<PAGE>

                                                                   Exhibit 10(1)

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 30th day
of June, 2003 (the "Effective Date"), by and between CNA Surety Corporation, a
Delaware corporation (the "Company"), and John F. Welch ("Executive");

                                   WITNESSETH:

         WHEREAS, the Company wishes to employ Executive as President and Chief
Executive Officer of the Company; and

         WHEREAS, the Company and the Executive wish to enter into a written
agreement setting forth the terms of their future employment relationship as set
forth below;

         NOW, THEREFORE, in consideration of the foregoing premises and the
promises and covenants herein, the parties hereto agree as follows:

         1. EMPLOYMENT TERM. The Company and Executive agree that the Company
shall employ Executive for the period commencing on June 30, 2003 ("Effective
Date") and ending on December 31, 2005, or such earlier date as of which
Executive's employment is terminated in accordance with Section 6 hereof. The
covenants set forth in Sections 7, 8, 9, 10, 11, 12, 13, and 14 shall survive
the employment term of this Agreement. Executive shall initially be employed by
the Company as an Executive Officer, and shall be appointed by the Board of
Directors of the Company ("Board") to the position of President and Chief
Executive Officer of the Company at the meeting of the Board to be held on or
about August 12, 2003.

         2. DUTIES OF EXECUTIVE.

         (a) Executive shall assume the duties and responsibilities of President
and Chief Executive Officer of the Company as defined and directed by the Board.
As President and Chief Executive Officer of the Company, Executive shall have
responsibilities for the day to day operations of the Company and for
development and implementation of the Company's business plans and strategies.
Executive shall report to the Board. Executive shall serve in such other
position or positions with the Company and its subsidiaries commensurate with
his

                                                                               1

<PAGE>

                                                                   Exhibit 10(1)

position and experience as the Board shall from time to time specify without
additional compensation.

         (b) Executive shall diligently and to the best of his abilities assume,
perform, and discharge the duties and responsibilities of President and Chief
Executive Officer of the Company, as well as such other specific duties and
responsibilities as the Board shall assign or designate to Executive from time
to time not inconsistent with Executive's status. Executive shall devote
substantially all of his working time to the performance of his duties as set
forth herein and shall not, without the prior written consent of the Board,
accept other employment or render or perform other services, nor shall he have
any direct or indirect ownership interest in any other business which is in
competition with the business of the Company, other than in the form of publicly
traded securities constituting less than five percent (5%) of the outstanding
securities of a corporation (determined by vote or value) or limited partnership
interests constituting less than five percent (5%) of the value of any such
partnership. The foregoing shall not preclude Executive from engaging in
charitable, professional, and personal investment activities, provided that, in
the judgment of the Board, such activities do not materially interfere with his
performance of his duties and responsibilities hereunder.

         3. COMPENSATION.

         (a) The Company shall pay to Executive for the period he is employed by
the Company hereunder, an annual base salary at no less than $400,000.00 payable
not less frequently than monthly (the "Base Compensation"). At the discretion of
the Board, such salary rate may be increased annually during the term of the
Agreement, beginning in 2004, based on market considerations, responsibilities
and performance. In no event shall Executive's salary rate be reduced to an
amount that is less than the amount specified in this paragraph (a), or to an
amount that is less than the amount that he was previously receiving without
Executive's written consent.

         (b) The Company shall pay Executive a sign-on bonus in the amount of
$200,000.00, payable in three installments, as follows: (i) payment by Company
to Executive of $100,000.00 within 30 days from the Effective Date of this
Agreement; and (ii) payment by Company to executive of $50,000.00 on each of the
first and second anniversaries of the Effective Date of this Agreement;
provided, however, Executive shall receive no such payments if, prior to the
payment date, Executive has been involuntarily terminated by the Company for
Cause pursuant

                                                                               2

<PAGE>

                                                                   Exhibit 10(1)

to Section 6.2 or if Executive has voluntarily resigned his employment with the
Company, pursuant to Section 6.4. Further, if Executive is involuntarily
terminated for Cause pursuant to Section 6.2 or voluntarily resigns his
employment with the Company pursuant to Section 6.4, Executive agrees to repay
to the Company any part of the sign-on bonus previously paid to him. The Company
shall also pay Executive an additional amount of $200,000.00 as a sign on bonus
between March 1 and March 15, 2004; provided, however, Executive shall not
receive said additional $200,000.00 bonus payment if he is no longer employed by
the Company on the March, 2004 payment date; provided, further, that should
Executive's employment with the Company terminate for any reason after the
March, 2004 bonus payment date, he shall not be required to repay said
additional $200,000.00 bonus payment.

