<PAGE>
 
 
                                                                      Appendix B
 
                                  NYMAGIC, INC.
 
                          2004 LONG-TERM INCENTIVE PLAN
 
 
1.      Establishment, Purpose, and Types of Awards
        -------------------------------------------
 
        NYMAGIC, INC., a New York corporation (the "Company") hereby establishes
an incentive compensation plan to be known as the "NYMAGIC,  INC. 2004 Long-Term
Incentive  Plan"  (hereinafter  referred to as the  "Plan"),  for the purpose of
attracting,  retaining and motivating  select  employees,  officers,  directors,
advisors,  and  consultants  for the Company and its  Affiliates  and to provide
incentives and awards for superior performance.
 
        The  Plan  permits  the  granting  of  the  following  types  of  awards
("Awards"), according to the Sections of the Plan listed here:
 
           Section 6                  Options
           Section 7                  Share Appreciation Rights
           Section 8                  Restricted and Unrestricted Share Awards
           Section 9                  Deferred Share Units
           Section 10                 Performance Awards
 
 
The Plan is not  intended  to affect  and shall not  affect  any stock  options,
equity-based compensation,  or other benefits that the Company or its Affiliates
may have  provided,  or may  separately  provide in the future  pursuant  to any
agreement, plan, or program that is independent of this Plan.
 
2.      Defined Terms
        -------------
 
        Terms in the Plan that  begin with an initial  capital  letter  have the
defined  meaning set forth in Appendix A, unless defined  elsewhere in this Plan
or the context of their use clearly indicates a different meaning.
 
3.      Shares Subject to the Plan
        --------------------------
 
        Subject to the  provisions of Section 13 of the Plan, the maximum number
of Shares that the Company may issue is (i) 450,000  Shares for all Awards,  and
(ii)  450,000  Shares for Awards in a form other than  Options  and SARs.  These
Shares may be  authorized  but unissued  Shares,  or Shares that the Company has
reacquired or otherwise holds in treasury.
 
        Shares  that are  subject to an Award that for any  reason  expires,  is
forfeited, is cancelled,  or becomes unexercisable,  and Shares that are for any
other  reason not paid or delivered  under the Plan shall  again,  except to the
extent  prohibited by Applicable  Law, be available for subsequent  Awards under
the Plan.  In addition,  the  Committee  may make future  Awards with respect to
Shares that the Company retains from otherwise  delivering  pursuant to an Award
either  (i) as payment of the  exercise  price of an Award,  or (ii) in order to
satisfy  the  withholding  or  employment  taxes due upon the  grant,  exercise,
vesting, or distribution of an Award. Notwithstanding the foregoing, but subject
to  adjustments  pursuant  to  Section 13 below,  the number of Shares  that are
available  for ISO Awards  shall be  determined,  to the extent  required  under
applicable  tax  laws,  by  reducing  the  number of  Shares  designated  in the
preceding  paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards); provided that any Shares that
are  either  purchased  under  the  Plan  and  forfeited  back to the  Plan,  or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to ISO Awards.
 
4.      Administration
        --------------
 
 
<PAGE>
 
 
        (a)     General.  The Committee shall  administer the Plan in accordance
                with its terms,  provided  that the Board may act in lieu of the
                Committee on any matter.  The  Committee  shall hold meetings at
                such  times and places as it may  determine  and make such rules
                and  regulations  for the  conduct of its  business  as it deems
                advisable.  In the absence of a duly  appointed  Committee or if
                the Board otherwise  chooses to act in lieu of a Committee,  the
                Board shall  function as the  Committee  for all purposes of the
                Plan.
 
        (b)     Committee  Composition.  The Board shall  appoint the members of
                the Committee. If and to the extent permitted by Applicable Law,
                the Committee may  authorize one or more  Reporting  Persons (or
                other  officers) to make Awards to Eligible  Persons who are not
                Reporting  Persons (or other  officers  whom the  Committee  has
                specifically  authorized to make  Awards).  The Board may at any
                time appoint  additional  members to the  Committee,  remove and
                replace members of the Committee with or without Cause, and fill
                vacancies on the Committee however caused.
 
