<PAGE>

                                                                  EXHIBIT 10(12)



                       SURETY $40M XS $60M PLACEMENT SLIP


COMPANY:                       Western Surety Company
                               a South Dakota corporation

                               Universal Surety Of America
                               a Texas corporation

                               Surety Bonding Company of America
                               a South Dakota corporation

                               and any other company which is or may become a
                               subsidiary of the CNA Surety Corporation or for
                               which the CNA Surety Corporation may acquire any
                               assets or liabilities.

TERM:                          Losses Discovered during the 36 month term
                               extending from 12:01 standard time, on October 1,
                               2002 to 12:01 a.m. standard time on October 1,
                               2005, as respects bonds in force on October 1,
                               2002 and bonds written or renewed on or after
                               October 1, 2002. Standard time shall mean the
                               location of the Company.

                               Within the above 36 month Contract term, each
                               Agreement Year shall be a 12 month period
                               beginning with October 1, 2002. This Contract may
                               be commuted at October 1, 2003, October 1, 2004
                               or October 1, 2005 subject to the provisions in
                               the Commutation section.

BUSINESS
COVERED:                       Surety business meaning all contract
                               surety business and commercial surety business
                               written by the Company and business assumed by
                               Western Surety Company or Universal Surety of
                               America from Continental Casualty Company,
                               National Fire Insurance Company of Hartford,
                               American Casualty Company of Reading,
                               Pennsylvania, Continental Insurance Company or
                               its affiliates (all of which is hereinafter
                               referred to as "CNA Surety Corporation and
                               business assumed from CNA") except all business
                               underwritten in Sioux Falls, South Dakota and in
                               the Company's Small & Specialty Contract offices
                               by Western Surety Company, Universal Surety of
                               America and Surety Bonding Company of America
                               will be excluded from coverage hereunder.


EXCLUSIONS:                    Per attached.

TERRITORY:                     Worldwide as per original Bonds.



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LIMIT &
RETENTION:                     As respects each Agreement Year, $40,000,000
                               ultimate net loss each principal, excess of
                               $60,000,000 ultimate net loss each principal,
                               with a maximum amount recoverable in any one
                               Agreement Year of $80,000,000.

AGGREGATE LIMIT:               $120,000,000 in all, during the entire three year
                               term of the Contract. This Aggregate Limit shall
                               only apply if this Contract is not commuted on
                               October 1, 2003 or October 1, 2004.

LOSS EXPENSE:                  Included as part of Ultimate Net Loss.

REINSURANCE
PREMIUM:                       The Company will pay to the Reinsurer annual
                               reinsurance premiums as follow:

                               First Agreement Year:   $12,500,000
                               Second Agreement Year; $17,500,000 (payable only
                               if the Contract is not commuted on October 1,
                               2003)

                               Third Agreement Year; $17,500,000 (payable only
                               if the Contract is not commuted on October 1,
                               2004)

                               Payable: quarterly on October 1, January 1,
                               April 1 and July 1


REINSURER'S
MARGIN:                        30% of the reinsurance premiums (quarterly
                               Reinsurance Premiums and Reinstatement Premiums)
                               for each Agreement Year.

REINSTATEMENT
PREMIUM:                       The Company will pay a Reinstatement Premium for
                               each Agreement Year covered hereunder in an
                               amount equal to 50% of the premium for that
                               Agreement Year times ceded losses for that
                               Agreement Year divided by $40,000,000.

                               The Reinstatement Premium shall be offset against
                               losses, within the Experience Account, as paid.

EXPERIENCE
ACCOUNT
BALANCE:                       Experience Account Balance as of October 2002,
                               will be equal to zero.


                               The Experience Account Balance as of the end of
                               each calendar quarter thereafter will be equal
                               to:

                               (1) The Experience Account Balance as of the end
                               of previous calendar quarter; plus




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                               (2)    100% of the Reinsurance Premiums and
                                      Reinstatement Premiums paid by the Company
                                      during that calendar quarter; minus
                               (3)    The Reinsurer's Margin in respect of the
                                      Reinsurance Premiums and Reinstatement
                                      Premiums paid by the Company to the
                                      Reinsurer(s) during that calendar quarter;
                                      minus
                               (4)    100% of losses paid by the Reinsurer(s)
                                      under this Contract during that calendar
                                      quarter.

