<PAGE>

                                                                  EXHIBIT 10(34)

                             CNA SURETY CORPORATION

                    2006 LONG-TERM EQUITY COMPENSATION PLAN

<PAGE>
                                                                               .
                                                                               .
                                                                               .

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                            ----
<S>                                                                                                         <C>
Article 1.  Establishment, Effective Date, Objectives, and Duration.................................          1
Article 2.  Definitions.............................................................................          1
Article 3.  Administration..........................................................................          6
Article 4.  Shares Subject to the Plan, Maximum Awards and Section 162(m) Compliance................          9
Article 5.  Eligibility and General Conditions of Awards............................................         12
Article 6.  Stock Options...........................................................................         14
Article 7.  Stock Appreciation Rights...............................................................         17
Article 8.  Restricted Stock........................................................................         18
Article 9.  Performance Units and Performance Shares................................................         19
Article 10. Incentive Awards........................................................................         21
Article 11. Bonus Shares............................................................................         22
Article 12. Beneficiary Designation.................................................................         22
Article 13. Deferrals...............................................................................         22
Article 14. Rights of Employees/Directors...........................................................         23
Article 15. Change in Control.......................................................................         23
Article 16. Amendment, Modification, and Termination................................................         23
Article 17. Withholding.............................................................................         24
Article 18. Successors..............................................................................         25
Article 19. Additional Provisions...................................................................         25
</TABLE>

                                        i
<PAGE>

                  CNA SURETY CORPORATION 2006 LONG-TERM EQUITY

                                COMPENSATION PLAN

                                   ARTICLE 1.
             ESTABLISHMENT, EFFECTIVE DATE, OBJECTIVES, AND DURATION

      1.1. Establishment of the Plan. CNA Surety Corporation, a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "CNA Surety Corporation 2006
Long-Term Equity Compensation Plan" (hereinafter referred to as the "Plan"). The
Plan was approved by the Board of Directors of the Company on February 14, 2006,
and, subject to the approval of the shareholders of the Company, shall be
effective as of January 1, 2006 ("Effective Date").

      1.2. Objectives of the Plan. The Plan is intended to allow selected
employees, directors and consultants of the Company and its Subsidiaries to
acquire or increase equity ownership in the Company, thereby strengthening their
commitment to the success of the Company and stimulating their efforts on behalf
of the Company, and to assist the Company and its Subsidiaries in attracting new
employees, directors and consultants and in retaining existing employees,
directors, and consultants. The Plan is also intended to optimize the
profitability and growth of the Company through incentives which are consistent
with the Company's goals; to provide employees, directors, and consultants with
an incentive for excellence in individual performance; and to promote teamwork
among employees, directors, and consultants.

      1.3. Duration of the Plan. The Plan shall commence on the Effective Date
and shall remain in effect, subject to the right of the Board of Directors to
amend or terminate the Plan at any time pursuant to Article 16 hereof, until the
earlier of December 31, 2015, or the date all Shares subject to it shall have
been purchased or acquired and the restrictions on all Restricted Stock shall
have lapsed according to the Plan's provisions. The termination of the Plan
shall not adversely affect any Awards outstanding on the date of termination.

                                   ARTICLE 2.
                                  DEFINITIONS

      Whenever used in the Plan, the following terms shall have the meanings set
forth below:

      2.1. "Award" means Options, including Incentive Stock Options and
Non-Qualified Stock Options, Restricted Stock, Bonus Shares, Stock Appreciation
Rights (SARs), Performance Units, Performance Shares, or Incentive Awards
granted under the Plan.

      2.2. "Award Agreement" means the written agreement by which an Award shall
be evidenced.

      2.3. "Board" or "Board of Directors" means the Board of Directors of the
Company.

      2.4. "Bonus Opportunity" means the threshold, target and maximum bonus
opportunity for an Incentive Award for an individual for a year or other
Performance Period,

                                      - 1 -
<PAGE>

based on threshold, target and maximum bonus levels specified as a percentage of
the Grantee's base salary in effect on the first day of such year or other
Performance Period (or such later date as such person is designated as an
eligible Grantee) as determined by the Committee.

      2.5. "Bonus Shares" means Shares that are awarded to a Grantee without
cost and without restrictions in recognition of past performance (whether
determined by reference to another employee benefit plan of the Company or
otherwise) or as an incentive to become an employee, director or consultant of
the Company or a Subsidiary.

      2.6. "Cause" means, unless otherwise defined in an Award Agreement or in
an employment agreement between the Grantee and the Company, any one or more of
the following with respect to a Grantee:

            (A) the Grantee's commission of a crime which, in the judgment of
the Committee, is likely to result in injury to the Company or a Subsidiary;

            (B) the material violation by the Grantee of written policies of the
Company or a Subsidiary;

            (C) the habitual neglect by the Grantee in the performance of his or
her duties to the Company or a Subsidiary;

            (D) the action or inaction in connection with the Grantee's duties
to the Company or a Subsidiary resulting, in the judgment of the Committee, in a
material injury to the Company or a Subsidiary;

            (E) the Grantee's rendering of services for any organization or
engaging directly or indirectly in any business which is or becomes competitive
with the Company or a Subsidiary or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of the Company or a Subsidiary;

            (F) any attempt by the Grantee, directly or indirectly, to induce
any employee of the Company or a Subsidiary to be employed or perform services
elsewhere or any attempt directly or indirectly to solicit the trade or business
of any current or prospective customer, supplier or partner of the Company or a
Subsidiary; or

            (G) any other conduct by or act of the Grantee determined by the
Committee to be injurious, detrimental, or prejudicial to any interest of the
Company or a Subsidiary.

      2.7. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and regulations and rulings thereunder. References to a particular
section of the Code include references to successor provisions.

      2.8. "Committee" means the committee of the Board appointed pursuant to
Article 3.

      2.9. "Common Stock" means the common stock, $.0l par value, of the
Company.

                                      - 2 -
<PAGE>

      2.10. "Consultant" means a non-employee consultant or advisor to the
Company or a Subsidiary who is a natural person (other than a non-employee
director) providing bona fide services that are not in connection with an offer
or sale of Company equity securities in a capital raising transaction; provided
the individual does not directly or indirectly maintain or promote a market in
Company securities.

      2.11. "Company" has the meaning set forth in Section 1.1.

      2.12. "Covered Employee" means a Grantee who, as of the last day of the
fiscal year of inclusion in income of the value of an Award is one of the group
of "covered employees," within the meaning of Section 162(m) of the Code, with
respect to the Company.

      2.13. "Disability" means, for purposes of the exercise of an Incentive
Stock Option alter Termination of Affiliation, a disability within the meaning
of Code Section 22(e)(3), and for all other purposes, a mental or physical
condition which, in the judgment of the Committee, renders a Grantee unable to
perform any of the principal job responsibilities which such Grantee held or the
tasks to which such Grantee was assigned at the time the disability was
incurred, and which condition is expected to be permanent or for an indefinite
duration exceeding two years.

      2.14. "Disqualifying Disposition" has the meaning set forth in Section
6.4.

      2.15. "Effective Date" has the meaning set forth in Section 1.1.

      2.16. "Eligible Person" means (i) any employee (including any officer) of
the Company or any Subsidiary, including any such employee who is on an approved
leave of absence, layoff, or has been subject to a disability which does not
qualify as a Disability; (ii) any director of the Company or any Subsidiary; and
(iii) any person performing services for the Company or a Subsidiary as
Consultant.

      2.17. "Exchange Act" means the Securities Exchange Act of 1934, and
regulations and rulings thereunder. References to a particular section of, or
rule under, the Exchange Act include references to successor provisions.

      2.18. "Fair Market Value" of an equity security means the closing price of
such security on such date (or, if no sale of such security was reported for
such date, on the next preceding date on which a sale of such security was
reported) as reported in the principal consolidated transaction reporting system
for the New York Stock Exchange (or, if such security is not listed on the New
York Stock Exchange, on such other national exchange or over-the-counter market
on which such security is principally traded); provided that if such Fair Market
Value as of any date cannot be so determined, Fair Market Value shall be
determined by the Committee by whatever means or method it, in the good faith
exercise of its discretion, shall at such time deem appropriate. Except as
provided in the following sentence, the valuation of an equity security on any
date shall be determined as of that date (or, if no sale of such security was
reported for such date, on the most recent trading day prior to such date on
which a sale of such other security was reported). On the exercise or vesting
date of an Award denominated in Shares, the valuation of Shares shall be
determined as of the last trading day preceding the exercise or vesting of the
Award.