        (c)     Powers of the Committee.  Subject to the provisions of the Plan,
                the Committee shall have the authority, in its sole discretion:
 
                (i)     to  determine  Eligible  Persons to whom Awards shall be
                        granted  from  time to time and the  number  of  Shares,
                        units, or SARs to be covered by each Award;
 
                (ii)    to determine,  from time to time,  the Fair Market Value
                        of Shares;
 
                (iii)   to determine, and to set forth in Award Agreements,  the
                        terms  and  conditions  of  all  Awards,  including  any
                        applicable  exercise or purchase price, the installments
                        and conditions  under which an Award shall become vested
                        (which  may  be  based  on   performance),   terminated,
                        expired,   cancelled,   renewed  or  replaced,  and  the
                        circumstances  for  vesting  acceleration  or  waiver of
                        forfeiture  restrictions,  and  other  restrictions  and
                        limitations;
 
                (iv)    to approve the forms of Award  Agreements  and all other
                        documents,   notices  and   certificates  in  connection
                        therewith which need not be identical  either as to type
                        of Award or among Participants;
 
                (v)     to construe and  interpret the terms of the Plan and any
                        Award  Agreement,  to  determine  the  meaning  of their
                        terms,  and to prescribe,  amend,  and rescind rules and
                        procedures  relating to the Plan and its administration;
                        and
 
                (vi)    in order to fulfill the purposes of the Plan and without
                        amending  the  Plan,   modify,   cancel,  or  waive  the
                        Company's  rights with respect to any Awards,  to adjust
                        or to modify Award  Agreements for changes in Applicable
                        Law,  and to recognize  differences  in foreign law, tax
                        policies, or customs; and
 
                (vii)   to make all other  interpretations and to take all other
                        actions that the  Committee  may  consider  necessary or
                        advisable to administer  the Plan or to  effectuate  its
                        purposes.
 
        Subject to Applicable  Law and the  restrictions  set forth in the Plan,
the  Committee  may delegate  administrative  functions to  individuals  who are
Reporting Persons, officers, or Employees of the Company or its Affiliates.
 
        (a)     Deference to Committee Determinations.  The Committee shall have
                the discretion to interpret or construe  ambiguous,  unclear, or
                implied  (but  omitted)  terms  in any  fashion  it  deems to be
                appropriate in its sole discretion,  and to make any findings of
                fact  needed  in  the   administration  of  the  Plan  or  Award
                Agreements.  The Committee's prior exercise of its discretionary
                authority  shall not obligate it to exercise its  authority in a
                like fashion  thereafter.  The  Committee's  interpretation  and
                construction  of any  provision of the Plan,  or of any Award or
                Award Agreement,  shall be final,  binding, and
 
 
<PAGE>
 
 
                conclusive.   The   validity   of   any   such   interpretation,
                construction,  decision or finding of fact shall not be given de
                novo review if challenged in court,  by  arbitration,  or in any
                other forum,  and shall be upheld  unless  clearly  arbitrary or
                capricious.
 
        (b)     No  Liability;  Indemnification.   Neither  the  Board  nor  any
                Committee member,  nor any Person acting at the direction of the
                Board or the Committee,  shall be liable for any act,  omission,
                interpretation, construction or determination made in good faith
                with respect to the Plan, any Award or any Award Agreement.  The
                Company and its Affiliates  shall pay or reimburse any member of
                the Committee, as well as any Director,  Employee, or Consultant
                who takes action in connection  with the Plan,  for all expenses
                incurred  with  respect  to the  Plan,  and to the  full  extent
                allowable  under  Applicable Law shall  indemnify each and every
                one of them for any claims,  liabilities,  and costs  (including
                reasonable  attorney's  fees)  arising  out of their  good faith
                performance  of  duties  under  the Plan.  The  Company  and its
                Affiliates may obtain liability insurance for this purpose.
 
