UNION ACCEPTANCE CORPORATION
               ANNUAL BONUS AND DEFERRAL PLAN FOR SENIOR OFFICERS


         This is the Annual Bonus and Deferral Plan for Senior Officers ("Plan")
approved by the  Compensation  Committee of the Board of Directors July 7, 1997,
to be effective July 1, 1997.

         1.  Only  executive  and  other  senior  officers  of Union  Acceptance
Corporation  ("Corporation")  named below or hereafter  specifically selected by
the Compensation Committee for participation shall be eligible to participate in
this Plan:

                               John M. Stainbrook
                                  Rick A. Brown
                                   David Nash
                                 Maureen Schoch
                               Cynthia F. Whitaker

As a condition to  participation  in the Plan and prior to becoming  entitled to
any benefit under this Plan, each  participant  shall be required to execute and
deliver to the Corporation a Participation  Agreement in substantially  the form
of Exhibit A hereto.

         2. The  Compensation  Committee  shall  annually  determine a threshold
level of return on beginning  capital  ("ROBC") for the ensuing  fiscal year. If
actual ROBC for the fiscal year does not exceed the  threshold  level,  no bonus
will be accrued for such year. The amount by which actual ROBC exceeds threshold
ROBC is referred to as "Excess ROBC".

         3. Each  year,  the  Compensation  Committee  shall  determine  a bonus
multiplier  percentage for each officer participating in the Plan for such year.
Such bonus  multiplier  percentage shall represent the percentage of Excess ROBC
that shall be accrued for the officer as bonus for such fiscal year.

         4. The Corporation shall accrue installments of bonus quarterly,  after
the end of each fiscal quarter,  to the extent  appropriate  based on annualized
Excess ROBC for the fiscal year to date, subject to adjustment following the end
of each subsequent  fiscal quarter and final  determination and adjustment after
the end of the fiscal year.  Final bonus accruals  pursuant to this Plan for the
full fiscal year shall be determined on or before the date 90 days after the end
of such fiscal year.

         5. The Corporation shall establish and maintain for each participant in
the Plan an unfunded  account  reflecting the balance  (positive or negative) of
bonus  payments  accrued for such  participant  together with interest  accruing
thereon.  The Corporation shall add to the balance accrued to each participant's
account the following:

                  a. For the first three  quarters of each fiscal year quarterly
         accruals  of  bonus,  if  any,  based  on  annualized  Excess  ROBC  in
         accordance with paragraph 4 for

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         the fiscal  year to date (only to the extent  that the bonus that would
         be  accrued  for the year to date  exceeds  the bonus  accrued  for the
         preceding quarters of the fiscal year).

                  b. For the full  fiscal  year,  an accrual  of bonus,  if any,
         based on actual  Excess  ROBC in  accordance  with  paragraph 4 for the
         fiscal  year (only to the  extent  that the bonus that would be accrued
         for the full year exceeds the bonus accrued for the preceding  quarters
         of the fiscal year).

                  c. Interest, accrued quarterly, on the positive balance of the
         participant's account, at the rate of 7% per annum.

         6. The  Corporation  shall  deduct  from the  balance  accrued  to each
participant's account, the following:

                  a. Unearned bonus previously paid to the participant under any
         Corporation  compensation Plan. Without limiting the forgoing,  each of
         the initial participants shall commence participation in this Plan with
         a negative  account  balance  in an amount  equal to bonus paid to such
         participant  for  fiscal  1997  that  was  not  fully  earned  by  such
         participant  under the Union Acceptance  Corporation  Annual Bonus Plan
         for Senior Officers, as heretofore in effect.

                  b. If the bonus that should be accrued for a  participant  for
         the year to date after any  fiscal  quarter,  if any,  is less than the
         bonus amount accrued for the participant after the preceding quarter of
         such year, the amount of such difference.

                  c. If the final bonus that should be accrued for a participant
         for the full fiscal year after the end of the fiscal  year,  if any, is
         less than the net bonus amount  accrued for the  participant  after the
         preceding quarters of such year, the amount of such difference.

                  d. The amount of any payment made to the participant  pursuant
         to this Plan.

         7. The Corporation  shall make payments of the  participant's  adjusted
account balance to each participant as follows:

                  a.  After  each  fiscal  quarter,  including  the last  fiscal
         quarter of each year,  following  any accrual to or deduction  from the
         account  balance  for  such  quarter,  the  year to  date or full  year
         required by the Plan,  an amount equal to 25% of the positive  balance,
         if any, of such participant's account.

                  b. On or  before  the date 90 days  after the  termination  of
         participant's employment with the Corporation,  and following any final
         accrual to or deduction

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         from  the  participant's  account  balance,  100% of the  participant's
         positive account balance, if any; provided, that no final payment shall
         be  made  to  the  participant   and  any  remaining   balance  of  the
         participant's account shall be nullified and forfeited in the event the
         participant  (i) is terminated by the Corporation for Cause (as defined
         below)  or (ii) the  participant  terminates  his  employment  with the
         Corporation under Competitive Conditions (as defined below).