                                      - 3 -
<PAGE>

      2.19. "Freestanding SAR" means a SAR that is granted independently of any
other Award.

      2.20. "Grant Date" has the meaning set forth in Section 5.2.

      2.21. "Grantee" means an individual who has been granted an Award.

      2.22. "Incentive Award" means an Award under Section 10 of the Plan based
on achievement of Performance Goals over a Performance Period which may be one
fiscal year or less ("Annual Incentive Awards") or more than one fiscal year
("Long-Term Incentive Awards").

      2.23. "Incentive Stock Option" or "ISO" means an Option granted as an
Award under the Plan that is intended to meet the requirements of Section 422 of
the Code.

      2.24. "including" or "includes" means "including, without limitation," or
"includes, without limitation", respectively.

      2.25. "Insider" shall mean a person who is subject to potential liability
under Section 16(b) of the Exchange Act with respect to transactions involving
equity securities of the Company.

      2.26. "Mature Shares" means Shares for which the holder thereof has good
title, free and clear of all liens and encumbrances, and which such holder
either (i) has held for at least six months or (ii) has purchased on the open
market.

      2.27. "Minimum Consideration" means $.O1 per Share or such other amount
that is from time to time considered to be capital for purposes of Section 154
of the Delaware General Corporation Law.

      2.28. "Non-Qualified Stock Option" or "NQSO" means an Option granted as an
Award under the Plan that is not intended to meet the requirements of Section
422 of the Code.

      2.29. "Option" means an Incentive Stock Option or a Non-Qualified Stock
Option.

      2.30. "Option Price" means the price at which a Share may be purchased by
a Grantee pursuant to an Option.

      2.31. "Option Term" means the period beginning on the Grant Date of an
Option and ending on the expiration date of such Option, as specified in the
Award Agreement for such Option and as may, in the discretion of the Committee
and consistently with the provisions of the Plan, be extended from time to time
prior to the expiration date of such Option then in effect.

      2.32. "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).

      2.33. "Performance Goals" means the objective or subjective criteria
determined by the Committee, the degree of attainment of which will affect (a)
in the case of an Award other than

                                      - 4 -
<PAGE>

the Incentive Award, the amount of the Award the Grantee is entitled to receive
or retain, and (h) in the case of an Incentive Award, the portion of the
individual's Bonus Opportunity potentially payable as an Incentive Award.
Performance Goals may contain threshold, target, and maximum levels of
achievement and, to the extent the Committee intends an Award (including the
Incentive Award) to comply with the Performance-Based Exception, the Performance
Goals shall be chosen from among the measures (the "Performance Measures") set
forth in Section 4.4.

      2.34. "Performance Period" means the period over which achievement of
Performance Goals is measured.

      2.35. "Period of Restriction" means the period during which the transfer
or delivery of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Committee, in its discretion), and the Restricted
Stock is subject to a substantial risk of forfeiture, as provided in Article 8
hereof

      2.36. "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.

      2.37. "Plan" has the meaning set forth in the introductory paragraph.

      2.38. "Required Withholding" has the meaning set forth in Article 17.

      2.39. "Restricted Stock" means Restricted Stock Shares or Restricted Stock
Units.

      2.40. "Restricted Stock Shares" means Shares that are granted as an Award
under the Plan but that are subject to forfeiture if the restrictions imposed by
the Committee and specified in the Award Agreement, which restrictions may be
time-based or performance-based, are not satisfied.

      2.41. "Restricted Stock Units" means rights granted as an Award under the
Plan to receive Shares, that are subject to forfeiture if the restrictions
imposed by the Committee, which restrictions may be time-based or
performance-based, are not satisfied.

      2.42. "Rule 16b-3" means Rule 16b-3 of the SEC under the Exchange Act, as
amended from time to time, together with any successor rule.

      2.43. "Retirement" means for any Grantee who is an employee, a Termination
of Affiliation by the Grantee upon attaining age 65 with at least five years of
service as an employee of the Company or a Subsidiary.

      2.44. "SEC" means the Securities and Exchange Commission.

      2.45. "Share" means a share of Common Stock.

      2.46. "Strike Price" of any SAR shall equal, for any Tandem SAR that is
identified with an Option, the Option Price of such option, or for any other
SAR, 100% of the Fair Market Value

                                      - 5 -
<PAGE>

of a Share on the Grant Date of such SAR; provided that the Committee may
specify a higher Strike Price in the Award Agreement.

      2.47. "Stock Appreciation Right" or "SAR" means a right granted as an
Award under the Plan to receive, as of the date specified in the Award
Agreement, an amount equal to the number of Shares with respect to which the SAR
is exercised, multiplied by the excess of (a) the Fair Market Value of one Share
on the Exercise Date, over (b) the Strike Price.

      2.48. "Subsidiary" means, for purposes of grants of Incentive Stock
Options, a corporation as defined in Code Section 424(f) (with the Company being
treated as the employer corporation for purposes of this definition), and, for
all other purposes, a United States or foreign corporation with respect to which
the Company owns, directly or indirectly, 50% or more of the then-outstanding
common stock, or a limited liability company, partnership, joint venture, or
other unincorporated entity with respect to which the Company owns, directly or
indirectly, 50% or more of the then-outstanding profits interest.

      2.49. "Tandem SAR" means a SAR that is granted in connection with a
related Award, the exercise of which shall require forfeiture of the right to
purchase a Share under the related Award (and when a Share is purchased under
the related Award, the Tandem SAR shall similarly he canceled).

      2.50. "10% Owner" means a person who owns capital stock (including stock
treated as owned under Code Section 424(d)) possessing more than 10% of the
total combined voting power of all classes of capital stock of the Company or
any Subsidiary.

      2.51. "Termination of Affiliation" occurs on the first day on which an
individual is for any reason no longer providing services for the Company or any
of its Subsidiaries in the capacity of an employee, director or Consultant, or
with respect to an individual who is an employee or director of or Consultant to
Subsidiary, the first day on which the Company no longer, directly or
indirectly, owns voting securities possessing at least 50% of the combined
voting power of the then-outstanding securities of a corporation entitled to
vote generally in the election of directors of such Subsidiary, if a
corporation, or at least 50% of the then-outstanding profits interest of such
Subsidiary if a limited liability company, partnership, joint venture, or other
unincorporated entity.

                                   ARTICLE 3.
                                 ADMINISTRATION

      3.1. Committee. Subject to Section 3.2, the Plan shall be administered by
a committee (the "Committee") which shall consist of two or more directors of
the Company. To the extent the Board considers it desirable to comply with Rule
16b-3 or to meet the Performance-Based Exception, all of the members of the
Committee shall qualify as "outside directors" within the meaning of the
regulations under Section 162(m) of the Code and "non-employee directors" within
the meaning of Rule 16b-3 in respect of the exemption of grants to Insiders from
potential liability under Section 16(b) of the Exchange Act. The number of
members of the Committee shall from time to time be increased or decreased, and
shall be subject to such other conditions, in each case as the Board deems
appropriate.

                                      - 6 -
<PAGE>

      3.2. Delegation Authority. The Board may reserve to itself or delegate to
another committee of the Board any or all of the authority of the Committee with
respect to Awards. Such other committee (the "Management Committee") may consist
of one (or such greater number as may from time to time be required by the
bylaws of the Company) or more directors who may, but need not be, officers or
employees of the Company or a Subsidiary. Unless such delegation expressly
provides to the contrary, such delegated authority shall not extend to Awards
intended to comply with the Performance-Based Exception or Awards to Insiders
intended to be exempt under Rule 16b-3, unless the Management Committee meets
the requirements of the second sentence of Section 3.1. Unless such delegation
expressly provides to the contrary, such delegation shall not prevent the
Committee described in Section 3.1 from taking any subsequent action that is
required or permitted by the Plan respecting an Award granted by the Management
Committee. To the extent that the Board has reserved to itself or delegated to
such Management Committee the authority of the Committee, all references to the
Committee in the Plan shall be to the Board or such Management Committee. The
Management Committee may not grant Awards relating to an aggregate of more than
200,000 Shares in any calendar year unless the Board gives its prior approval of
a larger number of Shares.