5.      Eligibility
        -----------
 
        (a)     General  Rule.  The  Committee  may grant ISOs only to Employees
                (including officers who are Employees),  and may grant all other
                Awards  to any  Eligible  Person.  A  Participant  who has  been
                granted an Award may be granted an additional Award or Awards if
                the Committee shall so determine, if such person is otherwise an
                Eligible Person and if otherwise in accordance with the terms of
                the Plan.
 
        (b)     Grant of Awards.  Subject to the express provisions of the Plan,
                the Committee shall determine from the class of Eligible Persons
                those  individuals to whom Awards under the Plan may be granted,
                the number of Shares  subject to each Award,  the price (if any)
                to be paid  for the  Shares  or the  Award  and,  in the case of
                Performance  Awards,  in addition to the  matters  addressed  in
                Section 10 below, the specific objectives, goals and performance
                criteria that further define the Performance  Award.  Each Award
                shall be evidenced by an Award  Agreement  signed by the Company
                and, if required by the Committee, by the Participant. The Award
                Agreement  shall set forth the material  terms and conditions of
                the Award established by the Committee.
 
        (c)     Limits on Awards.  No Participant  many receive Options and SARs
                that relate to more than  450,000  Shares.  The  Committee  will
                adjust these limitations pursuant to Section 13 below.
 
        (d)     Replacement  Awards.  The Committee may, in its sole  discretion
                and  upon  such  terms  as it deems  appropriate,  require  as a
                condition  of the  grant of an Award to a  Participant  that the
                Participant surrender for cancellation some or all of the Awards
                that have previously been granted to the Participant  under this
                Plan or  otherwise.  An  Award  that is  conditioned  upon  such
                surrender  may or may not be the same type of  Award,  may cover
                the same (or a lesser  or  greater)  number  of  Shares  as such
                surrendered  Award,  may have other  terms  that are  determined
                without  regard to the terms or conditions  of such  surrendered
                Award,  and may contain any other terms that the Committee deems
                appropriate.  In the case of Options,  these other terms may not
                involve an Exercise  Price that is lower than the Exercise Price
                of the  surrendered  Option unless either the new grant will not
                create any  material  financial  expense  for the Company or the
                Company's  shareholders  approve the grant itself or the program
                under which it is made pursuant to the Plan.
 
6.      Option Awards
        -------------
 
        (a)     Types; Documentation.  The Committee may in its discretion grant
                ISOs to any Employee and  Non-ISOs to any Eligible  Person,  and
                shall  evidence  any such grants in an Award  Agreement  that is
                delivered to the Participant. Each Option shall be designated in
                the  Award  Agreement  as an  ISO  or a  Non-ISO.  At  the  sole
                discretion of the Committee,  any Option may be exercisable,  in
                whole or in part,  immediately  upon the grant thereof,  or only
                after  the  occurrence  of  a  specified   event,   or  only  in
                installments, which installments may vary. Options granted under
                the Plan may contain such terms
 
 
<PAGE>
 
 
                and provisions not inconsistent with the Plan that the Committee
                shall deem advisable in its sole and absolute discretion.
 
        (b)     ISO $100,000  Limitation.  To the extent that the aggregate Fair
                Market Value of Shares with respect to which Options  designated
                as  ISOs  first  become  exercisable  by a  Participant  in  any
                calendar year (under this Plan and any other plan of the Company
                or any Affiliate) exceeds $100,000, such excess Options shall be
                treated as  Non-ISOs.  For purposes of  determining  whether the
                $100,000 limit is exceeded,  the Fair Market Value of the Shares
                subject to an ISO shall be  determined  as of the Grant Date. In
                reducing  the  number  of  Options  treated  as ISOs to meet the
                $100,000  limit,  the most  recently  granted  Options  shall be
                reduced  first.  In the event  that  Section  422 of the Code is
                amended  to  alter  the  limitation   set  forth  therein,   the
                limitation of this Section 6(b) shall be automatically  adjusted
                accordingly.
 
