rights arising under contracts of insurance underwritten, assumed 
or ceded by the Company or any Subsidiary which settlements have not had nor 
would be reasonably likely to have, individually or in the aggregate, a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole 
and the terminations, modifications and commutations permitted by clause (j) 
below), provided that for purposes of this paragraph the Company's elimination 
of a deferred tax asset in an amount equal to $7,000,000 relating to the 
Company's former participation in the ESOP shall not constitute a 
cancellation;

(f)  failure of the Company or any Subsidiary to pay any creditor any amount 
owed to such creditor (in excess of $1,000,000 in the aggregate for all such 
creditors) when due (after the expiration of any applicable grace periods) 
except for failures to pay in the ordinary course of business or if the 
Company or any Subsidiary is disputing the amount due in good faith;

(g)  payment by the Company or any Subsidiary of any material Liability before 
the same became due in accordance with its terms other than in the ordinary 
course of business consistent with past practice;

(h)  material change in the underwriting, reinsurance, marketing, claim 
processing and payment, financial or accounting practices or policies of the 
Company or any Subsidiary, except as required by law, generally accepted 
accounting principles or Statutory Accounting Principles;

(i)  except to the extent required under employee and director benefit plans 
or policies, agreements or arrangements as in effect on the Balance Sheet Date 
and except in connection with the Long Term Incentive Program attached as 
Attachment A and the Stock Option Agreement attached as Exhibit A to the 
Employment Agreement among Joseph W. Brown, Jr., Parent and the Company and 
the five related agreements with management of the Company or TRG 
(collectively, the "Long Term Incentive Program"), (1) increase in the 
compensation or fringe benefits of any of the directors, officers or employees 
of the Company or any Subsidiary (except for increases in salary or wages of 
employees of the Company or any Subsidiary who are not officers of the Company 
in the ordinary course of business in accordance with past practice), (2) 
except for the letter agreement dated June 1, 1995 between II and Robert 
Puccinelli, and the Employment Agreement (and related grants of stock options 
and restricted stock) dated as of January 1, 1996 between Infocus Employee 
Services, Inc. and Andrew Vadyak (on terms and conditions reasonably 
satisfactory to Buyer), grant of any severance or termination pay or entrance 
into any employment, consulting or severance agreement or arrangement with any 
present or former director, officer or employee of the Company or any 
Subsidiary or amendment of any such arrangement or agreement or (3) 
establishment, adoption, entrance into, amendment of or termination of any (X) 
collective bargaining agreement or (Y) plan or agreement to provide bonuses, 
profit sharing, stock options, restricted stock, pensions, retirement 
benefits, deferred compensation, employment or benefits upon termination for 
the benefit of any directors, officers or any group of other employees of the 
Company or any Subsidiary;

(j)  (i) entry into or modification of any reinsurance or retrocession 
agreement by the Company or any Subsidiary other than in the ordinary course 
of business consistent with past practice, except for those which have not had 
nor are reasonably likely to have, individually or in the aggregate, a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole 
or (ii) termination or commutation of any reinsurance or retrocession 
agreement legally carried on the books of the Subsidiaries at the time of such 
termination or commutation at $5,000,000 or more;

(k)  entry into, termination or modification by the Company or any Subsidiary 
of any Contract, agreement, commitment, transaction, or instrument (including, 
without limitation, relating to any borrowing, lending, capital expenditure, 
capital contribution or capital financing), except entering into, terminating 
or modifying contracts, agreements, commitments, transactions, or instruments 
(i) in the ordinary course of business, (ii) as permitted by clauses (i) and 
(j) above and (iii) for a contribution of an amount not to exceed $4,000,000 
by CGI to Coregis Managers Corporation (Il.); provided that except as 
disclosed on Schedule 4.7, no modifications shall have been made to the 
Crostex/Camfex Contracts, the Subsidiary Credit Agreements or the Ridge Re 
Treaties;

(l)  entry into a material joint venture, partnership or similar arrangement 
by the Company or any Subsidiary with any Person;

(m)  any capital expenditure or execution of any lease or commitment for the 
foregoing by the Company or any Subsidiary involving annual payments in excess 
of $100,000;

(n)  lapse or termination or failure to renew any Permit of the Company or any 
Subsidiary, in each case other than with respect to Permits the failure of 
which to be in effect would not have, individually or in the aggregate, a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole;

(o)  (i) declaration, setting aside or payment of any dividends or 
distributions (whether in cash, stock or property) in respect of any capital 
stock of the Company or (ii) any redemption, purchase or other acquisition of 
any of the capital stock of the Company or any Subsidiary (other than a wholly 
owned Subsidiary), except for payments permitted under the Tax Agreement;

(p)  issuance by the Company or any Subsidiary of, or commitment of the 
Company or any Subsidiary to issue, any shares of capital stock or obligations 
or securities convertible into or exchangeable for shares of capital stock 
except for issuances or commitments by any Subsidiary to issue any such 
securities to the Company or any wholly owned Subsidiary;

(q)  amendment of the certificate of incorporation or bylaws of the Company or 
any Subsidiary; or

(r)  agreement by the Company or any Subsidiary to do any of the foregoing.

4.8  Title to Assets, Etc.  The Company and the Subsidiaries have good title 
to or valid and subsisting leasehold interests in all real and material 
personal property and other material assets on their books and reflected on 
the balance sheets included in the Company Interim Financial Statements and  
the Subsidiary Interim Financial Statements, as applicable, or acquired in the 
ordinary course of business since September 30, 1995 which would have been 
required to be reflected on such balance sheets if acquired on or prior to 
September 30, 1995, other than (i) assets which have been disposed of in the 
ordinary course of business or pursuant to the First Quadrant Final Sale and 
(ii) assets which were disposed in connection with the conversion of the 
Company and the Subsidiaries' investment portfolio into cash and Cash 
Equivalents (the "Assets").  None of the Assets is subject to any Encumbrance, 
except for Encumbrances reflected in the financial statements contained in 
Schedule 4.12, as applicable, or which in the aggregate are not substantial in 
amount and do not materially detract from the value of the property or assets 
subject thereto or interfere with the present use.

4.9  Contracts and Commitments.  (a)  None of the Company or any Subsidiary is 
a party to any written or oral:

  (i)  Contracts not otherwise listed in Schedule 4.9;
  (ii)  except as listed on Schedule 4.9, treaties and agreements with, and 
undertakings or commitments to, any governmental or regulatory authority 
materially affecting the business of the Company and the Subsidiaries taken as 
a whole and not made in the ordinary course of business;

  (iii)  except as described in Schedule 4.9, contracts or agreements 
containing covenants limiting the freedom of the Company or any Subsidiary to 
engage in any line of business in any geographic area or to compete with any 
Person or to incur indebtedness for borrowed money;

  (iv)  except as described in Schedule 4.9 and for reinsurance and 
retrocession agreements, contracts or agreements containing "change in 
control" or similar provisions;

  (v)  except as listed on Schedule 4.9, employment contracts or agreements, 
including without limitation contracts to employ executive officers and other 
contracts with officers or directors of the Company or any Subsidiary which 
cannot be terminated by the Company or the Subsidiary upon notice of sixty 
days or less without penalty or premium and involve annual compensation in 
excess of $100,000 individually; or

  (vi)  contracts or agreements providing for the indemnification by the 
Company or any Subsidiary of any Person except for contracts entered into in 
the ordinary course of business consistent with past practice.

(b)  Except as set forth on Schedule 4.9, none of the Company or any 
Subsidiary is (and, to the Knowledge of the Seller, no other party is) (i) in 
material breach of or materially in default under, any of the Contracts (or 
with or without notice or lapse of time or both, would be in material breach 
of or materially in default under any of the Contracts) or (ii) in breach or 
default under any of the Contracts (with or without notice or lapse of time or 
both) if such breach or default would permit a party other than the Company or 
a Subsidiary to terminate such Contract.  None of Parent, Seller, the Company 
or any Subsidiary has delivered or received notice of termination or written 
notice of an intention to terminate to or from any other party to any Contract 
except as described on Schedule 4.9.

(c)  Other than the Ridge Re Treaties and treaties between Ridge Re and 
subsidiaries of TRG, Viking and Constitution Re, respectively (copies of which 
have been provided to Buyer), Ridge Re is not a party to any reinsurance or 
retrocession agreement or treaty, and, except in connection with such 
treaties, does not engage in any business.  Set forth in Schedule 4.9 is the 
amount of cover as of the date of this Agreement available under each of the 
Ridge Re Treaties.  True and complete copies of the Ridge Re Treaties are 
contained in Schedule 1.1D.  Each of the Ridge Re Treaties is in full force 
and effect and constitutes a legal, valid and binding obligation of the 
parties thereto, enforceable in accordance with its terms, subject to the 
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, 
moratorium and other similar laws relating to or affecting creditors' rights 
generally, general equitable principles (whether considered in a proceeding in 
equity or at law) and an implied covenant of good faith and fair dealing.  
None of Parent, Seller, the Company or any Subsidiary has received any notice 
from Ridge Re or any governmental or regulatory authority (i) that any Ridge 
Re Treaty is not enforceable against any party thereto or (ii) regarding the 
availability or enforceability of the cover under any Ridge Re Treaty.  No 
party to a Ridge Re Treaty has received notice of termination of, or written 
notice of an intention to terminate, any Ridge Re Treaty.  No party to a Ridge 
Re Treaty is in breach of or violation of or default under any Ridge Re Treaty 
(or with or without notice or lapse of time or both, would be in breach of or 
violation of or default under any Ridge Re Treaty), except for breaches, 
violations or defaults by an Insurance Subsidiary which would not permit Ridge 
Re to terminate the applicable Ridge Re Treaty or which would not provide 
Ridge Re with a defense to any payment obligation of Ridge Re thereunder.

4.10  No Conflict or Violation.  Except as set forth in Schedule 4.10, neither 
the execution, delivery and performance of this Agreement or any of the 
Ancillary Agreements nor the consummation of the transactions contemplated 
hereby or thereby will result in (a) a violation of or a conflict with any 
provision of the certificate of incorporation or bylaws of Parent, Seller, 
Ridge Re, the Company or any Section 4.5 Subsidiary, (b) a breach of, or a 
default under, any term or provision of any contract, agreement, indebtedness, 
lease, Encumbrance, commitment, license, franchise, Permit, authorization or 
concession to which (i) Parent, Seller or Ridge Re is a party or is subject or 
by which any assets (including investments) of any of them are bound or (ii) 
the Company or any Subsidiary is a party or is subject or by which any assets 
(including investments) of any of them are bound, which breach or default in 
the case of clause (ii) would have, individually or in the aggregate, a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole, 
or in the case of clauses (i) and (ii) would interfere in any material way 
with the ability of Parent or Seller to consummate the transactions 
contemplated by this Agreement or any of the Ancillary Agreements or the Ridge 
Re Treaties, as amended by the applicable Ridge Re Endorsements, (c) subject 
to obtaining the approvals referred to in Section 4.11, a violation by Parent, 
Seller, Ridge Re, the Company or any Subsidiary of any statute, rule, 
regulation, ordinance, code, order, judgment, writ, injunction, decree or 
award, which violation would have, individually or in the aggregate, a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole, 
or interfere in any material way with the ability of Parent, Seller or Ridge 
Re to consummate the transactions contemplated by this Agreement or any of the 
Ancillary Agreements, (d) the imposition of any Encumbrance, restriction or 
charge on the business of the Company or any Subsidiary or on any material 
assets of the Company or the Subsidiaries, (e) the creation or exercisability 
of any right of termination, cancellation or acceleration under any Contract 
or (f) result in the breach of any of the terms or conditions of, constitute a 
default under, or otherwise cause any impairment of, any Permit, which breach, 
default or impairment would result, individually or in the aggregate, in a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.

4.11  Consents and Approvals.  Except for (i) the approval of this Agreement, 
the Ancillary Agreements and the transactions contemplated hereby and thereby 
(including, without limitation, the Financing), and the new intercompany tax 
agreements among the Company and the Subsidiaries which shall be effective as 
of the Closing, by each of the governmental and regulatory authorities listed 
on Schedule 4.11, (ii) the approval of this Agreement, the Ancillary 
Agreements and the transactions contemplated hereby and thereby (including, 
without limitation, the Financing), and the new intercompany tax agreements 
among the Company and the Subsidiaries which shall be effective as of the 
Closing, by any other governmental or regulatory authorities, the failure of 
which to obtain would not, individually or in the aggregate, have a Material 
Adverse Effect on the Company and the Subsidiaries, taken as a whole, (iii) 
filings in respect of the transactions contemplated hereby required to be made 
for compliance with the applicable provisions of the Securities Exchange Act 
of 1934, as amended (the "Exchange Act"), and the rules and regulations 
promulgated thereunder, (iv) filings under the Securities Act and the rules 
promulgated thereunder in connection with the sale of the Underwritten Notes, 
(v) the filing of premerger notification reports under the HSR Act and (vi) 
consents, approvals, authorizations, declarations, filings and registrations 
required (x) by the nature of the business or ownership of Holdings and Buyer 
or (y) solely by reason of the Financing (excluding any consents, approvals, 
authorizations, declarations, filings or registrations otherwise required in 
connection with this Agreement, the Ancillary Agreements or the transactions 
contemplated hereby or thereby), no consent, approval or authorization of, or 
declaration, filing or registration with, any governmental or regulatory 
authority, or any other Person, is required to be made or obtained by Parent, 
Seller, Ridge Re, the Company, any Subsidiary, Buyer or Holdings on or prior 
to the Closing Date in connection with the execution or delivery of this 
Agreement or any of the Ancillary Agreements, the performance of this 
Agreement, the Guarantees, the Tax Agreement, or the Ridge Re Treaties, as 
amended by the applicable Ridge Re Endorsements, or the consummation of the 
transactions contemplated hereby and thereby.

4.12  Financial Statements.  (a)  Seller has heretofore delivered to Buyer the 
Company GAAP Financial Statements, the Subsidiary GAAP Financial Statements, 
the Ridge Re GAAP Financial Statements, the Company Interim Financial 
Statements, the Subsidiary Interim Financial Statements, the Ridge Re Interim 
Financial Statements and the Convention Statements.  A copy of each of the 
foregoing financial statements is included in Schedule 4.12.

(b)  Except as otherwise set forth therein, (i) the Company GAAP Financial 
Statements are based on the books and records of the Company and its 
Subsidiaries, fairly present in all material respects the financial condition 
and consolidated results of operations of the Company and its Subsidiaries, as 
of the dates and for the periods indicated therein, have been prepared in 
accordance with GAAP (as in effect at the time of the respective financial 
statements) consistently applied, and have been audited by KPMG Peat Marwick 
LLP, (ii) each of the Subsidiary GAAP Financial Statements are based on the 
books and records of the GAAP Subsidiaries to which such statements relate, 
fairly present in all material respects the financial condition and 
consolidated results of operations of such Subsidiaries, as of the dates and 
for the periods indicated therein, have been prepared in accordance with GAAP 
(as in effect at the time of the respective financial statements) consistently 
applied, and have been audited by KPMG Peat Marwick LLP and (iii) the Ridge Re 
GAAP Financial Statements are based on the books and records of Ridge Re, 
fairly present in all material respects the financial condition and results of 
operation of Ridge Re, as of the dates and for the periods indicated therein, 
have been prepared in accordance with GAAP (as in effect at the time of the 
respective financial statements) consistently applied, and have been audited 
by KPMG Peat Marwick LLP.

(c)  The Company Interim Financial Statements, the Subsidiary Interim 
Financial Statements and the Ridge Re Interim Financial Statements were 
prepared in the ordinary course of business and have been prepared on a 
consistent basis through the periods indicated and in a manner consistent with 
that employed in the Company GAAP Financial Statements, the Subsidiary GAAP 
Financial Statements and the Ridge Re GAAP Financial Statements, as the case 
may be.  The Company Interim Financial Statements, the Subsidiary Interim 
Financial Statements and the Ridge Re Interim Financial Statements do not 
contain full footnote disclosures in accordance with United States generally 
accepted accounting principles and are subject to normal recurring year-end 
adjustments, but otherwise fairly present in all material respects the 
financial condition and results of operations of the Company, the GAAP 
Subsidiaries and Ridge Re, as the case may be, as of the dates and for the 
periods indicated therein except as otherwise set forth therein.

(d)  Except as otherwise set forth therein, the Convention Statements and the 
statutory balance sheets and income statements included in such Convention 
Statements fairly present in all material respects the statutory financial 
condition and results of operations of the respective Insurance Subsidiaries 
and Ridge Re, as the case may be, as of the dates and for the periods 
indicated therein and have been prepared in accordance with Statutory 
Accounting Principles (as in effect at the time of the respective financial 
statements) consistently applied throughout the periods indicated, except as 
expressly set forth therein.  The statutory balance sheets and income 
statements included in the Convention Statements for the years ended December 
31, 1993 and 1994 have been audited by KPMG Peat Marwick LLP.

4.13  Litigation.  To the Knowledge of Seller, except as set forth on Schedule 
4.13, there is no action, order, writ, injunction, judgment, fine or decree 
outstanding or suit, litigation, proceeding, labor dispute (other than routine 
grievance procedures or routine, uncontested claims for benefits under any 
benefit plans for any officers, employees or agents of the Company or any 
Subsidiary (collectively, "Personnel")), arbitral action, investigation or 
reported claim, in each case including, without limitation, those involving 
any governmental or regulatory authority and excluding those relating to 
insurance and reinsurance policies (collectively, "Actions") pending or 
threatened by or against or relating to (i) the Company or any Subsidiary, 
(ii) any benefit plan for Personnel or any fiduciary or administrator thereof 
or (iii) the transactions contemplated by this Agreement and the Ancillary 
Agreements.  None of the Company or any Subsidiary is in default with respect 
to any order, writ, injunction, judgment, fine or decree of any court or 
governmental or regulatory agency, and there are no unsatisfied judgments 
against the Company or any Subsidiary which would have, individually or in the 
aggregate, a Material Adverse Effect on the Company and the Subsidiaries, 
taken as a whole.

4.14  Liabilities.  (a)  Except as set forth in Schedule 4.14, the Company and 
the Subsidiaries do not have any direct or indirect indebtedness, liability, 
claim, loss, damage, deficiency, obligation or responsibility, fixed or 
unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, 
accrued, absolute, contingent or otherwise ("Liabilities"), other than (i) 
Liabilities fully and adequately reflected (including by reducing any 
numerical amount set forth) in one or more line items on, reserved on, or 
disclosed in the footnotes to, the balance sheets included in the Company 
Interim Financial Statements or the Subsidiary Interim Financial Statements, 
or disclosed in the footnotes to the Company GAAP Financial Statements or the 
Subsidiary GAAP Financial Statements, (ii) Liabilities incurred in the 
ordinary course of business, consistent with past practice and the provisions 
of this Agreement and the Ancillary Agreements, (iii) Liabilities relating to 
future benefits, losses, claims and expenses arising under insurance and 
reinsurance policies of the Insurance Subsidiaries, (iv) Liabilities disclosed 
in response to any other representation, (v) Liabilities of a type that are 
subject to any other representation (without regard to any specific exclusions 
from such representation, including any specific exclusions from the 
definitions used therein) and (vi) Liabilities which have, or are reasonably 
likely to have a net ultimate cost of $25,000 or less, on an individual basis 
or in the aggregate to the extent such Liabilities arise out of a related 
series of events.

(b)  As of the date of this Agreement, no more than $358,500,000 aggregate 
principal amount of indebtedness is outstanding under the credit agreements 
contained in Schedule 4.14 (the "Subsidiary Credit Agreements").

(c)  The Company and the Subsidiaries have no Liabilities for rate roll-backs 
or refunds under California Proposition 103 and all proceedings thereunder 
relating to the Company and the Subsidiaries have ceased.

(d)  Each of the Company and each Subsidiary has paid in full all guaranty 
fund assessments required by any regulatory authority to be paid by it prior 
to the date of this Agreement.  As of the date of this Agreement, except as 
set forth in Schedule 4.14 and except as and to the extent paid prior to June 
30, 1995 or reserved against in the Convention Statements or disclosed in the 
notes thereto, the Company and the Subsidiaries have not received any 
guarantee fund assessments.

4.15  Investments.  (a)  As of the date of this Agreement, at least 85% of the 
investment portfolio for the Company and the Subsidiaries consists of cash and 
Cash Equivalents and at least 61% of the investment portfolio (excluding cash 
and Cash Equivalents) for the Company and the Subsidiaries consists of fixed 
income securities rated at least AA by Moody's or by S&P.  As of the date 
hereof, at least 57% of the fixed income portfolio (excluding cash and Cash 
Equivalents) has a maturity of one year or less.

(b)  To the Knowledge of Seller, as of the Closing Date, the Company and the 
Subsidiaries have good and marketable title to the investments in their 
investment portfolios, provided that no representation is made as to the 
transferability thereof.

4.16  Reserves.  Seller has delivered to Buyer true and complete copies of all 
actuarial reports or actuarial certificates in the possession or control of 
Parent, Seller, the Company or any of the Subsidiaries relating to the 
adequacy of the claims reserves of any of the Subsidiaries for any period 
ended on or after December 31, 1993.  Notwithstanding the foregoing 
representations contained in this Section or anything contained in Section 
4.12, 4.14 or 6.2, Holdings and Buyer acknowledge that Parent and Seller are 
not making any representations, express or implied in or pursuant to this 
Agreement, concerning the loss reserves or loss adjustment expense reserves of 
the Company or any of the Subsidiaries including, without limitation, (i) 
whether such reserves are adequate or sufficient, or (ii) whether such 
reserves were determined in accordance with any actuarial, statutory or other 
standard, or concerning any other "line item" or asset, liability or equity 
amount which would be affected thereby.  

4.17  Compliance with Law; Permits; Regulatory Matters.  (a)  Except as set 
forth on Schedule 4.17, the Company and the Subsidiaries are in compliance 
with all applicable laws, statutes, ordinances and regulations, whether 
Federal, foreign, state or local, except where the failure to comply would 
not, individually or in the aggregate, have a Material Adverse Effect on the 
Company and the Subsidiaries, taken as a whole.  Since January 1, 1993, none 
of the Company or any Subsidiary has received any written notice to the effect 
that, or otherwise been advised that, it is not in compliance with any such 
statute, regulation, order, ordinance or other law where the failure to comply 
would, prior to June 30, 1998, individually or in the aggregate, have a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.

(b)  Except as set forth on Schedule 4.17, the Company and the Subsidiaries 
hold all Permits necessary for the ownership and conduct of the respective 
businesses of the Company and the Subsidiaries in each of the jurisdictions in 
which the Company and the Subsidiaries conduct or operate their respective 
businesses in the manner now conducted, and such Permits are in full force and 
effect except where the failure to hold any Permit or the failure of any 
Permit to be in full force and effect would not, individually or in the 
aggregate, have a Material Adverse Effect on the Company and the Subsidiaries, 
taken as a whole.  The consummation of the transactions contemplated by this 
Agreement will not result in any revocation, cancellation or suspension of any 
such Permit except as a result of the status of Buyer and its Affiliates, and, 
there are no pending or threatened suits, proceedings or investigations with 
respect to revocation, cancellation, suspension or nonrenewal thereof, and, 
there has occurred no event which (whether with notice or lapse of time or 
both) will result in such a revocation, cancellation, suspension or nonrenewal 
thereof, in any such case except where such a revocation, cancellation, 
suspension or non-renewal would not, individually or in the aggregate, have a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.

(c)  All insurance policies issued by the Insurance Subsidiaries, as now in 
force are, to the extent required under applicable law, are in a form 
acceptable to applicable regulatory authorities or have been filed and not 
objected to (or such objection has been withdrawn or resolved) by such 
authorities within the period provided for objection, except where such 
failure or objection would not, individually or in the aggregate, have a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.  
Neither the Company nor any Subsidiary which is not an Insurance Subsidiary 
has issued any insurance policies.  Except as set forth on Schedule 4.17, (i) 
all material reports, statements, documents, registrations, filings and 
submissions to state insurance regulatory authorities complied in all material 
respects with applicable law in effect when filed and (ii) no material 
deficiencies have been asserted by any such regulatory authority with respect 
to such reports, statements, documents, registrations, filings or submissions 
that have not been satisfied or that would, individually or in the aggregate, 
have a Material Adverse Effect on the Company and the Subsidiaries, taken as a 
whole.  Except as set forth on Schedule 4.17, all premium rates established by 
the Insurance Subsidiaries that are required to be filed with or approved by 
insurance regulatory authorities have been so filed or approved, the premiums 
charged conform to the premiums so filed or approved and comply (or complied 
at the relevant time) with the insurance laws applicable thereto except where 
such failures to comply, individually or in the aggregate, would not have a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.

4.18  No Brokers.  Except as previously disclosed in writing to Buyer, neither 
Parent, Seller nor the Company has employed, or is subject to any valid claim 
of, any broker, finder, consultant or other intermediary in connection with 
the transactions contemplated by this Agreement who will be entitled to a fee 
or commission in connection with such transactions.  Parent is solely 
responsible for any such payment, fee or commission that may be due to any 
Person so previously disclosed to Buyer in connection with the transactions 
contemplated hereby.

4.19  No Other Agreements to Sell the Assets or the Company.  Except as set 
forth in Schedule 4.19, none of Parent, Seller, the Company or any Subsidiary 
has any agreement, absolute or contingent, with any other Person to sell the 
capital stock, assets (other than sales of assets that would not be prohibited 
under Section 4.7(c)) or business of the Company or any Subsidiary or to 
effect any merger, consolidation or other reorganization of the Company or any 
Subsidiary or to enter into any agreement with respect thereto, except for any 
agreements regarding the First Quadrant Final Sale.

4.20  Proprietary Rights.  (a)  Except as set forth in Schedule 4.20, Parent, 
Seller and their Affiliates (other than the Company and the Subsidiaries) have 
no right or title to or interest in the trademarks, service marks, copyrights, 
trade names and the applications and registrations therefor and the trade 
secrets, software and other proprietary rights used in and material to the 
business of the Company or any of its Subsidiaries (collectively, 
"Intellectual Property").

(b)  Schedule 4.20 sets forth a complete and correct list and brief 
description of all Intellectual Property that is material to the Company or 
any Subsidiary.  With respect to intellectual property owned by the Company or 
a Subsidiary, such entity has the sole and exclusive right to use and is the 
sole and exclusive registered owner of all right, title and interest in and to 
the Intellectual Property.  The Intellectual Property which is not owned by 
the Company or a Subsidiary is being used by the Company or a Subsidiary only 
with the consent of or license from the rightful owner thereof, and all such 
licenses are in full force and effect.

(c)  To the Knowledge of Seller no activity in which the Company or a 
Subsidiary is engaged or any product which the Company or a Subsidiary sells, 
or any advertising that they employ, or the use of any of the Intellectual 
Property, breaches, violates, infringes or interferes with any rights of any 
third party or, except for the payment of computer software licensing fees, 
requires payment for the use of any patent, trade-name, trade secret, trade-
mark, copyright or other intellectual property right or technology of another.

4.21  Employee Benefit Plans.  (a)  Schedule 4.21 contains a true and complete 
list of each "employee benefit plan" (within the meaning of section 3(3) of 
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 
including, without limitation, multiemployer plans within the meaning of ERISA 
section 3(37)), stock purchase, stock option, severance, employment, change-
in-control, fringe benefit, collective bargaining, bonus, incentive, deferred 
compensation and all other employee benefit plans, agreements, programs, 
policies or other arrangements, whether or not subject to ERISA (including any 
funding mechanism therefor now in effect or required in the future as a result 
of the transactions contemplated by this Agreement or otherwise), whether 
formal or informal, oral or written, legally binding or not, under which any 
employee or former employee of the Company or any Subsidiary has any present 
or future right to benefits or under which the Company or any Subsidiary has 
any present or future liability.  All such plans, agreements, programs, 
policies and arrangements shall be collectively referred to as the "Company 
Plans".  

(b)  With respect to each Company Plan, the Company has delivered to the Buyer 
a current, accurate and complete copy (or, to the extent no such copy exists, 
an accurate description) thereof and, to the extent applicable, (i) any 
related trust agreement, annuity contract or other funding instrument; 
(ii) the most recent determination letter; (iii) any summary plan description 
and other written communications (or a description of any oral communications) 
by the Company or any Subsidiary to their employees concerning the extent of 
the benefits provided under a Company Plan; and (iv) for the three most recent 
years (A) the Form 5500 and attached schedules; (B) audited financial 
statements; (C) actuarial valuation reports; and (D) attorney's response to an 
auditor's request for information.
 
(c)  (i)  Each Company Plan, in all material respects, has been established 
and administered in accordance with its terms and in compliance with the 
applicable provisions of ERISA, the Code and other applicable laws, rules and 
regulations; (ii) each Company Plan which is intended to be qualified within 
the meaning of Code section 401(a) is so qualified and has received a 
favorable determination letter as to its qualification and nothing has 
occurred, whether by action or failure to act, which would cause the loss of 
such qualification; (iii) except as listed on Schedule 4.21, with respect to 
any Company Plan, no actions, suits or claims (other than routine claims for 
benefits in the ordinary course) are pending or threatened, no facts or 
circumstances exist which could give rise to any such actions, suits or 
claims, and the Company will promptly notify Buyer in writing of any pending 
or threatened claims arising between the date hereof and the Closing Date; 
(iv) neither the Company, any Subsidiary nor any other party has engaged in a 
prohibited transaction, as such term is defined under Code section 4975 or 
ERISA section 406, which would subject the Company, any Subsidiary or the 
Buyer to any material taxes, penalties or other liabilities under Code section 
4975 or ERISA sections 409 or 502(i); (v) no event has occurred and no 
condition exists that would subject the Company, either directly or by reason 
of its affiliation with any member of its "Controlled Group" (defined as any 
organization which is a member of a controlled group of organizations within 
the meaning of Code sections 414(b), (c), (m) or (o)), or any Subsidiary to 
any material tax, fine or penalty imposed by ERISA, the Code or other 
applicable laws, rules and regulations including, but not limited to the taxes 
imposed by Code sections 4971, 4972, 4977, 4979, 4980B, 4976(a) or the fine 
imposed by ERISA section 502(c); (vi) all insurance premiums required to be 
paid with respect to Company Plans as of the Closing Date have been or will be 
paid prior thereto and adequate reserves have been provided for on the 
Company's Interim Financial Statements as of September 30, 1995, to the extent 
required by GAAP, for any premiums (or portions thereof) attributable to 
service on or prior to the Closing Date; (vii) for each Company Plan with 
respect to which a Form 5500 has been filed, no material change has occurred 
with respect to the matters covered by the most recent Form since the date 
thereof; (viii) all contributions required to be made prior to the Closing 
Date under the terms of any Company Plan, the Code, ERISA or other applicable 
laws, rules and regulations have been or will be timely made and adequate 
reserves have been provided for on the Company's Interim Financial Statements 
as of September 30, 1995, to the extent required by GAAP, for all benefits 
attributable to service on or prior to the Closing Date; (ix) no Company Plan 
provides for an increase in benefits on or after the Closing Date; and (x) no 
Company Plan (excluding any agreement between the Company and individual 
employees) contains any contractual language which limits the Company's 
ability to amend or terminate such Company Plan without obligation or 
liability (other than those obligations and liabilities for which specific 
assets have been set aside in a trust or other funding vehicle or reserved for 
on the Company's Interim Financial Statements as of September 30, 1995).

(d)  (i)  No Company Plan has incurred any "accumulated funding deficiency" as 
such term is defined in ERISA section 302 and Code section 412 (whether or not 
waived); (ii) no event or condition exists which would be deemed a reportable 
event within the meaning of ERISA section 4043 which could result in a 
material liability to the Company, any member of its Controlled Group or any 
Subsidiary, and no condition exists which could subject the Company, any 
member of its Controlled Group or any Subsidiary to a material fine under 
ERISA section 4071; (iii) as of the Closing Date, the Company, each member of 
its Controlled Group and each Subsidiary will have made all premium payments 
required to be made prior to the Closing Date to the PBGC; (iv) neither the 
Company, any member of its Controlled Group nor any Subsidiary is subject to 
any liability to the PBGC for any plan termination occurring on or prior to 
the Closing Date; (v) no amendment has occurred which has required or would 
require the Company, any member of its Controlled Group or any Subsidiary to 
provide security pursuant to Code section 401(a)(29); and (vi) neither the 
Company, any member of its Controlled Group nor any Subsidiary has engaged in 
a transaction which could subject it to material liability under ERISA section 
4069.

(e)  With respect to each of the Company Plans which is not a multiemployer 
plan within the meaning of section 4001(a)(3) of ERISA but is subject to 
Title IV of ERISA, the funded status of each such Company Plan, as of January 
1, 1995, is as reported in the actuarial valuation reports dated as of January 
1, 1995.  To the Knowledge of Seller, no material adverse change in the funded 
status of such Company Plans has occurred since January 1, 1995, and no 
material defects or omissions existed in the data provided to the preparers of 
the actuarial valuation reports discussed in the preceding sentence.

(f)  There are no multiemployer plans (within the meaning of section 
4001(a)(3) of ERISA) to which the Company, any member of its Controlled Group 
or any Subsidiary has or had any liability or contributes (or has at any time 
contributed or had an obligation to contribute).

(g) (i)  Each Company Plan which is intended to meet the requirements for tax-
favored treatment under Subchapter B of Chapter 1 of Subtitle A of the Code 
meets such requirements; and (ii) the Company and the Subsidiaries have no 
trusts intended to be qualified within the meaning of Code section 501(c)(9), 
and, except as listed on Schedule 4.21, had no such trusts in the past.

(h)  Schedule 4.21 sets forth, on a plan-by-plan basis, the present value of 
any benefits payable presently or in the future to present or former employees 
of the Company or any Subsidiary under any Company Plan (excluding any 
agreements between the Company and individual employees which were not entered 
into as part of any plan or program) that is not fully funded and not subject 
to the reporting requirements of ERISA (if such amounts are not reflected in 
the financial statements included in Schedule 4.12) which present value is as 
reported in the most recent actuarial valuation or other reports done with 
respect to each such plan.  To the Knowledge of Seller, no material adverse 
increase in the amount of such present values has occurred since the date of 
the most recent report, and no material defects or omissions existed in the 
reports, or, if applicable, in the data provided to the preparers of the 
reports.

(i)  Except as set forth on Schedule 4.21 or referenced in Section 9.5, no 
Company Plan exists which could result in the payment to any Company employee 
or Subsidiary employee of any money or other property or accelerate or provide 
any other rights or benefits to any Company employee or Subsidiary employee as 
a result of the transactions contemplated by this Agreement, whether or not 
such payment would constitute a parachute payment within the meaning of Code 
section 280G.  The aggregate cost to the Company and its Subsidiaries, in the 
event that all Company Plans set forth in Schedule 4.21 are triggered, shall 
not exceed $1,050,000.

(j)  Neither the Company nor any Subsidiary is obligated or otherwise required 
to pay any bonuses (annual or otherwise) to Joseph W. Brown, Jr., or to any 
managing director of the Company on or after the date of the Closing.

(k)  No Company Plan operates within or is subject to the jurisdiction of any 
foreign country, other than as described on Schedule 4.21.

(l)  None of the amounts payable to any Company employee or any Subsidiary 
employee as a result of the transactions contemplated by this Agreement will 
be non-deductible under Section 280G of the Code.

4.22  Employment-Related Matters.  Except as set forth in Schedule 4.22, (a) 
none of the Company or the Subsidiaries is a party to, or otherwise bound by, 
any consent decree with, or citation by, any government agency relating to 
employees or employment practices, (b) none of the Company or any of the 
Subsidiaries has closed any plant or facility, or effectuated any layoffs of 
employees within the past six months, nor have the Company or the Subsidiaries 
planned or announced any such action or programs for the future, and (c) the 
Company and the Subsidiaries are in compliance with their respective 
obligations pursuant to the Worker Adjustment and Retraining Notification Act 
of 1988 and any similar state notification law.

4.23  Transactions with Certain Persons.  (a)  To the Knowledge of Seller, 
neither any officer, director or employee of Parent, Seller, the Company or 
any Subsidiary nor any member of any such Person's immediate family is 
presently a party to any material transaction with the Company or any 
Subsidiary, including, without limitation, any Contract, or other binding 
arrangement (i) providing for the furnishing of material services (except in 
such Person's capacity as an officer, director, employee or consultant) by, 
(ii) providing for the rental of material real or personal property from, or 
(iii) otherwise requiring material payments to (other than for services as 
officers, directors or employees of Parent, Seller, the Company or any 
Subsidiary) any such Person.

(b)  Schedule 4.23 sets forth all contracts, agreements and arrangements in 
effect on or after January 1, 1995, and all transactions (including, without 
limitation, the provision of any services or the sale of any goods) since 
January 1, 1994 between the Company or any Subsidiary, on the one hand, and 
Parent or any Affiliate of Parent (excluding the Company and the Subsidiaries, 
but including TRG and any of its subsidiaries), on the other, excluding 
contracts, agreements and arrangements (i) relating to the use or purchase of 
products leased or sold by Parent in the ordinary course of Parent's document 
processing business, (ii) involving payments by or to the Company or any 
Subsidiary that do not exceed $100,000 in the aggregate or (iii) specifically 
referred to in the financial statements contained in Schedule 4.12.  Certain 
Subsidiaries hold $275,000,000 aggregate principal amount of promissory notes 
issued by Seller and unconditionally guaranteed by Parent and $75,000,000 
aggregate principal amount of notes issued by Credit Corp. (such notes, 
collectively, the "Seller Notes").  Schedule 4.23 identifies the current 
holders of each of the Seller Notes.

(c)  Except in the ordinary course of business consistent with past practice, 
since the Balance Sheet Date, Seller and the Company and/or any Subsidiary 
have not settled any intercompany trade receivables and payables.

4.24  Taxes.  (a)  Filing of Tax Returns.  Seller and the Company (and any 
affiliated group of which the Company is now or has been a member) have timely 
filed with the appropriate taxing authorities all Federal, and to the 
Knowledge of Seller, state and local Tax Returns and Information Returns 
required to be filed through the date hereof.  All such Federal, and to the 
Knowledge of Seller, state and local Tax Returns and Information Returns are 
complete and accurate in all material respects.  The Company is a member of an 
affiliated group of corporations, within the meaning of Section 1504 of the 
Code, that includes Seller and Parent, and Parent is the common parent of the 
affiliated group.

(b)  Payment of Taxes.  All Taxes shown in the Tax Returns referred to in 
Section 4.24(a) above that are due and payable by the Company and its 
Subsidiaries before the date hereof have been paid.

(c)  Liens for Taxes.  There are no liens or other Encumbrances on any of the 
assets of the Company or any Subsidiary that arose in connection with any 
failure (or alleged failure) to pay any Tax.

(d)  Audit History.  Except as set forth in Schedule 4.24, there is no action, 
suit, proceeding, investigation, audit or claim now pending or, to the 
Knowledge of Seller, proposed against or with respect to the Company or any of 
its Subsidiaries or any affiliated group of which the Company and its 
Subsidiaries is or has been a member that relates to Tax liabilities 
attributable to items of income, gain, deduction, loss or credits of the 
Company or any of its Subsidiaries.

(e)  Prior Affiliated Groups.  Except as set forth in Schedule 4.24 and except 
for the affiliated group of corporations of which the Company and the 
Subsidiaries is currently a member and of which Parent is the common parent, 
the Company and the Subsidiaries have never been members of an affiliated 
group of corporations, within the meaning of Section 1504 of the Code.

(f)  Withholding.  The Company and the Subsidiaries have withheld and paid all 
Federal, and to the Knowledge of Seller, state and local Taxes required to 
have been withheld and paid in connection with amounts paid or owing to any 
employee, independent contractor, creditor, stockholder or other third party.

(g)  FIRPTA.  Neither the Company nor any of the Subsidiaries have been a 
United States real property holding corporation within the meaning of Section 
897(c)(2) of the Code during the five-year period ending on the date hereof.

(h)  Material Adverse Effect.  A representation with respect to Taxes 
contained in this Section 4.24 shall be deemed to be accurate unless an 
inaccuracy contained therein has a Material Adverse Effect on the Company and 
the Subsidiaries.

4.25  Reinsurance and Retrocessions.  Schedule 4.25 contains a list as of the 
date of this Agreement of all treaty reinsurance or retrocession treaties and 
agreements in force to which any Subsidiary is a party (including any 
terminated or expired treaty or agreement under which there remains any 
outstanding liability with respect to paid or unpaid case reserves in excess 
of $500,000), any terminated or expired treaty or agreement under which there 
remains any outstanding liability from one reinsurer with respect to paid or 
unpaid case reserves in excess of $100,000 and any treaty or agreement with 
any Affiliate of such Subsidiary, the effective date of each such treaty or 
agreement, and the termination date of any treaty or agreement which has a 
definite termination date.  To the Knowledge of Seller, no Subsidiary is in 
default in any respect as to any provision of any reinsurance or retrocession 
treaty or agreement or has failed to meet the underwriting standards required 
for any business reinsured thereunder except for defaults which, individually 
or in the aggregate, would not have a Material Adverse Effect on the Company 
and the Subsidiaries, taken as a whole.

4.26  1992/93 Restructuring.  All novations made pursuant to the 1992/93 
Restructuring and any amendments to the Ridge Re Treaties made prior to the 
date hereof, were made in accordance with all applicable laws, rules and 
regulations at the time such novations or amendments were completed except 
where the failure to do so (i) would not, individually or in the aggregate, 
have a Material Adverse Effect on the Company and the Subsidiaries, taken as a 
whole, or (ii) was a result of the failure by the Company or any Subsidiary to 
obtain the consent of any insured or policyholder to the novation or 
assumption of the relevant insurance policy.  Notwithstanding the foregoing, 
Buyer and Holdings acknowledges that Seller and Parent shall have no liability 
to Buyer or Holdings for breach of this representation with respect to any 
novation or assumption, or any amendment to the Ridge Re Treaties, which 
results in any liability for the Company or any of its Subsidiaries, if there 
is a corresponding benefit realized (or any liability avoided) by the Company 
or any other Subsidiary or TRG or any of its subsidiaries.

4.27  Capital Commitments.  Schedule 4.27 contains a list of all capital 
commitments as of the date of this Agreement of the Company or any Subsidiary 
in excess of $100,000.

4.28  Environmental Laws.  (a)  Except as set forth on Schedule 4.28, each of 
the Company and each Subsidiary complies and has complied with all applicable 
Environmental Laws, and possesses and complies with and has possessed and 
complied with all Environmental Permits required under such laws except where 
the failure to be in possession of or to comply with such Environmental 
Permits, or where the failure to be in compliance with any Environmental Law, 
would not have, individually or in the aggregate, a Material Adverse Effect on 
the Company and the Subsidiaries, taken as a whole.  There are no past, 
present, or anticipated future events, conditions, circumstances, practices, 
plans or legal requirements that could reasonably be expected to prevent, or 
materially increase the burden on the Company or any Subsidiary of their 
complying with applicable Environmental Laws or of their obtaining, renewing, 
or complying with all Environmental Permits required under such laws.  There 
are and have been no Materials of Environmental Concern or other conditions at 
any property owned, operated or otherwise used by the Company or any 
Subsidiary now or in the past, or at any other location, that could reasonably 
be expected to give rise to liability of the Company or any Subsidiary under 
any Environmental Law.  Parent, Seller and the Company have provided to Buyer 
true and complete copies of all Environmental Reports prepared within the last 
five years in their possession or control.

(b)  Notwithstanding the representations contained in this Section, Buyer 
acknowledges that Parent and Seller are not making any representations 
(express or implied in or pursuant to this Agreement) with respect to any 
violation of or noncompliance with Environmental Law or Environmental Permits, 
or failure to obtain Environmental Permits, in each case by reason of any 
policy of insurance, reinsurance, indemnity, guaranty or assumption of 
liability of any party, entered into by the Company or any Insurance 
Subsidiary.

4.29  Acquisition for Investment.  Each of Seller and Parent acknowledges that 
the Securities have not been registered under the Securities Act, or under any 
state securities laws.  Each of Seller and Parent (to the extent Parent 
acquires Securities pursuant to Section 11.3) is acquiring the Securities 
solely for its own account and not with a view to any distribution or other 
disposition of such Securities or any part thereof, or interest therein, 
except in accordance with the Securities Act.  Each of Seller and Parent is an 
"accredited investor" (as defined in Rule 501 of Regulation D under the 
Securities Act).

                                ARTICLE V

           REPRESENTATIONS AND WARRANTIES OF BUYER AND HOLDINGS

Buyer and Holdings hereby represent and warrant to Seller and Parent as 
follows:

5.1  Organization of Buyer and Holdings.  Each of Buyer and Holdings is duly 
organized, validly existing and in good standing under the laws of the State 
of Delaware and has full corporate power and authority to conduct its business 
and to own and lease its properties.

5.2  Authorization.  Each of Buyer and Holdings has all necessary corporate 
authority to enter into this Agreement and the Tax Agreement and has taken all 
necessary corporate action to consummate the transactions contemplated hereby 
and thereby and to perform its obligations hereunder and thereunder.  This 
Agreement and the Tax Agreement have been duly executed and delivered by each 
of Buyer and Holdings.  Assuming the due execution of this Agreement by Parent 
and Seller, this Agreement is a legal, valid and binding obligation of each of 
Buyer and Holdings enforceable against each of them in accordance with its 
terms, and assuming the due execution of the Tax Agreement by Parent, Seller 
and the Company, the Tax Agreement is a legal, valid and binding obligation of 
Buyer enforceable against Buyer in accordance with its terms, in each case, 
subject to the effects of bankruptcy, insolvency, fraudulent conveyance, 
reorganization, moratorium and other similar laws relating to or affecting 
creditors' rights generally, general equitable principles (whether considered 
in a proceeding in equity or at law) and an implied covenant of good faith and 
fair dealing.  Subject to the occurrence of the Closing, the TOPrS Side Letter 
will be duly executed and delivered by Holdings and the partnership party 
thereto.  Upon execution and delivery by Holdings and such partnership of the 
TOPrS Side Letter and assuming the due execution of the TOPrS Side Letter by 
Seller, the TOPrS Side Letter will be a legal, valid and binding obligation of 
Holdings and such partnership, enforceable in accordance with its terms, 
subject to the effects of bankruptcy, insolvency, fraudulent conveyance, 
reorganization, moratorium and other similar laws relating to or affecting 
creditors' rights generally, general equitable principles (whether considered 
in a proceeding in equity or at law) and an implied covenant of good faith and 
fair dealing.

5.3  No Conflict or Violation.  Neither the execution, delivery and 
performance of this Agreement or the Tax Agreement by Holdings and Buyer, nor 
the execution, delivery and performance of the Indenture or the TOPrS Side 
Letter or the issuance of Debentures by Holdings, nor the execution, delivery 
and performance of the Trust Agreement by Holdings, as depositor, nor the 
issuance of the Preferred Securities by Trust, nor the issuance, if issued, of 
Holdings Common Stock by Holdings pursuant to the provisions of Section 11.3 
nor the consummation by Buyer, Holdings or Trust of the transactions 
contemplated hereby or thereby will result in (a) a violation of or a conflict 
with any provision of the certificate of incorporation or bylaws, in the case 
of Holdings or Buyer, or any provisions of the Trust Agreement, in the case of 
Trust, (b) a breach of, or a default under, any term or provision of any 
contract, agreement, indebtedness, lease, Encumbrance, commitment, license, 
franchise, Permit, authorization or concession (including any agreements, 
documents or instruments (the "Financing Documents") constituting part of the 
financing required to consummate the transactions contemplated by this 
Agreement (the "Financing")) to which Buyer, Holdings or Trust is a party or 
is subject or by which any assets of Buyer, Holdings or Trust are bound, which 
breach or default is in a Financing Document or would, individually or in the 
aggregate, have a Material Adverse Effect on Buyer or Holdings or interfere in 
any material way with the ability of Buyer or Holdings to consummate the 
transactions contemplated by this Agreement, the TOPrS Side Letter and the Tax 
Agreement, to the extent a party thereto, or (c) subject to obtaining the 
approvals referred to in Section 4.11, a violation by Buyer, Holdings or Trust 
of any statute, rule, regulation, ordinance, code, order, judgment, writ, 
injunction, decree or award, which violation would, individually or in the 
aggregate, have a Material Adverse Effect on Buyer or Holdings or their 
respective ability to consummate the transactions contemplated by this 
Agreement and the Tax Agreement, to the extent a party thereto.

5.4  No Brokers.  Except for the services of Merrill Lynch & Co., neither 
Buyer nor Holdings has employed, or is subject to the valid claim of, any 
broker, finder, consultant or other intermediary in connection with the 
transactions contemplated by this Agreement who will be entitled to a fee or 
commission in connection with such transactions.  Buyer is solely responsible 
for any such payment, fee or commission that may be due to Merrill Lynch & Co. 
in connection with the transactions contemplated by this Agreement.

5.5  Acquisition for Investment.  Buyer acknowledges that the Stock has not 
been registered under the Securities Act or under any state securities laws.  
Buyer is acquiring the Stock solely for its own account and not with a view to 
any distribution or other disposition of the Stock or any part thereof, or 
interest therein, except in accordance with the Securities Act.  Buyer is an 
"accredited investor" (as defined in Rule 501 of Regulation D under the 
Securities Act).

5.6  Organizational Documents.  Copies of the certificate of incorporation and 
bylaws of Buyer and Holdings have heretofore been delivered to Seller and such 
copies are true, accurate and complete, without any amendment, modification or 
supplement, as of the date of this Agreement and the Closing Date (except such 
amendments, modifications or supplements which would not have a Material 
Adverse Effect on Seller or which change the amount of authorized capital 
stock).

5.7  Capitalization of Buyer.  (a)  All the outstanding shares of capital 
stock of Buyer are owned, directly or indirectly, by Holdings.  As of the 
Closing Date, investment partnerships affiliated with KKR shall own, directly 
or indirectly, no less than 70% of the common stock of Holdings, which 
percentage shall be reduced to reflect any investment made by Parent and/or 
Seller pursuant to Section 11.3.

(b)  In the event that Parent and/or Seller acquires any of the Holdings 
Common Stock as provided in Section 11.3 hereof, such shares will be duly 
authorized, validly issued, fully paid and nonassessable, and free of 
preemptive rights.

5.8  Consents and Approvals.  Except for (i) consents, approvals, 
authorizations, declarations, filings and registrations required by the nature 
of the business or ownership of Parent, Seller, the Company and the 
Subsidiaries, (ii) filings in respect of the transactions contemplated hereby 
required to be made for compliance with the applicable provisions of the 
Exchange Act and the rules and regulations promulgated thereunder, (iii) 
filings under the Securities Act and the rules promulgated thereunder in 
connection with the sale of the Underwritten Notes and (iv) the filing of 
premerger notification reports under the HSR Act, no consents, approval or 
authorization of, or declaration, filing or registration with, any 
governmental or regulatory authority, or any other Person, is required to be 
made or obtained by Buyer, Holdings or any of their respective Affiliates in 
connection with the execution, delivery and performance of this Agreement, the 
Ancillary Agreements and the consummation of the transactions contemplated 
hereby and thereby.

5.9  Financial Obligations.  Buyer has received and delivered copies to Seller 
of (i) a commitment letter from senior lenders regarding the transactions 
contemplated by this Agreement, (ii) the Underwriter Letter, (iii) a letter 
with respect to equity Financing (other than that to be provided by management 
of the Company), which letter is addressed to Seller and (iv) an agreement in 
principal between Buyer and management of the Company with respect to the 
investment by management referred to in Section 8.19.  

5.10  Solvency.  At the Closing (after and giving effect to the acquisition of 
the Stock and the Financing), neither Buyer, Holdings, Trust nor the Company 
will (i) be insolvent (either because its financial condition is such that the 
sum of its debts is greater than the fair value of its assets or because the 
present fair saleable value of its assets will be less than the amount 
required to pay its probable liability on its debts as they become absolute 
and matured), (ii) has unreasonably small capital with which to engage in its 
business or (iii) has incurred or plan to incur debts beyond its ability to 
pay as they become absolute and matured.

5.11  Trust.  (a)  As of the Closing, (i) Trust shall have been duly created 
and be validly existing in good standing as a business trust under the 
Business Trust Act of the State of Delaware with full business trust power and 
authority to (A) own property and to conduct its business, (B) issue and 
perform its obligations under the Preferred Securities and the Common 
Securities and (C) consummate the transactions contemplated by the Trust 
Agreement; (ii) Trust shall be duly qualified to transact business as a 
foreign company and shall be in good standing in any other jurisdiction in 
which such qualification is necessary, except to the extent that the failure 
to so qualify or be in good standing would not have a Material Adverse Effect 
on Trust; (iii) Trust shall not be a party to or otherwise bound by any 
material agreement other than those listed in Schedule 5.11; (iv) Trust shall 
be treated for United States federal income tax purposes as a grantor trust 
and not as an association taxable as a corporation; and (v) Trust shall be 
reported as a consolidated subsidiary of Holdings pursuant to GAAP.

(b)  At the Closing, the Common Securities shall be duly authorized by the 
Trust Agreement and, when issued and delivered by Trust to Holdings against 
payment therefor, will be validly issued and (subject to the terms of the 
Trust Agreement) fully paid and non-assessable undivided beneficial interests 
in the assets of Trust; the issuance of the Common Securities shall not be 
subject to preemptive or other similar rights; and at the Closing all of the 
issued and outstanding Common Securities will be directly owned by Holdings 
free and clear of any Encumbrances.

(c)  Prior to the Closing, the Trust Agreement shall have been duly authorized 
by Holdings and, at the Closing, will have been duly executed and delivered by 
Holdings and the Trustees, and will be a legal, valid and binding obligation 
of Holdings (as depositor) and the Trustees enforceable in accordance with its 
terms, subject to the effects of bankruptcy, insolvency, fraudulent 
conveyance, reorganization, moratorium and other similar laws relating to or 
affecting creditors' rights generally, general equitable principles (whether 
considered in a proceeding in equity or at law) and an implied covenant of 
good faith and fair dealing.

(d)  Prior to the Closing, the guarantee agreements relating to Trust shall 
have been duly authorized by Holdings and, when validly executed and delivered 
by Holdings, will be a legal, valid and binding obligation of Holdings 
enforceable in accordance with its terms, subject to the effects of 
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and 
other similar laws relating to or affecting creditors' rights generally, 
general equitable principles (whether considered in a proceeding in equity or 
at law) and an implied covenant of good faith and fair dealing.

(e)  Prior to the Closing, the Preferred Securities shall have been duly 
authorized by the Trust Agreement and, when issued and delivered against 
payment of the consideration therefor, will be validly issued and (subject to 
the terms of the Declaration) fully paid and nonassessable undivided 
beneficial interests in Trust, and will be entitled to the benefits of the 
Trust Agreement; the issuance of the Preferred Securities shall not be subject 
to preemptive or other similar rights; and (subject to the terms of the Trust 
Agreement) holders of Preferred Securities will be entitled to the same 
limitation of personal liability under Delaware law as extended to stock-
holders of private corporations for profit.

(f)  Prior to the Closing, the Indenture shall have been duly authorized by 
Holdings and, assuming due authorization by the trustee thereunder, when 
validly executed and delivered by Holdings and such trustee, will be a legal, 
valid and binding obligation of Holdings enforceable in accordance with its 
terms, subject to the effects of bankruptcy, insolvency, fraudulent 
conveyance, reorganization, moratorium and other similar laws relating to or 
affecting creditors' rights generally, general equitable principles (whether 
considered in a proceeding in equity or at law) and an implied covenant of 
good faith and fair dealing.

(g)  Prior to the Closing, the Debentures shall have been duly authorized by 
Holdings and, at the Closing, will have been duly executed by Holdings and, 
when authenticated in the manner provided for in the Indenture and delivered 
against payment therefor, will be a legal, valid and binding obligation of 
Holdings enforceable in accordance with its terms, subject to the effects of 
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and 
other similar laws relating to or affecting creditors' rights generally, 
general equitable principles (whether considered in a proceeding in equity or 
at law) and an implied covenant of good faith and fair dealing, and will be in 
the form contemplated by the Indenture.