      3.3. Powers of Committee. Subject to the express provisions of the Plan,
the Committee has full and final authority and sole discretion as follows:

            (i) to determine when and to whom Awards should be granted and the
terms and conditions applicable to each Award (which need not be identical),
including conditions intended to comply with Code Section 409A, the number of
Shares or the amount of cash or other property to which an Award will relate,
the term of the Award, any Option Price, Strike Price, any limitation or
restriction, any schedule for or performance conditions relating to the earning
of the Award or the lapse of restrictions, forfeiture restrictions, restrictions
on exercisability or transferability, any Performance Measures and Performance
Goals including those relating to the Company and/or a Subsidiary, vesting based
on the passage of time, the benefit payable under any SAR, Performance Unit or
Performance Share, and whether or not specific Awards shall be identified with
other specific Awards, and if so whether they shall be exercisable cumulatively
with, or alternatively to, such other specific Awards; based in each case on
such considerations as the Committee shall determine;

            (ii) to determine the sizes and types of Awards;

            (iii) to determine the amount, if any, that a Grantee shall pay for
Restricted Stock, whether to permit or require the payment of cash dividends
thereon to be deferred and the terms related thereto, when Restricted Stock
(including Restricted Stock Shares acquired upon the exercise of an Option)
shall be forfeited and whether such shares shall be held in escrow;

            (iv) to correct any defect or supply any omission or reconcile any
inconsistency, and to construe and interpret the Plan, the rules and
regulations, and Award Agreement or any other instrument entered into or
relating to an Award under the Plan, and to make all determinations, including
factual determinations, necessary or advisable for the administration of the
Plan;

                                      - 7 -
<PAGE>

            (v) to make, amend, and rescind rules relating to the Plan,
including rules with respect to the exercisability and nonforfeitability of
Awards upon the Termination of Affiliation of a Grantee;

            (vi) with the consent of the Grantee, to amend any Award Agreement
at any time, including an amendment to permit transfers of such Awards to the
extent permitted by the Plan; provided that the consent of the Grantee shall not
be required for any amendment which (a) does not adversely affect the rights of
the Grantee, (b) is required by the listing criteria of any exchange on which
Shares are traded; or (c) is necessary or advisable (as determined by the
Committee) to carry out the purpose of the Award as a result of any new or
change in existing applicable law (including any new or changed requirement of
the Code to obtain a tax benefit or to avoid a tax or a tax penalty for either
the Company or any Grantee);

            (vii) to cancel, with the consent of the Grantee, outstanding Awards
and to grant new Awards in substitution therefor;

            (viii) to accelerate the exercisability (including exercisability
within a period of less than one year after the Grant Date) of, and to
accelerate or waive any or all of the terms and conditions applicable to, any
Award or any group of Awards for any reason and at any time, including in
connection with a Termination of Affiliation (other than for Cause), provided
that the Committee may not accelerate the payment of any Award which is deferred
compensation within the meaning of Section 409A of the Code if such acceleration
would subject the Award to any additional tax under Section 409A of the Code;

            (ix) subject to Section 1.3 and Section 5.3, to extend the time
during which any Award or group of Awards may be exercised;

            (x) to make such adjustments or modifications to Awards to Grantees
working outside the United States as are advisable to fulfill the purposes of
the Plan;

            (xi) to impose such additional terms and conditions upon the grant,
exercise or retention of Awards as the Committee may, before or concurrently
with the grant thereof, deem appropriate, including limiting the percentage of
Awards which may from time to time be exercised by a Grantee;

            (xii) to appoint such agents including without limitation management
of the Company, as the Committee may deem necessary or advisable to assist the
Committee in administration of the Plan;

            (xiii) without the consent of the Grantee, to make adjustments in
the terms and conditions of, and the criteria in, Awards in recognition of
unusual or nonrecurring events (including events described in Section 4.4(a))
affecting the Company or any Subsidiary or the financial statements of the
Company or any Subsidiary, or in response to changes in applicable laws,
regulations or accounting principles; provided, however, that in no event shall
such adjustment increase the value of an Award for a person expected to be a
Covered Employee for whom the Committee desires to have the Performance-Based
Exception apply; and

                                      - 8 -
<PAGE>

            (xiv) to take any other action with respect to any matters relating
to the Plan for which it is responsible.

      The determination of the Committee on all matters relating to the Plan or
any Award Agreement shall be final, conclusive and binding on all Persons,
except to the extent the Committee may subsequently modify, or take further
action not consistent with, its prior action. If not specified in the Plan, the
time at which the Committee must or may make any determination shall be
determined by the Committee, and any such determination may thereafter be
modified by the Committee. This express grant of any specific power to the
Committee, and the taking of any action by the Committee, shall not be construed
as limiting any power or authority of the Committee. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Award.

                                   ARTICLE 4.
    SHARES SUBJECT TO THE PLAN, MAXIMUM AWARDS AND SECTION 162(m) COMPLIANCE

      4.1. Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2 hereof, the number of Shares hereby reserved for
issuance under the Plan shall be three million (3,000,000) which shall consist
of the sum of (a) 2,453,598, plus (b) 546,402 remaining Shares as of the
Effective Date of this Plan under the CNA Surety Corporation 1997 Long-Term
Equity Compensation Plan (the "1997 Plan") not subject to outstanding Awards
under the 1997 Plan and not delivered out of Shares reserved thereunder. If any
Shares subject to an Award granted hereunder are forfeited or such Award
otherwise terminates without the issuance of such Shares or of other
consideration in lieu of such Shares, the Shares subject to such Award, to the
extent of any such forfeiture or termination shall again he available for grant
under the Plan. If a SAR is settled in Shares, only the number of Shares
delivered in settlement of a SAR shall cease to he available for grant under the
Plan, regardless of the number of Shares with respect to which the SAR was
exercised. If any Shares subject to an Award granted hereunder are withheld or
applied as payment in connection with the exercise of an Award (including the
withholding of Shares on the exercise of a SAR that is settled in Shares) or,
except with respect to Restricted Stock, the withholding or payment of taxes
related thereto, such Shares shall again be available for grant under the Plan.
The Committee shall determine the appropriate methodology for calculating the
number of shares issued pursuant to the Plan. Shares issued pursuant to the Plan
may be treasury Shares or newly issued Shares.

      4.2. Maximum Awards. Awards shall be subject to the following limits:

            (a) Options: The maximum aggregate number of Shares that may be
granted in the form of Options, pursuant to any Awards granted in any one
calendar year to any one single Grantee, shall be two hundred thousand
(200,000).

            (b) SARS: The maximum aggregate number of SARs available under the
Plan shall be one million (1,000,000), and the maximum aggregate number of SARs
that may be granted in any one calendar year to any one single Grantee shall be
two hundred thousand (200,000).

                                      - 9 -
<PAGE>

            (c) Restricted Stock: The maximum aggregate number of Shares that
may be granted as Restricted Stock under the Plan shall be one million
(1,000,000), and the maximum aggregate grant with respect to Awards of
Restricted Stock granted in any one calendar year to any one Grantee shall be
one hundred thousand (100,000).

            (d) Bonus Shares: The maximum number of Shares that maybe granted as
Bonus Shares under the Plan shall be 300,000.

            (e) Performance Shares/Performance Units: The maximum aggregate
payout (determined as of the end of the applicable performance period) with
respect to Awards of Performance Shares or Performance Units granted in any one
calendar year to any one Grantee shall be equal to the value of one hundred
thousand (100,000) Shares; provided, however, that if the Performance Period
applicable to a Performance Unit exceeds twelve months, the 100,000 share limit
shall apply to each 12-month period in the Performance Period.

            (f) Incentive Awards: The maximum aggregate payout (determined as of
the end of the applicable performance period) with respect to Incentive Awards
granted in any one calendar year to any one Grantee shall be 300% of the
Grantee's base salary (as in effect on the first day of the performance period
or, if later, the date the Grantee becomes an employee of the Company or any
Subsidiary) up to a maximum of $1 million in base salary; provided, however,
that if the Performance Period applicable to an Incentive Award exceeds twelve
months, the foregoing limit shall apply to each 12-month period in the
Performance Period.