        (c)     Term of Options.  Each Award  Agreement  shall specify a term at
                the end of which the Option  automatically  expires,  subject to
                earlier termination provisions contained in Section 6(h) hereof;
                provided,  that, the term of any Option may not exceed ten years
                from  the  Grant  Date.  In the  case  of an ISO  granted  to an
                Employee who is a Ten Percent Holder on the Grant Date, the term
                of the ISO shall not exceed five years from the Grant Date.
 
        (d)     Exercise  Price.  The  exercise  price  of an  Option  shall  be
                determined by the Committee in its  discretion  and shall be set
                forth in the Award Agreement,  subject to the following  special
                rules:
 
 
                (i)     ISOs.  If an ISO is  granted to an  Employee  who on the
                        Grant  Date  is a Ten  Percent  Holder,  the  per  Share
                        exercise  price  shall not be less than 110% of the Fair
                        Market Value per Share on such Grant Date.  If an ISO is
                        granted to any other  Employee,  the per Share  exercise
                        price  shall not be less  than  100% of the Fair  Market
                        Value per Share on the Grant Date.
 
                (ii)    Non-ISOs. The per Share exercise price for the Shares to
                        be issued  pursuant to the  exercise of a Non-ISO  shall
                        not be less than 85% of the Fair Market  Value per Share
                        on the Grant Date.
 
                (iii)   Named Executive  Officers.  The per Share exercise price
                        shall not be less than 100% of the Fair Market Value per
                        Share  on the  Grant  Date of an  Option  if (A) on such
                        Grant   Date,   the   Participant   is  subject  to  the
                        limitations set forth in Section 162(m) of the Code, and
                        (B)   the   grant   is    intended    to    qualify   as
                        performance-based  compensation  under Section 162(m) of
                        the Code.
 
                (iv)    Repricing.  The Committee  may at any time  unilaterally
                        reduce the  exercise  price for any Option,  but only if
                        (I) the  reduction  will not  cause  material  financial
                        expense for the Company, and (II) the Committee promptly
                        provides a written notice to any Participant affected by
                        the reduction.
 
        (e)     Exercise  of Option.  The times,  circumstances  and  conditions
                under which an Option shall be  exercisable  shall be determined
                by the  Committee  in its sole  discretion  and set forth in the
                Award  Agreement.  The  Committee  shall have the  discretion to
                determine  whether  and to what  extent  the  vesting of Options
                shall be tolled  during any unpaid  leave of absence;  provided,
                however,  that in the absence of such determination,  vesting of
                Options  shall be tolled  during any such leave  approved by the
                Company.
 
        (f)     Minimum  Exercise  Requirements.  An Option may not be exercised
                for a fraction of a Share. The Committee may require in an Award
                Agreement  that an Option be exercised as to a minimum number of
                Shares,  provided  that such  requirement  shall  not  prevent a
                Participant  from  purchasing  the full  number  of Shares as to
                which the Option is then exercisable.
 
 
<PAGE>
 
 
        (g)     Methods of  Exercise.  Prior to its  expiration  pursuant to the
                terms of the  applicable  Award  Agreement,  and  subject to the
                times,   circumstances,   and  conditions   for   exercisability
                contained in the applicable Award Agreement,  each Option may be
                exercised,  in whole or in part (provided that the Company shall
                not be  required  to issue  fractional  shares),  by delivery of
                written  notice of  exercise  to the  secretary  of the  Company
                accompanied  by the  full  exercise  price of the  Shares  being
                purchased.  In the case of an ISO, the Committee shall determine
                the acceptable methods of payment on the Grant Date and it shall
                be included in the applicable  Award  Agreement.  The methods of
                payment  that the  Committee  may in its  discretion  accept  or
                commit to accept in an Award Agreement include:
 
