NATIONAL INSURANCE GROUP /CA/, 10-Q/A, 1996-08-16

NATIONAL INSURANCE GROUP /CA/
10-Q/A, 1996-08-16
INSURANCE AGENTS, BROKERS & SERVICE

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<PAGE> 1

FORM 10-Q/A

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended JUNE 30, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________________

Commission File Number 0-16332

NATIONAL INSURANCE GROUP
(Exact name of registrant as specified in its charter)

CALIFORNIA 94-3031790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)

395 OYSTER POINT BOULEVARD, SUITE 500
SOUTH SAN FRANCISCO, CA 94080
(Address of principal executive offices) (Zip Code)

(415) 872-6772
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
------- ------
As of June 30, 1996, 4,702,197 shares of each of the issuer's classes
of common stock, were outstanding.
<PAGE> 2
PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

The following Exhibits are hereby filed as part of the Quarterly Report
on Form 10-Q pursuant to Item 601 of Regulation S-K. The Exhibits were referred
to in the Notes to Consolidated Financial Statements previously filed.

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.1 Change of Control Severance Agreement and
Mutual Release.

10.2 Second Amendment of John R. Gaulding At-Will
Employment Agreement

10.3 Donation Agreement

10.4 Mark A. Speizer Employment Agreement

10.5 Bruce A. Cole Employment Agreement
</TABLE>

(b) Reports on Form 8-K.

None.
<PAGE> 3
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 to this report to be signed
on its behalf by the undersigned thereunto duly authorized.

National Insurance Group

August 16, 1996 /s/ Mark A. Speizer
-----------------------------------
(Signature)
Mark A. Speizer, Chairman
Of the Board and Chief Executive Officer

August 16, 1996 /s/ Robert J. Lelieur
---------------------------------------
(Signature)
Robert J. Lelieur,
Vice President, Treasurer and
Controller

<PAGE> 1
EXHIBIT 10.1

NATIONAL INSURANCE GROUP

CHANGE OF CONTROL SEVERANCE AGREEMENT

AND MUTUAL RELEASE

This Change of Control Severance Agreement (the "Agreement") is made
and entered into by and between ____________ (the "Employee") and National
Insurance Group, a California corporation (the "Company"), effective as of the
latest date set forth by the signatures of the parties hereto below (the
"Effective Date").

R E C I T A L S

A. It is expected that the Company from time to time will
consider the possibility of an acquisition by another company or other change
of control. The Board of Directors of the Company and/or its Compensation
Committee, as appropriate (the "Board") recognizes that such consideration can
be a distraction to the Employee and can cause the Employee to consider
alternative employment opportunities. The Board has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company.

B. The Board believes that it is in the best interests of the
Company and its shareholders to provide the Employee with an incentive to
continue his or her employment and to motivate the Employee to maximize the
value of the Company upon a Change of Control for the benefit of its
shareholders.

C. The Board believes that it is imperative to provide the
Employee with certain severance benefits upon Employee's termination of
employment following a Change of Control which provides the Employee with
enhanced financial security and provides incentive and encouragement to the
Employee to remain with the Company notwithstanding the possibility of a Change
of Control.

D. Certain capitalized terms used in the Agreement are defined in
Section 5 below.

The parties hereto agree as follows:

1. Term of Agreement. This Agreement shall terminate two years
following the Effective Date, unless a Change of Control has occurred as of
such time, in which case this Agreement shall terminate upon the date that all
of the obligations of the parties hereto with respect to this Agreement have
been satisfied.

2. At-Will Employment. The Company and the Employee acknowledge
that the Employee's employment is and shall continue to be at- will, as defined
under applicable law and in the agreements in effect between the parties
hereto. If the Employee's employment terminates for any reason, including
(without limitation) any termination prior to a Change of Control, the Employee
<PAGE> 2
shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement together with, or as may
otherwise be available in accordance with, the Company's established employee
plans and practices.

3. Severance Benefits.

(a) Termination Following A Change of Control. If the
Employee's employment terminates at any time on the date of or within twelve
(12) months following a Change of Control, then, subject to Section 3, the
Employee shall receive the following severance benefits:

(i) Voluntary Termination for Good Reason;
Involuntary Termination other than for Cause. If the Employee's employment
terminates as a result of Voluntary Termination for Good Reason or as a result
of involuntary termination other than for Cause, then the Employee shall
receive the following severance benefits from the Company:

(1) Severance Payment. A cash payment
(or payments) in an amount equal to one thousand two hundred percent (1200%) of
the Employee's Monthly Base Pay;

(2) Cash in Lieu of Continued Employee
Benefits. Employee shall be entitled to a cash payment of $10,000, less
applicable withholding, in lieu of 12 months of employer-paid COBRA benefits.

(3) Cash in Lieu of Outplacement
Counseling and Assistance. Employee shall be entitled to a cash payment of
$35,000, less applicable withholding, in lieu of outplacement counseling and
assistance benefits.

(4) Option Accelerated Vesting. One
hundred percent (100%) of the unvested portion of any stock option held by the
Employee shall automatically be accelerated in full so as to become completely
vested.

(5) Extension of Post-Termination
Exercise Period of Stock Options. The stock options held by Employee shall
become exercisable for a period of two years following the date of Employee's
termination of employment with the Company.

(b) Timing of Severance Payments. The severance payment
to which Employee is entitled shall be paid by the Company to Employee (i) if
Employee's termination occurs upon the date of a Change of Control, by
certified cashier's check delivered to Employee on the date of such Change of
Control, (ii) if Employee's termination occurs after the date of a Change of
Control, by certified cashier's check not later than five (5) calendar days
after the date of termination of Employee's employment. If Employee should die
before all amounts payable to him or her have been paid, such unpaid amounts
shall be paid to Employee's designated beneficiary, if living, or otherwise to
the personal representative of Employee's estate.

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<PAGE> 3
(c) Voluntary Resignation; Termination For Cause. If the
Employee's employment terminates by reason of the Employee's voluntary
resignation other than upon a Voluntary Termination for Good Reason or if the
Employee is involuntarily terminated for Cause, then the Employee shall not be
entitled to receive severance or other benefits except for those (if any) as
may then be established under the Company's then existing severance and
benefits plans and practices or pursuant to other written agreements with the
Company.

(d) Disability; Death. If the Company terminates the
Employee's employment as a result of the Employee's Disability, or such
Employee's employment is terminated due to the death of the Employee, then the
Employee shall not be entitled to receive severance or other benefits except
for those (if any) as may then be established under the Company's then existing
severance and benefits plans and practices or pursuant to other written
agreements with the Company.

(e) Termination Apart from Change of Control. In the
event the Employee's employment is terminated for any reason, either prior to
the occurrence of a Change of Control or after the twelve (12)-month period
following a Change of Control, then the Employee shall be entitled to receive
severance and any other benefits only as may then be established under the
Company's existing severance and benefits plans and practices or pursuant to
other written agreements with the Company.

4. Limitation on Payments. In the event that the severance and
other benefits provided for in this Agreement or otherwise payable to the
Employee (i) constitute "parachute payments" within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for
this Section 4, would be subject to the excise tax imposed by Section 4999 of
the Code, then the Employee's severance benefits under Section 3(a)(i) shall be
reduced and delivered to Employee only as to such extent as would result in no
portion of such severance benefits being subject to excise tax under Section
4999 of the Code. Any determination required under this Section 4 shall be
made in writing by the firm who, as of the date immediately prior to the Change
of Control, acts as the Company's independent public accountants (the
"Accountants"), whose determination shall be conclusive and binding upon the
Employee and the Company for all purposes. For purposes of making the
calculations required by this Section 4, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 4.

5. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:

(a) Monthly Base Pay. "Monthly Base Pay" shall mean all
base straight-time gross earnings, exclusive of payments for overtime, shift
premiums, incentive compensation, incentive

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<PAGE> 4
payments, bonuses, commissions or other compensation, for the last full
calendar month preceding the Effective Date.

(b) Cause. "Cause" shall mean (i) any act of dishonesty
taken by the Employee in connection with the Employee's service with the
Company and intended to result in substantial gain or personal enrichment of
the Employee, (ii) persistent failure or inability to perform the duties and
obligations of Employee's employment which are demonstrably willful and
deliberate on the Employee's part and which are not remedied in a reasonable
period of time after receipt of written notice from Company, (iii) conviction
of Employee of an illegal act with respect to his or her employment by the
Company.

(i) The shareholders of the Company elect members
of the Board of Directors such that three or more "Incumbent Directors" no
longer serve as Board members. For this purpose, "Incumbent Directors" shall
mean the Board of Directors as constituted on May 21, 1996; or

(ii) The shareholders of the Company elect the
slate of directors nominated for election in the proxy statement of the Company
distributed to the Company's shareholders in June 1996; or

(iii) The shareholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all the Company's assets.

(d) Disability. "Disability" shall mean that the
Employee has been unable to perform his Company duties as the result of his
incapacity due to physical or mental illness, and such inability, at least 26
weeks after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Employee or the Employee's legal representative (such Agreement as to
acceptability not to be unreasonably withheld). Termination resulting from
Disability may only be effected after at least 30 days' written notice by the
Company of its intention to terminate the Employee's employment. In the event
that the Employee resumes the performance of substantially all of his duties
hereunder before the termination of his employment becomes effective, the
notice of intent to terminate shall automatically be deemed to have been
revoked.