If an Award denominated in Shares is cancelled, the cancelled Award continues to
count against the maximum number of Shares for which an Award denominated in
Shares may be granted to a Grantee in any calendar year. The Share limits of
this Section 4.2 shall be adjusted to the extent necessary to reflect
adjustments to Shares required by Section 4.3.

      4.3. Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, including a stock split, or share combination or a
corporate transaction, including any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the Company,
any reorganization (whether or not such reorganization comes within the
definition of such term in Code Section 368) or any partial or complete
liquidation of the Company, such adjustment shall be made in the number and
class of Shares which may be delivered under Section 4.1, in the number and
class of and/or price of Shares subject to outstanding Awards granted under the
Plan, and in the Award limits set forth in Section 4.2, as may be determined to
be appropriate and equitable by the Committee, in its sole discretion, to
prevent dilution or enlargement of rights; provided, however, that the number of
Shares subject to any Award shall always be a whole number.

      4.4. Performance-Based Exception Under Section 162(m).

            (a) Performance Measures. Unless and until the Committee proposes
for shareholder vote and shareholders approve a change in the general
performance measures set forth in this Section 4.4, the attainment of which may
determine the degree of payout and/or vesting with respect to Awards designed to
qualify for the Performance-Based Exception, the performance measure(s) to be
used for purposes of such Awards shall be chosen from among the

                                      - 10 -
<PAGE>

following and including any of the following in the aggregate or on a per-Share
basis and on a pre-tax or after-tax basis:

            (i) Earnings;

            (ii) Net income;

            (iii) Net operating income;

            (iv) Cash flow provided by operations;

            (v) Free cash flow;

            (vi) Return measures (including return on assets, equity, or sales);

            (vii) Earnings (before or after any of interest, taxes, depreciation
or amortization);

            (viii) Gross revenues;

            (ix) Share price (including growth measures and total shareholder
return or attainment by the Shares of a specified value for a specified period
of time);

            (x) Reductions in expense levels;

            (xi) Strategic business criteria, consisting of one or more
objectives based on meeting objective standards of rate adequacy, premium
growth, market share retention, budget, operating plan, customer/employee
satisfaction, customer/employee diversity, business development or special
projects;

            (xii) Combined ratio (or any of its components); and

            (xiii) Gross or net written premiums.

provided that the Committee may, on the Grant Date of an Award intended to
comply with the Performance-Based Exception, and in the case of other Awards, at
any time, provide that the formula for such Award may include or exclude items
to measure specific objectives, such as losses from discontinued operations,
extraordinary gains or losses, the cumulative effect of accounting changes,
acquisitions or divestitures, foreign exchange impacts and any unusual,
nonrecurring gain or loss.

            (b) Flexibility as to Timing, Weighting, Applicable Business Unit.
For Awards intended to comply with the Performance-Based Exception, the
Committee shall set the Performance Goals within the time period prescribed by
Section 162(m) of the Code. The levels of performance required with respect to
Performance Measures may be expressed in absolute or relative levels and may be
based upon a set increase or rate of growth, set positive result, maintenance of
the status quo, set decrease or set negative result. Performance Measures may
differ for Awards to different Grantees. The Committee shall specify the
weighting (which may he the same or different for multiple objectives) to be
given to each performance objective for

                                      - 11 -
<PAGE>

purposes of determining the final amount payable with respect to any such Award.
Any one or more of the Performance Measures may apply to the Company as a whole,
or to a Grantee, a department, unit, division or function within the Company, or
any one or more Subsidiaries; and may apply either alone or relative to the
performance of other businesses or individuals (including industry or general
market indices).

            (c) Discretion to Adjust. The Committee shall have the discretion to
adjust the determinations of the degree of attainment of the pre-established
performance goals; provided, however, that Awards which are designed to qualify
for the Performance-Based Exception may not (unless the Committee determines to
amend the Award so that it no longer qualifies for the Performance-Based
Exception) be adjusted upward. The Committee shall retain the discretion to
adjust such Awards downward. All determinations by the Committee as to the
achievement of the Performance Measure(s) shall be certified in writing prior to
payment of the Award.

            (d) Alteration of Performance Measures. In the event that applicable
laws change to permit Committee discretion to alter the governing Performance
Measures without obtaining stockholder approval of such changes, and still
qualify for the Performance-Based Exception, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval.

                                   ARTICLE 5.
                  ELIGIBILITY AND GENERAL CONDITIONS OF AWARDS

      5.1. Eligibility. The Committee may in its discretion grant Awards to any
Eligible Person, whether or not he or she has previously received an Award.

      5.2. Grant Date. The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified in advance by the
Committee.

      5.3. Maximum Term. Any provision of the Plan to the contrary
notwithstanding, the Option Term or other period during which an Award may be
outstanding shall under no circumstances extend more than 10 years after the
Grant Date, and shall be subject to earlier termination as herein provided.

      5.4. Award Agreement. To the extent not set forth in the Plan, the terms
and conditions of each Award (which need not be the same for each grant or for
each Grantee) shall he set forth in an Award Agreement, provided that the terns
and conditions of Incentive Awards may be set forth in a resolution or other
document adopted by the Committee and generally applicable to all Grantees of
Incentive Awards, which resolution or other document shall be deemed an Award
Agreement for purposes of this Plan.

      5.5. Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under the Plan as it may deem advisable, including restrictions under
applicable federal securities laws, under the requirements of any stock exchange
or market upon which Shares are then listed or traded, and under any blue sky or
state securities laws applicable to such Shares.

                                      - 12 -
<PAGE>

      5.6. Termination of Affiliation. Each Grantee's Award Agreement shall set
forth the extent to which the Grantee shall have the right to exercise the Award
following Termination of Affiliation. Such provisions shall be determined in the
sole discretion of the Committee, shall be included in the Award Agreement, need
not be uniform among all Awards granted under the Plan, and may reflect
distinctions based on the reasons for Termination of Affiliation.
Notwithstanding the foregoing, vesting of Restricted Stock and distributions or
payments with respect to other Awards intended to qualify for the
Performance-Based Exception shall occur at the time they would have, but for the
Termination of Affiliation, if such Termination of Affiliation is for a reason
other than death, Disability, or in connection with a change of control of the
Company or a Subsidiary.

      5.7. Nontransferability of Awards.

            (a) Each Award granted hereunder shall not be assignable or
transferable other than by will or the laws of descent and distribution and may
be exercised, during the Grantee's lifetime, only by the Grantee or his or her
guardian or legal representative, except that, a Grantee may, in a manner and to
the extent permitted by the Committee in its discretion, designate in writing a
beneficiary to exercise an Award after the Grantee's death in accordance with
Article 12, and Non-Qualified Stock Options may be transferred in accordance
with subsection (b).

            (b) Notwithstanding subsection (a) above, to the extent provided in
the Award Agreement, Nonqualified Stock Options may be transferred, without
consideration, to a Permitted Transferee. For this purpose, a "Permitted
Transferee" in respect of any Grantee means any member of the Immediate Family
of such Grantee, any trust of which all of the primary beneficiaries are such
Grantee or members of his or her Immediate Family, or any partnership (including
limited liability companies and similar entities) of which all of the partners
or members are such Grantee or members of his or her Immediate Family; and the
"Immediate Family" of a Grantee includes any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
employee's household (other than a tenant or employee), a trust in which these
persons have more than fifty percent of the beneficial interest, a foundation in
which these persons (or the employee) control the management of assets, and any
other entity in which these persons (or the employee) own more than fifty
percent of the voting interests. Such Award may he exercised by such transferee
in accordance with the terms of such Award.

            (c) A transferee, beneficiary, guardian, legal representative or
other person claiming any rights under the Plan from or through any Grantee
shall be subject to the provisions of the Plan and any applicable Award
Agreement, except to the extent the Plan and Award Agreement otherwise provide
with respect to such persons, and to any additional restrictions or limitations
deemed necessary or appropriate by the Committee.

            (d) Nothing herein shall be construed as requiring the Committee to
honor the order of a domestic relations court regarding an Award, except to the
extent required under applicable law.