                (i)     cash or check payable to the Company (in U.S. dollars);
 
                (ii)    other Shares that (A) are owned by the  Participant  who
                        is purchasing  Shares pursuant to an Option,  (B) have a
                        Fair Market Value on the date of surrender  equal to the
                        aggregate  exercise  price of the Shares as to which the
                        Option is being exercised, (C) were not acquired by such
                        Participant  pursuant  to  the  exercise  of an  Option,
                        unless such  Shares have been owned by such  Participant
                        for at least six months or such other  longer  period as
                        the Committee may determine, (D) are all, at the time of
                        such  surrender,  free and clear of any and all  claims,
                        pledges,  liens and  encumbrances,  or any  restrictions
                        which would in any manner  restrict the transfer of such
                        shares   to  or  by  the   Company   (other   than  such
                        restrictions as may have existed prior to an issuance of
                        such Shares by the Company to such Participant), and (E)
                        are duly endorsed for transfer to the Company;
 
                (iii)   a  cashless  exercise  program  that the  Committee  may
                        approve,  from time to time in its discretion,  pursuant
                        to  which  a  Participant   may   concurrently   provide
                        irrevocable   instructions  (A)  to  such  Participant's
                        broker or dealer to  effect  the  immediate  sale of the
                        purchased  Shares and remit to the  Company,  out of the
                        sale  proceeds   available  on  the   settlement   date,
                        sufficient  funds to  cover  the  exercise  price of the
                        Option plus all applicable taxes required to be withheld
                        by the Company by reason of such exercise and (B) to the
                        Company to deliver the  certificates  for the  purchased
                        Shares  directly  to such  broker  or dealer in order to
                        complete the sale; or
 
                (iv)    any combination of the foregoing methods of payment.
 
        The  Company  shall not be required  to deliver  Shares  pursuant to the
exercise of an Option  until  payment of the full  exercise  price  therefore is
received by the Company.
 
        (h)     Termination of Continuous  Service.  The Committee may establish
                and set forth in the  applicable  Award  Agreement the terms and
                conditions  on which an Option shall remain  exercisable,  if at
                all,  following   termination  of  a  Participant's   Continuous
                Service.  The Committee may waive or modify these  provisions at
                any time.  To the extent that a  Participant  is not entitled to
                exercise  an  Option  at the date of his or her  termination  of
                Continuous  Service,  or if the  Participant  (or  other  person
                entitled to exercise the Option) does not exercise the Option to
                the extent so entitled  within the time  specified  in the Award
                Agreement or below (as  applicable),  the Option shall terminate
                and the Shares underlying the unexercised  portion of the Option
                shall revert to the Plan and become available for future Awards.
                In no event may any Option be exercised  after the expiration of
                the Option term as set forth in the Award Agreement.
 
        The following  provisions  shall apply to the extent an Award  Agreement
does not specify the terms and conditions  upon which an Option shall  terminate
when there is a termination of a Participant's Continuous Service:
 
                (i)     Termination  other than Upon  Disability or Death or for
                        Cause.  In the event of termination  of a  Participant's
                        Continuous   Service   (other   than  as  a  result   of
                        Participant's   death,    disability,    retirement   or
                        termination for Cause),  the Participant  shall have the
                        right to  exercise  an Option at any time within 30 days
                        following such termination to the
 
 
<PAGE>
 
 
                        extent the  Participant  was  entitled to exercise  such
                        Option at the date of such termination.
 
                (ii)    Disability.   In  the   event   of   termination   of  a
                        Participant's  Continuous  Service as a result of his or
                        her "disability"  within the meaning of Section 22(e)(3)
                        of the Code,  the  Participant  shall  have the right to
                        exercise an Option at any time within one year following
                        such  termination  to the  extent  the  Participant  was
                        entitled  to  exercise  such  Option at the date of such
                        termination.
 