                                  ARTICLE VI

      ACTIONS BY PARENT, SELLER, HOLDINGS AND BUYER PRIOR TO THE CLOSING


Parent, Seller, Holdings and Buyer covenant as follows for the period from the 
date hereof to the Closing Date (except, in the case of Section 6.16, for the 
period specified in such Section):

6.1  Maintenance of Business and Preservation of Permits and Services.  Except 
as expressly contemplated by this Agreement, Seller shall cause the Company 
and each Subsidiary to carry on its business, in the ordinary course 
consistent with past practice.  Neither Parent nor Seller shall cause the 
Company or any Subsidiary to terminate an officer thereof or to diminish the 
duties or responsibilities of such officer.

6.2  Additional Financial.  As soon as reasonably practicable after the end of 
the applicable period, Seller shall furnish to Buyer (a) the quarterly 
convention statements of the Subsidiaries for all interim quarterly periods 
subsequent to September 30, 1995, which shall have been prepared on a basis 
consistent with the Convention Statements and, with respect to the financial 
statements included therein, in accordance with Statutory Accounting 
Principles, (b) the quarterly financial statements of the Company, the GAAP 
Subsidiaries and Ridge Re for all quarterly periods subsequent to September 
30, 1995, which shall have been prepared in accordance with generally accepted 
accounting principles and on a basis consistent with the Company GAAP 
Financial Statements, the Subsidiary GAAP Financial Statements and the Ridge 
Re GAAP Financial Statements, as the case may be, subject to normal year-end 
adjustments and the absence of footnote disclosure, (c) the consolidated 
financial statements for the Company, each of the GAAP Subsidiaries and Ridge 
Re for the year ended December 31, 1995, which shall have been prepared in 
accordance with generally accepted accounting principles and on a basis 
consistent with the Company GAAP Financial Statements, the Subsidiary GAAP 
Financial Statements and the Ridge Re GAAP Financial Statements, as the case 
may be, and (d) (to the extent ordinarily prepared) all monthly financial 
statements of the Company, the Subsidiaries and Ridge Re (for months 
subsequent to June 1995), which shall have been prepared in a manner 
consistent with past practice.

6.3  Certain Prohibited Transactions.  Parent and Seller agree to cause the 
Company and each Subsidiary not to, without the prior written approval of 
Buyer or except as expressly contemplated by this Agreement:

(a)  terminate, cancel or amend any insurance coverage maintained by the 
Company or any of its Subsidiaries with respect to any material assets of the 
Company or any Subsidiary which is not replaced by an adequate amount of 
insurance coverage or is not deemed unnecessary in the reasonable judgment of 
the Company;

(b)  settle any pending or threatened Action relating to an insurance claim in 
an amount in excess of $5,000,000 above the policy limit relating to such 
claim or settle any other pending or threatened Action in an amount in excess 
of $1,000,000; or

(c)  take any action which causes any representation or warranty (other than 
Section 4.7(a)) of Parent or Seller in this Agreement to be or become untrue 
at Closing or results in a material breach of any covenant made by Parent or 
Seller in this Agreement.

6.4  Investigation by Buyer.  Parent and Seller shall, and shall use their 
reasonable efforts to cause the Company and the Subsidiaries to, allow Buyer 
during regular business hours through Buyer's employees, agents and 
representatives, to make such investigation of the business, properties, books 
and records of the Company and the Subsidiaries, and to conduct such 
examination of the condition of the Company and the Subsidiaries, as Buyer 
reasonably deems necessary or advisable to familiarize itself with such 
business, properties, books, records, condition and other matters, and to 
verify the representations and warranties of Seller hereunder; provided, 
however, that any information obtained from Seller or the Company shall be 
deemed to be Evaluation Material for purposes of the Confidentiality Agreement 
dated August 3, 1995, between Seller and Kohlberg Kravis Roberts Co., L.P. 
(the "Confidentiality Agreement") and shall be subject to the Confidentiality 
Agreement.

6.5  Consents.  (a)  As soon as practicable after execution and delivery of 
this Agreement, Buyer and Seller shall make all filings required under the HSR 
Act.  Buyer and Seller will each furnish all information as may be required by 
any other state regulatory agency properly asserting jurisdiction or by the 
Federal Trade Commission and the United States Department of Justice under the 
HSR Act in order that the requisite approvals for the purchase and sale of the 
Stock pursuant hereto, and the transactions contemplated hereby, be obtained 
or to cause any applicable waiting periods to expire.  

(b)  Buyer shall use its best efforts to file Form A change of control 
applications with the applicable state insurance regulators referred to in 
Schedule 4.11 within 45 days from the date hereof.  Buyer will use its 
reasonable efforts to obtain insurance regulatory approvals as soon as 
possible following the Form A change of control filings.  Parent and Seller 
shall cooperate with Buyer to obtain such approvals.

(c)  Seller and Buyer will, as soon as practicable, commence to take all other 
action required to obtain as promptly as practicable all necessary consents, 
approvals, authorizations and agreements of, and to give all notices and make 
all other filings with, any third parties, including governmental authorities, 
necessary to authorize, approve or permit the consummation of the transactions 
contemplated hereby and by the Ancillary Agreements, including all consents, 
approvals and waivers referred to in Sections 7.4 and 8.2 hereof, and Buyer, 
Parent and Seller shall cooperate with each other with respect thereto.

(d)  Buyer and Seller will cooperate in seeking applicable regulatory approval 
so as to permit the Subsidiaries to continue to pay management fees to the 
Company following the Closing at the same level as are currently being paid.

(e)  Buyer and Seller will cooperate in seeking applicable regulatory approval 
so as to permit IIC to pay to II prior to Closing an extraordinary dividend of 
at least $50,000,000.  To the extent such approval is obtained, Seller shall 
cause IIC to pay to II prior to Closing an extraordinary dividend of at least 
$50,000,000.

(f)  Notwithstanding the foregoing, however, none of Parent, Seller, Holdings, 
Buyer, the Company or the Subsidiaries shall be required to agree to any 
limitations, requirements or conditions of, any third party including, but not 
limited to, any insurance regulatory body, or make any payment to any party 
including the Company or any Subsidiary in order to obtain consents referred 
to in Sections 7.4 and 8.2.  Parent and Seller shall be entitled to have a 
representative or representatives present at all meetings that may be held by 
Buyer, Holdings or Trust with insurance regulators.

6.6  Notification of Certain Matters.  Parent and Seller, to the extent within 
the actual knowledge of an officer of Parent or Seller listed on Schedule 
1.1B, shall give prompt notice to Buyer, and Buyer, to the extent within the 
knowledge of Buyer, shall give prompt notice to Seller, of (i) the occurrence, 
or failure to occur, of any event which occurrence or failure would be likely 
to cause any representation or warranty contained in this Agreement to be 
untrue or inaccurate in any material respect any time from the date hereof to 
the Closing Date, (ii) any material failure of Parent, Seller, Holdings or 
Buyer, as the case may be, to comply with or satisfy any covenant, condition 
or agreement to be complied with or satisfied by it hereunder (and each party 
shall use all reasonable efforts to remedy such failure), (iii) any notice or 
other communication from any Person alleging that the consent of such Person 
is or may be required in connection with the transactions contemplated by this 
Agreement and the Ancillary Agreements, (iv) any notice or other communication 
from any governmental or regulatory agency or authority in connection with the 
transactions contemplated by this Agreement and the Ancillary Agreements, (v) 
any Actions that, if pending or threatened on the date hereof, would have been 
required to have been disclosed pursuant to Section 4.13 and (vi) any Actions 
that relate to the consummation of the transactions contemplated by this 
Agreement and the Ancillary Agreements.

6.7  No Solicitations.  (a)  Parent, Seller and each of their respective 
Affiliates, including the Company and the Subsidiaries, will not, directly or 
indirectly, solicit any inquiries or proposals or enter into or continue any 
discussions, negotiations, understandings, arrangements or agreements relating 
to the sale or exchange of any Stock, the merger or amalgamation of the 
Company or any of its Subsidiaries with, or the direct or indirect disposition 
of a significant amount of the Company's assets or any Subsidiary's assets or 
business to any Person other than Buyer and Holdings or their Affiliates or 
provide any assistance or any information to or otherwise cooperate with any 
Person in connection with any such inquiry, proposal or transaction (except 
that the Company may direct inquiries to Buyer, which shall not disclose 
confidential information about the Company or any of its Subsidiaries in 
connection with responding to such inquiries).  In the event that Parent, 
Seller or any of their Affiliates, including the Company and the Subsidiaries 
receives a solicited or unsolicited inquiry, proposal or offer for such a 
transaction or obtains information that such an offer is likely to be made, 
Parent and Seller will provide Buyer with notice thereof as soon as practical 
after receipt thereof, including the identity of the prospective purchaser or 
soliciting party.  Buyer and Holdings agree that to the extent they engage in 
any discussions regarding the Company or the Subsidiaries with potential 
purchasers of the capital stock or businesses thereof, Buyer and Holdings 
shall not include officers or employees of the Company or the Subsidiaries in 
such discussions.

(b)  The parties acknowledge that there may be no adequate remedy at law for a 
breach of Section 6.7(a) and that money damages may not be an adequate remedy 
for breach of such Section.  Therefore, the parties agree that Buyer shall 
have the right, in addition to any other rights it may have, to injunctive 
relief and specific performance of Section 6.7(a) in the event of any breach 
of such Section.  The remedy set forth in the preceding two sentences is 
cumulative and shall in no way limit any other remedy any party hereto has at 
law, in equity or pursuant hereto.

6.8  Cooperation; Accounting and Other.  (a) Seller shall, and Seller shall 
use its reasonable efforts to cause the Company to, cooperate with Buyer in 
respect of any proposed public offering or private placement of securities, 
and arrangements of other financing by Buyer, the proceeds of which are to be 
used to finance a portion of the purchase of the Stock by Buyer (provided, 
however, that Seller shall not be obligated to participate in such financing 
or the marketing thereof and shall not be obligated to be a party to any 
underwriting, private placement or other agreement with respect thereto), and 
shall, without limitation of the foregoing, cause such Company financial 
statements to be prepared as may be required by the rules and regulations of 
the Securities and Exchange Commission promulgated under the Securities Act.

(b)  Buyer shall give Seller and Parent a reasonable opportunity to review any 
references to Seller, Parent, this Agreement or the transactions contemplated 
hereby in any registration statement or private placement memorandum relating 
to the sale of securities the proceeds of which are to be used to finance a 
portion of the purchase of the Stock by Buyer and any amendments or 
supplements thereto by providing to Seller and Parent drafts of such 
registration statement or private placement memorandum or any amendments or 
supplements thereto prior to filing such documents with the Securities and 
Exchange Commission or distributing such documents to potential purchasers of 
privately placed securities and allow Seller and Parent a reasonable 
opportunity (as determined under the circumstances and consistent with the 
overall timing constraints applicable to preparation of such registration 
statement, private placement memorandum, amendment or supplement) to review 
and comment thereon.

6.9  Investment Portfolio.  (a)  Parent and Seller shall cause the Company and 
the Subsidiaries to manage the investment portfolio for the Company and the 
Subsidiaries in accordance with the Investment Policy.

(b)  Five days prior to the Closing Date, Parent and Seller shall cause the 
Company to deliver to Buyer a list of all Investments in the investment 
portfolio for the Company and the Subsidiaries as of such date.

6.10  Reinsurance Agreements.  Seller shall cause the Company and each 
Subsidiary not to, without the prior written approval of Buyer (which approval 
shall not be unreasonably withheld), except in the ordinary course of business 
consistent with past practice (i) except for the Ridge Re Endorsements, amend 
any reinsurance or retrocession agreement, (ii) enter into or commit to enter 
into any loss portfolio transfer or other similar transaction, agreement or 
arrangement or series of related transactions, agreements or arrangements 
involving any ceded reinsurance of the Company or any Subsidiary, (iii) enter 
into or commit to enter into any reinsurance or retrocession contract or 
treaty except to replace, renew or extend existing reinsurance and 
retrocession agreements and treaties on terms which are not different in any 
material respect from the terms of the agreement or treaty being replaced, 
renewed or extended, as the case may be, or (iv) commute or terminate any 
contract of reinsurance, provided that Seller shall cause the Company and each 
Subsidiary not to commute or terminate any such contract which at the time of 
commutation or termination is legally carried on the books of the Company and 
the Subsidiaries in an amount of $5,000,000 or more.  All reinsurance or 
retrocession agreements or treaties permitted by this Section shall not have a 
change of control or similar provision which would require the Company or any 
Subsidiary to obtain a consent to consummate the transactions contemplated 
hereby (unless such provisions shall have been waived prior to Closing).

6.11  Dividends.  Seller and Parent shall cause the Company not to (i) 
declare, set aside or pay any dividends or distributions (whether in cash, 
stock or property) in respect of any capital stock of the Company, (ii) make 
any other payment or distribution to Parent, Seller or any Affiliate of Parent 
(excluding the Company and the Subsidiaries, but including TRG and its 
subsidiaries), or (iii) redeem, purchase or otherwise acquire any of the 
capital stock of the Company or any Subsidiary, except for (A) payments 
permitted under the Tax Agreement, (B) payments under the contracts, 
agreements or arrangements referred to in Schedule 4.23 or described in 
clauses (i), (ii) or (iii) of Section 4.23(b), (C) the dividends contemplated 
by Sections 6.18(i) and 9.7 and (D) distributions to Seller of any proceeds 
received by the Company (gross of any income tax obligations) from the First 
Quadrant Final Sale or of any amounts received by the Company (gross of any 
income tax obligations) as proceeds or purchase price adjustments from the 
Viking Sale or Constitution Re Sale.  For purposes of the exception set forth 
in (D) in the preceding sentence, proceeds shall include any amounts (net of 
any state tax obligations for which the Company is liable under the stock 
purchase agreement for the company whose sale generated such proceeds) 
subsequently received after the date of this Agreement with respect to tax 
payments from such companies but shall not include any tax payments previously 
received.  In addition, as soon as practicable after the date of this 
Agreement, the Company shall distribute $100,000 to Seller in respect of the 
Constitution Re 1994 tax shortfall.

6.12  Seller Notes.  The Company and the Subsidiaries shall not dispose of the 
Seller Notes to a Person other than a Subsidiary, except that the Company and 
the Subsidiaries may dispose of all or a portion of the Seller Notes prior to 
Closing to a Person other than a Subsidiary if upon such disposition Seller 
shall pay to the Company the excess of (i) the aggregate principal amount of 
the Seller Notes so disposed plus accrued but unpaid interest through the date 
of such disposition over (ii) the Third Party Amount.  To the extent not 
already disposed of, immediately prior to Closing, (i) Seller shall repay the 
outstanding principal amounts and any accrued but unpaid interest thereon 
under the Seller Notes issued by it and held at that time by the Company or 
any Subsidiary and (ii) Parent shall cause Credit Corp. to repay the 
outstanding principal amounts and any accrued but unpaid interest thereon 
under the Seller Notes issued by Credit Corp. and held at that time by the 
Company or any Subsidiary.

6.13  Leesburg Training Facility.  The Company and the Subsidiaries shall not 
dispose of any of their interests in the ground lease agreement among Parent 
and certain of the Subsidiaries or the lease agreement among Seller and such 
Subsidiaries, each dated as of December 1, 1985 and each relating to 
approximately six acres of land in Loudon County, Virginia and a training 
facility located thereon or their fee interests in such facility (the 
"Leesburg Training Facility"), to a Person other than a Subsidiary, except 
that the Company and the Subsidiaries may dispose of their interests (in whole 
or in part) in the Leesburg Training Facility prior to Closing to a Person 
other than a Subsidiary if upon such disposition Seller pays to the Company 
the excess of (i) the greater of $118,000,000 and the statutory carrying value 
of the Leesburg Training Facility as of December 31, 1995 over (ii) the Third 
Party Amount.  If no Third Party Amount has been received by the Company or 
any Subsidiary prior to the Closing, immediately prior to Closing, Parent and 
Seller agree to cause an amount equal to the greater of (i) the statutory 
carrying value of the Leesburg Training Facility as of December 31, 1995 and 
(ii) $118,000,000, to be contributed to such Subsidiaries, allocated to such 
Subsidiaries in accordance with Schedule 6.13 (such contributed amount, the 
"Leesburg Training Facility Amount").  At Closing, the Company shall cause to 
be transferred to Seller or an Affiliate of Seller any remaining interests the 
Company or any of the Subsidiaries has in the Leesburg Training Facility.  
Upon any transfer of the Leesburg Training Facility in accordance with this 
Section 6.13, the Company and the Subsidiaries shall have no further rights or 
obligations relating to the Leesburg Training Facility.

6.14  Reserves and Book-Up.  (a)  Effective as of December 31, 1995, Parent 
and Seller shall cause the reserves of CFI and its subsidiaries and WSG and 
its subsidiaries for periods prior to December 31, 1992 to be increased for 
statutory accounting and GAAP purposes in an amount so that after 85% of such 
increase is ceded to Ridge Re pursuant to the applicable Ridge Re Treaties, 
CFI and its subsidiaries and WSG and its subsidiaries shall have ceded to 
Ridge Re the maximum amount of losses and loss adjustment expenses permitted 
under the applicable Ridge Re Treaties.  Immediately following such increases 
and effective as of December 31, 1995, Parent and Seller shall cause CFI and 
its subsidiaries and WSG and its subsidiaries to make the cession referred to 
in the immediately preceding sentence.

(b)  Effective as of December 31, 1995 Parent and Seller shall cause II and 
its subsidiaries to increase their reserves for statutory accounting and GAAP 
purposes by an additional $50,000,000 and cede 85% of such increase to Ridge 
Re pursuant to the applicable Ridge Re Treaty.

(c)  During 1996 and at least one day prior to the Closing Date, Parent and 
Seller shall cause the reserves of CFI and its subsidiaries and WSG and its 
subsidiaries to be increased for statutory accounting and GAAP purposes in the 
amounts specified by Buyer and/or Seller, but not to exceed an additional 
$115,000,000 and $100,000,000, respectively (beyond the increases required by 
paragraph (a) above).

6.15  Rating Agency Presentations.  Buyer shall give Seller reasonable notice 
of any meetings prior to the Closing Date with A.M. Best & Co. ("A.M. Best") 
to discuss the insurance claims paying ratings of the Insurance Subsidiaries, 
and Seller at its option may have a representative at such meetings.

6.16  Certain Admitted Assets.  Parent and Seller shall indemnify, guaranty or 
otherwise post credit support to the extent that as of the Closing Date the 
Insurance Subsidiaries shall not have received credit for statutory purposes 
for the Crostex/Camfex Purchase Money Notes in an amount equal to at least $35 
million.  Such indemnity, guaranty or credit support shall continue until 
final maturity of such notes but only in the amount provided in the preceding 
sentence.

6.17  Intercompany Accounts.  (a)  Except as provided in Sections 6.12 and 
6.13, all intercompany accounts (other than those relating to Taxes and those 
under or relating to reinsurance contracts and arrangements) between the 
Company and any Subsidiary, on the one hand, and Parent and any of its 
Affiliates (other than the Company and its Subsidiaries), on the other hand, 
as of the Closing shall be settled at fair value (irrespective of the terms of 
payment of such intercompany accounts) in the manner provided in this Section.  
At least five business days prior to the Closing, Seller shall prepare and 
deliver to Buyer a statement setting out in reasonable detail the calculation 
of all such intercompany account balances based upon the latest available 
financial information as of such date and, to the extent reasonably requested 
by Buyer, provide Buyer with supporting documentation to verify the underlying 
intercompany charges and transactions.  All such intercompany account balances 
shall be paid in full in cash prior to the Closing.  All intercompany 
reinsurance agreements shall remain in effect and shall be settled in the 
ordinary course of business.  All intercompany accounts relating to Taxes will 
be governed by the Tax Agreement.

(b)  As promptly as practicable, but no later than 60 days after the Closing 
Date, Seller shall cause to be prepared and delivered to Buyer a statement 
setting out in reasonable detail the calculation of such intercompany account 
balances as of the Closing Date (giving effect to any settlement under 
subsection (a) and any other payments).  Buyer and Seller shall cooperate in 
the preparation of any such calculation including the provision of supporting 
documentation to verify the underlying intercompany charges, transactions and 
payments.  If Buyer disagrees with Seller's calculation of such intercompany 
balances Buyer may, within 30 days after delivery of such statement, deliver a 
notice to Seller disagreeing with such calculation and setting forth Buyer's 
calculation of such amount.  If Buyer and Seller are unable to resolve such 
disagreement within 30 days thereafter, such disagreement shall be resolved by 
independent accountants of nationally recognized standing reasonably 
satisfactory to Buyer and Seller.  The net amount of any such intercompany 
balance shall be paid in cash promptly thereafter, together with interest 
thereon from and including the Closing Date to but excluding the date of 
payment at a rate equal to 5% per annum.  Such interest shall be payable at 
the same time as the payable to which it relates and shall be calculated daily 
on the basis of a year of 365 days and the actual number of days elapsed.

6.18  Certain Required Transfers.  Prior to the Closing Date, Parent and 
Seller shall cause TRG to transfer all of the outstanding capital stock of 
Envision to the Company.

6.19  Financing.  Buyer shall use its reasonable efforts to obtain financing 
that will satisfy the condition in Section 8.9 hereof.

6.20  Dividends Received by TRG.  In the event that Seller receives cash 
dividends from TRG between January 1, 1996 and the Closing, immediately prior 
to Closing Seller shall make a capital contribution to the Company in an 
amount (the "TRG Contributed Dividends") equal to the lesser of the dividends 
so received and the TRG Dividend Replacement Amount.  Seller shall use 
reasonable efforts to have TRG's subsidiaries distribute the fullest amount 
permitted by insurance regulators and applicable law (not to exceed the TRG 
Dividend Replacement Amount) to it prior to Closing.

6.21  Capital Contribution by Seller.  Immediately prior to Closing, Seller 
shall make a capital contribution to the Company in an amount equal to 
$1,700,000.

6.22  TOPrS.  Seller and Buyer shall, and Holdings shall cause an affiliated 
investment partnership to, execute and deliver the TOPrS Side Letter at the 
Closing.

6.23  Subsidiary Credit Agreements.  In the event any indebtedness under any 
Subsidiary Credit Agreement is prepaid, including by reason of any 
acceleration thereof, with funds contributed by Seller for the purpose of such 
prepayment, the cash payable pursuant to Section 2.2 shall be increased by an 
amount equal to such indebtedness.  No such prepayment shall constitute a 
breach of this Agreement.

                                 ARTICLE VII

                CONDITIONS TO OBLIGATIONS OF PARENT AND SELLER


The obligations of Parent and Seller to consummate the transactions 
contemplated hereby on the Closing Date are subject, in the discretion of 
Parent and Seller, to the satisfaction or waiver, on or prior to the Closing 
Date, of each of the following conditions:

7.1  Representations, Warranties and Covenants.  All representations and 
warranties of Buyer and Holdings contained in this Agreement and the Ancillary 
Documents to which Buyer or Holdings is a party shall be true and correct in 
all material respects (except that such representations and warranties 
specifically qualified by materiality shall be read for purposes of this 
Section so as not to require an additional degree of materiality) as of the 
date of this Agreement and (except to the extent such representations and 
warranties speak as of an earlier date) as of the Closing Date as if such 
representations and warranties were made on and as of the Closing Date, any 
breaches of such representations and warranties as of the Closing Date 
(determined for purposes of this clause without regard to any materiality 
qualifications in such representations and warranties) taken together shall 
not have a Material Adverse Effect on Holdings, Buyer, the Company and the 
Subsidiaries, taken as a whole (assuming that the Closing shall have 
occurred), or on Parent or Seller, and Buyer and Holdings shall have performed 
in all material respects all agreements and covenants required hereby to be 
performed by them prior to or at the Closing Date.  There shall be delivered 
to Seller a certificate (signed by the President of Buyer and the President of 
Holdings) to the foregoing effect.

7.2  HSR Act.  The applicable waiting period, including any extension thereof, 
under the HSR Act shall have expired.

7.3  No Governmental or Other Proceeding; Illegality.  (a)  No Action shall be 
pending or threatened which seeks to enjoin, restrain or prohibit the 
consummation of the transactions contemplated by this Agreement (including, 
without limitation, the execution, delivery and performance of any Ancillary 
Agreement by the parties thereto) which either Parent or Seller reasonably 
believes presents a material risk that it or its Affiliates would suffer 
substantial monetary damage (whether or not indemnified under this Agreement).

(b)  There shall not be in effect any statute, rule, regulation or order of 
any court, governmental or regulatory body which prohibits or makes illegal 
the transactions contemplated hereby, including, without limitation, the 
execution or delivery of any of the Ancillary Agreements or the performance of 
any of the Guarantees, the Tax Agreement or the Ridge Re Treaties, as amended 
by the applicable Ridge Re Endorsements.

7.4  Consents.  All consents, approvals and waivers from governmental 
authorities and other parties necessary to permit Seller and Parent to 
consummate the transactions contemplated hereby shall have been obtained, 
unless the failure to obtain any such consent, approval or waiver would not 
have a Material Adverse Effect on Seller or Parent, as the case may be, 
provided, however, that no such consent, approval or waiver shall contain any 
limitations, requirements or conditions on Parent or Seller or require Parent 
or Seller to make any payment to any party including the Company or any 
Subsidiary.

7.5  Opinion of Counsel.  Buyer shall have delivered to Seller an opinion of 
Simpson Thacher & Bartlett, substantially in the form of Exhibit E-1, an 
opinion of King & Spalding, special tax counsel to Holdings and Buyer, 
substantially in the form of Exhibit E-2, and an opinion of Richards, Layton & 
Finger, special Delaware counsel to Holdings and Buyer, substantially in the 
form of Exhibit E-3.

7.6  Certificates.  Buyer and Holdings will furnish Seller with such 
certificates of their respective officers, directors and others to evidence 
compliance with the conditions set forth in this Article VII as may be 
reasonably requested by Seller.

7.7  Corporate Documents.  Seller shall have received from Buyer and Holdings 
resolutions adopted by the Board of Directors of Buyer and Holdings approving 
this Agreement, the Tax Agreement, the TOPrS Side Letter and the Debentures, 
as applicable, and the transactions contemplated hereby and thereby, certified 
by the corporate secretary or assistant secretary of Holdings and Buyer, as 
applicable.

7.8  TRG Closing.  TRG Acquisition shall have simultaneously purchased all of 
the outstanding shares of TRG capital stock pursuant to the TRG Agreement.

7.9  Registration Rights Agreement.  Trust and Holdings shall have executed 
and delivered to Seller a Registration Rights Agreement substantially in the 
form of Exhibit F.

7.10  Solvency Matters.  Buyer shall have provided to Seller, any solvency 
letters or similar opinions or certificates relating to the solvency and 
adequate capitalization of Buyer, Holdings or the Company and/or the ability 
of Buyer, Holdings or the Company to pay its debts that are given to any banks 
or other lenders in connection with the acquisition of the Stock at the same 
time as such letters, opinions or certificates are provided to such banks or 
other lenders.

7.11  Capitalization.  Holdings shall have received no less than $500,000,000 
in equity and the amount of indebtedness for borrowed money of Holdings and 
Buyer shall be no more than $1,325,000,000 (excluding the Debentures).

7.12  Company Certificates.  Seller shall have received (i) a certificate 
signed by each of the persons listed on Schedule 1.1C dated as of the date of 
this Agreement, and (ii) a certificate signed by each of such persons dated as 
of the Closing Date, in each case substantially in the form of Exhibit G.

7.13  Subsidiary Releases.  All of the domestic U.S. Subsidiaries included in 
the consolidated federal income tax return of Parent which are Subsidiaries as 
of Closing shall have executed and delivered to Parent and Seller the releases 
of any and all obligations under existing tax sharing agreements substantially 
in the form of Exhibit H.  

                              ARTICLE VIII

            CONDITIONS TO OBLIGATIONS OF HOLDINGS AND BUYER

The obligations of Holdings and Buyer to consummate the transactions 
contemplated hereby are subject, in the discretion of Buyer, to the 
satisfaction or waiver, on or prior to the Closing Date, of each of the 
following conditions:

8.1  Representations, Warranties and Covenants.  All representations and 
warranties of Parent and Seller contained in this Agreement and the Ancillary 
Agreements to which Parent or Seller is a party shall be true and correct in 
all material respects (except that such representations and warranties 
specifically qualified by materiality shall be read for purposes of this 
Section so as not to require an additional degree of materiality) as of the 
date of this Agreement and (except to the extent such representations and 
warranties speak as of an earlier date) as of the Closing Date as if such 
representations and warranties were made on and as of the Closing Date, any 
breaches of such representations and warranties as of the Closing Date 
(determined for purposes of this clause without regard to any materiality 
qualifications in such representations and warranties) taken together shall 
not have a Material Adverse Effect on the Company and the Subsidiaries, taken 
as a whole, and Parent and Seller shall have performed in all material 
respects all agreements and covenants (other than those contained in Section 
6.3(c) and clauses (i), (ii) and (v) of Section 6.6) required hereby to be 
performed by them, respectively, prior to or at the Closing Date.  There shall 
be delivered to Buyer a certificate of each of Parent and Seller (signed by an 
Executive Vice President of Parent and the President of Seller) to the 
foregoing effect.

8.2  Consents.  All consents, approvals and waivers (a) referred to in clauses 
(i) and (ii) of Section 4.11, (b) referred to on Schedule 4.10, (c) under 
reinsurance and retrocession agreements for the accident year in which the 
Closing occurs that would be terminable as a result of consummation of the 
transactions contemplated by this Agreement and the Ancillary Agreements, (d) 
under all other reinsurance and retrocession agreements that would be 
terminable as a result of consummation of the transactions contemplated by 
this Agreement and the Ancillary Agreements and (e) under the reinsurance 
treaties described in Ex. 1 (part A) of Schedule 4.25 shall have been obtained 
in form and substance satisfactory to Buyer, acting reasonably, and shall be 
in full force and effect, except, in the case of consents, approvals and 
waivers referred to in clauses (b), (c) and (d), consents, approvals or 
waivers the failure of which to obtain would not, individually or in the 
aggregate, result in a Material Adverse Effect on the Company and the 
Subsidiaries, taken as a whole, provided, however, that in the case of clauses 
(a), (b), (c), (d) and (e), no such consent, approval or waiver shall contain 
any limitations, requirements or conditions on Holdings, Buyer, the Company or 
a Subsidiary or require Holdings, Buyer, the Company or a Subsidiary to make 
any payment to any party including in the case of Holdings or Buyer, to the 
Company or, in the case of Holdings, Buyer or the Company, to any Subsidiary, 
provided further, that the approval of any intercompany tax agreements 
referred to in either Section 4.11(i) or (ii) for a period after Closing shall 
not be a condition to the obligations of Buyer and Holdings hereunder, and 
provided still further, that with respect to any intercompany tax agreement 
among the Company and the Subsidiaries for the period January 1, 1995 through 
Closing, the obligations of Buyer and Holdings hereunder shall be conditioned 
only on the approval of an agreement that is reasonably consistent with those 
provisions of the Tax Agreement that provide for the amount and time for 
payments attributable to Taxes.

8.3  HSR Act.  The applicable waiting period, including any extension thereof, 
under the HSR Act shall have expired.

8.4  No Governmental or Other Proceeding; Illegality. (a)  No Action shall be 
pending or threatened which seeks to enjoin, restrain or prohibit the 
consummation of the transactions contemplated by this Agreement (including, 
without limitation, the execution, delivery and performance of any Ancillary 
Agreement by the parties thereto) or to impose limitations on the ability of 
Buyer to exercise full rights of ownership of the Stock or to require the 
divestiture by Buyer of the Stock or by the Company, Buyer, Holdings or any of 
their Affiliates of any assets or businesses, which either Holdings or Buyer 
reasonably believes presents a material risk that it or its Affiliates 
(including the Company and the Subsidiaries after the Closing Date) would not 
realize substantially all of the benefits of the transactions contemplated by 
this Agreement or would suffer substantial monetary damages (whether or not 
indemnified under this Agreement).

(b)  There shall not be in effect any statute, rule, regulation or order of 
any court, governmental or regulatory body which prohibits or makes illegal 
the transactions contemplated hereby, including, without limitation, the 
execution or delivery of any of the Ancillary Agreements or the performance of 
any of the Guarantees, the Tax Agreement or the Ridge Re Treaties, as amended 
by the applicable Ridge Re Endorsements.

8.5  Opinion of Counsel.  Seller shall have delivered to Buyer an opinion of 
Skadden, Arps, Slate, Meagher & Flom, substantially in the form of Exhibit I-
l, an opinion of Richard S. Paul, Senior Vice President and General Counsel of 
Seller, substantially in the form of Exhibit I-2, an opinion of Richard N. 
Frasch, general counsel of the Company, substantially in the form of Exhibit 
I-3, an opinion of Cox & Wilkinson, special Bermuda counsel to Parent and 
Seller, substantially in the form of Exhibit I-4, an opinion of LeBoeuf, Lamb, 
Greene & MacRae, special tax counsel to Parent and Seller, as to the matters 
set forth in Exhibit I-5, which opinion shall otherwise be in form and 
substance reasonably satisfactory to Buyer, an opinion of counsel (who shall 
be reasonably acceptable to Buyer) as to matters of Indiana law set forth in 
Exhibit I-6, which opinion shall otherwise be in form and substance reasonably 
satisfactory to Buyer, and an opinion of counsel (who shall be reasonably 
acceptable to Buyer) as to matters of New Jersey law set forth in Exhibit I-7, 
which opinion shall otherwise be in form and substance reasonably satisfactory 
to Buyer.

8.6  Certificates.  Parent and Seller shall furnish Buyer with such 
certificates of the respective officers of Parent and Seller and others to 
evidence compliance with the conditions set forth in this Article VIII as may 
be reasonably requested by Buyer.

8.7  Corporate Documents.  Buyer shall have received from Parent and Seller 
resolutions adopted by the respective boards of directors of Parent and Seller 
approving this Agreement and the other Ancillary Agreements to which Parent or 
Seller is or will be a party and the transactions contemplated hereby and 
thereby, certified by the corporate secretary or assistant secretary of Parent 
and Seller, as applicable.

8.8  Closing.  TRG Acquisition shall have simultaneously purchased all of the 
outstanding shares of TRG's capital stock pursuant to the TRG Agreement.

8.9  Financing.  Buyer shall have obtained proceeds from financing sources on 
terms and conditions consistent with the Underwriter Letter and with the 
senior bank commitment letter provided by Buyer to Seller prior to the date 
hereof, and otherwise reasonably satisfactory to Buyer.

8.10  No Material Adverse Effect.  Since June 30, 1995, there shall not have 
occurred any event, change or development (including, without limitation, the 
suspension, revocation or other termination of any Permit) which individually 
or in the aggregate, has had or is reasonably likely to have a Material 
Adverse Effect on the Company and the Subsidiaries, taken as a whole.

8.11  No Change in Rating.  Buyer shall have received confirmation from A.M. 
Best that upon Closing the A.M. Best's policyholder's rating for each 
Insurance Subsidiary will be "A-" (without negative implications) or better, 
and after giving effect to the transactions contemplated by this Agreement, 
the Ancillary Agreements and the Financing Documents.

8.12  Resignation of Officers and Directors.  All Persons who are directors 
and/or officers of the Company and/or any of the Subsidiaries whose principal 
employment is as an officer and/or employee of Seller and/or Parent, shall 
have resigned such directorships and/or such offices.

8.13  Transfer Taxes.  Seller shall have caused all appropriate stock transfer 
tax stamps to be affixed to the certificate or certificates representing the 
Stock.

8.14  Seller Notes.  Seller and Credit Corp. shall have made the payments 
contemplated by Section 6.12 and repaid all amounts outstanding under any 
Seller Notes that are still held by the Company and any Subsidiary together 
with any accrued but unpaid interest thereon.  

8.15  Leesburg Training Facility Amount.  The Leesburg Training Facility 
Amount shall have been paid, as provided in Section 6.13.

8.16  Reserves and Book-Up.  All of the transactions described in Section 6.14 
shall have been consummated.

8.17  Ridge Re Endorsements.  Ridge Re, Seller and each Subsidiary listed on 
Schedule 8.17 shall have executed and delivered to Buyer endorsements to the 
Ridge Re Treaties substantially in the form of Exhibit J.

8.18  Guarantees.  Parent shall have executed and delivered to Buyer 
guarantees for the benefit of each Subsidiary listed on Schedule 8.18 
substantially in the form of Exhibit K and Parent and Seller shall have 
executed and delivered to Buyer guarantees for the benefit of each Subsidiary 
listed on Schedule 8.18 substantially in the form of Exhibit L.

8.19  Management Investment.  Members of the management of the Company and the 
Subsidiaries designated by Holdings shall have invested in the capital stock 
of Holdings on terms substantially consistent with the agreements in principle 
delivered to Seller prior to the date hereof or otherwise satisfactory to 
Holdings.

                                 ARTICLE IX

            ACTIONS BY PARENT, SELLER,AND BUYER AFTER THE CLOSING


9.1  Books and Records.  Parent, Seller and Buyer agree that so long as any 
books, records and files relating to the business, properties, assets or 
operations of the Company or the Subsidiaries, to the extent that they pertain 
to the operations of the Company or the Subsidiaries prior to the Closing 
Date, remain in existence and available, each party (at its expense) shall 
have the right to inspect and to make copies of the same at any time during 
normal business hours for any proper purpose.  Parent and Seller further agree 
that, to the extent such records have not otherwise been delivered to the 
Company or Buyer, Parent and Seller will not destroy or dispose of any 
material books, records or files relating to the investment portfolio existing 
as of the Closing Date without first offering to provide such books, records 
or files to Buyer and that, in any event, Buyer shall have the right to 
inspect and to make copies of the same at any time during normal business 
hours for any proper purpose, to the extent reasonably requested by Buyer.

9.2  First Quadrant Final Sale, Viking Sale and Constitution Re Sale.  If the 
Company shall, after the Closing Date, receive any proceeds from the First 
Quadrant Final Sale, or any amount as purchase price adjustments from the 
Viking Sale or Constitution Re Sale, Buyer shall cause the Company to remit 
such amounts (net of any tax obligation of Buyer, the Company or any 
Subsidiary) to Seller as promptly as practicable.

9.3  Covenants Regarding the Securities.  In connection with any sale, 
transfer or other disposition of all or any part of the Securities under an 
exemption from registration under the Securities Act, if requested by Buyer, 
Seller (or Parent, if such Securities are held by Parent) will deliver to 
Holdings an opinion of counsel (which may be the General Counsel of Parent or, 
if such Securities are held by Seller, of Seller), reasonably satisfactory in 
form and substance to Holdings, that such exemption is available; provided, 
however, that in case of any sale or other transfer of Securities to any 
Person who is a qualified institutional buyer as defined in Rule 144A under 
the Securities Act, no opinion of counsel shall be required if Seller (or 
Parent, if such Securities are held by Parent) provides to Holdings an 
officer's certificate to the effect that such Person is a qualified 
institutional buyer as defined in Rule 144A under the Securities Act.  Parent 
and Seller hereby agree and acknowledge that upon original issuance thereof, 
and until such time as the same is no longer required under the applicable 
requirements of the Securities Act, the Securities (and all securities issued 
in exchange therefor or substitution thereof) shall bear, until such 
restrictions are no longer applicable, the following legend:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER 
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").  THEY MAY NOT BE SOLD 
OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE 
1933 ACT AND ANY APPLICABLE STATE BLUE SKY LAWS OR SECURITY LAWS OR PURSUANT 
TO AN AVAILABLE EXEMPTION FROM SUCH PROVISIONS."

Parent and Seller further agree and acknowledge that any Holdings Common Stock 
acquired in accordance with Section 11.3 shall also bear (until such time as 
such restrictions are no longer applicable) the following legend:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF 
FIRST REFUSAL AND CERTAIN OTHER RESTRICTIONS ON TRANSFER AS SET FORTH IN THAT 
CERTAIN STOCKHOLDERS AGREEMENT, BETWEEN NEW TALEGEN HOLDINGS CORPORATION AND 
XEROX FINANCIAL SERVICES, INC., A COPY OF WHICH MAY BE OBTAINED FROM THE 
SECRETARY OF NEW TALEGEN HOLDINGS CORPORATION."

9.4  Crostex/Camfex Purchase Money Notes.  Seller and Parent shall indemnify, 
guaranty or otherwise post credit support pursuant to the covenant set forth 
in Section 6.16 from and after the Closing.

9.5  Certain Employee Benefit Matters.  (a)  Parent and its Affiliates (other 
than the Company, the Subsidiaries, TRG and its subsidiaries) shall retain all 
liabilities and obligations under the employee stock ownership plan ("ESOP") 
in which employees of the Company and the Subsidiaries participated prior to 
January 1, 1993.  All awards made to such participants under the ESOP shall 
fully vest as of the Closing Date.

(b)  Parent and its Affiliates (other than the Company, the Subsidiaries, TRG 
and its subsidiaries) shall retain all liabilities and obligations under the 
Long Term Incentive Program for the benefit of the participants listed on 
Schedule 9.5.  All payments due to such participants under the Long Term 
Incentive Program shall be made at Closing.

9.6  Transfer Taxes.  Seller shall pay, or cause to be paid, all stock 
transfer and other transfer taxes required to be paid in connection with the 
sale and delivery to Buyer of the Stock.

9.7  Dividends Received by TRG.  To the extent that the TRG Dividend 
Replacement Amount exceeds the TRG Contributed Dividends as of Closing, Seller 
shall cause TRG to declare and pay at Closing a dividend to Seller in the form 
of a promissory note issued by TRG and in a principal amount equal to such 
excess, and immediately thereafter Seller shall contribute such note to the 
Company and assign to the Company all its rights thereunder.  Such note shall 
be payable at such times as TRG shall have cash available (after the payment 
of its indebtedness and other corporate expenses).  Interest shall accrue 
thereon at a rate per annum equal to the Overdue Rate (as defined in the Tax 
Agreement).  

9.8  Ridge Re.  On and after the Closing Date, Parent and Seller shall cause 
Ridge Re to refrain from (i) entering into any reinsurance or retrocession 
agreement or treaty and (ii) engaging in any business other than in connection 
with the Ridge Re Treaties, as amended by the applicable Ridge Re 
Endorsements, and the other treaties referenced in the first sentence of 
Section 4.9(c) as in effect on the date hereof, provided that the obligations 
contained in this Section 9.8 shall terminate upon consummation of the sale of 
Ridge Re to a Qualified Transferee.

9.9  Further Assurances.  On and after the Closing Date, Parent, Seller, the 
Company, Holdings and Buyer will take all appropriate action and execute all 
documents, instruments or conveyances of any kind which may be reasonably 
necessary or advisable to carry out any of the provisions hereof, including 
without limitation, putting Buyer in possession and operating control of the 
business of the Company.

                                ARTICLE X

                             INDEMNIFICATION


10.1  Survival of Representations and Warranties.  Holdings and Buyer have the 
right to rely fully upon the representations, warranties, covenants and 
agreements of Parent and Seller contained in this Agreement and the Ancillary 
Agreements.  Parent and Seller have the right to rely fully upon the 
representations, warranties, covenants and agreements of Holdings and Buyer 
contained in this Agreement and the Ancillary Agreements.  All such 
representations and warranties (including the Schedules hereto and the 
certificates delivered in accordance with Sections 7.1 and 8.1 hereof, insofar 
as the Schedules and such certificates relate to such representations and 
warranties) shall be deemed to be repeated at Closing for purposes of this 
Article X and, except as set forth in the last sentence of this Section, shall 
survive the execution and delivery hereof and the Closing, and thereafter (i) 
in the case of the representations and warranties contained in Sections 4.1, 
4.2, 4.3, 4.4, 4.5, 4.6, 4.18, 5.1, 5.2, 5.4, 5.7 and 5.11 (other than clauses 
(iii), (iv) and (v) of Section 5.11(a)) hereof, such representations and 
warranties shall survive without limitation as to time, (ii) in the case of 
the representations and warranties contained in Sections 4.21, 4.24 and 4.28 
hereof, such representations and warranties shall survive until 90 days after 
the expiration of the applicable statute of limitations with respect to the 
subject matter thereof and (iii) in the case of all other representations and 
warranties, such representations and warranties shall expire on the date two 
years following the Closing Date; provided, however, that any representation 
or warranty shall survive the time it would otherwise terminate pursuant to 
this Section to the extent that notice of a breach thereof giving rise to a 
right of indemnification shall have been given by a party hereto in accordance 
with Section 10.3 hereof prior to such time.  All of the covenants and 
agreements of the parties contained in this Agreement and the Ancillary 
Agreements to be performed on or after the date of this Agreement shall 
survive the Closing without limitation as to time.  Notwithstanding the 
foregoing, none of the following representations and warranties (including the 
Schedules hereto and the certificates delivered in accordance with Sections 
7.1 and 8.1 hereof, insofar as the Schedules and such certificates relate to 
such representations and warranties) shall survive the Closing:  (i) 
representations and warranties contained in Sections 4.16, 4.21(e), 4.21(h) 
and 5.10 and in clauses (iii), (iv) and (v) of Section 5.11(a); and (ii) 
representations and warranties contained in any Section of Article IV and 
which relate to Excluded Activities.

10.2  Indemnification.  (a)  Parent and Seller shall jointly and severally 
defend, indemnify and hold harmless Buyer, the Company and their Affiliates 
and each director and officer of such Persons against any loss, damage, claim, 
liability, judgment or settlement of any nature or kind, including all costs 
and expenses relating thereto, including without limitation, interest, 
penalties and reasonable attorneys' fees (collectively "Damages"), arising out 
of, resulting from or relating to: 

  (i)  subject to Section 10.1, the breach of any representation or warranty 
of Parent or Seller contained in this Agreement (other than in Section 4.18), 
any Ancillary Agreement or any certificate delivered pursuant hereto or 
thereto; provided, however, that such Persons shall be entitled to 
indemnification hereunder only when and to the extent that the aggregate of 
all such Damages exceeds $10,000,000;

  (ii)  the breach of any covenant or agreement (whether to be performed prior 
to or after Closing) of Parent or Seller contained in this Agreement, any 
Ancillary Agreement or any certificate delivered pursuant hereto or thereto;

  (iii)  any facts, circumstances, conditions, events or actions existing or 
occurring at any time with respect to Constitution Re, First Quadrant and 
Viking and any subsidiary of any of the foregoing (other than liabilities 
related to the business represented by the First Quadrant Asset Sale) 
(collectively, the "Excluded Business");

  (iv)  any Action brought by a security holder or creditor of Seller or 
Parent in their capacity as such;

  (v)  long term incentive payments (including payments arising out of the 
sale of the Company or the Excluded Business) payable to the Persons listed on 
Schedule 10.2 including payments under the Long Term Incentive Program;

  (vi)  the breach of the representations and warranties contained in Section 
4.18;

  (vii)  any facts, circumstances, conditions, events or actions existing or 
occurring after the Closing Date with respect to the Leesburg Training 
Facility; and

  (viii)  the breach, if any, by CFI or WSG of the respective Subsidiary 
Credit Agreement to which it is a party in connection with any of the 
reserving actions described in Section 6.14(a).

The foregoing provisions of this Section 10.2(a) shall not apply with respect 
to any Damages arising out of (and no indemnification hereunder shall be 
available with respect to) any (i) breach of any representation or warranty of 
Parent or Seller that is terminated as provided in Section 10.1 (subject, 
however, to the proviso contained in Section 10.1), (ii) breaches of the 
representations and warranties of Parent and Seller contained in this 
Agreement and the Ancillary Agreements which would result in the failure of 
any of the conditions in Section 8.1 to be satisfied if Holdings or Buyer had 
actual knowledge of such breaches (or received notice thereof pursuant to 
Section 6.6) prior to the Closing Date, (iii) breach of any representation or 
warranty contained in Section 4.21(h), (iv) breach of any representation or 
warranty to the extent it relates to Excluded Activities, (v) action that 
breaches Section 6.3(c) to the extent such action relates to Excluded 
Activities (except if such action is directed by Parent or Seller or, prior to 
or at the time taken, an officer listed on Schedule 1.1B knew that such action 
was to be taken), (vi) breach of any covenant to be performed prior to Closing 
to the extent it relates to Excluded Activities, other than a breach of 
Section 6.1, 6.3(a), 6.3(b), 6.10 or 6.14, (vii) action that breaches Section 
6.2 or Section 6.9 (except in each case if such action is directed by Parent 
or Seller or, prior to or at the time taken, an officer listed on Schedule 
1.1B knew that such action was to be taken) or (viii) underfunding of Company 
Plans (including fines and penalties assessed by governmental authorities 
relating thereto).
 
(b)  Buyer shall defend, indemnify and hold harmless Seller, Parent and their 
Affiliates and each director or officer of such Persons against any Damages 
arising out of, resulting from or relating to:

  (i)  subject to Section 10.1, the breach of any representation or warranty 
of Holdings or Buyer contained in this Agreement (other than in Section 5.4), 
any Ancillary Agreement or any certificate delivered pursuant hereto or 
thereto; provided, however, that such Persons shall be entitled to 
indemnification hereunder only when and to the extent that the aggregate of 
all such Damages exceeds $10,000,000;

  (ii)  the breach of any covenant or agreement (whether to be performed prior 
to or after Closing) of Holdings or Buyer contained in this Agreement, any 
Ancillary Agreement or any certificate delivered pursuant hereto or thereto;

  (iii)  third party claims in connection with the sale of the Underwritten 
Notes, provided that (x) such Damages did not result from any act or omission 
by Parent, Seller or any Affiliate (other than the Company or any Subsidiary) 
or any director, officer, employee or agent thereof and (y) any Notice (as 
defined in Section 10.3 below) related to an indemnification claim under this 
clause (iii) must be delivered prior to the third anniversary following the 
Closing Date and no Notice may be delivered thereafter; and

  (iv)  the breach of the representations and warranties contained in Section 
5.4.

The foregoing provisions of this Section 10.2(b) shall not apply with respect 
to any Damages arising out of (and no indemnification hereunder shall be 
available with respect to) any (i) breach of any representation or warranty of 
Holdings or Buyer that is terminated (subject, however, to the proviso 
contained in Section 10.1), (ii) breaches of the representations and 
warranties of Holdings and Buyer contained in this Agreement and the Ancillary 
Agreements which would result in the failure of any of the conditions in 
Section 7.1 to be satisfied if Parent or Seller had actual knowledge of such 
breaches (or received notice thereof pursuant to Section 6.6) prior to the 
Closing Date or (iii) any breach of any representation or warranty contained 
in Section 5.10 or in clauses (iii), (iv) or (v) or Section 5.11(a).

(c)  For purposes of clause (i) of Section 10.2(a), (X) a "Material Adverse 
Effect" (as such term is used in any representation or warranty contained in 
Article IV other than the representations and warranties contained in Section 
4.7(a)) shall be deemed to have occurred if the aggregate of all Damages 
related to any such representation or warranty shall exceed $100,000 and (Y) 
the representations and warranties contained in Sections 4.7, 4.13 and 4.15(b) 
shall be read as if such representations and warranties do not include the 
words "Knowledge of Seller".

(d)  The term "Damages" as used in this Article X is not limited to matters 
asserted by third parties against any Person entitled to be indemnified under 
this Article X, but includes Damages incurred or sustained by any such Person 
in the absence of third party claims.

(e)  No claim for Damages under this Article X may be asserted or pursued by 
any former Subsidiary against Parent or Seller, unless, prior to the date that 
such former Subsidiary shall have ceased to be a "Subsidiary", such former 
Subsidiary shall have delivered a Notice to Parent or Seller relating to such 
claim.

10.3  Indemnification Procedures.  (a)  In the event that any Person shall 
incur or suffer any Damages in respect of which indemnification may be sought 
hereunder, such Person (the "Indemnitee") may assert a claim for 
indemnification by written notice (the "Notice") to the party from whom 
indemnification is being sought (the "Indemnitor"), stating the amount of 
Damages, if known, and the nature and basis of such claim.  In the case of 
Damages arising or which may arise by reason of any third-party claim, 
promptly after receipt by an Indemnitee of written notice of the assertion or 
the commencement of any Action with respect to any matter in respect of which 
indemnification may be sought hereunder, the Indemnitee shall give Notice to 
the Indemnitor and shall thereafter keep the Indemnitor reasonably informed 
with respect thereto, provided that failure of the Indemnitee to give the 
Indemnitor prompt notice as provided herein shall not relieve the Indemnitor 
of any of its obligations hereunder, except to the extent that the Indemnitor 
is materially prejudiced by such failure.  In case any such Action is brought 
against any Indemnitee, the Indemnitor shall be entitled to assume the defense 
thereof, by written notice of its intention to do so to the Indemnitee within 
30 days after receipt of the Notice.  If the Indemnitor shall assume the 
defense of such Action, it shall not settle such Action without the prior 
written consent of the Indemnitee, which consent shall not be unreasonably 
withheld, provided that an Indemnitee shall not be required to consent to any 
settlement that (i) does not include as an unconditional term thereof the 
giving by the claimant or the plaintiff of a release of the Indemnitee from 
all liability with respect to such Action or (ii) involves the imposition of 
equitable remedies or the imposition of any material obligations on such 
Indemnitee other than financial obligations for which such Indemnitee will be 
indemnified hereunder.  As long as the Indemnitor is contesting any such 
Action in good faith and on a timely basis, the Indemnitee shall not pay or 
settle any claims brought under such Action.  Notwithstanding the assumption 
by the Indemnitor of the defense of any Action as provided in this Section, 
the Indemnitee shall be permitted to participate in the defense of such Action 
and to employ counsel at its own expense; provided, however, that if the 
defendants in any Action shall include both an Indemnitor and any Indemnitee 
and such Indemnitee shall have reasonably concluded that counsel selected by 
Indemnitor has a conflict of interest because of the availability of different 
or additional defenses to such Indemnitee, such Indemnitee shall have the 
right to select separate counsel to participate in the defense of such Action 
on its behalf, at the expense of the Indemnitor; provided that the Indemnitor 
shall not be obligated to pay the expenses of more than one separate counsel 
for all Indemnitees, taken together.

(b)  If the Indemnitor shall fail to notify the Indemnitee of its desire to 
assume the defense of any such Action within the prescribed period of time, or 
shall notify the Indemnitee that it will not assume the defense of any such 
Action, then the Indemnitee may assume the defense of any such Action, in 
which event it may do so acting in good faith in such manner as it may deem 
appropriate, and the Indemnitor shall be bound by any determination made in 
such Action, provided, however, that the Indemnitee shall not be permitted to 
settle such action without the consent of the Indemnitor.  No such 
determination or settlement shall affect the right of the Indemnitor to 
dispute the Indemnitee's claim for indemnification.  The Indemnitor shall be 
permitted to join in the defense of such Action and to employ counsel at its 
own expense.

(c)  Amounts payable by the Indemnitor to the Indemnitee in respect of any 
Damages for which such party is entitled to indemnification hereunder shall be 
payable by the Indemnitor as incurred by the Indemnitee.

(d)  In the event of any dispute between the parties regarding the 
applicability of the indemnification provisions of this Agreement, the 
prevailing party shall be entitled to recover all Damages incurred by such 
party arising out of, resulting from or relating to such dispute.

10.4  Insurance Proceeds and Tax Limitations.  The amount of any Damages or 
other liability for which indemnification is provided under this Agreement 
shall be net of any amounts recovered or recoverable by the Indemnitee under 
insurance policies with respect to such Damages or other liability and shall 
be (i) increased to take account of any Tax cost incurred (grossed up for such 
increase) by the Indemnitee arising from the receipt of indemnity payments 
hereunder (unless such indemnity payment is treated as an adjustment to the 
purchase price hereunder for tax purposes) and (ii) reduced to take account of 
any Tax benefit realized by the Indemnitee arising from the incurrence or 
payment of any such Damages or other liability.  Such Tax cost or Tax benefit, 
as the case may be, shall be computed for any year using the Indemnitee's 
actual tax liability with and without (i) the incurrence or payment of any 
Damages or other liability for which indemnification is provided under this 
Agreement or (ii) the payment of any indemnification payments made pursuant to 
this Agreement in such year.  In the event that the Indemnitee will actually 
realize a Tax cost or Tax benefit for a year(s) subsequent to the year in 
which the indemnity payment is made, a payment in respect of such Tax cost or 
Tax benefit shall be made in such subsequent year(s).  Any indemnity payment 
made pursuant to this Agreement will be treated as an adjustment to the 
purchase price hereunder for Tax purposes, unless a determination (as defined 
in Section 1313 of the Code) with respect to the Indemnitee causes any such 
payment not to constitute an adjustment to the purchase price for United 
States Federal income tax purposes.