                                      - 13 -
<PAGE>

      5.8. Cancellation and Rescission of Awards.

            (a) Unless the Award Agreement specifies otherwise, the Committee
may cancel, rescind, suspend, withhold, or otherwise limit or restrict any
unexercised Award at any time if the Grantee is not in compliance with all
applicable provisions of the Award Agreement and the Plan or if the Grantee has
a Termination of Affiliation for Cause.

            (b) Upon exercise, payment, or delivery pursuant to an option, the
Grantee shall certify in a manner acceptable to the Company that he or she is in
compliance with the terms and conditions of the Plan. In the event a Grantee
fails to comply with the provisions of this Section 5.8 prior to, or during the
six months after, any exercise, payment, or delivery pursuant to an Award, such
exercise, payment, or delivery may be rescinded by the Committee within two
years thereafter. In the event of any such rescission, the Grantee shall pay to
the Company the amount of any gain realized or payment received as a result of
the rescinded exercise, payment, or delivery in such manner and on such terms
and conditions as may be required, and the Company shall be entitled to set-off
against the amount of any such gain any amount owed to the Grantee by the
Company.

      5.9. Exercise by Non-Grantee. If as permitted by the Plan any Award is
exercised by, or benefits under an Award are to be paid to any person other than
the Grantee, references in this Plan to the Grantee shall include such person,
and such person shall provide at the time of exercise of an Award or prior to
payment of the Award such documentation as may reasonably be required by the
Committee, including without limitation, evidence of authority of such person or
persons to exercise or receive payment of the Award and if the Committee so
specifies, evidence satisfactory to the Company that any death taxes payable
with respect to such Shares have been paid or provided for.

      5.10. No Cash Consideration for Awards. Awards may be granted for no cash
consideration or for such minimal cash consideration as may be required by
applicable law.

      5.11. No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares, or whether such fractional Shares or any
rights thereto shall be canceled, terminated, or otherwise eliminated.

      5.12. Tax Obligations. No Award shall be settled, whether in cash or
Shares, unless the applicable tax withholding requirements have been met to the
satisfaction of the Committee.

                                   ARTICLE 6.
                                 STOCK OPTIONS

      6.1. Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to any Eligible Person in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee.

      6.2. Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the Option Term, the number of
shares to which

                                      - 14 -
<PAGE>

the Option pertains, the time or times at which such Option shall be exercisable
and such other provisions as the Committee shall determine.

      6.3. Option Price. The Option Price of an Option under this Plan shall be
at least equal to one hundred percent (100%) of the Fair Market Value of a Share
on the Grant Date.

      6.4. Grant of Incentive Stock Options. At the time of the grant of any
Option, the Committee may in its discretion designate that such Option shall be
made subject to additional restrictions to permit it to qualify as an Incentive
Stock Option. Any Option designated as an Incentive Stock Option:

            (i) shall, if granted to a 10% Owner, have an Option Price not less
than 110% of the Fair Market Value of a Share on the Grant Date;

            (ii) shall be for a period of not more than 10 years (five years in
the case of an Incentive Stock Option granted to a 10% Owner) from the Grant
Date, and shall be subject to earlier termination as provided herein or in the
applicable Award Agreement;

            (iii) shall not have an aggregate Fair Market Value (determined for
each Incentive Stock Option at its Grant Date) of the Shares with respect to
which Incentive Stock Options are exercisable for the first time by such Grantee
during any calendar year (under the Plan and any other stock option plan of the
Grantee's employer or any parent or Subsidiary thereof ("Other Plans")),
determined in accordance with the provisions of Code Section 422, which exceeds
$100,000 (the "$100,000 Limit");

            (iv) shall, if the aggregate Fair Market Value of the Shares
(determined on the Grant Date) with respect to the portion of such grant which
is exercisable for the first time during any calendar year ("Current Grant") and
all Incentive Stock Options previously granted under the Plan and any Other
Plans which are exercisable for the first time during a calendar year ("Prior
Grants") would exceed the $100,000 Limit, be exercisable as follows:

                  (A) the portion of the Current Grant which would, when added
to any Prior Grants, be exercisable with respect to Shares which would have an
aggregate Fair Market Value (determined as of the respective Grant Date for such
options) in excess of the $100,000 Limit shall, notwithstanding the terms of the
Current Grant, be exercisable for the first time by the Grantee in the first
subsequent calendar year or years in which it could be exercisable for the first
time by the Grantee when added to all Prior Grants without exceeding the
$100,000 Limit; and

                  (B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under the preceding provisions
of this Section during any calendar year commencing with the calendar year in
which it is first exercisable through and including the last calendar year in
which it may by its terms be exercised, such portion of the Current Grant shall
not be an Incentive Stock Option, but shall be exercisable as a separate Option
at such date or dates as are provided in the Current Grant;

            (v) shall be granted within 10 years from the earlier of the date
the Plan is adopted or the date the Plan is approved by the stockholders of the
Company;

                                      - 15 -
<PAGE>

            (vi) shall require the Grantee to notify the Committee of any
disposition of any Shares issued pursuant to the exercise of the Incentive Stock
Option under the circumstances described in Code Section 421(b) (relating to
certain disqualifying dispositions) (any such circumstance, a "Disqualifying
Disposition"), within 10 days of such Disqualifying Disposition; and

            (vii) shall by its terms not be assignable or transferable other
than by will or the laws of descent and distribution and maybe exercised, during
the Grantee's lifetime, only by the Grantee; provided, however, that the Grantee
may, to the extent provided in Article 12 of the Plan and in the manner
specified by the Committee, designate in writing a beneficiary to exercise his
or her Incentive Stock Option after the Grantee's death; and

            (viii) shall, if such Option nevertheless fails to meet the
foregoing requirements, or otherwise fails to meet the requirements of Section
422 of the Code for an Incentive Stock Option, be treated for all purposes of
this Plan, except as otherwise provided in subsections (i) and (ii) above, as a
Non-Qualified Stock Option.

      Notwithstanding the foregoing, the Committee may, without the consent of
the Grantee, at any time before the exercise of an Option (whether or not an
Incentive Stock Option), take any action necessary to prevent such option from
being treated as an Incentive Stock Option.

      6.5. Exercise and Payment. Options granted under this Article 6 shall be
exercised by the delivery of a written notice of exercise to the Company
identifying the Option being exercised and setting forth the number of Shares
with respect to which the Option is being exercised, accompanied by full payment
for the Shares.

            (a) Payment of the Option Price may be made by any one or more of
the following means:

            (i) cash, personal check or wire transfer;

            (ii) Mature Shares, valued at their Fair Market Value on the date of
exercise;

            (iii) with the approval of the Committee, Restricted Stock held by
the Grantee for at least six months prior to the exercise of the option, each
such share valued at the Fair Market Value of a Share on the date of exercise;
or

            (iv) pursuant to procedures previously approved by the Company, but
subject to applicable law (including Section 402 of the Sarbanes-Oxley Act of
2002 relating to extensions of credit in the form of a loan to directors and
executive officers (or the equivalent thereof)), through the sale of the Shares
acquired on exercise of the Option through a broker-dealer to whom the Grantee
has submitted an irrevocable notice of exercise and irrevocable instructions to
deliver promptly to the Company the amount of sale or loan proceeds sufficient
to pay for such Shares, together with, if requested by the Company, the amount
of federal, state, local or foreign withholding taxes payable by Grantee by
reason of such exercise.

            (b) The Committee may in its discretion specify that, if any
Restricted Stock Shares ("Tendered Restricted Shares") are used to pay the
Option Price, (x) all the Shares

                                      - 16 -
<PAGE>

acquired on exercise of the option shall be subject to the same restrictions as
the Tendered Restricted Shares, determined as of the date of exercise of the
option, or (y) a number of Shares acquired on exercise of the option equal to
the number of Tendered Restricted Shares shall be subject to the same
restrictions as the Tendered Restricted Shares, determined as of the date of
exercise of the option.

                                   ARTICLE 7.
                           STOCK APPRECIATION RIGHTS

      7.1. Grant of SARs. Subject to the terms and conditions of the Plan, SARs
maybe granted to any Eligible Person at any time and from time to time as shall
be determined by the Committee. The Committee may grant Freestanding SARs,
Tandem SARs, or any combination thereof. Any SAR related to a Non-Qualified
Stock Option may be granted at the same time such Option is granted or at any
time thereafter before exercise or expiration of such Option. Any SAR related to
an Incentive Stock Option must be granted at the same time such Option is
granted.

