Document:

Exhibit 10.10

                          EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of October 15,
1997, is made and entered into by and between Farmers Group, Inc., a Nevada
corporation (the "Company") and John H. Lynch (the "Executive").

     The Executive is presently employed by the Company.

     The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of the Company has been
substantial.  The Company, on behalf of itself and its stockholders, desires
to continue to attract and retain well-qualified executive and key personnel
who are an integral part of the management of the Company, such as the
Executive, and to assure itself of continuity of management.  The Executive is
willing to commit himself to continue to serve the Company, on the terms and
conditions herein provided.

     In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants
and agreements of the parties herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:

     1.     Employment.  The Company hereby agrees to continue to employ the
            Executive, and the Executive hereby agrees to continue to serve
            the Company, on the terms and conditions set forth herein.

     2.     Term.  This Agreement shall commence on the date set forth above
            (the "Commencement Date") and shall expire on the last day of the
            twenty-fourth (24th) month immediately following the Commencement
            Date, unless further extended or sooner terminated as hereinafter
            provided.  In no event, however, shall the term of the Executive's
            employment hereunder extend beyond the date of the Executive's
            actual retirement in accordance with the Company's retirement
            policies in effect on the date hereof.

            Notwithstanding the foregoing, (a) if a Potential Change in
            Control shall have occurred during the Initial Term or any
            Extended Term, the term of this Agreement shall be extended and
            shall continue in effect through the last day of the twenty-fourth
            (24th) month immediately following the date on which such
            Potential Change in Control occurred and (b) if a Change in
            Control shall have occurred during the Initial Term or any
            Extended Term, the term of this Agreement shall be extended and
            shall continue in effect through the last day of the
            twenty-fourth (24th) month immediately following the date on which
            such Change in Control occurred; provided that, if such Potential
            Change in Control is abandoned prior to the occurrence of a Change
            in Control, this Agreement shall expire in accordance with the
            provisions hereof, without regard to such extension.

     3.     Position and Duties.  The Executive shall continue to serve in his
            current position and shall have such responsibilities, duties and
            authority as he may have as of the date hereof (or any position to

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            which he may be promoted after the date hereof) and as may from
            time to time be assigned to the Executive by the Board that are
            consistent with such responsibilities, duties and authority.  The
            Executive shall devote substantially all his working time and
            efforts to the business and affairs of the Company.

     4.     Place of Performance.  In connection with the Executive's
            employment by the Company, the Executive  shall continue to be
            based in his current location, except for required travel on the
            Company's business to an extent substantially consistent with
            the duties of the Executive.

     5.     Compensation and Related Matters.

            (a)    Compensation.  During the period of the Executive's
                   employment hereunder, the Company shall pay to the
                   Executive an annual amount equal to the Executive's Cash
                   Compensation at a rate not less than the rate in effect as
                   of the date hereof or such higher rate as may from time to
                   time be determined by the Board, such compensation to be
                   paid in such installments as are customary from time to
                   time for executive officers of the Company.  This
                   compensation may be increased from time to time in
                   accordance with normal business practices of the Company
                   and, if so increased, shall not thereafter during the term
                   of this Agreement be decreased.  Such compensation shall
                   not be deemed exclusive and shall not prevent the Executive
                   from participating in any other compensation or benefit
                   plan of the Company.  The Cash Compensation payments
                   (including any increased salary payments) hereunder shall
                   not in any way limit or reduce any other obligation of the
                   Company hereunder, and no other compensation, benefit or
                   payment hereunder shall in any way limit or reduce the
                   obligation of the Company to pay the Executive's Cash
                   Compensation hereunder.

            (b)    Expenses.  During the term of the Executive's employment
                   hereunder, the Executive shall be entitled to receive
                   prompt reimbursement for all reasonable and customary
                   expenses incurred by the Executive in performing services
                   hereunder, including all expenses of travel and living
                   expenses while away from home on business or at the request
                   of and in the service of the Company; provided that, such
                   expenses are incurred and accounted for in accordance with
                   the policies and procedures established by the Company.

            (c)    Other Benefits.  The Executive shall be entitled to
                   continue to participate in all Company and Parent
                   compensation, incentive, welfare or benefit plans or
                   arrangements, as well as any plan or arrangement whereby
                   the Executive may acquire securities of the Company or
                   Parent in effect on the date hereof in which the Executive
                   is participating, or subsequent plans or arrangements
                   providing the Executive with substantially similar benefits
                   thereunder, including without limitation the Company's
                   Employees' Profit Sharing and Savings Plan, Employees'
                   Pension Plan, Farmers Stock Incentive Plan, Employees'
                   Stock Ownership Plan, the Farmers Executive Incentive
                   Program (the "EIP"), the Premier Award Unit Plan (the
                   "Premier Plan") and any other plan or arrangement to
                   receive and exercise stock options or stock appreciation
                   rights, supplemental pension plan, insured medical
                   reimbursement plan, automobile benefits, executive
                   financial planning, group life insurance plan, personal
                   catastrophe liability insurance, medical, dental, accident
                   and disability plans (each a "Benefit Plan").  The
                   Executive shall be entitled to participate in or

<PAGE>   3

                   receive benefits under any Benefit Plan made available by
                   the Company in the future to its executives and key
                   management employees, subject to and on a basis consistent
                   with the terms, conditions and overall administration of
                   such plans and arrangements.  Nothing paid to the Executive
                   under any Benefit Plan presently in effect or made available
                   in the future shall be deemed to be in lieu of the salary
                   payable to the Executive pursuant to paragraph (a) of this
                   Section.  Any payments or benefits payable to the Executive
                   hereunder in respect of any calendar year during which the
                   Executive is employed by the Company for less than the
                   entire such year shall, unless otherwise provided in the
                   applicable Benefit Plan be prorated in accordance with the
                   number of days in such calendar year during which he is
                   so employed.

            (d)    Vacations.  The Executive shall be entitled to no less than
                   the number of vacation days in each calendar year, and to
                   compensation in respect of earned but unused vacation days,
                   determined in accordance with the Company's vacation policy
                   as in effect on the date hereof.

            (e)    Services Furnished.  The Company shall furnish the
                   Executive with office space, stenographic assistance and
                   such other facilities and services as shall be suitable to
                   the Executive's position and adequate for the performance
                   of his duties as set forth in Section 3 hereof.

     6.     Termination.  Without prejudice to Section 2 hereof, the
            Executive's employment hereunder may be terminated without any
            breach of this Agreement only under the following circumstances:

            (a)    Death.  The Executive's employment hereunder shall
                   terminate upon his death.

            (b)    Disability.  If, (i) as a result of the Executive's
                   incapacity due to physical or mental illness, the Executive
                   shall have been absent from his duties with the Company on
                   a full-time basis for the entire period of six (6)
                   consecutive months, and within thirty (30) days after
                   written "Notice of Termination" (as defined in Section 12
                   below) is thereafter given by the Company (which may occur
                   before or after the end of such six month period) the
                   Executive shall not have returned to the performance of his
                   duties hereunder on a full-time basis, or (ii) the
                   Executive becomes eligible for benefits under the Company's
                   long-term disability plan or any successor plan, the
                   Company may terminate this Agreement and the Executive's
                   employment hereunder for "Disability."

            (c)    Cause.  The Company may, in writing and without prior
                   notice, terminate the Executive's employment hereunder for
                   Cause (except as otherwise provided in clause (iv) of
                   subsection 13(d)(iv)).  Notwithstanding the foregoing, the
                   Executive shall have the right to contest his termination
                   for Cause (for purposes of this Agreement) by mediation in
                   accordance with the provisions of this Agreement as set
                   forth in Section 17 herein.

            (d)    Termination by the Executive.  The Executive may terminate
                   his employment hereunder for Good Reason.  For purposes of
                   any determination regarding the existence of Good Reason,
                   any claim by the Executive that Good Reason exists shall be
                   presumed to be

<PAGE>   4

                   correct unless the Company establishes to the then existing
                   Compensation Committee of the Board that Good Reason does
                   not exist.

     7.     Compensation During Disability or Upon Termination.

            (a)    During any period that the Executive fails to perform his
                   duties hereunder as a result of incapacity due to physical
                   or mental illness ("Disability Period"), the Executive
                   shall continue to receive his full salary at the rate then
                   in effect for such period until his employment is
                   terminated pursuant to Section 6(b) hereof; provided that,
                   payments so made to the Executive during the Disability
                   Period shall be reduced by the sum of the amounts, if any,
                   payable to the Executive at or prior to the time of any
                   such payment under disability benefit plans of the Company
                   or under the Social Security disability insurance program,
                   and which amounts were not previously applied to reduce any
                   such payment.

            (b)    If the Executive's employment is terminated by his death,
                   the Company shall pay any amounts due to the Executive
                   under Section 5 through the date of his death in accordance
                   with Section 11(b).

            (c)    If the Executive's employment is terminated by the Company
                   for Cause or by the Executive for other than Good Reason,
                   the Company shall pay the Executive his full salary through
                   the Date of Termination at the rate in effect at the time
                   Notice of Termination is given and the Company shall have
                   no further obligations to the Executive under this
                   Agreement.