10.5  Tax Indemnification.  Notwithstanding anything to the contrary in this 
Agreement, the rights and obligations of the parties with respect to 
indemnification for any and all Tax matters (other than with respect to any 
representations and warranties contained herein relating to Tax matters, 
except to the extent Buyer or Holdings is indemnified under the provisions of 
the Tax Agreement) shall be governed by the Tax Agreement and shall not be 
subject to this Article X, including any calculation pursuant to clause (i) of 
Section 10.2(a).

                               EXHIBIT XI

                             MISCELLANEOUS


11.1  Termination.  This Agreement may be terminated and the transactions 
contemplated hereby abandoned:

(a)  by mutual consent of the parties; or

(b)  by Parent and Seller, on the one hand, or Holdings and Buyer, on the 
other hand, on June 17, 1996 if it can be reasonably anticipated that the 
approvals referred to in Section 4.11(i) cannot be obtained without the 
applicable regulatory authorities imposing an additional material economic 
burden on Parent or Seller, on the one hand, or Holdings, Buyer, the Company 
and the Subsidiaries, taken as a whole, on the other hand; or

(c)  by Parent and Seller, on the one hand, or Holdings and Buyer, on the 
other hand, if the conditions to such parties' obligations set forth in 
Articles VII and VIII, as the case may be, have not been satisfied (or waived 
by the party entitled to the benefit thereof) on or before August 17, 1996; 
provided that if the approvals referred to in Section 4.11(i) have not been 
obtained by August 17, 1996, this Agreement shall not be terminated prior to 
October 17, 1996 if it can be reasonably anticipated that such approvals can 
be obtained by October 17, 1996; or

(d)  by Parent and Seller, on the one hand, or Holdings and Buyer, on the 
other hand, if the TRG Agreement is terminated in accordance with its terms.

Upon termination of this Agreement pursuant to this Section 11.1, this 
Agreement shall be void and of no further force and effect (except as provided 
in the last sentence of this paragraph) and no party shall have any liability 
to any other party under this Agreement unless such party has (a) willfully 
failed to have performed its obligations hereunder or (b) knowingly made a 
misrepresentation of any matter set forth herein.  For purposes of the 
immediately preceding sentence, with respect to obligations of the Company or 
any Subsidiary to take or refrain from taking any action under this Agreement 
or obligations of Parent or Seller to cause the Company or any Subsidiary to 
take or refrain from taking any action under this Agreement, neither Parent 
nor Seller shall be deemed to have "willfully failed" unless, in each case, 
such action or failure to act is directed by Parent or Seller or occurs with 
knowledge of an officer listed on Schedule 1.1B or 1.1C; provided that if such 
action or failure is (X) not directed by Parent or Seller, (Y) occurs with the 
knowledge of an officer listed on Schedule 1.1C and (Z) occurs without the 
knowledge of an officer listed on Schedule 1.1B, Buyer shall recover only its 
Third Party Expenses and Seller and Parent shall have no further liability 
under this Agreement.  For purposes of the second preceding sentence, neither 
Parent nor Seller shall be deemed to have "knowingly" made a misrepresentation 
unless an officer listed on Schedule 1.1B or 1.1C knows such representation is 
untrue when made; provided that if a representation is known to be untrue when 
this Agreement is executed by the parties hereto by an officer listed on 
Schedule 1.1C but not by an officer listed on Schedule 1.1B, Buyer shall 
recover only its Third Party Expenses and Seller and Parent shall have no 
further liability under this Agreement.  Notwithstanding a termination of this 
Agreement, the provisions of Sections 11.2(b) and 11.11, the last sentences of 
Sections 4.18 and 5.4 and the confidentiality provision of the proviso to 
Section 6.4 hereof shall continue in full force and effect.

11.2  Confidentiality.  (a)  Parent and Seller shall assign to the Company at 
or prior to, and with effect from and after the Closing, all of their 
respective rights under the Confidentiality Agreement and under any other 
confidentiality agreements with third Persons relating to the business of the 
Company or any of the Subsidiaries.

(b)  Except as otherwise required by law (including if required by any stock 
exchange on which any of the securities of any party or their respective 
Affiliates are listed or by any securities commission or similar regulatory 
authority having jurisdiction over any such party or any of its Affiliates), 
Buyer, Holdings, Seller and Parent shall keep confidential all aspects of the 
transactions contemplated hereby, including the fact that this Agreement has 
been executed.  Notwithstanding the foregoing or the terms of the 
Confidentiality Agreement, Buyer, Holdings and their respective Affiliates and 
Seller, Parent and their respective Affiliates may disclose information 
concerning the transactions contemplated hereby in connection with the 
financing of such transactions by Holdings and Buyer, to potential equity 
investors in Holdings or any of its Affiliates, as necessary to obtain any 
consents referenced in Section 8.2 and, in the case of Parent, as it, in its 
sole discretion, deems appropriate in light of its status as a Person with 
public stockholders.  The parties will use their reasonable efforts to make 
the release to be issued announcing the Closing a mutually acceptable joint 
release.  Before issuing any other press release with respect to the 
transactions contemplated by this Agreement, the parties will use reasonable 
efforts to provide each other with a reasonable opportunity to review and 
comment on any such announcement.

11.3  Parent Option.  (a)  Parent and/or Seller shall have the right to 
purchase up to an aggregate of 19.9% of the Holdings Common Stock immediately 
prior to the Closing for a per share purchase price equal to the per share 
purchase price paid or payable by other stockholders of Holdings on or prior 
to the Closing Date, provided that if investment partnerships affiliated with 
KKR shall have invested, as of the Closing Date, in a corporation which 
wholly-owns Holdings (rather than investing directly in Holdings), references 
to "Holdings Common Stock" in this Section 11.3, Sections 5.3, 5.7(b) and 9.3 
and clause (b) of the definition of "Securities" contained in Section 1.1 
shall be deemed to be references to the common stock of such corporation and 
references to "Holdings" and "New Talegen Holdings Corporation" in Section 9.3 
shall be deemed to be references to such corporation.  Parent and/or Seller 
shall pay the aggregate purchase price for any shares to be purchased pursuant 
to this Section in cash, payable by wire transfer in immediately available 
funds to an account which Buyer shall designate in writing to Parent no less 
than two business days prior to the Closing Date.  To exercise such right, 
Parent and/or Seller must deliver irrevocable written notice to Buyer within 
45 days from the date hereof which indicates the percentage interest (after 
giving effect to its purchase) of Holdings Common Stock that Parent and/or 
Seller desire to purchase hereunder, but not to exceed an aggregate of 19.9% 
(which irrevocable notice shall bind Parent, subject to the last sentence of 
this Section, to make such purchase on the Closing Date).  No such notice 
shall be effective unless Parent and/or Seller concurrently delivers a notice 
under Section 11.3 of the TRG Agreement which indicates Parent's and/or 
Seller's election to purchase the same aggregate percentage interest in the 
securities covered by the election thereunder that Parent and/or Seller elect 
to purchase hereunder.  Notwithstanding the foregoing, if this Agreement is 
terminated pursuant to Section 11.1, Parent and Seller shall cease to have the 
right to purchase Holdings Common Stock hereunder, whether or not their rights 
had been previously exercised, and any notice which shall have been delivered 
pursuant to this Section shall be void and of no effect.

(b)  Any Holdings Common Stock purchased by Parent and/or Seller pursuant to 
paragraph (a) above shall be subject to the terms and conditions set forth in 
Exhibit M.

11.4  Assignment.  Neither this Agreement nor any of the rights or obligations 
hereunder may be assigned by Parent or Seller without the prior written 
consent of Holdings or Buyer, or by Holdings or Buyer without the prior 
written consent of Parent or Seller.  Subject to the foregoing, this Agreement 
shall be binding upon and inure to the benefit of the parties hereto and their 
respective successors and assigns, and no other Person shall have any right, 
benefit or obligation hereunder.

11.5  Notices.  Unless otherwise provided herein, any notice, request, 
instruction or other document to be given hereunder by any party to the others 
shall be in writing and delivered in Person or by courier or facsimile 
transmission or mailed by certified mail, postage prepaid, return receipt 
requested (such mailed notice to be effective on the date such receipt is 
acknowledged), as follows:

If to Parent or Seller:

Xerox Financial Services, Inc.
100 First Stamford Place
Stamford, Connecticut  06904-2347
Attn:  Stuart B. Ross
       Chairman & Chief Executive
       Officer 
Fax:   (203) 325-6822

       and

Xerox Corporation
800 Long Ridge Road
Stamford, Connecticut  06904
Attn:  Richard Paul, Esq.
       General Counsel
Fax:   (203) 968-3446

    With a copy to:

Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York  10022
Attn:  Lou R. Kling, Esq. and
       Peter Allan Atkins, Esq.
Fax:   (212) 735-2000

If to Holdings or Buyer:

New Talegen Holdings Corporation
c/o Kohlberg Kravis Roberts & Co.
2800 Sand Hill Road, Suite 200
Menlo Park, California  94025
Attn:  Saul A. Fox
Fax:  (415) 233-6594

       With copies to:

Joseph W. Brown
Talegen Holdings, Inc.
Waterfront Center One
1011 Western Avenue, Suite 1000
Seattle, Washington  98101
Fax:  (206) 654-2633

Gary I. Horowitz, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York  10017
Fax:  (212) 455-2502

or to such other place and with such other copies as either party may 
designate as to itself by written notice to the others.

11.6  Choice of Law.  This Agreement shall be construed, interpreted and the 
rights of the parties determined in accordance with the internal laws of the 
State of New York, without regard to the conflict of law principles thereof.  

11.7  Entire Agreement; Amendments and Waivers.  This Agreement, together with 
the Ancillary Agreements and the Confidentiality Agreement (except to the 
extent superseded hereby), constitutes the entire agreement among the parties 
pertaining to the subject matter hereof and supersedes all prior agreements, 
understandings, negotiations and discussions, whether oral or written, of the 
parties.  No supplement, modification or waiver of this Agreement (including, 
without limitation, any Schedule hereto) shall be binding unless executed in 
writing by all parties.  No waiver of any of the provisions of this Agreement 
shall be deemed or shall constitute a waiver of any other provision hereof 
(whether or not similar), nor shall such waiver constitute a continuing waiver 
unless otherwise expressly provided.  With respect to breaches of any 
representation, warranty or covenant contained herein, unless this Agreement 
shall have been terminated pursuant to Section 11.1, the sole remedy of the 
parties against each other shall be the indemnification rights set forth in 
Section 10.2.

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

11.9  Invalidity.  In the event that any one or more of the provisions 
contained in this Agreement or in any other instrument referred to herein, 
shall, for any reason, be held to be invalid, illegal or unenforceable in any 
respect, such invalidity, illegality or unenforceability shall not affect any 
other provision of this Agreement or any other such instrument.

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

11.11  Expenses.  Subject to Section 11.1, Seller and Buyer will each be 
liable for its own costs and expenses incurred in connection with the 
negotiation, preparation, execution or performance of this Agreement.  

11.12  [Intentionally Omitted].  

11.13  Joint and Several.  (a)  All covenants, representations and warranties 
made by Parent or Seller in this Agreement shall be deemed to be joint and 
several covenants, representations and warranties of Parent and Seller.

(b)  All covenants, representations and warranties made by Holdings or Buyer 
in this Agreement shall be deemed to be joint and several covenants, 
representations and warranties of Holdings and Buyer.

11.14  No Third Party Beneficiaries. This Agreement shall inure exclusively to 
the benefit of and be binding upon the parties hereto and their respective 
successors, assigns, executors and legal representatives.  Except as expressly 
provided in Section 10.2, nothing in this Agreement, express or implied, is 
intended to confer on any Person other than the parties hereto or their 
respective successors and assigns, any rights, remedies, obligations or 
liabilities under or by reason of this Agreement.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have 
caused this Agreement to be duly executed on their respective behalf by their 
respective officers thereunto duly authorized, as of the day and year first 
above written.


XEROX CORPORATION

 /s/ Stuart B. Ross
Name:  Stuart B. Ross
Title: Executive Vice President


XEROX FINANCIAL SERVICES, INC.

 /s/ Stuart B. Ross
Name:  Stuart B. Ross
Title: Chairman, President and Chief Executive Officer


NEW TALEGEN HOLDINGS CORPORATION

 /s/ Saul A. Fox
Name:  Saul A. Fox
Title: President and Chief Executive Officer


TALEGEN ACQUISITION CORPORATION

 /s/ Saul A. Fox
Name:  Saul A. Fox
Title: President and Chief Executive Officer







                                                                 Exhibit 10(p)






                              STOCK PURCHASE AGREEMENT



                             dated as of January 17, 1996


                                      among


                                XEROX CORPORATION



                          XEROX FINANCIAL SERVICES, INC.


                                       and



                          TRG ACQUISITION CORPORATION
































                               TABLE OF CONTENTS

                                                                       Page

                                   ARTICLE I

                                  DEFINITIONS

1.1   Defined Terms                                                    1
1.2   Other Defined Terms                                              7
1.3   Other Definitional Provisions                                    8

                                  ARTICLE II

                 PURCHASE AND SALE OF STOCK AND CLASS 2 STOCK

2.1   Transfer of Stock                                                8
2.2   Consideration for Stock                                          8
2.3   Adjustments                                                      8

                                  ARTICLE III

                                    CLOSING

3.1  Closing                                                           9
3.2  Documents to be Delivered                                         9

                                  ARTICLE IV

              REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER

4.1   Organization of Seller and Parent                               10
4.2   Organization of the Company                                     10
4.3   Capital Stock                                                   10
4.4   Authorization                                                   11
4.5   Subsidiaries                                                    11
4.6   Ridge Re                                                        13
4.7   Absence of Certain Changes or Events                            13
4.8   Title to Assets, Etc.                                           17
4.9   Contracts and Commitments                                       17
4.10  No Conflict or Violation                                        18
4.11  Consents and Approvals                                          19
4.12  Financial Statements                                            20
4.13  Litigation                                                      21
4.14  Liabilities                                                     21
4.15  Investments                                                     22
4.16  Reserves                                                        22
4.17  Compliance with Law; Permits; Regulatory Matters                22
4.18  No Brokers                                                      24
4.19  No Other Agreements to Sell the Assets or the Company           24
4.20  Proprietary Rights                                              24
4.21  Employee Benefit Plans                                          25
4.22  Employment-Related Matters                                      28
4.23  Transactions with Certain Persons                               28
4.24  Taxes
                                                           29
4.25  Reinsurance and Retrocessions                                   30
4.26  1992/93 Restructuring                                           30
4.27  Capital Commitments                                             31
4.28  Environmental Laws                                              31
4.29  Acquisition for Investment                                      31

                                 ARTICLE V

                   REPRESENTATIONS AND WARRANTIES OF BUYER

5.1   Organization of Buyer                                           32
5.2   Authorization                                                   32
5.3   No Conflict or Violation                                        32
5.4   No Brokers                                                      33
5.5   Acquisition for Investment                                      33
5.6   Organizational Documents                                        33
5.7   Capitalization of Buyer                                         33
5.8   Consents and Approvals                                          34
5.9   Financial Obligations                                           34
5.10  Solvency                                                        34

                                ARTICLE VI

         ACTIONS BY PARENT, SELLER AND BUYER PRIOR TO THE CLOSING

6.1   Maintenance of Business and Preservation of Permits 
      and Services                                                    34
6.2   Additional Financial Statements                                 35
6.3   Certain Prohibited Transactions                                 35
6.4   Investigation by Buyer                                          36
6.5   Consents                                                        36
6.6   Notification of Certain Matters                                 37
6.7   No Solicitations                                                37
6.    Cooperation; Accounting and Other Matters                       38
6.9   Investment Portfolio                                            38
6.10  Reinsurance Agreements                                          38
6.11  Dividends                                                       39
6.12  Seller Notes                                                    39
6.13  Leesburg Training Facility                                      39
6.14  Cessions to Ridge Re                                            40
6.15  Restated Certificate of Incorporation                           40
6.16  Certain Admitted Assets                                         40
6.17  Intercompany Accounts                                           40
6.18  Financing                                                       41
6.19  Letter Agreement                                                41

                                ARTICLE VII

               CONDITIONS TO OBLIGATIONS OF PARENT AND SELLER

7.1   Representations, Warranties and Covenants                       41
7.2   HSR Act                                                         42
7.3   No Governmental or Other Proceeding; Illegality                 42
7.4   Consents                                                        42
7.5   Opinion of Counsel                                              42
7.6   Certificates                                                    43
7.7   Corporate Documents                                             43
7.8   Talegen Closing                                                 43
7.9   Restated Certificate of Incorporation                           43
7.10  Solvency Matters                                                43
7.11  Capitalization                                                  43
7.12  Company Certificates                                            43
7.13Subsidiary Releases                                               43

                                ARTICLE VIII

                    CONDITIONS TO OBLIGATIONS OF BUYER

8.1   Representations, Warranties and Covenants                       44
8.2   Consents                                                        44
8.3   HSR Act                                                         45
8.4   No Governmental or Other Proceeding; Illegality                 45
8.5   Opinion of Counsel                                              45
8.6   Certificates                                                    45
8.7   Corporate Documents                                             45
8.8   Talegen Closing                                                 46
8.9   Financing                                                       46
8.10  No Material Adverse Effect                                      46
8.11  Resignation of Officers and Directors                           46
8.12  Transfer Taxes                                                  46
8.13  Seller Notes                                                    46
8.14  Leesburg Training Facility Amount                               46
8.15  Guarantees                                                      46
8.16  Management Investment                                           46

                                ARTICLE IX

           ACTIONS BY PARENT, SELLER, AND BUYER AFTER THE CLOSING

9.1   Books and Records                                               47
9.2   Covenants Regarding the Securities                              47
9.3   Crostex/Camfex Purchase Money Notes                             48
9.4   Certain Employee Benefit Matters                                48
9.5   Transfer Taxes                                                  49
9.6   Ridge Re                                                        49
9.7   Further Assurances                                              49

                                ARTICLE X

                              INDEMNIFICATION

10.1   Survival of Representations and Warranties                     49
10.2   Indemnification                                                50
10.3   Indemnification Procedures                                     52
10.4   Insurance Proceeds and Tax Limitations                         53
10.5   Tax Indemnification                                            54

                               ARTICLE XI

                              MISCELLANEOUS

11.1   Termination                                                    54
11.2   Confidentiality                                                55
11.3   Parent Option                                                  56
11.4   Assignment                                                     56
11.5   Notices                                                        57
11.6   Choice of Law                                                  58
11.7   Entire Agreement; Amendments and Waivers                       58
11.8   Counterparts                                                   58
11.9   Invalidity                                                     58
11.10  Headings                                                       58
11.11  Expenses                                                       58
11.12  [Intentionally Omitted].                                       59
11.13  Joint and Several                                              59
11.14  No Third Party Beneficiaries                                   59


                                 Exhibits

Exhibit A     Investment Policy
Exhibit B     Form of Restated Certificate of Incorporation of Buyer
Exhibit C     Form of Letter Agreement
Exhibit D-1   Form of Opinion of Simpson Thacher & Bartlett
Exhibit D-2   Form of Opinion of King & Spalding
Exhibit E     Form of Company Certificates
Exhibit F     Form of Insurance Subsidiary Releases
Exhibit G-1   Form of Opinion of Skadden, Arps, Slate, Meagher & Flom
Exhibit G-2   Form of Opinion of Richard S. Paul
Exhibit G-3   Form of Opinion of Bruce Shulin
Exhibit G-4   Form of Opinion of Richard N. Frasch
Exhibit G-5   Form of Opinion of LeBoeuf, Lamb, Greene & MacRae
Exhibit H     Form of Parent Guarantee
Exhibit I     Form of Parent and Seller Guarantee
Exhibit J     Term Sheet for Class 1 Stock  










                            STOCK PURCHASE AGREEMENT


STOCK PURCHASE AGREEMENT dated as of January 17, 1996 among Xerox Corporation, 
a New York corporation ("Parent"), Xerox Financial Services, Inc., a Delaware 
corporation and a wholly-owned subsidiary of Parent ("Seller"), and TRG 
Acquisition Corporation, a Delaware corporation ("Buyer").


                                   RECITALS

Seller is the beneficial and record owner of 1,000 shares of common stock, par 
value $1.00 per share, of The Resolution Group, Inc., a Delaware corporation 
(the "Company"), constituting all of the issued and outstanding capital stock 
(the "Stock") of the Company.

Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, 
all of the Stock subject to the terms and conditions of this Agreement.

Parent is the sole stockholder of Seller and desires that Seller sell to Buyer 
all of the Stock, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements 
contained herein and for other good and valuable consideration the receipt and 
adequacy of which are hereby acknowledged, the parties hereto agree as 
follows:

                                  ARTICLE I

                                 DEFINITIONS

1.1  Defined Terms.  As used herein, the terms below shall have the following 
meanings:

"Affiliate" shall mean a Person that directly or indirectly through one or 
more intermediaries controls, is controlled by or is under common control with 
the Person specified.  For purposes of this definition and the definition of 
"Subsidiary" set forth below, the term "control" (including the terms 
"controlling," "controlled by" and "under common control with") of a Person 
means the possession, direct or indirect, of the power to (i) vote 50% or more 
of the voting securities of such Person or (ii) direct or cause the direction 
of the management and policies of such Person, whether by contract or 
otherwise.

"Agreement" shall mean this Stock Purchase Agreement (together with all 
schedules and exhibits referenced herein), as amended, modified or 
supplemented from time to time.

"Ancillary Agreements" shall mean, collectively, the Guarantees and the Tax 
Agreement.

"Balance Sheet Date" shall mean June 30, 1995.

"Cash Equivalents" shall mean (a) securities with maturities of one year or 
less from the date of acquisition issued or fully guaranteed or insured by the 
United States Government or any agency thereof, (b) certificates of deposit 
and eurodollar time deposits with maturities of one year or less from the date 
of acquisition and overnight bank deposits of any commercial bank having 
capital and surplus in excess of $500,000,000, (c) repurchase obligations of 
any commercial bank satisfying the requirements of clause (b) of this 
definition, having a term of not more than 30 days with respect to securities 
issued or fully guaranteed or insured by the United States government, (d) 
commercial paper of a domestic issuer rated at least A-2 by S&P or P-2 by 
Moody's, (e) securities with maturities of one year or less from the date of 
acquisition issued or fully guaranteed by any state, commonwealth or territory 
of the United States, by any political subdivision or taxing authority of any 
such state, commonwealth or territory or by any foreign government, the 
securities of which state, commonwealth, territory, political subdivision, 
taxing authority or foreign government (as the case may be) are rated at least 
A by S&P or A by Moody's, (f) securities with maturities of one year or less 
from the date of acquisition backed by standby letters of credit issued by any 
commercial bank satisfying the requirements of clause (b) of this definition 
or (g) shares of money market mutual or similar funds which invest exclusively 
in assets satisfying the requirements of clauses (a) through (f) of this 
definition.

"Class 1 Stock" shall mean the Class 1 Stock having the terms set forth in the 
Restated Certificate of Incorporation.

"Class 2 Stock" shall mean the Class 2 Stock having the terms set forth in the 
Restated Certificate of Incorporation.

"Closing Date" shall mean the date on which the Closing occurs.

"Code" shall have the meaning ascribed in the Tax Agreement.

"Company GAAP Financial Statements" shall mean the audited Consolidated 
Balance Sheets of the Company (or its predecessors) as of December 31, 1994 
and 1993 and the Consolidated Statements of Operations, Consolidated 
Statements of Shareholder's Equity and Consolidated Statements of Cash Flows 
of the Company (or its predecessors) for each of the three fiscal years 
included in the three-year period ended December 31, 1994, prepared in 
accordance with GAAP, together with the notes thereon and the related reports 
of KPMG Peat Marwick LLP.

"Company Interim Financial Statements" shall mean the unaudited Consolidated 
Balance Sheets and the unaudited Consolidated Statements of Operations, 
Consolidated Statements of Shareholder's Equity and Consolidated Statements of 
Cash Flows of the Company for the nine-month periods ended September 30, 1994 
and 1995, together with the notes thereon.

"Contracts" shall mean all agreements, contracts, commitments and undertakings 
(other than contracts of insurance or reinsurance or retrocession agreements) 
to which the Company or any of the Subsidiaries is a party, an obligor or a 
beneficiary and (i) the performance or non-performance of which is 
individually or, with respect to any related series of agreements, in the 
aggregate, material to the Company and the Subsidiaries, taken as a whole, or 
(ii) which provide for an aggregate purchase price or payments of more than 
$1,000,000 under any agreement during any two-year period (or $1,000,000 in 
the aggregate, during any two-year period, in the case of any related series 
of agreements).

"Convention Statements" shall mean (i) the annual convention statements and 
the quarterly statement of each Insurance Subsidiary as filed with the 
insurance regulatory authorities in its jurisdiction of domicile for the years 
ended December 31, 1992, 1993 and 1994 and for the quarterly period ended 
September 30, 1995, and (ii) the annual convention statements of Ridge Re as 
filed with the insurance regulatory authorities in Bermuda for the period from 
December 14, 1992 to December 31, 1993 and for the year ended December 31, 
1994.

"Crostex/Camfex Contracts" shall mean all contracts, agreements or 
arrangements of the Company or any Subsidiary relating to the real property 
and improvements located at (i) 255 California Street, San Francisco, 
California, (ii) 5724 W. Los Positos Blvd., Pleasonton, California, (iii) 299 
Madison Avenue, Morris Township, New Jersey, (iv) 305 Madison Avenue, Morris 
Township, New Jersey and (v) 4040 North Central Expressway, Dallas, Texas, 
including, without limitation, any notes held by the Company or any Subsidiary 
(the "Crostex/Camfex Purchase Money Notes").

"Encumbrances" shall mean any claim, lien (statutory or other), pledge, 
option, charge, easement, security interest, right-of-way, encroachment, 
encumbrance, mortgage, or other rights of third parties.

"Environmental Laws" shall mean any and all applicable Federal, state or local 
laws or regulations relating to the protection of the environment or of human 
health as it may be affected by the environment. 

"Environmental Permit" shall mean any license, permit, order, consent, 
approval, registration, authorization, qualification or filing required under 
any Environmental Law.
"Environmental Report" shall mean any report, study, assessment, audit, or 
other similar document that addresses any issue of actual or potential 
noncompliance with, or actual or potential liability under, any Environmental 
Law that may in any way affect the Company or any Subsidiary other than to the 
extent such document addresses any issue of actual or potential noncompliance 
with, or actual or potential liability under, any Environmental Law by reason 
of any policy of insurance, reinsurance, indemnity, guaranty or assumption of 
liability of any party entered into by the Company or any Insurance 
Subsidiary.

"Excluded Activities" shall mean, with respect to the Company and the 
Subsidiaries, activities relating to insurance reserves, claims under, related 
to or in respect of insurance policies or any disputes related thereto, loss 
adjustments and loss adjustment expenses and reinsurance receivables, 
provided, however, that "Excluded Activities" shall not be deemed to include 
any (i) of the matters covered by the representations contained in Section 
4.6, 4.9(c), 4.12 (to the extent it applies to Ridge Re) or 4.26 or other 
representations regarding Ridge Re or the Ridge Re Treaty or (ii) actions, 
suits, proceedings or claims pending by any governmental or regulatory 
authority to the extent based upon a violation of any law, statute, ordinance, 
rule or regulation.

"GAAP" shall mean generally accepted accounting principles in the United 
States of America in effect from time to time.

"Guarantees" shall mean the guarantees referred to in Section 8.15.

"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 
as amended.

shall mean International Insurance Company, an Illinois corporation.

"Information Returns" shall have the meaning ascribed in the Tax Agreement.

"Insurance Subsidiaries" shall mean the Subsidiaries listed on Schedule 1.1A.

"Investment Policy" shall mean, with respect to certain Subsidiaries, the 
policy for each such Subsidiary set forth on Exhibit A.

"KKR" shall mean Kohlberg Kravis Roberts & Co.

"Knowledge of Seller" shall mean (i) with respect to matters relating to 
Parent or Seller, actual knowledge of any officer of Parent, Seller or Ridge 
Re set forth in Schedule 1.1B, and (ii) with respect to any matters relating 
to the Company or any Subsidiary, actual knowledge of any such officer of 
Parent or Seller, or the actual knowledge of the persons set forth in Schedule 
1.1C.

"Material Adverse Effect" with respect to any Person shall mean a material 
adverse effect on the business, financial condition, assets or operations of 
such Person, but shall exclude any effect resulting from general economic 
conditions.

"Materials of Environmental Concern" shall mean any waste, pollutant, or 
contaminant or substance (including, without limitation, petroleum or 
petroleum products, asbestos or asbestos-containing materials, urea-
formaldehyde insulation, polychlorinated biphenyls, odors, radioactivity, and 
electro-magnetic fields) regulated by or under, or which may otherwise give 
rise to liability under, any Environmental Law.

"Moody's" shall mean Moody's Investors Service, Inc.

Restructuring" shall mean the restructuring of Talegen and its subsidiaries 
(including, without limitation, the Company and IIC) pursuant to the 
Restructuring Agreement dated as of September 3, 1993 among Seller, Ridge Re, 
Talegen and certain of its subsidiaries.

"Permits" shall mean all licenses, permits, orders, consents, approvals, 
registrations, authorizations, qualifications and filings with and under all 
Federal, state, local or foreign laws and governmental or regulatory bodies 
and all industry or other non-governmental self-regulatory organizations 
(including, without limitation, Environmental Permits).

"Person" shall mean an individual, a partnership, a joint venture, a 
corporation, a business trust, a limited liability company, a trust, an 
unincorporated organization, a government or any department or agency thereof 
or any other entity.  

"Qualified Transferee" shall mean a corporation (or the wholly-owned direct or 
indirect subsidiary thereof) which, as of the date of the consummation of a 
sale pursuant to Section 9.6, is an insurance company engaged in the business 
of reinsurance and has at least $2 billion in assets and a rating of "A+" or 
better by A.M. Best & Co.

"Restated Certificate of Incorporation" shall mean the restated certificate of 
incorporation of Buyer in the form of Exhibit B, with such additional 
ministerial changes as do not adversely affect the holders of Class 2 Stock.

"Ridge Re" shall mean Ridge Reinsurance Limited, a Bermuda corporation and a 
wholly-owned subsidiary of Seller.

"Ridge Re GAAP Financial Statements" shall mean the audited Consolidated 
Balance Sheets of Ridge Re as of December 31, 1994 and 1993 and the related 
Statements of Operations and Retained Earnings and Cash Flows for the year 
ended December 31, 1994 and the period from December 14, 1992 to December 31, 
1993, prepared in accordance with GAAP, together with the notes thereon and 
the related reports of KPMG Peat Marwick LLP.

"Ridge Re Interim Financial Statements" shall mean the unaudited Consolidated 
Balance Sheet of Ridge Re as of September 30, 1995, and the related Statements 
of Operations and Retained Earnings for the nine-month periods ended September 
30, 1994 and September 30, 1995.

"Ridge Re Treaty" shall mean the agreement, as amended by Endorsement No. 1 
thereto, contained in Schedule 1.1D. 

shall mean Standard and Poor's Rating Group.

"Securities"  shall mean (a) the Class 2 Stock and (b) any shares of Class 1 
Stock purchased by Seller in accordance with Section 11.3.

"Statutory Accounting Principles" shall mean, as applied to any Subsidiary, 
the statutory accounting practices prescribed or permitted by the jurisdiction 
of domicile of such Subsidiary.

"Subsidiaries" shall mean all corporations, partnerships, joint ventures or 
other entities which the Company controls, directly or indirectly through one 
or more intermediaries.  See definition of "Affiliate" in this Section 1.1 for 
the meaning of "control."

"Talegen" shall mean Talegen Holdings, Inc., a Delaware corporation.

"Talegen Acquisition" shall mean Talegen Acquisition Corporation, a Delaware 
corporation.

"Talegen Agreement" shall mean the Stock Purchase Agreement dated as of the 
date hereof among Parent, Seller, New Talegen Holdings Corporation, a Delaware 
corporation, and Talegen Acquisition as amended, modified or supplemented from 
time to time, which contemplates that Talegen Acquisition will purchase all of 
the outstanding capital stock of Talegen from Seller, subject to the terms and 
conditions thereof.

"Tax Agreement" shall mean the Tax Allocation and Indemnification Agreement 
dated as of the date hereof among Parent, Seller, the Company and Buyer.

"Tax Returns" shall have the meaning ascribed in the Tax Agreement.

"Taxes" shall have the meaning ascribed in the Tax Agreement.

"Third Party Amount" shall mean any amount paid by the transferee (which may 
be Seller or any of its Affiliates (other than the Company or any Subsidiary)) 
to the Company or the Subsidiaries of all or a portion of the Seller Notes or 
Leesburg Training Facility, as the case may be, pursuant to Sections 6.12 or 
6.13.

"Third Party Expenses" shall mean all expenses paid or payable by Buyer to 
other Persons in connection with the transactions contemplated by this 
Agreement, the Ancillary Agreements and the Financing Documents other than 
expenses contingent upon a payment to Buyer or which are not payable unless 
there has been a breach of this Agreement by Parent, Seller, the Company or 
any Subsidiary, but shall in no event include any amount payable to KKR or its 
Affiliates (other than to Am-Re Consultants, Inc. in connection with reserve 
analyses) or any officer, director or employee of the Company or the 
Subsidiaries.

"Transaction Expenses" shall mean (i) a $5 million transaction fee payable by 
Buyer to an Affiliate of KKR, (ii) all fees and expenses of third party 
advisors to Buyer and of Buyer's financing sources in connection with the 
transactions contemplated by this Agreement, the Ancillary Agreements and the 
Financing Documents and (iii) all fees and expenses incurred by Buyer in 
connection with satisfying the conditions precedent in Article VIII, certified 
in good faith by Buyer to Seller.

1.2  Other Defined Terms.  The following terms shall have the meanings defined 
for such terms in the Sections set forth below:

Term                                                     Section

"Actions"                                                  4.13
"Assets"                                                   4.18 
"Closing"                                                  3.1
"Company Plans"                                            4.21
"Confidentiality Agreement"                                6.4
"Crostex/Camfex Purchase Money Notes"                      1.1
"Damages"                                                  10.2
"ERISA"                                                    4.21
"ESOP"                                                     9.4
"Exchange Act"                                             4.11
"Financing"                                                5.3
"Financing Documents"                                      5.3
"Indemnitor"                                               10.3
"Intellectual Property"                                    4.20
"Leesburg Training Facility Amount"                        6.13
"Leesburg Training Facility"                               6.13
"Liabilities"                                              4.14
"Long Term Incentive Program"                              9.4
"Notice"                                                   10.3
"Personnel"                                                4.13
"Section 4.5 Subsidiaries"                                 4.5
"Securities Act"                                           4.3
"Seller Notes"                                             4.23
"TRG Incentive Plans"                                      9.4


1.3  Other Definitional Provisions.  (a) The words "hereof", "herein" and 
"hereunder" and words of similar import when used in this Agreement shall 
refer to this Agreement as a whole and not to any particular provision of this 
Agreement, and Section, Schedule and Exhibit references are to this Agreement 
unless otherwise specified.

(b)  The meanings given to terms defined herein shall be equally applicable to 
both the singular and plural forms of such terms.

                           ARTICLE II

            PURCHASE AND SALE OF STOCK AND CLASS 2 STOCK


2.1  Transfer of Stock.  Upon the terms and subject to the conditions 
contained herein, Seller will sell, convey, transfer, assign and deliver to 
Buyer, and Buyer will acquire from Seller on the Closing Date, all of the 
Stock for the consideration set forth in Section 2.2.

2.2  Consideration for Stock.  Upon the terms and subject to the conditions 
contained herein, as consideration for the purchase of the Stock, on the 
Closing Date Buyer will (i) pay to Seller cash in an amount equal to 
$150,000,000, payable by wire transfer in immediately available funds to an 
account which Seller will designate in writing to Buyer no less than two 
business days prior to the Closing Date, subject to adjustment as described in 
Section 2.3, and (ii) issue and deliver to Seller Class 2 Stock with an 
aggregate liquidation value of $462,000,000.

2.3  Adjustments.  The amount of cash payable by Buyer pursuant to Section 2.2 
will be reduced by an amount equal to the Transaction Expenses.

                               ARTICLE III

                                 CLOSING

3.1  Closing.  The closing of the transactions contemplated herein (the 
"Closing") shall take place as soon as practicable but in no event later than 
five business days after satisfaction or waiver of the conditions set forth in 
Articles VII and VIII, and shall be held at 9:00 a.m. local time on the 
Closing Date at the offices of Simpson Thacher & Bartlett, 425 Lexington 
Avenue, New York, New York 10017, unless the parties hereto otherwise agree.  
The parties agree that the effective time of the Closing for Federal income 
tax purposes shall be at the close of business on the Closing Date.

3.2  Documents to be Delivered.  To effect the transfer referred to in Section 
2.1 and the delivery of the consideration described in Section 2.2 hereof, 
Seller and Buyer shall, on the Closing Date, deliver the following:

(a)  Seller shall deliver to Buyer certificate(s) evidencing the Stock, free 
and clear of any Encumbrances of any nature whatsoever (except Encumbrances 
arising as a result of any action taken by Buyer or any of its Affiliates), 
duly endorsed in blank for transfer or accompanied by stock powers duly 
executed in blank.

(b)  Buyer shall deliver to Seller immediately available funds as provided in 
Section 2.2.

(c)  Buyer shall deliver to Seller certificate(s) evidencing Class 2 Stock as 
provided in Section 2.2, free and clear of any Encumbrances of any nature 
whatsoever (except Encumbrances arising as a result of any action taken by 
Seller or any of its Affiliates) in the form of one or more certificates in 
the name of Seller or its designee as Seller may require.

(d)  Seller and Buyer shall each deliver all documents required to be 
delivered pursuant to Articles VII and VIII.

(e)  All instruments and documents executed and delivered to Buyer pursuant 
hereto shall be in form and substance, and shall be executed in a manner, 
reasonably satisfactory to Buyer.  All instruments and documents executed and 
delivered to Seller pursuant hereto shall be in form and substance, and shall 
be executed in a manner, reasonably satisfactory to Seller.

                                ARTICLE IV

             REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER

Parent and Seller hereby represent and warrant to Buyer as follows:

4.1  Organization of Seller and Parent.  Seller is duly organized, validly 
existing and in good standing under the laws of the State of Delaware and has 
full corporate power and authority to conduct its business as it is presently 
being conducted and to own the Stock.  Parent is 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 conduct its business as it is presently 
being conducted.

4.2  Organization of the Company.  The Company is duly organized, validly 
existing and in good standing under the laws of the State of Delaware and has 
full corporate power and authority to conduct its business as it is presently 
being conducted and to own, lease and operate its properties and assets.  The 
Company is duly qualified or otherwise authorized as a foreign corporation to 
conduct the business conducted by it and is in good standing in each 
jurisdiction in which such qualification or authorization is necessary under 
the applicable law and where the failure to be so qualified or otherwise 
authorized, individually or in the aggregate, would have a Material Adverse 
Effect on the Company and the Subsidiaries, taken as a whole.  Seller has 
provided to Buyer a complete and correct copy of the certificate of 
incorporation, bylaws and other organizational documents of the Company and 
the minute books of the Company.  The Company's minute books include copies of 
minutes of all meetings of the directors or shareholders of the Company held 
on or after January 1, 1993 and complete and accurate copies of all 
resolutions passed by the directors or actions by written consent of the 
shareholders on or after January 1, 1993.

4.3  Capital Stock.  The Company has authorized 1,000 shares of common stock, 
$1.00 par value, 1,000 shares of which are issued and outstanding, and no 
shares of any other class or series of capital stock are authorized, issued or 
outstanding.  All of the shares of the Stock have been duly and validly 
authorized and issued, and are fully paid and nonassessable.   Seller owns of 
record and beneficially all of the Stock free and clear of all Encumbrances, 
including without limitation, any agreement, understanding or restriction 
affecting the voting rights or other incidents of record or beneficial 
ownership pertaining to the Stock; provided that Parent and Seller make no 
representation in this sentence regarding the ability of Seller to transfer or 
otherwise dispose of such Stock without registration or qualification under, 
or in compliance with, applicable Federal or state securities laws to a Person 
who is not an "accredited investor" (as defined in Rule 501 of Regulation D 
under the Securities Act of 1933, as amended (the "Securities Act")) or 
without compliance with applicable insurance laws.  There are no 
subscriptions, options, warrants, calls, commitments, preemptive rights or 
other rights of any kind outstanding for the purchase of, nor any securities 
convertible or exchangeable for, any equity interests of the Company.  There 
are no restrictions upon the voting or transfer of any shares of the Stock 
pursuant to the Company's Certificate of Incorporation or Bylaws or any 
agreement or other instrument to which the Company, Talegen or Seller is a 
party or by which the Company, Talegen or Seller is bound.  Upon consummation 
of the transactions contemplated by this Agreement, Buyer will acquire from 
Seller good and marketable title to such Stock, free and clear of all 
Encumbrances, except Encumbrances arising as a result of any action taken by 
Buyer or any of its Affiliates; provided that Parent and Seller make no 
representation regarding the ability of any Person other than Seller to 
transfer or otherwise dispose of such Stock without registration or 
qualification under, or in compliance with, applicable Federal securities or 
state securities or insurance laws.

4.4  Authorization.  Each of Parent and Seller has all necessary corporate 
power and authority to enter into this Agreement and the Ancillary Agreements 
to which it is or will be a party, and has taken all corporate action 
necessary to consummate the transactions contemplated hereby and thereby and 
to perform its obligations hereunder and thereunder.  This Agreement and the 
Tax Agreement have each been duly executed and delivered by each of Seller and 
Parent.  Assuming the due execution of this Agreement and the Tax Agreement by 
Buyer, each of this Agreement and the Tax Agreement is a legal, valid and 
binding obligation of each of Seller and Parent enforceable in accordance with 
its terms, subject to the effects of bankruptcy, insolvency, fraudulent 
conveyance, reorganization, moratorium and other similar laws relating to or 
affecting creditors' rights generally, general equitable principles (whether 
considered in a proceeding in equity or at law) and an implied covenant of 
good faith and fair dealing.  Subject to the occurrence of the Closing, the 
Guarantees will be duly executed and delivered by Parent and Seller, as 
applicable, on the Closing Date.  Upon execution and delivery by Parent or 
Seller, as the case may be, each Guarantee will be a legal, valid and binding 
obligation of such Person enforceable in accordance with its terms, subject to 
the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, 
moratorium and other similar laws relating to or affecting creditors' rights 
generally, general equitable principles (whether considered in a proceeding in 
equity or at law) and an implied covenant of good faith and fair dealing. 

4.5  Subsidiaries.  Schedule 4.5 sets forth a complete and accurate list of 
all of the Subsidiaries, other than Subsidiaries which are not Insurance 
Subsidiaries and which do not hold any assets (including capital stock) with a 
fair market value in excess of $1,000 or insurance licenses (the "Section 4.5 
Subsidiaries").  Schedule 4.5 also contains the jurisdiction of incorporation 
or formation of each of the Section 4.5 Subsidiaries, each jurisdiction in 
which such Subsidiary is licensed, qualified or otherwise authorized to 
conduct insurance business, the number of shares of capital stock of any 
Section 4.5 Subsidiary which is a corporation issued and outstanding and the 
percentage ownership interest of the Company in each such Subsidiary.  All 
outstanding shares of capital stock of such Subsidiaries have been duly and 
validly authorized and are fully paid and nonassessable.  All such outstanding 
shares are owned by the Company and/or one or more of its Subsidiaries free 
and clear of any Encumbrances, including, without limitation, any agreement, 
understanding or restriction affecting the voting rights or other incidents of 
record or beneficial ownership pertaining to such shares; provided that Parent 
and Seller make no representation in this sentence regarding the ability of 
Seller to transfer or otherwise dispose of such shares without registration or 
qualification under, or in compliance with, applicable Federal securities or 
state securities laws to a Person who is not an "accredited investor" (as 
defined in Rule 501 under the Securities Act) or without compliance with 
applicable insurance laws.  There are no subscriptions, options, warrants, 
calls, commitments, preemptive rights or other rights of any kind outstanding 
for the purchase of, nor any securities convertible or exchangeable for, any 
equity interests of any of the Section 4.5 Subsidiaries.  Schedule 4.5 
contains true and complete copies of all agreements and other instruments 
pursuant to which the Company or any Section 4.5 Subsidiary is obligated or 
required, under any circumstance, to make contributions to the capital of any 
Subsidiary.  Each of the Insurance Subsidiaries is a corporation duly 
licensed, organized, validly existing and in good standing under the 
jurisdiction of its organization and each of the other Subsidiaries is a 
corporation duly organized, validly existing and in good standing under the 
jurisdiction of its organization, in each case, with corporate power to own 
its properties and conduct its business as now being conducted and is duly 
licensed (in the case of the Insurance Subsidiaries), qualified and in good 
standing to transact business in each jurisdiction (as listed in Schedule 4.5) 
where, by virtue of its business carried on or properties owned, it is 
required to be so licensed (in the case of the Insurance Subsidiaries) or 
qualified and where the failure to be so licensed (in the case of the 
Insurance Subsidiaries) or qualified, individually or in the aggregate, would 
have a Material Adverse Effect on the Company and the Subsidiaries, taken as a 
whole.  To the extent requested of Seller by Buyer, Seller has made available 
to Buyer a complete and correct copy of the certificates of incorporation, 
bylaws and other organizational documents of each Section 4.5 Subsidiary and 
the minute books of each such Subsidiary.  The minute books include copies of 
minutes of all meetings of the directors or shareholders of each such 
Subsidiary held on or after January 1, 1993 and complete and accurate copies 
of all resolutions passed by the directors or actions by written consent of 
the shareholders on or after January 1, 1993.

4.6  Ridge Re.  (a)  Ridge Re is duly organized, validly existing and in good 
standing under the laws of Bermuda and has full corporate power and authority 
to conduct its business as it is presently being conducted and to own, lease 
and operate its properties and assets.  Ridge Re is duly licensed, qualified 
or otherwise authorized as an alien corporation to conduct the reinsurance 
business conducted by it and is in good standing in each jurisdiction in which 
such license, qualification or authorization is necessary under the applicable 
law and where the failure to be so licensed, qualified or otherwise 
authorized, individually or in the aggregate, would have a Material Adverse 
Effect on the Company and the Subsidiaries, taken as a whole.

(b)  Seller owns of record and beneficially all of the outstanding capital 
stock of Ridge Re free and clear of all Encumbrances, including without 
limitation, any agreement, understanding or restriction affecting the voting 
rights or other incidents of record or beneficial ownership pertaining to such 
shares; provided that Parent and Seller make no representation in this 
sentence regarding the ability of Seller to transfer or otherwise dispose of 
such shares without registration or qualification under, or in compliance 
with, applicable Federal or state securities laws to a Person who is not an 
"accredited investor" (as defined in Rule 501 of Regulation D under the 
Securities Act) or without compliance with applicable insurance laws.  There 
are no subscriptions, options, warrants, calls, commitments, preemptive rights 
or other rights of any kind outstanding to which Parent, Seller, Ridge Re or 
any of their respective Affiliates is a party for the purchase of, nor any 
securities convertible or exchangeable for, any equity interests of Ridge Re, 
except as set forth in Schedule 4.6.  Schedule 4.6 contains a true and 
complete list of all agreements and other instruments pursuant to which 
Parent, Seller or any Affiliate is obligated or required, under any 
circumstance, to make contributions to the capital of Ridge Re.

(c)  The Ridge Re Treaty is a legal, valid and binding obligation of Ridge Re, 
enforceable in accordance with its terms, subject to the effects of 
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and 
other similar laws relating to or affecting creditors' rights generally, 
general equitable principles (whether considered in a proceeding in equity or 
at law) and an implied covenant of good faith and fair dealing.

4.7  Absence of Certain Changes or Events.  To the Knowledge of Seller, except 
as expressly contemplated by this Agreement or as described on Schedule 4.7 or 
reflected in the Company Interim Financial Statements, since June 30, 1995, 
there has not been any:

(a)  change in the business, condition (financial or otherwise), Permits, 
assets, Liabilities, working capital, earnings or operations of the Company or 
any Subsidiary, except for changes which have not, individually or in the 
aggregate, had or are not reasonably likely to have a Material Adverse Effect 
on the Company and the Subsidiaries, taken as a whole;

(b)  acquisition of material assets or properties or of securities or business 
of any other Person by the Company or any Subsidiary (in each case, other than 
acquisitions in the ordinary course of business consistent with past practice) 
or any merger, consolidation or amalgamation involving the Company or any 
Subsidiary, except the acquisition of Cash Equivalents as part of the process 
of converting substantially all of the Company and the Subsidiaries' 
investment portfolio into cash and Cash Equivalents prior to the date of this 
Agreement and the reinvestment thereof in accordance with the Investment 
Policy after the date of this Agreement;

(c)  sale, assignment, lease or transfer of (i) the Crostex/Camfex Contracts, 
the Seller Notes (except transfers in accordance with, and to the extent 
Parent and Seller comply with, Section 6.12) or any interest in the Leesburg 
Training Facility (except transfers in accordance with, and to the extent 
Parent and Seller comply with, Section 6.13) or (ii) any other material assets 
(including any portion of the investment portfolio) of the Company or any 
Subsidiary, other than in the case of (ii) (W) in the ordinary course of 
business consistent with past practices and (X) converting substantially all 
of the Company and the Subsidiaries' investment portfolio into cash and Cash 
Equivalents prior to the date of this Agreement and dispositions of securities 
in accordance with the Investment Policy after the date of this Agreement;

(d)  incurrence by the Company or any Subsidiary of any indebtedness for 
borrowed money or incurrence, assumption or guarantee of, or any other act to 
become responsible for, any obligations of any other Person, or making of 
loans or advances by the Company or any Subsidiary to any Person (including, 
without limitation, any broker or agent), except (i) loans to employees made 
in the ordinary course of business consistent with past practice for 
relocation expenses and (ii) the issuance of insurance policies in the 
ordinary course of business consistent with past practice;

(e)  cancellation of any indebtedness or waiver or compromise of any rights 
(including agent balances) having a value to the Company or any Subsidiary of 
$500,000 or more, including the Seller Notes and the Crostex/Camfex Purchase 
Money Notes, whether or not in the ordinary course of business (other than 
settlements in the ordinary course of business of claims and salvage and 
subrogation arising under contracts of insurance underwritten, assumed or 
ceded by the Company or any Subsidiary which settlements have not had nor 
would be reasonably likely to have, individually or in the aggregate, a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole 
and the terminations, modifications and commutations permitted by clause (j) 
below);

(f)  failure of the Company or any Subsidiary to pay any creditor any amount 
owed to such creditor (in excess of $1,000,000 in the aggregate for all such 
creditors) when due (after the expiration of any applicable grace periods) 
except for failures to pay in the ordinary course of business or if the 
Company or any Subsidiary is disputing the amount due in good faith;

(g)  payment by the Company or any Subsidiary of any material Liability before 
the same became due in accordance with its terms other than in the ordinary 
course of business consistent with past practice;

(h)  material change in the reinsurance, claim processing and payment, 
financial or accounting practices or policies of the Company or any 
Subsidiary, except as required by law, generally accepted accounting 
principles or Statutory Accounting Principles;

(i)  except to the extent required under employee and director benefit plans 
or policies, agreements or arrangements as in effect on the Balance Sheet 
Date, (1) increase in the compensation or fringe benefits of any of the 
directors, officers or employees of the Company or any Subsidiary (except for 
increases in salary or wages of employees of the Company or any Subsidiary who 
are not officers of the Company in the ordinary course of business in 
accordance with past practice), (2) grant of any severance or termination pay 
or entrance into any employment, consulting or severance agreement or 
arrangement with any present or former director, officer or employee of the 
Company or any Subsidiary or amendment of any such arrangement or agreement or 
(3) establishment, adoption, entrance into, amendment of or termination of any 
(X) collective bargaining agreement or (Y) plan or agreement to provide 
bonuses, profit sharing, stock options, restricted stock, pensions, retirement 
benefits, deferred compensation, employment or benefits upon termination for 
the benefit of any directors, officers or any group of other employees of the 
Company or any Subsidiary;

(j)  (i) entry into or modification of any reinsurance or retrocession 
agreement by the Company or any Subsidiary other than in the ordinary course 
of business consistent with past practice, except for those which have not had 
nor are reasonably likely to have, individually or in the aggregate, a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole 
or (ii) termination or commutation of any reinsurance or retrocession 
agreement legally carried on the books of the Subsidiaries at the time of such 
termination or commutation at $5,000,000 or more;

(k)  entry into, termination or modification by the Company or any Subsidiary 
of any Contract, agreement, commitment, transaction, or instrument (including, 
without limitation, relating to any borrowing, lending, capital expenditure, 
capital contribution or capital financing), except entering into, terminating 
or modifying contracts, agreements, commitments, transactions, or instruments 
(i) in the ordinary course of business and (ii) as permitted by clauses (i) 
and (j) above; provided that except as disclosed on Schedule 4.7, no 
modifications shall have been made to the Crostex/Camfex Contracts or the 
Ridge Re Treaty;

(l)  entry into a material joint venture, partnership or similar arrangement 
by the Company or any Subsidiary with any Person;

(m)  any capital expenditure or execution of any lease or commitment for the 
foregoing by the Company or any Subsidiary involving annual payments in excess 
of $100,000;

(n)  lapse or termination or failure to renew any Permit of the Company or any 
Subsidiary, in each case other than with respect to Permits the failure of 
which to be in effect would not have, individually or in the aggregate, a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole;

(o)  (i) declaration, setting aside or payment of any dividends or 
distributions (whether in cash, stock or property) in respect of any capital 
stock of the Company or (ii) any redemption, purchase or other acquisition of 
any of the capital stock of the Company or any Subsidiary (other than a wholly 
owned Subsidiary), except for payments permitted under the Tax Agreement;

(p)  issuance by the Company or any Subsidiary of, or commitment of the 
Company or any Subsidiary to issue, any shares of capital stock or obligations 
or securities convertible into or exchangeable for shares of capital stock 
except for issuances or commitments by any Subsidiary to issue any such 
securities to the Company or any wholly owned Subsidiary;

(q)  amendment of the certificate of incorporation or bylaws of the Company or 
any Subsidiary; or

(r)  agreement by the Company or any Subsidiary to do any of the foregoing.

4.8  Title to Assets, Etc. The Company and the Subsidiaries have good title to 
or valid and subsisting leasehold interests in all real and material personal 
property and other material assets on their books and reflected on the balance 
sheets included in the Company Interim Financial Statements or acquired in the 
ordinary course of business since September 30, 1995 which would have been 
required to be reflected on such balance sheets if acquired on or prior to 
September 30, 1995, other than (i) assets which have been disposed of in the 
ordinary course of business and (ii) assets which were disposed in connection 
with the conversion of the Company and the Subsidiaries' investment portfolio 
into cash and Cash Equivalents (the "Assets").  None of the Assets is subject 
to any Encumbrance, except for Encumbrances reflected in the financial 
statements contained in Schedule 4.12, as applicable, or which in the 
aggregate are not substantial in amount and do not materially detract from the 
value of the property or assets subject thereto or interfere with the present 
use.

4.9  Contracts and Commitments.  (a)  None of the Company or any Subsidiary is 
a party to any written or oral:

  (i)  Contracts not otherwise listed in Schedule 4.9;

  (ii) except as listed on Schedule 4.9, treaties and agreements with, and 
undertakings or commitments to, any governmental or regulatory authority 
materially affecting the business of the Company and the Subsidiaries taken as 
a whole and not made in the ordinary course of business;

  (iii)  except as described in Schedule 4.9, contracts or agreements 
containing covenants limiting the freedom of the Company or any Subsidiary to 
engage in any line of business in any geographic area or to compete with any 
Person or to incur indebtedness for borrowed money;

  (iv)  except as described in Schedule 4.9 and for reinsurance and 
retrocession agreements, contracts or agreements containing "change in 
control" or similar provisions;

  (v)  except as listed on Schedule 4.9, employment contracts or agreements, 
including without limitation contracts to employ executive officers and other 
contracts with officers or directors of the Company or any Subsidiary which 
cannot be terminated by the Company or the Subsidiary upon notice of sixty 
days or less without penalty or premium and involve annual compensation in 
excess of $100,000 individually; or

  (vi)  contracts or agreements providing for the indemnification by the 
Company or any Subsidiary of any Person except for contracts entered into in 
the ordinary course of business consistent with past practice.