(e) Voluntary Termination for Good Reason. "Voluntary
Termination for Good Reason" shall mean a voluntary termination of employment
initiated by Employee due to (i) any

-4-
<PAGE> 5
reason or no reason during the period commencing immediately on the date of a
Change of Control and ending thirty (30) days following the date of a Change of
Control, (ii) a reduction by the Company in the Monthly Base Pay of Employee as
in effect immediately prior to such reduction, except when a reduction in
Monthly Base Pay is implemented for a majority of the Company's employees; (ii)
without the Employee's express written consent, the Company requires the
Employee to change the location of his or her job or office, so that he or she
will be based at a location more than thirty-five (35) miles from the location
of his job or office immediately prior to the Change of Control; (iii) the cost
to the Company of Company-provided benefits to Employee, taken as a whole,
under plans, arrangements policies and procedures, materially decreases below
the cost of the Company-provided benefits to Employee immediately prior to the
Change of Control, or the cost to the Employee of such benefits materially
increases above the cost to the Employee immediately prior to the Change of
Control. However, if such decrease or increase results either from the
Company's good faith exercise of business judgment, a decrease that is
implemented affecting the majority of Company's employees, or in response to
changes in federal or state law, such decrease or increase shall not constitute
Involuntary Termination; (iv) the significant reduction of the Employee's
duties and responsibilities, relative to the Employee's duties and
responsibilities as in effect immediately prior to such reduction; (v) a
successor company fails or refuses to assume the Company's obligations under
this Agreement.

6. Successors.

(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner
and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this Section 6(a) or which becomes bound by the terms of this
Agreement by operation of law.

(b) Employee's Successors. The terms of this Agreement
and all rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

7. Notice.

(a) General. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of
the Employee, mailed notices shall be addressed to him at the home address
which he most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary.

-5-
<PAGE> 6
(b) Notice of Termination. Any termination by the
Company for Cause or by the Employee as a result of a voluntary resignation or
an Involuntary Termination shall be communicated by a notice of termination to
the other party hereto given in accordance with Section 7(a) of this Agreement.
Such notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated,
and shall specify the termination date (which shall be not more than 30 days
after the giving of such notice). The failure by the Employee to include in
the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Employee hereunder or
preclude the Employee from asserting such fact or circumstance in enforcing his
rights hereunder.

8. Mutual Release of Claims.

(a) Release by Employee. In exchange for the payment to
Employee of Severance Benefits and for the consideration provided in Section 3
above, the adequacy of which is hereby acknowledged, Employee,for himself and
his heirs, executors, administrators, successors, assigns and legal
representatives, hereby fully releases and forever discharges the Company, its
current and future affiliate and parent companies, and individually and
collectively, personally and professionally, the officers, directors,
shareholders, employees, agents, representatives, parents, subsidiaries,
affiliates, joint venturers, partners, predecessors, successors, assigns, and
all other persons or entities connected with the Company and its current and
future affiliate and parent companies, from any and all claims, demands,
deficiencies, levies, assessments, executions, costs, expenses, damages,
liabilities, debts, rights, contracts, losses, obligations, actions, inactions,
causes of action, attorney's fees and benefits, of any kind or character
whatsoever (collectively "Claims"), arising in law or in equity, as a
shareholder, director, officer, or executive, whether known or unknown,
suspected or unsuspected, directly or indirectly, that he has ever had, now has
or may now have against them, and/or any of them, including, without
limitation, all Claims directly or indirectly related to or arising out of
Executive's employment as an executive and officer of the Company and/or the
termination of that employment or possession of shares of stock, whether
arising in tort or contract, including, without limitation, any Claims for
breach of express or implied contract, for further monetary compensation by way
of additional salary and/or bonus allegedly due him by reason of that
employment, and/or all other Claims, based on common law, federal and/or state
statute, including, without limitation, Claims arising under Age Discrimination
in Employment Act (29 U.S.C Section 621, et seq.).

This release shall not relieve or limit the Company's obligation to
indemnify Executive in accordance with California Corporations Code section
317, as may be amended, modified, superseded or replaced from time to time, the
Bylaws of the Company, or the written Indemnity Agreement between the Company
and Executive, as such Bylaws or Indemnity Agreement may from time to time be
amended by the Shareholders of the Company, for claims or actions filed against
Executive which are indemnified pursuant to any of the foregoing. This Release
shall not relieve or limit the provisions of indemnity, defense, insurance,
costs or any other coverages or benefits by any insurance company or facility
to any of the officers, directors or employees of the Company, including
Executive. Nothing herein shall broaden, modify, extend or in any manner
change or alter the benefits provided

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<PAGE> 7
by the Company's life, health, medical, vision and/or disability insurances,
and/or any termination thereof.

Executive further understands and expressly agrees that this Agreement
specifically extends to all Claims, whether known or unknown, and he expressly
waives the benefits of Section 1542 of the California Civil Code, which
provides:

"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS
FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."

Company acknowledges that this release does not relieve it of any or
all of its post-termination-of-employment obligations to Executive.

(b) Release by the Company. The Company, for itself, and its
current and future affiliate and parent companies, and the officers, directors,
shareholders, employees, agents, representatives, parents, subsidiaries,
affiliates, joint venturers, partners, predecessors, successors and assigns,
hereby releases and forever discharges Executive, his heirs, executors,
administrators, successors, assigns and legal representatives, from all Claims,
arising in law or in equity, whether known or unknown, suspected or
unsuspected, directly or indirectly, that the Company has ever had, now has or
may now have against Executive for any action, inaction, error or omission as
an officer and/or employee of the Company, including, without limitation, all
Claims directly or indirectly related to or arising out of Executive's
employment by the Company as an officer and executive and/or the termination of
that employment, whether arising in tort or contract. The Company acknowledges
that after signing this Agreement, it will not be able to bring suit against
Executive based on any of the Claims being released hereunder. The Company
further understands and expressly agrees that this Agreement specifically
extends to all Claims, whether known or unknown, and it expressly waives the
benefits of Section 1542 of the California Civil Code, which provides:

Executive acknowledges that the release does not relieve him of any or
all of his post-termination-of employment obligations set forth herein and in
the Proprietary Information Agreement.

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<PAGE> 8
it has not filed any complaints, claims and/or actions against Executive with
any state, federal, or local agency or court. The Company and Executive each
covenant and agree that they will not bring, commence, institute, maintain,
prosecute or voluntarily aid any action at law or proceeding in equity, or
otherwise prosecute or sue the other party, either affirmatively or by way of
cross-complaint, defense or counterclaim or in any other manner, or at all, on
any alleged Claims being released hereunder. In the event of any breach of
this Section 8(c), a cause of action shall be deemed to have accrued
immediately upon the commencement of any action or other proceeding described
herein, and in such event, this Agreement may be pled as a full and complete
defense thereto, as the basis for abatement of or injunction against said
action or other proceeding, and as a basis of a cross complaint for damages
therein.

(d) Executive's Representations.

(i) Executive agrees that the payments and benefits
described in this Agreement shall constitute the entire amount of financial and
other consideration provided to him under this Agreement and that he will not
seek, and shall not be entitled to seek, any further compensation for any other
claimed damage, costs and/or attorneys' fees in connection with the matters
encompassed in this Agreement.

(ii) Executive acknowledges and agrees that the Company
has made no representations to him regarding the tax consequences of any
amounts received by him pursuant to this Agreement and/or the tax treatment of
this Agreement. Executive agrees to pay federal and/or state taxes, if any,
which are required by law to be paid with respect to this settlement. Subject
to the Company's compliance with the provisions of this Agreement, Executive
further agrees to indemnify and hold the Company harmless from and against
Claims, deficiencies, levies, assessments and/or recoveries by any governmental
entity against the Company for any amounts claimed due on account of this
Agreement or pursuant to claims made under any federal and/or state tax laws,
and any costs, expenses and/or damages sustained by the Company by reason of
any such claims, including, without limitation, any amounts paid by the Company
as taxes, attorneys' fees, deficiencies, levies, assessments, fines, penalties,
interest and/or otherwise.

(iii) Executive agrees that, unless otherwise agreed upon
by the parties in writing, he will not seek nor accept employment with the
Company in the future and that the Company is entitled to reject without cause
any application for employment with the Company made by him, and not hire him,
and that Executive shall have no cause of action against the Company arising
out of any such rejection.

(iv) Executive acknowledges that the Company has
specifically advised him to consult with an attorney in order to review this
Agreement and advise Executive of his rights concerning it, and that he has had
the opportunity to do so. Executive further acknowledges that the Company has
further advised him that he and his current spouse have twenty-one (21) days
from the date this Agreement was originally presented to Executive and his
spouse in which to consider

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<PAGE> 9
whether to sign it, and should they choose to sign it, they will be given seven
(7) additional days from the date they have both signed it in which to revoke
it and that this Agreement shall not become effective or enforceable until the
revocation period has expired. The Effective Date of this Release shall be the
eighth day following its execution by Executive and his spouse provided that
the Release has not been revoked by either of them. Any revocation must be in
writing and received by the Company's General Counsel at the General Counsel's
office on or before the seventh day following execution of this Release in
order for the revocation to be valid.

(v) Executive expressly acknowledges and warrants that he
has read and fully understands this Agreement; that he has had the opportunity
to consult with legal counsel of his own choosing in order to have the terms
and conditions of this Agreement fully explained to him; that he is not
executing this Agreement in reliance on any promises, representations or
inducements other than those set forth herein; that he understands he is giving
up legal rights by signing this Agreement; and that he is executing it
voluntarily, free of any duress or coercion, after due deliberation and with a
full understanding of what it means to do so.

(vi) Executive understands that rights or claims under the
Age Discrimination in Employment Act (29 U.S.C Section 621, et seq.) that may
arise after the date this Agreement is executed are not waived.

(vii) Executive represents and warrants that he has not
assigned, transferred, sold, hypothecated, mortgaged, rented, leased, joint
ventured, encumbered, converted or in any other way conveyed, in whole or in
part, any of the Claims released by him herein.