            (d)    If (1) in breach of this Agreement, the Company shall
                   terminate the Executive's employment other than for
                   Disability pursuant to Section 6(b) or for Cause (it being
                   understood that a purported termination for Disability
                   pursuant to Section 6(b) or for Cause which is disputed and
                   finally determined not to have been proper shall be a
                   termination by the Company in breach of this Agreement) or
                   (2) the Executive shall terminate his employment for Good
                   Reason, then, subject to the provisions of Section 10
                   hereof, the Company shall:

                   (i)   pay the Executive his full annual base salary through
                         the Date of Termination at the rate in effect at the
                         time Notice of Termination is given and all other
                         unpaid amounts, if any, to which the Executive is
                         entitled as of the Date of Termination under any
                         Benefit Plan at the time such payments are due;

                   (ii)  subject to the provisions of Section 9 hereof, in
                         lieu of any further salary payments to the Executive
                         for periods subsequent to the Date of Termination,
                         pay as liquidated damages to the Executive an amount
                         equal to the Executive's Cash Compensation (as defined
                         below), times a fraction the numerator of which is the
                         number of months remaining in the then current term of
                         the Agreement, and the denominator of which is twelve
                         (12), such payment to be made in a lump sum in cash,
                         on or before the fifth day following the Date of
                         Termination;

<PAGE>   5

                   (iii) subject to the provisions of Section 9 hereof,
                         arrange to provide the Executive for two (2) years
                         (or such shorter period as Executive may elect), with
                         disability, life, accident and health insurance
                         substantially similar to those insurance benefits
                         which Executive is receiving immediately prior to the
                         Notice of Termination (including coverage for
                         dependents at the same per person cost as the
                         Executive is then paying); provided that, benefits
                         otherwise receivable by Executive pursuant to this
                         subsection 6 (d)(iii) shall be reduced to the extent
                         comparable benefits are actually received by the
                         Executive during such two (2) year period following
                         his termination (or such shorter period elected by
                         the Executive), and any such benefits actually
                         received by Executive shall be reported by him to the
                         Company;

                   (iv)  subject to the provisions of Section 9 hereof, pay
                         the Executive a benefit under the Premier Plan (or
                         other long term incentive plan) as if he had
                         terminated employment by reason of his retirement
                         (without regard to whether the Executive has, and
                         without deeming the Executive to have, reached his
                         normal retirement age) and as if any remaining
                         performance criteria and any time period of service
                         requirement had been waived; and

                   (v)   subject to the provisions of Section 9 hereof, pay to
                         the Executive a single lump sum payment equal to the
                         excess of (x) over (y), where (x) is equal to the
                         present lump sum value of the combined pension
                         benefits that the Executive would receive under the
                         Employees' Pension Plan (the "Pension Plan"), taking
                         into account Article XV thereof, the Employee
                         Benefits Restoration Plan (the "Restoration Plan")
                         and providing supplemental pension benefits
                         (collectively, the "Plans"), at his earliest benefit
                         commencement date under the Pension Plan computed by
                         increasing, in the case of each Plan, the number of
                         years of credited service actually taken into account
                         under each Plan as of the date of his termination of
                         employment, or, if earlier, the termination of the
                         Pension Plan, by two (2) years, and (y) is equal to
                         the present lump sum value of the combined pension
                         benefits actually payable to the Executive on his
                         earliest benefit commencement date under the Pension
                         Plan (taking into account Article XV thereof), the
                         Restoration Plan and the Agreement based, in the case
                         of each Plan, on the actual number of years of
                         credited service actually taken into account under
                         each Plan as of the date of his termination of
                         employment, or, if earlier, the termination of the
                         Pension Plan.  The foregoing lump sum present value
                         amount, shall be computed using the actuarial factors
                         under the Pension Plan in effect on the date of the
                         Executive's termination of employment or, if earlier,
                         the termination of the Pension Plan.

Notwithstanding the foregoing, in the event the Executive does not have two (2)
full years remaining until the Executive's mandatory-retirement date under the
Company's retirement policies, for purposes of this Section 7, the minimum two
(2) year period set forth above shall automatically be reduced to the number of
years and/or partial years (measured by months) remaining until such
Executive's retirement.  For example, if Executive terminated his employment
for Good Reason six months before mandatory retirement, the minimum two (2)
year period set forth above would be reduced from 2 to 1.5.  For purposes of
this Agreement, the mandatory retirement age of an Executive shall be 65.

<PAGE>   6

     8.      Indemnification for Excise Tax.

            (a)    Notwithstanding any other provisions of this Agreement, in
                   the event that any of the payments or benefits received or
                   to be received by the Executive in connection with a
                   "change in control" (as defined in Section 280G of the
                   Code) (whether pursuant to the terms of this Agreement or
                   any other plan, arrangement or agreement with the Company,
                   any Person whose actions result in a change in control or
                   any Person affiliated with the Company or such Person)
                   (such payments or benefits, excluding the Gross-Up Payment,
                   being hereinafter referred to as the "Total Payments") will
                   be subject to the Excise Tax, the Company shall pay to the
                   Executive an additional amount (the "Gross-Up Payment")
                   such that the net amount retained by the Executive, after
                   deduction of any Excise Tax on the Total Payments and any
                   federal, state and local income and employment taxes and
                   Excise Tax upon the Gross-Up Payment, shall be equal to the
                   Total Payments.

            (b)    For purposes of determining whether any of the Total
                   Payments will be subject to the Excise Tax and the amount
                   of such Excise Tax, (i) all of the Total Payments shall be
                   treated as "parachute payments" (within the meaning of
                   section 280G(b)(2) of the Code) unless, in the opinion of
                   tax counsel ("Tax Counsel") reasonably acceptable to the
                   Executive and selected by the accounting firm which was,
                   immediately prior to the change in control, the Company's
                   independent auditor (the "Auditor"), such payments or
                   benefits (in whole or in part) do not constitute parachute
                   payments, including by reason of section 280G(b)(4)(A) of
                   the Code, (ii) all "excess parachute payments" within the
                   meaning of section 280G(b)(1) of the Code shall be treated
                   as subject to the Excise Tax unless, in the opinion of Tax
                   Counsel, such excess parachute payments (in whole or in
                   part) represent reasonable compensation for services
                   actually rendered (within the meaning of section 280G(b)(4)
                   (B) of the Code) in excess of the Base Amount allocable to
                   such reasonable compensation, or are otherwise not subject
                   to the Excise Tax, and (iii) the value of any noncash
                   benefits or any deferred payment or benefit shall be
                   determined by the Auditor in accordance with the principles
                   of sections 280G(d)(3) and (4) of the Code.  For purposes of
                   determining the amount of the Gross-Up Payment, the
                   Executive shall be deemed to pay federal income tax at the
                   highest marginal rate of federal income taxation in the
                   calendar year in which the Gross-Up Payment is to be made
                   and state and local income taxes at the highest marginal
                   rate of taxation in the state and locality of the
                   Executive's residence on the Date of Termination (or if
                   there is no Date of Termination, then the date on which the
                   Gross-Up Payment is calculated for purposes of this Section
                   8), net of the maximum reduction in federal income taxes
                   which could be obtained from deduction of such state and
                   local taxes.

            (c)    In the event that the Excise Tax is finally determined to
                   be less than the amount taken into account hereunder in
                   calculating the Gross-Up Payment, the Executive shall repay
                   to the Company, within five (5) business days following the
                   time that the amount of such reduction in the Excise Tax is
                   finally determined, the portion of the Gross-Up Payment
                   attributable to such reduction (plus that portion of the
                   Gross-Up Payment attributable to the Excise Tax and
                   federal, state and local income and employment taxes
                   imposed on the Gross-Up Payment being repaid by the
                   Executive, to the extent that such repayment results in a
                   reduction in the Excise Tax and a dollar-for-dollar
                   reduction in the Executive's taxable income and wages for
                   purposes of federal, state and local income and employment

<PAGE>   7

                   taxes, plus interest on the amount of such repayment at
                   120% of the rate provided in section 1274(b)(2)(B) of the
                   Code.  In the event that the Excise Tax is determined to
                   exceed the amount taken into account hereunder in
                   calculating the Gross-Up Payment (including by reason of
                   any payment the existence or amount of which cannot be
                   determined at the time of the Gross-Up Payment), the
                   Company shall make an additional Gross-Up Payment in
                   respect of such excess (plus any interest, penalties or
                   additions payable by the Executive with respect to such
                   excess) within five (5) business days following the time
                   that the amount of such excess is finally determined.  The
                   Executive and the Company shall each reasonably cooperate
                   with the other in connection with any administrative or
                   judicial proceedings concerning the existence or amount of
                   liability for Excise Tax with respect to the Total Payments.

            (d)    Preparation of Tax Return.  The Company, at its expense,
                   agrees to supply the Executive with advice from competent
                   tax counsel as to whether said Executive must reflect and
                   pay an excise tax under Sections 280G and 4999 of the Code
                   on the filing of any federal income tax return of said
                   Executive relating to the period or periods in which said
                   Executive received payments or benefits under this
                   Agreement which may result in the imposition of such an
                   excise tax.  If such tax counsel advises that such excise
                   tax must be reflected and paid on such tax return, said
                   Executive agrees to so reflect and pay such tax at which
                   time the Company will reimburse said Executive in
                   accordance with this Section 8.  If such tax counsel
                   advises that such excise tax need not be reflected and paid
                   on such tax return, said Executive agrees to prepare and
                   file his tax return in accordance with such advice.  In
                   either case the Company shall indemnify said Executive in
                   accordance with Section 8(a) of this Agreement for any
                   subsequent assessment of excise taxes made by the Internal
                   Revenue Service under Section 4999 of the Code in
                   accordance with the provisions of this Section 8.

            (e)    Duty to Cooperate.  The Executive agrees promptly to notify
                   the Company in the event of any audit by the Internal
                   Revenue Service ("IRS") in which the IRS asserts that any
                   excise tax should be assessed against said Executive and to
                   cooperate with the Company in contesting (at the Company's
                   expense) any such proposed assessment.  Said Executive
                   agrees not to settle or compromise any such assessment
                   without the Company's consent.  If said Executive's failure
                   to settle a proposed assessment with respect to such excise
                   tax ("Proposed Assessment") at the direction of the Company
                   is the reason his overall audit cannot be finally resolved,
                   then said Executive may demand that the Company consent to
                   settle the Proposed Assessment.  If the Company does not
                   settle the Proposed Assessment, or consent to allow said
                   Executive to settle, within sixty (60) days, the Company
                   shall indemnify and hold harmless said Executive from any
                   additional interest or penalties resulting from the delay
                   in finally resolving the audit.

     9.     Effect of Agreement on Other Contractual Rights.  The provisions
            of this Agreement, and any payment provided for hereunder, shall
            not reduce any amounts otherwise payable, or in any way diminish
            the Executive's existing rights, or rights which would accrue
            solely as a result of the passage of time, under any Benefit Plan
            or other contract, plan or arrangement.