(b)  None of the Company or any Subsidiary is (and, to the Knowledge of the 
Seller, no other party is) (i) in material breach of or materially in default 
under, any of the Contracts (or with or without notice or lapse of time or 
both, would be in material breach of or materially in default under any of the 
Contracts) or (ii) in breach or default under any of the Contracts (with or 
without notice or lapse of time or both) if such breach or default would 
permit a party other than the Company or a Subsidiary to terminate such 
Contract.  None of Parent, Seller, the Company or any Subsidiary has delivered 
or received notice of termination or written notice of an intention to 
terminate to or from any other party to any Contract except as described on 
Schedule 4.9.

(c)  Other than the Ridge Re Treaty and the other treaties referenced in the 
first sentence of Section 4.9(c) of the Talegen Agreement, Ridge Re is not a 
party to any reinsurance or retrocession agreement or treaty, and, except in 
connection with such treaties, does not engage in any business.  Set forth in 
Schedule 4.9 is the amount of cover as of the date of this Agreement available 
under the Ridge Re Treaty.  A true and complete copy of the Ridge Re Treaty is 
contained in Schedule 1.1D.  The Ridge Re Treaty is in full force and effect 
and constitutes a legal, valid and binding obligation of the parties thereto, 
enforceable in accordance with its terms, subject to the effects of 
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and 
other similar laws relating to or affecting creditors' rights generally, 
general equitable principles (whether considered in a proceeding in equity or 
at law) and an implied covenant of good faith and fair dealing.  None of 
Parent, Seller, Talegen, the Company or any Subsidiary has received any notice 
from Ridge Re or any governmental or regulatory authority (i) that the Ridge 
Re Treaty is not enforceable against any party thereto or (ii) regarding the 
availability or enforceability of the cover under the Ridge Re Treaty.  No 
party to the Ridge Re Treaty has received notice of termination of, or written 
notice of an intention to terminate, the Ridge Re Treaty.  No party to the 
Ridge Re Treaty is in breach of or violation of or default under the Ridge Re 
Treaty (or with or without notice or lapse of time or both, would be in breach 
of or violation of or default under the Ridge Re Treaty), except for breaches, 
violations or defaults by IIC which would not permit Ridge Re to terminate the 
Ridge Re Treaty or which would not provide Ridge Re with a defense to any 
payment obligation of Ridge Re thereunder.

4.10  No Conflict or Violation.  Except as set forth in Schedule 4.10, neither 
the execution, delivery and performance of this Agreement or any of the 
Ancillary Agreements nor the consummation of the transactions contemplated 
hereby or thereby will result in (a) a violation of or a conflict with any 
provision of the certificate of incorporation or bylaws of Parent, Seller, 
Talegen, Ridge Re, the Company or any Section 4.5 Subsidiary, (b) a breach of, 
or a default under, any term or provision of any contract, agreement, 
indebtedness, lease, Encumbrance, commitment, license, franchise, Permit, 
authorization or concession to which (i) Parent, Seller, Talegen or Ridge Re 
is a party or is subject or by which any assets (including investments) of any 
of them are bound or (ii) the Company or any Subsidiary is a party or is 
subject or by which any assets (including investments) of any of them are 
bound, which breach or default in the case of clause (ii) would have, 
individually or in the aggregate, a Material Adverse Effect on the Company and 
the Subsidiaries, taken as a whole, or in the case of clauses (i) and (ii) 
would interfere in any material way with the ability of Parent or Seller to 
consummate the transactions contemplated by this Agreement or any of the 
Ancillary Agreements or the Ridge Re Treaty, (c) subject to obtaining the 
approvals referred to in Section 4.11, a violation by Parent, Seller, Talegen, 
Ridge Re, the Company or any Subsidiary of any statute, rule, regulation, 
ordinance, code, order, judgment, writ, injunction, decree or award, which 
violation would have, individually or in the aggregate, a Material Adverse 
Effect on the Company and the Subsidiaries, taken as a whole, or interfere in 
any material way with the ability of Parent, Seller or Ridge Re to consummate 
the transactions contemplated by this Agreement or any of the Ancillary 
Agreements, (d) the imposition of any Encumbrance, restriction or charge on 
the business of the Company or any Subsidiary or on any material assets of the 
Company or the Subsidiaries, (e) the creation or exercisability of any right 
of termination, cancellation or acceleration under any Contract or (f) result 
in the breach of any of the terms or conditions of, constitute a default 
under, or otherwise cause any impairment of, any Permit, which breach, default 
or impairment would result, individually or in the aggregate, in a Material 
Adverse Effect on the Company and the Subsidiaries, taken as a whole.

4.11  Consents and Approvals.  Except for (i) the approval of this Agreement, 
the Ancillary Agreements and the transactions contemplated hereby and thereby 
(including, without limitation, the Financing), and the new intercompany tax 
agreements among the Company and the Subsidiaries which shall be effective as 
of the Closing, by each of the governmental and regulatory authorities listed 
on Schedule 4.11, (ii) the approval of this Agreement, the Ancillary 
Agreements and the transactions contemplated hereby and thereby (including, 
without limitation, the Financing), and the new intercompany tax agreements 
among the Company and the Subsidiaries which shall be effective as of the 
Closing, by any other governmental or regulatory authorities, the failure of 
which to obtain would not, individually or in the aggregate, have a Material 
Adverse Effect on the Company and the Subsidiaries, taken as a whole, (iii) 
filings in respect of the transactions contemplated hereby required to be made 
for compliance with the applicable provisions of the Securities Exchange Act 
of 1934, as amended (the "Exchange Act"), and the rules and regulations 
promulgated thereunder, (iv) the filing of premerger notification reports 
under the HSR Act and (v) consents, approvals, authorizations, declarations, 
filings and registrations required (x) by the nature of the business or 
ownership of Buyer or (y) solely by reason of the Financing (excluding any 
consents, approvals, authorizations, declarations, filings or registrations 
otherwise required in connection with this Agreement, the Ancillary Agreements 
or the transactions contemplated hereby or thereby), no consent, approval or 
authorization of, or declaration, filing or registration with, any 
governmental or regulatory authority, or any other Person, is required to be 
made or obtained by Parent, Seller, Talegen, Ridge Re, the Company, any 
Subsidiary or Buyer on or prior to the Closing Date in connection with the 
execution or delivery of this Agreement or any of the Ancillary Agreements, 
the performance of this Agreement, the Guarantees, the Tax Agreement, or the 
Ridge Re Treaty or the consummation of the transactions contemplated hereby 
and thereby.

4.12  Financial Statements.  (a)  Seller has heretofore delivered to Buyer the 
Company GAAP Financial Statements, the Ridge Re GAAP Financial Statements, the 
Company Interim Financial Statements, the Ridge Re Interim Financial 
Statements and the Convention Statements.  A copy of each of the foregoing 
financial statements is included in Schedule 4.12.

(b)  Except as otherwise set forth therein, (i) the Company GAAP Financial 
Statements are based on the books and records of the Company and its 
Subsidiaries, fairly present in all material respects the financial condition 
and consolidated results of operations of the Company and its Subsidiaries, as 
of the dates and for the periods indicated therein, have been prepared in 
accordance with GAAP (as in effect at the time of the respective financial 
statements) consistently applied, and have been audited by KPMG Peat Marwick 
LLP and (ii) the Ridge Re GAAP Financial Statements are based on the books and 
records of Ridge Re, fairly present in all material respects the financial 
condition and results of operation of Ridge Re, as of the dates and for the 
periods indicated therein, have been prepared in accordance with GAAP (as in 
effect at the time of the respective financial statements) consistently 
applied, and have been audited by KPMG Peat Marwick LLP.

(c)  The Company Interim Financial Statements and the Ridge Re Interim 
Financial Statements were prepared in the ordinary course of business and have 
been prepared on a consistent basis through the periods indicated and in a 
manner consistent with that employed in the Company GAAP Financial Statements 
and the Ridge Re GAAP Financial Statements, as the case may be.  The Company 
Interim Financial Statements and the Ridge Re Interim Financial Statements do 
not contain full footnote disclosures in accordance with United States 
generally accepted accounting principles and are subject to normal recurring 
year-end adjustments, but otherwise fairly present in all material respects 
the financial condition and results of operations of the Company and Ridge Re, 
as the case may be, as of the dates and for the periods indicated therein 
except as otherwise set forth therein.

(d)  Except as otherwise set forth therein, the Convention Statements and the 
statutory balance sheets and income statements included in such Convention 
Statements fairly present in all material respects the statutory financial 
condition and results of operations of the respective Insurance Subsidiaries 
and Ridge Re, as the case may be, as of the dates and for the periods 
indicated therein and have been prepared in accordance with Statutory 
Accounting Principles (as in effect at the time of the respective financial 
statements) consistently applied throughout the periods indicated, except as 
expressly set forth therein.  The statutory balance sheets and income 
statements included in the Convention Statements for the years ended December 
31, 1993 and 1994 have been audited by KPMG Peat Marwick LLP.

4.13  Litigation.  To the Knowledge of Seller, except as set forth on 
Schedule 4.13, there is no action, order, writ, injunction, judgment, fine or 
decree outstanding or suit, litigation, proceeding, labor dispute (other than 
routine grievance procedures or routine, uncontested claims for benefits under 
any benefit plans for any officers, employees or agents of the Company or any 
Subsidiary (collectively, "Personnel")), arbitral action, investigation or 
reported claim, in each case including, without limitation, those involving 
any governmental or regulatory authority and excluding those relating to 
insurance and reinsurance policies (collectively, "Actions") pending or 
threatened by or against or relating to (i) the Company or any Subsidiary, 
(ii) any benefit plan for Personnel or any fiduciary or administrator thereof 
or (iii) the transactions contemplated by this Agreement and the Ancillary 
Agreements.  None of the Company or any Subsidiary is in default with respect 
to any order, writ, injunction, judgment, fine or decree of any court or 
governmental or regulatory agency, and there are no unsatisfied judgments 
against the Company or any Subsidiary which would have, individually or in the 
aggregate, a Material Adverse Effect on the Company and the Subsidiaries, 
taken as a whole.

4.14  Liabilities.  Except as set forth in Schedule 4.14, the Company and the 
Subsidiaries do not have any direct or indirect indebtedness, liability, 
claim, loss, damage, deficiency, obligation or responsibility, fixed or 
unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, 
accrued, absolute, contingent or otherwise ("Liabilities"), other than (i) 
Liabilities fully and adequately reflected (including by reducing any 
numerical amount set forth) in one or more line items on, reserved on, or 
disclosed in the footnotes to, the balance sheets included in the Company 
Interim Financial Statements, or disclosed in the footnotes to the Company 
GAAP Financial Statements, (ii) Liabilities incurred in the ordinary course of 
business, consistent with past practice and the provisions of this Agreement 
and the Ancillary Agreements, (iii) Liabilities relating to future benefits, 
losses, claims and expenses arising under insurance and reinsurance policies 
of the Insurance Subsidiaries, (iv) Liabilities disclosed in response to any 
other representation, (v) Liabilities of a type that are subject to any other 
representation (without regard to any specific exclusions from such 
representation, including any specific exclusions from the definitions used 
therein) and (vi) Liabilities which have, or are reasonably likely to have a 
net ultimate cost of $25,000 or less, on an individual basis or in the 
aggregate to the extent such Liabilities arise out of a related series of 
events.

4.15  Investments.  (a)  As of the date of this Agreement, at least 83% of the 
investment portfolio for the Company and the Subsidiaries consists of cash and 
Cash Equivalents and at least 87% of the investment portfolio (excluding cash 
and Cash Equivalents) for the Company and the Subsidiaries consists of fixed 
income securities rated at least AA by Moody's or by S&P.  As of the date 
hereof, at least 87% of the fixed income portfolio (excluding cash and Cash 
Equivalents) has a maturity of one year or less.

(b)  To the Knowledge of Seller, as of the Closing Date, the Company and the 
Subsidiaries have good and marketable title to the investments in their 
investment portfolios, provided that no representation is made as to the 
transferability thereof.

4.16  Reserves.  Seller has delivered to Buyer true and complete copies of all 
actuarial reports or actuarial certificates in the possession or control of 
Parent, Seller, Talegen, the Company or any of the Subsidiaries relating to 
the adequacy of the claims reserves of any of the Subsidiaries for any period 
ended on or after December 31, 1993.  Notwithstanding the foregoing 
representations contained in this Section or anything contained in Section 
4.12, 4.14 or 6.2, Buyer acknowledges that Parent and Seller are not making 
any representations, express or implied in or pursuant to this Agreement, 
concerning the loss reserves or loss adjustment expense reserves of the 
Company or any of the Subsidiaries including, without limitation, (i) whether 
such reserves are adequate or sufficient, or (ii) whether such reserves were 
determined in accordance with any actuarial, statutory or other standard, or 
concerning any other "line item" or asset, liability or equity amount which 
would be affected thereby.

4.17  Compliance with Law; Permits; Regulatory.  (a) Except as set forth on 
Schedule 4.17, the Company and the Subsidiaries are in compliance with all 
applicable laws, statutes, ordinances and regulations, whether Federal, 
foreign, state or local, except where the failure to comply would not, 
individually or in the aggregate, have a Material Adverse Effect on the 
Company and the Subsidiaries, taken as a whole.  Since January 1, 1993, none 
of the Company or any Subsidiary has received any written notice to the effect 
that, or otherwise been advised that, it is not in compliance with any such 
statute, regulation, order, ordinance or other law where the failure to comply 
would, prior to June 30, 1998, individually or in the aggregate, have a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.

(b)  Except as set forth on Schedule 4.17, the Company and the Subsidiaries 
hold all Permits necessary for the ownership and conduct of the respective 
businesses of the Company and the Subsidiaries in each of the jurisdictions in 
which the Company and the Subsidiaries conduct or operate their respective 
businesses in the manner now conducted, and such Permits are in full force and 
effect except where the failure to hold any Permit or the failure of any 
Permit to be in full force and effect would not, individually or in the 
aggregate, have a Material Adverse Effect on the Company and the Subsidiaries, 
taken as a whole.  The consummation of the transactions contemplated by this 
Agreement will not result in any revocation, cancellation or suspension of any 
such Permit except as a result of the status of Buyer and its Affiliates, and, 
there are no pending or threatened suits, proceedings or investigations with 
respect to revocation, cancellation, suspension or nonrenewal thereof, and, 
there has occurred no event which (whether with notice or lapse of time or 
both) will result in such a revocation, cancellation, suspension or nonrenewal 
thereof, in any such case except where such a revocation, cancellation, 
suspension or non-renewal would not, individually or in the aggregate, have a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.

(c)  All insurance policies issued by the Insurance Subsidiaries, as now in 
force are, to the extent required under applicable law, are in a form 
acceptable to applicable regulatory authorities or have been filed and not 
objected to (or such objection has been withdrawn or resolved) by such 
authorities within the period provided for objection, except where such 
failure or objection would not, individually or in the aggregate, have a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.  
Neither the Company nor any Subsidiary which is not an Insurance Subsidiary 
has issued any insurance policies.  Except as set forth on Schedule 4.17, (i) 
all material reports, statements, documents, registrations, filings and 
submissions to state insurance regulatory authorities complied in all material 
respects with applicable law in effect when filed and (ii) no material 
deficiencies have been asserted by any such regulatory authority with respect 
to such reports, statements, documents, registrations, filings or submissions 
that have not been satisfied or that would, individually or in the aggregate, 
have a Material Adverse Effect on the Company and the Subsidiaries, taken as a 
whole.  Except as set forth on Schedule 4.17, all premium rates established by 
the Insurance Subsidiaries that are required to be filed with or approved by 
insurance regulatory authorities have been so filed or approved, the premiums 
charged conform to the premiums so filed or approved and comply (or complied 
at the relevant time) with the insurance laws applicable thereto except where 
such failures to comply, individually or in the aggregate, would not have a 
Material Adverse Effect on the Company and the Subsidiaries, taken as a whole.

4.18  No Brokers.  Except as previously disclosed in writing to Buyer, neither 
Parent, Seller, Talegen nor the Company has employed, or is subject to any 
valid claim of, any broker, finder, consultant or other intermediary in 
connection with the transactions contemplated by this Agreement who will be 
entitled to a fee or commission in connection with such transactions.  Parent 
is solely responsible for any such payment, fee or commission that may be due 
to any Person so previously disclosed to Buyer in connection with the 
transactions contemplated hereby.

4.19  No Other Agreements to Sell the Assets or the.  Except as set forth in 
Schedule 4.19, none of Parent, Seller, Talegen, the Company or any Subsidiary 
has any agreement, absolute or contingent, with any other Person to sell the 
capital stock, assets (other than sales of assets that would not be prohibited 
under Section 4.7(c)) or business of the Company or any Subsidiary or to 
effect any merger, consolidation or other reorganization of the Company or any 
Subsidiary or to enter into any agreement with respect thereto.

4.20  Proprietary Rights.  (a)  Except as set forth in Schedule 4.20, Parent, 
Seller and their Affiliates (other than the Company and the Subsidiaries) have 
no right or title to or interest in the trademarks, service marks, copyrights, 
trade names and the applications and registrations therefor and the trade 
secrets, software and other proprietary rights used in and material to the 
business of the Company or any of its Subsidiaries (collectively, 
"Intellectual Property").

(b)  Schedule 4.20 sets forth a complete and correct list and brief 
description of all Intellectual Property that is material to the Company or 
any Subsidiary.  With respect to intellectual property owned by the Company or 
a Subsidiary, such entity has the sole and exclusive right to use and is the 
sole and exclusive registered owner of all right, title and interest in and to 
the Intellectual Property.  The Intellectual Property which is not owned by 
the Company or a Subsidiary is being used by the Company or a Subsidiary only 
with the consent of or license from the rightful owner thereof, and all such 
licenses are in full force and effect.

(c)  To the Knowledge of Seller no activity in which the Company or a 
Subsidiary is engaged or any product which the Company or a Subsidiary sells, 
or any advertising that they employ, or the use of any of the Intellectual 
Property, breaches, violates, infringes or interferes with any rights of any 
third party or, except for the payment of computer software licensing fees, 
requires payment for the use of any patent, trade-name, trade secret, trade-
mark, copyright or other intellectual property right or technology of another.

4.21  Employee Benefit Plans.  (a)  Schedule 4.21 contains a true and complete 
list of each "employee benefit plan" (within the meaning of section 3(3) of 
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 
including, without limitation, multiemployer plans within the meaning of ERISA 
section 3(37)), stock purchase, stock option, severance, employment, change-
in-control, fringe benefit, collective bargaining, bonus, incentive, deferred 
compensation and all other employee benefit plans, agreements, programs, 
policies or other arrangements, whether or not subject to ERISA (including any 
funding mechanism therefor now in effect or required in the future as a result 
of the transactions contemplated by this Agreement or otherwise), whether 
formal or informal, oral or written, legally binding or not, under which any 
employee or former employee of the Company or any Subsidiary has any present 
or future right to benefits or under which the Company or any Subsidiary has 
any present or future liability.  All such plans, agreements, programs, 
policies and arrangements shall be collectively referred to as the "Company 
Plans".  

(b)  With respect to each Company Plan, the Company has delivered to the Buyer 
a current, accurate and complete copy (or, to the extent no such copy exists, 
an accurate description) thereof and, to the extent applicable, (i) any 
related trust agreement, annuity contract or other funding instrument; (ii) 
the most recent determination letter; (iii) any summary plan description and 
other written communications (or a description of any oral communications) by 
the Company or any Subsidiary to their employees concerning the extent of the 
benefits provided under a Company Plan; and (iv) for the three most recent 
years (A) the Form 5500 and attached schedules; (B) audited financial 
statements; (C) actuarial valuation reports; and (D) attorney's response to an 
auditor's request for information.

(c)  (i) Each Company Plan, in all material respects, has been established and 
administered in accordance with its terms and in compliance with the 
applicable provisions of ERISA, the Code and other applicable laws, rules and 
regulations; (ii) each Company Plan which is intended to be qualified within 
the meaning of Code section 401(a) is so qualified and has received a 
favorable determination letter as to its qualification and nothing has 
occurred, whether by action or failure to act, which would cause the loss of 
such qualification; (iii) except as listed on Schedule 4.21, with respect to 
any Company Plan, no actions, suits or claims (other than routine claims for 
benefits in the ordinary course) are pending or threatened, no facts or 
circumstances exist which could give rise to any such actions, suits or 
claims, and the Company will promptly notify Buyer in writing of any pending 
or threatened claims arising between the date hereof and the Closing Date; 
(iv) neither the Company, any Subsidiary nor any other party has engaged in a 
prohibited transaction, as such term is defined under Code section 4975 or 
ERISA section 406, which would subject the Company, any Subsidiary or the 
Buyer to any material taxes, penalties or other liabilities under Code section 
4975 or ERISA sections 409 or 502(i); (v) no event has occurred and no 
condition exists that would subject the Company, either directly or by reason 
of its affiliation with any member of its "Controlled Group" (defined as any 
organization which is a member of a controlled group of organizations within 
the meaning of Code sections 414(b), (c), (m) or (o)), or any Subsidiary to 
any material tax, fine or penalty imposed by ERISA, the Code or other 
applicable laws, rules and regulations including, but not limited to the taxes 
imposed by Code sections 4971, 4972, 4977, 4979, 4980B, 4976(a) or the fine 
imposed by ERISA section 502(c); (vi) all insurance premiums required to be 
paid with respect to Company Plans as of the Closing Date have been or will be 
paid prior thereto and adequate reserves have been provided for on the 
Company's Interim Financial Statements as of September 30, 1995, to the extent 
required by GAAP, for any premiums (or portions thereof) attributable to 
service on or prior to the Closing Date; (vii) for each Company Plan with 
respect to which a Form 5500 has been filed, no material change has occurred 
with respect to the matters covered by the most recent Form since the date 
thereof; (viii) all contributions required to be made prior to the Closing 
Date under the terms of any Company Plan, the Code, ERISA or other applicable 
laws, rules and regulations have been or will be timely made and adequate 
reserves have been provided for on the Company's Interim Financial Statements 
as of September 30, 1995, to the extent required by GAAP, for all benefits 
attributable to service on or prior to the Closing Date; (ix) no Company Plan 
provides for an increase in benefits on or after the Closing Date; and (x) no 
Company Plan (excluding any agreement between the Company and individual 
employees) contains any contractual language which limits the Company's 
ability to amend or terminate such Company Plan without obligation or 
liability (other than those obligations and liabilities for which specific 
assets have been set aside in a trust or other funding vehicle or reserved for 
on the Company's Interim Financial Statements as of September 30, 1995).

(d)  (i) No Company Plan has incurred any "accumulated funding deficiency" as 
such term is defined in ERISA section 302 and Code section 412 (whether or not 
waived); (ii) no event or condition exists which would be deemed a reportable 
event within the meaning of ERISA section 4043 which could result in a 
material liability to the Company, any member of its Controlled Group or any 
Subsidiary, and no condition exists which could subject the Company, any 
member of its Controlled Group or any Subsidiary to a material fine under 
ERISA section 4071; (iii) as of the Closing Date, the Company, each member of 
its Controlled Group and each Subsidiary will have made all premium payments 
required to be made prior to the Closing Date to the PBGC; (iv) neither the 
Company, any member of its Controlled Group nor any Subsidiary is subject to 
any liability to the PBGC for any plan termination occurring on or prior to 
the Closing Date; (v) no amendment has occurred which has required or would 
require the Company, any member of its Controlled Group or any Subsidiary to 
provide security pursuant to Code section 401(a)(29); and (vi) neither the 
Company, any member of its Controlled Group nor any Subsidiary has engaged in 
a transaction which could subject it to material liability under ERISA section 
4069

(e)  With respect to each of the Company Plans which is not a multiemployer 
plan within the meaning of section 4001(a)(3) of ERISA but is subject to 
Title IV of ERISA, the funded status of each such Company Plan, as of January 
1, 1995, is as reported in the actuarial valuation reports dated as of January 
1, 1995.  To the Knowledge of Seller, no material adverse change in the funded 
status of such Company Plans has occurred since January 1, 1995, and no 
material defects or omissions existed in the data provided to the preparers of 
the actuarial valuation reports discussed in the preceding sentence.

(f) There are no multiemployer plans (within the meaning of section 4001(a)(3) 
of ERISA) to which the Company, any member of its Controlled Group or any 
Subsidiary has or had any liability or contributes (or has at any time 
contributed or had an obligation to contribute).

(g)  (i) Each Company Plan which is intended to meet the requirements for tax-
favored treatment under Subchapter B of Chapter 1 of Subtitle A of the Code 
meets such requirements; and (ii) the Company and the Subsidiaries have no 
trusts intended to be qualified within the meaning of Code section 501(c)(9), 
and, except as listed on Schedule 4.21, had no such trusts in the past.

(h)  Schedule 4.21 sets forth, on a plan-by-plan basis, the present value of 
any benefits payable presently or in the future to present or former employees 
of the Company or any Subsidiary under any Company Plan (excluding any 
agreements between the Company and individual employees which were not entered 
into as part of any plan or program) that is not fully funded and not subject 
to the reporting requirements of ERISA (if such amounts are not reflected in 
the financial statements included in Schedule 4.12) which present value is as 
reported in the most recent actuarial valuation or other reports done with 
respect to each such plan.  To the Knowledge of Seller, no material adverse 
increase in the amount of such present values has occurred since the date of 
the most recent report, and no material defects or omissions existed in the 
reports, or, if applicable, in the data provided to the preparers of the 
reports.

(i)  Except as set forth on Schedule 4.21 or referenced in Section 9.4, no 
Company Plan exists which could result in the payment to any Company employee 
or Subsidiary employee of any money or other property or accelerate or provide 
any other rights or benefits to any Company employee or Subsidiary employee as 
a result of the transactions contemplated by this Agreement, whether or not 
such payment would constitute a parachute payment within the meaning of Code 
section 280G.  There is no cost to the Company and its Subsidiaries in the 
event that all Company Plans set forth in Schedule 4.21 are triggered.

(j)  Neither the Company nor any Subsidiary is obligated or otherwise required 
to pay any bonuses (annual or otherwise) to Joseph W. Brown, Jr., or to any 
managing director of the Company on or after the date of the Closing.

(k)  No Company Plan operates within or is subject to the jurisdiction of any 
foreign country, other than as described on Schedule 4.21.

(l)  None of the amounts payable to any Company employee or any Subsidiary 
employee as a result of the transactions contemplated by this Agreement will 
be non-deductible under Section 280G of the Code.

4.22  Employment-Related Matters.  Except as set forth in Schedule 4.22, (a) 
none of the Company or the Subsidiaries is a party to, or otherwise bound by, 
any consent decree with, or citation by, any government agency relating to 
employees or employment practices, (b) none of the Company or any of the 
Subsidiaries has closed any plant or facility, or effectuated any layoffs of 
employees within the past six months, nor have the Company or the Subsidiaries 
planned or announced any such action or programs for the future, and (c) the 
Company and the Subsidiaries are in compliance with their respective 
obligations pursuant to the Worker Adjustment and Retraining Notification Act 
of 1988 and any similar state notification law.

4.23  Transactions with Certain Persons.  (a) To the Knowledge of Seller, 
neither any officer, director or employee of Parent, Seller, the Company or 
any Subsidiary nor any member of any such Person's immediate family is 
presently a party to any material transaction with the Company or any 
Subsidiary, including, without limitation, any Contract, or other binding 
arrangement (i) providing for the furnishing of material services (except in 
such Person's capacity as an officer, director, employee or consultant) by, 
(ii) providing for the rental of material real or personal property from, or 
(iii) otherwise requiring material payments to (other than for services as 
officers, directors or employees of Parent, Seller, the Company or any 
Subsidiary) any such Person.

(b)  Schedule 4.23 sets forth all contracts, agreements and arrangements in 
effect on or after January 1, 1995, and all transactions (including, without 
limitation, the provision of any services or the sale of any goods) since 
January 1, 1994 between the Company or any Subsidiary, on the one hand, and 
Parent or any Affiliate of Parent (excluding the Company and the Subsidiaries, 
but including Talegen and its subsidiaries), on the other, excluding 
contracts, agreements and arrangements (i) relating to the use or purchase of 
products leased or sold by Parent in the ordinary course of Parent's document 
processing business, (ii) involving payments by or to the Company or any 
Subsidiary that do not exceed $100,000 in the aggregate or (iii) specifically 
referred to in the financial statements contained in Schedule 4.12.  Certain 
Subsidiaries hold $25,000,000 aggregate principal amount of promissory notes 
issued by Seller and unconditionally guaranteed by Parent (such notes, 
collectively, the "Seller Notes").  Schedule 4.23 identifies the current 
holders of each of the Seller Notes.

(c)  Except in the ordinary course of business consistent with past practice, 
since the Balance Sheet Date, Seller and the Company and/or any Subsidiary 
have not settled any intercompany trade receivables and payables.

4.24  Taxes.  (a) Filing of Tax Returns.  Seller and the Company (and any 
affiliated group of which the Company is now or has been a member) have timely 
filed with the appropriate taxing authorities all Federal, and to the 
Knowledge of Seller, state and local Tax Returns and Information Returns 
required to be filed through the date hereof.  All such Federal, and to the 
Knowledge of Seller, state and local Tax Returns and Information Returns are 
complete and accurate in all material respects.  The Company is a member of an 
affiliated group of corporations, within the meaning of Section 1504 of the 
Code, that includes Seller and Parent, and Parent is the common parent of the 
affiliated group.

(b)  Payment of Taxes.  All Taxes shown in the Tax Returns referred to in 
Section 4.24(a) above that are due and payable by the Company and its 
Subsidiaries before the date hereof have been paid.

(c)  Liens for Taxes.  There are no liens or other Encumbrances on any of the 
assets of the Company or any Subsidiary that arose in connection with any 
failure (or alleged failure) to pay any Tax.

(d)  Audit History.  Except as set forth in Schedule 4.24, there is no action, 
suit, proceeding, investigation, audit or claim now pending or, to the 
Knowledge of Seller, proposed against or with respect to the Company or any of 
its Subsidiaries or any affiliated group of which the Company and its 
Subsidiaries is or has been a member that relates to Tax liabilities 
attributable to items of income, gain, deduction, loss or credits of the 
Company or any of its Subsidiaries.

(e)  Prior Affiliated Groups.  Except as set forth in Schedule 4.24 and except 
for the affiliated group of corporations of which the Company and the 
Subsidiaries is currently a member and of which Parent is the common parent, 
the Company and the Subsidiaries have never been members of an affiliated 
group of corporations, within the meaning of Section 1504 of the Code.

(f)  Withholding.  The Company and the Subsidiaries have withheld and paid all 
Federal, and to the Knowledge of Seller, state and local Taxes required to 
have been withheld and paid in connection with amounts paid or owing to any 
employee, independent contractor, creditor, stockholder or other third party.

(g)  FIRPTA.  Neither the Company nor any of the Subsidiaries have been a 
United States real property holding corporation within the meaning of Section 
897(c)(2) of the Code during the five-year period ending on the date hereof.

(h)  Material Adverse Effect.  A representation with respect to Taxes 
contained in this Section 4.24 shall be deemed to be accurate unless an 
inaccuracy contained therein has a Material Adverse Effect on the Company and 
the Subsidiaries.

4.25  Reinsurance and Retrocessions.  Schedule 4.25 contains a list as of the 
date of this Agreement of all treaty reinsurance or retrocession treaties and 
agreements in force to which any Subsidiary is a party (including any 
terminated or expired treaty or agreement under which there remains any 
outstanding liability with respect to paid or unpaid case reserves in excess 
of $500,000), any terminated or expired treaty or agreement under which there 
remains any outstanding liability from one reinsurer with respect to paid or 
unpaid case reserves in excess of $100,000 and any treaty or agreement with 
any Affiliate of such Subsidiary, the effective date of each such treaty or 
agreement, and the termination date of any treaty or agreement which has a 
definite termination date.  To the Knowledge of Seller, no Subsidiary is in 
default in any respect as to any provision of any reinsurance or retrocession 
treaty or agreement or has failed to meet the underwriting standards required 
for any business reinsured thereunder except for defaults which, individually 
or in the aggregate, would not have a Material Adverse Effect on the Company 
and the Subsidiaries, taken as a whole.  

4.26  1992/93 Restructuring.  All novations made pursuant to the 1992/93 
Restructuring and any amendments to the Ridge Re Treaty made prior to the date 
hereof, were made in accordance with all applicable laws, rules and 
regulations at the time such novations or amendments were completed except 
where the failure to do so (i) would not, individually or in the aggregate, 
have a Material Adverse Effect on the Company and the Subsidiaries, taken as a 
whole, or (ii) was a result of the failure by the Company or any Subsidiary to 
obtain the consent of any insured or policyholder to the novation or 
assumption of the relevant insurance policy.  Notwithstanding the foregoing, 
Buyer acknowledges that Seller and Parent shall have no liability to Buyer for 
breach of this representation with respect to any novation or assumption, or 
any amendment to the Ridge Re Treaty, which results in any liability for the 
Company or any of its Subsidiaries, if there is a corresponding benefit 
realized (or any liability avoided) by the Company or any other Subsidiary or 
Talegen or any of its subsidiaries.

4.27  Capital Commitments.  Schedule 4.27 contains a list of all capital 
commitments as of the date of this Agreement of the Company or any Subsidiary 
in excess of $100,000.

4.28  Environmental Laws.  (a)  Each of the Company and each Subsidiary 
complies and has complied with all applicable Environmental Laws, and 
possesses and complies with and has possessed and complied with all 
Environmental Permits required under such laws except where the failure to be 
in possession of or to comply with such Environmental Permits, or where the 
failure to be in compliance with any Environmental Law, would not have, 
individually or in the aggregate, a Material Adverse Effect on the Company and 
the Subsidiaries, taken as a whole.  There are no past, present, or 
anticipated future events, conditions, circumstances, practices, plans or 
legal requirements that could reasonably be expected to prevent, or materially 
increase the burden on the Company or any Subsidiary of their complying with 
applicable Environmental Laws or of their obtaining, renewing, or complying 
with all Environmental Permits required under such laws.  There are and have 
been no Materials of Environmental Concern or other conditions at any property 
owned, operated or otherwise used by the Company or any Subsidiary now or in 
the past, or at any other location, that could reasonably be expected to give 
rise to liability of the Company or any Subsidiary under any Environmental 
Law.  Parent, Seller and the Company have provided to Buyer true and complete 
copies of all Environmental Reports prepared within the last five years in 
their possession or control.

(b)  Notwithstanding the representations contained in this Section, Buyer 
acknowledges that Parent and Seller are not making any representations 
(express or implied in or pursuant to this Agreement) with respect to any 
violation of or noncompliance with Environmental Law or Environmental Permits, 
or failure to obtain Environmental Permits, in each case by reason of any 
policy of insurance, reinsurance, indemnity, guaranty or assumption of 
liability of any party, entered into by the Company or any Insurance 
Subsidiary.

4.29  Acquisition for Investment.  Each of Seller and Parent acknowledges that 
the Securities have not been registered under the Securities Act, or under any 
state securities laws.  Each of Seller and Parent (to the extent Parent 
acquires Securities pursuant to Section 11.3) is acquiring the Securities 
solely for its own account and not with a view to any distribution or other 
disposition of such Securities or any part thereof, or interest therein, 
except in accordance with the Securities Act.  Each of Seller and Parent is an 
"accredited investor" (as defined in Rule 501 of Regulation D under the 
Securities Act).

                                ARTICLE V

                 REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Seller and Parent as follows:

5.1  Organization of Buyer.  Buyer is duly organized, validly existing and in 
good standing under the laws of the State of Delaware and has full corporate 
power and authority to conduct its business and to own and lease its 
properties.

5.2  Authorization.  Buyer has all necessary corporate authority to enter into 
this Agreement the Tax Agreement and has taken all necessary corporate action 
to consummate the transactions contemplated hereby and to perform its 
obligations hereunder.  This Agreement and the Tax Agreement have been duly 
executed and delivered by Buyer.  Assuming the due execution of this Agreement 
by Parent and Seller, this Agreement is a legal, valid and binding obligation 
of Buyer enforceable against it in accordance with its terms, subject to the 
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, 
moratorium and other similar laws relating to or affecting creditors' rights 
generally, general equitable principles (whether considered in a proceeding in 
equity or at law) and an implied covenant of good faith and fair dealing.

5.3  No Conflict or Violation.  Neither the execution, delivery and 
performance of this Agreement or the Tax Agreement by Buyer nor the issuance 
of the Class 2 Stock by Buyer, nor the issuance, if issued, of Class 1 Stock 
by Buyer pursuant to the provisions of Section 11.3, nor the consummation by 
Buyer of the transactions contemplated hereby or thereby will result in (a) a 
violation of or a conflict with any provision of the certificate of 
incorporation or bylaws of Buyer, (b) a breach of, or a default under, any 
term or provision of any contract, agreement, indebtedness, lease, 
Encumbrance, commitment, license, franchise, Permit, authorization or 
concession (including any agreements, documents or instruments (the "Financing 
Documents") constituting part of the financing required to consummate the 
transactions contemplated by this Agreement (the "Financing")) to which Buyer 
is a party or is subject or by which any assets of Buyer are bound, which 
breach or default is in a Financing Document or would, individually or in the 
aggregate, have a Material Adverse Effect on Buyer or interfere in any 
material way with the ability of Buyer to consummate the transactions 
contemplated by this Agreement and the Tax Agreement, or (c) subject to 
obtaining the approvals referred to in Section 4.11, a violation by Buyer of 
any statute, rule, regulation, ordinance, code, order, judgment, writ, 
injunction, decree or award, which violation would, individually or in the 
aggregate, have a Material Adverse Effect on Buyer or its ability to 
consummate the transactions contemplated by this Agreement and the Tax 
Agreement.

5.4  No Brokers.  Except for the services of Merrill Lynch & Co., Buyer has 
not employed, and is not subject to the valid claim of, any broker, finder, 
consultant or other intermediary in connection with the transactions 
contemplated by this Agreement who will be entitled to a fee or commission in 
connection with such transactions.  Buyer is solely responsible for any such 
payment, fee or commission that may be due to Merrill Lynch & Co. in 
connection with the transactions contemplated by this Agreement.

5.5  Acquisition for Investment.  Buyer acknowledges that the Stock has not 
been registered under the Securities Act or under any state securities laws.  
Buyer is acquiring the Stock solely for its own account and not with a view to 
any distribution or other disposition of the Stock or any part thereof, or 
interest therein, except in accordance with the Securities Act.  Buyer is an 
"accredited investor" (as defined in Rule 501 of Regulation D under the 
Securities Act).

5.6  Organizational Documents.  Copies of the certificate of incorporation and 
bylaws of Buyer have heretofore been delivered to Seller and such copies are 
true, accurate and complete, without any amendment, modification or 
supplement, as of the date of this Agreement and, after giving effect to the 
filing of the Restated Certificate of Incorporation prior to Closing, the 
Closing Date (except such amendments, modifications or supplements which would 
not have a Material Adverse Effect on Seller or which change the amount of 
authorized capital stock).

5.7  Capitalization of Buyer.  (a)  As of the Closing Date, investment 
partnerships affiliated with KKR shall own, directly or indirectly, no less 
than 70% of the Class 1 Stock, which percentage shall be reduced to reflect 
any investment made by Parent and/or Seller pursuant to Section 11.3.

(b)  In the event that Seller acquires any of the Class 1 Stock as provided in 
Section 11.3 hereof, such shares will be duly authorized, validly issued, 
fully paid and nonassessable, and free of preemptive rights.

(c)  Upon consummation of the transactions contemplated by this Agreement, the 
Class 2 Stock to be issued by Buyer pursuant hereto, when delivered by Buyer 
for the consideration specified herein, will be duly and validly authorized 
and issued by Buyer, fully paid, nonassessable and free of preemptive rights 
and Seller will acquire good and marketable title thereto, free and clear of 
all Encumbrances, except Encumbrances arising as a result of any action taken 
by Seller or any of its Affiliates; provided that Buyer makes no 
representations regarding the ability of any Person other than Buyer to 
transfer or otherwise dispose of such Class 2 Stock without registration or 
qualification under, or in compliance with, applicable Federal securities or 
state securities or insurance laws.

5.8  Consents and Approvals.  Except for (i) consents, approvals, 
authorizations, declarations, filings and registrations required by the nature 
of the business or ownership of Parent, Seller, the Company and the 
Subsidiaries, (ii) filings in respect of the transactions contemplated hereby 
required to be made for compliance with the applicable provisions of the 
Exchange Act and the rules and regulations promulgated thereunder and (iii) 
the filing of premerger notification reports under the HSR Act, no consents, 
approval or authorization of, or declaration, filing or registration with, any 
governmental or regulatory authority, or any other Person, is required to be 
made or obtained by Buyer or any of its Affiliates in connection with the 
execution, delivery and performance of this Agreement, the Ancillary 
Agreements and the consummation of the transactions contemplated hereby and 
thereby.

5.9  Financial Obligations.  Buyer has received and delivered copies to Seller 
of (i) a commitment letter from senior lenders regarding the transactions 
contemplated by this Agreement, (ii) a letter with respect to equity Financing 
(other than that to be provided by management of the Company), which letter is 
addressed to Seller and (iii) an agreement in principal between Buyer and 
management of the Company with respect to the investment by management 
referred to in Section 8.16. 

5.10  Solvency.  At the Closing (after and giving effect to the acquisition of 
the Stock and the Financing), neither Buyer nor the Company will (i) be 
insolvent (either because its financial condition is such that the sum of its 
debts is greater than the fair value of its assets or because the present fair 
saleable value of its assets will be less than the amount required to pay its 
probable liability on its debts as they become absolute and matured), (ii) has 
unreasonably small capital with which to engage in its business or (iii) has 
incurred or plan to incur debts beyond its ability to pay as they become 
absolute and matured.

                               ARTICLE VI

       ACTIONS BY PARENT, SELLER AND BUYER PRIOR TO THE CLOSING

Parent, Seller and Buyer covenant as follows for the period from the date 
hereof to the Closing Date (except, in the case of Section 6.16, for the 
period specified in such Section):

6.1  Maintenance of Business and Preservation of Permits and Services.  Except 
as expressly contemplated by this Agreement, Seller shall cause the Company 
and each Subsidiary to carry on its business, in the ordinary course 
consistent with past practice.  Neither Parent nor Seller shall cause the 
Company or any Subsidiary to terminate an officer thereof or to diminish the 
duties or responsibilities of such officer.

6.2  Additional Financial Statements.  As soon as reasonably practicable after 
the end of the applicable period, Seller shall furnish to Buyer (a) the 
quarterly convention statements of the Subsidiaries for all interim quarterly 
periods subsequent to September 30, 1995, which shall have been prepared on a 
basis consistent with the Convention Statements and, with respect to the 
financial statements included therein, in accordance with Statutory Accounting 
Principles, (b) the quarterly financial statements of the Company and Ridge Re 
for all quarterly periods subsequent to September 30, 1995, which shall have 
been prepared in accordance with generally accepted accounting principles and 
on a basis consistent with the Company GAAP Financial Statements and the Ridge 
Re GAAP Financial Statements, as the case may be, subject to normal year-end 
adjustments and the absence of footnote disclosure, (c) the consolidated 
financial statements for the Company and Ridge Re for the year ended December 
31, 1995, which shall have been prepared in accordance with generally accepted 
accounting principles and on a basis consistent with the Company GAAP 
Financial Statements and the Ridge Re GAAP Financial Statements, as the case 
may be, and (d) (to the extent ordinarily prepared) all monthly financial 
statements of the Company, the Subsidiaries and Ridge Re (for months 
subsequent to June 1995), which shall have been prepared in a manner 
consistent with past practice.

6.3  Certain Prohibited Transactions.  Parent and Seller agree to cause the 
Company and each Subsidiary not to, without the prior written approval of 
Buyer or except as expressly contemplated by this Agreement:

(a)  terminate, cancel or amend any insurance coverage maintained by the 
Company or any of its Subsidiaries with respect to any material assets of the 
Company or any Subsidiary which is not replaced by an adequate amount of 
insurance coverage or is not deemed unnecessary in the reasonable judgment of 
the Company;

(b)  settle any pending or threatened Action relating to an insurance claim in 
an amount in excess of $5,000,000 above the policy limit relating to such 
claim or settle any other pending or threatened Action in an amount in excess 
of $1,000,000; or

(c)  take any action which causes any representation or warranty (other than 
Section 4.7(a)) of Parent or Seller in this Agreement to be or become untrue 
at Closing or results in a material breach of any covenant made by Parent or 
Seller in this Agreement.

6.4  Investigation by Buyer.  Parent and Seller shall, and shall use their 
reasonable efforts to cause the Company and the Subsidiaries to, allow Buyer 
during regular business hours through Buyer's employees, agents and 
representatives, to make such investigation of the business, properties, books 
and records of the Company and the Subsidiaries, and to conduct such 
examination of the condition of the Company and the Subsidiaries, as Buyer 
reasonably deems necessary or advisable to familiarize itself with such 
business, properties, books, records, condition and other matters, and to 
verify the representations and warranties of Seller hereunder; provided, 
however, that any information obtained from Seller or the Company shall be 
deemed to be Evaluation Material for purposes of the Confidentiality Agreement 
dated August 3, 1995, between Seller and Kohlberg Kravis Roberts Co., L.P. 
(the "Confidentiality Agreement") and shall be subject to the Confidentiality 
Agreement.

6.5  Consents.  (a)  As soon as practicable after execution and delivery of 
this Agreement, Buyer and Seller shall make all filings required under the HSR 
Act.  Buyer and Seller will each furnish all information as may be required by 
any other state regulatory agency properly asserting jurisdiction or by the 
Federal Trade Commission and the United States Department of Justice under the 
HSR Act in order that the requisite approvals for the purchase and sale of the 
Stock pursuant hereto, and the transactions contemplated hereby, be obtained 
or to cause any applicable waiting periods to expire.  

(b)  Buyer shall use its best efforts to file Form A change of control 
applications with the applicable state insurance regulators referred to in 
Schedule 4.11 within 45 days from the date hereof.  Buyer will use its 
reasonable efforts to obtain insurance regulatory approvals as soon as 
possible following the Form A change of control filings.  Parent and Seller 
shall cooperate with Buyer to obtain such approvals.

(c)  Seller and Buyer will, as soon as practicable, commence to take all other 
action required to obtain as promptly as practicable all necessary consents, 
approvals, authorizations and agreements of, and to give all notices and make 
all other filings with, any third parties, including governmental authorities, 
necessary to authorize, approve or permit the consummation of the transactions 
contemplated hereby and by the Ancillary Agreements, including all consents, 
approvals and waivers referred to in Sections 7.4 and 8.2 hereof, and Buyer, 
Parent and Seller shall cooperate with each other with respect thereto.

(d)  Notwithstanding the foregoing, however, none of Parent, Seller, Buyer, 
the Company or the Subsidiaries shall be required to agree to any limitations, 
requirements or conditions of, any third party including, but not limited to, 
any insurance regulatory body, or make any payment to any party including the 
Company or any Subsidiary in order to obtain consents referred to in Sections 
7.4 and 8.2.  Parent and Seller shall be entitled to have a representative or 
representatives present at all meetings that may be held by Buyer with 
insurance regulators.

6.6  Notification of Certain Matters.  Parent and Seller, to the extent within 
the actual knowledge of an officer of Parent or Seller listed on Schedule 
1.1B, shall give prompt notice to Buyer, and Buyer, to the extent within the 
knowledge of Buyer, shall give prompt notice to Seller, of (i) the occurrence, 
or failure to occur, of any event which occurrence or failure would be likely 
to cause any representation or warranty contained in this Agreement to be 
untrue or inaccurate in any material respect any time from the date hereof to 
the Closing Date, (ii) any material failure of Parent, Seller or Buyer, as the 
case may be, to comply with or satisfy any covenant, condition or agreement to 
be complied with or satisfied by it hereunder (and each party shall use all 
reasonable efforts to remedy such failure), (iii) any notice or other 
communication from any Person alleging that the consent of such Person is or 
may be required in connection with the transactions contemplated by this 
Agreement and the Ancillary Agreements, (iv) any notice or other communication 
from any governmental or regulatory agency or authority in connection with the 
transactions contemplated by this Agreement and the Ancillary Agreements, (v) 
any Actions that, if pending or threatened on the date hereof, would have been 
required to have been disclosed pursuant to Section 4.13 and (vi) any Actions 
that relate to the consummation of the transactions contemplated by this 
Agreement and the Ancillary Agreements.

6.7  No Solicitations.  (a) Parent, Seller and each of their respective 
Affiliates, including the Company and the Subsidiaries, will not, directly or 
indirectly, solicit any inquiries or proposals or enter into or continue any 
discussions, negotiations, understandings, arrangements or agreements relating 
to the sale or exchange of any Stock, the merger or amalgamation of the 
Company or any of its Subsidiaries with, or the direct or indirect disposition 
of a significant amount of the Company's assets or any Subsidiary's assets or 
business to any Person other than Buyer or its Affiliates or provide any 
assistance or any information to or otherwise cooperate with any Person in 
connection with any such inquiry, proposal or transaction (except that the 
Company may direct inquiries to Buyer, which shall not disclose confidential 
information about the Company or any of its Subsidiaries in connection with 
responding to such inquiries).  In the event that Parent, Seller or any of 
their Affiliates, including the Company and the Subsidiaries receives a 
solicited or unsolicited inquiry, proposal or offer for such a transaction or 
obtains information that such an offer is likely to be made, Parent and Seller 
will provide Buyer with notice thereof as soon as practical after receipt 
thereof, including the identity of the prospective purchaser or soliciting 
party.  Buyer agrees that to the extent it engages in any discussions 
regarding the Company or the Subsidiaries with potential purchasers of the 
capital stock or businesses thereof, Buyer shall not include officers or 
employees of the Company or the Subsidiaries in such discussions.

(b)  The parties acknowledge that there may be no adequate remedy at law for a 
breach of Section 6.7(a) and that money damages may not be an adequate remedy 
for breach of such Section.  Therefore, the parties agree that Buyer shall 
have the right, in addition to any other rights it may have, to injunctive 
relief and specific performance of Section 6.7(a) in the event of any breach 
of such Section.  The remedy set forth in the preceding two sentences is 
cumulative and shall in no way limit any other remedy any party hereto has at 
law, in equity or pursuant hereto.

6.8  Cooperation; Accounting and Other Matters.  Seller shall, and Seller 
shall use its reasonable efforts to cause the Company to, cooperate with Buyer 
in respect of any proposed public offering or private placement of securities, 
and arrangements of other financing by Buyer, the proceeds of which are to be 
used to finance a portion of the purchase of the Stock by Buyer (provided, 
however, that Seller shall not be obligated to participate in such financing 
or the marketing thereof and shall not be obligated to be a party to any 
underwriting, private placement or other agreement with respect thereto), and 
shall, without limitation of the foregoing, cause such Company financial 
statements to be prepared as may be required by the rules and regulations of 
the Securities and Exchange Commission promulgated under the Securities Act.

6.9  Investment Portfolio.  (a)  Parent and Seller shall cause the Company and 
the Subsidiaries to manage the investment portfolio for the Company and the 
Subsidiaries in accordance with the Investment Policy.

(b)  Five days prior to the Closing Date, Parent and Seller shall cause the 
Company to deliver to Buyer a list of all Investments in the investment 
portfolio for the Company and the Subsidiaries as of such date.

6.10  Reinsurance Agreements.  Seller shall cause the Company and each 
Subsidiary not to, without the prior written approval of Buyer (which approval 
shall not be unreasonably withheld), except in the ordinary course of business 
consistent with past practice (i) amend any reinsurance or retrocession 
agreement, (ii) enter into or commit to enter into any loss portfolio transfer 
or other similar transaction, agreement or arrangement or series of related 
transactions, agreements or arrangements involving any ceded reinsurance of 
the Company or any Subsidiary, (iii) enter into or commit to enter into any 
reinsurance or retrocession contract or treaty except to replace, renew or 
extend existing reinsurance and retrocession agreements and treaties on terms 
which are not different in any material respect from the terms of the 
agreement or treaty being replaced, renewed or extended, as the case may be, 
or (iv) commute or terminate any contract of reinsurance, provided that Seller 
shall cause the Company and each Subsidiary not to commute or terminate any 
such contract which at the time of commutation or termination is legally 
carried on the books of the Company and the Subsidiaries in an amount of 
$5,000,000 or more.  All reinsurance or retrocession agreements or treaties 
permitted by this Section shall not have a change of control or similar 
provision which would require the Company or any Subsidiary to obtain a 
consent to consummate the transactions contemplated hereby (unless such 
provisions shall have been waived prior to Closing).

6.11  Dividends.  Seller and Parent shall cause the Company not to (i) 
declare, set aside or pay any dividends or distributions (whether in cash, 
stock or property) in respect of any capital stock of the Company, (ii) make 
any other payment or distribution to Parent, Seller or any Affiliate of Parent 
(excluding the Company and the Subsidiaries, but including Talegen and its 
subsidiaries), or (iii) redeem, purchase or otherwise acquire any of the 
capital stock of the Company or any Subsidiary, except for (A) payments 
permitted under the Tax Agreement, (B) payments under the contracts, 
agreements or arrangements referred to in Schedule 4.23 or described in 
clauses (i), (ii) or (iii) of Section 4.23(b) and (C) dividends from TRG in an 
amount not to exceed the TRG Dividend Replacement Amount (as defined in the 
Talegen Agreement).

6.12  Seller Notes.  The Company and the Subsidiaries shall not dispose of the 
Seller Notes to a Person other than a Subsidiary, except that the Company and 
the Subsidiaries may dispose of all or a portion of the Seller Notes prior to 
Closing to a Person other than a Subsidiary if upon such disposition Seller 
shall pay to the Company the excess of (i) the aggregate principal amount of 
the Seller Notes so disposed plus accrued but unpaid interest through the date 
of such disposition over (ii) the Third Party Amount.  To the extent not 
already disposed of, immediately prior to Closing, Seller shall repay the 
outstanding principal amounts and any accrued but unpaid interest thereon 
under the Seller Notes issued by it and held at that time by the Company or 
any Subsidiary.

6.13  Leesburg Training Facility.  The Company and the Subsidiaries shall not 
dispose of any of their interests in the ground lease agreement among Parent 
and certain of the Subsidiaries or the lease agreement among Seller and such 
Subsidiaries, each dated as of December 1, 1985 and each relating to 
approximately six acres of land in Loudon County, Virginia and a training 
facility located thereon or their fee interests in such facility (the 
"Leesburg Training Facility"), to a Person other than a Subsidiary, except 
that the Company and the Subsidiaries may dispose of their interests (in whole 
or in part) in the Leesburg Training Facility prior to Closing to a Person 
other than a Subsidiary if upon such disposition Seller pays to the Company 
the excess of (i) the greater of $6,200,000 and the statutory carrying value 
of the Leesburg Training Facility as of December 31, 1995 over (ii) the Third 
Party Amount.  If no Third Party Amount has been received by the Company or 
any Subsidiary prior to the Closing, immediately prior to Closing, Parent and 
Seller agree to cause an amount equal to the greater of (i) the statutory 
carrying value of the Leesburg Training Facility as of December 31, 1995 and 
(ii) $6,200,000, to be contributed to such Subsidiaries, allocated to such 
Subsidiaries in accordance with Schedule 6.13 (such contributed amount, the 
"Leesburg Training Facility Amount").  At Closing, the Company shall cause to 
be transferred to Seller or an Affiliate of Seller any remaining interests the 
Company or any of the Subsidiaries has in the Leesburg Training Facility.  
Upon any transfer of the Leesburg Training Facility in accordance with this 
Section 6.13, the Company and the Subsidiaries shall have no further rights or 
obligations relating to the Leesburg Training Facility.  

6.14  Cessions to Ridge Re.  The Insurance Subsidiaries shall make cessions to 
Ridge Re under the Ridge Re Treaty in the ordinary course of business, which 
cessions shall be actuarially supported. 

6.15  Restated Certificate of Incorporation.  Prior to the Closing Date, Buyer 
shall file the Restated Certificate of Incorporation with the Secretary of 
State of the State of Delaware.