                               The Experience Account Balance on any date other
                               than the last day of each calendar quarter will
                               be equal to the Experience Account Balance as of
                               the last day of the immediately preceding
                               calendar quarter, plus 100% of the Reinsurance
                               premiums subsequently paid by the Company to the
                               Reinsurer(s) plus 100% of any Reinstatement
                               Premiums subsequently paid by the Company to the
                               Reinsurer(s), minus the

                               Reinsurer(s)' Margin in respect of any
                               Reinsurance Premiums and Reinstatement Premiums
                               paid by the Company to the Reinsurer(s) and minus
                               100% of losses subsequently paid by the
                               Reinsurer(s) to the Company, in each case, up to
                               and including that date.

PREMIUM BASIS:                 All Reinsurance Premiums and Reinstatement
                               Premiums (collectively, the "Premiums") are net
                               to the Reinsurer(s) and contain no allowance for
                               commissions, taxes, or any other charges that may
                               arise. Any such amounts are in addition to the
                               Premiums and remain the sole responsibility of
                               the Company.

REPORTS AND
REMITTANCES:                   Within 90 days after the end of each calendar
                               quarter, the Company will furnish the
                               Reinsurer(s) with a written Activity Report
                               including the following information:

                                    (1) the amount of gross loss and loss
                                        expense paid by the Company during that
                                        period and on a cumulative basis, for
                                        each loss first discovered and covered
                                        under this Contract;
                                    (2) the Company's estimate of the gross
                                        reserve for loss and loss expense during
                                        that period for each loss first
                                        discovered and covered under this
                                        Contract.

                               By credit to the Experience Account, the
                               Reinsurer(s) shall pay any losses due to the
                               Company under this Contract within 15 days after
                               receipt of the Activity Report. If the balance of
                               the Experience Account is zero, the Reinsurer(s)
                               shall pay such covered loss to the Company,
                               subject to the limit of this Contract, from other
                               funds of the Reinsurer.


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COMMUTATION:                   If the Experience Account Balance is greater than
                               zero (0) as of October 1, 2003, October 1, 2004,
                               or October 1, 2005, the Company may elect to
                               commute this Contract, subject to 30 days prior
                               written notice.

                               Should the Company elect to commute this
                               Contract, the Reinsurer will pay to the Company
                               within 90 calendar days of commutation a Profit
                               Commission equal to the positive Experience
                               Account Balance as of such October 1.

                               Upon Commutation, the Reinsurer will be released
                               from all current and future liabilities under
                               this Contract and the Company shall have no
                               obligation to pay further Premiums hereunder.

OTHER
REINSURANCE:                   Company is permitted to purchase facultative
                               reinsurance. Company is also permitted to
                               purchase other treaty reinsurance, as per the
                               attached Schedule. Any bond specific facultative
                               reinsurance purchased from non-affiliated parties
                               shall be deemed to inure to the benefit of this
                               Contract.

INURING
REINSURANCE:                   The following Extended Discovery coverages inure
                               to the benefit of this Contract:

                               Effective January 1, 2002, the Company purchased
                               Extended Discovery run-off coverage under the
                               January 1, 2001 calendar year Surety Excess of
                               Loss Agreement (first layer $20M xs $5M, second
                               layer $35M xs $25M) from 70% of the reinsurers.
                               This coverage is as respects losses discovered
                               during the two year period (1/1/02 to 1/1/04) on
                               bonds written prior to December 31, 2001.

                               Effective October 1, 2002, there is a three year
                               discovery period (namely 10/1/02 to 10/1/05)
                               under the Surety Excess of Loss Contract with
                               limits of $75M xs $60M, which was in effect
                               October 1, 1997 through September 30, 2002, as
                               respects losses discovered on bonds written,
                               renewed or assumed prior to October 1, 2002.

LOSS REPORTS:                  The Company will provide the Reinsurer with
                               written notice of any Loss Discovered exceeding
                               $10,000,000.

WARRANTIES:                    The Company warrants that:

                           A.  As respects Commercial Surety business, for any
                               new commercial accounts written on and after
                               January 1, 2002, or for in-force commercial
                               accounts written with a limit of $25,000,000 or
                               less and covered under

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                               this Contract, the maximum limit, per commercial
                               account, shall be no greater than $25,000,000.