<PAGE>   8

     10.    Restrictive Covenants.

            (a)    During the term of this Agreement, Executive shall not,
                   directly or indirectly, without the prior written consent
                   of the Company, provide consultative service to (with or
                   without pay), own, manage, operate, join, control,
                   participate in, or be connected with (as a stockholder,
                   partner, officer, director, employee or otherwise) any
                   business, individual, partner, firm, corporation, or other
                   entity that directly or indirectly competes with the
                   Company (a "Competitor of the Company"); provided that, the
                   "beneficial ownership" by Executive, either individually or
                   as a member of a "group," as such terms are used in Rule
                   13d of the General Rules and Regulations Exchange Act, of
                   not more than five percent (5%) of the voting stock of any
                   publicly held corporation shall not be a violation of this
                   Agreement.

            (b)    Confidential Information.  Executive acknowledges that in
                   his employment hereunder he occupies a position of trust
                   and confidence.  During the term of the Agreement and for
                   all periods thereafter, Executive shall not, except as may
                   be required to perform his duties hereunder or as required
                   by applicable law, and except for information which is or
                   becomes publicly available other than as a result of a
                   breach by the Executive of the provisions hereof, disclose
                   to others or use, whether directly or indirectly, any
                   Confidential Information.  Executive acknowledges that such
                   Confidential Information is specialized, unique in nature
                   and of great value to the Company, and that such
                   information gives the Company a competitive advantage.  The
                   Executive agrees to deliver or return to the Company, at
                   the Company's request at any time or upon termination or
                   expiration of his employment or as soon thereafter as
                   possible, all documents, computer tapes and disks, records,
                   lists, data, drawings, prints, notes and written
                   information (and all copies thereof) furnished by the
                   Company or prepared by the Executive during the term of his
                   employment by the Company.

            (c)    Business Diversion.  During the term of this Agreement and
                   any Severance Period thereafter, Executive shall not,
                   directly or indirectly, influence or attempt to influence
                   customers or suppliers of the Company to divert their
                   business to any Competitor of the Company.

            (d)    Nonsolicitation.  Executive recognizes that he will possess
                   confidential information about other employees of the
                   Company, relating to, among other things, their education,
                   experience, skills, abilities, compensation and benefits,
                   and inter-personal relationships with suppliers and
                   customers of the Company.  Executive recognizes that the
                   information he will possess about these other employees is
                   not generally known, is of substantial value to the
                   Company and will be acquired by him because of his business
                   position with the Company.  Executive agrees that, during
                   the term of this Agreement and for one (1) year thereafter,
                   he will not, directly or indirectly, solicit or recruit any
                   employee of the Company for the purpose of being employed by
                   him or by any other person on whose behalf he is acting as
                   an agent, representative or employee and that he will not
                   convey any such confidential information or trade secrets
                   about other employees of the Company.

<PAGE>   9

     11.    Successors; Binding Agreement.

            (a)    In connection with any agreement to which it is a party, the
                   Company will require any successor (whether direct or
                   indirect, by purchase, merger, consolidation or otherwise)
                   to all or substantially all of the business and/or assets of
                   the Company, by agreement in form and substance satisfactory
                   to the Executive, to expressly assume and agree to perform
                   this Agreement in the same manner and to the same extent
                   that the Company would be required to perform it if no such
                   succession had taken place.  Failure of the Company to
                   obtain such assumption and agreement prior to the
                   effectiveness of any such succession shall be a breach of
                   this Agreement and shall entitle the Executive to
                   compensation from the Company in the same amount and on the
                   same terms as he would be entitled to hereunder if he
                   terminated his employment for Good Reason, except that for
                   purposes of implementing the foregoing, the date on which
                   any such succession becomes effective shall be deemed the
                   Date of Termination.  As used in this Agreement, "Company"
                   shall mean the Company as herein before defined and any
                   successor to its business and/or assets as aforesaid which
                   executes and delivers the agreement provided for in this
                   Section 11 or which otherwise becomes bound by all the terms
                   and provisions of this Agreement by operation of law.

            (b)    This Agreement shall inure to the benefit of and be
                   enforceable by the Executive's personal and legal
                   representatives, executors, administrators, successors,
                   heirs, distributees, devises and legatees.  If the
                   Executive should die while any amounts are still payable to
                   him hereunder, all such amounts, unless otherwise provided
                   herein, shall be paid in accordance with the terms of this
                   Agreement to the Executive's devisee, legatee, or other
                   designee or, if there be no such designee, to the
                   Executive's estate.

     12.    Notice/Notice of Termination.  For purposes of this Agreement,
            notices and all other communications provided for in the Agreement
            shall be in writing and shall be deemed to have been duly given
            when delivered or mailed by United States registered mail, return
            receipt requested, postage prepaid, as follows:  if to the
            Company - Farmers Group, Inc., 4680 Wilshire Boulevard, Los
            Angeles, California 90010, Attention:  Secretary; and if to the
            Executive at the address specified at the end of this Agreement.
            Notice may also be given at such other address as either party may
            have furnished to the other in writing in accordance herewith,
            except that notices of change of address shall be effective only
            upon receipt.  Any purported termination of the Executive's
            employment by the Company or the Executive hereunder shall be
            communicated by a Notice of Termination to the other party as set
            forth herein.  For purposes of this Agreement, a "Notice of
            Termination" shall mean a written notice which shall indicate
            those specific termination provisions in this Agreement relied
            upon and which sets forth in reasonable detail the facts and
            circumstances claimed to provide a basis for termination of the
            Executive's employment under the provision of Sections 6(b),
            (c) and (d) hereof.

     13.    Definitions.  Terms not otherwise defined in this Agreement shall
            have the meanings set forth in this Section 13.

            (a)    Beneficial Owner.  "Beneficial Owner" shall have the meaning
                   of such term as defined in Rule 13d-3 of the Exchange Act.

<PAGE>   10

            (b)    Cash Compensation.  "Cash Compensation" shall mean the sum
                   of (x) the average of the final three (3) year's base salary
                   of the Executive, and (y) an amount equal to the sum of (i)
                   the average of the final three (3) year's cash bonus paid to
                   the Executive under the EIP or any other bonus plan of the
                   Company, for any of the fiscal years ended during the term
                   of this Agreement, and (ii) the average of the amounts
                   allocated to the Executive under the Employee's Profit
                   Sharing and Savings Trust for such years.

            (c)    Cause.  "Cause" shall mean:  (i) the commission of a felony
                   (other than driving while intoxicated or while under the
                   influence of alcohol or drugs), (ii) the engaging by
                   Executive in misconduct involving dishonesty which is
                   injurious to the Company, monetarily or otherwise or which
                   is inimical to the effective performance of the Executive's
                   duties, (iii) a willful dereliction of duty or intentional
                   and malicious conduct contrary to the best interests of the
                   Company or its business if such dereliction of duty or
                   misconduct is not corrected within thirty (30) days after
                   written notice hereof from the Company, (iv) a refusal to
                   perform reasonable services customarily performed by the
                   Executive (other than by reason of a Disability); unless
                   such refusal, if capable of being corrected, is corrected
                   within thirty (30) days after written notice thereof from
                   the Company, or (v) the Executive's engaging in conduct that
                   violates the Restrictive Covenants set forth in Section 10
                   hereof.

            (d)    Change in Control.  A "Change in Control" of the Company
                   shall be deemed to have occurred if the event set forth in
                   any one of the following paragraphs shall have occurred:

                   (i)   any Person is or becomes the Beneficial Owner,
                         directly or indirectly, of securities of the Company
                         (other than Parent) representing 30% or more of the
                         combined voting power of the then outstanding
                         securities of the Company, excluding any Person who
                         becomes such a Beneficial Owner in connection with a
                         transaction described in clause (x) of paragraph (iv)
                         below; or

                   (ii)  members of the public become the Beneficial Owners,
                         directly or indirectly, of securities of the Company
                         (other than Parent) representing 60% or more of the
                         combined voting power of the then outstanding
                         securities of the Company; or

                   (iii) the following individuals cease for any reason to
                         constitute a majority of the number of directors of
                         the Board then serving: individuals who, on the date
                         hereof, constitute such board and any new director
                         (other than a director whose initial assumption of
                         office is in connection with an actual or threatened
                         election contest, including but not limited to a
                         consent solicitation, relating to the election of
                         directors of the Company) whose appointment or
                         election by such board or nomination for election by
                         stockholders was approved or recommended by a vote of
                         at least two-thirds (2/3) of the directors then still
                         in office who either were directors on the date hereof
                         or whose appointment, election or nomination for
                         election was previously so approved or recommended; or

<PAGE>   11

                   (iv)  there is consummated a merger or consolidation of the
                         Company, Parent or any direct or indirect subsidiary
                         of the Company with any other corporation, other than
                         (x) a merger or consolidation which would result in
                         the voting securities of the Company outstanding
                         immediately prior to such merger or consolidation
                         continuing to represent (either by remaining
                         outstanding or by being converted into voting
                         securities of the surviving entity or any parent
                         thereof), in combination with the ownership of any
                         trustee or other fiduciary holding securities under
                         an employee benefit plan of Parent, the Company or
                         any subsidiary of the Company, at least 60% of the
                         combined voting power of the securities of the Company
                         or such surviving entity or any parent thereof
                         outstanding immediately after such merger or
                         consolidation, or (y) a merger or consolidation
                         effected to implement a recapitalization of Parent or
                         the Company (or similar transaction) in which no
                         Person is or becomes the Beneficial Owner, directly or
                         indirectly, of securities of the Company (not
                         including in the securities Beneficially Owned by such
                         Person, any securities acquired directly from the
                         Company, other than in connection with the acquisition
                         by the Company or its affiliates of a business)
                         representing 30% or more of the combined voting power
                         of the Company's then outstanding securities; or

                   (v)   the stockholders of the Company approve a plan of
                         complete liquidation or dissolution of the Company or
                         there is consummated an agreement for the sale or
                         disposition by the Company of all or substantially all
                         of the assets of the Company, other than a sale or
                         disposition by the Company of all or substantially all
                         of the assets of the Company, to an entity, at least
                         60% of the combined voting power of the voting
                         securities of which are owned by stockholders of the
                         Company in substantially the same proportions as their
                         ownership of the Company immediately prior to such
                         sale.