6.16  Certain Admitted Assets.  Parent and Seller shall indemnify, guaranty or 
otherwise post credit support to the extent that as of the Closing Date the 
Insurance Subsidiaries shall not have received credit for statutory purposes 
for the Crostex/Camfex Purchase Money Notes in an amount equal to at least $35 
million.  Such indemnity, guaranty or credit support shall continue until 
final maturity of such notes but only in the amount provided in the preceding 
sentence.

6.17  Intercompany Accounts.  (a)  Except as provided in Sections 6.12 and 
6.13, all intercompany accounts (other than those relating to Taxes and those 
under or relating to reinsurance contracts and arrangements) between the 
Company and any Subsidiary, on the one hand, and Parent and any of its 
Affiliates (other than the Company and its Subsidiaries), on the other hand, 
as of the Closing shall be settled at fair value (irrespective of the terms of 
payment of such intercompany accounts) in the manner provided in this Section.  
At least five business days prior to the Closing, Seller shall prepare and 
deliver to Buyer a statement setting out in reasonable detail the calculation 
of all such intercompany account balances based upon the latest available 
financial information as of such date and, to the extent reasonably requested 
by Buyer, provide Buyer with supporting documentation to verify the underlying 
intercompany charges and transactions.  All such intercompany account balances 
shall be paid in full in cash prior to the Closing.  All intercompany 
reinsurance agreements shall remain in effect and shall be settled in the 
ordinary course of business.  All intercompany accounts relating to Taxes will 
be governed by the Tax Agreement.

(b)  As promptly as practicable, but no later than 60 days after the Closing 
Date, Seller shall cause to be prepared and delivered to Buyer a statement 
setting out in reasonable detail the calculation of such intercompany account 
balances as of the Closing Date (giving effect to any settlement under 
subsection (a) and any other payments).  Buyer and Seller shall cooperate in 
the preparation of any such calculation including the provision of supporting 
documentation to verify the underlying intercompany charges, transactions and 
payments.  If Buyer disagrees with Seller's calculation of such intercompany 
balances Buyer may, within 30 days after delivery of such statement, deliver a 
notice to Seller disagreeing with such calculation and setting forth Buyer's 
calculation of such amount.  If Buyer and Seller are unable to resolve such 
disagreement within 30 days thereafter, such disagreement shall be resolved by 
independent accountants of nationally recognized standing reasonably 
satisfactory to Buyer and Seller.  The net amount of any such intercompany 
balance shall be paid in cash promptly thereafter, together with interest 
thereon from and including the Closing Date to but excluding the date of 
payment at a rate equal to 5% per annum.  Such interest shall be payable at 
the same time as the payable to which it relates and shall be calculated daily 
on the basis of a year of 365 days and the actual number of days elapsed.  All 
amounts owing to Buyer under this Section 6.17 shall be paid directly to the 
Company.

6.18  Financing.  Buyer shall use its reasonable efforts to obtain financing 
that will satisfy the condition in Section 8.9 hereof.

6.19  Letter Agreement.  The Letter Agreement substantially in the form of 
Exhibit C shall be executed and delivered at the Closing.

                                 ARTICLE VII

               CONDITIONS TO OBLIGATIONS OF PARENT AND SELLER

The obligations of Parent and Seller to consummate the transactions 
contemplated hereby on the Closing Date are subject, in the discretion of 
Parent and Seller, to the satisfaction or waiver, on or prior to the Closing 
Date, of each of the following conditions:

7.1  Representations, Warranties and Covenants.  All representations and 
warranties of Buyer contained in this Agreement and the Ancillary Documents to 
which Buyer is a party shall be true and correct in all material respects 
(except that such representations and warranties specifically qualified by 
materiality shall be read for purposes of this Section so as not to require an 
additional degree of materiality) as of the date of this Agreement and (except 
to the extent such representations and warranties speak as of an earlier date) 
as of the Closing Date as if such representations and warranties were made on 
and as of the Closing Date, any breaches of such representations and 
warranties as of the Closing Date (determined for purposes of this clause 
without regard to any materiality qualifications in such representations and 
warranties) taken together shall not have a Material Adverse Effect on Buyer, 
the Company and the Subsidiaries, taken as a whole (assuming that the Closing 
shall have occurred), or on Parent or Seller, and Buyer shall have performed 
in all material respects all agreements and covenants required hereby to be 
performed by it prior to or at the Closing Date.  There shall be delivered to 
Seller a certificate (signed by the President of Buyer) to the foregoing 
effect.

7.2  HSR Act.  The applicable waiting period, including any extension thereof, 
under the HSR Act shall have expired.

7.3  No Governmental or Other Proceeding; Illegality.  (a)  No Action shall be 
pending or threatened which seeks to enjoin, restrain or prohibit the 
consummation of the transactions contemplated by this Agreement (including, 
without limitation, the execution, delivery and performance of any Ancillary 
Agreement by the parties thereto) which either Parent or Seller reasonably 
believes presents a material risk that it or its Affiliates would suffer 
substantial monetary damage (whether or not indemnified under this Agreement).

(b)  There shall not be in effect any statute, rule, regulation or order of 
any court, governmental or regulatory body which prohibits or makes illegal 
the transactions contemplated hereby, including, without limitation, the 
execution or delivery of any of the Ancillary Agreements or the performance of 
any of the Guarantees, the Tax Agreement or the Ridge Re Treaty.

7.4  Consents.  All consents, approvals and waivers from governmental 
authorities and other parties necessary to permit Seller and Parent to 
consummate the transactions contemplated hereby shall have been obtained, 
unless the failure to obtain any such consent, approval or waiver would not 
have a Material Adverse Effect on Seller or Parent, as the case may be, 
provided, however, that no such consent, approval or waiver shall contain any 
limitations, requirements or conditions on Parent or Seller or require Parent 
or Seller to make any payment to any party including the Company or any 
Subsidiary.

7.5  Opinion of Counsel.  Buyer shall have delivered to Seller an opinion of 
Simpson Thacher & Bartlett, substantially in the form of Exhibit D-1, and an 
opinion of King & Spalding, special tax counsel to Buyer, substantially in the 
form of Exhibit D-2.

7.6  Certificates.  Buyer will furnish Seller with such certificates of its 
officers, directors and others to evidence compliance with the conditions set 
forth in this Article VII as may be reasonably requested by Seller.

7.7  Corporate Documents.  Seller shall have received from Buyer resolutions 
adopted by the Board of Directors of Buyer approving this Agreement and the 
Tax Agreement and the transactions contemplated hereby and thereby, certified 
by the corporate secretary or assistant secretary of Buyer.

7.8  Talegen Closing.  Talegen Acquisition shall have simultaneously purchased 
all of the outstanding shares of Talegen's capital stock pursuant to the 
Talegen Agreement.

7.9  Reated Certificate of Incorporation.  The Restated Certificate of 
Incorporation shall have been duly filed with the Secretary of State of the 
State of Delaware.

7.10  Solvency Matters.  Buyer shall have provided to Seller, any solvency 
letters or similar opinions or certificates relating to the solvency and 
adequate capitalization of Buyer or the Company and/or the ability of Buyer or 
the Company to pay its debts that are given to any banks or other lenders in 
connection with the acquisition of the Stock at the same time as such letters, 
opinions or certificates are provided to such banks or other lenders.

7.11  Capitalization.  Buyer shall have received no less than $50,000,000 in 
equity and the amount of indebtedness for borrowed money of Buyer shall be no 
more than $110,000,000.

7.12  Company Certificates.  Seller shall have received (i) a certificate 
signed by each of the persons listed on Schedule 1.1C dated as of the date of 
this Agreement, and (ii) a certificate signed by each of such persons dated as 
of the Closing Date, in each case substantially in the form of Exhibit E. 

7.13  Subsidiary Releases.  All of the domestic U.S. Subsidiaries included in 
the consolidated federal income tax return of Parent which are Subsidiaries as 
of Closing shall have executed and delivered to Parent and Seller the releases 
of any and all obligations under existing tax sharing agreements substantially 
in the form of Exhibit F.  

                               ARTICLE VIII

                     CONDITIONS TO OBLIGATIONS OF BUYER

The obligations of Buyer to consummate the transactions contemplated hereby 
are subject, in the discretion of Buyer, to the satisfaction or waiver, on or 
prior to the Closing Date, of each of the following conditions:

8.1  Representations, Warranties and Covenants.  All representations and 
warranties of Parent and Seller contained in this Agreement and the Ancillary 
Agreements to which Parent or Seller is a party shall be true and correct in 
all material respects (except that such representations and warranties 
specifically qualified by materiality shall be read for purposes of this 
Section so as not to require an additional degree of materiality) as of the 
date of this Agreement and (except to the extent such representations and 
warranties speak as of an earlier date) as of the Closing Date as if such 
representations and warranties were made on and as of the Closing Date, any 
breaches of such representations and warranties as of the Closing Date 
(determined for purposes of this clause without regard to any materiality 
qualifications in such representations and warranties) taken together shall 
not have a Material Adverse Effect on the Company and the Subsidiaries, taken 
as a whole, and Parent and Seller shall have performed in all material 
respects all agreements and covenants (other than those contained in Section 
6.3(c) and clauses (i), (ii) and (v) of Section 6.6) required hereby to be 
performed by them, respectively, prior to or at the Closing Date.  There shall 
be delivered to Buyer a certificate of each of Parent and Seller (signed by an 
Executive Vice President of Parent and the President of Seller) to the 
foregoing effect.

8.2  Consents.  All consents, approvals and waivers (a) referred to in clauses 
(i) and (ii) of Section 4.11 or on Schedule 5.8, (b) referred to on Schedule 
4.10, (c) under reinsurance and retrocession agreements for the accident year 
in which the Closing occurs that would be terminable as a result of 
consummation of the transactions contemplated by this Agreement and the 
Ancillary Agreements, (d) under all other reinsurance and retrocession 
agreements that would be terminable as a result of consummation of the 
transactions contemplated by this Agreement and the Ancillary Agreements and 
(e) under the reinsurance agreement described in clause (e) of Section 8.2 of 
the Talegen Agreement shall have been obtained in form and substance 
satisfactory to Buyer, acting reasonably, and shall be in full force and 
effect, except, in the case of consents, approvals and waivers referred to in 
clauses (b), (c) and (d), consents, approvals or waivers the failure of which 
to obtain would not, individually or in the aggregate, result in a Material 
Adverse Effect on the Company and the Subsidiaries, taken as a whole, 
provided, however, that in the case of clauses (a), (b), (c), (d) and (e) no 
such consent, approval or waiver shall contain any limitations, requirements 
or conditions on Buyer, the Company or a Subsidiary or require Buyer, the 
Company or a Subsidiary to make any payment to any party including in the case 
of Buyer, to the Company or, in the case of Buyer or the Company, to any 
Subsidiary, provided further, that the approval of any intercompany tax 
agreements referred to in either Section 4.11(i) or (ii) for a period after 
Closing shall not be a condition to the obligations of Buyer hereunder, and 
provided still further, that with respect to any intercompany tax agreement 
among the Company and the Subsidiaries for the period January 1, 1995 through 
Closing, the obligations of Buyer hereunder shall be conditioned only on the 
approval of an agreement that is reasonably consistent with those provisions 
of the Tax Agreement that provide for the amount and time for payments 
attributable to Taxes.

8.3  HSR Act.  The applicable waiting period, including any extension thereof, 
under the HSR Act shall have expired.

8.4  No Governmental or Other Proceeding; Illegality. (a)  No Action shall be 
pending or threatened which seeks to enjoin, restrain or prohibit the 
consummation of the transactions contemplated by this Agreement (including, 
without limitation, the execution, delivery and performance of any Ancillary 
Agreement by the parties thereto) or to impose limitations on the ability of 
Buyer to exercise full rights of ownership of the Stock or to require the 
divestiture by Buyer of the Stock or by the Company, Buyer or any of their 
Affiliates of any assets or businesses, which Buyer reasonably believes 
presents a material risk that it or its Affiliates (including the Company and 
the Subsidiaries after the Closing Date) would not realize substantially all 
of the benefits of the transactions contemplated by this Agreement or would 
suffer substantial monetary damages (whether or not indemnified under this 
Agreement).

(b)  There shall not be in effect any statute, rule, regulation or order of 
any court, governmental or regulatory body which prohibits or makes illegal 
the transactions contemplated hereby, including, without limitation, the 
execution or delivery of any of the Ancillary Agreements or the performance of 
any of the Guarantees, the Tax Agreement or the Ridge Re Treaty.

8.5  Opinion of Counsel.  Seller shall have delivered to Buyer an opinion of 
Skadden, Arps, Slate, Meagher & Flom, substantially in the form of Exhibit G-
1, an opinion of Richard S. Paul, Senior Vice President and General Counsel of 
Seller, substantially in the form of Exhibit G-2, an opinion of Bruce Shulin, 
General Counsel of IIC, substantially in the form of Exhibit G-3, an opinion 
of Richard N. Frasch, General Counsel of the Company, substantially in the 
form of Exhibit G-4, and an opinion of LeBoeuf, Lamb, Greene & MacRae, special 
tax counsel to Parent and Seller, substantially in the form of Exhibit G-5.

8.6  Certificates.  Parent and Seller shall furnish Buyer with such 
certificates of the respective officers of Parent and Seller and others to 
evidence compliance with the conditions set forth in this Article VIII as may 
be reasonably requested by Buyer.

8.7  Corporate Documents.  Buyer shall have received from Parent and Seller 
resolutions adopted by the respective boards of directors of Parent and Seller 
approving this Agreement and the other Ancillary Agreements to which Parent or 
Seller is or will be a party and the transactions contemplated hereby and 
thereby, certified by the corporate secretary or assistant secretary of Parent 
and Seller, as applicable.  

8.8  Talegen Closing.  Talegen Acquisition shall have simultaneously purchased 
all of the outstanding shares of Talegen's capital stock pursuant to the 
Talegen Agreement.

8.9  Financing.  Buyer shall have obtained proceeds from financing sources on 
terms and conditions consistent with the senior bank commitment letter 
provided by Buyer to Seller prior to the date hereof, and otherwise reasonably 
satisfactory to Buyer.

8.10  No Material Adverse Effect.  Since June 30, 1995, there shall not have 
occurred any event, change or development (including, without limitation, the 
suspension, revocation or other termination of any Permit) which individually 
or in the aggregate, has had or is reasonably likely to have a Material 
Adverse Effect on the Company and the Subsidiaries, taken as a whole.

8.11  Resignation of Officers and Directors.  All Persons who are directors 
and/or officers of the Company and/or any of the Subsidiaries whose principal 
employment is as an officer and/or employee of Seller and/or Parent, shall 
have resigned such directorships and/or such offices.

8.12  Transfer Taxes.  Seller shall have caused all appropriate stock transfer 
tax stamps to be affixed to the certificate or certificates representing the 
Stock.

8.13  Seller Notes.  Seller shall have made the payments contemplated by 
Section 6.12 and repaid all amounts outstanding under any Seller Notes that 
are still held by the Company and any Subsidiary together with any accrued but 
unpaid interest thereon.  

8.14  Leesburg Training Facility Amount.  The Leesburg Training Facility 
Amount shall have been paid, as provided in Section 6.13.

8.15  Guarantees.  Parent shall have executed and delivered to Buyer a 
guarantee for the benefit of IIC substantially in the form of Exhibit H and 
Parent and Seller shall have executed and delivered to Buyer a guarantee for 
the benefit of IIC substantially in the form of Exhibit I.

8.16  Management Investment.  Members of the management of the Company and the 
Subsidiaries designated by Buyer shall have invested in the capital stock of 
Buyer on terms substantially consistent with the agreements in principle 
delivered to Seller prior to the date hereof or otherwise satisfactory to 
Buyer.

                                ARTICLE IX

           ACTIONS BY PARENT, SELLER, AND BUYER AFTER THE CLOSING

9.1  Books and Records.  Parent, Seller and Buyer agree that so long as any 
books, records and files relating to the business, properties, assets or 
operations of the Company or the Subsidiaries, to the extent that they pertain 
to the operations of the Company or the Subsidiaries prior to the Closing 
Date, remain in existence and available, each party (at its expense) shall 
have the right to inspect and to make copies of the same at any time during 
normal business hours for any proper purpose.  Parent and Seller further agree 
that, to the extent such records have not otherwise been delivered to the 
Company or Buyer, Parent and Seller will not destroy or dispose of any 
material books, records or files relating to the investment portfolio existing 
as of the Closing Date without first offering to provide such books, records 
or files to Buyer and that, in any event, Buyer shall have the right to 
inspect and to make copies of the same at any time during normal business 
hours for any proper purpose, to the extent reasonably requested by Buyer.

9.2  Covenants Regarding the Securities.  In connection with any sale, 
transfer or other disposition of all or any part of the Securities under an 
exemption from registration under the Securities Act, if requested by Buyer, 
Seller (or Parent, if such Securities are held by Parent) will deliver to 
Buyer an opinion of counsel (which may be the General Counsel of Parent or, if 
such Securities are held by Seller, of Seller), reasonably satisfactory in 
form and substance to Buyer, that such exemption is available; provided, 
however, that in case of any sale or other transfer of Securities to any 
Person who is a qualified institutional buyer as defined in Rule 144A under 
the Securities Act, no opinion of counsel shall be required if Seller (or 
Parent, if such Securities are held by Parent) provides to Buyer an officer's 
certificate to the effect that such Person is a qualified institutional buyer 
as defined in Rule 144A under the Securities Act.  Parent and Seller hereby 
agree and acknowledge that upon original issuance thereof, and until such time 
as the same is no longer required under the applicable requirements of the 
Securities Act, the Securities (and all securities issued in exchange therefor 
or substitution thereof) shall bear, until such restrictions are no longer 
applicable, the following legend:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER 
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT").  THEY MAY NOT BE SOLD 
OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE 
1933 ACT AND ANY APPLICABLE STATE BLUE SKY LAWS OR SECURITY LAWS OR PURSUANT 
TO AN AVAILABLE EXEMPTION FROM SUCH PROVISIONS."

Parent and Seller further agree and acknowledge that any Class 1 Stock 
acquired in accordance with Section 11.3 shall also bear (until such time as 
such restrictions are no longer applicable) the following legend:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF 
FIRST REFUSAL AND CERTAIN OTHER RESTRICTIONS ON TRANSFER AS SET FORTH IN THAT 
CERTAIN STOCKHOLDERS AGREEMENT, BETWEEN TRG ACQUISITION CORPORATION AND XEROX 
FINANCIAL SERVICES, INC., A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY 
OF TRG ACQUISITION CORPORATION."

9.3  Crostex/Camfex Purchase Money Notes.  Seller and Parent shall indemnify, 
guaranty or otherwise post credit support pursuant to the covenant set forth 
in Section 6.16 from and after the Closing.

9.4  Certain Employee Benefit Matters.  (a)  Parent and its Affiliates (other 
than the Company, the Subsidiaries, Talegen and its subsidiaries) shall retain 
all liabilities and obligations under the employee stock ownership plan 
("ESOP") in which employees of the Company and the Subsidiaries participated 
prior to January 1, 1993.  All awards made to such participants under the ESOP 
shall fully vest as of the Closing Date.

(b)   Parent and its Affiliates (other than the Company, the Subsidiaries, 
Talegen and its subsidiaries) shall retain all liabilities and obligations 
under the Long Term Incentive Program attached as Attachment A and the Stock 
Option Agreement attached as Exhibit A to the Employment Agreement among 
Joseph W. Brown, Jr., Parent and the Company and the five related agreements 
with management of the Company or TRG (collectively, the "Long Term Incentive 
Program") for the benefit of the participants listed on Schedule 9.4.  All 
payments due to such participants under the Long Term Incentive Program shall 
be made at Closing.

(c)  All payments due, at or before the Closing, under the Senior Management 
Group Compensation Plan of the Company and IIC, any related agreements 
thereto, the Plan Termination Agreement and General Release for the Senior 
Management Group, the Plan Termination Agreement and General Release for 
Banded Associates, the TRG Senior Management Long Term Incentive Compensation 
Plan, the IIC Annual Compensation Plan for Banded Associates, the IIC Annual 
Compensation Plan for the Senior Management Group and any related termination 
agreements (collectively, the "TRG Incentive Plans") shall be made at or prior 
to the Closing.  After the Closing, Parent and its Affiliates shall retain all 
remaining liabilities and obligations arising under the TRG Incentive Plans.

9.5	Transfer Taxes.  Seller shall pay, or cause to be paid, all stock 
transfer and other transfer taxes required to be paid in connection with the 
sale and delivery to Buyer of the Stock.

9.6  Ridge Re.  On and after the Closing Date, Parent and Seller shall cause 
Ridge Re to refrain from (i) entering into any reinsurance or retrocession 
agreement or treaty and (ii) engaging in any business other than in connection 
with the Ridge Re Treaty and the other treaties referenced in the first 
sentence of Section 4.9(c) of the Talegen Agreement as in effect on the date 
hereof, provided that the obligations contained in this Section 9.6 shall 
terminate upon consummation of the sale of Ridge Re to a Qualified Transferee.

9.7  Further Assurances.  On and after the Closing Date, Parent, Seller, the 
Company and Buyer will take all appropriate action and execute all documents, 
instruments or conveyances of any kind which may be reasonably necessary or 
advisable to carry out any of the provisions hereof, including without 
limitation, putting Buyer in possession and operating control of the business 
of the Company.

                                ARTICLE X

                             INDEMNIFICATION

10.1  Survival of Representations and Warranties.  Buyer has the right to rely 
fully upon the representations, warranties, covenants and agreements of Parent 
and Seller contained in this Agreement and the Ancillary Agreements.  Parent 
and Seller have the right to rely fully upon the representations, warranties, 
covenants and agreements of Buyer contained in this Agreement and the 
Ancillary Agreements.  All such representations and warranties (including the 
Schedules hereto and the certificates delivered in accordance with Sections 
7.1 and 8.1 hereof, insofar as the Schedules and such certificates relate to 
such representations and warranties) shall be deemed to be repeated at Closing 
for purposes of this Article X and, except as set forth in the last sentence 
of this Section, shall survive the execution and delivery hereof and the 
Closing, and thereafter (i) in the case of the representations and warranties 
contained in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 and 4.18 hereof, such 
representations and warranties shall survive without limitation as to time, 
(ii) in the case of the representations and warranties contained in Sections 
4.21, 4.24 and 4.28 hereof, such representations and warranties shall survive 
until 90 days after the expiration of the applicable statute of limitations 
with respect to the subject matter thereof and (iii) in the case of all other 
representations and warranties, such representations and warranties shall 
expire on the date two years following the Closing Date; provided, however, 
that any representation or warranty shall survive the time it would otherwise 
terminate pursuant to this Section to the extent that notice of a breach 
thereof giving rise to a right of indemnification shall have been given by a 
party hereto in accordance with Section 10.3 hereof prior to such time.  All 
of the covenants and agreements of the parties contained in this Agreement and 
the Ancillary Agreements to be performed on or after the date of this 
Agreement shall survive the Closing without limitation as to time.  
Notwithstanding the foregoing, none of the following representations and 
warranties (including the Schedules hereto and the certificates delivered in 
accordance with Sections 7.1 and 8.1 hereof, insofar as the Schedules and such 
certificates relate to such representations and warranties) shall survive the 
Closing:  (i) representations and warranties contained in Sections 4.16, 
4.21(e), 4.21(h) and Article V; and (ii) representations and warranties 
contained in any Section of Article IV and which relate to Excluded 
Activities.

10.2  Indemnification.  (a)  Parent and Seller shall jointly and severally 
defend, indemnify and hold harmless Buyer, the Company and their Affiliates 
and each director and officer of such Persons against any loss, damage, claim, 
liability, judgment or settlement of any nature or kind, including all costs 
and expenses relating thereto, including without limitation, interest, 
penalties and reasonable attorneys' fees (collectively "Damages"), arising out 
of, resulting from or relating to: 

  (i)  subject to Section 10.1, the breach of any representation or warranty 
of Parent or Seller contained in this Agreement (other than in Section 4.18), 
any Ancillary Agreement or any certificate delivered pursuant hereto or 
thereto; provided, however, that such Persons shall be entitled to 
indemnification hereunder only when the aggregate of all such Damages exceeds 
$10,000,000 (in which event such Persons shall be entitled to indemnification 
for all such Damages); provided, further, that Seller shall not be liable 
under this clause (i) for an amount of Damages in excess of (x) $150,000,000 
less an amount equal to Transaction Expenses plus (y) amounts received in cash 
dividends on, and in respect of cash redemptions of, the Class 2 Stock;
  
  (ii)  the breach of any covenant or agreement (whether to be performed prior 
to or after Closing) of Parent or Seller contained in this Agreement, any 
Ancillary Agreement or any certificate delivered pursuant hereto or thereto;

  (iii)  any facts, circumstances, conditions, events or actions existing or 
occurring at any time with respect to Constitution Re, First Quadrant and 
Viking (as such terms are defined in the Talegen Agreement) and any subsidiary 
of any of the foregoing (other than liabilities related to the business 
represented by the First Quadrant Asset Sale (as defined in the Talegen 
Agreement));

  (iv)  any Action brought by a security holder or creditor of Seller or 
Parent in their capacity as such;

  (v)  long term incentive payments (including payments arising out of the 
sale of the Company or the Excluded Business) payable to the Persons listed on 
Schedule 10.2;

  (vi)  the breach of the representations and warranties contained in Section 
4.18; and

  (vii)  any facts, circumstances, conditions, events or actions existing or 
occurring after the Closing Date with respect to the Leesburg Training 
Facility.

The foregoing provisions of this Section 10.2(a) shall not apply with respect 
to any Damages arising out of (and no indemnification hereunder shall be 
available with respect to) any (i) breach of any representation or warranty of 
Parent or Seller that is terminated as provided in Section 10.1 (subject, 
however, to the proviso contained in Section 10.1), (ii) breaches of the 
representations and warranties of Parent and Seller contained in this 
Agreement and the Ancillary Agreements which would result in the failure of 
any of the conditions in Section 8.1 to be satisfied if Buyer had actual 
knowledge of such breaches (or received notice thereof pursuant to Section 
6.6) prior to the Closing Date, (iii) breach of any representation or warranty 
contained in Section 4.21(h), (iv) breach of any representation or warranty to 
the extent it relates to Excluded Activities, (v) action that breaches Section 
6.3(c) to the extent such action relates to Excluded Activities (except if 
such action is directed by Parent or Seller or, prior to or at the time taken, 
an officer listed on Schedule 1.1B knew that such action was to be taken), 
(vi) breach of any covenant to be performed prior to Closing to the extent it 
relates to Excluded Activities, other than a breach of Section 6.1, 6.3(a), 
6.3(b), 6.10 or 6.14, (vii) action that breaches Section 6.2 or Section 6.9 
(except in each case if such action is directed by Parent or Seller or, prior 
to or at the time taken, an officer listed on Schedule 1.1B knew that such 
action was to be taken) or (viii) underfunding of Company Plans (including 
fines and penalties assessed by governmental authorities relating thereto).

(b)  For purposes of clause (i) of Section 10.2(a), (X) a "Material Adverse 
Effect" (as such term is used in any representation or warranty contained in 
Article IV other than the representations and warranties contained in Section 
4.7(a)) shall be deemed to have occurred if the aggregate of all Damages 
related to any such representation or warranty shall exceed $1 and (Y) the 
representations and warranties contained in Sections 4.7, 4.13 and 4.15(b) 
shall be read as if such representations and warranties do not include the 
words "Knowledge of Seller".

(c)  The term "Damages" as used in this Article X is not limited to matters 
asserted by third parties against any Person entitled to be indemnified under 
this Article X, but includes Damages incurred or sustained by any such Person 
in the absence of third party claims.

(d)  No claim for Damages under this Article X may be asserted or pursued by 
any former Subsidiary against Parent or Seller, unless, prior to the date that 
such former Subsidiary shall have ceased to be a "Subsidiary", such former 
Subsidiary shall have delivered a Notice to Parent or Seller relating to such 
claim.

10.3  Indemnification Procedures.  (a)  In the event that any Person shall 
incur or suffer any Damages in respect of which indemnification may be sought 
hereunder, such Person (the "Indemnitee") may assert a claim for 
indemnification by written notice (the "Notice") to the party from whom 
indemnification is being sought (the "Indemnitor"), stating the amount of 
Damages, if known, and the nature and basis of such claim.  In the case of 
Damages arising or which may arise by reason of any third-party claim, 
promptly after receipt by an Indemnitee of written notice of the assertion or 
the commencement of any Action with respect to any matter in respect of which 
indemnification may be sought hereunder, the Indemnitee shall give Notice to 
the Indemnitor and shall thereafter keep the Indemnitor reasonably informed 
with respect thereto, provided that failure of the Indemnitee to give the 
Indemnitor prompt notice as provided herein shall not relieve the Indemnitor 
of any of its obligations hereunder, except to the extent that the Indemnitor 
is materially prejudiced by such failure.  In case any such Action is brought 
against any Indemnitee, the Indemnitor shall be entitled to assume the defense 
thereof, by written notice of its intention to do so to the Indemnitee within 
30 days after receipt of the Notice.  If the Indemnitor shall assume the 
defense of such Action, it shall not settle such Action without the prior 
written consent of the Indemnitee, which consent shall not be unreasonably 
withheld, provided that an Indemnitee shall not be required to consent to any 
settlement that (i) does not include as an unconditional term thereof the 
giving by the claimant or the plaintiff of a release of the Indemnitee from 
all liability with respect to such Action or (ii) involves the imposition of 
equitable remedies or the imposition of any material obligations on such 
Indemnitee other than financial obligations for which such Indemnitee will be 
indemnified hereunder.  As long as the Indemnitor is contesting any such 
Action in good faith and on a timely basis, the Indemnitee shall not pay or 
settle any claims brought under such Action.  Notwithstanding the assumption 
by the Indemnitor of the defense of any Action as provided in this Section, 
the Indemnitee shall be permitted to participate in the defense of such Action 
and to employ counsel at its own expense; provided, however, that if the 
defendants in any Action shall include both an Indemnitor and any Indemnitee 
and such Indemnitee shall have reasonably concluded that counsel selected by 
Indemnitor has a conflict of interest because of the availability of different 
or additional defenses to such Indemnitee, such Indemnitee shall have the 
right to select separate counsel to participate in the defense of such Action 
on its behalf, at the expense of the Indemnitor; provided that the Indemnitor 
shall not be obligated to pay the expenses of more than one separate counsel 
for all Indemnitees, taken together.

(b)  If the Indemnitor shall fail to notify the Indemnitee of its desire to 
assume the defense of any such Action within the prescribed period of time, or 
shall notify the Indemnitee that it will not assume the defense of any such 
Action, then the Indemnitee may assume the defense of any such Action, in 
which event it may do so acting in good faith in such manner as it may deem 
appropriate, and the Indemnitor shall be bound by any determination made in 
such Action, provided, however, that the Indemnitee shall not be permitted to 
settle such action without the consent of the Indemnitor.  No such 
determination or settlement shall affect the right of the Indemnitor to 
dispute the Indemnitee's claim for indemnification.  The Indemnitor shall be 
permitted to join in the defense of such Action and to employ counsel at its 
own expense.

(c)  Amounts payable by the Indemnitor to the Indemnitee in respect of any 
Damages for which such party is entitled to indemnification hereunder shall be 
payable by the Indemnitor as incurred by the Indemnitee.

(d)  In the event of any dispute between the parties regarding the 
applicability of the indemnification provisions of this Agreement, the 
prevailing party shall be entitled to recover all Damages incurred by such 
party arising out of, resulting from or relating to such dispute.

10.4  Insurance Proceeds and Tax Limitations.  The amount of any Damages or 
other liability for which indemnification is provided under this Agreement 
shall be net of any amounts recovered or recoverable by the Indemnitee under 
insurance policies with respect to such Damages or other liability and shall 
be (i) increased to take account of any Tax cost incurred (grossed up for such 
increase) by the Indemnitee arising from the receipt of indemnity payments 
hereunder (unless such indemnity payment is treated as an adjustment to the 
purchase price hereunder for tax purposes) and (ii) reduced to take account of 
any Tax benefit realized by the Indemnitee arising from the incurrence or 
payment of any such Damages or other liability.  Such Tax cost or Tax benefit, 
as the case may be, shall be computed for any year using the Indemnitee's 
actual tax liability with and without (i) the incurrence or payment of any 
Damages or other liability for which indemnification is provided under this 
Agreement or (ii) the payment of any indemnification payments made pursuant to 
this Agreement in such year.  In the event that the Indemnitee will actually 
realize a Tax cost or Tax benefit for a year(s) subsequent to the year in 
which the indemnity payment is made, a payment in respect of such Tax cost or 
Tax benefit shall be made in such subsequent year(s).  Any indemnity payment 
made pursuant to this Agreement will be treated as an adjustment to the 
purchase price hereunder for Tax purposes, unless a determination (as defined 
in Section 1313 of the Code) with respect to the Indemnitee causes any such 
payment not to constitute an adjustment to the purchase price for United 
States Federal income tax purposes.

10.5  Tax Indemnification.  Notwithstanding anything to the contrary in this 
Agreement, the rights and obligations of the parties with respect to 
indemnification for any and all Tax matters (other than with respect to any 
representations and warranties contained herein relating to Tax matters, 
except to the extent Buyer is indemnified under the provisions of the Tax 
Agreement) shall be governed by the Tax Agreement and shall not be subject to 
this Article X, including any calculation pursuant to clause (i) of Section 
10.2(a).

                                 ARTICLE XI

                                MISCELLANEOUS

11.1  Termination.  This Agreement may be terminated and the transactions 
contemplated hereby abandoned:

(a)  by mutual consent of the parties; or

(b)  by Parent and Seller, on the one hand, or Buyer, on the other hand, on 
June 17, 1996 if it can be reasonably anticipated that the approvals referred 
to in Section 4.11(i) cannot be obtained without the applicable regulatory 
authorities imposing an additional material economic burden on Parent or 
Seller, on the one hand, or Buyer, the Company and the Subsidiaries, taken as 
a whole, on the other hand; or

(c)  by Parent and Seller, on the one hand, or Buyer, on the other hand, if 
the conditions to such parties' obligations set forth in Articles VII and 
VIII, as the case may be, have not been satisfied (or waived by the party 
entitled to the benefit thereof) on or before August 17, 1996; provided that 
if the approvals referred to in Section 4.11(i) have not been obtained by 
August 17, 1996, this Agreement shall not be terminated prior to October 17, 
1996 if it can be reasonably anticipated that such approvals can be obtained 
by October 17, 1996; or

(d)  by Parent and Seller, on the one hand, or Buyer, on the other hand, if 
the Talegen Agreement is terminated in accordance with its terms.

Upon termination of this Agreement pursuant to this Section 11.1, this 
Agreement shall be void and of no further force and effect (except as provided 
in the last sentence of this paragraph) and no party shall have any liability 
to any other party under this Agreement unless such party has (a) willfully 
failed to have performed its obligations hereunder or (b) knowingly made a 
misrepresentation of any matter set forth herein.  For purposes of the 
immediately preceding sentence, with respect to obligations of the Company or 
any Subsidiary to take or refrain from taking any action under this Agreement 
or obligations of Parent or Seller to cause the Company or any Subsidiary to 
take or refrain from taking any action under this Agreement, neither Parent 
nor Seller shall be deemed to have "willfully failed" unless, in each case, 
such action or failure to act is directed by Parent or Seller or occurs with 
knowledge of an officer listed on Schedule 1.1B or 1.1C; provided that if such 
action or failure is (X) not directed by Parent or Seller, (Y) occurs with the 
knowledge of an officer listed on Schedule 1.1C and (Z) occurs without the 
knowledge of an officer listed on Schedule 1.1B, Buyer shall recover only its 
Third Party Expenses and Seller and Parent shall have no further liability 
under this Agreement.  For purposes of the second preceding sentence, neither 
Parent nor Seller shall be deemed to have "knowingly" made a misrepresentation 
unless an officer listed on Schedule 1.1B or 1.1C knows such representation is 
untrue when made; provided that if a representation is known to be untrue when 
this Agreement is executed by the parties hereto by an officer listed on 
Schedule 1.1C but not by an officer listed on Schedule 1.1B, Buyer shall 
recover only its Third Party Expenses and Seller and Parent shall have no 
further liability under this Agreement.  Notwithstanding a termination of this 
Agreement, the provisions of Sections 11.2(b) and 11.11, the last sentences of 
Sections 4.18 and 5.4 and the confidentiality provision of the proviso to 
Section 6.4 hereof shall continue in full force and effect.	

11.2  Confidentiality.  (a)  Parent and Seller shall assign to the Company at 
or prior to, and with effect from and after the Closing, all of their 
respective rights under the Confidentiality Agreement and under any other 
confidentiality agreements with third Persons relating to the business of the 
Company or any of the Subsidiaries.

(b)  Except as otherwise required by law (including if required by any stock 
exchange on which any of the securities of any party or their respective 
Affiliates are listed or by any securities commission or similar regulatory 
authority having jurisdiction over any such party or any of its Affiliates), 
Buyer, Seller and Parent shall keep confidential all aspects of the 
transactions contemplated hereby, including the fact that this Agreement has 
been executed.  Notwithstanding the foregoing or the terms of the 
Confidentiality Agreement, Buyer and its Affiliates and Seller, Parent and 
their respective Affiliates may disclose information concerning the 
transactions contemplated hereby in connection with the financing of such 
transactions by Buyer, to potential equity investors in Buyer or any of its 
Affiliates, as necessary to obtain any consents referenced in Section 8.2 and, 
in the case of Parent, as it, in its sole discretion, deems appropriate in 
light of its status as a Person with public stockholders.  The parties will 
use their reasonable efforts to make the release to be issued announcing the 
Closing a mutually acceptable joint release.  Before issuing any other press 
release with respect to the transactions contemplated by this Agreement, the 
parties will use reasonable efforts to provide each other with a reasonable 
opportunity to review and comment on any such announcement.

11.3  Parent Option.  (a)  Parent and/or Seller shall have the right to 
purchase up to an aggregate of 19.9% of the Class 1 Stock immediately prior to 
the Closing for a per share purchase price equal to the per share purchase 
price paid or payable by other stockholders of Buyer on or prior to the 
Closing Date.  Parent and/or Seller shall pay the aggregate purchase price for 
any shares to be purchased pursuant to this Section in cash, payable by wire 
transfer in immediately available funds to an account which Buyer shall 
designate in writing to Parent no less than two business days prior to the 
Closing Date.  To exercise such right, Parent and/or Seller must deliver 
irrevocable written notice to Buyer within 45 days from the date hereof which 
indicates the percentage interest (after giving effect to its purchase) of 
Class 1 Stock that Parent and/or Seller desire to purchase hereunder, but not 
to exceed an aggregate of 19.9% (which irrevocable notice shall bind Parent, 
subject to the last sentence of this Section, to make such purchase on the 
Closing Date).  No such notice shall be effective unless Parent and/or Seller 
concurrently delivers a notice under Section 11.3 of the Talegen Agreement 
which indicates Parent's and/or Seller's election to purchase the same 
aggregate percentage interest in the securities covered by the election 
thereunder that Parent and/or Seller elect to purchase hereunder.  
Notwithstanding the foregoing, if this Agreement is terminated pursuant to 
Section 11.1, Parent and Seller shall cease to have the right to purchase 
Class 1 Stock hereunder, whether or not their rights had been previously 
exercised, and any notice which shall have been delivered pursuant to this 
Section shall be void and of no effect.

(b)  Any Class 1 Stock purchased by Parent and/or Seller pursuant to paragraph 
(a) above shall be subject to the terms and conditions set forth in Exhibit J.

11.4  Assignment.  Neither this Agreement nor any of the rights or obligations 
hereunder may be assigned by Parent or Seller without the prior written 
consent of Buyer, or by Buyer without the prior written consent of Parent or 
Seller.  Subject to the foregoing, this Agreement shall be binding upon and 
inure to the benefit of the parties hereto and their respective successors and 
assigns, and no other Person shall have any right, benefit or obligation 
hereunder.

11.5  Notices.  Unless otherwise provided herein, any notice, request, 
instruction or other document to be given hereunder by any party to the others 
shall be in writing and delivered in Person or by courier or facsimile 
transmission or mailed by certified mail, postage prepaid, return receipt 
requested (such mailed notice to be effective on the date such receipt is 
acknowledged), as follows:

If to Parent or Seller:

Xerox Financial Services, Inc.
First Stamford Place
Stamford, Connecticut  06904-2347
Attn:  Stuart B. Ross
       Chairman & Chief Executive Officer
Fax:   (203) 325-6822

        and

Xerox Corporation
Long Ridge Road
Stamford, Connecticut  06904
Attn:  Richard Paul, Esq.
       General Counsel
Fax:   (203) 968-3446

    With a copy to:

Skadden, Arps, Slate, Meagher & Flom
Third Avenue
New York, New York  10022
Attn:  Lou R. Kling, Esq. and
       Peter Allan Atkins, Esq.
Fax:   (212) 735-2000


If to Buyer:

TRG Acquisition Corporation
c/o Kohlberg Kravis Roberts & Co.
Sand Hill Road, Suite 200
Menlo Park, California  94025
Attn:  Saul A. Fox
Fax:  (415) 233-6594

    With copies to:

Joseph W. Brown
Talegen Holdings, Inc.
Waterfront Center One
Western Avenue, Suite 1000
Seattle, Washington 98101
Fax:  (206) 654-2633

Gary I. Horowitz, Esq.
Simpson Thacher & Bartlett
Lexington Avenue
New York, New York  10017
Fax:  (212) 455-2502

or to such other place and with such other copies as either party may 
designate as to itself by written notice to the others.

11.6  Choice of Law.  This Agreement shall be construed, interpreted and the 
rights of the parties determined in accordance with the internal laws of the 
State of New York, without regard to the conflict of law principles thereof.  

11.7  Entire Agreement; Amendments and Waivers.  This
Agreement, together with the Ancillary Agreements and the Confidentiality 
Agreement (except to the extent superseded hereby), constitutes the entire 
agreement among the parties pertaining to the subject matter hereof and 
supersedes all prior agreements, understandings, negotiations and discussions, 
whether oral or written, of the parties.  No supplement, modification or 
waiver of this Agreement (including, without limitation, any Schedule hereto) 
shall be binding unless executed in writing by all parties.  No waiver of any 
of the provisions of this Agreement shall be deemed or shall constitute a 
waiver of any other provision hereof (whether or not similar), nor shall such 
waiver constitute a continuing waiver unless otherwise expressly provided.  
With respect to breaches of any representation, warranty or covenant contained 
herein, unless this Agreement shall have been terminated pursuant to Section 
11.1, the sole remedy of the parties against each other shall be the 
indemnification rights set forth in Section 10.2.

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

11.9  Invalidity.  In the event that any one or more of the provisions 
contained in this Agreement or in any other instrument referred to herein, 
shall, for any reason, be held to be invalid, illegal or unenforceable in any 
respect, such invalidity, illegality or unenforceability shall not affect any 
other provision of this Agreement or any other such instrument.

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

11.11  Expenses.  Subject to Section 11.1, Seller and Buyer will each be 
liable for its own costs and expenses incurred in connection with the 
negotiation, preparation, execution or performance of this Agreement.  

11.12  [Intentionally Omitted].

11.13  Joint and Several.  All covenants, representations and warranties made 
by Parent or Seller in this Agreement shall be deemed to be joint and several 
covenants, representations and warranties of Parent and Seller.

11.14  No Third Party Beneficiaries.  This Agreement shall inure exclusively 
to the benefit of and be binding upon the parties hereto and their respective 
successors, assigns, executors and legal representatives.  Except as expressly 
provided in Section 10.2, nothing in this Agreement, express or implied, is 
intended to confer on any Person other than the parties hereto or their 
respective successors and assigns, any rights, remedies, obligations or 
liabilities under or by reason of this Agreement.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have 
caused this Agreement to be duly executed on their respective behalf by their 
respective officers thereunto duly authorized, as of the day and year first 
above written.

XEROX CORPORATION

Stuart B. Ross            
Name:   Stuart B. Ross
Title:  Executive Vice President


XEROX FINANCIAL SERVICES, INC.

Stuart B. Ross            
Name:   Stuart B. Ross
Title:  Chairman, President and Chief Executive Officer


TRG ACQUISITION CORPORATION

Saul A. Fox               
Name:   Saul A. Fox
Title:  President and Chief Executive Officer







Computation of Net Income Per Common Share

(Dollars in millions, except per-share data; shares in thousands)_____________
I. Primary Net Income (Loss) Per Common Share
     Income (loss) from continuing operations
     Accrued dividends on ESOP preferred stock, net
     Accrued dividends on redeemable preferred stock   
     Call premium on redeemable preferred stock 
     Adjusted income (loss) from continuing operations
     Discontinued operations
     Change in accounting principles
     Adjusted net income (loss)

     Average common shares outstanding during the period
     Common shares issuable with respect to common
       stock equivalents for stock options, incentive and
       exchangeable shares
     Adjusted average shares outstanding for the period

     Primary earnings (loss) per share:
       Continuing operations
       Discontinued operations
       Change in accounting principles
     Primary earnings (loss) per share


II.Fully Diluted Net Income (Loss) Per Common Share
     Income (loss) from continuing operations
     Accrued dividends on ESOP preferred stock, net
     Accrued dividends on redeemable preferred stock 
     Call premium on redeemable preferred stock
     ESOP expense adjustment, net of tax
     Interest on convertible debt, net of tax
     Adjusted income (loss) from continuing operations
     Discontinued
 operations
     Change in accounting principles
     Adjusted net income (loss)

     Average common shares outstanding during the period
     Common shares issuable with respect to:
       Stock options, incentive and exchangeable shares
       Convertible debt
       ESOP preferred stock
     Adjusted average shares outstanding for the period

     Fully diluted earnings (loss) per share:
       Continuing operations
       Discontinued operations
       Change in accounting principles
     Fully diluted earnings (loss) per share *

*  Fully diluted discontinued operations net loss per share for the year
   ended December 31, 1995 is computed by dividing adjusted net loss of 
   $(1,646) by the adjusted average shares outstanding for the period of
   110,563 used in the computation of primary net income per common share.
   This computation is necessitated by the anti-dilutive nature of convertible
   debt and ESOP preferred stock which would otherwise decrease fully diluted
   net loss per share for this period.


                                                                   EXHIBIT 11

         1995            1994            1993            1992            1991

     $  1,174        $    794        $   (193)       $    562        $    436
          (42)            (41)            (38)            (39)            (60)
           (3)            (12)            (23)            (23)            (23)
            -             (11)              -               -               - 
        1,129             730            (254)            500             353
       (1,646)              -              67            (818)             18
            -               -               -            (764)              -
     $   (517)       $    730        $   (187)       $ (1,082)       $    371

      107,362         105,425         100,047          94,424          92,447


        3,201           3,001           1,354           1,484           2,479
      110,563         108,426         101,401          95,908          94,926


     $  10.20        $   6.73        $  (2.50)       $   5.21        $   3.72
       (14.89)              -             .66           (8.53)            .19
            -               -              -            (7.97)              -
     $  (4.69)       $   6.73        $  (1.84)       $ (11.29)       $   3.91



     $  1,174        $    794        $   (193)       $    562        $    436
            -               -             (38)            (39)              -
           (3)            (12)            (23)            (23)            (23)
            -             (11)              -               -               -
           (9)             (7)              -               -             (25)
            4               3               -               -               1
        1,166             767            (254)            500             389
       (1,646)              -              67            (818)             18
            -               -               -            (764)              -
     $   (480)       $    767        $   (187)       $ (1,082)       $    407

      107,362         105,425         100,047          94,424          92,447

        3,229           3,001           1,354           1,484           2,791
          881             881               -               -             217
        9,554           9,770               -               -          10,007
      121,026         119,077         101,401          95,908         105,462


     $   9.63        $   6.44        $  (2.50)       $   5.21        $   3.69
       (14.89)              -             .66           (8.53)            .17
            -               -               -           (7.97)              -
     $  (5.26)       $   6.44        $  (1.84)       $ (11.29)       $   3.86







                                                                   EXHIBIT 12
Computation of Ratio of Earnings to Fixed Charges

Year ended December 31  (in millions)    1995    1994    1993*   1992    1991

Fixed Charges:
   Interest expense                    $  591  $  520  $  540  $  627  $  596
   Rental expense                         142     170     180     187     178
    Total fixed charges before
     capitalized interest                 733     690     720     814     774
   Capitalized interest                     -       2       5      17       3
    Total fixed charges                $  733  $  692  $  725  $  831  $  777

Earnings available for fixed 
  charges:
   Earnings**                          $1,979  $1,602  $ (193) $1,183  $1,035
   Less undistributed income in
    minority owned companies              (90)    (54)    (51)    (52)    (70)
   Add fixed charges before
    capitalized interest                  733     690     720     814     774
   Total earnings available for 
    fixed charges                      $2,622  $2,238  $  476  $1,945  $1,739

Ratio of earnings to
 fixed charges (1)(2)                    3.58    3.23    0.66    2.34    2.24


(1) The ratio of earnings to fixed charges has been computed based on the 
    Company's continuing operations by dividing total earnings available for 
    fixed charges, excluding capitalized interest, by total fixed charges.  
    Fixed charges consist of interest, including capitalized interest, and 
    one-third of rent expense as representative of the interest portion of 
    rentals.  Debt has been assigned to discontinued operations based on 
    historical levels assigned to the businesses when they were continuing 
    operations adjusted for subsequent
 paydowns.  The discontinued operations 
    consist of the Company's Insurance and Other Financial Services businesses 
    and its real-estate development and third-party financing businesses.
(2) The Company's ratio of earnings to fixed charges includes the effect of 
    the Company's finance subsidiaries, which primarily finance Xerox 
    equipment.  Financing businesses are more highly leveraged and, therefore, 
    tend to operate at lower earnings to fixed charges ratio levels than do 
    non-financial businesses.
*   1993 earnings were inadequate to cover fixed charges.  The coverage 
    deficiency was $249 million.
**  Sum of "Income (Loss) before Income Taxes, Equity Income and Minorities' 
    Interests" and "Equity in Net Income of Unconsolidated Affiliates."





   

<PAGE>
 

<TABLE> 
<CAPTION> 
Consolidated Statements of Income

Year ended December 31 (in millions, except per-share data)                               1995     1994      1993
                                                                                        ------   -------   ------
<S>                                                                                     <C>       <C>      <C>
 REVENUES
   Sales                                                                                $ 8,799   $ 7,853  $ 7,211
   Service and rentals                                                                    6,804     6,229    5,954
   Finance income                                                                         1,008     1,006    1,064
                                                                                        -------   -------   ------
   Total Revenues                                                                        16,611    15,088   14,229
                                                                                        -------   -------   ------

 COSTS AND EXPENSES
   Cost of sales                                                                          4,962     4,653    4,098
   Cost of service and rentals                                                            3,437     3,016    2,986
   Equipment financing interest                                                             509       502      537
   Research and development expenses                                                        951       895      883
   Selling, administrative and general expenses                                           4,770     4,394    4,477
   Special charges, net                                                                       -         -    1,373
   Other, net                                                                               135       114      155
                                                                                        -------   -------   ------
   Total Costs and Expenses                                                              14,764    13,574   14,509
                                                                                        -------   -------   ------

 INCOME (LOSS) BEFORE INCOME TAXES, EQUITY INCOME AND
   MINORITIES' INTERESTS                                                                  1,847     1,514     (280)
   Income Taxes (Benefits)                                                                  615       595      (78)
   Equity in Net Income of Unconsolidated Affiliates                                        132        88       87
   Minorities' Interests in Earnings of Subsidiaries                                        190       213       78
                                                                                        -------   -------   ------
  INCOME (LOSS) FROM CONTINUING OPERATIONS                                                1,174       794     (193)
   Discontinued Operations                                                               (1,646)        -       67
                                                                                        -------   -------   ------
 NET INCOME (LOSS)                                                                      $  (472)  $   794  $  (126)
                                                                                        =======   =======   ======
 
PRIMARY EARNINGS (LOSS) PER SHARE
   Continuing Operations                                                                $ 10.20   $  6.73  $ (2.50)
   Discontinued Operations                                                               (14.89)        -      .66
                                                                                        -------   -------   ------
  PRIMARY EARNINGS PER SHARE                                                            $ (4.69)  $  6.73  $ (1.84)
                                                                                        =======   =======   ======

 FULLY DILUTED EARNINGS (LOSS) PER SHARE
   Continuing Operations                                                                $  9.63   $  6.44  $ (2.50)
   Discontinued Operations                                                               (14.89)        -      .66
                                                                                        -------   -------   ------
  FULLY DILUTED
 EARNINGS PER SHARE                                                      $ (5.26)  $  6.44  $ (1.84)
                                                                                        =======   =======   ======

The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


  [PHOTO]

  Chuck Wessendorf
  Clark Robson
  Investor Relations
 

32

<PAGE>
 
                               FINANCIAL REVIEW

Our Results of Operations and Financial Condition

SUMMARY OF TOTAL COMPANY RESULTS

In January 1996, we announced agreements to sell our remaining property and
casualty insurance units to investor groups led by Kohlberg Kravis Roberts
& Co. and existing management for consideration totaling $2.7 billion. We
expect the transactions will close in the middle of this year. As a result,
results from insurance operations are now accounted for as discontinued
operations and all prior periods have been restated. Therefore the Document
Processing business is the only component of Continuing Operations.

  Document Processing revenues increased 10 percent to $16.6 billion in 
1995, following an increase in revenues to $15.1 billion in 1994 from $14.2
billion in 1993.

The following table summarizes net income:


<TABLE>
<CAPTION>

(In millions)                                   1995    1994    1993
                                                ----    ----    ----
<S>                                           <C>       <C>    <C>
Document Processing before
  Special Items                               $ 1,076   $ 794  $ 580
 Tax Benefits                                      98       -     40
 Special Charges                                    -       -   (813)
                                              -------   -----  ----- 
 Continuing Operations                          1,174     794   (193)
                                              -------   -----  ----- 
 Discontinued Operations                       (1,646)      -     67
                                              -------   -----  ----- 
 Net Income (Loss)                            $  (472)  $ 794  $(126)
                                              =======   =====  ===== 
</TABLE>


Document Processing income in 1995 increased 36 percent to $1,076 million before
a $98 million gain from a reduction in the Brazilian tax rate, from $794 million
in 1994. Income increased 37 percent in 1994 from $580 million in 1993 before
special items. The 1993 special items included charges of $813 million after
taxes to provide for the costs of restructuring the Document Processing business
and lawsuit settlements, and $40 million in one-time tax benefits. After special
items, Document Processing reported a $193 million loss in 1993.

  Fully diluted earnings per share for Continuing Operations, which now include
only the Document Processing business, increased 37 percent to $8.83 in 1995,
before the Brazilian tax gain, from $6.44 in 1994 which was a 33 percent
increase from $4.86 in

[PHOTO]
Pictured here is Charlene Stephens, Public Relations, and a graphic depicting 
Continuing Operations Fully Diluted Earnings per Share before special items of 
$8.83 for 1995, $6.44 for 1994 and $4.86 for 1993.

1993, before special items. The 1993 Continuing Operations earnings per share
reflect the impact of the additional 8.1 million shares issued through an equity
offering in June 1993.

  Discontinued Operations had a loss of $1.646 billion in 1995 compared with
break-even results in 1994 and income of $67 million in 1993. The 1995 results
reflect fourth quarter after-tax charges of $1.546 billion as a result of the
insurance disengagement. These charges consist of a non-cash loss on the sales
of $978 million and $568 million primarily to cover additional insurance loss
reserves and all estimated future expenses associated with excess of loss
reinsurance coverage. Prior to the fourth quarter charges, insurance operations
had a $100 million loss in the 1995 full year. The 1993 results included a $62
million after-tax gain on the sale of The Van Kampen Merritt Companies, Inc.
(VKM).

                                                                              33

<PAGE>
 
  The fully diluted loss per share for Discontinued Operations was $14.89,
compared with break-even in 1994, and income of $.66 in 1993.

  The net loss in 1995 of $472 million compares with net income of $794 million
in 1994, and a net loss of $126 million in 1993. The fully diluted loss per 
share of $5.26 in 1995 compares with earnings of $6.44 in 1994 and a net loss 
of $1.84 per share in 1993.

