UNION ACCEPTANCE CORPORATION
                   ANNUAL BONUS PLAN FOR MANAGEMENT EMPLOYEES


         1. Key employees of Union Acceptance  Corporation  (other than officers
participating  in the  Annual  Bonus  and  Deferral  Plan for  Senior  Officers)
selected by the Chairman,  the President or the Compensation  Committee shall be
eligible to participate in this plan.

         2. Each year, the Chairman or the President  shall determine a targeted
bonus  for each  officer  or group of  officers  or key  employees  ("officers")
selected  for  participation  during the ensuing  fiscal  year,  expressed  as a
percentage  of base  salary.  Each  officer's  base  salary  multiplied  by such
percentage is such officer's "Targeted Bonus."

         3. The Chairman,  the  President or the  Compensation  Committee  shall
determine  a  threshold  level of return on  beginning  capital  expressed  as a
percentage ("ROBC") for the ensuing fiscal year and a targeted level of ROBC for
such  fiscal  year.  If actual  ROBC for the  fiscal  year does not  exceed  the
threshold level, no bonus will be paid for such year.

         4. Each  officer's  Targeted  Bonus shall be divided by the  difference
between the targeted and  threshold  ROBC (e.g.  12% - 8% = 4), to determine the
bonus to be earned by such  officer for each  percentage  point by which  actual
ROBC exceeds the threshold ROBC (the "ROBC Bonus Multiple").

         5.  Each  officer's  bonus  for a fiscal  year  will be  determined  by
multiplying  such officer's  ROBC Bonus  Multiple by the difference  between the
actual ROBC for the fiscal year and the threshold ROBC (e.g. 20% - 8% = 12). The
Targeted Bonus will be fully earned if the targeted ROBC is attained.  If actual
ROBC exceeds targeted ROBC, no bonus in excess of Targeted Bonus will be earned,
unless such additional bonus is specifically approved with respect to an officer
or group of officers by the Chairman, President or Compensation Committee.

         6. Bonus  payments  pursuant to this Plan shall be determined  and paid
with  respect  to a fiscal  year on or before  the date 90 days after the end of
such fiscal year.  The  Corporation  may make  quarterly  installments  of bonus
payments based on annualized ROBC for the fiscal year to date,  subject to final
determination  and  adjustment  after the end of the fiscal  year.  If quarterly
bonus  payments are made for the first three  quarters of a fiscal year and such
payments exceed the bonus, if any, finally determined to be due, the Corporation
may off-set the excess payments against future bonus payments or salary.

         7. This Plan may be  terminated or amended by the Board of Directors or
the  Compensation  Committee at any time.  This Plan does not provide any person
with any rights to  continued  employment  nor does this Plan provide any person
with any vested rights to any  compensation  unless and until such  compensation
has been paid to such person and the bonus, if any, payable in respect of a full
fiscal year is finally determined.


EFFECTIVE: July 1, 1997                          /s/ Jerry D. Von Deylen
                                                 -------------------------------
                                                 Jerry D. Von Deylen, Chairman


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