            (e)    Confidential Information.  "Confidential Information" shall
                   mean information about the Company and its respective
                   suppliers, clients and customers that is not disclosed by
                   the Company for financial reporting purposes and that was
                   learned by Executive in the course of his employment
                   hereunder, including (without limitation) proprietary
                   knowledge, trade secrets, market research, data, formulae,
                   information and supplier, client and customer lists and all
                   papers, resumes, and records (including computer records) of
                   the documents containing such Confidential Information.

            (f)    Date of Termination.  "Date of Termination" shall mean (i)
                   if the Executive's employment is terminated by his death,
                   the date of his death, (ii) if the Executive's employment
                   is terminated pursuant to subsection (b) above, thirty (30)
                   days after Notice of Termination is given (provided that the
                   Executive shall not have returned to the performance of his
                   duties on a full-time basis during such thirty (30) day
                   period), (iii) if the Executive's employment is terminated
                   pursuant to subsection (c) above, the date specified in the
                   Notice of Termination, and (iv) if the Executive's
                   employment is terminated for any other reason, the date on
                   which a Notice of Termination is given; provided that, if
                   within thirty (30) days after any Notice of Termination is
                   given the party receiving such Notice of Termination
                   notifies the other party that a dispute exists concerning
                   the termination, the Date of

<PAGE>  12

                   Termination shall be the date on which the dispute is
                   finally determined, either by mutual written agreement of
                   the parties or by a final judgment, order or decree of a
                   court of competent jurisdiction (the time for appeal there
                   from having expired and no appeal having been perfected).

            (g)    Exchange Act.  "Exchange Act" shall mean the Securities
                   Exchange Act of 1934 as amended from time to time and as now
                   or hereafter construed, interpreted and applied by
                   regulations, rulings and cases.

            (h)    Good Reason.  The Executive's termination of employment with
                   the Company shall be deemed for "Good Reason" if it occurs
                   within twelve (12) months of any of the following without
                   the Executive's express written consent:

                   (i)   the assignment to the Executive by the Company of
                         duties inconsistent with, or a substantial adverse
                         alteration in the nature or status of, Executive's
                         responsibilities as of the date hereof;

                   (ii)  a reduction by the Company in the Executive's annual
                         Cash Compensation as in effect on the date hereof or
                         as in effect from time to time if such amounts are
                         increased during the term of this Agreement;

                   (iii) any failure by the Company to continue in effect
                         without substantial change any Benefit Plan, or the
                         taking of any action by the Company which would
                         adversely affect the Executive's participation in or
                         materially reduce the Executive's benefits under any
                         such Benefit Plan (including a more than 10% reduction
                         from the highest percentage of available EIP award
                         paid in the three (3) immediately preceding calendar
                         years to the Executive) or deprive the Executive of
                         any material fringe benefit currently enjoyed by the
                         Executive unless an equitable substitute arrangement
                         (embodied in an ongoing substitute or alternative
                         Benefit Plan) has been made for the benefit of the
                         Executive with respect to the Benefit Plan in
                         question;

                   (iv)  any material breach by the Company of any provision of
                         this Agreement which, if capable of being rectified by
                         the Company, is not rectified within thirty (30) days
                         of notice (which notice specifies the nature of such
                         breach);

                   (v)   any failure by the Company to obtain the assumption of
                         this Agreement by any successor or assign of the
                         Company; or

                   (vi)  any purported termination of the Executive's
                         employment by the Company which is not effected
                         pursuant to a Notice of Termination satisfying the
                         requirements of Section 12 below, and for purposes of
                         this Agreement, no such purported termination shall be
                         effective.

            (i)    Parent.   "Parent" shall mean the ultimate controlling
                   parent of the Company.

<PAGE>   13

            (j)    Person.   "Person" shall have the meaning of such term as
                   used in Section (3)(a)(9) of the Exchange Act.

            (k)    Potential Change in Control.  A "Potential Change in
                   Control" shall be deemed to have occurred if the event set
                   forth in any one of the following paragraphs shall have
                   occurred:

                   (i)   the Company, Parent or any Person publicly announces
                         an intention to take or to consider taking actions
                         which, if consummated, would constitute a Change in
                         Control;

                   (ii)  in connection with the purchase of the voting
                         securities of the Company, any person, or group of
                         persons, file or are required to file, an application
                         seeking approval of insurance regulatory authorities
                         relative to the acquisition of control of a domestic
                         insurer or reciprocal exchanges;

                   (iii)  the Company or Parent enters into an agreement, the
                          consummation of which would result in the occurrence
                          of a Change in Control;

                   (iv)  any Person becomes the Beneficial Owner, directly or
                         indirectly, of securities of the Company (other than
                         Parent) representing 15% or more of either the then
                         outstanding shares of common stock of the Company or
                         the combined voting power of the then outstanding
                         securities of the Company (not including in the
                         securities beneficially owned by such Person or any
                         securities acquired directly from the Company).

                   For purposes of this Agreement, a Potential Change in
                   Control shall be deemed to have been abandoned if, prior to
                   a Change in Control (and provided that no Change in Control
                   occurs within 180 days thereafter), (A) in connection with
                   a Potential Change in Control described in (k)(i) above, an
                   announcement is made recanting such intention, (B) in
                   connection with a Potential Change in control described in
                   (k)(ii) above such approval is formally rejected, (C) in
                   connection with a Potential Change in Control described in
                   (k)(iii) above, such agreement is abandoned prior to
                   consummation, (D) in connection with a Potential Change in
                   Control described in (k)(iv) above, such Person ceases to
                   be a Beneficial Owner, directly or indirectly, of
                   securities of the Company representing 15% or more of such
                   securities; or (E) the Board adopts a resolution to the
                   effect that, for purposes of this Agreement, such Potential
                   Change in Control has been abandoned.

     14.  Miscellaneous.  No provisions of this Agreement may be modified,
          waived or discharged unless such waiver, modification or discharge
          is agreed to in writing signed by the Executive and the Company.  No
          waiver by either party hereto at any time of any breach by the other
          party hereto of, or compliance with, any condition or provision of
          this Agreement to be performed by such other party shall be deemed a
          waiver of similar or dissimilar provisions or conditions at the same
          or at any prior or subsequent time.  No agreements or
          representations, oral or otherwise, express or implied, with respect
          to the subject matter hereof have been made by either party which
          are not set forth expressly in this agreement.

<PAGE>   14

     15.  Validity.  The invalidity or unenforceability of any provision or
          provisions of this Agreement shall not affect the validity or
          enforceability of any other provision of this Agreement, which
          shall remain in full force and effect.

     16.  Counterparts.  This Agreement may be executed in one or more
          counterparts, each of which shall be deemed to be an original but
          all of which together will constitute one and the same instrument.

     17.  Mediation.  Before any party commences an action for damages or
          other relief (except injunctive relief that is sought by the Company
          for an alleged violation of Section 10 of this Agreement), Executive
          and the Company agree to submit any dispute, claim or controversy
          arising out of or relating to this Agreement, including the breach,
          termination or validity thereof (a "Dispute") to non-binding
          mediation.  The mediation provided for in this Section shall occur
          before a retired judge who shall be selected by the parties from
          JAMS/Endispute.  If the parties are unable to agree upon a mediator,
          a mediator will be selected from JAMS/Endispute pursuant to its
          applicable rules then in existence.  The mediation shall occur
          within 45 days following the appointment of the mediator.  In
          connection with the mediation, each party shall bear his or its own
          attorneys' fees and costs and the mediator's fee shall be paid in
          equal shares by the parties to the mediation.  Notwithstanding the
          foregoing, the Company shall be entitled to seek a restraining order
          or injunction in any court of competent jurisdiction to prevent any
          continuation of any violation of the provisions of Section 10 of the
          Agreement and the Executive hereby consents that such restraining
          order or injunction may be granted without the necessity of the
          Company's posting any bond and, provided further that, the Executive
          shall be entitled to seek specific performance of his right to be
          paid until the Date of Termination during the pendency of any
          dispute or controversy arising under or in connection with this
          Agreement.

     18.  Controlling Law.  This Agreement and the rights of the parties
          hereunder shall be governed by and construed and enforced in
          accordance with laws of the State of California (excluding its
          conflict of laws, principles, statutes or other similar laws)
          including all matters of construction, validity, performance and
          enforcement.

     19.  Entire Agreement.  This Agreement sets forth the entire agreement of
          the parties hereto in respect of the subject matter contained herein
          and supersedes all prior agreements, promises, covenants,
          arrangements, communications, representations or warranties, whether
          oral or written, by any officer, employee or representative of any
          party hereto; and any prior agreement of the parties hereto in
          respect of the subject matter contained herein is hereby terminated
          and cancelled.

<PAGE>   15

IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.

FARMERS GROUP, INC., a Nevada corporation

By:   /s/    Jason L. Katz
   -------------------------------
Name:        Jason L. Katz
Title:       Senior Vice President and
             General Counsel

John H. Lynch

/s/     John H. Lynch
------------------------------
         (Signature)

       John H. Lynch
------------------------------
           (Name)Exhibit 10.11

                        THE ZURICH FINANCIAL SERVICES GROUP
                                SHARE OPTION PLAN
                             FOR SELECTED EXECUTIVES

As adopted by resolution of the Board of Directors of Zurich Financial Services
on September 2, 1998.