                               The Company also warrants a maximum limit of
                               liability of $25,000,000 as respects in-force
                               commercial accounts with a limit of $25,000,000
                               or less, which are renewed on and after January
                               1, 2002.

                           B.  As respects Domestic Contract Surety business
                               (limited to principals domiciled in the United
                               States, Canada, and Puerto Rico covering bond
                               business written for contracts located within
                               these territories and other United States
                               territories):

                               For all new contract surety accounts written on
                               or after January 1, 2002, the Company's maximum
                               Aggregate Bonded Work Program limit shall not
                               exceed $150,000,000 for any one principal, nor
                               shall the Total Industry-wide Aggregate Work
                               Program (bonded and unbonded) exceed $400,000,000
                               any one principal either as sole Surety account
                               or as a Co-surety/Shared account. Should a new
                               contract surety account written on or after
                               January 1, 2002, also contain commercial
                               exposure, the Company warrants that the maximum
                               limit of commercial exposure shall not exceed
                               12.5% of the overall bonded exposure or
                               $25,000,000, whichever is lesser.

                               Effective June 30, 2003, for all contract surety
                               accounts in-force prior to January 1, 2002, the
                               Company's maximum Aggregate Bonded Work Program
                               limit shall not exceed $200,000,000 for any one
                               principal, nor shall the Total Industry-wide
                               Aggregate Uncompleted Work Program (bonded and
                               unbonded) exceed $400,000,000 any one principal
                               either as a sole Surety account or as a
                               Co-surety/Shared account.

                               "Contract Surety business" shall be defined as
                               principals for which the Company provides
                               contract bonds primarily in connection with
                               construction contract(s) and/or primarily in
                               connection with contracts for machinery made to a
                               special order and which bonds are classified as
                               Class A or Class A-1 in the Contract section of
                               the Surety Association of America manual, and/or
                               in connection with contracts for the supply of
                               goods or services. Contract Surety business may
                               contain incidental Commercial Surety exposure.
                               Incidental exposure is hereby defined as 12.5% of
                               overall bonded exposure up to a maximum of $25MM
                               related to bonds that are classified in the
                               Non-Contract section of the Surety Association of
                               America manual.

                           C.  As respects international contract surety
                               business produced and underwritten by the
                               International Division (limited to principals

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                               domiciled in foreign countries except for Canada
                               and Puerto Rico but which may conduct business in
                               the United States):

                               1.   The Company's maximum bonded aggregate
                                    liability on all bonds written in foreign
                                    countries shall not exceed $50,000,000 any
                                    one principal.

                                 2. The sum of (a) the Company's portion of the
                                    bonded aggregate liability on all bonds
                                    written in foreign countries, and (b) the
                                    Company's portion of the aggregate bonded
                                    liability on all bonds written in the United
                                    States shall not exceed $75,000,000 any one
                                    principal.


                         D.  Any recovery for a loss first discovered under
                             run-off coverage or an Extended Discovery option
                             under any of the Company's previous reinsurance
                             contracts, whether issued to the Company by
                             professional reinsurers or CNA Financial, shall
                             inure to the benefit of this Contract.

OTHER
PROVISIONS:                    Reinsurers will be subject to the same terms,
                               conditions, interpretations, waivers,
                               modifications, and alternations as the respective
                               bonds of the Company to which this Contract
                               applies, subject to the provisions of this
                               Contract.

                               This Contract is solely between the Company and
                               the Reinsurer. Performance of the obligations of
                               each party under this Contract will be rendered
                               solely to the other party; however, if the
                               Company becomes insolvent, the liability of the
                               Reinsurer will be modified to the extent set
                               forth in the Insolvency Article. In no instance
                               will any principal, indemnitor, or obligee of the
                               Company or any claimant against a principal,
                               indemnitor, or obligee of the Company have any
                               rights under this Contract.