9. Miscellaneous Provisions.

(a) No Duty to Mitigate. The Employee shall not be
required to mitigate the amount of any payment contemplated by this Agreement,
nor shall any such payment be reduced by any earnings that the Employee may
receive from any other source.

(b) Waiver. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by an authorized officer of
the Company (other than the Employee). No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.

(c) Entire Agreement. This Agreement, together with the
Employment Agreement (if any), other valid written agreements between a duly
authorized officer of the Company and Employee, the By-Laws of the Company and
the Company's personnel policy and procedures manual (to the extent such other
agreements and documents are not inconsistent

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<PAGE> 10
herewith) constitutes the entire agreement of the parties hereto relating to
the subject matter hereof and supersedes in their entirety all prior
undertakings and agreements of the parties with respect to the subject matter
hereof.

(d) No Oral Agreements. This Agreement may not be orally
amended, and may only be amended in a writing signed by the parties hereto.

(e) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California.

(f) Severability. The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

(g) Withholding. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.

(h) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

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<PAGE> 11
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year set forth below.

COMPANY NATIONAL INSURANCE GROUP

By:
----------------------------

Title:
-------------------------

Date:

EMPLOYEE
-------------------------------

Date:

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<PAGE> 12
SCHEDULE OF EMPLOYEES ENTERING INTO
CHANGE OF CONTROL SEVERANCE AGREEMENT
AND MUTUAL RELEASE

NAME Title Date
- ---- ----- ----

Paulette J. Taylor Executive Vice President and General Counsel July 10, 1996

Roger A. Conley Executive Vice President July 10, 1996

Kevin C. Eichler Executive Vice President and July 26, 1996
Chief Financial Officer

<PAGE> 1
EXHIBIT 10.2

SECOND AMENDMENT OF
JOHN R. GAULDING AT-WILL EMPLOYMENT AGREEMENT

WHEREAS, the Board of Directors and, with respect to John Gaulding's
("Executive") stock option to purchase common stock of National Insurance
Group, Inc. (the "Company"), the Compensation Committee of the Board of
Directors, have approved certain amendments to Executive's At-Will Employment
Agreement and the stock option granted thereto (the "Executive Stock Option"),
as previously amended (the "Employment Agreement") in order to retain Executive
for the orderly transition of management and to preserve shareholder value in
the face of a potential change of control of the Company; and

WHEREAS, Executive has agreed to the proposed amendments to the
Employment Agreement and the Executive Stock Option;

NOW, THEREFORE, for the consideration set forth herein, the Company
and the Executive (the "Parties") hereby agree to enter into this amendment to
the Employment Agreement and the Executive Stock Option as follows (the "Second
Amendment"), effective upon the date of a "Change of Control" of the Company
(as defined in Section 1):

1. Definition of Change of Control. "Change of Control" shall mean the
occurrence of either of the following events:

(a) The shareholders of the Company elect members of the Board of
Directors such that three or more "Incumbent Directors" no longer serve as
Board members. For this purpose, "Incumbent Directors" shall mean the Board of
Directors as constituted on May 21, 1996; or

(b) The shareholders of the Company elect the slate of directors
nominated for election in the proxy statement of the Company distributed to the
Company's shareholders in June 1996; or

(c) The shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the shareholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all the
Company's assets.

2. Change of Control Payment. Subject to Executive remaining as an
executive of the Company as of the date immediately prior to the date of a
Change of Control, Executive shall receive a payment, by certified check, of
$350,000, less applicable withholding, on the date of a Change of Control.
<PAGE> 2
3. Continued Tenure as an Executive. Subject to Executive
remaining as an executive of the Company as of the date immediately prior to
the date of a Change of Control, Executive may not be terminated and shall
remain employed by the Company through the end of the calendar month in which
the Change of Control occurs (the "Change of Control Month"), and shall accrue
and receive compensation and benefits on the same basis as prior to the Change
of Control for such period.

4. Consulting Arrangement. Subject to Executive remaining as an
executive of the Company as of the date immediately prior to the date of a
Change of Control, for the two-year period commencing with the first day of the
month immediately following the Change of Control month and ending on the last
day of the calendar month that is twenty-four months later (the "Consulting
Period"), Executive shall make himself available to provide consulting services
to the Company as reasonably required by the Company and agreed to by
Executive. Executive's consulting relationship with the Company shall not be
terminable by either of the Parties, except upon the death of Executive.
Executive shall be entitled to receive the following compensation during the
Consulting Period (the "Consulting Payments"):

(a) Cash Compensation. Cash compensation, paid monthly, equal
to $14,300 per month.

(b) Life Insurance. Payment of up to $10,000 for life insurance
covering Executive, paid either directly to the insurer or to Executive in
reimbursement for premiums paid by Executive.

(c) Office Expenses. Payment of up to $25,000 for office rental
and related expenses, paid directly to Executive in reimbursement for costs
incurred by Executive, and payable on demand at any time during the Consulting
Period.

(d) Consulting Expenses. The Company agrees to reimburse
Executive for all reasonable expenses incurred by Executive in the course of
Executive providing consulting services to the Company, such as travel,
lodging, production, research and administrative costs directly related to
performing such consulting services to the Company.

5. Tax Reporting of Consulting Payments. The Consulting Payments shall
be reflected as Form 1099 compensation to Executive. However, the Company
makes no representations to Executive regarding the ultimate tax
characterization of the Consulting Payments.

6. Rabbi Trust for Consulting Payments. On the date of a Change of
Control, the Company shall issue a certified check to the trustee of the rabbi
trust set forth as Exhibit A hereto, in an amount sufficient to pay the
administrative expenses of the trustee during the Consulting Period and to fund
the Consulting Payments, taking into account the earnings reasonably expected
to accrue to the trust over the Consulting Period.

7. Executive Stock Option. Subject to Executive remaining as an
executive of the Company as of the date immediately prior to the date of a
Change of Control, the Executive Stock Option covering 250,000 shares of common
stock of the Company (as referenced in Section 2 of the first Amendment of the
John R. Gaulding At-Will Employment Agreement) shall be amended as of the

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<PAGE> 3
date of the Change of Control so that it covers only 50,000 shares, which
shares shall be fully exercisable and 100% vested as of such date and so that
the Executive Option remains exercisable for a period of ten years from the
date of its grant by the Board of Directors of the Company, notwithstanding
termination of Executive's employment or consulting relationship the death or
disability of Executive, or any other event. As of such time, the Executive
Option shall be void and without further force and effect as to the other
200,000 shares previously subject to such option. Except as amended hereby,
and except to the extent inconsistent with this Second Amendment, the Executive
Option shall remain in full force and effect according to its terms.

8. Death of Executive. If Executive should die prior to the date of a
Change of Control of the Company, this Second Amendment shall be without force
and effect. If Executive should die during the term of this Second Amendment,
Executive's estate or designated beneficiaries shall only be entitled to (i)
any proceeds from the life insurance policy or policies financed by the Company
under Section 4(b) of this Second Amendment and (ii) to the remaining amount of
cash compensation that Executive would have received from the Company hereunder
had he remained alive throughout the Consulting Period.

9. Employment Agreement. Effective simultaneously with the
effectiveness of this Second Amendment, Sections 1, 2, 3, 4, 5, 6, and 13 of
the Employment Agreement shall be without further force and effect, except as
necessary to provide Executive with continued executive benefits and
compensation through the end of the Change of Control Month. Otherwise the
Employment Agreement shall continue in full force and effect, except as to the
extent inconsistent with this Second Amendment. If there is no Change of
Control of the Company, then the Employment Agreement shall not be amended by
this Second Amendment and shall otherwise remain in full force and effect.

10. Term of Second Amendment. This Second Amendment shall terminate two
years following the date that this Second Amendment is executed by both Parties
hereto, unless a Change of Control has occurred prior to such time, in which
case this Second Amendment shall terminate upon the date that all of the
obligations of the parties hereto with respect to this Second Amendment have
been satisfied.

11. Mutual Release of Claims.

(a) Release by Executive. In exchange for the consideration
provided for herein, the adequacy of which is hereby acknowledged, Executive,
for himself and his heirs, executors, administrators, successors, assigns and
legal representatives, hereby fully releases and forever discharges the
Company, its current and future affiliate and parent companies, and
individually and collectively, personally and professionally, the officers,
directors, shareholders, employees, agents, representatives, parents,
subsidiaries, affiliates, joint venturers, partners, predecessors, successors,
assigns, and all other persons or entities connected with the Company and its
current and future affiliate and parent companies, from any and all claims,
demands, deficiencies, levies, assessments, executions, costs, expenses,
damages, liabilities, debts, rights, contracts, losses, obligations, actions,
inactions, causes of action, attorney's fees and benefits, of any kind or
character whatsoever (collectively "Claims"), arising in law or in equity, as a
shareholder, director, officer, or executive, whether known or

-3-
<PAGE> 4
unknown, suspected or unsuspected, directly or indirectly, that he has ever
had, now has or may now have against them, and/or any of them, including,
without limitation, all Claims directly or indirectly related to or arising out
of Executive's employment as an executive and officer of the Company and/or the
termination of that employment or possession of shares of stock, whether
arising in tort or contract, including, without limitation, any Claims for
breach of express or implied contract, for further monetary compensation by way
of additional salary and/or bonus allegedly due him by reason of that
employment, and/or all other Claims, based on common law, federal and/or state
statute, including, without limitation, Claims arising under Age Discrimination
in Employment Act (29 U.S.C Section 621, et seq.).

Executive further understands and expressly agrees that this Second
Amendment specifically extends to all Claims, whether known or unknown, and he
expressly waives the benefits of Section 1542 of the California Civil Code,
which provides:

Company acknowledges that this release does not relieve it of any or
all of its post-termination-of-employment obligations to Executive.