         (c) For each calendar year ending during the Employment Term, Executive
may earn an annual bonus ("Bonus") based on achievement of target levels of
performance during the calendar year. Each year, the Compensation Committee of
the Board of Directors ("Committee") in its sole discretion shall determine the
targets and the bonus percentage ("Bonus Target") for which Executive shall be
eligible. Subject to the approval of the Committee, the Executive's Bonus Target
during the Employment Term shall not be less than the rate of one hundred
percent (100%) of his Base Compensation for each twelve month bonus period, with
payment in the amount of 0% to 150% of Executive's Bonus Target based upon the
achievement of target levels of performance.

         (d) During the Employment Term, Executive shall be eligible to
participate in all of the Company's existing and future long-term incentive
programs for key executives at a level commensurate with his position with the
Company and consistent with the Company's then current policies and practices,
as determined by the Committee. The Committee, in its sole discretion, shall
determine the target performance and other goals. Subject to Committee approval,
the Executive's long term incentive compensation award target shall be no less
than fifty percent (50%) of each year's annual Base Compensation upon the
achievement of such goals.

         (e) During the Employment Term, Executive shall be eligible for an
annual stock option grant of 50,000 shares of Company stock, subject to the
terms and conditions of the Company's Stock Option Plan dated February 24, 1997,
as amended from time to time. Subject to Committee approval, the first annual
stock option grant of 50,000 shares shall be made to Executive on the Effective
Date of the Agreement.

                                                                               3

<PAGE>

                                                                   Exhibit 10(1)

         (f) For avoidance of doubt respecting awards to Executive under Section
3(c), 3(d) and 3(e) hereof, the Committee shall retain such discretion as may be
provided under the Incentive Compensation Plan to satisfy Section 162(m) of the
Internal Revenue Code of 1986 ("Code") or any successor provision. The Company
may defer the payment of all compensation to which Executive is entitled
hereunder or otherwise to enable it to comply with Section 162(m) of the Code or
any successor provision with respect to deductibility of executive compensation.

         (g) All payments due under this Agreement shall be subject to
withholding as required by law.

         4. OTHER BENEFITS. Executive shall be entitled to participate in the
various benefit plans, programs or arrangements established and maintained by
the Company from time to time and applicable to senior executives of the Company
such as, but not by way of limitation, paid time off, health and major medical
insurance, dental insurance, life insurance, long-term disability insurance,
both qualified and supplemental retirement or savings plans, and long-term
incentive compensation plans, and to receive all fringe benefits made available
to senior executives of the Company, including payment of up to $5,000.00 per
year for financial planning advice and services. Executive's entitlement to
participate in any such plan, program or arrangement shall, in each case, be
subject to the terms and conditions thereof. In the event of termination of
employment, Executive's severance shall be determined solely in accordance with
Paragraph 6 hereof.

         5. EXPENSE REIMBURSEMENT. Executive shall be entitled to reimbursement
by the Company for all reasonable and customary travel and other business
expenses incurred by Executive in carrying out his duties under this Agreement,
in accordance with the general reimbursement policies adopted by the Company
from time to time. Executive shall report all such expenditures not less
frequently than monthly accompanied by adequate records and such other
documentary evidence as required by the Company or by Federal or state tax
statutes or regulations governing the substantiation of such expenditures.

         6. TERMINATION OF EMPLOYMENT. If Executive's employment with the
Company shall terminate during the term of this Agreement, the following
conditions set forth herein shall apply with respect to the Executive's
compensation and benefits hereunder. Either party may terminate Executive's
employment with the Company during the term of this Agreement by

                                                                               4

<PAGE>

                                                                   Exhibit 10(1)

written notice to the other party effective as of the date specified in such
notice and Executive's employment shall automatically terminate in the event of
Executive's death. Upon termination of Executive's employment during or at the
end of the term of this Agreement, the rights of the parties under this
Agreement shall be determined pursuant to this Section 6. All payments made
hereunder shall be made either to Executive or to his personal representatives,
heirs or beneficiaries as the case may be. In the event of Executive's
termination during the term of this Agreement, unless otherwise specified in
this Agreement, Executive's rights, if any, under any of the Company's
retirement, savings, benefit, pension, incentive or other plans of any nature
shall be governed by their terms.