                               Special Termination Clause (attached)
                               Extra Contractual Obligations Clause (attached)
                               Funding of Reserves Clause (as applicable) (USA
                               and Canada)
                               Loss Notices and Settlements Clause (attached)
                               Interest Penalty Clause (attached) Offset Clause
                               (attached)
                               Salvage and Subrogation Clause (attached)
                               Delays, Errors or Omissions Clause (attached)
                               Special Provisions Clause (attached)
                               Entire Agreement and Modification Clause
                               (attached)
                               Access to Records Clause (attached)

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                             Confidentiality Clause (attached)
                             Insolvency Clause (attached)
                             Arbitration Clause (attached)
                             Tax Clause (attached)
                             Federal Excise Tax Clause (as applicable)
                             (attached)
                             Currency Clause (USA) (attached)
                             Service of Suit Clause (as applicable)
                             (USA and Canada) (attached)
                             Agency Clause (attached)
                             Severability Clause (attached)

INFORMATION:                 Estimated GNWPI for the Agreement Year of October
                             1, 2002 to October 1, 2003 is $208,000,000.


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                                   EXCLUSIONS

This Contract does not cover:

         A.   Business accepted by the Company as reinsurance from other
              insurance companies or associations; however, this exclusion will
              not apply to CNA Surety Corporation and business assumed from any
              CNA company.

         B.   Any loss or liability accruing to the Company directly or
              indirectly from any business written by or through any pool or
              association including pools or associations under which membership
              by the Company is required under any statutes or regulations.

         C.   All liability of the Company arising by agreement, operation of
              law, or otherwise from its participation or membership, whether
              voluntary or involuntary, in any Insolvency Fund. "Insolvency
              Fund" includes any Guaranty Fund, Insolvency Fund, Plan, Pool,
              Association, Fund, or other arrangement, howsoever denominated,
              established or governed, which provides for any assessment of, or
              payment, or assumption by the Company of part or all of any claim,
              debt, charge, fee, or other obligation of an insurer, or its
              successors, or assigns which has been declared by any competent
              authority to be insolvent or which otherwise is deemed unable to
              meet any claim, debt, charge, fee, or other obligation in whole or
              in part.

         D.   Co-surety bonds not controlled in their entirety by the Company
              ("not controlled in their entirety" means the Company does not
              have a contractual agreement with the producing agent and has not
              received the premium from or paid a commission to the producing
              agent on the bond(s) in question, or co-surety bonds on which the
              Company has accepted liability as an accommodation to the lead
              co-surety in lieu of the Company exercising its customary due
              diligence in reliance upon its established underwriting standard
              as evidenced by its case file).

         E.   Bank Depository Bonds that exceed $25,000,000 in the aggregate
              each 12-month calendar year (being January 1 through December 31)
              of this Contract, as respects each insured Commercial Bank or each
              insured chartered Savings Bank having minimum assets of at least
              $100,000,000. The $25,000,000 limit will include either a single
              bond in the amount of $25,000,000 (that has been written with a
              special acceptance) written in favor of one depositor or multiple
              bonds issued to the same bank amounting to $25,000,000, in the
              aggregate, written in favor of multiple depositors.


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         F.   Bonds classified by the Surety Association of America as class
              codes 580, 581 or 597 and the following bonds associated with or
              guaranteeing:

              1.  Bonds associated with commercial investment and loan
                  guarantees.
              2.  Guarantees of corporate debt.
              3.  Note guarantee bonds.
              4.  Net asset value/money market bonds.
              5.  Refundment guarantees, except in force refundment guarantee
                  obligations for Hyundai Heavy Industries.
              6.  Guarantees of principal and interest.
              7.  Municipal bonds.
              8.  Mortgage deficiency bonds.
              9.  Any fluctuation in financial markets or commodity prices.
              10. Inaccuracy of any currency valuations.
              11. Overpayments of any financial obligations for any reasons
                  including, but not limited to accounts receivable coverage.
              12. Golden parachute coverage.
              13. Guarantees of bank letters of credit.
              14. Guarantees of mortgage backed securities.
              15. Film guarantees.
              16. Student loans.
              17. Weather related insurance.
              18. Structured financial transactions originating or residing in
                  the debt or capital markets.
              19. Collateralized loan obligations (CLO) and/or collateralized
                  bond obligations (CBO) collectively known as collateralized
                  debt obligations, including but not limited to conventional
                  CLO's, synthetic CLO's and/or balance sheet CLO's.
              20. Instruments designed to guarantee funded credit transactions,
                  including, but not limited to contingent capital products,
                  contingent liquidity products and/or contingent equity
                  products which raise capital by selling securities or provide
                  event liquidity subject to certain conditions being met.
              21. Instruments designed to guarantee credit wraps, transactions
                  that provide credit substitution and/or credit enhancement of
                  loans, underlying asset backed securities, municipal bonds
                  that directly enhance the credit risk of debt securities to
                  investors.
              22. Instruments designated as bonds that guarantee the performance
                  of assets that are securitized into marketable securities for
                  sale to investors.