<PAGE>   2

                                  Contents
Clause                                                                     Page

1.   PURPOSE...............................................................  3
2.   AUTHORITY OF THE ADMINISTRATOR........................................  4
3.   GRANT OF OPTIONS......................................................  5
4.   TERMS OF OPTIONS......................................................  6
     Exercise Price........................................................  6
     Exercise of Options...................................................  6
     Termination of Employment.............................................  7
     Transfers and Promotions..............................................  7
     Overriding Lapse of Options...........................................  8
5.   AVAILABILITY OF SHARES................................................  8
6.   TRANSFER OF SHARES ON EXERCISE OF OPTION..............................  8
7.   RIGHTS ATTACHING TO SHARES TRANSFERRED PURSUANT TO OPTION.............  8
8.   CHANGE OF CONTROL AND LIQUIDATION.....................................  8
9.   ADJUSTMENT OF AWARD...................................................  8
10.  OVERALL LIMITS........................................................  8
11.  ADMINISTRATION........................................................  8
12.  AMENDMENT.............................................................  9
13.  GENERAL...............................................................  9
APPENDIX 1................................................................. 11
APPENDIX 2................................................................. 14
APPENDIX 3................................................................. 15
DEFINITIONS................................................................ 17

<PAGE>   3

                 RULES OF THE ZURICH FINANCIAL SERVICES GROUP
                              SHARE OPTION PLAN
                           FOR SELECTED EXECUTIVES

PURPOSE

1.     The Zurich Financial Services ("Zurich") Group Share Option Plan for
       Selected Executives is a share option program for encouraging
       organizational performance with the purpose of:

(a) strengthening the focus of key Participants of Zurich Group
               on planning, developing, leading and controlling the
               Group's long-term business strategies;

       (b)     focusing management's attention on shareholders, analysts and
               potential investor's interests;

       (c)     sharing entrepreneurial reward and risk;

       (d)     strengthening the alignment between Participant rewards and the
               creation of shareholder value; and

       (e)     attracting, motivating and retaining world-class Participant
               talent.

The overall objective of the plan is intended to focus the attention of the key
Participant group on the main financial issues essential to achieving long-term
business success and the creation of shareholder value.

The share option program focuses on Group performance, with a direct link to
shareholder value creation.

The Shares over which Options are granted under the Plan will be provided
through the Central Share Vehicle which may subscribe Shares from Allied Zurich
and Zurich Allied or purchase such Shares on any relevant stock exchange where
the Shares are traded.

<PAGE>   4

AUTHORITY OF THE ADMINISTRATOR

2.     Except as otherwise provided in these rules, the Administrator shall
       have full power and authority to:

       (a)     designate the Participants to whom Options are to be granted;

       (b)     determine the number of Shares over which each Option shall be
               granted;

       (c)     where Options are granted in respect of Share Baskets, determine
               the number and respective values of Allied Zurich Shares and
               Zurich Allied Shares which are comprised in the Share Basket;

       (d)     determine any conditions to be imposed on Options in accordance
               with rule 3.4;

       (e)     determine the Exercise Period and the Vesting Schedule that
               shall apply to an Option;

       (f)     interpret and construe the Plan;

       (g)     adopt such rules and regulations as the Administrator shall deem
               necessary and advisable to implement and administer the Plan;

       (h)     decide upon the funding and financing of the liabilities related
               to the grant of Options.  The Administrator may decide whether
               the liabilities are to be met through the purchase of Shares on
               a relevant stock exchange or by subscription from Allied Zurich
               or Zurich Allied; and

       (i)     designate persons or organizations to carry out the
               Administrator's responsibilities, subject to such limitations,
               restrictions and conditions as the Administrator may prescribe,
               such determinations to be made in accordance with the best
               interests of the Company and its shareholders and in accordance
               with the purposes of the Plan.

<PAGE>   5

GRANT OF OPTIONS

3.1     The Administrator may, in its absolute discretion, grant Options to any
        of the Executives of the Group.  The Chief Executive Officer of a
        Business Unit, with the approval of the responsible Group Management
        Board member, may propose to the Administrator Executives for
        participation in the Plan.  Option grants to the Participants shall be
        subject to the rules of the Plan.  No consideration shall be payable by
        the Participant on the grant of an Option.

3.2     The number of Shares over which an Option is granted to a Participant
        shall be based on the Participant's position and level of
        responsibility, local market conditions and the extent of the
        Participant's participation in other long-term incentive arrangements
        of the Group.

3.3     Options may be granted in respect of Allied Zurich Shares only or
        Zurich Allied Shares only or Share Baskets.

3.4     The Administrator may impose such condition(s) regarding the exercise
        of the Options, which may (without limitation) relate to the
        performance of the Group, one or more businesses or divisions of the
        Group or the Option Holder or any combination of them.  The
        Administrator may impose more than one condition in respect of any one
        Option such that one condition may apply to a proportion of the Shares,
        the subject of the Option, and another condition or conditions may
        apply to such other proportion or proportions of such Shares.  Such
        conditions:

        (a)     may be amended following the Date of Grant if:

                (i)      the circumstances which prevailed at the Date of Grant
                         and which were relevant to the conditions when they
                         were originally imposed have subsequently changed; and

                (ii)     the Administrator is satisfied that any such amended
                         conditions would be a fairer measure of performance
                         and the Administrator considers that such amended
                         conditions are no more difficult to satisfy than the
                         original conditions;

        (b)     shall cease to apply in circumstances in which Option Holders
                become entitled to exercise Options in accordance with rules
                4.5(a) (death), 4.5(b)(i) (injury or disability), 4.5(b)(ii)
                (redundancy), 4.5(b)(iii) (any other reason) (but only to the
                extent that the Administrator has exercised its discretion that
                the conditions shall cease to apply) pursuant to Appendix 1
                (change of control and liquidation).

3.5     Any liability for an Option Holder to taxation and/or social security
        contributions in respect of an Option shall be for the account of the
        relevant Option Holder.  In any case where any member of the Group is
        required to withhold or account for any tax and/or social security
        contributions for which the Option Holder is liable by virtue of the
        grant or exercise of an Option, such grant and/or exercise shall be
        conditional on the Option Holder entering into arrangements acceptable
        to the Administrator to secure that such payment is made (whether by
        authorizing the sale of some of the Shares acquired on exercise or the
        payment to the relevant Group member) of an amount required to
        discharge the tax or social security liability.

3.6     Grants shall be made, if at all:

        (a)     within the period of six weeks commencing on the day of
                Listing;

        (b)     within the period of six weeks commencing on the day
                immediately following the day on which the Company makes an
                announcement of its results for the last preceding financial
                year, half year or other period; or

<PAGE>   6

        (c)     within the period of six weeks commencing on any day on which
                the Administrator resolves that exceptional circumstances exist
                which justify the grant of options;

        (d)     within the period of three months commencing on the first day
                of a financial year of the Company.

                PROVIDED THAT the grant of Options shall comply with the
                London Stock Exchange's Model Code for Securities Transactions
                by Directors of Listed Companies, any equivalent rules imposed
                under Swiss law or the Swiss Exchange applicable to the Company
                or Zurich Allied governing dealings in Shares.

3.7     Any Participant to whom an Option is granted may, by notice in writing
        to the Administrator given within 30 days after the Date of Grant,
        renounce in whole or in part his rights under the Option.  In such a
        case, the Option shall pro tanto be treated, for all the purposes of
        the Plan, as never having been granted.

TERMS OF OPTIONS

Exercise Price

4.1     The Exercise Price shall be determined by the Administrator.

4.2     The Exercise Price shall be, in the case of any Option under which
        Shares are to be issued not less than the higher of the nominal value
        of a Share; and either

        (a)     the average of the Market Values of a Share over such number of
                Dealing Days (not exceeding 30 days) immediately preceding the
                Date of Grant as the Administrator decides; or

        (b)     the Market Value of a Share on the Dealing Day immediately
                preceding the Date of Grant; or

        (c)     the Market Value of a Share on the Date of Grant.

4.3     In the case of Options granted in respect of Share Baskets there shall
        be separate Exercise Prices for the Allied Zurich Shares and for the
        Zurich Allied Shares comprised in the Share Basket.

Exercise of Options

4.4     (a)     Save as provided in rule 4.6 (termination of employment) and
                Appendix 1 (change of control and liquidation) an Option shall
                be first exercisable (in whole or in part) only after the
                commencement of the Exercise Period and not later than the
                expiration of the Exercise Period and shall be exercisable
                during the Exercise Period in accordance with the Vesting
                Schedule applying to that Option.

        (b)     If an Option Holder ceases to be employed within the Group for
                any reason whatsoever, any Option granted to him shall, save as
                provided in rule 4.6 (termination of employment), lapse and not
                be exercisable.

        (c)     Save as provided in rules 4.6(a) (death) and (c) (redundancy,
                injury, etc.) and Appendix 1 (change of control and
                liquidation) an Option shall only be exercisable if the
                conditions imposed under rule 3.4 (performance conditions) have
                been fulfilled or waived in accordance with these rules.

4.5     An Option may be exercised by the Option Holder giving notice to the
        Administrator in the form for the time being prescribed by the
        Administrator, specifying the number of Shares in respect of which the
        Option is being exercised and enclosing or arranging to provide payment
        in full of the aggregate Exercise Price of those Shares.

<PAGE>   7

Termination of Employment

4.6     (a)     If an Option Holder dies while in service, or at any time after
                leaving service by reason of retirement or disability, when he
                holds an Option, his legal personal representatives or any
                person who shall under the law of the applicable jurisdiction
                have power to deal with the Option Holder's estate following
                his death shall be entitled to exercise his Options (whether or
                not any conditions imposed under rule 3.4 (performance
                conditions) have been satisfied) in full or in part during the
                period ending twelve months after the date of death.

        (b)     If an Option Holder ceases to be employed within the Group
                owing to:

                (i)     injury or disability (as determined by the
                        Administrator); or

                (ii)    redundancy (within the meaning of the relevant law
                        applying to the Option Holder's employment);

                (iii)   any other reason if the Administrator so decides in its
                        absolute discretion

                subject to rule 4.6(c) (waiver of performance conditions)
                below, he shall be entitled to exercise his Options (whether or
                not the Exercise Period has commenced) in full or in part
                during the period ending twelve months from the date on which
                employment ceased PROVIDED THAT he shall not in any event be
                entitled to exercise his Options after the end of the Exercise
                Period.