         6.1 DEATH AND DISABILITY. In the event of the death of Executive or, at
the Company's election, in the event of his Permanent Disability (as defined
below) during the term of this Agreement, provided it has not already
terminated, Executive's employment shall terminate; provided, however, that:

         (a) The Company shall pay to Executive or his personal representatives,
heirs or beneficiaries as the case may be, an amount equal to his: (i) unpaid
base salary and current year's target Bonus and long-term incentive compensation
award prorated to the date of termination; (ii) any previous year's earned but
not paid Bonus; and (iii) unpaid cash entitlements earned by Executive or
payable to his beneficiaries as of the date of termination which, pursuant to
the terms of the applicable Company plan or program, accrued prior to the date
of termination.

         (b) For purposes of this Agreement, the term "Permanent Disability"
means a physical or mental condition of Executive which, as determined by the
Board, in its sole discretion based on all available medical information, is
expected to continue beyond the duration of any then available short term
disability benefit and which renders Executive incapable of performing any
substantial portion of the services contemplated hereunder with or without
reasonable accommodation.

         6.2 TERMINATION FOR CAUSE BY THE COMPANY. In the event that Executive
shall engage in any conduct which the Board in its sole discretion shall
determine to be Cause, he shall be subject to termination forthwith. For
purposes of this Agreement, Cause shall mean engaging in or committing: (i) any
act which would constitute a felony or other act involving fraud, dishonesty,
moral turpitude, unlawful conduct or breach of fiduciary duty; (ii) any conduct
which

                                                                               5

<PAGE>

                                                                   Exhibit 10(1)

is inconsistent with the dignity and character of an executive of the Company;
(iii) a substantial breach of any material provision of this Agreement; (iv) a
willful or reckless material misconduct in the performance of the Executive's
duties; or (v) the habitual neglect of duties; provided, however, that for
purposes of clauses (iv) and (v), Cause shall not include any one or more of the
following: bad judgment, negligence or any act or omission believed by the
Executive in good faith to have been in or not opposed to the interest of the
Company (without any intent by the Executive to gain, directly or indirectly, a
profit to which he was not legally entitled). If the Executive agrees to resign
from his employment with the Company in lieu of being terminated for Cause, he
may be deemed to have been terminated for Cause for purposes of this Agreement.
Upon terminating the Executive for cause, other than paying the Executive within
30 days of such termination an amount equal to his: (i) unpaid base salary
prorated to the date of termination; (ii) any previous year's earned but not
paid Bonus; and (iii) unpaid cash entitlements earned and accrued pursuant to
the terms of the applicable Company plan or program prior to the date of the
date of termination, the Company shall have no further obligations under this
Agreement. In the event of termination for Cause, Executive agrees to be bound
by the covenants set forth herein at Sections 7, 8 and 10 through 13, effective
as of the termination date.

         6.3 TERMINATION BY THE COMPANY WITHOUT CAUSE OR FOR CONVENIENCE /
TERMINATION BY EXECUTIVE FOR GOOD REASON. In the event Executive's employment is
terminated by the Company Without Cause or For Convenience as defined herein, or
in the event Executive terminates his employment for Good Reason, as defined
herein,

         (a) The Company shall pay to Executive severance consisting of an
amount equal to the sum of the Executive's Base Compensation, Bonus at target
and long-term incentive compensation award at target, prorated based on the
total number of months from the date of termination through December 31, 2005;
however, in no event shall the period of time for which such severance is
calculated be less than 12 months. The Company shall have no further obligations
under this Agreement. The severance shall be paid in equal monthly installments
following such termination. The Company shall also pay the Executive within 30
days of his termination his: (i) unpaid base salary and current year's target
Bonus and long term incentive compensation award prorated to the date of
termination; (ii) any previous year's earned but not paid Bonus; and (iii)
unpaid cash entitlements earned and accrued pursuant to the terms of the
applicable Company plan or program prior to the date of the date of termination.
Executive agrees to be bound by the covenants set forth herein as of the
termination date. In addition,

                                                                               6

<PAGE>

                                                                   Exhibit 10(1)

Executive shall continue to participate in such health insurance plans in which
he is enrolled, or the equivalent of such health insurance plans, throughout the
term of the payments set forth in this Section 6.3(a), with said period of
participation to run concurrently with any period of COBRA coverage to which
Executive may be entitled.