         G.   Bail Bonds.

         H.   Business written under the Small Business Administration's Surety
              Bond Guarantee Program.

         I.   Advance Payment Bonds except those that cover partial payments not
              to exceed 25% of Construction or Supply Bonds.


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         J.   Bonds commonly known as Completion Bonds, that involve an
              undertaking by the surety to a lender to a construction project to
              the effect that the project will be completed, free of liens,
              whether or not the owner or user of the project performs its
              obligations to the contractor; provided, however, that any such
              bonds which are dual obligee bonds wherein a so-called "Savings
              clause" (i.e., a provision to the effect that the lender as
              beneficiary of the bond is not entitled to indemnity there under
              if the owner or user of the project has not performed its
              obligations to the contractor) is utilized will not by reason of
              this exclusion be excluded from coverage hereunder.

         K.   Closure and Post Closure Bonds and bonds covering superfund
              hazardous waste removal which are written with an effective date
              on or after January 1, 2002.

         L.   Qualifying Bonds of insurance companies with a rating of less than
              AAA (S & P) and/or A+ (A.M. Best), which are written with an
              effective date on or after January 1, 2002.

         M.   Lease Bonds with a term exceeding 5 years or with covenants to
              build.

         N.   Bonds written at the request of the Company's bond claim
              department.

         O.   Bonds guaranteeing payment of settlements to third party
              administrators.

         P.   Excess SIPC bonds.

         Q.   SEC liability bonds.

         R.   Reclamation bonds (except for aggregate sand and gravel pits and
              strip coal mining where such obligations are incidental to the
              principal's overall obligations) which are written with an
              effective date on or after January 1, 2002.

         S.   Surety bonds issued or written where principal is owned by,
              affiliated with, or a subsidiary of either the Company or CNA
              Financial Corp.

         T.   Black Lung or United Mine Workers of America bonds that are
              written with an effective date on or after January 1, 2002.

         U.   Surety bonds covering contracts with expected durations in excess
              of five years at contract inception, exclusive of construction
              warranties or change orders.

         V.   Ship building, except the Manitowoc Companies account which is
              hereby covered through June 30, 2003.

         W.   Excess FDIC.


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         X.   Surety loss attributable to a certified terrorism event as defined
              by the Federal Terrorism Act of 2002.

The Company may submit in writing to the Lead Reinsurer for special acceptance
hereunder, as respects business not covered by this Contract. If said business
is accepted by the Lead Reinsurer, it will constitute acceptance by all
Reinsurers, and shall be subject to the terms of this Contract, except as such
terms are modified by such acceptance. Any loss occurring on an excluded bond
will be ignored in determining the Company's Net Loss for the purposes of this
Contract.


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                                   DEFINITIONS

     As used in this Contract:

A.   "Aggregate bonded work program" shall mean the following:

     As respects principals for which the Company provides contract Bonds
     primarily in connection with construction contracts: the greater of: (a)
     the aggregate line of authority issued by the Company for bonded
     construction contracts or supply contracts issued, or (b) the uncompleted
     portion of bonded construction contracts or supply contracts, including the
     principal's share of joint ventures, outstanding bid bonds where the
     contract will be bonded, and excluding cost-plus contracts not subject to
     guaranteed maximum prices, at the time a bond is executed.

     As respects principals for which the Company provides contract bonds either
     primarily in connection with contracts for machinery made to a special
     order and which Bonds are classified as Class A or Class A-1 in the
     Contract section of the Surety Association of America manual, or in
     connection with contracts for the supply of goods or services: the greater
     of: (a) the aggregate line of authority issued by the Company and
     outstanding at the time a bond is executed, or (b) the aggregate of bond
     penalties for all bonds, including bid bonds, known to the Company as
     outstanding at the time a bond is executed.