                  c. "Cause"  means  personal  dishonesty,  willful  misconduct,
         breach of fiduciary duty or duty of loyalty involving  personal profit,
         intentional failure to perform stated duties, conviction of a violation
         of any criminal  law,  rule,  or  regulation  (other than minor traffic
         violations or similar  offenses) or  cease-and-desist  order,  or moral
         turpitude reflecting adversely on the reputation of the Corporation.

                  d.  "Competitive   Conditions"  exist  in  connection  with  a
         participant's   termination  of  his  or  her  employment  if  (i)  the
         participant  fails to execute and deliver to the Corporation  within 90
         days following termination the Noncompetition  Certificate and Covenant
         in the form  attached  hereto as Exhibit B or (ii)  within  such 90 day
         period the  Corporation  ascertains  facts that enable it to reasonably
         conclude  that the  participant  has been  employed or agreed to become
         employed or is engaged in competition with the Corporation.

                  e.  "Competition"  means to compete,  directly or  indirectly,
         with the consumer  lending  business of the Corporation as conducted on
         the date of termination of employment in any state or metropolitan area
         in which the  Corporation  accepts  consumer  loans on such date, or to
         have any interest as owner,  partner,  member,  shareholder,  director,
         officer,  employee,  agent,  consultant  or advisor  (other than merely
         holding  less than five  percent of a class of equity  securities  of a
         competitor)  in or of any  person  or  entity  that  competes  with the
         Corporation in the consumer  lending business in any state in which the
         Corporation accepts consumer loans on such date of termination.

         8. 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  (including  any  account  balance)
unless  and  until  such  compensation  has been  properly  paid to such  person
pursuant to the Plan.



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                                                                       EXHIBIT A

                             PARTICIPATION AGREEMENT

         The undersigned is executing this Agreement in order to become entitled
to  the  benefits  of  participation   in  the  Union   Acceptance   Corporation
("Corporation")  Annual Bonus and Deferral Plan For Senior Officers ("Plan") and
agrees as follows:

         1. I will be bound by all terms of the Plan.  The  account  established
for my participation  under the Plan will not be funded and merely constitutes a
record  keeping  mechanism for potential  future  benefits to which I may become
entitled  in  accordance  with the  Plan.  I will not be  entitled  to any bonus
accrued  in  respect  of my  account  under  the  Plan  except  in  the  limited
circumstances in which the Plan provides for payment to me of such amounts.

         2. As of June  30,  1997,  I  acknowledge  I  received  unearned  bonus
payments  for 1997 in the  amount of  $____________.  Such  amount is subject to
offset by the Corporation in respect of my future compensation and, accordingly,
my  participation  account  in the Plan will  initially  be  established  with a
negative balance of such amount.

         3. I acknowledge  and agree that any remaining  positive  balance in my
account  at the time of my  termination  of  employment  will be  nullified  and
forfeited if my employment  is terminated  for Cause (as defined in the Plan) or
if I  voluntarily  terminate my employment  with the Company  under  Competitive
Conditions (as defined in the Plan). In particular,  I agree that if I terminate
my employment voluntarily, before I will be entitled to receive any distribution
of my account  balance I will be  required  to certify  that I am not engaged in
Competition  (as  defined  in the Plan)  with the  Corporation  and agree not to
engage in Competition with the Corporation for one year after termination.

         4. In the event of my death  before  receiving  all payments to which I
may become  entitled  under the Plan, I designate the following  beneficiary  to
receive any such remaining payments:

------------------------------------------
Name
-------------------------------------------
Address

Soc. Sec. No.______________________________

If no beneficiary is named above, such amounts will be paid to my estate.

Executed this ___day of ___________, 1997.

PARTICIPANT:                             UNION ACCEPTANCE CORPORATION

                                         BY:

                                         ITS:
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                                                                       EXHIBIT B

                     NONCOMPETITION CERTIFICATE AND COVENANT

         Pursuant to the Union Acceptance  Corporation Annual Bonus and Deferral
Plan for Senior Officers  ("Plan"),  I hereby acknowledge that I have terminated
my employment with the Corporation voluntarily and certify that I am not engaged
in Competition  with the Corporation and agree and covenant that for a period of
one year following the date of termination of my employment,  I shall not engage
in  Competition  with the  Corporation.  As used herein,  "Competition"  has the
meaning set forth in the Plan.

         I  acknowledge  that this  certificate  and  covenant  is  provided  in
exchange  for good and valuable  consideration,  the adequacy of which is hereby
acknowledged,  including, without limitation, the payment of any account balance
to  which I may  hereby  become  entitled  under  the  Plan.  The  duration  and
geographic  scope if this covenant is reasonable  and  appropriate in view of my
role as a senior executive  officer of the Corporation with  responsibility  for
substantial  aspects of its overall  operations.  My violation of this  covenant
would  irreparably harm the Corporation and any remedies at law available to the
Corporation  in that event would be  inadequate.  Accordingly,  I agree that the
Corporation  will be entitled to  equitable  remedies  including  temporary  and
permanent injunctive relief and specific performance in the event that I violate
this covenant.

         This covenant is governed by Indiana law,  regardless of the principles
of conflicts of laws.

EXECUTED as of this ___ day of _________,____.


PARTICIPANT

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