                (iii)   Retirement.   In  the   event   of   termination   of  a
                        Participant's   Continuous   Service   as  a  result  of
                        Participant's retirement, the Participant shall have the
                        right to  exercise  the  Option at any time  within  six
                        months  following  such  termination  to the  extent the
                        Participant  was entitled to exercise such Option at the
                        date of such termination.
 
                (iv)    Death. In the event of the death of a Participant during
                        the period of Continuous Service since the Grant Date of
                        an Option,  or within thirty days following  termination
                        of the Participant's  Continuous Service, the Option may
                        be exercised,  at any time within one year following the
                        date of the  Participant's  death, by the  Participant's
                        estate or by a person who acquired the right to exercise
                        the Option by bequest  or  inheritance,  but only to the
                        extent  the right to  exercise  the Option had vested at
                        the  date  of  death  or,  if  earlier,   the  date  the
                        Participant's Continuous Service terminated.
 
                (v)     Cause. If the Committee  determines that a Participant's
                        Continuous   Service   terminated  due  to  Cause,   the
                        Participant  shall  immediately  forfeit  the  right  to
                        exercise  any  Option,   and  it  shall  be   considered
                        immediately null and void.
 
        (i)     Reverse  Vesting.  The Plan  Administrator in its discretion may
                allow a Participant to exercise unvested Options,  in which case
                the Shares then issued  shall be  Restricted  Share Units having
                analogous vesting restrictions to the unvested Options.
 
        (j)     Buyout  Provisions.  The  Committee may at any time offer to buy
                out an  Option,  in  exchange  for a payment  in cash or Shares,
                based  on such  terms  and  conditions  as the  Committee  shall
                establish and  communicate  to the  Participant at the time that
                such offer is made.  In  addition,  if the Fair Market Value for
                Shares  subject  to an  Option  is more  than  33%  below  their
                exercise price for more than 30  consecutive  business days, the
                Committee  may  unilaterally  terminate  and  cancel  the Option
                either (i) by paying  the  Participant,  in cash or  Shares,  an
                amount  not less  than  the  Black-Scholes  value of the  vested
                portion of the  Option,  or (ii) by  irrevocably  committing  to
                grant a new Option,  on a  designated  date more than six months
                after such termination and cancellation of such Option (but only
                if the Participant's Continuous Service has not terminated prior
                to such designated date), on substantially the same terms as the
                cancelled Option, provided that the per Share exercise price for
                the new Option  shall equal the per Share Fair Market Value of a
                Share on the date the new grant occurs.
 
7.      Share Appreciate Rights (SARs)
        ------------------------------
 
        (a)     Grants.   The  Committee  may  in  its  discretion  grant  Share
                Appreciation  Rights  to  any  Eligible  Person,  in  any of the
                following forms:
 
                (i)     SARs related to Options.  The  Committee  may grant SARs
                        either  concurrently with the grant of an Option or with
                        respect to an outstanding  Option, in which case the SAR
                        shall  extend to all or a portion of the Shares  covered
                        by  the  related  Option.   An  SAR  shall  entitle  the
                        Participant who holds the related Option,  upon exercise
                        of the SAR  and  surrender  of the  related  Option,  or
                        portion  thereof,  to the  extent  the SAR  and  related
                        Option  each were  previously  unexercised,  to  receive
                        payment of an amount determined pursuant to Section 7(e)
                        below.  Any SAR granted in  connection  with an ISO will
 
 
<PAGE>
 
 
                        contain such terms as may be required to comply with the
                        provisions   of   Section   422  of  the  Code  and  the
                        regulations promulgated thereunder.
 
                (ii)    SARs  Independent  of Options.  The  Committee may grant
                        SARs which are independent of any Option subject to such
                        conditions  as  the  Committee  may  in  its  discretion
                        determine,  which  conditions  will be set  forth in the
                        applicable Award Agreement.
 