B.   "Bond" shall mean any bond, undertaking, guarantee, indemnity, binder, or
     other obligation, including riders and endorsements and letters and
     agreements in connection therewith, at any time issued, assumed or accepted
     by the Company and classified by the Company as Surety business at the
     effective date of such business.

C.   "Bonded aggregate liability" as respects International Business shall mean
     the sum of:

     1) for performance and/or payment bonds with limits greater that 50% of the
     contract price, the uncompleted portion of bonded construction contracts
     including the principal's share of joint ventures bonded by the Company,
     outstanding bids approved by the Company and the Company's portion of the
     contract being bonded, excluding bonded cost plus contracts not subject to
     guaranteed maximum prices, plus:

     2) the outstanding penal sum of low penalty bonds (bond with limits below
     50% of the contract price) and all other bonds (including those on
     supply/furnish and install contracts) bonded by the Company at the time a
     bond is executed.

D.   "Gross net written premium income" shall mean the gross written premium
     accounted for by the Company under all surety business reinsured hereunder
     during the term of this specific Contract, less deductions for return
     premiums and cancellations, and less premiums, if any, paid by the Company
     for facultative reinsurances or treaty reinsurances, recoveries from which
     would inure to the benefit of the Reinsurers hereon.

E.   "Loss discovered" shall mean the following: The Company shall have
     discovered a loss when the Company has incurred a loss of $10,000,000 or
     more for each principal through the establishment of a reserve, payment of
     loss or allocated expenses, assumption of a liability to prevent a default,
     or a


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     combination thereof. Any loss discovered under the previous Surety Excess
     of Loss Agreement cannot be a discovered loss under this Contract.

F.   "Principal" shall mean one or more firms or corporations under the same
     management or control, or one or more persons or entities for whom bonds
     were executed in reliance upon the indemnity of the same person, firm or
     corporation, or in reliance upon the indemnity of a related group of
     persons, firms or corporations.

G.   "Total industry-wide aggregate work program" shall mean the following:

     As respects principals for which the Company provides contract bonds
     primarily in connection with construction contract(s) either as sole surety
     or as part of a co-surety/shared account arrangement: the greater of: (a)
     the total aggregate line of authority issued by the Company in addition to
     all participating co-sureties/shared account arrangements for bonded and
     unbonded construction contracts or supply contracts issued, or (b) the
     total uncompleted portion of bonded and unbonded construction contracts or
     supply contract(s) of all the participating co-sureties or sureties in a
     sharing arrangement, including the principal's share of joint ventures,
     outstanding bids and the contract being bonded and excluding cost-plus
     contracts not subject to guaranteed maximum prices, at the time a bond is
     executed.

     As respects principals for which the Company provides contract bonds either
     primarily in connection with contracts for machinery made to a special
     order and which bonds are classified as Class A or Class A-1 in the
     Contract section of the Surety Association of America manual, or in
     connection with contracts for the supply of goods or services the greater
     of: (a) the total aggregate line of authority issued by the Company and
     outstanding at the time a bond is executed which includes co-surety/shared
     account arrangements, or (b) the total aggregate of bond penalties for all
     bonds, including bid bonds, known to the Company as outstanding at the time
     a bond is executed, including co-surety/shared account arrangements.

H.   "Ultimate Net Loss" shall mean all loss and allocated expense payments made
     by the Company in the investigation, defense, settlement, or mitigation of
     claims or potential claims (including the prevention of defaults) on the
     surety business of the Company and in the recovery or attempted recovery of
     such payments, plus 90% extra contractual obligations, if any, as defined
     herein, less salvage and subrogation recoveries and less amounts due from
     reinsurance which inures to the benefit of this Contract, whether
     collectible or not. Office expenses and salaries of employees of the
     Company or any subsidiary or related or wholly owned company of the Company
     are not allocated expense payments. If the Company becomes insolvent, this
     definition will be modified to the extent set forth in the Insolvency
     Article.