         (b) Good Reason as set forth herein is defined as a reduction in the
rate of Executive's base salary, annual incentive target or long-term incentive
compensation target compensation, or a required relocation of his personal
residence without Executive's consent.

         (c) Without Cause or For Convenience as set forth herein is defined as
a termination of the Executive by the Company for any reason not described in
subsections 6.1 and 6.2.

         6.4 VOLUNTARY RESIGNATION BY EXECUTIVE. In the event that Executive's
employment is terminated by Executive other than pursuant to subsection 6.3 or
as a direct result of his death or Permanent Disability (as described in
subsection 6.1), other than paying the Executive within 30 days of such
termination his: (i) unpaid base salary prorated to the date of termination;
(ii) any previous year's earned but not paid Bonus; and (iii) unpaid cash
entitlements earned and accrued pursuant to the terms of the applicable Company
plan or program prior to the date of the date of termination, the Company shall
have no further obligations under this Agreement. Executive agrees to be bound
by the covenants set forth herein effective as of the termination date.

         6.5 FAILURE TO EXTEND AGREEMENT.

         (a) Following December 31, 2005, if the Company terminates Executive's
employment for any reason other than for cause, in which case Paragraph 6.2
(relating to termination for cause) shall apply, or if the Company and
Executive, after good faith negotiations have not mutually agreed to the terms
of, and entered into a new agreement prior to March 31, 2006, Executive's
employment shall terminate on April 1, 2006. Upon the termination of Executive's
employment pursuant to this section, the Company shall pay Executive severance
consisting of: (i) Executive's then current annual base compensation; (ii)
Executive's then current annual target Bonus; and (iii) Executive's then current
Long Term Incentive Compensation target award. The severance shall be paid in 12
equal monthly installments following such termination. The Company shall also
pay Executive within 30 days of his termination his (i) unpaid base salary and
current year's target Bonus and long-term incentive compensation award, prorated
to

                                                                               7

<PAGE>

                                                                   Exhibit 10(1)

the date of termination; (ii) any previous year's earned but not paid Bonus; and
(iii) unpaid cash entitlements earned and accrued pursuant to the terms of the
applicable Company plan or program prior to the date of termination. Executive
shall be bound by the covenants set forth herein effective as of the termination
date. In addition, Executive shall continue to participate in such health
insurance plans in which he is enrolled throughout the term of the payments set
forth in this Section 6.5(a), as if he were still employed by the Company, said
participation to run concurrently with any period of COBRA coverage to which
Executive may be entitled.

         (b) Notwithstanding the foregoing, if Executive's employment with the
Company terminates following Executive's rejection of an offer by the Company to
extend the period of the Agreement or to enter into a new Agreement on
substantially the same terms as prior to termination, with compensation that is
not less than Executive's yearly compensation prior to the termination or if
Executive voluntarily resigns, then his employment shall be treated as having
been terminated in accordance with Paragraph 6.4 (relating to voluntary
resignation), and the sole payments to which he may be entitled shall be
governed by said Paragraph.

         (c) During such period as the Executive shall continue to be employed
by the Company between January 1, 2006 and April 1, 2006, he shall be paid under
the same terms and at the same rate as was in effect on December 31, 2005.

         (d) Executive shall continue to be eligible to participate in the
Company's health insurance plans on the same basis as he was participating until
April 1, 2006.

         6.6 RELEASE. Executive acknowledges that the severance plan set forth
in Section 6 hereof provides significant additional benefits as compared to
those available to the Company's employees in general. As a condition precedent
to receiving any benefits pursuant to Section 6, Executive agrees to sign a full
and complete release acceptable to the Company releasing the Company, its
subsidiaries and affiliates and their directors, officers and employees of any
and all claims, both known and unknown as of the date of Executive's
termination. In the absence of Executive's executing such a release, the Company
shall have no obligation to make the payments hereunder.