DOCUMENT PROCESSING

UNDERLYING GROWTH

To understand the trends in the business, we believe that it is helpful to
adjust revenue and expense growth (except for ratios) to exclude the impact of
the changes in the translation of foreign currencies into U.S. dollars and
special items that distort the trends. We refer to this adjusted growth as
"underlying growth." The items that have been excluded from the discussion of
underlying growth are the 1993 charges for the Document Processing restructuring
program and the lawsuit settlements.

  When compared with the major European currencies, the U.S. dollar was
approximately 10 percent weaker in 1995, 2 percent stronger in 1994 and 11
percent stronger in 1993. As a result, foreign currency translation had a
favorable impact of 3 percentage points on revenues in 1995, and
unfavorable impacts of 1 percentage point in 1994 and 4 percentage points
in 1993. We do not hedge foreign-currency denominated revenues to the
extent they do not represent cross-border cash flows.

REVENUES

The estimated components of underlying growth were as follows:


<TABLE>
<CAPTION>

                                            Underlying Growth
                                            -------------------
                                            1995    1994   1993
                                            ----    ----   ----
<S>                                         <C>     <C>    <C>
 Total Revenues                               7%       7%     3%
                                             ==       ==     ==
 Equipment Sales*                             6       10     (1)
 Non-equipment revenues                       7        5      6
  Supplies                                    9       11     11
  Paper                                      39        4     (4)
  Service                                     2        4      6
  Rentals                                     1       (1)    (6)
  Document Outsourcing/Other                 32       20      5
  Finance Income                             (4)      (4)     4
                                             ==       ==     ==

* Only includes equipment sales to end-users
</TABLE>


The decline in the growth in equipment sales, across most major product lines,
in 1995 principally reflects disruption in the U.S. sales force primarily caused
by the realignment of the field sales organization and

  [PHOTO]
  Pictured here is a graphic depicting Equipment Sales Growth of 6% in 1995, 10%
in 1994 and -1% in 1993; Non-Equipment Revenue Growth of 7% in 1995, 5% in 1994 
and 6% in 1993; and Total Revenue Growth of 7% in 1995, 7% in 1994 and 3% in 
1993.

 

34

<PAGE>
 
changes in sales compensation plans. Modifications have been made to these
plans, sales force turnover has declined and we believe that the disruption will
have a declining impact going forward.

    The growth in 1994 reflected good growth in black-and-white copiers, 
excellent growth in the DocuTech family of digital publishers and a near 
doubling of color copier and printer equipment sales.

    Non-equipment revenues from supplies, paper, service, rentals, document
outsourcing and other revenues, and income from customer financing represented
67 percent of total revenues in 1995, 65 percent of total revenues in 1994 and
63 percent in 1993. These revenues are less volatile than equipment sales
revenues, and therefore provide significant stability to overall revenues.
Growth in these revenues is primarily a function of the growth in our
installed population of equipment, usage and pricing.

- - Supplies sales: The strong growth over the last several years is principally
due to cartridge sales for personal and convenience copiers and to new OEM
customers. 

- -  Paper sales: The significant improvement in the growth rate in 1995
is primarily due to higher prices, commencing in late 1994, after several years
of declining wholesale prices. Our strategy is to charge a spread over mill
wholesale prices. 

- -  Service revenues: The declining growth reflects the diversionary trend to
document outsourcing, rental plans and competitive pricing pressures. 

- -  Rental revenues: After a number of years of decline, reflecting a customer
preference for outright purchase of equipment, the rate of decline was arrested
by an increasing, but still relatively small, trend principally in the U.S.
toward cost-per-copy rental plans.

- -  Document outsourcing, copy centers and other revenues: The growth in 1995 and
1994 reflected the trend of customers to focus on their core businesses and
outsource their document processing require-ments to Xerox. This trend, which
diverts revenue from equipment sales, service and finance income, can reduce
current period total revenues but increase revenues in future periods.

- - Finance income: The continuing decline in 1995 reflects lower interest rates
on financing contracts, the increasing customer preference for document out-
sourcing rather than purchase and finance and a stabilization in the percent of
customers who finance purchases through Xerox at approximately 80 percent of
equipment sales in the U.S. and 70 percent in Western Europe. Our strategy is to
charge a spread over our cost of borrowing.

  Geographically, the underlying revenue growth rates were estimated as follows:



<TABLE>
<CAPTION>

                                           UNDERLYING GROWTH
                                          -------------------
                                           1995   1994   1993
- -------------------------------------------------------------
<S>                                        <C>    <C>    <C>
Total Revenues                              7%     7%     3%
                                            ==     ==     ==
United States                               3      7      4
Rank Xerox                                  8      7      2
Other Areas                                16      7      4
- -------------------------------------------------------------
</TABLE>


United States revenues were 49 percent of total revenues. Revenues of Rank
Xerox Limited and related companies (Rank Xerox), which manufacture and market
our products in eastern hemisphere countries, were 33 percent of total revenues.
Revenues of Other Areas, which includes operations principally in Latin America
and Canada, were 18 percent of total revenues.

  [PHOTO AND CAPTION]

  Pictured here are Vicente Jose Felice, Adelia Maria Branco Cerqueira, Jorge 
Pereira da Silva, and Sergio Nicola, Xerox of Brazil, with the caption 
"Itau Bank, Sao Paulo, found a more productive way to produce checkbooks when 
it adopted a Xerox solution based on a 4635MX printer connected in-line to a 
checkbook maker.  The automatic process saved the bank the costs of manual 
production."

                                                                              35

<PAGE>
 
[PHOTO]

VIMAL GADHIA
Rank Xerox
Corporate Communications

  The decline in U.S. revenue growth in 1995 principally reflects the disruption
in the sales force. The improving revenue growth in Rank Xerox and the Other
Areas in 1995 reflected good growth in black-and-white copiers and excellent
growth in enterprise printing products, attributable, in part, to improving
sales productivity and a strong economic environment in Brazil. In Mexico,
revenues declined significantly in 1995 due to currency and the continuing
economic disruption following devaluation of the Mexican peso in December 1994.
In 1995, revenues were approximately $1.4 billion in Brazil and $200 million in
Mexico compared with 1994 revenues of approximately $1 billion and $300 million,
respectively. The improved revenue growth in all areas in 1994 reflected good
growth in black-and-white copiers, excellent growth in the DocuTech family of
digital publishers and a near doubling of color copier and printer revenues,
attributable, in part, to improved sales productivity and economic environments.

  For the major product categories, the underlying revenue growth rates were
estimated as follows:


<TABLE>
<CAPTION>

                                  Underlying Growth
                                 -------------------
                                  1995   1994   1993
                                  ----   ----   ----
<S>                               <C>    <C>    <C>
Total Revenue                      7%     7%     3%
                                  ==     ==     ==  
Enterprise Printing               17     20     18
Black and White Copiers            2      4      -
Paper and Other Products          14      3     (5)
                                  ==     ==     ==  
</TABLE>


   Revenues from enterprise printing, comprised of production publishing, color
copying and printing, data center printing and network printing, represented 25
percent of total document processing revenues in 1995, 22 percent in 1994 and 19
percent in 1993. Revenues from black-and-white copying represented 59 percent of
total document processing revenues in 1995, 63 percent in 1994 and 65 percent in
1993. The revenues from paper and other products were 16 percent of total
document processing revenues in 1995, 15 percent in 1994 and 16 percent in 1993.

   Total revenues from the DocuTech family of production publishing products
reflected excellent growth to $1.4 billion in 1995 and $1.1 billion in 1994.
Revenues from color products grew 45 percent to approximately $600 million in
1995 from approximately $400 million in 1994, which in turn had almost doubled
over 1993 levels. Revenues from network and data center printing products had
good growth in both 1995 and 1994. We believe that the declining growth in
enterprise printing revenues during 1995 was the result of the U.S. sales force
disruption and weak economic environments in Canada and some European countries.

   During the fourth quarter of 1995, we introduced the first two products in
the Document Centre Systems family, a new enterprise printing category. These
networked office products print, scan, fax and copy documents for work groups,
with all operations managed over the network from each user's personal computer
or on a walk-up basis.

   The decline in black-and-white copying revenue growth in 1995 reflects the
slowdown in revenue growth in the U.S. Black-and-white copying revenues had good
growth in international markets. The other revenue growth in 1995 and 1994 and
the decline in 1993 were principally due to paper pricing.

PRODUCTIVITY INITIATIVES

In 1993, we announced a restructuring program to significantly reduce the cost
base and to improve productivity. Our objectives were to reduce our

36

<PAGE>
 
worldwide work force by more than 10,000 employees and to close or consolidate a
number of facilities.

  To date, the activities associated with the 1993 restructuring program have
reduced employment by 12,000 and achieved pre-tax cost savings of approxi-
mately $650 million in 1995 and $350 million in 1994. However, we have
reinvested a portion of these savings to re-engineer business processes, support
the expansion in growth markets, and mitigate anticipated continued pricing
pressures.

  Employment declined by 2,400 from year-end 1994 to 85,200 employees at the end
of 1995; 4,400 reductions were due to restructuring program initiatives,
partially offset by the addition of 2,000 employees, principally to support the
document outsourcing business.

  We are on track towards achieving our restructuring program objectives.

  During 1994, we awarded a 10-year, $3.2 billion contract to Electronic Data
Systems Corp. (EDS) to operate our worldwide computer and telecommunications
network. Information management strategy and architecture and the development of
systems for re-engineered business processes were not outsourced.

  Also in 1994, we signed a labor agreement with the principal union that
represents U.S. manufacturing employees. We believe that the contract has
enabled productivity, competitive advantages and progress towards achieving
benchmark unit manufacturing costs.

COSTS AND EXPENSES
  The gross margins by revenue stream were as follows:


<TABLE>
<CAPTION>

                               Gross Margins
                            ------------------ 
                            1995   1994   1993
                            ----   ----   ----  
<S>                         <C>    <C>    <C>
Total                       46.4%  45.8%  46.4%
                            ====   ====   ==== 
Sales                       43.6   40.7   43.2
Service and Rentals         49.5   51.6   49.9
Finance Income              49.5   50.1   49.5
                            ====   ====   ==== 
</TABLE>


  The 1995 improvement in sales gross margins was principally due to cost
reductions, favorable product and geographic mix, principally Brazil, partially
offset by pricing pressures. The declines in sales gross margins during 1994
were principally due to adverse currency, competitive pricing, unfavorable
product and channel mix and inventory adjustments partially offset by improved
productivity. In 1995, the

  [PHOTO]
  Pictured here is a graphic depicting Selling, Administrative and General 
  Expenses (Percent of Revenues) of 28.7% in 1995, 29.1% in 1994 and 31.5% 
  in 1993.

erosion in service and rentals gross margins was largely due to pricing
pressures and economics, partially offset by productivity improvements. The
service and rentals gross margin improvement during 1994 was principally due to
improved productivity and price increases partially offset by economic cost
increases and adverse currency.

  Research and development (R&D) expense increased 6 percent in 1995 and 1
percent in 1994. We expect to increase our investment in technological
development in 1996 and over the longer term to maintain our premier position in
the rapidly changing document processing market. We strategically coordinate R&D
with Fuji Xerox. The R&D investment by Fuji Xerox was approximately $600 million
in 1995, bringing the total to approximately $1.5 billion.

                                                                              37

<PAGE>
 
  Selling, administrative and general expenses (SAG) increased 6 percent in 1995
on an underlying basis, declined 1 percent in 1994, and were essentially
unchanged in 1993. SAG as a percent of revenues was 28.7 percent in 1995
compared with 29.1 percent in 1994 and 31.5 percent in 1993. The improvement in
the ratios is primarily due to improved productivity, partially offset by
investments in systems and in support of high-growth markets, principally
document outsourcing and our operations in Brazil, where the rate of inflation
exceeded pricing.

  Other expenses, net, were $135 million in 1995, $114 million in 1994, and $155
million in 1993. The increase in Other expenses, net of $21 million in 1995
reflects higher interest expense and goodwill amortization, principally
resulting from our increased financial interest in Rank Xerox, and the non-
recurrence of one-time gains in 1994, partially offset by lower foreign currency
losses from balance sheet translation in our Brazilian operations. The decrease
in Other expenses, net of $41 million in 1994 primarily reflects lower foreign
currency losses in Brazil.

  Our South American operations in general, and Brazil in particular, are 
subject to hyperinflation, government-imposed price controls and currency 
devaluation. By historical standards Brazilian exchange rates have been 
relatively stable since the implementation of a new economic plan in mid-1994.
There can be no assurance this relative stability will continue.

INCOME TAXES, EQUITY IN NET INCOME OF UNCONSOLIDATED AFFILIATES, AND MINORITIES'
INTERESTS IN EARNINGS OF SUBSIDIARIES BEFORE SPECIAL ITEMS

Income before special items and income taxes was $1,847 million in 1995 compared
with $1,514 million in 1994 and $1,093 million in 1993.

  Excluding a $98 million gain from a reduction in the Brazilian statutory tax
rate in 1995, gains from statutory rate changes in 1993 and $813 million of
special charges in 1993, the effective tax rate was 39 percent in 1995 and 1994,
and 41 percent in 1993. The higher tax rate in 1993 was due to mix of oper-

  Pictured here is a graphic depicting Document Processing Return on Assets of 
  18.5% in 1995, 16.1% in 1994 and 12.6% in 1993 before special items.

ations. We estimate that the impact of the lower Brazilian statutory tax rate
will result in a two percentage point decline in the effective tax rate in the
future.

   Equity in Net Income of Unconsolidated Affiliates increased 50 percent to
$132 million in 1995 after remaining essentially unchanged at $88 million in
1994. The equity in the income of Fuji Xerox, the principal unconsolidated
affiliate, increased 41 percent in 1995 due to revenue growth in the Japanese
domestic market and the strengthening of the Japanese yen against the U.S.
dollar. The equity in the income of Fuji Xerox in 1994 reflected improved
operating results offset by a provision for an early retirement program.

   Minorities' Interests in Earnings of Subsidiaries were $190 million in 1995
compared with $213 million in 1994 and $152 million, before the effect of
special items, in 1993. The 1995 decrease was due to our increased financial
interest in Rank Xerox, partially offset by excellent growth in Rank Xerox
income, reflecting good revenue growth and benefits from productivity. The 1994
increase was due to excellent growth in Rank Xerox income, reflecting strong
revenue growth as well as benefits from productivity.

INCOME

In 1995, Document Processing income of $1,076 million, before the Brazilian tax
gain, grew 36 percent compared with $794 million in 1994. 1994 income of $794
million grew 37 percent from $580 million before 1993 special items.

38

<PAGE>
 
RETURN ON ASSETS

Improving Return on Assets (ROA) is an important focus throughout all levels of
the Document Processing organization, combining a focus on both asset turnover
and margin improvement. Excluding special items, the 1995 ROA was 18.5 percent
compared with 16.1 percent in 1994 and 12.6 percent in 1993.

    The internal measurement for ROA is defined as Document Processing before-
tax profits plus equity in the net income of unconsolidated affiliates divided
by average ROA assets. These assets are Document Processing assets less
investments in affiliates and Xerox equipment financing debt.

SPECIAL ITEMS

In the fourth quarter of 1993, $813 million after income taxes and minorities'
interests in earnings of subsidiaries was provided for the costs of a restruc-
turing program and lawsuit settlements.

    In January 1994, we reached agreement to settle a 1992 antitrust class
action lawsuit involving selling spare parts for high-volume copiers and
printers to independent service organizations, and a lawsuit involving the
termination of a contract to purchase laptop computers. Under the antitrust
settlement, $225 million of discount certificates were provided to members of
the plaintiff class for use as partial payment on future purchases of Xerox
products, and we agreed to sell service parts to independent service
organizations in the U.S., similar to the existing policy in Europe.

    The discount certificates are available for use over a three-year period
that commenced in September 1994 and may be applied against the payment of
future purchases, excluding service, by our customers. Through 1995, $119
million of discount certificates were applied against purchases.

    In 1995, we recognized a $98 million benefit from the favorable revaluation
of the deferred tax liability due to a change in the Brazilian statutory income
tax rate from 45 percent to 30 percent. In 1993, we benefited from a total of
$40 million of favorable revaluations of deferred tax provisions due to changes
in the U.S. and Brazilian statutory income tax rates.

Quarterly Analytical Earnings Per Share

We believe that the 1995 Continuing Operations results, before the gain from a
reduction in the Brazilian tax rate, are an appropriate basis for comparison
with future financial results. The following schedule summarizes the 1995
Continuing Operations revenues, income and Earnings Per Share computations,
before the gain from a reduction in the Brazilian tax rate, on a quarterly
basis.

<TABLE>
<CAPTION>
                                                      First    Second    Third     Fourth     Full
(In millions, except per-share data, unaudited)     Quarter   Quarter   Quarter   Quarter     Year
<S>                                                 <C>       <C>       <C>       <C>       <C>
Revenues                                             $3,770    $4,054    $4,027    $4,760   $16,611
Income                                               $  187    $  254    $  256    $  477   $ 1,174
Gain from Brazilian tax rate reduction                    -         -         -        98        98
                                                     ------    ------    ------    ------   -------
Income before gain from tax rate reduction           $  187    $  254    $  256    $  379   $ 1,076
Primary Earnings per Share
  Preferred dividends net of tax benefit             $  (12)   $  (11)   $  (11)   $  (11)  $   (45)
  Income available for common shareholders              175       243       245       368     1,031
  Adjusted average shares outstanding                 109.2     110.2     110.8     111.4     110.6
  Primary Earnings per Share                         $ 1.60    $ 2.21    $ 2.21    $ 3.30   $  9.32
Fully Diluted Earnings per Share
  Preferred dividends net of tax benefit             $   (3)   $   (2)   $   (1)   $   (2)  $    (8)
  Income available for common shareholders              184       252       255       377     1,068
  Adjusted average shares outstanding                 119.9     120.7     121.5     121.8     121.0
  Fully Diluted Earnings per Share                   $ 1.54    $ 2.09    $ 2.09    $ 3.11   $  8.83
                                                     ------    ------    ------    ------   -------                                
</TABLE>


                                                                              39

<PAGE>
 
ADDITIONAL FINANCIAL INTEREST IN RANK XEROX

On February 28, 1995, we paid The Rank Organisation Plc (RO) (Pounds)620
million, or $972 million, for a 40 percent share of RO's financial interest in
Rank Xerox. The transaction increased our financial interest in Rank Xerox to
about 80 percent from 67 percent. The transaction resulted in goodwill of $574
million and a decline in minorities' interests in equity of subsidiaries of
approximately $400 million.

     The transaction increased earnings per share and cash flow in 1995, and we
estimate that it will have a positive impact on earnings per share and cash flow
going forward. Minorities' interests in earnings of subsidiaries declined by
approximately 40 percent as a result of the transaction, which was partially
offset by an increase in interest expense related to the funding of the
transaction. The goodwill is amortized over 40 years, resulting in an annual
impact of $14 million, before and after taxes.

RANK XEROX AND LATIN AMERICAN FISCAL-YEAR CHANGE IN 1995

Effective January 1, 1995, we changed Rank Xerox and Latin American
operations to calendar-year financial reporting. The 1994 fiscal year ended on
October 31 for Rank Xerox and on November 30 for Latin American operations. The
results of these non-U.S. operations that occurred between the 1994 and 1995
fiscal years (the stub period) were accounted for as a direct charge to equity.
A loss of $21 million was charged to equity in the stub period, primarily due to
the currency devaluation and related economic dislocations in Mexico.
Excluding the Mexican devaluation and related economic dislocations, income
during the stub period was $4 million.


  [PHOTO] 
  Pictured here are Josue Freitas and Miguel Brandtner, Xerox of Brazil, with 
  the caption "Pelotas University, Rio Grande do Sul, Brazil, dramatically 
  increased its production with the DocuTech Production Publisher, going from 
  4 to 40 books a year."

40

<PAGE>
 
CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

December 31 (in millions)                                                     1995      1994
<S>                                                                         <C>       <C>
 ASSETS
 Cash                                                                       $   130   $    35
 Accounts Receivable, net                                                     1,894     1,811
 Finance Receivables, net                                                     4,069     3,910
 Inventories                                                                  2,646     2,294
 Deferred Taxes and Other Current Assets                                      1,094     1,199
                                                                            -------   -------
   Total Current Assets                                                       9,833     9,249

 Finance Receivables Due after One Year, net                                  6,406     6,038
 Land, Buildings and Equipment, net                                           2,092     2,108
 Investments in Affiliates, at Equity                                         1,328     1,278
 Goodwill                                                                       627        66
 Other Assets                                                                   873       635
 Investment in Discontinued Operations                                        4,810     7,904
                                                                            -------   -------
 TOTAL ASSETS                                                               $25,969   $27,278
                                                                            =======   =======

 LIABILITIES AND EQUITY
 Short-Term Debt and Current Portion of Long-Term Debt                      $ 3,265   $ 3,159
 Accounts Payable                                                               563       562
 Accrued Compensation and Benefit Costs                                         731       709
 Unearned Income                                                                228       298
 Other Current Liabilities                                                    2,212     2,110
                                                                            -------   -------
   Total Current Liabilities                                                  6,999     6,838

 Long-Term Debt                                                               7,867     7,074
 Postretirement Medical Benefits                                              1,018     1,006
 Deferred Taxes and Other Liabilities                                         2,436     2,732
 Discontinued Operations Liabilities - Policyholders' Deposits and Other      2,810     4,194
 Deferred ESOP Benefits                                                        (547)     (596)
 Minorities' Interests in Equity of Subsidiaries                                745     1,021
 Preferred Stock                                                                763       832
 Common Shareholders' Equity                                                  3,878     4,177
                                                                            -------   -------
 TOTAL LIABILITIES AND EQUITY                                               $25,969   $27,278
                                                                            =======   =======

 Shares of common stock issued and outstanding at December 31, 1995 and 1994
 were (in thousands) 108,343 and 105,993, respectively.

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

</TABLE>

 
[PHOTO]
 
SUE ANDERSON
Investor Services


                                                                              41

<PAGE>
 
CAPITAL RESOURCES AND LIQUIDITY

CAPITAL RESOURCES

Total debt, including ESOP and Discontinued Operations debt not shown
separately in our consolidated balance sheets, increased to $11,785 million at
December 31, 1995, from $10,939 million in 1994 and $10,084 million in 1993.

     On a consolidated basis, the debt-to-capital ratio at December 31, 1995 was
71 percent compared with 67 percent in 1994 and 66 percent in 1993. The increase
over 1994 was primarily due to the $972 million paid for our increased financial
interest in Rank Xerox and growth in the financing of equipment sales.

     For purposes of capital ratio analysis, total equity includes common
equity, preferred stock and minorities' interests in the equity of subsidiaries.

     The following table summarizes the changes in total equity during 1995 and
1994:


<TABLE>
<CAPTION>

                                         Total Equity
                                       ----------------
(In millions)                            1995     1994
                                       -------   ------ 

<S>                                    <C>       <C>
Balance as of January 1                $ 6,030   $5,882
Income from Continuing Operations        1,174      794
Loss from Discontinued Operations       (1,646)       -
Change in Unrealized Gains (Losses)
 on Investment Securities                  432     (439)
Shareholder Dividends Paid                (389)    (395)
Change in Minorities' Interests           (276)     177
Exercise of Stock Options                  137       92
All Other, net                             (76)     (81)
                                       -------   ------ 

Balance as of December 31              $ 5,386   $6,030
                                       =======   ======
</TABLE>


     We manage the capital structure of our non-financing operations separately
from that of our more highly leveraged activities. The following table
summarizes the ratios of earnings to fixed charges and interest expense; and
debt, equity and total capital for our non-financing and financing activities
for the three-year period ended December 31, 1995:


<TABLE>
<CAPTION>

(Dollars in millions)       1995     1994     1993
                          --------  -------  -------
<S>                       <C>       <C>      <C>
NON-FINANCING:
Ratio of Earnings to
 Fixed Charges               3.87x     3.59x    2.58x
                          ========   =======  =======
Ratio of Earnings to
 Interest Expense            5.35x     5.75x    4.10x
                          ========   =======  =======
Debt                      $ 3,003    $2,651   $2,446
Equity                      4,035     4,730    4,679
                          --------   -------  -------
  Total Capital           $ 7,038    $7,381   $7,125
                          =========  =======  =======
  Debt-to-Capital Ratio      42.7%*    35.9%    34.3%
                          =========  =======  =======
FINANCING:
Debt                      $ 8,782    $8,288   $7,638
Equity                      1,351     1,300    1,203
                          --------  --------  -------
  Total Capital           $10,133    $9,588   $8,841
                          ========  ========  =======
  Debt-to-Equity Ratio        6.5x      6.4x     6.4x
                          ========  ========  =======
Ratio of Earnings to
 Fixed Charges               1.71x     1.81x    1.78x
                          ========  ========  =======
Ratio of Earnings to
 Interest Expense            1.71x     1.81x    1.78x
                          ========  ========  =======


/*/ 31.2 percent, on a pro forma basis, adjusted for anticipated receipt of
net proceeds from the announced sale of Talegen's remaining operating groups.

</TABLE>


The 1995 debt-to-capital ratio for non-financing operations, including ESOP
debt and Discontinued Operations debt, increased as Document Processing cash
generation, net of shareholder dividends, and the proceeds from the sales of
Constitution Re Corporation, Viking Insurance Holdings, Inc. and the Xerox
Financial Services Life Insurance Company and related companies were more than
offset by the

     [PHOTO]

  Pictured here is David Cloyd, XSoft, with the caption "The new publishing 
system incorporating XSoft's InConcert enables TV Guide to produce several dozen
editions simultaneously, managing the production process for the magazine's 
features, program listings and advertisements.  TV Guide needed a workflow 
solution that could automate the processing of editorial tasks, as well as 
provide quality control capabilities.  InConcert's centralized management and 
monitoring features prevent errors and allow system operators to track the 
editorial assembly and compilation process - a cycle that encompasses more 
than 10,000 tasks per week - across the company network.  TV Guide has the 
nation's largest magazine readership with a circulation of more than 13 million 
readers."

42

<PAGE>
 
[PHOTO]

JANAE TUCKER-TAYLOR (IN-FRONT)
ANGELA TUCKER-TAYLOR
Investor Relations

purchase of the increased financial interest in Rank Xerox and non-cash
charges in connection with the sales of the remaining Talegen units. The 1994
ratio of 35.9 percent increased from 34.3 percent at year-end 1993 as strong net
cash flow from Document Processing was more than offset by the impact of Talegen
business unit borrowings, unrealized insurance investment portfolio losses and
the redemption of preferred stock.

     With respect to our financing activities, we match fund by arranging fixed-
rate liabilities with maturities similar to the underlying customer financing
assets. Our guideline debt-to-equity ratio for the financing activities is 6.5
to 1.

     The following table summarizes the principal causes for changes in
consolidated indebtedness for the three-year period ended December 31, 1995:


<TABLE>
<CAPTION>

(In millions)                             1995      1994      1993
                                        -------   -------   -------
<S>                                     <C>       <C>       <C>
Total Debt/*/ as of January 1           $10,939   $10,084   $10,638
                                        -------   -------   -------
NON-FINANCING BUSINESSES:
Document Processing Operations             (543)     (989)     (496)
Increased financial interest in
 Rank Xerox                                 972         -         -
Yen/$ Financing repayment                     -       116         -
ESOP                                        (49)      (45)      (40)
Discontinued businesses                    (399)      605       (15)
                                        -------   -------   -------

Non-Financing                               (19)     (313)     (551)

FINANCING BUSINESSES, NET                   494       650       210
                                        -------   -------   -------

Total Operations                            475       337      (341)
                                        -------   -------   -------

Shareholder dividends                       389       395       389
                                        -------   -------   -------

Equity issuance (redemption)
 and other changes                          (18)      123      (602)
                                        -------   -------   -------

Total Debt* as of December 31           $11,785   $10,939   $10,084
                                        =======   =======   =======
/*/  Including Discontinued Operations

</TABLE>

 
NON-FINANCING OPERATIONS

The following table summarizes 1995 and 1994, Document Processing non-
financing operations cash generation and borrowing:


                                 Cash Generated/(Borrowed)
                                 ------------------------
(In millions)                    1995    1994
                                 -------------
DOCUMENT PROCESSING
NON-FINANCING:
Income                           $ 970   $ 565
Depreciation and Amortization      660     649
Restructuring Payments            (331)   (423)
Capital Expenditures              (438)   (389)
Assets Sold                         90     220
Working Capital/Other             (408)    367
                                 -------------
                                 $ 543   $ 989
                                 =============

     1995 cash generation of $543 million was $446 million below the 1994 level
as higher income and lower restructuring payments were more than offset by lower
sales of fixed assets (primarily related to the information management
outsourcing), higher capital spending, inventory growth including equipment on
operating lease, and 1994 profit sharing paid in 1995.

     Discontinued businesses generated $399 million of cash in 1995 resulting
from proceeds from the sales of Constitution Re Corporation, Viking Insurance
Holdings, Inc. and the Xerox Financial Services Life Insurance Company and
related companies, partially offset by premium and interest payments to Ridge Re
and debt service requirements. This contrasts with $605 million of net borrowing
in 1994 resulting from higher debt service requirements and borrowing by Talegen
business units to retire intercompany debt and fund investment activities. Net
cash generation of $15 million in 1993 was mainly due to cash proceeds from the
1993 sales of VKM and Furman Selz Holding Corporation, partially offset by
Talegen restructuring requirements.
 

                                                                              43

<PAGE>
 
FINANCING BUSINESSES

Financing business debt grew by $494 million in 1995 or $156 million less
than in 1994 due to lower growth in equipment sales revenue and the effects of
translating foreign currencies into U.S. dollars. Financing debt growth of $650
million in 1994 was $440 million more than in 1993 due to accelerated growth in
equipment sales revenue and currency translation effects.

     Debt related to discontinued third-party financing activities, which is
included in Financing Business debt, totaled $231 million in 1995 and 1994, and
$424 million in 1993. Portfolio run-off in 1995 was offset by timing differences
related to tax payments while the 1994 debt reduction reflects both asset sales
and run-off.

FUNDING PLANS FOR 1996

Non-financing debt levels will be significantly affected by proceeds from
the expected sales in 1996 of the remaining Talegen Holdings, Inc. (Talegen)
insurance operating groups for a total of $2.7 billion, including $1.4 billion
in cash partially offset by $0.6 billion of cash usage related to the funding of
intercompany accounts and transaction costs, and borrowing activity resulting
from the recently announced plan to repurchase up to $1 billion of our common
stock. Customer financing-related debt is planned to increase in line with 1996
sales activity.

     We believe that we have adequate short-term credit facilities available to
fund day-to-day operations and have readily available access to the capital
markets to meet any longer-term financing requirements. Our domestic operations
have a $5.0 billion revolving credit agreement with a group of banks, which
expires in 2000. This facility is unused and available to provide back-up to our
commercial paper borrowings, which amounted to $2.8 billion and $2.4 billion at
December 31, 1995 and 1994, respectively. In addition, our foreign subsidiaries
have unused committed long-term lines of credit aggregating $1.7 billion, in
various currencies at prevailing interest rates, that are used to provide back-
up to short-term indebtedness.

     At December 31, 1995, Xerox and XCC had domestic shelf capacity of $865
million and $1 billion, respectively. A $1 billion Euro-debt facility is
available to both Xerox and XCC of which $547 million remained unused at
December 31, 1995. In 1996, we intend to increase the size of the Euro facility
by $1 billion to further enhance our capital markets flexibility.

     Decisions in 1996 regarding the size and timing of any new term debt
financing will be made based on cash flows, match funding needs, refinancing
requirements and capital market conditions.
 
     [PHOTO]

  Pictured here is a Xerox 5614 convenience copier with the caption
"The Xerox 5614 convenience copier is a "green machine" that lets the user
exercise environmental responsibility without paying a cost penalty. It features
customer-settable Power Saver, low noise, reduced ozone emissions, returnable
copy and toner cartridges, recyclable packaging and design suitable for
remanufacturing. Customers can return both their used copy and toner cartridges,
which will then recycle, reuse or remanufacture to new-product standards.
    This Xerox cartridge remanufacturing and reuse initiative reduced the amount
of material entering the waste stream in 1995 by more than 1,100 tons. Customers
have shown their strong acceptance of the program, returning nearly 60 percent
of all cartridges in 1995."


44

<PAGE>
 
HEDGING INSTRUMENTS

We have entered into certain financial instruments to manage interest rate
and foreign currency exposures. These instruments are held solely for hedging
purposes and include interest rate swap agreements, forward foreign exchange
contracts and foreign currency swap agreements. We have long-standing policies
prescribing that derivative instruments are only to be used to achieve a set of
very limited objectives: to lock in the value of cross-border cash flows and to
reduce the impact of currency and interest rate volatility on costs, assets and
liabilities. We do not enter into derivative instrument transactions for trading
purposes.

     Currency derivatives are primarily arranged in conjunction with
underlying transactions that give rise to foreign currency-denominated payables
and receivables: for example, an option to buy foreign currency to settle the
importation of goods from suppliers, or a forward foreign-exchange contract to
fix the rate at which a dividend will be paid by a foreign subsidiary. In
addition, when cost-effective, currency derivatives are also used to hedge
balance sheet exposures in hyperinflationary economies.

     We do not hedge foreign currency-denominated revenues of our foreign
subsidiaries since these do not represent cross-border cash flows.

     With regard to interest rate hedging, virtually all customer financing
assets earn fixed rates of interest and, therefore, we "lock in" an interest
rate spread by arranging fixed-rate liabilities with similar maturities as the
underlying assets. Additionally, customer financing assets in one currency are
consistently funded with liabilities in the same currency. We refer to the
effect of these conservative practices as "match funding" customer financing
assets. This practice effectively eliminates the risk of a major decline in
interest margins resulting from adverse changes in the interest rate
environment. Conversely, this practice does effectively eliminate the
opportunity to materially increase margins when interest rates are declining.

     More specifically, pay fixed-rate and receive variable-rate swaps are
typically used in place of more expensive fixed-rate debt. Pay variable-rate and
receive variable-rate swaps are used to transform variable-rate medium-term debt
into commercial paper or local currency LIBOR obligations. Additionally, pay
variable-rate and receive fixed-rate swaps are used from time to time to
transform longer-term fixed-rate debt into commercial paper-based rate
obligations. The transactions performed within each of these three categories
enable the cost effective management of interest rate exposures. The potential

     [PHOTO]

Pictured here is Mel Peel, Xerox 
Business Services, UK, with the caption "A Dun & Bradstreet unit in the U.S.
develops market intelligence reports for European customers on Monday and
Tuesday and transmits them electronically on Thursday to the Document Technology
Centre at Rank Xerox Mitcheldean. Personalized reports are printed on Friday and
mailed to 16 countries. Documents Direct, our network document service,
eliminates shipping costs and gets the reports on customers' desks at least
three days earlier than previously."



                                                                              45

<PAGE>
 

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31 (in millions)                                                          1995     1994    1993
                                                                                              ----     ----    ----    
<S>                                                                                          <C>      <C>     <C>
 
 CASH FLOWS FROM OPERATING ACTIVITIES
 Income (Loss) from Continuing Operations                                                    $1,174   $ 794   $ (193)
 Adjustments required to reconcile income (loss) to cash flows
  from operating activities:
    Depreciation and amortization                                                               660     649      629
    Provision for special charges                                                                 -       -    1,373
    Provisions for doubtful accounts                                                            308     252      250
    Provision for postretirement medical benefits                                                40      54       70
    Charges against 1993 restructuring reserve                                                 (331)   (423)       -
    Minorities' interests in earnings of subsidiaries                                           190     213       78
    Undistributed equity in income of affiliated companies                                      (90)    (54)     (51)
    Increase in inventory                                                                      (604)   (472)    (228)
    Increase in finance receivables                                                            (774)   (937)    (993)
    (Increase) decrease in accounts receivable                                                 (173)   (266)     134
    Increase (decrease) in accounts payable and accrued
      compensation and benefit costs                                                            179     205      (65)
    Net change in current and deferred income taxes                                             263     258     (359)
    Other, net                                                                                 (243)    204      (32)
                                                                                             ------   -----   ------   
      Total                                                                                     599     477      613
                                                                                             ------   -----   ------
 CASH FLOWS FROM INVESTING ACTIVITIES

    Cost of additions to land, buildings and equipment                                         (438)   (389)    (470)
    Proceeds from sales of land, buildings and equipment                                         90     220       41
    Proceeds from sale of Constitution Re and Viking                                            526       -        -
    Purchase of additional interest in Rank Xerox                                              (972)      -        -
                                                                                             ------   -----   ------   
      Total                                                                                    (794)   (169)    (429)
                                                                                             ------   -----   ------   
 CASH FLOWS FROM FINANCING ACTIVITIES

    Net change in debt                                                                          766     550      215
    Yen financing repayment                                                                       -    (116)       -
    Dividends on common and preferred stock                                                    (389)   (395)    (389)
    Proceeds from sale of common stock                                                          139      90      665
    Redemption of preferred stock                                                               (69)   (245)      (6)
    Dividends to minority shareholders                                                          (86)    (97)    (105)
    Proceeds received from (returned to) minority shareholders                                   20     (32)      12
                                                                                             ------   -----   ------   
      Total                                                                                     381    (245)     392
                                                                                             ------   -----   ------   
 EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                         (5)    (78)     (34)
                                                                                             ------   -----   ------   
 CASH PROVIDED (USED) BY CONTINUING OPERATIONS                                                  181     (15)     542

 CASH USED BY DISCONTINUED OPERATIONS                                                           (86)    (18)    (476)
                                                                                             ------   -----   ------   
 INCREASE (DECREASE) IN CASH                                                                     95     (33)      66

 CASH AT BEGINNING OF YEAR                                                                       35      68        2
                                                                                             ------   -----   ------   
 CASH AT END OF YEAR                                                                         $  130   $  35   $   68
                                                                                             ======   =====   ======   

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

</TABLE>
 
 

46

<PAGE>
 
risk attendant to this strategy is the performance of the swap counterparty. We
address this risk by arranging swaps exclusively with a diverse group of strong-
credit counterparties, regularly monitoring their credit ratings, and
determining the replacement cost, if any, of existing transactions.

     On an overall worldwide basis, and including the impact of our hedging
activities, weighted average interest rates for 1995, 1994 and 1993 approximated
6.5 percent, 7.2 percent and 8.3 percent, respectively.

     Our currency and interest rate hedging are typically unaffected by changes
in market conditions as forward contracts, options and swaps are normally held
to maturity consistent with our objective to lock in currency rates and interest
rate spreads on the underlying transactions.
 
     [PHOTO]

  Pictured here is Gabor Gagyor, Rank Xerox, Hungary, with the caption 
"Hungarian mobile telephone customers get their bills much faster since Westel 
900 switched to the Xerox DocuPrint to print its high volume of personalized 
invoices.  The payoff for Westel?  A very measurable impact on cash flow."

LIQUIDITY

Our primary sources of liquidity are cash generated from operations and
borrowings. The consolidated statements of cash flows detailing changes in our
cash balances are on Page 46.

     Operating activities, including growth in finance receivables, and after
$331 million of restructuring payments in 1995 and $423 in 1994, generated
positive cash flows of $599 million, $477 million and $613 million in 1995, 1994
and 1993, respectively.

     Investing activities, including proceeds from the sales of Constitution Re
Corporation and Viking Insurance Holdings, Inc. and a $972 million payment to
The Rank Organisation Plc, which increased our financial interest in Rank Xerox
from 67 percent to 80 percent, resulted in net cash usage of $794 million in
1995 compared with $169 million and $429 million in 1994 and 1993, respectively.
The lower level of investing usage in 1994 versus the prior year was primarily
due to higher fixed asset sales in 1994 resulting from the information
management outsourcing initiative.

     Financing activities generated $381 million of pos- itive cash flow in 1995
compared with $245 million of cash usage in 1994 and $392 million of generation
in 1993. Financing cash flows include $766 million, $550 million and $215
million of net borrowing in 1995, 1994 and 1993, respectively, excluding foreign
currency translation effects and other adjustments. Financing usage in 1994
included repayment of a 1984 yen-denominated financing for $116 million and $184
million used to redeem 8.25 percent preferred stock. Financing generation in
1993 included net proceeds of $580 million from a public offering of common
stock.

     Overall, Continuing Operations generated net cash of $181 million in 1995,
used $15 million in 1994, and generated $542 million in 1993.

     Discontinued Operations used $86 million in 1995, $18 million in 1994, and
$476 million in 1993.

     The combined cash flows of Continuing and Discontinued Operations resulted
in a $95 million increase in cash balances in 1995, a $33 million decrease in
1994, and a $66 million increase in 1993.
 

                                                                              47

<PAGE>
 
Insurance and Other Financial Services

In January 1993, we announced our decision to concentrate on the core
Document Processing business and our intent to sell or otherwise disengage from
the Insurance and Other Financial Services (IOFS) businesses, which is
consistent with the strategy that began in 1990. In 1993, we discontinued our
Other Financial Services (OFS) business, which included the sale of The Van
Kampen Merritt Companies, Inc. and Furman Selz Holding Corporation. During 1995,
we sold Xerox Financial Services Life Insurance Company and related companies,
which was part of OFS. Also in 1995, we sold two Talegen Holdings, Inc.
(Talegen) insurance operating groups, Constitution Re Corporation (CRC) and
Viking Insurance Holdings, Inc. (Viking), which are included in the
"Dispositioned" insurance line of the Insurance operating results. At year-end
1995, our "Remaining" insurance operating companies consisted of Coregis Group,
Inc. (Coregis), Crum & Forster Holdings, Inc. (CFI), Industrial Indemnity
Holdings, Inc. (II), Westchester Specialty Group, Inc. (Westchester), The
Resolution Group, Inc. (TRG), and three insurance-related service companies. In
January 1996, we announced that we had discontinued the Insurance business as a
result of the agreements to sell the Remaining insurance companies to investor
groups led by Kohlberg Kravis Roberts & Co. (KKR) and existing management.

Status of Insurance

In 1993, Talegen completed a restructuring that established and capitalized
seven insurance operating groups as independent legal entities: CRC, Coregis,
CFI, II, Viking, Westchester and TRG. The insurance segment now includes
Talegen, a holding company of four property-casualty insurance operating groups
and three insurance-related service companies; TRG, a former Talegen company,
primarily involved in run-off activities and collection of reinsurance; Ridge
Reinsurance Limited (Ridge Re) and that portion of the Xerox Financial Services,
Inc. (XFSI) headquarters costs and interest expense associated with the
insurance business activities.

    In connection with the restructuring of Talegen completed in 1993, XFSI
agreed that support would be provided in the form of aggregate excess of loss
reinsurance. This reinsurance protection is provided through XFSI's single
purpose, wholly-owned reinsurance company Ridge Re, established in 1992. XFSI is
obligated to pay annual premium installments of $49 million, plus finance
charges, for 10 years, for coverage totaling $1,245 million, net of 15 percent
coinsurance. A total of seven annual premium installments remain to be paid as
of December 31, 1995. Xerox has guaranteed the payment by XFSI of all such
premiums. Xerox has also guaranteed Ridge Re's performance under a $400 million
letter of credit facility required to provide security with respect to aggregate
excess of loss reinsurance obligations under contracts with the Remaining
Talegen insurance companies, TRG and Dispositioned companies.

     XFSI may also be required, under certain circumstances, to purchase over
time additional redeemable preferred shares up to a maximum of $301 million. In
addition, XFSI has guaranteed to the Talegen insurance companies that Ridge Re
will meet all of its financial obligations under the foregoing excess of loss
reinsurance issued to them.

Sale of Talegen Insurance Companies

In April 1995, CRC, one of the seven insurance operating groups of Talegen,
was sold to EXOR America Inc. for a purchase price of $421 million in cash. In
July 1995, Viking, another of the seven insurance operating groups of Talegen,
was sold to Guaranty National Corporation for approximately $103 million in cash
plus future upward price adjustments based on loss reserve development. Both
transactions approximated book value. The proceeds of both transactions were
primarily used to retire debt.
 

48

<PAGE>
 
    In January 1996, we announced agreements to sell all of our Remaining 
insurance units to investor groups led by KKR and senior management of the 
Remaining companies. The sales, expected to close in the middle of this year, 
will consist of two concurrent transactions with proceeds totaling $2.7 billion,
including the assumption of Talegen debt.

     For the four Talegen insurance operating units (Coregis, CFI, II and
Westchester) and insurance-related service companies, Xerox will receive
approximately $1.25-$1.3 billion in cash, $450-$500 million in preferred stock
in a new company formed by the KKR group and the assumption of debt (which
amounted to $372 million at December 31, 1995).

     For TRG, the unit that manages Talegen's run-off business, Xerox will
receive approximately $150 million in cash and $462 million in performance-based
instruments issued by another company formed by the KKR group.

     The transactions are subject to customary closing conditions, including
buyer financing and regulatory approvals. In connection with the announced
sales, we recorded a fourth quarter $1,546 million after-tax charge. As a result
of the sales of the Talegen units, the insurance segment has been classified as
a discontinued operation for all periods presented.

     XFSI will continue to provide support in the form of aggregate excess of
loss reinsurance agreements issued by Ridge Re and the guarantee of Ridge Re's
performance under such agreements. In addition to our guarantee of payment of
premiums under such agreements and the $400 million letter of credit facility,
Xerox will guaranty Ridge Re's payment and performance obligations under such
agreements.


<TABLE>
<CAPTION>

Operating Results

Full year results are summarized below:

                                            Insurance Income Summary
                                           -------------------------
(In millions)                                 1995    1994    1993
                                           -------------------------
<S>                                        <C>       <C>     <C>    
Talegen Remaining Companies
 and TRG                                   $   146    $ 138   $126
Talegen Dispositioned Companies                 (3)      48     44
Cessions to Ridge Re                           (85)     (35)     -
Interest/Other                                (158)    (151)  (166)
                                           -------    -----   ----
 Total before Fourth
  Quarter Charges                             (100)       -      4
Fourth Quarter Charges:
 Increased Talegen and
  TRG Reserves                                (176)       -      -
 Ridge Re Related and
  Other Accruals                              (392)       -      -
                                           -------    -----   ----
Net Loss from Operations                      (668)       -      4
Fourth Quarter Charge -
 Loss on Sale                                 (978)       -      -
                                           -------    -----   ----
 Total Insurance                           $(1,646)   $   -   $  4
                                           =======    =====   ====
</TABLE>


Insurance Results Before Fourth Quarter Charges

Talegen Remaining companies and TRG after-tax income totaled $146 million
in 1995, compared with $138 million in 1994 and $126 million in 1993. The
improving trend of the Remaining companies and TRG results reflects improved
underwriting, higher investment income and higher capital gains (1995 compared
with 1994), partially offset by higher interest expense related to the $425
million in debt issued in the fourth quarter of 1994. The decline in Talegen
Dispositioned companies income primarily reflects the absence of income in 1995
due to the sales of CRC and Viking. Cessions to Ridge Re totaled $85 million
after-tax in 1995, compared with $35 million in 1994. Interest and other charges
on an after-tax basis were $158 million in 1995, compared with $151 million in
1994 and $166 million in 1993. These charges primarily include net interest
expense.

Fourth Quarter Charges - Talegen and TRG Sales to KKR

In connection with the Talegen and TRG sales, we recorded fourth quarter
after-tax charges of $1,546 million in 1995 consisting of a non-cash loss on the
sales

                                                                              49

<PAGE>
 
of $978 million, including a goodwill write-off of $245 million, reserve
strengthening at the Talegen insurance groups and TRG of $176 million and Ridge
Re related and other accruals of $392 million to cover all estimated future
expenses associated with the excess of loss reinsurance coverage to Talegen and
TRG.

Talegen and TRG Reserves

Losses from claims and related loss adjustment expenses (LAE) comprise the
majority of costs from providing insurance products. Therefore, unpaid losses
and loss expenses are generally the largest liability on a property and casualty
insurer's balance sheet. In order to moderate the potential financial impact of
unusually severe or frequent losses, insurers often cede (i.e., transfer)
through reinsurance mechanisms a portion of their gross policy premiums to
reinsurers in exchange for the reinsurer's agreement to share a portion of the
covered losses with the insurer. Although the ceding of insurance does not
discharge the original insurer from its primary liability to its policyholder,
the reinsurance company that accepts the risk assumes an obligation to the
original insurer. The ceding insurer retains a contingent liability with respect
to reinsurance ceded to the extent that any reinsuring company might not be able
to meet its obligations.

     Reserve provisions are established by the insurer to provide for the
estimated level of claim payments that will be made under the policies it
writes. Over the policy period, as premiums are earned, a portion of the
premiums are set aside as gross loss reserves for incurred but not reported
(IBNR) losses. IBNR reserves also include amounts to supplement case reserves,
when established, to provide for further loss development. In addition, gross
reserves are established for internal and external (i.e., allocated) LAE
associated with handling the claims inventory. When a claim is reported, case
reserves are established on the basis of all pertinent information available at
the time. Reinsurance recoverables on gross reserves are recorded for amounts
anticipated to be recovered from reinsurers and are determined in a manner
consistent with the liabilities associated with the reinsured policies. Net
reserves are gross reserves less anticipated reinsurance recoverables on those
reserves.

Reinsurance

Talegen has a reinsurance security committee composed of senior management
who approve those reinsurers to whom the Remaining insurance companies cede
business, and the criteria under which such approvals are granted have become
increasingly restrictive over the past several years.

     The potential uncollectibility of ceded reinsurance is an industry-wide
issue. With respect to the management of recoveries due from reinsurers, the
Remaining insurance companies operate within common guidelines for the early
identification of potential collection problems and assign these cases to a
specialized unit within TRG staffed by "work-out" experts. This unit
aggressively pursues collection of reinsurance recoverables through mediation,
arbitration and, where necessary, litigation to enforce the Remaining insurance
companies contractual right against reinsurers. Nevertheless, periodically, it
becomes necessary for management to adjust estimates of potential losses to
reflect their ongoing evaluation of developments that affect recoverability,
including the financial difficulties that some reinsurers can experience. Based
upon the review of financial condition and assessment of other available
information, the Remaining insurance companies maintain an allowance for
uncollectible amounts due from reinsurers. The remaining balance of reinsurance
recoverable is considered to be valid and collectible.

Latent Exposures

Claims resulting from asbestos-related, environmental and other latent
exposures have provided unique challenges to the insurance industry. The
possibility that these claims would emerge was often not contemplated at the
time the policies were written, and traditional actuarial reserving
methodologies have not

50

<PAGE>
 
been useful in accurately estimating ultimate losses. Beginning in 1994 and
continuing in 1995, Talegen and certain other companies within the insurance
industry developed analytical methods to provide estimates of ultimate losses
for such exposures.

     Asbestos-related claims, which began to emerge in the 1970s, were the first
type of latent exposure to cause significant losses to the insurance industry.
In addition to bodily injury claims, asbestos-in-buildings claims have been
tendered to certain of the Remaining insurance companies seeking reimbursement
for the expense of replacing insulation material and other building components
containing asbestos. At this point, sufficient time has elapsed for case law to
become reasonably well developed in the asbestos bodily injury claims area. Case
law is not as well developed in the asbestos-in-buildings claim area.

     Environmental claims were the second major type of such claims to emerge
and significantly impact the insurance industry. Environmental claims have
generally been defined by the insurance industry as loss or potential loss
related to the alleged contamination of a site from operations on the sites,
from waste disposal or from other causes. Inconsistent federal and state case
law and uncertainty with respect to Superfund reform have compounded the
industry's difficulties in adequately assessing these complex exposures.

     Other latent exposures include claims such as repetitive stress, chemical
exposure and surgical breast implants, as well as other exposures where the
possibility of such claims arising was not contemplated when the policies were
written.

     As judicial patterns emerge through the appellate process and remove
uncertainties surrounding asbestos-related, environmental and other latent
exposures, additional liabilities and reinsurance recoverables could arise. Due
to the unique complexities and uncertanties related to latent exposure claims,
additional information regarding these exposures is provided, although it is the
policy of Talegen not to disclose established case reserves on specific claims.

Reserves For The Remaining Insurance Companies

Gross and net unpaid losses and loss expenses for the Remaining insurance
companies as of December 31, 1995 and 1994, in total and for each latent
exposure area are summarized in the following table:


<TABLE>
<CAPTION>

Unpaid Losses and Loss Expenses For The Remaining Insurance Companies

                                                                 Gross       Net
(In millions)                                                   Reserves   Reserves
                                                                --------   --------
<S>                                                             <C>        <C>
DECEMBER 31, 1995
In Total                                                         $8,478    $5,648
                                                                 ======    ======
Latent exposure areas/1/:
 Asbestos bodily injury                                          $  493    $  224
 Asbestos-in-buildings                                               63         2
 Environmental                                                      530       253
 Other latent exposures                                             155        46
                                                                 ------    ------
 Total                                                           $1,241    $  525
                                                                 ======    ======
DECEMBER 31, 1994
In Total                                                         $7,835    $5,591
                                                                 ======    ====== 
Latent exposure areas/1/:
 Asbestos bodily injury                                          $  266    $   68
 Asbestos-in-buildings                                               66         3
 Environmental                                                      391       127
 Other latent exposures                                             178        60
                                                                 ------    ------
 Total                                                           $  901    $  258
                                                                 ======    ======
</TABLE>


/1/  Included are case, IBNR and allocated LAE reserves. Ridge Re recoverable
balances are not included in net reserves because the Ridge Re contract is an
aggregate excess of loss contract covering all lines of business for the
Insurance Companies.

In the fourth quarter of 1995, gross unpaid loss and loss expense reserves
for the Remaining insurance companies and XFSI were strengthened by $690
million. After consideration of $349 million ceded to Ridge Re and $70 million
ceded to other reinsurers, net unpaid losses and loss expenses were strengthened
by a total of $271 million on a pre-tax basis. While cessions to Ridge Re are
beneficial to Talegen, they do not result in a benefit to the consolidated Xerox
accounts. Before consideration of Ridge Re, the net strengthening was comprised
of an addition of $310 million to latent exposure reserves, $255 million to 
non-latent exposure reserves and $55 million to uncollectible reinsurance 
reserves.

     In 1995, prior to the strengthening discussed above and exclusive of a
settlement between Monsanto Company and Talegen, the Remaining insurance

                                                                              51

<PAGE>
 
companies strengthened 1994 and prior accident year net reserves by $151
million, including a $64 million strengthening of uncollectible reinsurance
reserves. Those strengthening actions resulted in a cession to Ridge Re of $120
million.

Latent Exposure Reserves

Prior to 1995, the Remaining insurance companies established case and IBNR
reserves for asbestos bodily injury and environmental exposures for claims that
had been reported. Under that reserving methodology, the IBNR reserves were
established primarily to cover adverse development on known claims. Case
reserves have been, and continue to be, determined by a specialized claim and
legal staff. Beginning in the summer of 1994 and continuing through 1995,
Talegen developed methods of analysis and gathered additional data to support
IBNR reserves estimates for asbestos bodily injury and environmental claims.
During 1995, the methods of analysis were evaluated by internal and external
actuarial and claims professionals knowledgeable in the latent exposure field.
The following table identifies low and high estimates of the range of potential
unpaid costs of asbestos bodily injury and environmental exposures at December
31, 1995:


<TABLE>
<CAPTION>

Low and High Estimates of Gross and Net Unpaid Loss and Allocated LAE
Compared To Carried Reserves of The Remaining Insurance Companies

                                                                          As of December 31, 1995
                                                    ------------------------------------------------------------------
                                                                             Estimated Values
                                                    ------------------------------------------------------
                                                    Asbestos Bodily Injury   Environmental/2/   Total        
                                                    ----------------------   ---------------- ------------    Carried
(In millions)                                           Low        High       Low      High     Low   High   Reserves/2/
                                                    ------------------------------------------------------------------
<S>                                                  <C>      <C>             <C>    <C>      <C>   <C>      <C>
     Gross Reserves                                   $424        $846        $251   $1,072   $675  $1,918     $875
     Reinsurance/1/                                    272         576          71      599    343   1,175      406
                                                      ----        ----        ----   ------   ----  ------     ----
     Net Reserves                                     $152        $270        $180   $  473   $332  $  743     $469
                                                      ====        ====        ====   ======   ====  ======     ====

/1/  The values presented do not include provisions for uncollectible
     reinsurance.