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                               SPECIAL TERMINATION

The Company may terminate any Reinsurer's participation hereon at any time by
giving 30 calendar days prior written notice to said Reinsurer upon the
happening of any one of the following circumstances:

A.   The Reinsurer ceases assuming new and renewal property and/or casualty
     treaty reinsurance;

B.   A state insurance department or other legal authority orders the Reinsurer
     to cease writing business;

C.   The Reinsurer has become insolvent or has been placed into liquidation or
     receivership (whether voluntary or involuntary), or there has been
     instituted against it proceedings for the appointment of a receiver,
     liquidator, rehabilitator, conservator, or trustee in bankruptcy, or other
     agent known by whatever name, to take possession of its assets or control
     of its operations;

D.   The Reinsurer's surplus has been reduced by whichever is greater, either
     40% of the amount of surplus at the inception of this Contract or 40% of
     the amount at the latest anniversary, or has lost any part of, or has
     reduced its paid-up capital (this paragraph D. will not apply to
     Underwriting Members of Lloyd's, London);

E.   The Reinsurer has merged with or has become acquired or controlled by any
     company, corporation, or individual(s) not controlling the Reinsurer's
     operations at the inception of this Contract; or

F.   The Reinsurer has reinsured its entire liability under this Contract
     without the Company's prior written consent.

Likewise, any Reinsurer may terminate its participation hereon at any time by
giving 30 calendar days prior written notice to the Company upon the happening
of either of the following circumstances:

A.   The Company's surplus has been reduced by whichever is greater, either 40%
     of the amount of surplus at the inception of this Contract or 40% of the
     amount at the latest anniversary, or has lost any part of, or has reduced
     its paid-up capital; or

B.   The Company has merged with or has become acquired or controlled by any
     company, corporation, or individual(s) not controlling the Company's
     operations at the inception of this Contract.

If said Reinsurer's participation is so canceled, cancellation will be effective
on a run-off or cut-off basis at the option of the Company, and the minimum
premium provisions, if any, will be waived.


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CNA Surety                                    $40M xs $60M Surety Excess of Loss




If the inclusion of any provision in this Article causes a state insurance
commissioner or other legal authority to prohibit the Company from taking credit
for reinsurance ceded under this Contract, then that provision will be
considered void.



                               SPECIAL PROVISIONS

At any time subsequent to the inception of this Contract:

A. should the ownership, control or management of the Company or the Reinsurer
be altered or changed, in whole or in part, in such a way that receipt or
payment of funds or any other contemplated transaction under this Contract would
be prohibited by United States of America statute, regulation and/or other
applicable law, or

B. should the Company or the Reinsurer become subject to restrictions imposed by
the United States government, so that receipt or payment of funds or any other
contemplated transaction under this Contract would be prohibited by United
States of America statute, regulation and/or other applicable law.

the Company or the Reinsurer must immediately notify the other party of same in
writing via certified, registered, or internationally recognized overnight
courier service, and the obligation to pay or receive funds or otherwise perform
under this Contract shall be suspended until such time as the Company or the
Reinsurer are authorized by applicable law, regulation, or license to perform
under this Contract.


                                ACCESS TO RECORDS

Upon reasonable notice, the Reinsurer, or its designated representative, shall
have access at any reasonable time to inspect and audit the books and records of
the Company which pertain in any way to this Contract and it may make copies of
any records pertaining thereto, at its own expense. This right of inspection,
audit and information shall survive expiration of this Contract and shall run to
the natural expiration of all liabilities reinsured hereunder.





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CNA Surety                                    $40M xs $60M Surety Excess of Loss



                          EXTRA CONTRACTUAL OBLIGATIONS

A.   This Contract shall indemnify the Company, within the limits of this
     Contract, for extra contractual obligations awarded by a court of competent
     jurisdiction against the Company arising from the Surety business reinsured
     hereunder. Such extra contractual obligation will be added to the amount of
     the loss within the Company's Bond limit and the sum thereof will be
     considered one loss subject to the exclusions and limitations set forth in
     this Contract.

B.   "Extra contractual obligations" are defined as those damages for which the
     Company is liable to pay that are not covered under any other provision of
     this Contract including but not limited to compensatory, punitive damages
     and related expenses that are assessed against the Company because of
     alleged or actual bad faith or negligence on its part in the handling of
     any claim on the business reinsured hereunder brought by any principal,
     indemnitor, obligee or claimant (hereinafter referred to in this definition
     as "Principal") for which a contractual loss has been incurred by the
     Company.