         7. CONFIDENTIALITY. Executive agrees that while he is employed by the
Company, and at all times thereafter, Executive shall not reveal or utilize
information, knowledge or data which is confidential as defined in this
Agreement and learned during the course of or as a result of his

                                                                               8

<PAGE>

                                                                   Exhibit 10(1)

employment which relates to: (a) the Company and/or any other business or entity
in which the Company during the course of the Executive's employment has
directly or indirectly held a greater than a 10% equity interest whether voting
or non-voting; (b) the Company's customers, employees, agents, brokers and
vendors. The Executive acknowledges that all such confidential information is
commercially valuable and is the property of the Company. Upon the termination
of his employment Executive shall return all confidential information to the
Company, whether it exists in written, electronic, computerized or other form.

         8. "CONFIDENTIAL INFORMATION" DEFINED. For purposes of this Agreement
"confidential information" includes all information, knowledge or data (whether
or not a trade secret or protected by laws pertaining to intellectual property)
not generally known outside the Company (unless as a result of a breach of any
of the obligations imposed by this Agreement) concerning the business and
technical information of the Company or other entities as described in Paragraph
7 above. Such information may without limitation include information relating to
data, finances, marketing, pricing, profit margins, underwriting, claims, loss
control, marketing and business plans, renewals, software, processing, vendors,
administrators, customers or prospective customers, products, brokers, agents
and employees.

         9. COMPETITION. Executive hereby agrees that, while he is employed by
the Company, and for a period of 12 months following the date of his termination
of employment with the Company pursuant to Sections 6.3 or 6.4, and for a period
of 6 months following the date of his termination of employment with the Company
pursuant to Section 6.5, he will not, directly or indirectly, without the prior
written approval of the Board, enter into any business relationship (either as
principal, agent, board member, officer, consultant, stockholder, employee or in
any other capacity) with any business or other entity that at any relevant time
is engaged in the surety industry in the United States and Canada (a
"Competitor"); provided, however, that such prohibited activity shall not
include the ownership of less than 5% of the outstanding securities of any
publicly traded corporation (determined by vote or value) regardless of the
business of such corporation; and provided further that such prohibited activity
shall be expanded to include any business or other entity that is engaged in the
surety industry outside the United States and Canada should, during the term of
this Agreement, the Company do "substantial" business outside the United States
and Canada. Upon the written request of Executive, the Board will determine in
its sole discretion whether a business or other entity constitutes a
"Competitor" for purposes of this Section 9 or whether the Company is doing
"substantial" business outside the United States and Canada; provided that the
Board may require Executive to provide such

                                                                               9

<PAGE>

                                                                   Exhibit 10(1)

information as the Board determines to be necessary to make such determination;
and further provided that the current and continuing effectiveness of such
determination may be conditioned on the accuracy of such information, and on
such other factors as the Board may determine.

         10. SOLICITATION. Executive agrees that while he is employed by the
Company, and for a period of 24 months following his termination of employment
with the Company pursuant to Sections 6.2, 6.3 or 6.4, and for a period of 12
months following the date of his termination of employment with the Company
pursuant to Section 6.5, he will not employ, offer to employ, engage as a
consultant, or form an association with any person who is then, or who during
the preceding one year was, an employee of the Company or any Subsidiary or
Affiliate of the Company, nor will he assist any other person or entity in
soliciting for employment or consultation any person who is then, or who during
the preceding one year was, an employee of the Company or any Subsidiary or
Affiliate of the Company.

         11. NON-INTERFERENCE. Executive agrees that while he is employed by the
Company, and for a period of 24 months following his termination of employment
with the Company pursuant to Sections 6.2, 6.3 or 6.4, and for a period of 12
months following the date of his termination of employment with the Company
pursuant to Section 6.5, he will not interfere with or attempt to interfere with
any business relationship or agreement between either the Company or an
Affiliate and any other person or entity.

         12. ASSISTANCE WITH CLAIMS. Executive agrees that, while he is employed
by the Company, and for a reasonable period (not less than 60 months from the
date of termination) thereafter, he will be available, on a reasonable basis, to
assist the Company and its subsidiaries and affiliates in the prosecution or
defense of any claims, suits, litigation, arbitrations, investigations, or other
proceedings, whether pending or threatened ("Claims") that may be made or
threatened by or against the Company or any of its subsidiaries or affiliates.
Executive agrees, unless precluded by law, to promptly inform the Company if he
is requested (i) to testify or otherwise become involved in connection with any
Claim against the Company or any subsidiary or affiliate or (ii) to assist or
participate in any investigation (whether governmental or private) of the
Company or any subsidiary or affiliate or any of their actions, whether or not a
lawsuit has been filed against the Company or any of its subsidiaries or
affiliates relating thereto. For the period following the 24-month anniversary
of the date of Executive's termination of employment with the Company, the
Company agrees to provide reasonable compensation to Executive for such
assistance.