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<PAGE> 5
officer and executive and/or the termination of that employment, whether
arising in tort or contract. The Company acknowledges that after signing this
Second Amendment, it will not be able to bring suit against Executive based on
any of the Claims being released hereunder. The Company further understands
and expressly agrees that this Second Amendment specifically extends to all
Claims, whether known or unknown, and it expressly waives the benefits of
Section 1542 of the California Civil Code, which provides:

Executive acknowledges that the release does not relieve him of any or
all of his post-termination-of employment obligations set forth herein and in
the Proprietary Information Agreement.

(c) Covenant Not to Sue. Executive represents that he has not
filed any complaints, claims and/or actions against the Company, its officers,
agents, directors, supervisors, employees and/or representatives with any
state, federal, or local agency or court. The Company represents that it has
not filed any complaints, claims and/or actions against Executive with any
state, federal, or local agency or court. The Company and Executive each
covenant and agree that they will not bring, commence, institute, maintain,
prosecute or voluntarily aid any action at law or proceeding in equity, or
otherwise prosecute or sue the other party, either affirmatively or by way of
cross-complaint, defense or counterclaim or in any other manner, or at all, on
any alleged Claims being released hereunder. In the event of any breach of
this Section 11(c), a cause of action shall be deemed to have accrued
immediately upon the commencement of any action or other proceeding described
herein, and in such event, this Second Amendment may be pled as a full and
complete defense thereto, as the basis for abatement of or injunction against
said action or other proceeding, and as a basis of a cross complaint for
damages therein.

(d) Executive's Representations.

(i) Executive agrees that the payments and benefits
described in this Second Amendment shall constitute the entire amount of
financial and other consideration provided to him under this Second Amendment
and that he will not seek, and shall not be entitled to seek, any further
compensation for any other claimed damage, costs and/or attorneys' fees in
connection with the matters encompassed in this Second Amendment.

(ii) Executive acknowledges and agrees that the Company
has made no representations to him regarding the tax consequences of any
amounts received by him pursuant to this Second Amendment and/or the tax
treatment of this Second Amendment. Executive agrees to pay federal and/or
state taxes, if any, which are required by law to be paid with respect to this
settlement. Subject to the Company's compliance with the provisions of this
Second

-5-
<PAGE> 6
Amendment, Executive further agrees to indemnify and hold the Company harmless
from and against Claims, deficiencies, levies, assessments and/or recoveries by
any governmental entity against the Company for any amounts claimed due on
account of this Second Amendment or pursuant to claims made under any federal
and/or state tax laws, and any costs, expenses and/or damages sustained by the
Company by reason of any such claims, including, without limitation, any
amounts paid by the Company as taxes, attorneys' fees, deficiencies, levies,
assessments, fines, penalties, interest and/or otherwise.

(iv) Executive acknowledges that the Company has
specifically advised him to consult with an attorney in order to review this
Second Amendment and advise Executive of his rights concerning it, and that he
has had the opportunity to do so. Executive further acknowledges that the
Company has further advised him that he and his current spouse have twenty-one
(21) days from the date this Second Amendment was originally presented to
Executive and his spouse in which to consider whether to sign it, and should
they choose to sign it, they will be given seven (7) additional days from the
date they have both signed it in which to revoke it and that this Second
Amendment shall not become effective or enforceable until the revocation period
has expired. The Effective Date of this Release shall be the eighth day
following its execution by Executive and his spouse provided that the Release
has not been revoked by either of them. Any revocation must be in writing and
received by the Company's General Counsel at the General Counsel's office on or
before the seventh day following execution of this Release in order for the
revocation to be valid.

(v) Executive expressly acknowledges and warrants that he
has read and fully understands this Second Amendment; that he has had the
opportunity to consult with legal counsel of his own choosing in order to have
the terms and conditions of this Second Amendment fully explained to him; that
he is not executing this Second Amendment in reliance on any promises,
representations or inducements other than those set forth herein; that he
understands he is giving up legal rights by signing this Second Amendment; and
that he is executing it voluntarily, free of any duress or coercion, after due
deliberation and with a full understanding of what it means to do so.

(vi) Executive understands that rights or claims under the
Age Discrimination in Employment Act (29 U.S.C Section 621, et seq.) that may
arise after the date this Second Amendment is executed are not waived.

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<PAGE> 7
(vii) Executive represents and warrants that he has not
assigned, transferred, sold, hypothecated, mortgaged, rented, leased, joint
ventured, encumbered, converted or in any other way conveyed, in whole or in
part, any of the Claims released by him herein.

12. Entire Agreement. This Second Amendment, including Exhibit A attached
hereto, and the Employment Agreement and Executive Option as amended hereby,
constitutes the entire agreement of the Parties with respect to the subject
matter hereof, and may only be changed in a writing signed by the Parties
subsequent to the date hereof.

13. Waiver. The failure of either Party to enforce any provision of this
Second Amendment shall not be construed as a waiver of or an acquiescence in or
to such provision.

14. Governing Law. This Second Amendment and performance under it, and
any suits or special proceedings brought under it, shall be construed in
accordance with the laws of the United States of America and the State of
California and any arbitration, mediation or other proceeding arising hereunder
shall be filed and adjudicated in San Mateo County, California.

IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment and agree to enter into and be bound by the provisions hereof.

DATE:
-----------------------
WITNESS:

By: By:
------------------------- ---------------------------------
John R. Gaulding

NATIONAL INSURANCE GROUP
a California corporation, for itself
and its current and future subsidiaries

WITNESS:

By: By
------------------------ ------------------------------------
Paulette Taylor
General Counsel

-7-
<PAGE> 8
EXHIBIT A

TRUST AGREEMENT UNDER
THE SECOND AMENDMENT OF THE
JOHN R. GAULDING AT-WILL EMPLOYMENT AGREEMENT

WHEREAS, National Insurance Group (the "Company") and John R. Gaulding
("Executive") have entered into the Second Amendment of the John R. Gaulding
At-Will Employment Agreement (the "Second Amendment"); and

WHEREAS, pursuant to the Second Amendment, the Company wishes to
establish a trust (hereinafter "Trust") and to contribute to the Trust assets
that shall be held therein, subject to the claims of Company's creditors in the
event of Company's Insolvency, as defined in Section 3(a), until paid to
Executive in such manner and at such times as specified in the Second
Amendment;

WHEREAS, it is the intention of Company to make a contribution to the
Trust to provide itself with a source of funds to enable it to meet its
liabilities under the Second Amendment;

NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:

Section 1. Establishment of Trust.

a. Company hereby deposits with Trustee in trust $100, which
shall become the principal of the Trust to be held, administered and disposed
of by Trustee as provided in this Trust Agreement.

b. The Trust hereby established shall be irrevocable.

c. The Trust is intended to be a grantor of which Company is the
grantor, within the meaning of subpart E, part I, subchapter I, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.

d. The principal of the Trust, and any earnings thereon shall be
held separate and apart from other funds of Company and shall be used solely
for the uses and purposes of Executive and general creditors as herein set
forth. Executive and his beneficiaries shall have no preferred claim on, or
any beneficial ownership interest in, any assets of the Trust. Any rights
created under the Second Amendment and this Trust Agreement shall be mere
unsecured contractual rights of Executive and his beneficiaries against
Company. Any assets held by the
<PAGE> 9
Trust will be subject to the claims of Company's general creditors under
federal and state law in the event of Insolvency.

e. Company, in its sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in trust with
Trustee to augment the principal to be held, administered and disposed of by
Trustee as provided in this Trust Agreement.

Section 2. Payments to Executive and His Beneficiaries. Except as
otherwise provided herein, Trustee shall make payments to the Executive and his
beneficiaries in accordance with the Second Amendment. The Trustee shall make
provision for the reporting on Form 1099 or its equivalent of any federal or
state taxes that may be required to be reported with respect to the payment of
benefits pursuant to the terms of the Second Amendment.

Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Company is Insolvent.

a. Trustee shall cease payment of benefits to Executive and his
beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.

b. At all times during the continuance of this Trust, as provided
in Section l(d) hereof, the principal and income of the Trust shall be subject
to claims of general creditors of Company under federal and state law as set
forth below.

(i) The Board of Directors and the Chief Executive
Officer of Company shall have the duty to inform Trustee in writing of
Company's Insolvency. If a person claiming to be a creditor of Company alleges
in writing to Trustee that Company has become Insolvent, Trustee shall
determine whether Company is Insolvent and, pending such determination, Trustee
shall discontinue payment of benefits to Executive or his beneficiaries.

(ii) Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person claiming to be a
creditor that Company is Insolvent, Trustee shall have no duty to inquire
whether Company is Insolvent. Trustee may in all events rely on such evidence
concerning Company's solvency as may be furnished to Trustee and that provides
Trustee with a reasonable basis for a determination concerning Company's
solvency.

(iii) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Executive or his beneficiaries
and shall hold the assets of the Trust for the benefit of Company's general
creditors. Nothing in this Trust Agreement shall in any way

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<PAGE> 10
diminish any rights of Executive or his beneficiaries to pursue their rights
as general creditors of Company with respect to benefits due under the Second
Amendment.

(iv) Trustee shall resume the payment of benefits to
Executive or his beneficiaries in accordance with Section 2 of this Trust
Agreement only after Trustee has determined that Company is not Insolvent (or
is no longer Insolvent).

c. Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Executive or his beneficiaries under the terms of the Second Amendment for the
period of such discontinuance, less the aggregate amount of any payments made
to Executive or his beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance.

Section 4. Payments to Company. Except as provided in Section 3 hereof,
after the Trust has become irrevocable, Company shall have no right or power to
direct Trustee to return to Company or to divert to others any of the Trust
assets before all payment of benefits have been made to Executive or his
beneficiaries pursuant to the terms of the Second Amendment.