        (c)     Where an Option becomes exercisable under rule 4.6(b)
                (redundancy, injury, etc.) above, in relation to any conditions
                imposed under rule 3.4:

                (i)     such conditions shall cease to apply in the case of
                        rules 4.6(b)(i) (injury or disability) and

                (ii)    (redundancy);

                (iii)   in the case of rule 4.6(b)(iii) (any other reason), the
                        Administrator shall determine, in its absolute
                        discretion, whether or not such conditions shall
                        continue to apply and to what extent.

        (d)     For the purposes of rule 4.3(b) (ceasing employment within the
                Group) and rule 4.6(b) (redundancy, injury, etc.) a female
                Option Holder shall not be treated as ceasing to be employed
                within the Group if absent from work wholly or partly because
                of pregnancy or confinement, until she ceases to be entitled to
                exercise any contractual or statutory right to return to work.

        (e)     For the purposes of rules 4.3(b) and 4.6(b) following an option
                rollover pursuant to Appendix 1 an Option Holder shall not be
                treated as ceasing to be an employee of a member of the Group
                until he ceases to be employed by a company or body corporate
                which is either (i) the Acquirer (as defined in paragraph 6 of
                Appendix 1) or (ii) a company or body corporate of which the
                Acquirer has Control.

Transfers and Promotions

4.7     If an Option Holder is transferred to a position in the Group, which is
        ineligible for participation in the Plan, he will remain entitled to
        exercise his Options according to rule 4.4, but no further Option
        grants will occur.

4.8     If an Executive is hired, promoted or transferred into a position in
        which he becomes eligible to participate in the Plan, Options may be
        granted at the next Date of Grant following the
        hire/transfer/promotion.

<PAGE>   8

Overriding Lapse of Options

4.9     (a)     Save as provided in rule 4.6(a) (death), no Option shall be
                capable of being exercised after the expiration of the Exercise
                Period.

        (b)     All Options shall lapse automatically at the end of any period
                during which they are exercisable under rules 4.6(a) (death)
                and (b) (redundancy, injury, etc.) and Appendix 1.

        (c)     If a bankruptcy order is made in respect of an Option Holder,
                all Options held by him shall lapse forthwith unless such lapse
                would be unlawful in which case the Company may make an offer
                to acquire an Option which is the subject of a bankruptcy
                order.

AVAILABILITY OF SHARES

5.      The Administrator shall procure that sufficient Shares are available
        for transfer by the Central Share Vehicle to satisfy the exercise of
        Options.

TRANSFER OF SHARES ON EXERCISE OF OPTION

6.      Subject to paragraph 9 of Appendix 1 (Consideration Shares) and to any
        necessary consents, to payment being made for the Shares and to
        compliance by the Option Holder with the terms of the Plan, the Central
        Share Vehicle shall as soon as practicable after receipt of any notice
        of exercise procure the transfer to the Option Holder (or to his
        nominee) of the number of Shares specified in the notice at the
        Exercise Price.

RIGHTS ATTACHING TO SHARES TRANSFERRED PURSUANT TO OPTION

7.      All Shares transferred pursuant to the exercise of any Option shall, as
        to voting, dividend, transfer and other rights, including those arising
        on a liquidation of Allied Zurich or Zurich Allied as appropriate, rank
        equally in all respects with the Shares in issue at the date of such
        exercise save as regards any rights attaching to such Shares by
        reference to a record date prior to the date of such exercise.

CHANGE OF CONTROL AND LIQUIDATION

8.      Appendix 1 shall apply in the event of a change of control or
        liquidation or other similar event affecting Allied Zurich Shares or
        Zurich Allied Shares.

ADJUSTMENT OF AWARD

9.      Appendix 2 shall apply in the event of any variation of the share
        capital of Zurich Allied or Allied Zurich.

OVERALL LIMITS

10.     Appendix 3 shall apply to limit the number of new Shares that may be
        issued for the purposes of the Plan.

ADMINISTRATION

11.1    The decision of the Administrator shall be final and binding in all
        matters relating to the Plan and it may at any time discontinue the
        grant of further Options.

11.2    The rights and obligations of an Option Holder under the terms and
        conditions of the Option Holder's office or employment shall not be
        affected by that Option Holder's participation in the Plan or any right
        that Option Holder may have to participate in the Plan.  An individual
        who participates in the Plan waives all and any rights to compensation
        or damages in consequence of the termination of that

<PAGE>   9

        individual's office or employment with any company for any reason
        whatsoever insofar as those rights arise, or may arise, from the
        individual ceasing to have rights under or be entitled to exercise any
        Option under the Plan as a result of such termination or from the loss
        or diminution in value of such rights or entitlements.  If necessary,
        the Option Holder's terms of employment shall be varied accordingly.

11.3    All documents of title relating to the Shares including communications
        relating to the Plan shall be sent at the Participant's risk.

11.4    Any Member of the Group or relevant Business Unit which employs
        Participants who are granted Options or any relevant Business Unit in
        the Group shall provide such monies as the Central Share Vehicle
        determines for the provision of Options/Shares.

AMENDMENT

12.     The Board may amend any of the provisions of the Plan in any way it
        thinks fit PROVIDED THAT:

        (a)     no amendment to the advantage of Participants or Option Holders
                may be made to:

                (i)     the definition of Executive in the Definitions;

                (ii)    the limits on the numbers of Shares available for issue
                        for the purposes of the Plan;

                (iii)   the maximum entitlement of a Participant under the
                        Plan;

                (iv)    the basis for determining a Participant's entitlement
                        to Shares under the Plan;

                (v)     the terms of Shares to be provided under the Plan;

                (vi)    the adjustment provisions of Appendix 2 of the Plan;

                without the prior approval of an ordinary resolution of Allied
                Zurich in general meeting except in the case of minor
                amendments to benefit the administration of the Plan, to take
                account of a change in legislation or developments in the law
                affecting the Plan or to obtain or maintain favorable tax,
                exchange control or regulatory treatment for Participants and
                Option Holders or any member of the Group; and

        (b)     no amendment shall have effect until any approvals which are
                necessary in accordance with clause 10 of the Governing
                Agreement have been obtained.

GENERAL

13.1    The Board reserves the right to terminate the Plan at any time.

13.2    No Option may be granted under the Plan later than August 31, 2008.

13.3    The existence of any Option shall not affect in any way the right or
        power of Allied Zurich or Zurich Allied or their shareholders to make
        or authorize any or all adjustments, recapitalizations, reorganizations
        or other changes in the capital structure of Allied Zurich or Zurich
        Allied, or any merger or consolidation of Allied Zurich or Zurich
        Allied, or any issue of shares, bonds, debentures, preferred or prior
        preference stocks ahead of or convertible into, or otherwise affecting
        the Shares or the rights thereof, or the dissolution or liquidation of
        Allied Zurich or Zurich Allied or any sale or transfer of all or any
        part of its or their assets or business, or any other corporate act or
        proceeding, whether of a similar character or otherwise.

<PAGE>   10

13.4    Benefits under the Plan shall not be considered as income for
        calculating contributions or benefits under regular pension or other
        employee benefits programs.

13.5    The rights and obligations of any individual under the terms of his
        office or employment shall not be affected by his participation in the
        Plan, and each Participant shall by his participation waive all and any
        rights to compensation or damages in consequence of the termination of
        his office or employment for any reason whatsoever insofar as those
        rights arise or may arise from his ceasing to have rights under the
        Plan as a result of such termination or from the loss or diminution in
        value of such rights or entitlements.  Participation in this Plan shall
        not impose or be deemed to impose any obligations on the Company or any
        member of the Group to continue to employ him.

13.6    Any Option granted under the Plan is voluntary and shall not be treated
        as creating any future rights to participate in the Plan or to receive
        an Option or Shares.

13.7    The Administrator shall be entitled in its absolute discretion to
        invite an Option Holder to elect to surrender all or part of any Option
        which is exercisable under the Plan in consideration for the payment of
        a cash sum equal in amount to the difference between the aggregate
        Market Value on the date the election is made of the Shares in respect
        of which the Option is surrendered, and the aggregate Exercise Price
        for such Shares less any deductions which are required by any
        applicable law to be withheld.  The payment of the cash sum may be paid
        immediately or deferred as the Administrator may decide.

13.8    The Administrator may establish sub-plans to the Plan for employees of
        Subsidiaries and/or groups of Subsidiaries and/or Business Units
        provided that the terms of any such sub-plan are substantially based on
        the basic principles of the Plan modified as appropriate to take
        account of tax, securities and trust laws and exchange control
        requirements and local practices in the countries in which Participants
        are resident and that the Shares which may be issued (including to the
        Central Share Vehicle) pursuant to such sub-plan shall count against
        the limits in Appendix 3.

13.9    The Administrator may establish sub-plans to the Plan for employees of
        Subsidiaries and/or groups of Subsidiaries which involve the grant of
        "stock appreciation rights" to receive cash or Shares having a value
        equal to the increase in value of a specified number of Shares between
        the grant and exercise of the right provided that the terms of such
        sub-plan (except to the extent of the "stock appreciation rights") are
        substantially based on the basic principles of the Plan modified as
        appropriate to take account of tax, securities and trust laws and
        exchange control requirements and local practices in the countries in
        which Participants are resident and that the Shares which may be issued
        (including to the Central Share Vehicle) pursuant to such sub-plan
        shall count against the limits in Appendix 3.