                                                                              10

<PAGE>

                                                                   Exhibit 10(1)

         13. RETURN OF MATERIALS. Executive shall, at any time upon the request
of the Company, and in any event upon the termination of his employment with the
Company, for whatever reason, immediately return and surrender to the Company
all originals and all copies, regardless of medium, of property belonging to the
Company created or obtained by Executive as a result of or in the course of or
in connection with his employment with the Company regardless of whether such
items constitute proprietary information, provided that Executive shall be under
no obligation to return written materials acquired from third parties which are
generally available to the public. Executive acknowledges that all such
materials are, and will remain, the exclusive property of the Company.

         14. SCOPE OF COVENANTS.

         (a) The Executive acknowledges that: (a) as a senior executive of the
Company he had access to confidential information concerning the entire range of
businesses in which the Company was engaged; (b) that the Company's businesses
are conducted nation-wide; and (c) that the Company's confidential information,
if disclosed or utilized without its authorization would irreparably harm the
Company in: (i) obtaining renewals of existing customers; (ii) selling new
business; (iii) maintaining and establishing existing and new relationships with
employees, agents, brokers, vendors; and (iv) other ways arising out of the
conduct of the businesses in which the Company is engaged.

         (b) To protect such information and such existing and prospective
relationships, and for other significant business reasons, the Executive agrees
that it is reasonable and necessary that: (a) the scope of this agreement be
nation-wide; (b) its breadth include the entire surety industry, except as
otherwise provided in Section 9; and (c) the duration of the restrictions upon
the Executive be as indicated therein.

         (c) The Executive acknowledges that the Company's customer, employee
and business relationships are long-standing, indeed, near permanent and
therefore are of great value to the Company. The Executive agrees that neither
any of the provisions in this Agreement nor the Company's enforcement of it
alters or will alter his ability to earn a livelihood for himself and his family
and further that both are reasonably necessary to protect the Company's
legitimate business and property interests and relationships, especially those
which he was responsible for developing or maintaining. The Executive agrees
that his actual or threatened breach of the

                                                                              11

<PAGE>

                                                                   Exhibit 10(1)

covenants set forth in Paragraphs 7 through 13 above would cause the Company
irreparable harm and that the Company is entitled to an injunction, in addition
to whatever other remedies may be available, to restrain such actual or
threatened breach. The Executive agrees that if bond is required in order for
the Company to obtain such relief, if need only be in a nominal amount and that
he shall reimburse the Company for all costs of any such suit, including the
Company's reasonable attorneys' fees. The Executive consents to the filing of
any such suit against him in the state or federal courts located in Illinois or
any state in which he resides. He further agrees that in the event of such suit
or any other action arising out of or relating to this Agreement, the parties
shall be bound by and the court shall apply the internal laws of the State of
Illinois and irrespective of rules regarding choice of law or conflicts of laws.

         15. EFFECT OF COVENANTS. Nothing in Sections 7 through 14 shall be
construed to adversely affect the rights that the Company would possess in the
absence of the provisions of such Sections.

         16. REVISION. The parties hereto expressly agree that in the event that
any of the provisions, covenants, warranties or agreements in this Agreement are
held to be in any respect an unreasonable restriction upon Executive or are
otherwise invalid, for whatsoever cause, then the court or arbitrator so holding
is hereby authorized to (a) reduce the territory to which said covenant,
warranty or agreement pertains, the period of time in which said covenant,
warranty or agreement operates or the scope of activity to which said covenant,
warranty or agreement pertains or (b) effect any other change to the extent
necessary to render any of the restrictions contained in this Agreement
enforceable.

         17. SEVERABILITY. Each of the terms and provisions of this Agreement is
to be deemed severable in whole or in part and, if any term or provision of the
application thereof in any circumstances should be invalid, illegal or
unenforceable, the remaining terms and provisions or the application thereof to
circumstances other than those as to which it is held invalid, illegal or
unenforceable, shall not be affected thereby and shall remain in full force and
effect.