/2/  Estimated values and carried reserve information exclude amounts associated
     with policies expressly written for environmental exposures. As of December
     31, 1995, gross and net reserves associated with these exposures are $148
     million and $8 million, respectively.
</TABLE>


     At December 31, 1995, Talegen and the Remaining insurance companies do not
expect that liabilities associated with incurred asbestos bodily injury and
environmental claims will have a material adverse effect on their future
liquidity or financial position. With respect to asbestos-in-buildings and other
latent exposures, because of the relatively low amount of cumulative net loss
and allocated LAE payments, the reserves established for identified claims and
the relatively low number of open claims, Talegen and the Remaining insurance
companies also do not expect that liabilities associated with incurred claims in
these latent exposure areas will have a material adverse affect on their future
liquidity or financial position. However, given the complexity of coverage and
other legal issues, and the significant assumptions used in estimating such
exposures, actual results could significantly differ from our current estimates.

Discontinued Operations - Other Financial Services and Third-Party and
Real-Estate

Other Financial Services (OFS), which were discontinued in the fourth
quarter of 1993, had no after-tax income in the full year 1995 and 1994. The net
investment in OFS was $169 million and $232 million at December 31, 1995 and
1994, respectively.
 

52

<PAGE>
 
We currently believe that the liquidation of the remaining OFS units will not
result in a net loss.

     The sale of the business and assets of Shields, a former Furman Selz
subsidiary, and Regent, a subsidiary of Shields, to Alliance Capital
Management L.P. was completed in March 1994. Under the terms of the Furman Selz
sales agreement, the sales proceeds yielded cash of approximately $60 million
before settlement of related liabilities.

     On June 1, 1995, XFSI completed the sale of Xerox Financial Services Life
Insurance Company and related companies (Xerox Life Companies) to a subsidiary
of General American Life Insurance Company. After the sale, the Xerox Life
Companies names were changed to replace the name "Xerox" in the corporate titles
with the name "Cova" (Cova Companies). OakRe Life Insurance Company (OakRe), an
XFSI subsidiary formed in 1994, has assumed responsibility for existing Single
Premium Deferred Annuity (SPDA) policies issued by Xerox Life's Missouri and
California companies via coinsurance agreements (Coinsurance Agreements). The
Coinsurance Agreements include a provision for the assumption (at their
election) by the Cova Companies, of all of the SPDA policies at the end of their
current rate reset periods. A Novation Agreement with an affiliate of the new
owner provides for the assumption of the liability under the Coinsurance
Agreements for any SPDA policies not so assumed by the Cova Companies. Other
policyholders (of Immediate, Whole Life, and Variable annuities as well as a
minor amount of SPDAs issued by Xerox Life New York) will continue to be the
responsibility of the Cova Companies.

     As a result of the Coinsurance Agreements, at December 31, 1995, OakRe
retained approximately $2.5 billion of investment portfolio assets (transferred
from the Xerox Life Companies) and liabilities related to the reinsured SPDA
policies. Interest rates on these policies are fixed and were established upon
issuance of the respective policies. Substantially all of these policies will
reach their rate reset periods within the next five years and will be assumed
under the Agreements as described above. At December 31, 1995, the "maturities"
of OakRe's assets and liabilities were not fully matched as the Xerox Life
Companies' portfolio was designed to recognize that policy renewals extended
liability "maturities," thereby permitting investments of somewhat longer
average duration. OakRe's practice is to selectively improve this match over
time as market conditions allow. As of December 31, 1995, we estimate that
"maturities" are effectively matched for approximately 60% of ultimate policy
liabilities.

     In connection with the aforementioned sale, XFSI established a $500 million
letter of credit and line of credit with a group of banks to support OakRe's
coinsurance obligations. The term of this letter of credit is five years and it
is unused and available at December 31, 1995. Upon a drawing under the letter of
credit, XFSI has the option to cover the drawing in cash or to draw upon the
credit line.

     In January 1996, we announced an agreement to sell the remaining portion of
First Quadrant Corp., an asset management subsidiary of Talegen, to Affiliated
Managers Group, Inc. This transaction is expected to close in the first quarter,
1996 and is subject to regulatory approvals and customary closing conditions.

     During 1995, sales of real-estate and third-party assets and run-off
activity reduced assets associated with these businesses by $58 million to a
total of $489 million. Assigned debt totaled $231 million at year-end 1995
unchanged from the year-end 1994 level. The 1995 debt activity primarily
includes an increase related to a tax payment made in 1995 as a result of the
1994 sale of a portion of the direct financing lease portfolio, fully offset by
debt reductions from the run-off of assets. We believe that the combination of
existing reserves together with run-off profits should adequately provide for
any credit losses or losses on disposition.
 
 

                                                                              53

<PAGE>
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars In Millions, Except Per-Share Data and Unless Otherwise Indicated)

1  Summary Of Significant 
   Accounting Policies

   Basis Of Consolidation.  The consolidated financial statements include the
accounts of Xerox Corporation and all majority-owned subsidiaries (the Company).
All significant intercompany accounts and transactions have been eliminated.

   Rank Xerox Limited, Rank Xerox Holding BV, Rank Xerox Investment Limited, R-X
Holdings Limited and their respective subsidiaries, and the other subsidiaries
owned by the Company and The Rank Organisation Plc are referred to as the Rank
Xerox Companies.

   Investments in which the Company has a 20 to 50 percent ownership interest
are accounted for on the equity method.

   Effective January 1, 1995, the Company changed the reporting periods of the
Rank Xerox Companies and Latin American operations from fiscal years ending
October 31 and November 30, respectively, to a calendar year ending December 31.
The results of these operations during the period between the end of the 1994
fiscal year and the beginning of the new calendar year (the stub period)
amounted to a loss of $21. The loss was charged to retained earnings to avoid
reporting more than 12 months results of operations in one year. Accordingly,
1995 worldwide operations include the results for all consolidated subsidiaries
beginning January 1, 1995. The cash activity for the stub period is included in
Other, net in the consolidated statement of cash flows.

Discontinued Operations.  In January 1993, the Company announced its intent
to sell or otherwise disengage from its Insurance and Other Financial Services
businesses, which is consistent with the strategy that began in 1990. A formal
plan for the disposal of Other Financial Services was adopted in 1993, at which
time the Other Financial Services businesses were accounted for as discontinued
operations. The Insurance business, which now consists of Talegen Holdings, Inc.
(Talegen), The Resolution Group, Inc. (TRG), Ridge Reinsurance Limited and
headquarters costs and interest expense associated with the insurance activities
of Xerox Financial Services, Inc., remained a continuing operation of the
Company at that time.

   During 1995, two of the seven operating groups of Talegen were sold. In
January 1996, the Company announced separate agreements to sell all of the
remaining insurance units of Talegen and TRG to investor groups led by Kohlberg
Kravis Roberts & Co. and existing management. The sales are subject to customary
closing conditions, including buyer financing and regulatory approvals. As a
result, the Insurance businesses have been accounted for as a discontinued
operation and all prior periods have been restated. See Note 9 on Page 60 for
additional information.

   The announced sale agreements, on closing, effectively complete the Company's
strategy to exit financial services.

Business Segment Information. As a result of the decision to sell its
Insurance operations, the Company now operates in a single industry segment that
consists of the worldwide development, manufacturing, marketing, financing and
servicing of document processing products and services. This business is unitary
from both a company and a customer perspective in that the marketing, financing
and servicing of the Company's products represent an integrated document
services solution.

Earnings Per Share.  Primary earnings per share are based on net income less
preferred stock dividend requirements divided by the average common shares
outstanding during the period and common equivalent shares related to dilutive
stock options and Xerox Canada Inc. exchangeable Class B stock. Fully diluted
earnings per share assume full conversion of convertible debt and convertible
preferred stock into common stock at the beginning of the year or date of
issuance, unless they are antidilutive.

Use Of Estimates.  The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
 

54

<PAGE>
 
Goodwill.  Goodwill represents the cost of acquired businesses in excess of the
net assets purchased and is amortized on a straight-line basis, generally over
40 years. Goodwill is reported net of accumulated amortization and the
recoverability of the carrying value is evaluated on a periodic basis.
Accumulated amortization at December 31, 1995 and 1994 was $25 and $22,
respectively.
 
   [PHOTO]
GARY KABURECK
Corporate Accounting Services
   
    

Accounting Changes.  In March 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121 -
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." Commencing in 1996, SFAS No. 121 requires companies to review
assets for possible impairment and provides guidelines for recognition of
impairment losses related to long-lived assets, certain intangibles and assets
to be disposed of. The impact of the adoption of SFAS No. 121 will be
immaterial.

   In October 1995, the FASB issued SFAS No. 123 - "Accounting for Stock-Based
Compensation." As allowable by SFAS No. 123, the Company will not recognize
compensation cost for stock-based employee compensation arrangements, but
rather, commencing in 1996, will disclose in the notes to the consolidated
financial statements the impact on net income and earnings per share as if the
fair value based compensation cost had been recognized.

Revenue Recognition.  Revenues from the sale of equipment under installment
contracts and from sales-type leases are recognized at the time of sale or at
the inception of the lease, respectively. Associated finance income is earned on
an accrual basis under an effective annual yield method. Revenues from equipment
under other leases are accounted for by the operating lease method and are
recognized over the lease term. Service revenues are derived primarily from
maintenance contracts on the Company's equipment sold to customers and are
recognized over the term of the contracts. Sales of equipment subject to the
Company's operating leases to third-party lease finance companies are recorded
as sales at the time the equipment is accepted by the third-party.

Provisions For Losses On Uncollectible Receivables.  The provisions for
losses on uncollectible trade and finance receivables are determined principally
on the basis of past collection experience.

Inventories.  Inventories are carried at the lower of average cost or market.

Buildings And Equipment.  Buildings and equipment are depreciated over their
estimated useful lives. Depreciation is computed using principally the straight-
line method. Significant improvements are capitalized; maintenance and repairs
are expensed.

Classification Of Commercial Paper And Bank Notes Payable.  It is the
Company's policy to classify as long-term debt that portion of commercial paper
and bank notes payable that is intended to match fund finance receivables due
after one year to the extent that it has the ability under its revolving credit
agreement to refinance such commercial paper and notes payable on a long-term
basis. See Note 10 on Page 64.
 

                                                                              55

<PAGE>
 
Foreign Currency Translation.  The functional currency for most foreign
operations is the local currency. Net assets are translated at current rates of
exchange and income and expense items are translated at the average exchange
rate for the year. The resulting translation adjustments are recorded as a
separate component of shareholders' equity. The U.S. dollar is used as the
functional currency for the Company's subsidiaries, primarily those in Latin
America, which conduct their business in U.S. dollars or operate in
hyperinflationary economies. A combination of current and historical exchange
rates are used in remeasuring the local currency transactions of these
subsidiaries and the resulting exchange adjustments are included in income.
Aggregate foreign currency losses were $18, $136 and $174 in 1995, 1994 and
1993, respectively, and are included in Other, net in the consolidated
statements of income. As more fully discussed in the accompanying Financial
Review on Page 38 within the discussion of Other expenses, net, the decline in
currency losses in 1995 from prior years is primarily due to the relative
stabilization of exchange rates in Brazil commencing after July 1, 1994.

2   Acquisition

   On February 28, 1995, the Company paid The Rank Organisation Plc (RO)
(Pounds)620 million, or approximately $972, for 40 percent of RO's financial
interest in the Rank Xerox Companies. The transaction increased the Company's
financial interest in the Rank Xerox Companies to 80 percent from 67 percent.
The Company's additional interest in the operating results of the Rank Xerox
Companies is included in the consolidated statement of income from the date of
acquisition. Based on the allocation of the purchase price, this transaction
resulted in goodwill of $574 (including transaction costs), a decline in
minorities' interests in equity of subsidiaries of approximately $400 and an
increase in long-term debt of $972.

3   1993 Special Charges, Net

   In 1993, the Company recorded special charges which aggregated $1,373 and
included the following pre-tax amounts: $1,195 related to a restructuring of
operations and $278 related to litigation settlements, partially offset by $100
in reduced performance-based employee profit sharing. These special charges
resulted in an after-tax charge of $813 or $7.96 per share.

   The restructuring program announced in December 1993 is a worldwide action
aimed at significantly reducing the Company's cost base and at improving
productivity.

   The $1,195 pre-tax provision consisted of the following: $843 related to
severance pay and other employee separation benefits; $258 related to lease
cancellation and other facilities rationalization and site consolidation costs;
and $94 for the write-off or write-down of various assets in certain non-
strategic businesses the Company will exit and other costs directly related to
the restructuring program. Approximately 70 percent of this provision related to
the Company's domestic operations.

   The Company's objectives were to reduce its worldwide work force by more than
10,000 employees and to close or consolidate a number of facilities.
 
[PHOTO]

ALLEN VASAN
Executive
Assistant
Operations
 

56

<PAGE>
 
   A summary of the original reserve and charges through December 31, 1995
follows:


                                  1995     1994      1993
                                  ----     ----      ----
Net charges to
  restructuring reserve           $370*    $430    $    -
                                  ====     ====    ======
Reserve balance:
  Current                         $298     $429    $  395
  Non-current                       97      336       800
                                  ----     ----    ------
Total reserve balance             $395     $765    $1,195
                                  ====     ====    ======

   *  Includes $30 charged to the reserve during the stub period.

Management believes that the aggregate reserve balance of $395 at December 31,
1995 is adequate for completion of the restructuring program.

4   Finance Receivables, Net

   Finance receivables represent installment sales and sales-type leases
resulting from the marketing of the Company's business equipment products. These
receivables generally mature over two to five years and are typically
collateralized by a security interest in the underlying assets. The components
of finance receivables, net at December 31, 1995, 1994 and 1993 follow:
 
                                       1995          1994        1993
                                       ----          ----        ----- 
 Gross receivables                   $12,721       $12,135     $11,119
 Unearned income                      (2,207)       (2,074)     (2,032)
 Unguaranteed residual values            283           206         165
 Allowance for doubtful accounts        (322)         (319)       (300)
                                     -------       -------     ------- 
 Finance receivables, net             10,475         9,948       8,952
 Less current portion                  4,069         3,910       3,358
                                     -------       -------     ------- 
 Amounts due after one year, net     $ 6,406       $ 6,038     $ 5,594
                                     =======       =======     ======= 


Contractual maturities of the Company's gross finance receivables subsequent to
December 31, 1995 follow:

 1996        1997      1998      1999        2000     Thereafter
 ----        ----      ----      ----        ----     ----------
$5,138     $ 3,427   $ 2,338   $ 1,284      $ 459      $  75
======     =======   =======   =======      =====      =====  

Experience has shown that a portion of these finance receivables will be
prepaid prior to maturity. Accordingly, the preceding schedule of contractual
maturities should not be considered a forecast of future cash collections.
 
   [PHOTO]
 
Rita Overal
Rank Xerox, UK


5   Inventories
The components of inventories at December 31, 1995, 1994 and 1993 follow:

                                          1995    1994    1993
                                          ----    ----    ----
   Finished goods                        $1,642  $1,458  $1,421
   Work in process                           88      88      80
   Raw materials                            289     268     297
   Equipment on operating leases, net       627     480     364
                                         ------  ------  ------
   Inventories                           $2,646  $2,294  $2,162
                                         ======  ======  ======


Equipment on operating leases consists of the Company's business equipment
products which are rented to customers and are depreciated to estimated residual
value. Depreciable lives vary from two to four years. The Company's business
equipment operating lease terms vary, generally from 12 to 36 months.
Accumulated depreciation on equipment on operating leases for the years ended
December 31, 1995, 1994 and 1993 amounted to $1,065, $824 and $790,
respectively. Minimum future rental revenues on the remaining non-cancelable
operating leases with original terms of one year or longer are:

                            1996        1997       1998    Thereafter
                            ----        ----       ----    ----------
                            $439        $206       $107       $43
                            ====        ====       ====       ===

Total contingent rentals, principally usage charges in excess of minimum
allowances relating to operating leases, for the years ended December 31, 1995,
1994 and 1993 amounted to $190, $197 and $217, respectively.
 

                                                                              57

<PAGE>
 
6   Land, Buildings And Equipment, Net

   The components of land, buildings and equipment at December 31, 1995, 1994
and 1993 follow:

                                      Estimated
                                     Useful Lives
                                       (Years)        1995       1994    1993
                                     ------------     ----       ----    ----
Land                                                 $ 85       $ 87    $ 83
Buildings and building
 equipment                            20 to 40        941        876     824
Leasehold improvements                Lease term      344        339     322
Plant machinery                        4 to 12      1,892      1,843   1,732
Office furniture and
 equipment                             3 to 10      1,157      1,245   1,576
Other                                  3 to 20        199        139     171
Construction in progress                              231        227     277
                                                   ------     ------  ------ 
Subtotal                                            4,849      4,756   4,985
Less accumulated depreciation                       2,757      2,648   2,766
                                                   ------     ------  ------ 
Land, buildings and equipment, net                 $2,092     $2,108  $2,219
                                                   ======     ======  ====== 


The Company leases certain land, buildings and equipment, substantially all of
which are accounted for as operating leases. Total rent expense under operating
leases for the years ended December 31, 1995, 1994 and 1993 amounted to $425,
$502 and $538, respectively. Future minimum operating lease commitments that
have remaining non-cancelable lease terms in excess of one year at December 31,
1995 follow:

              1996     1997      1998       1999      2000      Thereafter
              ----     ----      ----       ----      ----      ----------
              $344     $230      $179       $140      $111        $475
              ====     ====      ====       ====      ====        ====

In certain circumstances, the Company subleases space not currently required
in operations. Future minimum sublease income under leases with non-cancelable
terms in excess of one year amounted to $56 at December 31, 1995.

  In 1994, the Company awarded a contract to Electronic Data Systems Corp. (EDS)
to operate the Company's worldwide data processing and telecommunications
network. Minimum payments due EDS under the contract for each of the next five
years follow:

                            1996   1997      1998       1999      2000
                            ----   ----      ----       ----      ----
                            $349   $325      $289       $250      $222
                            ====   ====      ====       ====      ====

These minimum payments will be amended over time to reflect the transfer to
EDS of responsibility for the management of any new data processing
applications.

7   Investments In Affiliates, At Equity

  Investments in corporate joint ventures and other companies in which the
Company has a 20 to 50 percent ownership interest at December 31, 1995, 1994 and
1993 follow:

                                            1995    1994    1993
                                            ----    ----    ----
   Fuji Xerox                              $1,223  $1,183  $1,004
   Other investments                          105      95      90
                                           ------  ------  ------
   Investments in affiliates, at equity    $1,328  $1,278  $1,094
                                           ======  ======  ======


Rank Xerox Limited, a consolidated subsidiary of the Company, owns 50 percent
of the outstanding stock of Fuji Xerox, a corporate joint venture with Fuji
Photo Film Co., Ltd. Fuji Xerox is headquartered in Tokyo and operates
throughout the Far East (except China). Condensed financial data of Fuji Xerox
for its last three fiscal years follow:

                                          1995     1994    1993     
                                          ----     ----    ----
SUMMARY OF OPERATIONS
Revenues                                  $8,500  $7,235  $6,259
Costs and expenses                         7,989   6,829   5,915
                                          ------  ------  ------
Income before income taxes                   511     406     344
Income taxes                                 287     235     195
                                          ------  ------  ------
Net income                                $  224  $  171  $  149
                                          ======  ======  ======
Rank Xerox' equity in net income          $  112  $   86  $   75
                                          ======  ======  ======
Xerox' equity in net income               $   88  $   57  $   50
                                          ======  ======  ======
BALANCE SHEET DATA                  
ASSETS                              
Current assets                            $3,518  $3,428  $3,175
Non-current assets                         3,085   3,038   2,573
                                          ------  ------  ------
Total assets                              $6,603  $6,466  $5,748
                                          ======  ======  ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities                       $2,675  $2,567  $2,276
Long-term debt                               594     658     794
Other non-current liabilities                884     871     668
Shareholders' equity                       2,450   2,370   2,010
                                          ------  ------  ------
Total liabilities and               
 shareholders' equity                     $6,603  $6,466  $5,748
                                          ======  ======  ======

8   Geographic Area Data

   Revenues and assets of the Rank Xerox Companies are substantially
attributable to European operations; their consolidated operations in Africa,
Asia and the Middle East together comprise less than two percent of the
Company's consolidated amounts. The Other Areas classification includes
operations principally in Latin America and Canada.
 

58

<PAGE>
 
  Intercompany revenues are generally based on manufacturing cost plus a markup
to recover other operating costs and to provide a profit margin to the selling
company.

  Geographic area data for the Company's continuing operations follow:

<TABLE>
<CAPTION>
                                       Year ended December 31,
                                       1995      1994      1993
                                     -------   -------   -------
<S>                                  <C>       <C>       <C>
Revenues from unrelated entities:
 United States                       $ 8,068   $ 7,822   $ 7,238
 Rank Xerox Companies                  5,496     4,633     4,479
 Other Areas                           3,047     2,633     2,512
                                     -------   -------   -------
Total                                $16,611   $15,088   $14,229
                                     =======   =======   =======
Intercompany revenues:
 United States                       $ 1,376   $ 1,291   $ 1,104
 Rank Xerox Companies                    226       262       216
 Other Areas                             463       362       353
                                     -------   -------   -------
Total                                $ 2,065   $ 1,915   $ 1,673
                                     =======   =======   =======
Total revenues:
 United States                       $ 9,444   $ 9,113   $ 8,342
 Rank Xerox Companies                  5,722     4,895     4,695
 Other Areas                           3,510     2,995     2,865
 Less intercompany revenues           (2,065)   (1,915)   (1,673)
                                     -------   -------   -------
Total                                $16,611   $15,088   $14,229
                                     =======   =======   =======
Net income (loss) (before
 intercompany eliminations):
 United States                       $   288   $   379   $  (371)
 Rank Xerox Companies                    409       218       (43)
 Other Areas                             446       250       190
                                     -------   -------   -------
Total*                               $ 1,143   $   847   $  (224)
                                     =======   =======   =======
Net income (loss) (after
 intercompany eliminations):
 United States                       $   418   $   386   $  (334)
 Rank Xerox Companies                    408       215       (47)
 Other Areas                             348       193       188
                                     -------   -------   -------
Total*                               $ 1,174   $   794   $  (193)
                                     =======   =======   =======
Assets:
 United States                       $ 9,876   $ 9,133   $ 8,966
 Rank Xerox Companies                  7,566     7,171     6,349
 Other Areas                           3,717     3,070     2,843
                                     -------   -------   -------
Subtotal                              21,159    19,374    18,158
Investment in
 discontinued operations               4,810     7,904     8,841
                                     -------   -------   -------
Total                                $25,969   $27,278   $26,999
                                     =======   =======   =======
  *  The 1993 special charges reduced net income by $813. On a geographic basis,
this charge was incurred as follows: $605-United States; $147-Rank Xerox
Companies; and $61-Other Areas.

</TABLE>



[PHOTO]

DAVID LEANING
Rank Xerox
Accounting


9   Discontinued Operations

  In January 1993, the Company announced its intent to sell or otherwise
disengage from its Insurance and Other Financial Services (IOFS) businesses,
which is consistent with the strategy that began in 1990. As more fully
discussed below and in the accompanying Financial Review on Page 48 within the
section entitled Sale of Talegen Insurance Companies, the Company has
discontinued its Insurance business as a result of the announced sales of the
remaining Talegen insurance operating groups and The Resolution Group, Inc.
(TRG). In 1993, the Company discontinued its Other Financial Services businesses
and in 1990 discontinued its Real-Estate and Third-Party Financing businesses.

Insurance.  The Insurance segment includes Talegen Holdings, Inc. (Talegen), a
holding company with originally seven property-casualty insurance operating
groups; TRG; Ridge Reinsurance Limited (Ridge Re); and headquarters costs and
interest expense associated with the insurance activities of Xerox Financial
Services, Inc. (XFSI). In 1993, Talegen completed a restructuring which
established and capitalized seven insurance operating groups as independent
legal entities: Constitution Re Corporation (CRC), Coregis, Crum & Forster
Insurance, Industrial Indemnity, TRG, Viking Insurance Holdings, Inc. (Viking)
and Westchester Specialty Group. TRG is the unit that manages Talegen's run-off
businesses.
 

                                                                              59

<PAGE>
 
  In connection with the restructuring of Talegen, XFSI agreed that support
would be provided in the form of aggregate excess of loss reinsurance. This
reinsurance protection is provided through XFSI's single purpose, wholly-owned
reinsurance company Ridge Re, which was established in 1992. Commencing in 1993,
XFSI is obligated to pay annual premium installments of $49, plus finance
charges, for 10 years, for coverage totaling $1,245, net of 15 percent
coinsurance. The XFSI premium payments have been guaranteed by the Company. The
Company has also guaranteed Ridge Re's performance under a $400 letter of credit
facility required to provide security with respect to aggregate excess of loss
reinsurance obligations.

  XFSI may also be required, under certain circumstances, to purchase up to $301
in redeemable preferred stock of Ridge Re. In addition, XFSI has guaranteed to
the Talegen insurance companies that Ridge Re will meet all of its financial
obligations under all of the foregoing excess of loss reinsurance issued to
them.
 
  [PHOTO]

  MARTIN DURRIG
  Rank Xerox

Sale of Talegen Insurance Operating Groups. In April 1995, CRC, one of the seven
insurance operating groups of Talegen, was sold to EXOR America Inc. for a
purchase price of $421 in cash, which approximated book value.

  In July 1995, Viking, another of the seven insurance operating groups of
Talegen, was sold to Guaranty National Corporation for approximately $103 in
cash plus future upward price adjustments based on loss reserve development. The
transaction approximated book value.

  The proceeds of both transactions were used to retire debt. Collectively, CRC
and Viking had $680 of revenue in 1994, the last full year of ownership by the
Company.

  In January 1996, the Company announced separate agreements to sell all of the
remaining insurance operating groups of Talegen and TRG, for approximately $2.7
billion to investor groups (the Buyer) led by Kohlberg Kravis Roberts & Co. and
existing management. The transactions will consist of $1,400-$1,450 in cash,
$450-$500 in preferred stock, $462 in a performance-based instrument and the
assumption of debt, which amounted to $372 at December 31, 1995. The agreements,
which are expected to close mid-1996, are subject to customary closing
conditions, including buyer financing and regulatory approvals.

  The Company will receive $450-$500 in face value of twenty-year Trust
Originated Preferred Securities (TOPrS) in connection with the sale of the
remaining Talegen units other than TRG. TOPrS are a tax-deductible preferred
stock issued by a trust established by the Buyer's holding company. Dividends on
the TOPrS may be deferred with a concurrent increase in the value of the TOPrS
for the first seven years. Subsequently, dividends must be paid in cash. The
TOPrS may be redeemed from the Company at face value, plus accrued dividends,
before maturity and the Company can sell the TOPrS after one year. The TOPrS
mature in 20 years and will pay a dividend rate equal to 499 basis points over
the published long-term Applicable Federal Rate at the date of closing. At
December 31, 1995, the TOPrS dividend rate would have been 11.20 percent.

  The Company will participate in the future cash flows of TRG via a
performance-based instrument carried at $462. The recovery of this instrument is
dependent upon the sufficiency of TRG's available cash flows, as defined. Based
on current forecasts at December 31, 1995, the Company expects to realize $462
for this instrument. However, ultimate realization may be greater or less than
this amount.
 

60

<PAGE>
 
  The Company will continue to provide support in the form of aggregate excess
of loss reinsurance to the Talegen units through Ridge Re. In addition, XFSI is
obligated to pay the seven remaining premium installments of $49 plus finance
charges. In addition to its guarantee of payment of premiums under such
agreements and the $400 letter of credit facility, the Company will guarantee,
upon closing, that Ridge Re will meet all of its payment and performance
obligations under the foregoing excess of loss reinsurance agreements. At
December 31, 1995, Ridge Re has accrued approximately $750 of the $1,245 excess
of loss reinsurance coverage estimated to be required based on actuarial
projections.

  In connection with the announced sale, the Company recorded a $1,546 loss on
disposal of the remaining Talegen insurance operating groups and TRG. The loss
on disposal, recorded in the fourth quarter of 1995, is composed of the
following:

<TABLE>
<S>                                           <C>
Loss on sale                                 $   978
Increased Talegen and TRG reserves, net of
  income tax benefit of $95                      176
Ridge Re related and other accruals,
  net of tax benefit of $195                     392
                                              ------
Total after-tax loss                          $1,546
                                              ======
</TABLE>


As a result of these sales, the Insurance businesses have been classified as
discontinued operations for all periods presented.

Insurance Financial Information.  Summarized operating results of Insurance
for the three years ended December 31, 1995 follow:

<TABLE>
<CAPTION>
                                         1995         1994         1993
                                        -------      ------       ------
<S>                                     <C>          <C>          <C>
Revenues                                $ 2,352      $2,749       $2,809
                                        =======      ======       ======
Net income (loss) from
 operations*                            $  (668)     $   --       $    4
Loss on disposal                           (978)
                                        -------      ------       ------
Income (loss) from Insurance            $(1,646)     $   --       $    4
                                        =======      ======       ======
* The 1995 amount includes $568 of after-tax reserves recorded during the fourth
quarter.

</TABLE>


The net assets at December 31, 1995, 1994 and 1993 of the Insurance businesses
included in the Company's consolidated balance sheets as discontinued operations
are summarized as follows:

<TABLE>
<CAPTION>

                                          1995        1994       1993
                                        -------     -------    -------
<S>                                     <C>         <C>        <C>
Insurance Assets
Investments                             $ 7,871     $ 8,384    $ 8,344
Reinsurance recoverable                   2,616       3,063      3,835
Premiums and other receivables            1,191       1,276      1,443
Deferred taxes and other assets           1,450       1,743      1,796
                                        -------     -------    -------
Total Insurance assets                  $13,128     $14,466    $15,418
                                        -------     -------    -------
Insurance Liabilities
Unpaid losses and loss expenses         $ 8,761     $ 8,809    $ 9,684
Unearned income                             859       1,066      1,077
Notes payable                               372         425         --
Other liabilities                         1,513         954        990
                                        -------     -------    -------
Total Insurance liabilities              11,505      11,254     11,751
                                        -------     -------    -------
Investment in Insurance, net            $ 1,623     $ 3,212    $ 3,667
                                        =======     =======    ======= 
</TABLE>


At December 31, 1995 and 1994, intercompany transactions aggregating
approximately $465 and $522, respectively, have been included as assets in
Investment in Discontinued Operations in the consolidated balance sheets. The
corresponding obligations are included in Deferred Taxes and Other Liabilities
in the consolidated balance sheets and represent funding commitments by XFSI
guaranteed by the Company. Substantially all of these funding commitments will
be paid at the time the Talegen sale is completed.
 
[PHOTO]

TAMMY POWER
Olympic Document Printing Specialist

                                                                              61

<PAGE>
 
   The Investments caption consists mainly of short-term investments as shown
below. At December 31, 1995, approximately 97 percent of the fixed maturity
investments are investment grade securities. The amortized cost and fair value
of the investment portfolio at December 31, 1995 follow:

<TABLE>
<CAPTION>
                                        Amortized       Fair
                                             Cost      Value
                                           ------     ------
<S>                                     <C>            <C>  
Fixed maturities                           $1,035     $1,035
Equity securities                               8          7
Short-term investments                      6,829      6,829
                                           ------     ------
Total investments                          $7,872     $7,871
                                           ======     ======
</TABLE>
 

Activity related to unpaid losses and loss expenses for the three years ended
December 31, 1995 follows:



<TABLE> 
<CAPTION> 
                                     1995            1994            1993
                                   ------          ------         -------
<S>                                <C>             <C>            <C> 
UNPAID LOSSES AND LOSS EXPENSES
Gross unpaid losses and loss
 expenses, January 1               $8,809          $9,684         $10,657
Reinsurance recoverable             2,391           2,935           3,788
                                   ------          ------         -------
Net unpaid losses and loss
 expenses, January 1                6,418           6,749           6,869
                                   ------          ------         -------
Incurred related to:
 Current year accident losses       1,461           1,748           1,795
 Prior year accident losses           570              21              41
                                   ------          ------         -------
 Total incurred                     2,031           1,769           1,836
                                   ------          ------         -------
Paid related to:
 Current year accident losses         427             486             495
 Prior year accident losses         1,203           1,577           1,317
                                   ------          ------         -------
 Total paid                         1,630           2,063           1,812
                                   ------          ------         -------
Sale of CRC and Viking               (769)             --              --
                                   ------          ------         -------
Other adjustments                     421             (37)           (144)
                                   ------          ------         -------
Net unpaid losses and loss
 expenses, December 31              6,471           6,418           6,749
Reinsurance recoverable             2,290           2,391           2,935
                                   ------          ------         -------
Gross unpaid losses and loss
 expenses, December 31             $8,761          $8,809         $ 9,684
                                   ======          ======         =======
</TABLE>


The increase in 1995 incurred prior year accident losses compared to prior
years relates to reserve strengthening which was either identified by the
Company or negotiated in conjunction with the sale of Talegen. This includes the
recording of future Ridge Re loss development.

Other Financial Services.  In 1993, the Company discontinued its Other
Financial Services (OFS) segment, which was composed of The Van Kampen Merritt
Companies, Inc. (VKM), Furman Selz Holding Corporation (Furman Selz), Xerox
Financial Services Life Insurance Company (Xerox Life) and First Quadrant Corp.

  In 1993, the Company sold VKM for approximately $360, which resulted in pre-
and after-tax gains of approximately $101 and $62, respectively. The proceeds
were used to retire debt.

  Also in 1993, the Company sold Furman Selz for $99 and the proceeds were used
to retire debt. The gain on the sale was immaterial.

  On June 1, 1995, the Company completed the sale of Xerox Life for
approximately $104 before settlement costs and capital funding of OakRe Life
Insurance Company (OakRe), a single-purpose XFSI subsidiary formed in 1994.
OakRe assumed responsibility for the Single Premium Deferred Annuity (SPDA)
policies issued by Xerox Life's Missouri and California companies via
coinsurance agreements. As a result of these coinsurance agreements, at December
31, 1995, the Company has retained on its consolidated balance sheet
approximately $2.5 billion of investment portfolio assets and reinsurance
reserves related to its former SPDA policies. These amounts will decrease
through the year 2000 as the SPDA policies are either terminated by the
policyholder or renewed and transferred to the buyer.

  In connection with the aforementioned sale, XFSI established a $500 letter of
credit and line of credit with a group of banks to support OakRe's coinsurance
obligations. The term of this letter of credit is five years and it is unused
and available at December 31, 1995. Upon a drawing under the letter of credit,
XFSI has the option to cover the drawing in cash or to draw upon the credit
line.

  In January 1996, the Company announced an agreement to sell the remaining
portion of First Quadrant Corp. This transaction is expected to close in the
first quarter of 1996 and is subject to regulatory approvals and customary
closing conditions.
 

62

<PAGE>
 
[PHOTO]

LINDA YOSHINO
Business Strategy & Planning
 
Real-Estate And Third-Party Financing.  During the last five years, the
Company made substantial progress in disengaging from the Real-Estate and Third-
Party Financing businesses that were discontinued in 1990. During the three
years ended December 31, 1995, the Company received net cash proceeds of $614
($64 in 1995, $259 in 1994 and $291 in 1993) from the sale of individual assets
and from run-off collection activities. The amounts received were consistent
with the Company's estimates in the disposal plan and were used primarily to
retire debt.

  The remaining assets primarily represent direct financing leases, many with
long-duration contractual maturities and unique tax attributes. Accordingly, the
Company expects that the wind-down of the portfolio will be slower during 1996
and in future years, as it was in 1995, compared with prior years.

  Total Discontinued Operations.  The consolidated financial statements have
been restated, as appropriate, to segregate the effect of the discontinued
operations. Debt has been assigned to discontinued operations based on
historical levels assigned to the businesses when they were continuing
operations adjusted for subsequent paydowns. Interest expense thereon is
primarily determined based on annual average domestic borrowing costs of the
Company. Assigned interest expense for the discontinued businesses for the years
ended December 31, 1995, 1994 and 1993 was $255, $246 and $291, respectively.

  Summarized information of discontinued operations for the three years ended
December 31, 1995 follows:

<TABLE>
<CAPTION>
                                         1995      1994       1993
                                       -------    ------     ------
<S>                                    <C>        <C>        <C> 

SUMMARY OF OPERATIONS
Income (loss) before income taxes      $(1,025)   $  (44)    $  (29)
Income tax benefits                        357        44         34
Gain (loss) on disposal                   (978)       --         62
                                       -------    ------     ------
Net income (loss)                      $(1,646)   $   --     $   67
                                       =======    ======     ======
BALANCE SHEET DATA

ASSETS
- ------
INSURANCE
Investment, net                        $ 1,623     $3,212    $3,667
                                       -------     ------    ------
OTHER FINANCIAL SERVICES
Investments                              2,508      3,604     3,832
Other assets, net                          190        541       523
                                       -------     ------    ------
OFS assets                               2,698      4,145     4,355
                                       -------     ------    ------
REAL-ESTATE AND THIRD-
 PARTY FINANCING
Gross finance receivables                  472        538       841
Unearned income and other                   17          9       (22)
                                       -------     ------    ------
Investment, net                            489        547       819
                                       -------     ------    ------
Investment in
 Discontinued Operations               $ 4,810     $7,904    $8,841
                                       =======    =======    ======    
LIABILITIES
- -----------
OFS policyholders' deposits            $ 2,528     $3,576    $3,716
Other OFS liabilities                        1        337       395
Assigned debt                              281        281       474
                                       -------     ------    ------
Discontinued Operations Liabilities    $ 2,810     $4,194    $4,585
                                       =======     ======    ======
</TABLE>


  At December 31, 1995 and 1994, approximately $2.3 billion and $2.6 billion,
respectively, of third-party indebtedness assigned to the Company's Insurance
operations is included in the consolidated balance sheet caption Long-Term Debt.

  The Company's net investment in discontinued operations is approximately
$2,000 and $3,710 at December 31, 1995 and 1994, respectively. The Company
believes that the liquidation of the remaining net discontinued assets will not
result in a net loss.
 

                                                                              63

<PAGE>
 
10    Debt

  Short-Term Debt.  Short-term borrowings data of the Company at December 31,
1995 and 1994 follow:


<TABLE>
<CAPTION>
                                                 Weighted average
                                                 interest rates at
                                                 December 31, 1995           1995        1994
                                                 -----------------          ------      ------
<S>                                              <C>                        <C>         <C>
 Bank notes payable                                    7.72%                $  884      $   235
 Foreign commercial paper                                --                     --        1,024
                                                                            ------      -------
 Total short-term debt                                                         884        1,259
 Current maturities of
  long-term debt                                                             2,381        1,900
                                                                            ------       ------
 Total                                                                      $3,265       $3,159
                                                                            ======       ======
 
</TABLE>
 

Bank notes payable generally represent foreign currency denominated borrowings
of non-U.S. subsidiaries.

Long-Term Debt. A summary of long-term debt, by final maturity date, at December
  31, 1995 and 1994 follows:

<TABLE> 
<CAPTION> 
                                                     Weighted average
                                                     interest rates at
                                                     December 31, 1995             1995            1994
                                                          -----                   ------          ------
<S>                                                  <C>                          <C>             <C>  
U.S. OPERATIONS:
XEROX CORPORATION (PARENT COMPANY)
Guaranteed ESOP notes due 1999-2004                        7.62%                  $  547          $  596
Notes due 1995                                               --                       --             350
Notes due 1996                                             8.77                      420             100
Notes due 1997                                             9.63                      200             200
Notes due 1999                                             5.21                      484             738
Notes due 2000                                             7.33                      600             300
Notes due 2001                                             7.39                       62              62
Notes due 2002                                             8.13                      200             200
Notes due 2004                                             7.15                      200             225
Notes due 2005                                             7.15                       50              --
Notes due 2006                                               --                       --              45
Notes due 2007                                             7.38                       25              --
Other debt due 1995-2014                                   8.24                       97              97
Capital lease obligations                                  5.60                        5               7
                                                                                  ------          ------
  Subtotal                                                                         2,890           2,920
                                                                                  ------          ------
XEROX FINANCIAL SERVICES, INC. (XFSI)
XEROX CREDIT CORPORATION
Notes due 1995                                               --                       --             400
Notes due 1996                                             8.39                      850             670
Notes due 1997                                             5.75                      677             347
Notes due 1998                                             6.50                      220              --
Notes due 1999                                            10.00                      150             150
Notes due 2000                                             7.13                      303              --
Floating rate notes due 2048                               5.80                       61              61
Other debt due 1996                                       10.00                       18              19
                                                                                   -----           -----
  Subtotal                                                                         2,279           1,647
OTHER XFSI DEBT
XFSI Notes due 1995-1996                                   9.05                      135             310
                                                                                   -----           -----
  Subtotal                                                                         2,414           1,957
                                                                                   -----           -----
 TOTAL U.S. OPERATIONS                                                            $5,304         $ 4,877
                                                                                   -----           ----- 

                                                 Weighted average
                                                 interest rates at
                                                 December 31, 1995                 1995            1994
                                                          -----                    -----           -----
INTERNATIONAL OPERATIONS:
INTERNATIONAL MARKETING AND
 FINANCE SUBSIDIARIES
Various obligations, payable in:                 
Canadian dollars due 1995-2007                            10.68%                  $  263          $  265
Dutch guilders due 1995-1999                               6.48                      216             187
French francs due 1995-1998                                7.79                       76              76
German marks due 1995-1999                                 6.60                      280             297
Pounds sterling due 1995-1997                              7.69                      283             353
Swiss francs due 1995-1999                                 5.50                       81              96
Italian lira due 1995-1997                                11.08                       99              81
U.S. dollars due 1995-1999                                 6.56                      268             220
Other currencies due 1995-1999                             8.22                      363             314
Capital lease obligations                                  8.94                        9              14
                                                                                   -----           -----
TOTAL INTERNATIONAL OPERATIONS                                                     1,938           1,903
                                                                                   -----           -----
OTHER BORROWINGS DEEMED                          
  LONG-TERM                                                                        3,287           2,475
                                                                                   -----           -----
  Subtotal                                                                        10,529           9,255
Less current maturities                                                            2,381           1,900
                                                                                   -----           -----
TOTAL LONG-TERM DEBT                                                              $8,148          $7,355
                                                                                   =====           =====
</TABLE>
 

Consolidated Long-Term Debt Maturities.  Payments due on long-term
 debt for the next five years follow:

 1996         1997          1998       1999      2000       Thereafter
 ----         ----          ----       ----      ----       ----------
$2,381       $1,431        $  543     $1,076    $  704        $1,107
======       ======        ======     ======    ======        ======

These payments do not include amounts relating to domestic commercial paper
and foreign bank notes payable which have been classified as long-term debt
under the caption Other borrowings deemed long-term. These borrowings are
classified as long-term because the Company has the intent to refinance them on
a long-term basis, and the ability to do so under its revolving credit
agreement.

  Certain of the Company's debt agreements allow the Company to redeem
outstanding debt prior to scheduled maturity. Outstanding debt issues with these
call features are classified in the preceding five-year maturity table in
accordance with management's current expectations. The actual decision as to
early redemption will be made at the time the early redemption option becomes
exercisable and will be based on prevailing economic and business conditions.
 

64

<PAGE>
 
Lines Of Credit.  The Company's domestic operations have a revolving credit
agreement totaling $5.0 billion with a group of banks, which expires in 2000.
This agreement is unused and is available to back the Company's domestic
commercial paper borrowings, which amounted to $2.8 billion and $2.4 billion at
December 31, 1995 and 1994, respectively. In addition, the Company's foreign
subsidiaries had unused committed long-term lines of credit aggregating $1.7
billion in various currencies at prevailing interest rates that are used to back
short-term indebtedness.

[PHOTO]

NAVIN CHHEDA
North American
Capital Markets


Match Funding Of Finance Receivables And Indebtedness.  The Company employs a
match funding policy for customer financing assets and related liabilities.
Under this policy, which is more fully discussed in the accompanying Financial
Review on Page 45, the interest and currency characteristics of the indebtedness
are, in most cases, matched to the interest and currency characteristics of the
finance receivables. At December 31, 1995, these operations had approximately
$10.7 billion of net finance receivables, which will service approximately $8.8
billion of assigned short- and long-term debt, including $0.3 billion of debt
assigned to discontinued third-party financing businesses.

Guarantees.  At December 31, 1995, the Company has guaranteed $506 of
indebtedness of its Latin American subsidiaries and the borrowings of its ESOP.

Interest.  Including amounts relating to debt assigned to discontinued
operations, interest paid by the Company on its short- and long-term debt
amounted to $705, $751 and $860, respectively, for the years ended December 31,
1995, 1994 and 1993.

Total Short-And Long-Term Debt.  The Company's total indebtedness, excluding
the direct indebtedness of Talegen, at December 31, 1995 and 1994 is reflected
in the consolidated balance sheet captions as follows:

                                                1995           1994
                                             -------        -------
Short-term debt and current portion
  of long-term debt                            3,265        $ 3,159
Long-term debt                                 7,867          7,074
Discontinued operations liabilities --
  policyholders' deposits and other              281            281
                                             -------        -------
Total debt                                   $11,413        $10,514
                                             =======        =======

A summary of changes in consolidated indebtedness for the three years ended
December 31, 1995 follows:

                                        1995     1994       1993
                                      -------   -------   -------
Increase (decrease) in short-term   
 debt, net                            $    94   $  (146)  $  (451)
Proceeds from long-term debt            3,169     2,058     1,866
Principal payments on               
 long-term debt                        (2,497)   (1,555)   (1,784)
                                      -------   -------   -------
Subtotal                                  766       357      (369)
Less discontinued operations               --      (193)     (584)
                                   
                                      -------   -------   -------
Total change in debt of             
 continuing operations                $   766   $   550   $   215
                                      =======   =======   =======
11    Financial Instruments

Derivative Financial Instruments.  Certain financial instruments with off-
balance-sheet risk have been entered into by the Company to manage its interest
rate and foreign currency exposures. These instruments are held solely for
hedging purposes and include interest rate swap agreements, forward-foreign
exchange contracts and foreign currency swap agreements. The Company does not
enter into derivative instrument transactions for trading or other speculative
purposes.
 

                                                                              65

<PAGE>
 
  The Company typically enters into simple, unleveraged derivative transactions
which, by their nature, have low credit and market risk. The Company's policies
on the use of derivative instruments prescribe an investment grade counterparty
credit floor and at least quarterly monitoring of market risk on a counterparty-
by-counterparty basis. The Company utilizes numerous counterparties to ensure
that there are no significant concentrations of credit risk with any individual
counterparty or groups of counterparties. Based upon its ongoing evaluation of
the replacement cost of its derivative transactions and counterparty
creditworthiness, the Company considers the risk of credit default significantly
affecting its financial position or results of operations to be remote.

  The Company employs the use of hedges to reduce the risks that rapidly
changing market conditions may have on the underlying transactions. Typically,
the Company's currency and interest rate hedging activities are not affected by
changes in market conditions as forward contracts and swaps are arranged and
normally held to maturity in order to lock in currency rates and interest
spreads related to underlying transactions.

  None of the Company's hedging activities involve exchange traded instruments.

Interest Rate Swaps.  The Company enters into interest rate swap agreements to
manage interest rate exposure. An interest rate swap is an agreement to exchange
interest rate payment streams based on a notional principal amount. The Company
follows settlement accounting principles for interest rate swaps whereby the net
interest rate differentials to be paid or received are recorded currently as
adjustments to interest expense.

  Virtually all customer financing assets earn fixed rates of interest.
Accordingly, through the use of interest rate swaps in conjunction with the
contractual maturity terms of outstanding debt, the Company "locks in" an
interest spread by arranging fixed-rate interest obligations with maturities
similar to the underlying assets. Additionally, customer financing assets are
consistently funded with liabilities denominated in the same currency. The
Company refers to the effect of these conservative practices as "match funding"
its customer financing assets. This practice effectively eliminates the risk of
a major decline in interest margins resulting from adverse changes in the
interest rate environment. Conversely, this practice does effectively eliminate
the opportunity to materially increase margins when interest rates are
declining.

  The aggregate notional amounts of interest rate swaps by maturity date and
type at December 31, 1995 and 1994 follow:

<TABLE>

                                       1995       1996       1997-1999       2000-2007       Total
                                      ------    -------      -------         -------         ------
<S>    <C>                            <C>        <C>         <C>             <C>             <C>
1995   Pay fixed/receive variable     $  --     $ 1,466       $3,244          $  291         $5,001
       Pay variable/receive variable     --         150          625             273          1,048
       Pay variable/receive fixed        --         168           37             830          1,035
                                      ------    -------      -------         -------         ------      
       Total                          $  --     $ 1,784       $3,906          $1,394         $7,084
                                      ======    =======      =======         =======         ======
       Memo:
       Interest rate paid                --        6.61%        6.83%           6.71%          6.75%
       Interest rate received            --        6.69%        5.94%           7.08%          6.35%
                                      ======    =======      =======         =======         ======
1994   Pay fixed/receive variable     $1,071    $ 1,137       $1,390          $  200         $3,798
       Pay variable/receive variable     100        150          175             274            699
       Pay variable/receive fixed         --         31           35             416            482
                                      ------    -------      -------         -------         ------ 
       Total                          $1,171    $ 1,318       $1,600          $  890         $4,979
                                      ======    =======      =======         =======         ======
       Memo:
       Interest rate paid               6.41%      6.78%        7.41%           7.28%          6.72%
       Interest rate received           5.44%      5.60%        6.07%           7.06%          6.02%
                                      ======     ======      =======         =======         ======
</TABLE>


66

<PAGE>
 
  More specifically, pay fixed/receive variable interest rate swaps are often 
used in place of more expensive fixed rate debt for the purpose of match funding
fixed rate customer contracts. Pay variable/receive variable interest rate swaps
("basis swaps") are used to transform variable rate, medium-term debt into
commercial paper or local currency LIBOR rate obligations. Occasionally, pay
variable/receive fixed interest rate swaps are used to transform term fixed rate
debt into variable rate obligations. The transactions performed within each of
these three categories enable the cost-effective management of interest rate
exposures. During 1995, the average notional amount of an interest rate swap
agreement was $23.

  At December 31, 1995 and 1994, the total notional amounts of these
transactions, based on contract maturity, follow:

                                         1995          1994
                                        ------        ------
 Commercial paper/bank borrowings       $1,784        $1,171
 Medium-term debt                        3,906         2,193
 Long-term debt                          1,394         1,615
                                        ------        ------
 Total                                  $7,084        $4,979
                                        ======        ======

For the three years ended December 31, 1995, no interest rate swap agreements
were terminated prior to maturity.

  Forward-Foreign Exchange Contracts.  The Company utilizes forward-foreign
exchange contracts to hedge against the potentially adverse impacts of foreign
currency fluctuations on foreign currency denominated receivables and payables
and firm foreign currency commitments. Firm foreign currency commitments
generally represent committed purchase orders for foreign sourced inventory.
These contracts generally mature in six months or less. At December 31, 1995 and
1994, the Company had outstanding forward-foreign exchange contracts of $1,474
and $1,476, respectively. Of the outstanding contracts at December 31, 1995, the
largest single currency represented was the Japanese yen. Contracts denominated
in Japanese yen, Pounds sterling, French francs, Italian lira, German
deutschmarks and Swiss francs accounted for over 75 percent of the Company's
forward-foreign exchange contracts. Gains and losses on contracts that hedge
foreign currency denominated receivables and payables are reported currently in
income and are included in Other, net in the consolidated statements of income.
Gains and losses on contracts that hedge firm commitments are deferred and
subsequently recognized as part of the cost of the underlying transaction,
such as inventory. At December 31, 1995, deferred losses amounted to $32. During
1995, the average notional amount of a forward-foreign exchange contract
amounted to $6.
 
[PHOTO]

RUTH BOSCO
Corporate
Accounting
Services
 
  Foreign Currency Swap Agreements.  During 1995, the Company entered into a
foreign currency and related interest rate swap agreement, whereby the Company
issued foreign currency denominated debt and swapped the proceeds with a
counterparty. In return, the Company received and effectively denominated the
debt in U.S. dollars. Currency swaps are utilized as hedges of the underlying
foreign currency borrowings, and exchange gains or losses are recognized
currently in Other, net in the consolidated statements of income. At December
31, 1995, a $53 foreign currency and related interest rate swap agreement was
outstanding.
 

                                                                              67

<PAGE>
 
Fair Value Of Financial Instruments.  The estimated fair values of the Company's
financial instruments at December 31, 1995 and 1994 follow:

                                     1995               1994
                              ----------------    -----------------
                              Carrying   Fair     Carrying    Fair
                               Amount    Value     Amount     Value
                              --------  ------    --------   ------
Cash                           $   130  $  130     $   35    $   35
Accounts receivable, net         1,894   1,894      1,811     1,811
Short-term debt                    884     884      1,259     1,259
Long-term debt                  10,529  10,864      9,255     9,458
Interest rate and currency
 swap agreements                    --     (73)        --       (10)
Forward-foreign exchange
 contracts                          --     (29)        --        (7)

The fair value amounts for Cash, Accounts receivable, net and Short-term debt
approximate carrying amounts due to the short maturities of these instruments.

  The fair value of long-term debt was estimated based on quoted market prices
for these or similar issues or on the current rates offered to the Company for
debt of the same remaining maturities. The difference between the fair value and
the carrying value represents the theoretical net premium the Company would have
to pay to retire all debt at such date. The Company has no plans to retire
significant portions of its long-term debt prior to scheduled maturity. The
Company is not required to determine the fair value of its finance receivables,
the match funding of which is the source of much of the Company's interest rate
swap activity.

  The fair values for interest rate swap agreements and forward-foreign exchange
contracts were  calculated by the Company based on market conditions at year-end
and supplemented with quotes from brokers. They represent amounts the Company
would receive (pay) to terminate/ replace these contracts. The Company has no
present plans to terminate/replace significant portions of these contracts.

  12    Employee Benefit Plans

  Retirement Income Guarantee Plan (RIGP).  Approximately 51,000 salaried and
union employees participate in the Company's RIGP plans. The RIGP plans are
defined benefit plans, which provide employees with the greater of (i) the
benefit calculated under a highest average pay and years of service formula,
(ii) the benefit calculated under a formula that provides for the accumulation
of salary and interest credits during an employee's work life, or (iii) the
individual account balance from the Company's prior defined contribution plan
(Transitional Retirement Accounts or TRA).

  At December 31, 1995, these domestic plans accounted for approximately 65
percent of the Company's total pension assets and were invested as follows:
domestic and international equity securities -69 percent; fixed-income
investments -28 percent; and real estate -3 percent. No plan assets are
invested in the stock of the Company.

  The RIGP plans are in compliance with the minimum funding standards of the
Employee Retirement Income Security Act of 1974 (ERISA).

  The transition asset and prior service cost are amortized over 15 years.
Pension costs are determined using assumptions as of the beginning of the year
while the funded status is determined using assumptions as of the end of the
year. The assumptions used in the accounting for the U.S. defined benefit plans
follow:

                                          1995           1994           1993
                                          ----           ----           ----
Assumed discount rates                    7.25%          8.75%          7.75%
Assumed rates for compensation
 increases                                4.25           5.75           5.25
Expected return on plan assets            9.50           9.50           9.50
                                          ====           ====           ====

The Company's discount rate considers, among other items, the aggregate effects
of a relatively young work force and, because pension benefits are settled at
retirement, the absence of retirees receiving pension benefits from plan assets.
Accordingly, the duration of the Company's pension obligation tends to be
relatively longer in comparison to other companies. Changes in the assumed
discount rates and rates of compensation increases primarily reflect changes in
the underlying rates of long-term inflation.

Other Plans. The Company maintains various supplemental executive retirement
plans (SERPs) that are not tax-qualified and are unfunded.

  The Company sponsors numerous pension plans for its international operating
units in Europe, Canada and Latin America, which generally provide pay- and
service-related

68

<PAGE>
 
benefits. Plan benefits are provided through a combination of funded trusteed
arrangements or through book reserves. The Rank Xerox pension plan in the United
Kingdom is the largest international plan and accounted for approximately 22
percent of the Company's total pension assets at December 31, 1995. It is
primarily invested in marketable equity securities.
 