      7.2. Award Agreements. Each SAR shall be evidenced by an Award Agreement
in such form as the Committee may approve, which shall contain such terms and
conditions not inconsistent with the provisions of the Plan as shall be
determined from time to time by the Committee. The Committee shall have complete
discretion in determining the number of SARs granted to each Grantee (subject to
Article 4), the Strike Price thereof (subject to Section 7.3), and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs. The Committee may impose such conditions or
restrictions on the exercise of any SAR as it shall deem appropriate.

      7.3. Strike Price. The Strike Price of a SAR under this Plan shall be at
least equal to one hundred percent (100%) of the Fair Market Value of a Share on
the Grant Date.

      7.4. Exercise of Tandem SAR. Tandem SARs may be exercised for all or part
of the Shares subject to the related Award upon the surrender of the right to
exercise the equivalent portion of the related Award. A Tandem SAR may be
exercised only with respect to the Shares for which its related Award is then
exercisable.

      Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO; (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underling ISO at the time
the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when
the Fair Market Value of the Shares subject to the ISO exceeds the Option Price
of the ISO.

      7.5. Exercise of Freestanding SARs. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them.

      7.6. Exercise and Payment of SAR Amount. SARs shall be exercised by the
delivery of a written notice to the Company identifying the SAR being exercised
and setting forth the

                                      - 17 -
<PAGE>

number of Shares with respect to which the SAR is being exercised. Upon exercise
of a SAR, the Grantee shall be entitled to receive payment from the Company in
an amount determined by multiplying:

            (a) The difference between the Fair Market Value of a Share on the
date of exercise and the Strike Price, by

            (b) The number of Shares with respect to which the SAR is exercised;
provided that the Committee may provide that the benefit payable on exercise of
any SAR shall not exceed such percentage of The Fair Market Value of a Share on
the Grant Date as the Committee shall specify.

      At the discretion of the Committee, the payment upon SAR exercise may be
in cash, in Shares of equivalent value, or in some combination thereof, as set
forth in the Award Agreement.

                                   ARTICLE 8.
                                RESTRICTED STOCK

      8.1. Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Restricted
Stock to any Eligible Person in such amounts as the Committee shall determine.
Restricted Stock may be granted as Restricted Stock Shares or Restricted Stock
Units.

      8.2. Award Agreement. Each grant of Restricted Stock shall be evidenced by
an Award Agreement that shall specify the Period(s) of Restriction, the number
of Restricted Stock Shares or Units granted, and such other provisions as the
Committee shall determine. The Committee shall impose such other conditions
and/or restrictions on any Restricted Stock granted pursuant to the Plan as it
may deem advisable, including restrictions based upon the achievement of
specific Performance Goals, time-based restrictions on vesting following the
attainment of the Performance Goals, and/or restrictions under applicable
federal or state securities laws.

      8.3. Other Restrictions. The Committee shall determine the amount, if any,
that a Grantee shall pay for Restricted Stock Shares, provided that except with
respect to Restricted Stock Shares issued from treasury shares, for which no
payment need be required, the Committee shall require the Grantee to pay at
least the Minimum Consideration for each Restricted Stock Share. Such payment
shall be made in full by the Grantee before the delivery of the Shares and in
any event no later than 10 days after the Grant Date for Restricted Stock
Shares.

      8.4. Effect of Forfeiture. If Restricted Stock Shares are forfeited, then
if the Grantee was required to pay for such Restricted Stock or acquired such
Restricted Stock upon the exercise of an option, the Grantee shall be deemed to
have resold such Restricted Stock to the Company at a price equal to the lesser
of (x) the amount paid by the Grantee for such Restricted Stock, or (y) the Fair
Market Value of the Shares on the date of such forfeiture. The Company shall pay
to the Grantee the required amount as soon as is administratively practical.
Restricted Stock Shares that have been forfeited shall cease to be outstanding,
and shall no longer confer on the Grantee thereof any rights as a stockholder of
the Company, from and after the date of the

                                      - 18 -
<PAGE>

event causing the forfeiture, whether or not the Grantee accepts the Company's
tender of payment for such Restricted Stock.

      8.5. Escrow; Legends. The Committee may provide that the certificates for
any Restricted Stock Shares (x) shall be held (together with a stock power
executed in blank by the Grantee) in escrow by the Secretary of the Company
until such Restricted Stock Shares become nonforfeitable or are forfeited or (y)
shall bear an appropriate legend restricting the transfer of such Restricted
Stock Shares. If any Restricted Stock Shares become nonforfeitable, the Company
shall cause certificates for such Shares to be issued without such legend.

      8.6. Crediting Restricted Stock Units. If Restricted Stock Units are
granted, the Company shall establish an account ("RSU Account") on its books for
each Eligible Person who receives a grant of Restricted Stock Units. Restricted
Stock Units shall be credited to the Grantee's RSU Account as of the Grant Date
of such Restricted Stock Units. RSU Accounts shall be maintained for
recordkeeping purposes only and the Company shall not be obligated to segregate
or set aside assets representing securities or other amounts credited to RSU
Accounts. The obligation to make distribution of Shares or other amounts
credited to RSU Accounts shall be an unfunded unsecured obligation of the
Company.

      8.7. Settlement of RSU Accounts. The Company shall settle an RSU Account
by delivering to the Grantee a number of Shares equal to the whole number of
Shares underlying the Restricted Stock Units then credited to the Grantee's RSU
Account (or a specified portion in the event of any partial settlement);
provided that any fractional Shares underlying Restricted Stock Units remaining
in the RSU Account on the Settlement Date shall be distributed in cash in an
amount equal to the Fair Market Value of a Share as of the Settlement Date
multiplied by the remaining fractional Restricted Stock Unit. Unless the
Settlement Date is deferred pursuant to Article 13, the "Settlement Date" for
all Restricted Stock Units credited to a Grantee's RSU Account shall be the
earlier of (a) the lapse of the Period of Restriction applicable to an Award of
Restricted Stock Units, or (b) promptly following the Grantee's death or
disability (as defined in Code Section 409A(a)(2)(C)(i)).

      8.8. Voting and Dividend Equivalents. At the discretion of the Committee
and to the extent set forth in the Award Agreement and consistent with the
requirements of Section 409A, a Grantee may be entitled to receive dividend
equivalents with respect to Shares in connection with grants of Restricted Stock
Shares or Restricted Stock Units which have been awarded but not yet vested in
the Grantee. In addition, a Grantee may, at the discretion of the Committee and
to the extent set forth in the Award Agreement, be entitled to exercise his or
her voting rights with respect to Restricted Stock Shares. No voting rights
shall be exercised with respect to Restricted Stock Units.

                                   ARTICLE 9.
                    PERFORMANCE UNITS AND PERFORMANCE SHARES

      9.1. Grant of Performance Units/Shares. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to any Eligible
Person in such amounts and upon such terms, and at any time and from time to
time as shall be determined by the Committee.

                                      - 19 -
<PAGE>

      9.2. Value of Performance Units/Shares. Each Performance Unit shall have
an initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set Performance Goals in its
discretion which, depending on the extent to which they are met, will determine
the number and/ or value of Performance Units/Shares that will be paid out to
the Grantee. The Committee may set the Performance Goals for Awards of
Performance Units at threshold, target and maximum performance levels, with the
number or value of the Performance Units payable tied to the degree of
attainment of the various performance levels during the Performance Period. No
payment shall be made with respect to a Performance Unit if the threshold
performance level is not attained. If Performance Goals are attained between
performance levels (i.e., either between the threshold and target performance
levels or between the target and maximum performance levels) the number or value
of the Performance Unit at the end of the Performance Period shall be determined
by linear interpolation, unless otherwise provided by the Committee at the time
of grant. To the extent the Committee deems it appropriate to comply with
Section 162(m) of the Code, all Performance Goals shall he objective, and shall
be based on Performance Measures.