         18. BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be binding upon
the parties hereto and their respective heirs, successors (including but not
limited to any successor by reason of a merger, acquisition, sale or other
business combination involving the Company), personal representatives and
assigns. The Company shall have the right to assign this Agreement to any
successor in interest to the business, or any majority part thereof, of the

                                                                              12

<PAGE>

                                                                   Exhibit 10(1)

Company or any joint venture or partnership to which the Company is a joint
venturer or general partner which conducts substantially all of the Company's
business. Executive shall not assign any of his obligations or duties hereunder
and any such attempted assignment shall be null and void.

         19. CONTROLLING LAW; JURISDICTION. This Agreement shall be governed by,
interpreted and construed according to the laws of the State of Illinois
(without regard to choice of law or conflict of laws principles).

         20. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this Agreement contains the entire agreement of the parties with regard to the
subject matter hereof, supersedes all prior agreements and understandings,
written or oral, and may only be amended by an agreement in writing signed by
the parties thereto.

         21. ADDITIONAL DOCUMENTS. Each party hereto shall, from time to time,
upon request of the other party, execute any additional documents which shall
reasonably be required to effectuate the purposes hereof.

         22. INCORPORATION. The introductory recitals hereof are incorporated in
this Agreement and are binding upon the parties hereto.

         23. FAILURE TO ENFORCE. The failure to enforce any of the provisions of
this Agreement shall not be construed as a waiver of such provisions. Further,
any express waiver by any party with respect to any breach of any provision
hereunder by any other party shall not constitute a waiver of such party's right
to thereafter fully enforce each and every provision of this Agreement.

         24. SURVIVAL. Except as otherwise set forth herein, the obligations
contained in this Agreement shall survive the termination, for any reason
whatsoever, of Executive's employment with the Company.

         25. HEADINGS. All numbers and headings contained herein are for
reference only and are not intended to qualify, limit or otherwise affect the
meaning or interpretation of any provision contained herein.

                                                                              13

<PAGE>

                                                                   Exhibit 10(1)

         26. NOTICES. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid
(provided that international mail shall be sent via overnight or two-day
delivery), or sent by facsimile or prepaid overnight courier to the parties at
the addresses set forth below (or such other addresses as shall be specified by
the parties by like notice). Such notices, demands, claims and other
communications shall be deemed given:

         (a) in the case of delivery by overnight service with guaranteed next
day delivery, the next day or the day designated for delivery;

         (b) in the case of certified or registered U.S. mail, five days after
deposit in the U.S. mail; or

         (c) in the case of facsimile, the date upon which the transmitting
party received confirmation of receipt by facsimile, telephone or otherwise;

provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that are
to be delivered by the U.S. mail or by overnight service or two-day delivery
service are to be delivered to the addresses set forth below:

If to the Company:

         CNA Surety Corporation
         CNA Plaza
         Chicago, IL 60685
         Attn: Corporate Secretary

If to Executive:

         John F. Welch
         [ADDRESS]

or to such other address as either party shall furnish to the other party in
writing in accordance with the provisions of this Section 26.

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<PAGE>

                                                                   Exhibit 10(1)

         27. GENDER. The masculine, feminine or neuter pronouns used herein
shall be interpreted without regard to gender, and the use of the singular or
plural shall be deemed to include the other whenever the context so requires.

         28. ARBITRATION OF ALL DISPUTES. Any controversy or claim arising out
of or relating to this Agreement (or the breach thereof) shall be settled by
final, binding and non-appealable arbitration in Chicago, Illinois by three
arbitrators. Except as otherwise expressly provided in this Section 28, the
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association (the "Association") then in effect. One of the
arbitrators shall be appointed by the Company, one shall be appointed by
Executive, and the third shall be appointed by the first two arbitrators. If the
first two arbitrators cannot agree on the third arbitrator within 30 days of the
appointment of the second arbitrator, then the third arbitrator shall be
appointed by the Association. This Section 28 shall not be applicable with
respect to any matter or controversy subject to Sections 7 through 14 of this
Agreement.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the Signing Date.

CNA SURETY CORPORATION

By: __________________________________

Title: _______________________________

______________________________________
John F. Welch

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