13.10   These rules shall be governed by, and construed in accordance with, the
        laws of Switzerland.

<PAGE>   11

                                       APPENDIX 1
                                        (Rule 8)
                            CHANGE OF CONTROL AND LIQUIDATION

Offers for Allied Zurich and Zurich Allied

1.      If any person (either alone or together with any person acting in
        concert with him) obtains Control of a Qualifying Company as a result
        of making:

        (a)     Joint Offers; or

        (b)     a general offer to acquire the whole of the issued share
                capital of one of the Qualifying Companies (other than those
                shares which are already owned by him and/or any person acting
                in concert with him),

        an Option Holder will be entitled to exercise any Option held by him
        in respect of Shares in the relevant Qualifying Company (subject to
        such exercise being permissible under any applicable law) whether or
        not the Exercise Period has commenced, whether or not the vesting
        conditions have been fulfilled and whether or not any conditions
        imposed under rule 3.4 have been satisfied within the period of six
        months following the date on which the Joint Offers or the general
        offer within paragraph (b) above become or are declared unconditional
        in all respects.  Failing such exercise the Options shall (without
        prejudice to the operation of paragraphs 6 to 9 of this Appendix) lapse
        automatically.

        PROVIDED THAT, if an event as described in paragraph 2 of this
        Appendix occurs during the period for exercise, the period during which
        the Options may be exercised in respect of Shares shall be the shorter
        of the periods specified under paragraphs 1 and 2 and FURTHER PROVIDED
        THAT any provision for lapse shall be without prejudice to the
        operation of paragraphs 6 to 9 of this Appendix.

Compulsory Acquisition

2.      If, whether in connection with Joint Offers or a general offer within
        paragraph 1(b) any person becomes bound or entitled to acquire Allied
        Zurich Shares under sections 428 to 430F of the Companies Act of 1985,
        (or there occurs in relation to Zurich Allied an event entitling an
        offeror to acquire compulsorily Zurich Allied Shares held by minority
        shareholders pursuant to Article 33 of the Swiss Stock Exchange Act)
        each Option Holder may exercise any Option held by him which is in
        respect of Shares in the relevant Qualifying Company to which such
        acquisition provisions relate, (subject to such exercise being
        permissible under any applicable law) whether or not the Exercise
        Period has commenced, whether or not the vesting conditions have been
        fulfilled and whether or not any conditions imposed under rule 3.4 have
        been satisfied, at any time during the period of 30 days from the date
        on which such person becomes so bound or entitled, failing which
        exercise the Options shall as regards the Shares in the relevant
        Qualifying Company to which such acquisition provisions relate and
        without prejudice to the operation of paragraphs 6 to 9, lapse
        automatically.

Scheme of Arrangement

3.      If a court shall direct that a meeting of the holders of Allied Zurich
        Shares be convened pursuant to section 425 of the Companies Act of 1985
        for the purposes of considering a scheme of arrangement involving the
        reconstruction of Allied Zurich or its amalgamation with any other
        company or companies:

        (a)     each Option Holder may exercise his Options in respect of
                Allied Zurich Shares (subject to such exercise being
                permissible under any applicable law), whether or not the
                Exercise Period has commenced and whether, whether or not the
                vesting conditions have been fulfilled or not any

<PAGE>   12

                conditions imposed under rule 3.4 have been satisfied,
                conditionally on either the scheme of arrangement being
                approved by the shareholders' meeting or sanctioned by the
                court (as determined by the Administrator in its absolute
                discretion) (the relevant condition), between the date of the
                court's direction and twelve noon on the day immediately
                preceding the date for which the shareholders' meeting is
                convened.  Any Option not exercised by the end of that period
                shall cease to be exercisable between that time and the first
                date on which it can be determined whether or not the relevant
                condition is satisfied.  If the relevant condition is not
                satisfied, the Options shall continue.  If the relevant
                condition is satisfied the Options shall, without prejudice to
                the operation of paragraphs 6 to 9, lapse automatically on the
                date on which the scheme of arrangement is sanctioned by the
                court PROVIDED THAT where the Option is in respect of Share
                Units the Option shall lapse only in respect of Allied Zurich
                Shares; and

        (b)     the Administrator shall endeavor to procure that where an
                Option Holder has conditionally exercised his Options in
                accordance with (a) above prior to twelve noon on the day
                immediately preceding the date for which the shareholders'
                meeting is initially convened the scheme of arrangement shall,
                so far as it relates to Allied Zurich Shares, be extended to
                such Option Holder as if each Share in respect of which the
                Option was conditionally exercised had been transferred, to him
                by that time.

       PROVIDED THAT (without prejudice to the operation of paragraph 6(b))
       Options shall not without the consent of the Administrator be
       exercisable under the foregoing provisions if the purpose and effect of
       the scheme of arrangement is to create a new holding company for Allied
       Zurich, such company having substantially the same shareholders and
       proportionate shareholdings as those of Allied Zurich immediately prior
       to the scheme of arrangement.

Winding up

4.      If notice is duly given of a resolution for the voluntary winding up of
        Qualifying Company an Option Holder may exercise any Option held by him
        which is in respect of Shares in the relevant Qualifying Company
        (subject to such exercise being permissible under any applicable law)
        (whether or not the Exercise Period has commenced, whether or not the
        vesting conditions have been fulfilled and whether or not any
        conditions imposed under rule 3.4 have been satisfied) within the
        period of two months from the date of the resolution, failing which
        exercise the said Options will lapse automatically.

Option Rollover

5.      If any person (the Acquiring Company):

        (a)    obtains Control of a Qualifying Company as a result of making:

                (i)      Joint Offers; or

                (ii)     a general offer to acquire the whole of the issued
                         Share capital of one of the Qualifying Companies (other
                         than those shares which are already owned by him and/or
                         any person acting in concert with him); or

        (b)      obtains Control of Allied Zurich in pursuance of a compromise
                 or arrangement sanctioned by the court under section 425 of the
                 Companies Act of 1985; or

        (c)      becomes bound or entitled to acquire Allied Zurich Shares under
                 sections 428 to 430 of the Companies Act of 1985; or

        (d)      becomes entitled to acquire compulsorily Zurich Allied Shares
                 held by minority shareholders;

<PAGE>   13

                 the Administrator may in its absolute discretion and subject
                 to applicable law allow an Option Holder, at any time within
                 the Appropriate Period, to release all or any part of any
                 Option held by him which is in respect of Shares in the
                 Qualifying Company affected by any event within paragraphs (a)
                 to (d) above and which has not lapsed, in consideration of the
                 grant to him of a right (the New Right) which is equivalent to
                 the Option or such part as is released but relates to shares
                 or securities in the Acquiring Company or a body corporate
                 which Controls the Acquiring Company (the Replacement Shares).

6.      The New Right shall not be regarded for the purposes of paragraph 6 as
        equivalent to the Option unless:

        (a)      the New Right will be exercisable in the same manner as the
                 Option and subject (mutatis mutandis) to the provisions of the
                 Plan as it had effect immediately before the release; and

        (b)      the total market value, as determined by the Board,
                 immediately before the release, of the Shares which were
                 subject to the Option or to such part as is released is, as
                 nearly as may be, equal to the total market value as
                 determined by the Board, immediately after the release, of the
                 Replacement Shares; and

        (c)      the total amount payable by the Option Holder for the
                 acquisition of the Replacement Shares is, as nearly as may be,
                 equal to the total Exercise Price of the Shares which were
                 subject to the Option or such part as is released immediately
                 before the release.

7.      For the purposes of paragraph 6(a) any New Right granted shall be
        deemed to have been granted on the date on which the equivalent
        Option was granted.

8.      In the application of the Plan to the New Right:

        (a)      references to Shares shall be read as if they were references
                 to the Replacement Shares;

        (b)      references to Allied Zurich or Zurich Allied shall be read as
                 if they were references to the company to whose shares the New
                 Right relates;

        (c)      any conditions imposed under rule 3.4 shall not at any time
                 apply unless the Administrator decides in its discretion that
                 they shall continue to apply either unaltered or with such
                 variations as the Administrator considers appropriate.

9.      If as a result of any event mentioned in this Appendix the Central
        Share Vehicle ceases to hold any Shares which it held for the purpose
        of satisfying the exercise of Options and receives other shares or
        securities in another company or body corporate in consideration for
        those Shares (Consideration Shares), the Administrator may direct that
        any future exercise of an Option shall be satisfied by the transfer of
        Consideration Shares, the aggregate number or value of which
        corresponds to the number or value of the Shares over which the Option
        is exercised, calculated according to the value imputed to the Shares
        by the terms on which the Consideration Shares were acquired by the
        Central Share Vehicle.

<PAGE>   14

                                       APPENDIX 2
                                        (Rule 9)
                                   ADJUSTMENT OF OPTION

1.      In the event of any Reorganization of the share capital of Allied
        Zurich or Zurich Allied, or if the Administrator becomes aware that
        the Group is or is expected to be affected by any de-merger, dividend
        in specie, super dividend or other transaction affecting the Group
        which in the Administrator's opinion may affect the current or future
        value of any Options, the Exercise Price, the definition of Shares and
        the number of Shares comprised in an Option may be adjusted in such
        manner as the Administrator may determine and such decision of the
        Administrator shall be final and binding on the Option Holder PROVIDED
          ALWAYS THAT:

        (a)      no adjustment to the Exercise Price shall be made pursuant to
                 the provisions of this rule which would result in the Exercise
                 Price being less than the nominal value of Shares subject to
                 any Option;

        (b)      no adjustment shall be made pursuant to the rule which would
                 increase the aggregate Exercise Price payable on exercise of
                 an Option.