      9.3. Earning of Performance Units/Shares. Subject to the terms of this
Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on the number and
value of Performance Units/Shares earned by the Grantee over the Performance
Period, to be determined as a function of the extent to which the corresponding
performance goals have been achieved. If the Performance Unit Award is intended
to comply with the Performance-Based Exception, the Committee shall certify the
level of attainment of the Performance Goals in writing before the Award is
settled.

      If a Grantee is promoted, demoted or transferred to a different business
unit of the Company during a Performance Period, then, to the extent the
Committee determines the performance goals or Performance Period are no longer
appropriate, the Committee may adjust, change or eliminate the performance goals
or the applicable Performance Period as it deems appropriate in order to make
them appropriate and comparable to the initial performance goals or Performance
Period.

      9.4. Form and Timing of Payment of Performance Units/Shares. Payment of
earned Performance Units/Shares shall be made in a single lump sum following the
close of the applicable Performance Period. Subject to the terms of this Plan,
the Committee, in its sole discretion, may pay earned Performance Units/Shares
in the form of cash or in Shares (or in a combination thereof) which have an
aggregate Fair Market Value equal to the value of the earned Performance
Units/Shares at the close of the applicable Performance Period. Such Shares may
he granted subject to any restrictions deemed appropriate by the Committee. The
determination of the Committee with respect to the form of payout of such Awards
shall be set forth in the Award Agreement pertaining to the grant of the Award.

      At the discretion of the Committee and to the extent set forth in the
Award Agreement, a Grantee may be entitled to receive any dividends declared
with respect to Shares which have been earned in connection with grants of
Performance Units and/or Performance Shares which have been earned but not yet
distributed to the Grantee. In addition, a Grantee may, at the

                                      - 20 -
<PAGE>

discretion of the Committee and to the extent set forth in the Award Agreement,
be entitled to exercise his or her voting rights with respect to such Shares.

                                  ARTICLE 10.
                               INCENTIVE AWARDS

      10.1. Incentive Awards. Subject to and consistent with the provisions of
the Plan, Incentive Awards may be granted to any Eligible Person in accordance
with this Article 10. Incentive Awards shall be based on achievement of
Performance Goals over a Performance Period which may be one fiscal year or less
("Annual Incentive Awards") or more than one fiscal year ("Long-Term Incentive
Awards"). The Committee shall designate the individuals eligible to be granted
an Incentive Award for a year or other Performance Period within the first
ninety (90) days of such year or other Performance Period or, in the case of a
newly-hired or newly-promoted Grantee, not later than the elapse of 25% of the
remainder of such year or other Performance Period after such hiring or
promotion. The Committee may designate an Eligible Person as eligible for a full
year or other Performance Period or for a period of less than a full year or
other Performance Period. The opportunity for a Covered Employee to be granted
an Incentive Award shall be, and the opportunity for a Grantee other than a
Covered Employee may in the discretion of the Committee be, evidenced by an
Award Agreement, which shall specify the individual's Bonus Opportunity, the
Performance Goals, and such other terms not inconsistent with the Plan as the
Committee shall determine.

      10.2. Determination of Amount of Incentive Awards.

            (a) Aggregate Maximum. The Committee may establish guidelines as to
the maximum aggregate amount of Incentive Awards payable for any year.

            (b) Establishment of Performance Goals and Bonus Opportunities.
Within the first ninety (90) days of each year or other Performance Period, the
Committee shall establish Performance Goals for the year or other Performance
Period(which may be the same or different for some or all Eligible Persons) and
shall establish the threshold, target and maximum Bonus Opportunity for each
Participant for the attainment of specified threshold, target and maximum
Performance Goals. Performance Goals and Bonus Opportunities may be weighted for
different factors and measures as the Committee shall determine.

            (c) Committee Certification and Determination of Amount of Annual
incentive Award. The Committee shall determine and certify in writing the degree
of attainment of Performance Goals as soon as administratively practicable after
the end of each year or other Performance Period but not later than March 15 of
the calendar year following the end of such year or other Performance Period.
The Committee shall determine an individual's maximum annual Incentive Award
based on the level of attainment of the Performance Goals (as certified by the
Committee) and the individual's Bonus Opportunity. The Committee reserves the
discretion to reduce (but not below zero), but not increase the amount of an
individual's Incentive Award below the maximum Incentive Award. The
determination of the Committee to reduce (or not pay) an individual's Incentive
Award for a year or other Performance Period shall not affect the maximum
Incentive Award payable to any other individual. No Incentive Award shall be
payable to an individual unless at least the threshold Performance Goal is
attained.

                                      - 21 -
<PAGE>

            (d) Termination of Affiliation. If an individual has a Termination
of Affiliation during the year or other Performance Period, the Committee may
authorize the payment of an Incentive Award to such individual, and in the
absence of such authorization, the individual shall receive no Incentive Award
for such year or other Performance Period.

      10.3. Time of Payment of Incentive Awards. Incentive Awards shall be paid
as soon as administratively practicable after the Committee determines the
amount of the Incentive Award, but not later than March 15 of the calendar year
following the year or other Performance Period for which the Committee has
certified the degree of attainment of Performance Goals.

      10.4. Form of Payment of Incentive Awards. An individual's Incentive Award
shall be paid in cash, Shares, Restricted Stock, Options, or any other form of
equity or any combination thereof as is provided in the Award Agreement. The
Committee may provide in an Award Agreement that payment of an Incentive Award
may be deferred in accordance with any rules or procedures that may be
established by the Committee from time to time in accordance with the Plan and
Section 409A of the Code, either before or after the decision or election to
defer is made.

                                  ARTICLE 11.
                                 BONUS SHARES.

      Subject to the terms of the Plan, the Committee may grant Bonus Shares to
any Eligible Person, in such amount and upon such terms and at any time and from
time to time as shall be determined by the Committee.

                                  ARTICLE 12.
                            BENEFICIARY DESIGNATION

      Each Grantee under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Grantee, shall be in a form prescribed by the
Company, and will be effective only when filed by the Grantee in writing with
the Company during the Grantee's lifetime. In the absence of any such
designation or the survival of any designated beneficiary, benefits remaining
unpaid at the Grantee's death shall be paid to the Grantee's surviving spouse,
if any, or if none then to the Grantee's surviving descendants per stirpes, or
if neither surviving spouse nor surviving descendants, then to the estate of the
last to die of the Grantee and any designated beneficiary.

                                  ARTICLE 13.
                                   DEFERRALS

      At the discretion of the Committee and to the extent set forth in the
Award Agreement and consistent with the requirements of Section 409A, the
Committee may permit or require a Grantee to defer receipt of the payment of
cash or the delivery of Shares that would otherwise be due by virtue of the
exercise of an Option or SAR, the lapse or waiver of restrictions with respect

                                      - 22 -
<PAGE>

to Restricted Stock, the satisfaction of any requirements or goals with respect
to Performance Units/Shares, or an Incentive Award. If any such deferral is
required or permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals that are in accordance with the
Plan and Section 409A of the Code.

                                  ARTICLE 14.
                         RIGHTS OF EMPLOYEES/DIRECTORS

      14.1. Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Grantee's employment at any time,
nor confer upon any Grantee's right to continue in the employ of the Company.

      14.2. Participation. No Employee or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.

                                  ARTICLE 15.
                               CHANGE IN CONTROL

      15.1. Treatment of Outstanding Awards. The Committee may provide in an
Award Agreement for different terms and conditions to apply prior to and after a
change in control of the Company or a Subsidiary.

      15.2. Occurrence of Change of Control. The Committee may set rules for
determining when a change of control of the Company or a Subsidiary has
occurred.

                                  ARTICLE 16.
                    AMENDMENT, MODIFICATION, AND TERMINATION

      16.1. Amendment, Modification, and Termination. Subject to the terms of
the Plan, the Board may at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part without the approval of the Company's
stockholders, except (i) as such stockholder approval may be required under the
listing requirements of any securities exchange or national market system on
which are listed the Company's equity securities and except that (ii) the Board
may not without the approval of the Company's stockholders amend the Plan to (x)
increase the total number of shares reserved for the purposes of the Plan, or to
(y) change the individuals or class of individuals eligible to participate in
the Plan.