Section 5. Investment Authority. Trustee shall invest the assets of the
Trust in any short-term investment fund (such as a money market fund) as the
Trustee shall determine in its sole discretion.

Section 6. Disposition of Income. During the term of this Trust, all
income received by the Trust, net of expenses and taxes, shall be accumulated
and reinvested.

Section 7. Accounting by Trustee. Trustee shall keep accurate and
detailed records of all investments, receipts, disbursements, and all other
transactions required to be made, including such specific records as shall be
agreed upon in writing between Company and Trustee. Within 90 days following
the close of each calendar year and within 90 days after the removal or
resignation of Trustee, Trustee shall deliver to Company a written account of
its administration of the Trust during such year or during the period from the
close of the last preceding year to the date of such removal or resignation,
setting forth all investments, receipts, disbursements and other transactions
effected by it, including a description of all securities and investments
purchased and sold with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust at the end of such year
or as of the date of such removal or resignation, as the case may be. The
Trustee shall not be liable for errors in such written account unless the
Company makes known to the Trustee in writing, within the 60-day period
beginning on the date the written account was received by the Company, of the
existence of such errors.

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<PAGE> 11
Section 8. Responsibility of Trustee.

a. Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with, the terms of the Second Amendment or this Trust and is
given in writing by Company. In the event of a dispute between Company and
Executive or his beneficiaries, Trustee may apply to a court of competent
jurisdiction to resolve the dispute.

b. If Trustee undertakes or defends any litigation arising in
connection with this Trust, Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments.

c. Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or obligations
hereunder.

d. Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.

e. Trustee shall have, without exclusion, all powers conferred on
Trustee by applicable law, unless expressly provided otherwise herein.

f. Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.

Section 9. Compensation and Expenses of Trustee. All administrative and
Trustee's fees and expenses shall be paid from the Trust.

Section 10. Resignation and Removal of Trustee.

a. Trustee may resign at any time by written notice to Company,
which shall be effective 30 days after receipt of such notice unless Company
and Trustee agree otherwise.

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<PAGE> 12
b. Trustee may be removed by Company on 30 days notice or upon
shorter notice accepted by Trustee.

c. Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 30 days after
receipt of notice of resignation, removal or transfer, unless Company extends
the time limit.

d. If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof by the effective date of
resignation or removal under paragraphs (a) or (b) of this Section. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses
of Trustee in connection with the proceeding shall be allowed as administrative
expenses of the Trust.

Section 11. Appointment of Successor.

a. If Trustee resigns or is removed in accordance with Section
10(a) or (b) hereof, Company, with the consent of the Executive, may appoint
any third party bank trust department as a successor to replace Trustee upon
resignation or removal. The appointment shall be effective when accepted in
writing by the new Trustee, who shall have all of the origins and powers of the
former Trustee, including ownership rights in the Trust assets. The former
Trustee shall execute any instrument necessary or reasonably requested by
Company or the successor Trustee to evidence the transfer.

b. If Trustee resigns or is removed pursuant to the provisions of
Section 10(c) hereof and selects a successor Trustee, Trustee may appoint any
third party bank trust department. The appointment of a successor Trustee
shall be effective when accepted in writing by the new Trustee. The new
Trustee shall have all the rights and powers of the former Trustee, including
ownership rights in Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the successor Trustee to
evidence the transfer.

c. The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust assets, subject
to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for
and Company shall indemnity and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes
successor Trustee.

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<PAGE> 13
Section 12. Amendment or Termination.

a. This Trust Agreement may only be amended by a written
instrument executed by Trustee, Executive and Company. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the Second
Amendment or shall make the Trust revocable alter it has become irrevocable in
accordance with Section 1(b) hereof.

b. The Trust shall not terminate until the date on which
Executive or his beneficiaries are no longer entitled to benefits pursuant to
the terms of the Second Amendment. Upon termination of the Trust any assets
remaining in the Trust shall be returned to Company.

Section 13. Miscellaneous.

a. Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.

b. Benefits payable to Executive or his beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.

c. This Trust Agreement shall be governed by and construed in
accordance with the laws of California.

Section 14. Effective Date. The effective date of this Trust Agreement
shall be _________________.

Section 15. Protection and Indemnification of Trustee. The Company shall
indemnify and defend the Trustee against any and all claims, losses, damages,
expenses (including attorney's fees), and liabilities arising from any action
or failure to act in connection with the administration of the Plan or the
Trust, except when the same is judicially determined to be due to the
negligence or willful misconduct of Trustee.

AGREED:

NATIONAL INSURANCE GROUP, INC. By:
-----------------------------

TRUSTEE By:
----------------------------

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<PAGE> 1
Exhibit 10.3

DONATION AGREEMENT

THIS DONATION AGREEMENT ("Agreement") is made as of July 11, 1996
("Effective Date"), by and between NATIONAL INSURANCE GROUP, a California
corporation ("Donor"), and ____________, an individual ("Recipient").

Recipient desires to receive from Donor and Donor desires to give to
Recipient, certain goods more particularly described herein, subject to the
terms and conditions of this Agreement.

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

1. DESCRIPTION OF THE GOODS. The goods to be given by Donor to Recipient
pursuant to this Agreement are the goods more particularly described in Exhibit
A ("Goods"), attached hereto and incorporated herein by this reference. Donor
shall have no duty or obligation to furnish to Recipient any operating manuals
or other personal property relating to the Goods that may be in Donor's
possession, except for such as may be in Recipient's possession on the
Effective Date of this Agreement.

2. DONATION. Subject to the terms and conditions stated herein, Donor
assigns, transfers and conveys to Recipient, and Recipient accepts and receives
from Donor, the Goods.

3. WARRANTY AND REMEDY. The Goods are given by Donor to Recipient "as
is, where is", with all faults and defects. The Goods are used. Donor
warrants that it shall convey good title to the Goods free and clear of all
liens and encumbrances. EXCEPT FOR THE ABOVE EXPRESS WARRANTY OF TITLE, DONOR
MAKES AND RECIPIENT RECEIVES NO OTHER WARRANTY ON OR FOR THE GOODS, OR ANY PART
THEREOF, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER PROVISION OF THIS
AGREEMENT OR COMMUNICATION WITH RECIPIENT, AND DONOR SPECIFICALLY DISCLAIMS ANY
IMPLIED WARRANT OF TITLE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR ANY IMPLIED WARRANTY AGAINST INFRINGEMENT. DONOR DOES NOT WARRANT THAT THE
GOODS, OR ANY PART THEREOF, WILL BE UNINTERRUPTED OR ERROR FREE. IN NO EVENT
SHALL DONOR BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS, LOST
PROFITS OR LOSS OF BUSINESS OR ANY SPECIAL, INDIRECT, EXEMPLARY, PUNITIVE,
CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY, ARISING IN ANY WAY OUT OF THIS AGREEMENT OR THE GOODS, OR ANY
ACTION, INACTION, ERROR OR OMISSION OF DONOR. THIS LIMITATION SHALL APPLY EVEN
IF DONOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED
HEREIN. RECIPIENT ACKNOWLEDGES AND AGREES THAT THE FACT THAT THE GOODS ARE
GIVEN TO RECIPIENT AT NO CHARGE REFLECTS THE ALLOCATION OF RISKS AND THE

<PAGE> 2
LIMITATIONS OF DONOR'S LIABILITY HEREUNDER. Recipient's sole remedy for the
breach of the warranty of title shall be, at Donor's election, either (i)
removal by Donor of any defect in title to the Goods, or (ii) return of the
Goods by Recipient.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and agree to enter into and be bound by the provisions hereof as of the
Effective Date.

NATIONAL INSURANCE GROUP
WITNESS:

By: By:
-------------------------- -------------------------------
John R. Gaulding
Chief Executive Officer

By: By [See Schedule]
-------------------------- ---------------------------------
[Employee]

<PAGE> 3
EXHIBIT A

DESCRIPTION OF THE GOODS

1. Description of the Goods. The Goods are comprised of the following:

[See attached Schedule]

<PAGE> 4
SCHEDULE OF EMPLOYEES ENTERING INTO
DONATION AGREEMENT

<TABLE>
<CAPTION>
Employee Date Exhibit A
-------- ---- ---------
<S> <C> <C>
Roger Conley July 11, 1996 (i) Toshiba Tecra 700 CT laptop computer with installed
software, docking station and monitor, (ii) Canon BJC-70
Printer.

Kevin C. Eichler July 10, 1996 (i) Hewlett Packard LaserJet 4L Printer, (ii) AST Ascentia
950N Notebook Computer and installed software, (iii) 2 AST
ProStation Docking Stations and installed hardware, (iv)
Compaq Monitor, Keyboard and Mouse, (v) Club West Health
Club Membership.

John R. Gaulding July 11, 1996 (i) Toshiba Laptop Satellite Pro #40065 and installed
software, (ii) Docking station and installed hardware, (iii)
Toshiba battery charger and two (2) laptop batteries, (iv) Estro
Trofi coffee machine.

Paulette J. Taylor July 11, 1996 (i) Dell Dimension P75t computer with installed software,
(ii) Seiko Instruments SII Label Printer, (iii) NEC
MultiSync 4FGe Monitor, (iv) Hewlett Packard LaserJet III
Printer, (v) Brother IntelliFax 9950M Plain Paper Fax, (vi)
U Line Refrigerator.
</TABLE>

<PAGE> 1
Exhibit 10.4

MARK A. SPEIZER EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into and made
effective as of July 11, 1996 ("Effective Date") by and among Mark A. Speizer
("Speizer"), on the one hand, and NATIONAL INSURANCE GROUP, a California
corporation, for itself and its current and future subsidiaries (collectively
the "Company"), on the other hand.