                (iii)   Limited SARs.  The Committee may grant SARs  exercisable
                        only upon or in  respect  of a Change in  Control or any
                        other specified  event, and such limited SARs may relate
                        to  or  operate  in  tandem  or   combination   with  or
                        substitution   for  Options  or  other  SARs,  or  on  a
                        stand-alone  basis, and may be payable in cash or Shares
                        based on the spread  between the  exercise  price of the
                        SAR,  and (A) a price  based  upon or  equal to the Fair
                        Market Value of the Shares during a specified period, at
                        a specified time within a specified period before, after
                        or  including  the  date of such  event,  or (B) a price
                        related   to   consideration    payable   to   Company's
                        shareholders generally in connection with the event.
 
        (b)     Exercise Price.  The per Share exercise price of an SAR shall be
                determined in the sole discretion of the Committee, shall be set
                forth in the applicable  Award  Agreement,  and shall be no less
                than 85% of the Fair  Market  Value of one Share.  The  exercise
                price of an SAR  related  to an Option  shall be the same as the
                exercise price of the related  Option.  The exercise price of an
                SAR shall be subject to the special  rules on pricing  contained
                in paragraphs (iii) and (iv) of Section 6(d) hereof.
 
        (c)     Exercise of SARs. Unless the Award Agreement otherwise provides,
                an SAR related to an Option will be  exercisable at such time or
                times,  and to the  extent,  that  the  related  Option  will be
                exercisable. An SAR may not have a term exceeding ten years from
                its Grant Date. An SAR granted  independently of any other Award
                will  be  exercisable   pursuant  to  the  terms  of  the  Award
                Agreement.  Whether an SAR is related to an Option or is granted
                independently,  the SAR may  only be  exercised  when  the  Fair
                Market  Value  of the  Shares  underlying  the SAR  exceeds  the
                exercise price of the SAR.
 
        (d)     Effect  on  Available  Shares.  To  the  extent  that  an SAR is
                exercised,  only the actual number of delivered  Shares (if any)
                will be charged against the maximum number of Shares that may be
                delivered  pursuant  to Awards  under this  Plan.  The number of
                Shares  subject  to  the  SAR  and  the  related  Option  of the
                Participant  will,   however,   be  reduced  by  the  number  of
                underlying Shares as to which the exercise  relates,  unless the
                Award Agreement otherwise provides.
 
        (e)     Payment.  Upon  exercise  of an SAR related to an Option and the
                attendant  surrender  of an  exercisable  portion of any related
                Award, the Participant will be entitled to receive payment of an
                amount determined by multiplying:
 
                (i)     the  excess of the Fair  Market  Value of a Share on the
                        date of exercise of the SAR over the exercise  price per
                        Share of the SAR, by
 
                (ii)    the number of Shares  with  respect to which the SAR has
                        been exercised.
 
        Notwithstanding the foregoing, an SAR granted independently of an Option
may limit the amount payable to the  Participant  to a percentage,  specified in
the Award Agreement but not exceeding  one-hundred percent (100%), of the amount
determined pursuant to the preceding sentence.
 
        (f)     Form and  Terms of  Payment.  Subject  to  Applicable  Law,  the
                Committee  may,  in  its  sole  discretion,  settle  the  amount
                determined  under  Section 7(e) above solely in cash,  solely in
                Shares  (valued  at  their  Fair  Market  Value  on the  date of
                exercise of the SAR), or partly in cash and partly in Shares. In
                any  event,  cash  shall be paid in lieu of  fractional  Shares.
                Absent a contrary determination by the Committee, all SARs shall
                be  settled  in  cash as soon  as  practicable  after  exercise.
                Notwithstanding
 
 
<PAGE>
 
 
the foregoing,  the Committee may, in an Award Agreement,  determine the maximum
amount of cash or Shares  or  combination  thereof  that may be  delivered  upon
exercise of an SAR.
 