C.   The date on which an extra contractual obligation is incurred by the
     Company shall be deemed, in all circumstances, to be the date such extra
     contractual obligation claim combined with the underlying contractual claim
     meets the definition of loss discovered, as defined herein; it being
     understood that such extra contractual obligation claim is directly related
     to an underlying contractual claim. For the purposes of this Article,
     "underlying contractual claim" will mean any claim made on business covered
     hereunder and for which a loss has been incurred by the Company.

D.   However, coverage hereunder as respects extra contractual obligations will
     not apply where the loss has been incurred due to the fraud of a member of
     the Board of Directors or a corporate officer of the Company or a Company
     employee with claim settlement authority acting individually or
     collectively or in collusion with any individual or corporation or any
     other organization or party involved in the presentation, defense or
     settlement of any surety claim covered hereunder nor shall it apply to
     non-claim related expenses.

E.   Recoveries, collectibles or retention from any other form of insurance or
     reinsurance including, but not limited to, deductibles or self-insured
     retention which protect the Company against extra contractual obligations
     will inure to the benefit of the Reinsurer and will be deducted from the
     total amount of extra contractual obligations for purposes of determining
     the loss hereunder.

F.   Extra contractual obligations shall not include losses arising solely out
     of any non-claim activity including but not limited to underwriting
     decisions of the Company, engineering or other services provided by the
     Company.

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<PAGE>
CNA Surety                                    $40M xs $60M Surety Excess of Loss



                                INTEREST PENALTY

The interest amounts provided for in this Article will apply to the Reinsurer or
to the Company in the following circumstances:

     1.  Loss payment owed by the Reinsurer to the Company will have a due date
         to the Company of 90 calendar days following the date of the
         billing/proof of loss.

     2.  Payment of any premium will be due to the Reinsurer within 90 calendar
         days of the date specified in this Contract. Any premium adjustments
         will be due by the debtor party within 150 calendar days of the expiry
         of this Contract.

     3.  Payment on return of premiums, commissions, profit sharing, or any
         amounts not provided in paragraphs 1. or 2. above, will have the due
         date as specified in this Contract. If no due date is specified, the
         due date will be 90 days following the date of billing.

     4.  Failure by the Reinsurer or Company to comply with their respective
         payment obligations within the time periods as herein provided will
         result in a compound interest penalty payable at a rate equal to the 90
         day Treasury Bill rate as published in the Money Rate Section or any
         successor section of The Wall Street Journal on the first business day
         following the date a remittance becomes due, plus 1% per annum, to be
         compounded and adjusted quarterly. Any interest which occurs pursuant
         to this Article will be calculated by the party to which it is owed.
         The accumulation of the number of days that any payment is past due
         will stop on the date that the Intermediary, where applicable, receives
         payment.

     5.  The validity of any claim or payment may be contested under the
         provisions of this Contract. If the debtor party prevails in
         arbitration or any other proceeding, there will be no interest penalty
         due. Otherwise, any interest will be calculated and due as outlined
         above.

     6.  If a Reinsurer advances payment of any claim it is contesting, and
         prevails in the contest, the Company will return such payment plus pay
         interest on same, calculated as per the provisions of this Article.

     7.  Any interest which occurs pursuant to this Article may be waived by the
         party to which it is owed. Further, any interest which is calculated
         pursuant to this Article that is $100 or less will be waived. Waiver of
         such interest, however, will not affect the waiving party's right to
         similar interest for any other failure by the other party to make
         payment when due under this Article.

     8.  Nothing in this Article will diminish any legal remedies which either
         party may have against the other.



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CNA Surety                                    $40M xs $60M Surety Excess of Loss



The Reinsurer who is the signatory below, acknowledges that no intermediary is
involved in nor brought about this transaction, and by its authorized
representatives has executed this Placement Slip:


REINSURER:________________________________________________________


AUTHORIZED                                                REFERENCE
PERCENTAGE:______________________________________         NUMBER:______________


ACCEPTED &
APPROVED BY:______________________________________________DATED:_______________


(FOR PROCESSING PURPOSES IT IS IMPORTANT THAT YOU PROVIDE YOUR COMPANY'S
REFERENCE NUMBER FOR THIS PROGRAM.)




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