[PHOTO]

LOLITA WHITE
Xerox United Way Campaign
 
Financial Information.  The Company's disclosures about the funded status and
components of pension cost are in accordance with U.S. accounting principles.
Such principles recognize the long-term nature of pension plan obligations and
the need to make assumptions about events many years into the future. In any
year there may be significant differences between a plan's actual experience and
its actuarially assumed experience. Such differences are deferred and do not
generally affect current net pension cost. The objective of deferring such
differences is to allow actuarial gains and losses an opportunity to offset over
time. These deferrals are included in the captions Unrecognized net gain (loss)
and Net amortization and deferrals in the accompanying tables. Due to variations
in investment results, the effect of revising actuarial assumptions, and actual
plan experience which differs from assumed experience, certain of the Company's
plans may be classified as overfunded in one year and underfunded in another
year. Under ERISA and other laws, the excess assets of overfunded plans are not
available to fund deficits in other plans.

  The non-funded plans are the SERPs and the Rank Xerox pension plans in Germany
and Austria. For tax reasons, these plans are most efficiently and customarily
funded on a pay-as-you-go basis.

A reconciliation of the funded status of the Company's retirement plans to the
amounts accrued in the Company's consolidated balance sheets at December 31,
1995 and 1994 follows:

<TABLE>
<CAPTION>
                                                          1995                                           1994
                                          -------------------------------------          -------------------------------------
                                          Over-     Under-      Non-                     Over-     Under-      Non-
                                          funded    funded     funded     Total          funded    funded     funded     Total
                                          ------    ------     ------     -----          ------    ------     ------     -----
<S>                                       <C>       <C>        <C>        <C>            <C>       <C>        <C>        <C> 
Accumulated benefit obligation            $5,066     $ 41       $ 240    $5,347          $4,559    $   17     $  210     $4,786
Effect of projected compensation
 increases                                   440       37          53       530             418         4         40        462
                                          ------    ------     ------     -----          ------    ------     ------     -----
Projected benefit obligation (PBO)         5,506       78         293     5,877           4,977        21        250      5,248
Plan assets at fair value                  5,830       38          --     5,868           5,263        12         --      5,275
                                          ------    ------     ------     -----          ------    ------     ------     -----
Excess (deficit) of plan assets over PBO     324      (40)       (293)       (9)            286        (9)      (250)        27
Items not yet reflected in the financial
 statements:
 Unamortized transition obligations
 (assets)                                   (137)      19          12      (106)           (154)        3         14      (137)
 Unrecognized prior service cost              48       --         (12)       36              54        --        (12)       42
 Unrecognized net (gain) loss                 49      (14)         31        66              55         6         18        79
                                          ------    ------     ------     -----          ------    ------     ------     -----
Prepaid (accrued) pension cost recognized
 in the consolidated balance sheets at
 December 31                               $ 284     $(35)      $(262)    $ (13)         $  241    $   --     $ (230)    $  11
                                          ======    ======     ======     =====          ======    ======     ======     =====
</TABLE>


                                                                              69

<PAGE>
 
   The components of pension cost for the three years ended December 31, 1995
follow:

                                   1995           1994         1993
                                  -----          -----        -----
DEFINED BENEFIT PLANS
 Service cost                     $ 143          $ 150        $ 149
                                  -----          -----        -----
 Interest cost--change in PBO
  due to:
  Passage of time                   186            171          159
  Net investment income (loss)
   allocated to TRA accounts        624            (45)         538
                                  -----          -----        -----
  Subtotal                          810            126          697
                                  -----          -----        -----
 Net investment (income) loss on:
  TRA assets                       (624)            45         (538)
  Other plan assets                (372)           (96)        (412)
                                  -----          -----        -----
  Subtotal                         (996)           (51)        (950)
                                  -----          -----        -----
 Net amortization and deferrals     120           (144)         205
                                  -----          -----        -----
 Settlement and curtailment gains   (32)           (12)          (4)
                                  -----          -----        -----
DEFINED BENEFIT PLANS
 --net pension cost                  45             69           97
DEFINED CONTRIBUTION PLAN
 --pension cost                      13             13           22
                                  -----          -----        -----
Total pension cost                $  58          $  82        $ 119
                                  =====          =====        =====

Pension cost in 1995 and 1994 was lower than in prior years because of the
reduction of the work force in connection with the restructuring actions
announced in December 1993. Plan assets consist of both defined benefit plan
assets and assets legally allocated to the TRA accounts. The combined investment
results of the assets are shown above in the net investment income caption. To
the extent investment results relate to TRA, such results are credited to these
accounts as a component of interest cost. The TRA account assets were $3.4
billion and $3.0 billion at December 31, 1995 and 1994, respectively. Because a
substantial portion of plan assets are TRA-related and are equal to TRA-related
liabilities, the Company's pension plans' funding surplus tends to be less than
that of comparable companies.

Other Postretirement Benefits.  The primary plan for U.S. salaried employees
retiring on or after January 1, 1995 provides retirees an annual allowance that
can be used to purchase medical and other benefits. The allowance available to
each eligible employee is partially service related and, for financial
accounting purposes, is projected to increase at an annual rate of 7.5 percent
until it reaches the plan's annual maximum coverage of approximately 2.5 times
the 1992 level, the inception year of this plan.

  The Company also has other postretirement benefit plans that cover employees
retiring prior to January 1, 1995 and certain grandfathered employees. These
other plans are generally indemnity arrangements that provide varying levels of
benefit coverage. The medical inflation assumption for these plans is 8.50
percent in 1995 and declines to 5.25 percent in 2002 and thereafter. A one
percentage point increase in the medical inflation assumptions would increase
the service and interest cost for these plans by $6 and the accumulated
postretirement benefit obligation by $57.

  The discount rate used to determine the funded status was 7.25 percent at
December 31, 1995, 8.75 percent at December 31, 1994 and 7.50 percent at
December 31, 1993.
 
[PHOTO]

BILL MECK
Xerox Foundation


70

<PAGE>
 
A reconciliation of the financial status of the plans as of December 31 follows:

                                        1995    1994    1993            
                                       ------  ------  ------ 
Accumulated Postretirement
     Benefit Obligation:
         Retirees                      $  506  $  470  $  471
         Fully eligible employees         251     205     249
         Other employees                  219     247     339
                                       ------  ------  ------
         Total                            976     922   1,059
  Unrecognized net gain (loss)             42      84     (62)
                                       ------  ------  ------
  Accrued cost recognized in the
     consolidated balance sheets       $1,018  $1,006  $  997
                                       ======  ======  ======

The components of postretirement benefit cost for the three years ended
December 31, 1995 follow:

                                        1995    1994    1993            
                                       ------  ------  ------ 
                                                     
  Service cost                         $   19  $   27  $   28
  Interest cost                            70      66      73
  Net amortization                         (4)     --      --
  Settlement gain                          (8)    (25)     --
                                       ------  ------  ------
  Total                                $   77  $   68  $  101
                                       ======  ======  ======

These plans are most efficiently and customarily funded on a pay-as-you-go
basis.

Employee Stock Ownership Plan (ESOP) Benefits.  In 1989, the Company
established an ESOP and sold to it ten million shares of Series B Convertible
Preferred Stock (Convertible Preferred) of the Company for a purchase price of
$785. The Convertible Preferred has a $1 par value, a guaranteed minimum value
of $78.25 per share and accrues annual dividends of $6.25 per share. The ESOP
borrowed the purchase price from a group of lenders. Because the ESOP borrowings
are guaranteed by the Company, they are included in debt in the Company's
consolidated balance sheets. A corresponding amount classified as Deferred ESOP
Benefits represents the Company's commitment to future compensation expense
related to the ESOP benefits.

  The ESOP will repay its borrowings from dividends on the Convertible Preferred
and from Company contributions. The ESOP's debt service is structured such that
the Company's annual contributions (in excess of dividends) essentially
correspond to a specified level percentage of participant compensation. As the
borrowings are repaid, the Convertible Preferred is allocated to ESOP
participants and Deferred ESOP Benefits are reduced by principal payments on the
borrowings. Most of the Company's employees are eligible to participate in the
ESOP.

  Information relating to the ESOP and the Company for the three years ended
December 31, 1995 follows:
                                        1995    1994    1993            
                                       ------  ------  ------ 

  Interest on ESOP borrowings           $  45   $  49   $  52
                                       ======  ======  ====== 
  Dividends declared on Convertible
     Preferred Stock                    $  59   $  61   $  62
                                       ======  ======  ====== 
  Cash contribution to the ESOP         $  34   $  32   $  30
                                       ======  ======  ====== 
  Compensation expense                  $  35   $  32   $  31
                                       ======  ======  ====== 

  ESOP costs are recognized by the Company based on the amount committed to be
contributed to the ESOP plus related trustee, finance and other charges.

13    Income Taxes

  The parent Company and its domestic subsidiaries file consolidated U.S. income
tax returns. Generally, pursuant to tax allocation arrangements, domestic
subsidiaries record their tax provisions and make payments to the parent Company
for taxes due or receive payments from the parent Company for tax benefits
utilized.

  Income before income taxes from continuing operations for the three years
ended December 31, 1995 consists of the following:

                                        1995    1994    1993            
                                       ------  ------  ------ 
  Domestic income (loss)               $  747  $  713  $(499)
  Foreign income                        1,100     801    219
                                       ------  ------  -----
  Income (loss) before income taxes    $1,847  $1,514  $(280)
                                       ======  ======  =====

Provisions for income taxes (benefits) from continuing operations for the
three years ended December 31, 1995 consist of the following:

                                            1995    1994    1993            
                                           ------  ------  ------ 
Federal income taxes
     Current                                $ 285   $ 160  $ 182
     Deferred                                 (21)    100   (337)
  Foreign income taxes
     Current                                  178      88     87
     Deferred                                 110     182     (3)
  State income taxes
     Current                                   57      46     42
     Deferred                                   6      19    (49)
                                            -----   -----  -----
  Income taxes (benefits)                   $ 615   $ 595  $ (78)
                                            =====   =====  =====

                                                                              71

<PAGE>
 
  A reconciliation of the U.S. Federal statutory income tax rate to the
effective income tax rate for continuing operations for the three years ended
December 31, 1995 follows:

                                        1995    1994    1993            
                                       ------  ------  ------ 
  U.S. Federal statutory income
     tax rate                           35.0%   35.0%  (35.0)%
  Foreign earnings and dividends
     taxed at different rates            2.2     2.1    17.5
  Goodwill amortization                   .3      --      --
  Tax-exempt income                      (.6)    (.7)   (3.8)
  Effect of tax rate changes on
     deferred tax assets and
     liabilities                        (5.3)     --   (14.3)
  State taxes                            2.2     2.7    (1.6)
  Change in valuation allowance
     for deferred tax assets             (.8)     --      --
  Other                                   .3      .2     9.3
                                        ----    ----    ----
  Effective income tax rate             33.3%   39.3%  (27.9)%
                                        ====    ====    ====

The 1995 effective tax rate of 33.3 percent is 6 percentage points lower than
the 1994 rate. This lower 1995 rate is primarily caused by a decrease in
Brazilian corporate tax rates, which created a deferred tax benefit. This
benefit increased 1995 fourth quarter and full year net income by $98. Excluding
the Brazilian tax benefit, the 1995 effective tax rate was 38.6 percent.

  The 1994 effective tax rate of 39.3 percent is 2 percentage points higher than
the 1993 tax rate before considering the effects of the 1993 restructuring
charge and litigation settlements. This higher 1994 rate is primarily caused by
deferred tax rate benefits, which only occurred in 1993, and is partially offset
by the increased tax benefits in 1994 associated with the mix of operations and
ESOP dividends.

  On a consolidated basis, including the effects of dis-continued operations,
the Company paid a total of $182, $163 and $197 in income taxes to federal,
foreign and state income-taxing authorities in 1995, 1994 and 1993,
respectively.

  Total income tax expense (benefit) for the three years ended December 31, 1995
was allocated as follows:

                                        1995    1994    1993            
                                       ------  ------  ------ 
  Income from continuing operations    $ 615   $ 595   $ (78)
  Discontinued operations               (374)   (135)      5
  Common shareholders' equity*           (15)    (19)    (33)
                                       -----   -----   -----
  Total                                $ 226   $ 441   $(106)
                                       =====   =====   =====

  *  For dividends paid on shares held by the ESOP; cumulative translation
adjustments; and unrealized gains and losses on investment securities.

  Deferred income taxes have not been provided on the undistributed earnings of
foreign subsidiaries and other foreign investments carried at equity. The amount
of such earnings included in consolidated retained earnings at December 31, 1995
was approximately $3.4 billion. These earnings have been substantially
reinvested and the Company does not plan to initiate any action that would
precipitate the payment of income taxes thereon. It is not practicable to
estimate the amount of additional tax that might be payable on the foreign
earnings.

  The tax effects of temporary differences that give rise to significant
portions of the deferred taxes at December 31, 1995 and 1994 follow:


                                                       1995                1994
                                                     ------              ------
Tax effect of future tax deductions:
     Depreciation                                   $   537             $   469
     Postretirement medical benefits                    393                 388
     Restructuring reserves                             194                 342
     Other operating reserves                           337                 290
     Deferred intercompany profit                       109                 116
     Allowance for doubtful accounts                     73                  83
     Deferred compensation                              132                 134
     Tax credit carryforwards                           101                  56
     Research and development                            87                  --
  Other                                                  75                 118
                                                     ------              ------
  Subtotal                                            2,038               1,996
  Less valuation allowance                               20                  34
                                                     ------              ------
  Total                                             $ 2,018             $ 1,962
                                                     ======              ======
  Tax effect of future taxable income:
     Installment sales and leases                   $(1,309)            $(1,262)
     Leverage leases                                    (35)                (41)
     Deferred income                                   (146)               (155)
     Other                                             (189)               (117)
                                                     ------              ------
  Total                                             $(1,679)            $(1,575)
                                                     ======              ======

The above amounts are classified as current or long-term in the consolidated
balance sheets in accordance with the asset or liability to which they relate.
Current deferred tax assets at December 31, 1995, 1994 and 1993 amounted to
$608, $709 and $711, respectively.

  The $20 valuation allowance at December 31, 1995 applies to deferred tax
assets that may expire unused before the Company can utilize them. After
consideration of the valuation allowance, the Company concludes that it is more
likely than not that the deferred tax assets will be realized 

72

<PAGE>
 
in the ordinary course of operations based on scheduling of deferred tax
liabilities and income from operating activities.

  At December 31, 1995, the Company has tax credit carryforwards for federal
income tax purposes of $40 which are available to offset future federal income
taxes through 2000 and of $61 which are available to offset future federal
income taxes indefinitely.

14    Litigation

  Continuing Operations.  On March 10, 1994, a lawsuit was filed in the United
States District Court for the District of Kansas by two independent service
organizations (ISOs) in Kansas City and St. Louis and their parent company. On
April 15, 1994, another case was filed in the United States District Court for
the Northern District of California by 21 different ISOs from 12 states.
Plaintiffs in these actions claim damages (to be trebled) to their individual
businesses resulting from essentially the same alleged violations of law at
issue in the antitrust class action in Texas, which was settled by the Company
during 1994. Claims for individual lost profits of ISOs who were not named
parties were not included in that class action. In one of the pending cases
damages are unspecified and in the other damages in excess of $10 are sought. In
addition, injunctive relief is sought in both actions. The two actions have been
consolidated for pretrial proceedings in the District of Kansas. The Company has
asserted counter-claims against certain of the plaintiffs alleging patent and
copyright infringement, misappropriation of Xerox trade secrets, conversion and
unfair competition and/or false advertising. On December 11, 1995, the District
Court issued a preliminary injunction against the parent company of the Kansas
City and St. Louis ISOs for copyright infringement. The Company denies any
wrongdoing and intends to vigorously defend these actions and pursue its
counterclaims.

Discontinued Operations.  Farm & Home Savings Association (Farm & Home) and
certain Talegen insurance companies (Insurance Companies) entered into an
agreement (Indemnification Agreement) under which the Insurance Companies are
required to defend and indemnify Farm & Home from certain actual and punitive
damage claims being made against Farm & Home relating to the Brio superfund site
(Brio). In a number of lawsuits pending against Farm & Home in the District
Courts of Harris County, Texas, several hundred plaintiffs seek both actual and
punitive damages allegedly relating to injuries arising out of the hazardous
substances at Brio. The Insurance Companies have been defending these cases
under a reservation of rights because it is unclear whether certain of the
claims fall under the coverage of either the policies or the Indemnification
Agreement. The Insurance Companies have been successful in having some claims
dismissed which were brought by plaintiffs who were unable to demonstrate a
pertinent nexus to the Southbend subdivision. However, there are numerous
plaintiffs who do have a nexus to the Southbend subdivision. The Insurance
Companies have been in settlement discussions with respect to claims brought by
plaintiffs who have or had a pertinent nexus to the Southbend subdivision. If
not settled, one or more of these cases can be expected to be tried in 1996.
- --------------------------------------------------------------------------------
  [PHOTO]
Pictured here is a banner with the caption "Xerox ColorgrafX Systems produce 
big, bold, beautiful color like these banners. Using front-end software to 
produce final prints directly from a digital file, ColorgrafX printers eliminate
the intermediate steps associated with traditional methods, reducing turnaround
time and costs. Applications include point-of-sale displays, backlit signs, 
trade show graphics, posters, billboards, backdrops for photography film and 
video and window displays."


                                                                              73

<PAGE>
 
15  Preferred Stock
  The Company has 22.5 million authorized shares of cumulative preferred
stock, $1 par value. Two series of preferred stock are currently outstanding and
are described below.

Redeemable Preferred Stock.  The Company's series of Ten-Year Preferred Stock
has an annual dividend rate of $3.6875 per share and is subject to redemption by
the Company through a sinking fund. The mandatory sinking fund for this series
is designed to retire 20 percent of the issue in each of the five years
beginning on April 1, 1994. Also, the Company has the non-cumulative option to
increase the annual sinking fund payments by an amount up to 100 percent of the
mandatory payment. During each of 1995 and 1994, 1 million shares were redeemed
at the sinking fund redemption price of $50 per share. A total of 0.5 million
shares of this series, with a recorded value of $25, is outstanding. Dividends
amounted to $3 in 1995; $7 in 1994; and $9 in 1993.

  Shares issued under this series are non-voting, have cumulative dividends and
have a $50 per share liquidation preference over the Company's common stock.

  The Company's former series of Twenty-Year Preferred Stock was redeemed in
1994 for $184, including a premium of $11. Dividends amounted to $5 in 1994 and
$14 in 1993.

Convertible Preferred Stock.  As more fully described in Note 12 on Page 71,
the Company sold, for $785, 10 million shares of its new Series B Convertible
Preferred Stock (ESOP shares) in 1989 in connection with the establishment of
its ESOP. At December 31, 1995, 9.4 million of these shares remain outstanding.
As employees with vested ESOP shares leave the Company, these shares are
redeemed by the Company. The Company has the option to settle such redemptions
with either shares of common stock or cash.

Preferred Stock Purchase Rights.  The Company has a shareholder rights plan
designed to deter coercive or unfair takeover tactics and to prevent a person or
persons from gaining control of the Company without offering a fair price to all
shareholders.

  Under the terms of the plan, one preferred stock purchase right (Right)
accompanies each share of outstanding common stock. Each Right entitles the
holder to purchase from the Company one one-hundredth of a new series of
preferred stock at an exercise price of $225.

  Within the time limits and under the circumstances specified in the plan, the
Rights entitle the holder to acquire common stock of the Company, the surviving
company in a business combination or the purchaser of the Company's assets,
having a value of two times the exercise price.

  The Rights may be redeemed prior to becoming exercisable by action of the
Board of Directors at a redemption price of $.05 per Right. The Rights expire in
April 1997.

  The Rights are non-voting and, until they become exercisable, have no dilutive
effect on the earnings per share or book value per share of the Company's common
stock.

[PHOTO]

JENNIFER POWELL
Rank Xerox
Corporate Communications

74

<PAGE>
 
  16 Common Shareholders' Equity

The components of common shareholders' equity and the changes therein for
the three years ended December 31, 1995 follow:

<TABLE>
<CAPTION>
                                                                                           Net Unrealized
                                             Common Stock        Additional                Gain (Loss) on
                                          -------------------       Paid-In    Retained        Investment     Translation
(Shares in thousands)                     Shares       Amount       Capital    Earnings        Securities     Adjustments    Total
                                          -------      ------       -------    --------        ----------     -----------    -----
<S>                                       <C>          <C>       <C>           <C>         <C>                <C>            <C>
  BALANCE AT DECEMBER 31, 1992            95,066       $   96       $  650      $3,282           $    6          $(159)      $3,875
  Issuance of common stock, net of
   issuance costs                          8,050            8          571                                                      579
  Stock option and incentive plans           861            1           57                                                       58
  Xerox Canada Inc. exchangeable stock        65            1           34           3                                           38
  Convertible securities                      80
  Net loss                                                                        (126)                                        (126)
  Cash dividends declared
     Common stock ($3.00 per share)                                               (304)                                        (304)
     Preferred stock (See Note 15 on
     Page 74)                                                                      (85)                                         (85)
  Tax benefits on ESOP dividends                                                    23                                           23
  Translation adjustments--net of
    minority shareholders' interests
    of $(24)                                                                                                       (86)         (86)
                                         -------       ------       -------    --------        ----------     -----------     -----
  BALANCE AT DECEMBER 31, 1993           104,122          106        1,312       2,793                6           (245)       3,972
  Stock option and incentive plans         1,056            1           94          (3)                                          92
  Xerox Canada Inc. exchangeable stock       653
  Convertible securities                     162
  Net income                                                                       794                                          794
  Cash dividends declared
     Common stock ($3.00 per share)                                               (322)                                        (322)
     Preferred stock (See Note 15 on
     Page 74)                                                                      (73)                                         (73)
  Tax benefits on ESOP dividends                                                    19                                           19
  Call premium on preferred stock
     (See Note 15 on Page 74)                                                      (11)                                         (11)
  Net unrealized loss on investment
      securities                                                                                   (439)                       (439)
  Translation adjustments--net of
      minority shareholders' interests
      of $93                                                                                                       145          145
                                         -------       ------       -------    --------        ----------     -----------    ------
 BALANCE AT DECEMBER 31, 1994            105,993          107        1,406       3,197             (433)          (100)       4,177
 Stock option and incentive plans          1,654            2          146         (11)                                         137
 Xerox Canada Inc. exchangeable stock        455
 Convertible securities                      241
 Net loss                                                                         (472)                                        (472)
 Net loss during stub period                                                       (21)                                         (21)
 Cash dividends declared                   
     Common stock ($3.00 per share)                                               (327)                                        (327)
     Preferred stock (See Note 15 on
     Page 74)                                                                      (62)                                         (62)
  Tax benefits on ESOP dividends                                                    17                                           17
  Net unrealized gain on investment
     securities                                                                                     432                         432
  Translation adjustments--net of
     minority shareholders'
     interests of $17                                                                                               (3)          (3)

                                         -------       ------       -------    --------        ----------     -----------    ------
  BALANCE AT DECEMBER 31, 1995           108,343       $  109       $1,552      $2,321        $      (1)         $(103)      $3,878
                                         =======       ======       =======    ========        ==========     ===========    ======
</TABLE>


                                                                              75

<PAGE>
 
Common Stock.  The Company has 350 million authorized shares of common stock,
$1 par value. At December 31, 1995 and 1994, 2.6 and 3.9 million shares,
r
espectively, were reserved for issuance under the Company's incentive
compensation plans. In addition, at December 31, 1995, 0.9 million common shares
were reserved for the conversion of $53 of convertible debt and 9.4 million
common shares were reserved for conversion of ESOP-related Convertible Preferred
Stock.

  In January 1996, the Board of Directors approved a three-for-one stock split
of the Company's common stock, subject to shareholder approval of an increase in
the number of authorized shares from 350 million shares to 1,050 million shares.
Given shareholder approval, this action will become effective shortly after the
1996 annual shareholders' meeting.

  In June 1993, the Company completed a public offering of 8.05 million shares
of its common stock in the U.S. and abroad, at a price of $74.25 per share. The
proceeds of the offering, after deducting underwriting commissions, were
approximately $580 or $72.10 per newly issued share, and were used to retire
commercial paper.

Stock Option And Long-Term Incentive Plans.  The Company has a long-term
incentive plan whereby eligible employees may be granted incentive stock
options, nonqualified stock options, incentive stock rights, stock appreciation
rights (SARs) and performance unit rights. Subject to vesting and other
requirements, SARs and performance unit rights are typically paid in cash, and
stock options and incentive stock rights are settled with newly issued or
treasury shares of the Company's common stock. Substantially all long-term
incentive compensation plan awards in recent years have been in the form of non-
qualified stock options, performance units and incentive stock rights. Eligible
employees typically receive equal amounts of options and performance units.
Stock options granted prior to December 31, 1995, normally vest in two years and
normally expire five years from the date of grant. Stock options granted
subsequent to December 31, 1995, will vest in three years and will expire eight
years from the date of grant. Because the exercise price of the options is equal
to the market value of the Company's common stock on the date of grant, option
awards do not result in a charge to expense. The value of each performance unit
is typically

[PHOTO]

SAM LEE
Office of the General Counsel


76

<PAGE>
 
based upon the level of return on assets during the year in which
granted. Performance units ratably vest in the three years after the year
awarded.


  At December 31, 1995 and 1994, 3.7 and 4.3 million shares, respectively, were
available for grant of options or rights. The following table provides
information relating to the status of, and changes in, options granted:

<TABLE>
<CAPTION>
                                       1995             1994
                                  ---------------  ---------------
                                          Average          Average
                                    Stock  Option    Stock  Option
(Options in thousands)            Options   Price  Options   Price
                                  -------  ------  -------  ------
<S>                               <C>       <C>    <C>       <C>
  Outstanding at January 1          3,242    $ 84    3,210     $75
  Granted                           1,836     110    1,168      98
  Canceled                            (76)    101      (51)     87
  Exercised                        (1,364)     79   (1,032)     72
  Surrendered for SARs                (40)     47      (53)     51
                                   ------            -----
  Outstanding at December 31        3,598     100    3,242      84
                                   ======            =====
  Exercisable at
     December 31, 1995              1,195
                                   ======
  Becoming exercisable in 1996      1,275
                                   ======
</TABLE>


During 1995, Xerox Canada Inc. established an executive rights plan, which
grants participants at the executive level rights to acquire the Company's
common stock at the participants' option. The vesting, expiration, and exercise
price of each right are the same as stock options in the Company's long-term
incentive plans. No rights were granted or exercised under this plan during
1995.


Xerox Canada Inc. Exchangeable Class B Stock.  In 1989, the shareholders of
Xerox Canada Inc. (XCI), a then 79 percent-owned subsidiary of the Company,
approved a restructuring plan which, among other provisions, amend- ed the
provisions of XCI's Common Shares. The XCI Common Shares had previously been
owned by public shareholders and represented the 21 percent of XCI not owned by
the Company. As a result of the approved restructuring plan, in 1989 a majority
of the XCI public shareholders became owners of XCI's new Non-Voting
Exchangeable Class B Shares (Exchangeable Shares) with a right to exchange three
Exchangeable Shares for one share of the common stock of the Company. In 1993,
the remaining XCI public shareholder entered into the restructuring plan. As a
result, the Company's shareholders' equity was increased by $38. At December 31,
1995, the Company has reserved 1.3 million shares of the Company's common stock
for purposes of this exchange.
- --------------------------------------------------------------------------------
  [PHOTO]
Pictured here are three ribbons with the words "1995 Major Awards Honors."

THE SECRETARY OF THE U. S. DEPARTMENT OF LABOR'S OPPORTUNITY 2000 AWARD TO XEROX
FOR MULTIFACETED AFFIRMATIVE ACTION AND DIVERSITY PROGRAMS

THE DEPARTMENT OF LABOR'S FIRST PERKINS/DOLE GLASS CEILING AWARD TO XEROX FOR
SUCCESSFUL RECRUITMENT AND DEVELOPMENT OF MINORITIES AND WOMEN AND FOR EXPANDING
POLICIES AND PRACTICES IN ORDER TO REMOVE BARRIERS FACED BY MINORITIES AND WOMEN

MONEY MAGAZINE NAMED XEROX TOPS AMONG LARGE U.S. COMPANIES WITH THE BEST
BENEFITS

HISPANIC MAGAZINE, HONORED XEROX ON "HISPANIC 100" LIST OF COMPANIES THAT
PROVIDE THE MOST OPPORTUNITIES FOR HISPANICS

WORKING MOTHER MAGAZINE HONOR TO XEROX FOR COMMITMENT TO WORKING MOTHERS

ASAHI SHIMBUN FOUNDATION, CORPORATE CITIZENSHIP AWARD TO FUJI XEROX

JAPAN MINISTER FOR INTERNATIONAL TRADE AND INDUSTRY, AWARD TO FUJI XEROX FOR
WORKING ENVIRONMENT

NATIONAL QUALITY AWARD, XEROX URUGUAY

QUALITY SCOTLAND BUSINESS EXCELLENCE AWARD,
RANK XEROX (SCOTLAND)

NATIONAL QUALITY AWARD IN PORTUGAL TO RANK XEROX IN 1995. THIS 1994 EXCELLENCE
AWARD WAS THE FIRST TO BE PRESENTED IN PORTUGAL

NATIONAL WILDLIFE FEDERATION, CORPORATE CONSERVATION COUNCIL ENVIRONMENTAL
ACHIEVEMENT AWARD TO XEROX CORPORATION

GERMAN BLUE ANGEL ENVIRONMENTAL LABEL AWARD TO RANK XEROX FOR THE XEROX 5614
AND 5352 COPIERS

U.S. ENVIRONMENTAL PROTECTION AGENCY - STRATOSPHERIC OZONE PROTECTION AWARD TO
XEROX FOR EXEMPLARY EFFORTS TO PROTECT THE OZONE LAYER

FRENCH NATIONAL AGENCY OF ENVIRONMENT AND ENERGY MANAGEMENT, MARQUE RETOUR
AWARD TO RANK XEROX FRANCE

ALL-JAPAN INVITATIONAL QC CIRCLE CONVENTION GOLD AWARD TO FUJI XEROX

USA WEEKEND NATIONAL 'MAKE A DIFFERENCE DAY' AWARD TO A ROCHESTER-BASED GROUP
OF XEROX EMPLOYEE VOLUNTEERS WHO COLLECTED SEVERAL TRACTOR TRAILER-LOADS OF
NEARLY NEW ITEMS THAT WERE SOLD FOR NICKLES AND DIMES AT "THE FRIENDSHIP BARGAIN
BAZAAR" TO RESIDENTS OF ONE OF ROCHESTER'S NEEDIEST COMMUNITIES

                                                                              77

<PAGE>
 
Quarterly Results of Operations
(Unaudited)


<TABLE> 
<CAPTION> 
                                                               First      Second       Third      Fourth
(In millions, except per-share data)                         Quarter     Quarter     Quarter     Quarter     Full Year
                                                             -------     -------     -------     -------     ---------
<S>                                                          <C>         <C>         <C>         <C>         <C>
1995
 Revenues                                                     $3,770      $4,054      $4,027     $ 4,760       $16,611
 Costs and expenses                                            3,403       3,642       3,612       4,107        14,764
                                                              ------      ------      ------     -------       -------
 Income before income taxes,
  equity income and minorities' interests                        367         412         415         653         1,847
  Income taxes                                                   142         160         160         153           615
  Equity in net income of unconsolidated affiliates               13          51          38          30           132
  Minorities' interests in earnings of subsidiaries               51          49          37          53           190
                                                              ------      ------      ------     -------       -------
 Income from continuing operations                               187         254         256         477         1,174
  Discontinued operations                                        (40)        (16)        (20)     (1,570)       (1,646)
                                                              ------      ------      ------     -------       -------
 Net income (loss)                                            $  147      $  238      $  236     $(1,093)      $  (472)
                                                              ======      ======      ======     =======       =======
 Primary earnings (loss) per share
  Continuing operations                                       $ 1.60      $ 2.21      $ 2.21     $  4.18       $ 10.20
  Discontinued operations                                       (.37)       (.14)       (.18)     (14.20)       (14.89)
                                                              ------      ------      ------     -------       -------
 Primary earnings per share                                   $ 1.23      $ 2.07      $ 2.03     $(10.02)      $ (4.69)
                                                              ======      ======      ======     =======       =======
 Fully diluted earnings (loss) per share/1/
  Continuing operations                                       $ 1.54      $ 2.09      $ 2.09     $  3.91       $  9.63
  Discontinued operations                                       (.34)       (.13)       (.16)     (14.20)       (14.89)
                                                              ------      ------      ------     -------       -------
 Fully diluted earnings per share                             $ 1.20      $ 1.96      $ 1.93     $(10.29)      $ (5.26)
                                                              ======      ======      ======     =======       =======
 
1994
 Revenues                                                     $3,271      $3,584      $3,636     $ 4,597       $15,088
 Costs and expenses                                            3,009       3,274       3,290       4,001        13,574
                                                              ------      ------      ------     -------       -------
 Income before income taxes,
  equity income and minorities' interests                        262         310         346         596         1,514
  Income taxes                                                   104         121         136         234           595
  Equity in net income of unconsolidated affiliates                5          33          25          25            88
  Minorities' interests in earnings of subsidiaries               32          55          50          76           213
                                                              ------      ------      ------     -------       -------
 Income from continuing operations                               131         167         185         311           794
  Discontinued operations                                         (2)          1           1           -             -
                                                              ------      ------      ------     -------       -------
 Net income                                                   $  129      $  168      $  186     $   311       $   794
                                                              ======      ======      ======     =======       =======
 Primary earnings (loss) per share
  Continuing operations                                       $ 1.07      $ 1.30      $ 1.60     $  2.76       $  6.73
  Discontinued operations                                       (.02)        .01         .01           -             -
                                                              ------      ------      ------     -------       -------
 Primary earnings per share                                   $ 1.05      $ 1.31      $ 1.61     $  2.76       $  6.73
                                                              ======      ======      ======     =======       =======
 Fully diluted earnings (loss) per share
  Continuing operations                                       $ 1.04      $ 1.27      $ 1.53     $  2.60       $  6.44
  Discontinued operations                                       (.01)        .01           -           -             -
                                                              ------      ------      ------     -------       -------
 Fully diluted earnings per share                             $ 1.03      $ 1.28      $ 1.53     $  2.60       $  6.44
                                                              ======      ======      ======     =======       =======

/1/  Quarterly primary and fully diluted earnings per share may differ from full
year amounts because of changes in the number of shares outstanding during the
year.

</TABLE>


78

<PAGE>
 
Reports Of Management And Independent Auditors

Report Of Management

Xerox Corporation management is responsible for the integrity and objectivity
of the financial data presented in this annual report. The consolidated
financial statements were prepared in conformity with generally accepted
accounting principles and include amounts based on management's best estimates
and judgments.

  The Company maintains an internal control structure designed to provide
reasonable assurance that assets are safeguarded against loss or unauthorized
use and that financial records are adequate and can be relied upon to produce
financial statements in accordance with generally accepted accounting
principles. This structure includes the hiring and training of qualified people,
written accounting and control policies and procedures, clearly drawn lines of
accountability and delegations of authority. In a business ethics policy that is
communicated annually to all employees, the Company has established its intent
to adhere to the highest standards of ethical conduct in all of its business
activities.

  The Company monitors its internal control structure with direct management
reviews and a comprehensive program of internal audits. In addition, KPMG Peat
Marwick LLP, independent auditors, have audited the consolidated financial
statements and have reviewed the internal control structure to the extent they
considered necessary to support their report, which follows.

  The Audit Committee of the Board of Directors, which is composed solely of
outside directors, meets regularly with the independent auditors, the internal
auditors and representatives of management to review audits, financial
reporting and internal control matters, as well as the nature and extent of the
audit effort. The Audit Committee also recommends the engagement of independent
auditors, subject to shareholder approval. The independent auditors and inter-
nal auditors have free access to the Audit Committee.
 

/s/ Paul A. Allaire

Paul A. Allaire
Chairman of the Board and
Chief Executive Officer
 

/s/ Barry D. Romeril

Barry D. Romeril
Executive Vice President and
Chief Financial Officer
 



Report Of Independent Auditors

To the Board of Directors and Shareholders
of Xerox Corporation

We have audited the consolidated balance sheets of Xerox Corporation and
consolidated subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income and cash flows for each of the years in the
three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

  In our opinion, the consolidated financial statements appearing on Pages 32,
41, 46, and 54-77 present fairly, in all material respects, the financial
position of Xerox Corporation and consolidated subsidiaries as of December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.

/s/ KPMG PEAT MARWICK LLP

  KPMG PEAT MARWICK LLP

  Stamford, Connecticut
  January 24, 1996

 

                                                                              79

<PAGE>
 
  Ten Years In Review              
                                   

<TABLE>                            
<CAPTION>                          
(Dollars in millions, except       
 per-share data)                      1995     1994     1993      1992       1991   
<S>                                <C>      <C>      <C>       <C>       <C>        
Per-Share Data                                                                      
                                                                                    
Earnings (loss) from continuing                                                     
 operations                                                                         
    Primary                        $ 10.20  $  6.73  $ (2.50)  $  5.21   $   3.72   
    Fully diluted                     9.63     6.44    (2.50)     5.21       3.69   
Dividends declared                    3.00     3.00     3.00      3.00       3.00   
                                                                                    
Operations                                                                          
                                                                                    
Revenues                           $16,611  $15,088  $14,229   $14,298   $ 13,438   
Research and development expenses      951      895      883       922        890   
Income (loss) from continuing                                                       
 operations                          1,174      794     (193)      562        436   
Net income (loss)                     (472)     794     (126)   (1,020)       454   
                                                                                    
Financial Position                                                                  
                                                                                    
Accounts and finance                                                                
 receivables, net                  $12,369  $11,759  $10,565   $10,250   $  8,952   
Inventories                          2,646    2,294    2,162     2,257      2,091   
Land, buildings and equipment,                                                      
 net                                 2,092    2,108    2,219     2,150      1,950   
Investment in discontinued                                                          
 operations                          4,810    7,904    8,841     8,652      9,164   
Total assets                        25,969   27,278   26,999    25,792     24,342   
Consolidated capitalization                                                         
    Short-term debt                  3,265    3,159    2,698     2,533      2,038   
    Long-term debt                   8,148    7,355    7,386     8,105      7,825   
    Total debt                      11,413   10,514   10,084    10,638      9,863   
    Deferred ESOP benefits            (547)    (596)    (641)     (681)      (720)  
    Minorities' interests in                                                        
     equity of subsidiaries            745    1,021      844       885        818   
    Preferred stock                    763      832    1,066     1,072      1,078   
    Common shareholders' equity      3,878    4,177    3,972     3,875      5,140   
    Total capitalization            16,252   15,948   15,325    15,789     16,179   
                                                                                    
Selected Data and Ratios                                                            
                                                                                    
Common shareholders of record at                                                    
 year-end                           54,262   56,414   65,820    68,877     71,213   
Book value per common share/1/     $ 35.48  $ 38.86  $ 37.69   $ 40.19   $  54.43   
Year-end common share market                                                        
 price                             $137.00  $ 99.00  $ 88.13   $ 79.25   $  68.50   
Employees at year-end               85,200   87,600   97,000    99,300    100,900   
Working capital                    $ 2,834  $ 2,411  $ 2,357   $ 2,578   $  2,282   
Current ratio                          1.4      1.4      1.4       1.5        1.5   
Additions to land, buildings and                                                    
 equipment                         $   438  $   389  $   470   $   582   $    467   
Depreciation on land, buildings                                                     
 and equipment                     $   376  $   446  $   437   $   418   $    397   

  *  Data that conforms with the 1995 basis of presentation were not available.

/1/  Book value per common share is computed by dividing common shareholders'
equity by outstanding common shares plus common shares reserved for the
conversion of the Xerox Canada Inc. Exchangeable Class B stock.
</TABLE>
  

80

<PAGE>
 
  Ten Years In Review             
                                  

<TABLE>                           
<CAPTION>                         
(Dollars in millions, except      
 per-share data)                                           1990      1989       1988     1987      1986
<S>                                                     <C>       <C>       <C>       <C>      <C>     
Per-Share Data                                                                                         
                                                                                                       
Earnings (loss) from continuing                                                                        
 operations                                                                                            
    Primary                                             $  5.44   $  4.39   $   1.13  $  3.06  $   2.73
    Fully diluted                                          5.21      4.36       1.13     3.05      2.73
Dividends declared                                         3.00      3.00       3.00     3.00      3.00
                                                                                                       
Operations                                                                                             
                                                                                                       
Revenues                                                $13,210   $12,095   $ 11,354  $10,537  $  9,493
Research and development expenses                           848       809        794      722       650
Income (loss) from continuing                                                                          
 operations                                                 599       488        148      353       316
Net income (loss)                                           243       704        388      578       465
                                                                                                       
Financial Position                                                                                     
                                                                                                       
Accounts and finance                                                                                   
 receivables, net                                       $ 8,016   $ 7,272   $  6,109  $ 4,948  $  3,887
Inventories                                               2,148     2,413      2,558    2,286     2,459
Land, buildings and equipment,                                                                         
 net                                                      1,851     1,781      1,803    1,639     1,491
Investment in discontinued                                                                             
 operations                                               9,695         *          *        *         *
Total assets                                             24,116         *          *        *         *
Consolidated capitalization                                                                            
    Short-term debt                                       1,828     1,482      1,174        *         *
    Long-term debt                                        8,726     9,247      6,675        *         *
    Total debt                                           10,554    10,729      7,849    5,771     4,343
    Deferred ESOP benefits                                 (756)     (785)         -        -         -
    Minorities' interests in                                                                           
     equity of subsidiaries                                 832       715        806      655       565
    Preferred stock                                       1,081     1,081        296      442       442
    Common shareholders' equity                           5,051     5,035      5,371    5,105     4,687
    Total capitalization                                 16,762    16,775     14,322   11,973    10,037
                                                                                                       
Selected Data and Ratios                                                                               
                                                                                                       
Common shareholders of record at                                                                       
 year-end                                                74,994    78,876     84,864   86,388    90,437
Book value per common share/1/                          $ 53.73   $ 53.59   $  52.22  $ 51.00  $  48.00
Year-end common share market                                                                           
 price                                                  $ 35.50   $ 57.25   $  58.38  $ 56.63  $  60.00
Employees at year-end                                    99,000    99,000    100,000   99,200   100,400
Working capital                                         $ 2,537         *          *        *         *
Current ratio                                               1.6         *          *        *         *
Additions to land, buildings and                                                                       
 equipment                                              $   405   $   390   $    418  $   347  $    328
Depreciation on land, buildings                                                                        
 and equipment                                          $   372   $   370   $    369  $   320  $    283 

  *  Data that conforms with the 1995 basis of presentation were not available.

/1/  Book value per common share is computed by dividing common shareholders'
equity by outstanding common shares plus common shares reserved for the
conversion of the Xerox Canada Inc. Exchangeable Class B stock.

</TABLE>
  

Dividends And Stock Prices

Consecutive Dividends Paid To Shareholders

During 1995, dividends paid to the Company's common stock shareholders totaled
$3.00 per share, unchanged from 1994 and 1993. Xerox has declared dividends to
its shareholders for 66 consecutive years and has paid consecutive quarterly
dividends since 1948.

  The Company's Board of Directors, at a special meeting held January 23, 1996,
declared dividends on Xerox common stock at an increased rate of $.87 per share,
a 16 percent increase from the prior quarterly rate of $.75 per share. At its
February 5, 1996 meeting, the Board declared dividends on the Company's two
issues of preferred stock, unchanged from previous quarterly payments. Payments
on the $3.6875 Ten-Year Sinking Fund Preferred are $0.921875 per share. Payments
on the Series B Convertible Preferred, which was issued in July 1989 in
connection with the formation of a Xerox Employee Stock Ownership Plan, are
$1.5625 per share. All of these dividends are payable April 1 to shareholders of
record March 1.

  At its January 23 meeting, the Board of Directors also approved a three-for-
one stock split and an increase in the authorized number of common shares to
1.05 billion from 350 million, subject to shareholder approval at the May 16,
1996 Annual Meeting of Shareholders. If approved by the shareholders, the
effective date of the split will be shortly after the Annual Meeting and the
annualized dividend on each share of stock will then be $1.16.

  On April 1, 1996, the Company will redeem all outstanding shares of the
$3.6875 Ten-Year Sinking Fund Preferred stock at a price of $50. Dividends on
the stock will cease to accrue on April 1. Notices of redemption were mailed to
holders of the stock on February 26, 1996.


<TABLE>
<CAPTION>
 
                    XEROX COMMON STOCK PRICES AND DIVIDENDS

New York Stock Exchange               First    Second     Third     Fourth
Composite Prices                    Quarter   Quarter   Quarter    Quarter
- --------------------------------------------------------------------------
<S>                                <C>       <C>       <C>      <C>
  1995    High                     $120 1/2  $125 7/8  $134 3/4  $144 5/8
          Low                        96 1/2   109 3/4   109 3/4   126
          Dividends Paid            .75       .75       .75       .75

  1994    High                     $103 1/4  $104 3/4  $109 3/8  $112 3/4
          Low                        87 3/4    93 7/8    97        91 1/2 
          Dividends Paid            .75       .75       .75       .75
- --------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
                        XEROX $3.6875 TEN-YEAR SINKING FUND
                       PREFERRED STOCK PRICES AND DIVIDENDS

New York Stock Exchange               First    Second     Third    Fourth
Composite Prices                    Quarter   Quarter   Quarter   Quarter
- -------------------------------------------------------------------------
<S>                                <C>       <C>       <C>       <C>
  1995    High                     $ 54 1/2  $ 54      $ 54      $  56
          Low                        49        49        49 1/2     50
          Dividends Paid            .921875   .921875   .921875   .921875

  1994    High                     $ 54      $ 55 1/2  $ 55      $  54
          Low                        50 1/2    50 1/2    50         50
          Dividends Paid            .921875   .921875   .921875   .921875
- -------------------------------------------------------------------------
</TABLE>


Stock Listed And Traded

Xerox common stock (XRX) is listed on the New York Stock Exchange and the
Chicago Stock Exchange. It is also traded on the Boston, Cincinnati, Pacific
Coast and Philadelphia exchanges and in London, Basel, Berne, Geneva, Lausanne
and Zurich.
                                                                              81




                                                                    EXHIBIT 21

Subsidiaries of Xerox Corporation
 
A.   Xerox Corporation
 
The following companies are subsidiaries of Xerox Corporation as of February 
1, 1996.  The names of a number of other subsidiaries have been omitted as 
they would not, if considered in the aggregate as a single subsidiary, 
constitute a significant subsidiary:
 
Name of Subsidiary                           Incorporated In   Ownership %
 
Xerox Canada Inc.                            Ontario, Canada        90
    Xerox Canada Finance Inc.                Ontario, Canada       100
    Xerox Canada Ltd.                        Ontario, Canada        65
Lyell Holdings Limited                       Delaware              100
    Xerox Business Equipment Limited         United Kingdom        100
    Xerox Research (UK) Limited              United Kingdom        100
Xerox Business Equipment, Inc.               Delaware              100
Xerox Financial Services, Inc.               Delaware              100
    International Insurance Company          Illinois              100
    OakRe Life Insurance Company             Missouri              100
    Xerox Credit Corporation                 Delaware              100
      XCC Investment Corporation             Delaware              100
    Talegen Holdings, Inc.                   Delaware              100
    Xerox Life Management Company            Delaware              100
    Ridge Reinsurance Limited                Bermuda               100
    The Resolution Group, Inc.               Delaware              100
Xerox Foreign Sales Corporation              Barbados              100
Xerox Realty Corporation                     Delaware              100
Xerox do Brasil, Ltda.                       Brazil                100
Xerox Mexicana, S.A. de C.V.                 Mexico                100
Rank Xerox Investments
 Limited               Bermuda              66.7
Rank Xerox Limited                           United Kingdom       51.2
    Bessemer Trust Limited                   United Kingdom        100
    Fuji Xerox Co., Ltd.                     Japan                  50
    Modi Xerox Limited                       India                35.9
    Rank Xerox (U.K.) Limited                United Kingdom        100
    Rank Xerox (Ireland) Limited             United Kingdom        100
    Rank Xerox Espanola S.A.                 Spain                 100
        Rank Xerox de Financiacion S.A.      Spain                 100
    Rank Xerox Finance (Nederland) BV        Netherlands           100
    Rank Xerox Greece S.A.                   Greece                100
    NV Rank Xerox Credit S.A.                Belgium               100
    Rank Xerox Finance AG                    Switzerland           100
    Rank Xerox Finance Limited               United Kingdom        100
    Rank Xerox Leasing GmbH                  Germany               100
    Rank Xerox Leasing International 
        Finance BV                           Netherlands           100
    Rank Xerox - The Document Company S.A.   France                100
        Burofinance S.A.                     France                 66
    Rank Xerox Exports Limited               United Kingdom        100
    N.V. Rank Xerox S.A.                     Belgium               100
    Rank Xerox Austria GmbH                  Austria               100
    Rank Xerox A/S                           Denmark               100
        Rank Xerox Finans A/S                Denmark               100
    Rank Xerox Oy                            Finland               100

Name of Subsidiary                           Incorporated In   Ownership %
 
    Rank Xerox GmbH                          Germany               100
    Rank Xerox S.p.A.                        Italy                 100
    Rank Xerox AG                            Switzerland           100
    Rank Xerox AS                            Norway                100
    Rank Xerox Management Services S.A.      Belgium               100
    Rank Xerox Pensions Limited              United Kingdom        100
    Rank Xerox A.B.                          Sweden                100
    Rank Xerox (Nederland) B.V.              Netherlands           100
Rank Xerox Holding B.V.                      Netherlands          51.2
    Rank Xerox Manufacturing
      (Nederland) B.V.                       Netherlands           100
R-X Holdings Limited                         Bermuda              66.7
    Xerox Limited                            Bermuda               100



B.   Talegen Holdings, Inc.
 
          Insurance Holding Company System Organizational Chart
 
All controlled persons and controlled insurers of Talegen Holdings, Inc., a 
Delaware corporation ("Talegen"), (under applicable state insurance laws), are 
set forth in the following table, together with the jurisdiction of domicile 
of each and the percentage of voting securities owned as of January 1, 1996.  
Unless otherwise indicated, all of the persons included in the table are 
corporations, the voting securities of which are directly owned by Talegen.  
All of the outstanding capital stock of Talegen is owned by Xerox Financial 
Services, Inc., a Delaware corporation ("XFSI"), which is a wholly-owned 
subsidiary of Xerox Corporation.  XFSI also owns, effective as of December 31, 
1995, all of the outstanding capital stock of The Resolution Group, Inc., a 
Delaware corporation which was formerly a wholly-owned subsidiary of Talegen.

Name of Subsidiary                           Incorporated In   Ownership %
 
Coregis Group, Inc.                          Delaware              100
    Coregis Insurance Company                Indiana               100 (1)
    Coregis Indemnity Company                Illinois              100 (1)
    California Insurance Company             California            100 (1)
    Coregis Managers Corporation (IL)        Illinois              100 (1)
Crum & Forster Holdings, Inc.                Delaware              100
    United States Fire Insurance Company     New York              100 (1)
      Southbend Properties, Inc.             Texas                 100 (1)
    The North River Insurance Company        New Jersey            100 (1)
    Crum and Forster Insurance Company       New Jersey            100 (1)
    Crum & Forster Underwriters Co. of Ohio  Ohio                  100 (1)
    Crum & Forster Indemnity Company         New York              100
    Crum & Forster Custom Securities, Inc.   California            100 (1)
Industrial Indemnity Holdings, Inc.          Delaware              100
    Industrial Indemnity Company             California            100 (1)
      Claremont Holdings Limited             Bermuda               9.2
        Claremont Insurance Limited          Bermuda               100
      Industrial/Las Flores, Inc. (5)        California            100 (1)
      Industrial/Canyon Creek, Inc. (5)      California            100 (1)
      Industrial/Shadowridge, Inc. (5)       California            100 (1)
      Industrial/Mountainback, Inc. (5)      California            100 (1)
      Industrial/Channing, Inc. (5)          California            100 (1)
    Industrial Indemnity Company of Alaska   Alaska                100 (1)
    Industrial Indemnity Company of Idaho    Idaho                 100 (1)(2)
    Industrial Indemnity Company
      of the Northwest                       Washington            100 (1)
    Industrial Insurance Company             California            100 (1)
    Employers First Insurance Company        California            100 (1)
    255 California Corporation               California            100 (1)
    Industrial Indemnity Insurance
      Services, Inc.                         California            100 (1)
      American All Risk Loss Administrators  California             40 (1)
Westchester Specialty Group, Inc.            Delaware              100
    Westchester Fire Insurance Company       New York              100 (1)
    Westchester Surplus Lines Insurance
      Company                                Georgia               100 (1)
    Industrial Underwriters Insurance 
      Company                                Texas                 100 (1)
    Westchester Specialty Insurance
      Services, Inc.                         Nevada                100 (1)


Name of Subsidiary                           Incorporated In   Ownership %
 
    Industrial Excess & Surplus Insurance
      Brokers                                California            100 (1)
Talegen Properties, Inc.                     Delaware              100
Infocus Employee Services, Inc.              Delaware             92.5
Filoli Information Systems Company           Delaware               40
Apprise Corp.                                New Jersey            100
Crum & Forster of Canada Ltd.                Canada                100
First Quadrant Corp.                         New Jersey            100
    First Quadrant Limited                   United Kingdom        100 (1)(4)
Herald Insurance Company                     Canada                100 (3)


(1) Directly or indirectly owned by a subsidiary of Talegen.

(2) Includes qualifying shares held by directors.

(3) Includes less than 1/5 of 1% shares beneficially owned by directors.

(4) Includes one share held by Talegen in trust and as nominee for
    First Quadrant Corp.

(5) Subject to the receipt of a tax clearance from the California Franchise 
    Tax Board, the effective date of the dissolution of this corporation will 
    be December 18, 1995.







                                                                    EXHIBIT 23

Consent of Independent Auditors




To the Board of Directors and Shareholders of Xerox Corporation



We consent to the incorporation by reference in the Registration Statements of 
Xerox Corporation on Forms S-8 (Nos. 2-81528, 2-86274, 2-86275, 33-18126, 33-
44313, 33-44314 and 33-65269) and Forms S-3 (Nos. 2-82363, 33-9486, 33-32215, 
33-49177 and 33-54629) of our reports dated January 24, 1996 relating to the 
consolidated balance sheets of Xerox Corporation and consolidated subsidiaries 
as of December 31, 1995 and 1994, and the related consolidated statements of 
income and cash flows and related schedule for each of the years in the three-
year period ended December 31, 1995 which reports appear in or are 
incorporated by reference in the 1995 Annual Report on Form 10-K.





                                          KPMG PEAT MARWICK LLP





Stamford, Connecticut
March 28, 1996







<TABLE> <S> <C>
 
<ARTICLE> 5 
<LEGEND> 
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XEROX 
CORPORATION'S DECEMBER 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS 
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 
</LEGEND> 
<MULTIPLIER> 1,000,000 
        
<S>                             <C> 
<PERIOD-TYPE>                   YEAR 
<FISCAL-YEAR-END>                          DEC-31-1995 
<PERIOD-END>                               DEC-31-1995 
<CASH>                                             130 
<SECURITIES>                                         0 
<RECEIVABLES>                                   12,780 
<ALLOWANCES>                                       411 
<INVENTORY>                                      2,646 
<CURRENT-ASSETS>                                 9,833 
<PP&E>                                           4,849 
<DEPRECIATION>                                   2,757 
<TOTAL-ASSETS>                                  25,969 
<CURRENT-LIABILITIES>                            6,999 
<BONDS>                                         11,413 
<PREFERRED-MANDATORY>                               25 
<PREFERRED>                                        738 
<COMMON>                                           109 
<OTHER-SE>                                       3,769 
<TOTAL-LIABILITY-AND-EQUITY>                    25,969 
<SALES>                                          8,799 
<TOTAL-REVENUES>                                16,611 
<CGS>                                            4,962 
<TOTAL-COSTS>                                    8,908 
<OTHER-EXPENSES>                                 5,856 
<LOSS-PROVISION>                                   277 
<INTEREST-EXPENSE>                                 591 
<INCOME-PRETAX>                                  1,847 
<INCOME-TAX>                                       615 
<INCOME-CONTINUING>                              1,174 
<DISCONTINUED>                                 (1,646) 
<EXTRAORDINARY>                                      0 
<CHANGES>                                            0 
<NET-INCOME>                                     (472) 
<EPS-PRIMARY>                                   (4.69) 
<EPS-DILUTED>                                   (5.26) 
        

</TABLE>