<PAGE>   15

                                       APPENDIX 3
                                        (Rule 10)
                                     OVERALL LIMITS

1.      To the extent that Options shall or may be satisfied out of a new issue
        of Shares subscribed by the Central Share Vehicle for the purpose of
        satisfying Options under the Plan, no such Shares shall be so issued
        and no Award shall be granted if the result of that grant would be
        that:

        (a)      the aggregate number of Shares that could be issued for the
                 purpose of satisfying the exercise of that Option and any
                 other Options granted at the same time, when added to the
                 number of Shares that:

                 (i)     have been or could be issued to the Central Share
                         Vehicle for the purpose of satisfying the exercise of
                         any other subsisting share options granted during the
                         preceding ten years under the Plan or any other Share
                         Option Plan; and

                 (ii)    have been issued to the Central Share Vehicle for the
                         purpose of satisfying the exercise of any share
                         options granted during the preceding ten years under
                         the Plan or any other Share Option Plan; and

                 (iii)   have been issued during the preceding ten years to the
                         Central Share Vehicle for the purpose of any profit
                         sharing or other employee share incentive plan (not
                         being a Share Option Plan),

                 would exceed 10 percent of the ordinary share capital of each
                 of Allied Zurich and Zurich Allied for the time being in
                 issue; or

        (b)      the aggregate number of Shares that could be issued for the
                 purpose of satisfying the exercise of that Option and any
                 other Options granted at the same time, when added to the
                 number of Shares that:

                 (i)     have been or could be issued to the Central Share
                         Vehicle for the purpose of satisfying the exercise of
                         any other subsisting share options granted during the
                         preceding ten years under the Plan or any other
                         Participant Plan; and

                 (ii)    have been issued to the Central Share Vehicle for the
                         purpose of satisfying the exercise of any share
                         options granted during the preceding ten years under
                         the Plan or any other Participant Plan,

                 would exceed 5 percent of the ordinary share capital of each
                 of Allied Zurich and Zurich Allied for the time being in
                 issue; or

        (c)      the aggregate number of Shares that could be issued for the
                 purpose of satisfying the exercise of that Option and any
                 other Options granted at the same time, when added to the
                 number of Allied Zurich Shares that:

                (i)      have been or could be issued to the Central Share
                         Vehicle for the purpose of satisfying the exercise of
                         any other subsisting share options granted after the
                         Adoption Date under the Plan or any other Participant
                         Plan; and

                (ii)     have been issued to the Central Share Vehicle for the
                         purpose of satisfying the exercise of any share
                         options granted after the Adoption Date under the Plan
                         or any other Participant Plan,

<PAGE>   16

                would exceed 2 1/2 percent of the ordinary share capital of
                each of Allied Zurich and Zurich Allied for the time being in
                issue: PROVIDED THAT this limit shall apply only in respect of
                grants of Options made before the fourth anniversary of the
                Adoption Date;

        (d)     the aggregate number of Allied Zurich Shares that could be
                issued for the purpose of satisfying the exercise of that
                Option and any other Options granted at the same time, when
                added to the number of Allied Zurich Shares that:

                (i)     have been or could be issued to the Central Share
                        Vehicle for the purpose of satisfying the exercise of
                        any other subsisting share options granted during the
                        preceding three years under the Plan or any other
                        Participant Plan; and

                (ii)    have been issued to the Central Share Vehicle for the
                        purpose of satisfying the exercise of any share options
                        granted during the preceding three years under the Plan
                        or any other Participant Plan,

                would exceed 3 percent of the ordinary share capital of Allied
                Zurich for the time being in issue.

                AND FURTHER PROVIDED that no Option shall be granted to the
                extent that it would result in the issue of Zurich Allied
                Shares which would be unlawful under Swiss law.

2.      Whenever the Central Share Vehicle subscribes for Allied Zurich Shares
        it shall also subscribe for shares in Zurich Allied in the proportion
        of 57 (Zurich Allied) : 43 (Allied Zurich).

3.      No Option shall be granted to any Participant which would, at the
        proposed Date of Grant, cause the aggregate Market Value of Shares the
        subject of subsisting Options held by him pursuant to a grant under the
        Plan and the market value of Shares the subject of subsisting options
        held by him under any other Participant Plan to exceed in amount four
        times his total annual earnings (including bonuses and benefits in
        kind) from the Group PROVIDED THAT no account shall be taken of any
        such options which will not be satisfied by the issue and allotment of
        Shares to the Option Holder or the Central Share Vehicle.

4.      If the grant of any Option would have the result of breaching any limit
        in this Appendix 3, that Option shall be treated as taking effect over
        the maximum number of Shares over which it could have been granted
        without breaching such limit.

5.      Reference in this Appendix 3 to the issue of Shares shall, for the
        avoidance of doubt, mean the issue and allotment of Shares and not the
        transfer of Shares (other than where the Central Share Vehicle
        transfers to a Participant Shares which have previously been issued and
        allotted to the Central Share Vehicle).

<PAGE>   17

                                       DEFINITIONS

1.      In this Plan unless the context otherwise requires the following words
        and expressions shall have the following meanings, namely:

        Administrator means in relation to this Plan, the Group Chief Executive
        Officer or, in the case of the grant of Options to the Group Executive
        Officer and any member of the Company's Group Management Board, the
        Remuneration Committee of the Company;

        Allied Zurich means Allied Zurich p.l.c with registered number 3525388;

        Allied Zurich Share means an ordinary share in the capital of Allied
        Zurich or shares representing those shares following any
        Reorganization;

        Appropriate Period means:

                (a)     in the case of Joint Offers, the period of six months
                        from the date each of the Offers becomes or is declared
                        unconditional in all respects;

                (b)     in the case of an Offer, the period of six months from
                        the date the Offer becomes or is declared unconditional
                        in all respects;

                (c)     in the case of a Scheme of Arrangement the period of
                        six months from the date of the relevant condition
                        mentioned in paragraph 3 of Appendix 1;

                (d)     in the case of a person being bound or entitled to
                        acquire Shares compulsorily, the period during which
                        that person remains so bound or entitled;

        Associated Plan means any Share Option Plan (other than the Plan) (but
        excluding any savings-related share option scheme) established by the
        Company or any member of the Group;

        Board means the Board of directors of the Company or a duly authorized
        committee thereof;

        Business Unit means a business unit of the Group including the Group's
        home office;

        Central Share Vehicle means entity which will acquire (by subscription
        or purchase) and hold both Allied Zurich Shares and shares in Zurich
        Allied for the purpose of employees' share schemes and which may
        without limitation take the form of a trust, a Stiftung or an
        administrative unit of or an account in the name of the Company or any
        Subsidiary;

        Company means Zurich Financial Services;

        Consideration Shares has the meaning given in paragraph 10 of
        Appendix 1;

        Control means in relation to a body corporate, the power of a person to
        secure:
                (a)     by means of the holding of shares or the possession of
                        voting power in or in relation to that or any other
                        body corporate; or

                (b)     by virtue of any powers conferred by the articles of
                        association or other document regulating that or any
                        other body corporate, that the affairs of the
                        first-mentioned body corporate are conducted in
                        accordance with the wishes of that person;

        Date of Grant means in relation to an Option, the date on which an
        Option is granted;

<PAGE>   18

        Dealing Day means a day on which the London Stock Exchange or the Swiss
        Stock Exchange (as the context requires) is open for business;

        Participant means any employee or Participant director of any company
        within the Group who in the case of a Participant director is required
        to work for substantially the whole of his time for the Group;

        Participant Plan means any Share Option Plan (other than the Plan)
        under which the individuals selected for participation at the
        discretion of the body administering that plan are senior
        Participant employees;

        Exercise Period means the period commencing and ending on such dates as
        the Administrator may determine during which the Option(s) can be
        exercised by the Option Holder. The Exercise Period will not commence
        earlier than the third anniversary of the Date of Grant unless the
        Administrator decides otherwise in exceptional circumstances. In any
        event the Exercise Period will end not later than tenth anniversary of
        the Date of Grant;

        Exercise Price means the price per Share payable on the exercise of an
        Option;

        Group means the Company and the Subsidiaries and member of the Group
        shall be construed accordingly;

        Joint Offers means Offers which are made by a person (either alone or
        together with any person acting in concert with him) for the whole of
        the issued share capital of both Allied Zurich and Zurich Allied (other
        than those Shares already owned by him and/or any person acting in
        concert with him) in each case on the condition that each Offer can
        only be declared unconditional if the other is declared unconditional
        at the same time;

        Listing means the first admission of the Shares to the London Stock
        Exchange or the Swiss Exchange as the case may be;

        Market Value means on any day:

                (a)     in respect of an Allied Zurich Share, the middle market
                        quotation of an Allied Zurich Share on the London Stock
                        Exchange as derived from the Daily Official List for
                        that day; and

                (b)     in respect of any Zurich Allied Share the middle market
                        quotation of a Zurich Allied Share on the Swiss
                        Exchange for that day;

        Offer means a general offer for Shares;

        Option means a right granted under the Plan to purchase Shares or if
        the Administrator so determines, Shares comprised in Share Baskets;

        Option Holder means any individual who holds an Option (or, where the
        context permits, the legal personal representatives or designated
        beneficiary of a deceased Option Holder);

        Plan this Plan as amended from time to time;

        Qualifying Company means each of Allied Zurich and Zurich Allied;

        Reorganization means any capitalization or rights issue, and any sub-
        division or consolidation, or reduction of the share capital of Allied
        Zurich or Zurich Allied or any other variation of the share capital of
        Allied Zurich or Zurich Allied;

<PAGE>   19

        Share Option Plan means any employee share option Plan established by
        the Company;

        Share means an Allied Zurich Share or a Zurich Allied Share or shares
        representing those shares following any Reorganization or a Share
        Basket;

        Share Basket means a collection of such number or value of Allied
        Zurich Shares and Zurich Allied Shares as the Administrator shall from
        time to time determine (subject to any change in composition by reason
        of a partial lapse of an Option under paragraphs 1 to 5 of Appendix 1
        or the operation of paragraph 6 of Appendix 1 or an adjustment under
        Appendix 2);

        Subsidiary means any body corporate which from time to time is listed
        as a subsidiary of the Company in the consolidated annual report and
        accounts of the Company;

        Swiss Exchange means the Swiss Exchange owned and operated by the Swiss
        Stock Exchange Association;

        Vesting Schedule means a schedule which specifies the percentage of
        Shares in respect of which an Option shall become exercisable at
        different times during the overall term of the Option;

        Zurich Allied means Zurich Allied AG;

        Zurich Allied Share means a share in the capital of Zurich Allied.

2.      Where the context permits the singular shall include the plural and
        vice versa and the masculine shall include the feminine. Headings shall
        be ignored in construing the Plan.

3.      References to any Act shall include any statutory modification,
        amendment or re-enactment thereof.

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