BACKGROUND

The Company wishes to employ Speizer to serve as the Chairmen of the
Board and the Chief Executive Officer of the Company, subject to the terms and
conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein and other good and valuable consideration, receipt
of which is hereby acknowledged, the parties hereto agree as follows:

1. POSITION. TERM OF RESPONSIBILITIES; TITLE AND REPORTING
RELATIONSHIP(S). The Company shall employ Speizer for a period of three
consecutive years to serve as the Chairman of the Board and Chief Executive
Officer of the Company and each of its subsidiaries commencing July 11, 1996.
As the Chief Executive Officer, Speizer will report to the Board of Directors
of the Company.

1.1. Description of Duties. As the Chief Executive Officer,
Speizer shall have the executive duties and responsibilities, consistent with
those normally performed by such an officer, and that are reasonably assigned
to him from time to time by the Board of Directors of the Company.

1.2. Attention to Duties; Time Applied to the Business of the
Company. Speizer will perform his duties and services in a faithful and
diligent manner. Speizer shall not invest in any company or business which
competes in any manner with the Company, except (i) those companies whose
securities are listed on national securities exchanges or quoted daily in the
NASDAQ National Market listing of the Wall Street Journal or (ii) those
companies in which the Company provides Speizer with permission to invest.
Speizer may serve as a member of the Board of Directors of affiliated and/or
unaffiliated companies and organizations and/or act as an officer, employee,
manager and/or consultant of affiliated or unaffiliated companies so long as
(i) such a company or organization is not engaged in the same or similar
business as that of the Company and/or is not competitive and/or does not
otherwise conflict with the business of the Company, and (ii) the activities of
Speizer as described above shall not interfere with the execution of Speizer's
duties.

2. BASE SALARY. The Company shall pay, and Speizer shall accept, a
bi-weekly base salary of Eleven Thousand Five Hundred Thirty-Eight Dollars and
Forty-Six Cents ($11,538.46). Such

Page 1 of 7
<PAGE> 2
base salary may be increased from time to time based upon recommendations and
approved by the Company's Board of Directors.

3. STOCK OPTIONS. Speizer shall be granted options to purchase 75,000
shares of the Company's common stock at the closing price of the Company's
stock on the Effective Date of this Agreement pursuant to the Company's current
1986 Stock Option Plan for Employees, as amended ("Stock Option Plan").
One-third of the stock options shall vest one year after the effective date of
this Agreement, with the balance vesting monthly over the next 24 months of the
Agreement. In the event that Speizer is terminated for reasons other than
Cause, all of the aforementioned options shall vest immediately. The above
described options may be exercised at any time for a period of up to 10 years
from the date of the grant of the option. Nothing herein or in this Agreement
shall be deemed to conflict with Paragraph 6.2 of this Agreement.

4. OTHER BENEFITS.

4.1. Professional Associations. The Company shall pay the cost of
or reimburse Speizer for Speizer's membership and participation in professional
associations relevant to the Company's business.

4.2. Automobile Allowance. The Company shall pay Speizer $1,000
per month as a reimbursement for automotive expenses, which is intended to
include any mileage allowance.

4.3. Insurance Benefits.

4.3.1. So long as Speizer is employed, he shall be entitled
to the same Company-provided and paid group health and dental insurance ("Health
Insurance") coverage, including defendants' coverage, under any such policies
and group policies purchased by the Company for its employees, and a senior
officer group disability insurance program which may be purchased from time to
time by the Company for certain of its employees. Such disability coverage
shall provide benefits within 30 days of disability in the amount of no less
than the base salary set forth in paragraph 2, above. The Company shall pay for
the cost of the Health Insurance and disability insurance as well as that of the
life insurance policy referred to in paragraph 4.3.2. below, by increasing his
salary to cover the costs of these policies and the amount of additional state
and federal tax that would result from such incremental salary increase. The
Company shall also pay for the cost of providing Health Insurance coverage to
Speizer's dependents.

4.3.2. During the term of this Agreement, the Company shall
reimburse Speizer for the actual premium cost of a $1 million term life
insurance policy, for which Speizer shall from time to time designate the name
of the owner and beneficiary of the benefits of that policy.

4.4. Expense Reimbursements. The Company shall reimburse Speizer
for reasonable and necessary travel and out-of-pocket expenses incurred by
Speizer on behalf of the Company in

Page 2 of 7
<PAGE> 3
performing his duties hereunder. Speizer shall comply with the Company
Policies in force from time to time relating to such travel and out-of-pocket
expenses.

4.5. Vacation. Vacation will accrue in accordance with Company's
Policies and Procedures at the rate of .077 of a vacation day for each day
worked at the Company by Speizer and such vacation is subject to the accrual
cap set forth in the Company's Personnel Policies and Procedures.

4.6. Credit Card for Business Expenses. The Company shall provide
Speizer with a Company-billed credit card, such as a corporate American Express
card or comparable national credit card of the Company's choice which may be
changed by the Company from time to time, so that Speizer can charge the
substantial majority of his authorized business travel and entertainment
expenses directly to the Company in accordance with this Agreement and the
Company's Policies relating thereto in force from time to time.

4.7. Spousal Travel. Speizer shall be reimbursed for
business-related travel expenses for his spouse. It is agreed that such trips
shall be for business in which the social setting is such that fellow officers,
customers and/or business peers would normally be accompanied by their spouses.

4.8. Sick Time.

4.8.1. If Speizer does not work because of disease, accident
or disability, at the Company's option, Speizer may be required to bring a
written notice from his doctor, addressed to the Company, on the day he returns
to work (i) stating that he was unable to work on the days that he missed work,
and (ii) stating that Speizer is now able to resume the duties he performed and
work the number of hours he was employed to work prior to such absence.
Speizer consents to the disclosure by his doctor to the Company of such medical
information as the Company may be legally entitled to obtain regarding his
ability to perform his job.

4.8.2. So long as Speizer is employed by Company, sick time
pay ("Sick Time") shall be provided by the Company, but is only payable to
Speizer for the times when Speizer is too ill, sick, diseased, injured or
disabled to do the work which he is employed by the Company to do.

4.8.3. The Company will provide Speizer six (6) Sick Time
days during Speizer's working year, the first of which begins on the Effective
Date of this Agreement ("Working Year"). The Sick Time accrues at one-half day
per each two consecutive pay periods up to a maximum of six (6) days per
Working Year. At the end of any Working Year, all accrued unused Sick Time is
transferred to the next concurrent Working Year. The transfer of Sick Time
days from one Working Year to the next shall not increase the maximum number of
six (6) Sick Time days which can be accrued at any time. No more than six (6)
Sick Time days may be used in any Working Year.

Page 3 of 7
<PAGE> 4
5. BONUSES. The parties agree that Speizer will be entitled to bonuses
pursuant to a Bonus Plan mutually acceptable to the parties and approved by the
Board. Both sides agree to move expeditiously to place in force such a Bonus
Plan within 90 days of the effective date of this Agreement.

6. TERM AND TERMINATION OF EMPLOYMENT.

6.1. Term of Employment. Speizer shall be employed pursuant to
this Agreement on its Effective Date and shall remain employed for a period of
three consecutive years ("Term").

6.2. Termination of Employment by the Company. It is expressly
understood that the Board of Directors of the Company (or its designee) may
terminate Speizer's employment with the Company only upon written notice for
Cause. For purposes of this Agreement, "Cause" shall mean conviction of a
felony or a finding of liability based on intentional tortuous conduct
consisting of a breach of fiduciary duty relating to his performance as an
officer and/or director of the Company. Speizer may terminate his employment
with the Company for any reason upon written notice to the Company.

7. OFFICE SPACE. The Company shall assume all reasonable costs of
providing Speizer with an officer to work from within 20 miles of his home in
Hillsborough, California. The Company will not require Speizer to move to
another location.

8. WAIVER OF LIMITATION ON REEMPLOYMENT. The parties agree that Section
7.3 of the Severance Agreement and Release of Claims entered into between
Speizer and the Company on October 19, 1995, limiting Speizer's right to accept
future employment with the Company shall be null and void, and the Company
waives any rights it may have or may have had under that provision to require
Speizer to forfeit sums paid under the Severance and Release Agreement provided
that Speizer remains employed by the Company during the Term of this Agreement.
Notwithstanding the foregoing, in the event of Speizer's death or disability,
Speizer or his estate shall not be obligated to forfeit said sums.

9. PROPRIETARY INFORMATION. Speizer's execution of this Agreement shall
also compromise his assent to bound by the Proprietary Information Agreement in
the form which is attached hereto as Exhibit A. Speizer agrees to execute
Exhibit A contemporaneously with this Agreement.

10. SEPARATE AND SEVERABLE. Each term, clause and provision of this
Agreement is separate and independent, and should any term, clause or provision
of this Agreement be found to be invalid, the validity of the remaining terms,
clauses and provisions shall not be affected.

11. WAIVER OR MODIFICATION INEFFECTIVE UNLESS IN WRITING. No waiver or
modification of this Agreement shall be valid unless in writing and executed
by duly authorized officers of the Company and Speizer.

Page 4 of 7
<PAGE> 5
12. GOVERNING LAW. This Agreement and performance under it, and any suits
or special proceedings brought under it, shall be construed in accordance with
the laws of the United States of American and the State of California and any
arbitration, mediation or other proceeding arising hereunder shall be filed and
adjudicated in San Mateo County, California.

13. ATTORNEYS' FEES. The prevailing party in any dispute with respect to
this Agreement and/or Speizer's employment and/or termination shall be entitled
to all reasonable costs and attorneys' fees.