      16.2. Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including the events described in Section 4.3 hereof)
affecting the Company or the financial statements of the Company or of changes
in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan; provided that no such adjustment to an Award
intended to meet the requirements of the

                                      - 23 -
<PAGE>

Performance Based Exception shall be authorized to the extent that such
adjustment would be inconsistent with the Award's meeting the requirements of
Section 162(m) of the Code.

      16.3. Awards Previously Granted. Notwithstanding any other provision of
the Plan to the contrary, no termination, amendment, or modification or the Plan
shall adversely affect in any material way any Award previously granted under
the Plan, without the written consent of the Grantee of such Award unless such
termination, amendment, or modification is required by the listing criteria of
any exchange on which Shares of the Company are traded or is necessary or
advisable (as determined by the Committee) to carry out the purposes of the Plan
as a result of any new or change in applicable law (including any requirement of
the Code to obtain a tax benefit or to avoid a tax or tax penalty for either the
Company or any Grantee).

                                  ARTICLE 17.
                                  WITHHOLDING

      17.1. Withholding.

            (a) Mandatory Tax Withholding.

                  (1) Whenever under the Plan, Shares are to be delivered upon
exercise or payment of an Award or upon Restricted Stock Shares becoming
nonforfeitable or Restricted Stock Units becoming payable, or any other event
with respect to rights and benefits hereunder, the Company shall be entitled to
require (i) that the Grantee remit an amount in cash, or in the Company's
discretion, Mature Shares, sufficient to satisfy all federal, state, and local
tax withholding requirements related thereto ("Required Withholding"), (ii) the
withholding of such Required Withholding from compensation otherwise due to the
Grantee or from any Shares due to the Grantee under the Plan or (iii) any
combination of the foregoing.

                  (2) Any Grantee who makes a Disqualifying Disposition or an
election under Code Section 83(b) shall remit to the Company an amount
sufficient to satisfy all resulting Required Withholding; provided that, in lieu
of or in addition to the foregoing, the Company shall have the right to withhold
such Required Withholding from compensation otherwise due to the Grantee or from
any Shares or other payment due to the Grantee under the Plan.

            (b) Elective Share Withholding.

                  (1) Subject to the following subsection, a Grantee may elect
the withholding ("Share Withholding") by the Company of a portion of the Shares
otherwise deliverable to such Grantee upon the exercise of an Award or upon
Restricted Stock Shares becoming nonforfeitable or Restricted Stock Units
becoming payable (each, a "Taxable Event") having a Fair Market Value equal to
(i) the minimum amount necessary to satisfy Required Withholding liability
attributable to the Taxable Event; or (ii) with the Committee's prior approval,
a greater amount, not to exceed the estimated total amount of such Grantee's tax
liability with respect to the Taxable Event.

                  (2) Each Share Withholding election shall be subject to the
following conditions:

                                      - 24 -
<PAGE>

            (i) any Grantee's election shall be subject to the Committee's
discretion to revoke the Grantee's right to elect Share Withholding at any time
before the Grantee's election if the Committee has reserved the right to do so
in the Award Agreement;

            (ii) the Grantee's election must be made before the date (the "Tax
Date") on which the amount of tax to be withheld is determined; and

            (iii) the Grantee's election shall be irrevocable.

      17.2. Notification under Code Section 83(b). If the Grantee, in connection
with the exercise of any option, or the grant of Restricted Stock Shares, makes
the election permitted under Code Section 83(b) to include in such Grantee's
gross income in the year of transfer the amounts specified in Code Section
83(b), then such Grantee shall notify the Company of such election within 10
days of filing the notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to regulations issued
under Code Section 83(b). The Committee may, in connection with the grant of an
Award or at any time thereafter, prohibit a Grantee from making the election
described above.

                                  ARTICLE 18.
                                   SUCCESSORS

      All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise of all or substantially all of the business
and/or assets of the Company.

                                  ARTICLE 19.
                             ADDITIONAL PROVISIONS

      19.1. Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.

      19.2. Severability. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or part
of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of a Section to the fullest extent possible while remaining lawful and
valid.

      19.3. Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required. Notwithstanding any provision of the
Plan or any Award, Grantees shall not be entitled to exercise, or receive
benefits under, any Award, and the Company shall not be obligated to deliver any
Shares or deliver benefits to a Grantee, if such exercise or delivery would
constitute a violation by the Grantee or the Company of any applicable law or
regulation.

                                      - 25 -
<PAGE>

      19.4. Securities Law Compliance. If the Committee deems necessary to
comply with any applicable securities law, the Committee may require a written
investment intent representation by the Grantee and may require that a
restrictive legend be affixed to certificates for Shares. If, based upon the
advice of counsel for the Company, the Committee determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to, any Award would
violate any applicable provision of (i) federal or state securities laws or (ii)
the listing requirements of any national securities exchange or national market
system on which are listed any of the Company's equity securities, then the
Committee may postpone any such exercise, nonforfeitability or delivery, as
applicable, but the Company shall use all reasonable efforts to cause such
exercise, nonforfeitability or delivery to comply with all such provisions at
the earliest practicable date.

      19.5. No Rights as a Shareholder. A Grantee shall not have any rights as a
shareholder of the Company with respect to the Shares (other than Restricted
Stock Shares) which may be deliverable upon exercise or payment of such Award
until such shares have been delivered to him or her. Restricted Stock Shares,
whether held by a Grantee or in escrow by the Secretary of the Company, shall
confer on the Grantee all rights of a shareholder of the Company, except as
otherwise provided in the Award Agreement or the Plan. At the time of a grant of
Restricted Stock Shares, the Committee may require the payment of cash dividends
thereon to be deferred and, if the Committee so determines, reinvested in
additional Restricted Stock Shares. Stock dividends and deferred cash dividends
issued with respect to Restricted Stock Shares shall be subject to the same
restrictions and other terms as apply to the Restricted Stock Shares with
respect to which such dividends are issued. The Committee may in its discretion
provide for payment of interest on deferred cash dividends.

      19.6. Nature of Payments. Awards shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any pension,
retirement, death, disability or other benefit under (a) any pension,
retirement, profit-sharing, bonus, disability insurance or other employee
benefit plan of the Company or any Subsidiary, or any agreement between (i) the
Company or any Subsidiary and (ii) the Grantee, except as such plan or agreement
shall otherwise expressly provide.

      19.7. Employment Agreement Supersedes Award Agreement. In the event a
Grantee is a party to an employment agreement with the Company or Subsidiary,
that provides for annual incentive or for vesting, extended exercisability or
transferability of equity compensation awards on terms more favorable to the
Grantee than the Grantee's Award Agreement, the employment agreement shall be
controlling; provided that (a) if the Grantee is a Section 16 Person, any terms
in the employment agreement requiring Compensation Committee, Board, or
shareholder approval in order for an exemption from Section 16(b) of the
Exchange Act to be available to such terns shall have been approved by the
Compensation Committee, Board or shareholders, as applicable, and (b) the
employment agreement shall not be controlling to the extent the Grantee and
Grantee's employer agree it shall not be controlling.

      19.8. Non-Exclusivity of Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval shall
be construed as creating any

                                      - 26 -
<PAGE>

limitations on the power of the Board to adopt such other compensatory
arrangements for employees as it may deem desirable.

      19.9. Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Grantee pursuant to an Award, nothing
contained in the Plan or any Award Agreement shall give any such Grantee any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Shares or other property pursuant to any Award which trusts or
other arrangements shall be consistent with the "unfunded" status of the Plan
unless the Committee otherwise determines.

      19.10. Military Service. Awards shall be administered in accordance with
Section 414(u) of the Code and the Uniformed Services Employment and
Reemployment Rights Act of 1994.

      19.11. Obligations. Unless otherwise specified in the Award Agreement, the
obligation to deliver, pay or transfer any amount of money or other property
pursuant to Awards under this Plan shall be the sole obligation of a Grantee's
employer; provided that the obligation to deliver or transfer any Shares
pursuant to Awards under this Plan shall be the sole obligation of the Company.

      19.12. Shareholder Approval. All Awards granted on or after the Effective
Date and prior to the date the Company's shareholders approve the amended and
restated Plan are expressly conditioned upon and subject to approval of the
amended and restated Plan by the Company's shareholders.

      19.13. Governing Law. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Illinois, other than its laws respecting
choice of law.

                                      - 27 -