Note N — Shareholders' Equity

In January, 2000, the Company entered into a three year equity put option agreement with National Indemnity Company ("National Indemnity"), a property casualty insurance company which is a subsidiary of Berkshire Hathaway, Inc. The purpose of the agreement is to provide up to $100 million of additional capital and surplus in the event that property and casualty insurance companies of Balboa Life Insurance Company and Balboa Insurance Company (collectively "Balboa") incur a certain level of catastrophic property and casualty losses.

  Upon the occurrence of one or more catastrophic events and two trigger events, the Company will have the option to require National Indemnity to purchase up to one million shares of non voting Series B Cumulative Preferred Stock, par value $0.05 per share, of the Company (the "Series B Preferred Stock"), at a price of $100 per share, with a dividend rate to be determined in accordance with the agreement, resetting annually. The Series B Preferred Stock is convertible into shares of common stock of the Company at a price which is 20% above the average price of the common stock in the 30 day period prior to the issuance of the Series B Preferred Stock. Upon issuance of the Series B Preferred Stock and for so long as National Indemnity owns at least 50% of the outstanding Series B Preferred Stock, the Company will not be able to increase quarterly dividends on its common stock. If issued, the Series B Preferred Stock will pay an annual dividend rate determined at the time of issuance, and such rate would increase by 50 basis points each year if the Series B Preferred Stock remained outstanding for more than three years. The Series B Preferred Stock is redeemable by the Company at the purchase price plus any then unpaid dividend yield.

  A catastrophic event that would trigger the option is one which results in Balboa sustaining losses in excess of $97 million, net of reinsurance recoverable, or the occurrence in any calendar year of multiple catastrophic events which results in Balboa sustaining losses in excess of $194 million, net of reinsurance recoverable. In addition, for the option to be triggered the consolidated net loss ratio of the Balboa property and casualty operations must exceed 60% for the applicable calendar year and Balboa property and casualty operations must have a net loss for such year.

  In the event of a default in the payment of dividends on Series B Preferred Stock, National Indemnity has the right to purchase shares of the Company's common stock having a market value of $1 million at a price per share of 10% below the closing price of the Company's common stock on the business day prior to such purchase. This purchase option may be exercised quarterly until all unpaid dividends and interest are paid.

  In February 1988, the Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right ("Right") for each outstanding share of the Company's common stock. As a result of stock splits and stock dividends, 0.399 of a Right is presently associated with each outstanding share of the Company's common stock issued prior to the Distribution Date (as defined below). Each Right, when exercisable, entitles the holder to purchase from the Company one one-hundredth of a share of Series A Participating Preferred Stock, par value $0.05 per share, of the Company (the "Series A Preferred Stock"), at a price of $145, subject to adjustments in certain cases to prevent dilution.

  The Rights are evidenced by the common stock certificates and are not exercisable or transferable, apart from the common stock, until the date (the "Distribution Date") of the earlier of a public announcement that a person or group, without prior consent of the Company, has acquired 20% or more of the common stock ("Acquiring Person"), or ten days (subject to extension by the Board of Directors) after the commencement of a tender offer made without the prior consent of the Company.

  In the event a person becomes an Acquiring Person, then each Right (other than those owned by the Acquiring Person) will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock, or the equivalent thereof, of the Company which, at the time of such transaction, would have a market value of two times the exercise price of the Right. The Board of Directors of the Company may delay the exercisability of the Rights during the period in which they are exercisable only for Series A Preferred Stock (and not common stock).