14. RELIANCE; INTERPRETATION. The parties hereto represent and acknowledge
that in executing this Agreement they do not rely and have not relied upon any
representation or statement made by any of the other parties or by any of the
other parties' agents, attorneys or representatives with regard to the subject
matter, basis or effect of this Agreement or otherwise, other than those
specifically stated in this written Agreement. This Agreement shall be
interpreted in accordance with the plain meaning of its terms and not strictly
for or against any of the parties hereto. This Agreement shall be construed as
if each party hereto was its author and each party hereby adopts the language of
this Agreement as if it were his, her or its own. The captions to this
Agreement and its sections, subsections, tables and exhibits are inserted only
for convenience and shall not be construed as part of this Agreement or as a
limitation on or broadening of the scope of this Agreement or any section,
subsection, table or exhibit.

15. PERSONNEL POLICY MANUAL AND RELATIONSHIP TO THIS AGREEMENT. The
provisions of this Agreement shall prevail over any inconsistent provision of
the Company's Employee Manual. The following provisions of the Employee Manual
shall not apply to Speizer regardless of the existence of any inconsistent
provision in this Agreement: Performance Evaluation, 105; Corrective Action,
106; Termination of Employment, 107; Internal Transfer and Placement, 109;
Employee Benefits, 200; Sick Time, 205; Compensation, 300; Hours of Work and
Time Reporting, 301; Overtime Pay ,302; Tardiness and Absenteeism Standard,
304; Automobile Mileage Allowance, 504. With respect to any provision of the
current or future Employee Manual which applies to Speizer's employment, any
reference in such a provision to permission, assent or approval being granted
by the Chief Executive Officer and/or President shall mean permission, assent
or approval of the Board of Directors.

16. MISCELLANEOUS.

16.1. Assignment. This Agreement shall be assigned to any purchaser
of substantially all of the Company's assets or stock, but shall not be
assigned upon the purchase of all or substantially all of the assets or stock
of any subsidiary. The sale of the Company's assets or its stock, or one or
more of the Company's subsidiaries' assets or their stock or the sale of less
than substantially all of their assets shall not comprise a termination of
employment under this Agreement. This Agreement shall not otherwise be
assigned without the prior written consent of both parties, except all rights
under this Agreement may pass to Speizer's heirs or distributees by will or
trust agreement or the laws of intestate succession.

Page 5 of 7
<PAGE> 6
16.2. Entire Agreement. This Agreement, including all exhibits
attached hereto, and the Consulting Agreement between the parties, constitute
the entire Agreement between the parties relating to the subject matter hereof.
All prior and/or contemporaneous agreements, proposals, understandings and/or
communications between or involving the parties relating to the subject matter
hereof, whether oral or written, are void and are replaced in their entirety by
this Agreement. The parties agree that (i) there shall be no oral agreements
between the parties, whether or not allegedly entered into prior, during or
subsequent to the term of this Agreement, and (ii) in order for any agreement
to be effective between the parties, whether contemporaneous with or subsequent
to the Effective Date of this Agreement, it shall be set forth in writing and
executed by a duly authorized officer of the Company and Speizer. Any
subsequent change in Speizer's salary or compensation will not affect the
validity or scope of this Agreement.

16.3. Waiver. The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of or an acquiescence in
or to such provision.

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

16.5. No Inconsistent Obligations. Speizer represents that he is
not aware of any obligations, legal or otherwise, inconsistent with the terms
of this Agreement or his undertakings under this Agreement.

16.6. Death of Employee. On the occasion of the death of Speizer,
while this Agreement is in effect, his estate shall be Employee's named
beneficiary to receive any benefits or compensation paid under this Agreement,
including any salary and/or bonuses contemplated under this Agreement but not
already paid to Speizer. Speizer may change such named beneficiary at any
time, but such change of named beneficiary shall be in writing and executed by
all parties to this Agreement.

16.7. Notices. All communications required or permitted to be made
under this Release shall be in writing and either shall be delivered
personally or sent by receipted private mail courier or United States Postal
Service certified or registered mail, postage prepaid and return receipt
requested, to the address or addresses set forth below, or to such other
address or addresses as a party may notify another party pursuant to this
Section. Any such communication shall be deemed to be properly given (i) if
delivered personally or by courier, upon written acknowledgment of receipt
after delivery to the address specified; (ii) if posted, the earlier of the
actual date of delivery, as set forth in the return receipt, or three (3) days
from the date posted pursuant to the foregoing. The address for each party is
as follows:

Page 6 of 7
<PAGE> 7
To the Company:

National Insurance Group
395 Oyster Point Boulevard
Suite 500
South San Francisco, CA 94080-1933
Attention: General Counsel

To Speizer:

Mr. Mark A. Speizer
541 Roehampton
Hillsborough, California 94010

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and agree to enter into and be bound by the provisions thereof, as of the
Effective Date.

WITNESS:

By: By:
------------------------ --------------------------
Mark A. Speizer

NATIONAL INSURANCE GROUP
A California corporation, for itself and
its current and future subsidiaries

WITNESS:

By: By:
--------------------------- -----------------------------

Page 7 of 7

<PAGE> 1

Exhibit 10.5

BRUCE A. COLE EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into and made
effective as of July 11, 1996 ("Effective Date") by and among Bruce A. Cole
("Cole"), on the one hand, and NATIONAL INSURANCE GROUP, a California
corporation, for itself and its current and future subsidiaries (collectively
the "Company"), on the other hand.

BACKGROUND

The Company wishes to employ Cole to serve as the President of
National Insurance Group, subject to the terms and conditions of this
Agreement.

1. POSITION. TERM AND RESPONSIBILITIES; TITLE AND REPORTING
RELATIONSHIP(S). The Company shall employ Cole for a period of three
consecutive years to serve as the President of National Insurance Group
commencing July 11, 1996. As the President of National Insurance Group, Cole
will report to the Chief Executive Officer of the Company.

1.1. Description of Duties. As the President of National Insurance
Group, Cole shall have the executive duties and responsibilities, consistent
with those normally performed by such an officer, and that are reasonably
assigned to him from time to time by the Chief Executive Officer of the
Company.

1.2. Attention to Duties; Time Applied to the Business of the
Company. Cole will perform his duties and services in a faithful and diligent
manner. Cole shall not invest in any company or business which competes in any
manner with the Company, except (i) those companies whose securities are listed
on national securities exchanges or quoted daily in the NASDAQ National Market
listing of the Wall Street Journal or (ii) those companies in which the Company
provides Cole with permission to invest. Cole may serve as a member of the
Board of Directors of affiliated and/or unaffiliated companies and
organizations and/or act as an officer, employee, manager and/or consultant of
affiliated or unaffiliated companies so long as (i) such a company or
organization is not engaged in the same or similar business as that of the
Company and/or is not competitive and/or does not otherwise conflict with the
business of the Company, and (ii) the activities of Cole as described above
shall not interfere with the execution of Cole's duties.

2. BASE SALARY. The Company shall pay, and Cole shall accept, a base
salary of $870,000 ("Base Salary"), payable for 36 consecutive months, payable
bi-weekly at Eleven Thousand One Hundred Fifty-Three Dollars and Eighty-Five
Cents ($11,153.85). Such base salary may be

Page 1 of 7
<PAGE> 2
increased from time to time based upon recommendations and approved by the
Company's Board of Directors.

3. STOCK OPTIONS. Cole shall be granted options to purchase 75,000
shares of the Company's common stock at the closing price of the Company's
stock on the Effective Date of this Agreement pursuant to the Company's current
1986 Stock Option Plan for Employees, as amended ("Stock Option Plan").
One-third of the stock options shall vest one year after the effective date of
this Agreement, with the balance vesting monthly over the next 24 months of the
Agreement. In the event that Cole is terminated for reasons other than Cause,
all of the aforementioned options shall vest immediately. The above described
options may be exercised at any time for a period of up to 10 years from the
date of the grant of the option. Nothing herein or in this Agreement shall be
deemed to conflict with Paragraph 6.2 of this Agreement.

4. OTHER BENEFITS.

4.1. Professional Associations. The Company shall pay the cost of
or reimburse Cole for Cole's membership and participation in professional
associations relevant to the Company's business.

4.2. Automobile Allowance. The Company shall pay Cole $1,000 per
month as a reimbursement for automotive expenses, which is intended to include
any mileage allowance.

4.3. Insurance Benefits.

4.3.1. So long as Cole is employed, he shall be entitled to
the same Company-provided and paid group health and dental insurance ("Health
Insurance") coverage, including defendants' coverage, under any such policies
and group policies purchased by the Company for its employees, and a senior
officer group disability insurance program which may be purchased from time to
time by the Company for certain of its employees. Such disability coverage
shall provide benefits within 30 days of disability in the amount of no less
than the base salary set forth in paragraph 2, above. The Company shall pay for
the cost of the Health Insurance and disability insurance as well as that of the
life insurance policy referred to in paragraph 4.3.2. below, by increasing his
salary to cover the costs of these policies and the amount of additional state
and federal tax that would result from such incremental salary increase. The
Company shall also pay for the cost of providing Health Insurance coverage to
Cole's dependents.

4.3.2. During the term of this Agreement, the Company shall
reimburse Cole for the actual premium cost of a $1 million term life insurance
policy, for which Cole shall from time to time designate the name of the owner
and beneficiary of the benefits of that policy.

4.4. Expense Reimbursements. The Company shall reimburse Cole for
reasonable and necessary travel and out-of-pocket expenses incurred by Cole on
behalf of the Company in

Page 2 of 7
<PAGE> 3
performing his duties hereunder. Cole shall comply with the Company Policies
in force from time to time relating to such travel and out-of-pocket expenses.

4.5. Vacation. Vacation will accrue in accordance with Company's
Policies and Procedures at the rate of .077 of a vacation day for each day
worked at the Company by Cole and such vacation is subject to the accrual cap
set forth in the Company's Personnel Policies and Procedures.

4.6. Credit Card for Business Expenses. The Company shall provide
Cole with a Company-billed credit card, such as a corporate American Express
card or comparable national credit card of the Company's choice which may be
changed by the Company from time to time, so that Cole may charge the
substantial majority of his authorized business travel and entertainment
expenses directly to the Company in accordance with this Agreement and the
Company's Policies relating thereto in force from time to time.

4.7. Spousal Travel. Cole shall be reimbursed for business-related
travel expenses for his spouse. It is agreed that such trips shall be for
business in which the social setting is such that fellow officers, customers
and/or business peers would normally be accompanied by their spouses.

4.8. Sick Time.

4.8.1. If Cole does not work because of disease, accident or
disability, at the Company's option, Cole may be required to bring a written
notice from his doctor, addressed to the Company, on the day he returns to work
(i) stating that he was unable to work on the days that he missed work, and
(ii) stating that Cole is now able to resume his duties he performed and work
the number of hours he was employed to work prior to such absence. Cole
consents to the disclosure by has doctor to the Company of such medical
information as the Company may be legally entitled to obtain regarding his
ability to perform his job.

4.8.2. So long as Cole is employed by Company, sick time pay
("Sick Time") shall be provided by the Company, but is only payable to Cole for
the times when Cole is too ill, sick, diseased, injured or disabled to do the
work which he is employed by the Company to do.

4.8.3. The Company will provide Cole six (6) Sick Time days
during Cole's working year, the first of which begins on the Effective Date of
this Agreement ("Working Year"). The Sick Time accrues at one-half day per
each two consecutive pay periods up to a maximum of six (6) days per Working
Year. At the end of any Working Year, all accrued unused Sick Time is
transferred to the next concurrent Working Year. The transfer of Sick Time
days from one Working Year to the next shall not increase the maximum number of
six (6) Sick Time days which can be accrued at any time. No more than six (6)
Sick Time days may be used in any Working Year.

Page 3 of 7
<PAGE> 4
5. BONUSES. The parties agree that Cole will be entitled to bonuses
pursuant to a Bonus Plan mutually acceptable to the parties and approved by the
Board. Both sides agree to move expeditiously to place in force such a Bonus
Plan within 90 days of the effective date of this Agreement.

6. TERM AND TERMINATION OF EMPLOYMENT.

6.1. Term of Employment. Cole shall be employed pursuant to this
Agreement on its Effective Date and shall remain employed for a period of three
consecutive years ("Term").

6.2. Termination of Employment by the Company. It is expressly
understood that the Chief Executive Officer or the Board of Directors of the
Company (or its designee) may terminate Cole's employment with the Company only
upon written notice for Cause. For purposes of this Agreement, "Cause" shall
mean conviction of a felony or a finding of liability based on intentional
tortuous conduct consisting of a breach of fiduciary duty relating to his
performance as an officer and/or director of the Company. Cole may terminate
his employment with the Company for any reason upon written notice to the
Company. Notwithstanding anything contained in this Agreement to the contrary,
if the Company terminates Cole for reason(s) other than for Cause, the Company
should pay Cole in a single payment, payable upon termination, an amount equal
to (i) his unpaid Base Salary, (ii) the undiscounted, remaining costs to
provide the benefits set forth in paragraphs 4.1 through 4.3 of this Agreement
inclusive; and (iii) any unpaid bonus from the previous year plus any bonus
payable pursuant to any Bonus Plan then in effect.

7. OFFICE SPACE. The Company shall assume all reasonable costs of
providing Cole with an officer to work from in West Los Angeles or Beverly
Hills, California. The Company will not require Cole to move to another
location.

8. PROPRIETARY INFORMATION. Cole's execution of this Agreement shall
also compromise his assent to be bound by the Proprietary Information Agreement
in the form which is attached hereto as Exhibit A. Cole agrees to execute
Exhibit A contemporaneously with this Agreement.

9. SEPARATE AND SEVERABLE. Each term, clause and provision of this
Agreement is separate and independent, and should any term, clause or provision
of this Agreement be found to be invalid, the validity of the remaining terms,
clauses and provisions shall not be affected.

10. WAIVER OR MODIFICATION INEFFECTIVE UNLESS IN WRITING. No waiver or
modification of this Agreement shall be valid unless in writing and executed
by duly authorized officers of the Company and Cole.

11. GOVERNING LAW. This Agreement and performance under it, and any suits
or special proceedings brought under it, shall be construed in accordance with
the laws of the United States

Page 4 of 7
<PAGE> 5
of America and the State of California and any arbitration, mediation or other
proceeding arising hereunder shall be filed and adjudicated in San Mateo County,
California.

12. ATTORNEYS' FEES. The prevailing party in any dispute with respect to
this Agreement and/or Cole's employment and/or termination shall be entitled to
all reasonable costs and attorneys' fees.

13. RELIANCE; INTERPRETATION. The parties hereto represent and acknowledge
that in executing this Agreement they do not rely and have not relied upon any
representation or statement made by any of the other parties or by any of the
other parties' agents, attorneys and representatives with regard to the subject
matter, basis or effect of this Agreement or otherwise, other than those
specifically stated in this written Agreement. This Agreement shall be
interpreted in accordance with the plain meaning of its terms and not strictly
for or against any of the parties hereto. This Agreement shall be construed as
if each party hereto was its author and each party hereby adopts the language of
this Agreement as if it were his, her or its own. The captions to this
Agreement and its sections, subsections, tables and exhibits are inserted only
for convenience and shall not be construed as part of this Agreement or as a
limitation on or broadening of the scope of this Agreement or any section,
subsection, table or exhibit.

14. PERSONNEL POLICY MANUAL AND RELATIONSHIP TO THIS AGREEMENT. The
provisions of this Agreement shall prevail over any inconsistent provision of
the Company's Employee Manual. The following provisions of the Employee Manual
shall not apply to Cole regardless of the existence of any inconsistent
provision in this Agreement: Performance Evaluation, 105; Corrective Action,
106; Termination of Employment, 107; Internal Transfer and Placement, 109;
Employee Benefits, 200; Sick Time, 205; Compensation, 300; Hours of Work and
Time Reporting, 301; Overtime Pay ,302; Tardiness and Absenteeism Standard, 304;
Automobile Mileage Allowance, 504.

15. MISCELLANEOUS.

15.1. Assignment. This Agreement shall be assigned to any purchaser of
substantially all of the Company's assets or stock, but shall not be assigned
upon the purchase of all or substantially all of the assets or stock of any
subsidiary. The sale of the Company's assets or its stock, or one or more of
the Company's subsidiaries' assets or their stock or the sale of less than
substantially all of their assets shall not comprise a termination of employment
under this Agreement. This Agreement shall not otherwise be assigned without
the prior written consent of both parties, except all rights under this
Agreement may pass to Cole's heirs or distributees by will or trust agreement or
the laws of intestate succession.

15.2. Entire Agreement. This Agreement, including all exhibits
attached hereto, and the Consulting Agreement between the parties, constitute
the entire Agreement between the parties relating to the subject matter hereof.
All prior and/or contemporaneous agreements, proposals, understandings and/or
communications between or involving the parties relating to the subject

Page 5 of 7
<PAGE> 6
matter hereof, whether oral or written, are void and are replaced in their
entirety by this Agreement. The parties agree that (i) there shall be no oral
agreements between the parties, whether or not allegedly entered into prior,
during or subsequent to the term of this Agreement, and (ii) in order for any
agreement to be effective between the parties, whether contemporaneous with or
subsequent to the Effective Date of this Agreement, it shall be set forth in
writing and executed by a duly authorized officer of the Company and Cole. Any
subsequent change in Cole's salary or compensation will not affect the validity
or scope of this Agreement.

15.3. Waiver. The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of or an acquiescence in
or to such provision.

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

15.5. No Inconsistent Obligations. Cole represents that he is not
aware of any obligations, legal or otherwise, inconsistent with the terms of
this Agreement or his undertakings under this Agreement.

15.6. Death of Employee. On the occasion of the death of Cole,
while this Agreement is in effect, his estate shall be Employee's named
beneficiary to receive any benefits or compensation paid under this Agreement,
including any salary and/or bonuses contemplated under this Agreement but not
already paid to Cole. Cole may change such named beneficiary at any time, but
such change of named beneficiary shall be in writing and executive by all
parties to this Agreement.

15.7. Notices. All communications required or permitted to be made
under this Release shall be in writing and either shall be delivered
personally or sent by receipted private mail courier or United States Postal
Service certified or registered mail, postage prepaid and return receipt
requested, to the address or addresses set forth below, or to such other
address or addresses as a party may notify another party pursuant to this
Section. Any such communication shall be deemed to be properly given (i) if
delivered personally or by courier, upon written acknowledgment of receipt
after delivery to the address specified; or (ii) if posted, the earlier of the
actual date of delivery, as set forth in the return receipt, or three (3) days
from the date posted pursuant to the foregoing. The address for each party is
as follows:

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<PAGE> 7
To the Company:

National Insurance Group
395 Oyster Point Boulevard
Suite 500
South San Francisco, CA 94080-1933
Attention: General Counsel

To Cole:

Bruce A. Cole
521 North Maple Drive
Beverly Hills, CA 90210

IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and agree to enter into and be bound by the provisions thereof, as of the
Effective Date.

WITNESS:

By: By:
------------------------ -----------------------------
Bruce A. Cole

NATIONAL INSURANCE GROUP
A California corporation, for itself
and its current and future subsidiaries

WITNESS:

By: By:
------------------------ -----------------------------

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