        (g)     Termination  of  Employment  or  Consulting  Relationship.   The
                Committee shall establish and set forth in the applicable  Award
                Agreement the terms and  conditions on which an SAR shall remain
                exercisable, if at all, following termination of a Participant's
                Continuous  Service.  The provisions of Section 6(h) above shall
                apply to the  extent an Award  Agreement  does not  specify  the
                terms and  conditions  upon  which an SAR shall  terminate  when
                there is a termination of a Participant's Continuous Service.
 
        (h)     Repricing and Buy-out.  The Committee has the same discretion to
                reprice and to buy-out  SARs as it has to take such actions with
                respect to Options.
 
 
8.      Restricted and Unrestricted Share Awards
        ----------------------------------------
 
        (a)     Grants.  The Committee may in its  discretion  grant  restricted
                shares  ("Restricted  Shares") to any Eligible  Person and shall
                evidence such grant in an Award  Agreement  that is delivered to
                the  Participant  which  sets  forth the  number  of  Restricted
                Shares,  the purchase price for such Restricted  Shares (if any)
                and the  terms  upon  which the  Restricted  Shares  may  become
                vested. In addition, the Company may in its discretion grant the
                right to receive Shares after certain vesting  requirements  are
                met ("Restricted  Share Units") to any Eligible Person and shall
                evidence such grant in an Award  Agreement  that is delivered to
                the  Participant  which  sets  forth the  number  of Shares  (or
                formula,  that may be based on future performance or conditions,
                for determining the number of Shares) that the Participant shall
                be entitled to receive upon vesting and the terms upon which the
                Shares subject to a Restricted Share Unit may become vested. The
                Committee  may  condition  any  Award of  Restricted  Shares  or
                Restricted  Share Units to a Participant  on receiving  from the
                Participant  such  further   assurances  and  documents  as  the
                Committee may require to enforce the restrictions.  In addition,
                the  Committee  may  grant  Awards  hereunder  in  the  form  of
                unrestricted Shares ("Unrestricted Shares"), which shall vest in
                full upon the date of grant or such other date as the  Committee
                may determine and which the Committee may issue  pursuant to any
                program  under which one or more Eligible  Persons  (selected by
                the Committee in its discretion)  elect to receive  Unrestricted
                Shares in lieu of cash bonuses that would otherwise be paid.
 
        (b)     Vesting  and  Forfeiture.  The  Committee  shall set forth in an
                Award Agreement  granting  Restricted Shares or Restricted Share
                Units,  the terms and conditions  under which the  Participant's
                interest  in the  Restricted  Shares or the  Shares  subject  to
                Restricted Share Units will become vested,  but shall not in the
                absence of extraordinary  circumstances  provide for the vesting
                of these Awards at a rate more favorable to the Participant than
                with  respect  to 25% of  the  underlying  Shares  per  year  of
                Continuous  Service  after the date of the Award.  Except as set
                forth  in  the  applicable  Award  Agreement  or  the  Committee
                otherwise  determines,   upon  termination  of  a  Participant's
                Continuous  Service for any other reason,  the Participant shall
                forfeit his or her Restricted Shares and Restricted Share Units;
                provided that if a Participant  purchases the Restricted  Shares
                and forfeits  them for any reason,  the Company shall return the
                purchase price to the Participant  only if and to the extent set
                forth in an Award Agreement.
 
        (c)     Issuance of  Restricted  Shares  Prior to  Vesting.  The Company
                shall issue stock  certificates that evidence  Restricted Shares
                pending the lapse of  applicable  restrictions,  and that bear a
                legend making appropriate reference to such restrictions. Except
                as set forth in the applicable  Award Agreement or the Committee
                otherwise  determines,  the  Company  or a third  party that the
                Company  designates  shall hold such  Restricted  Shares and any
                dividends that accrue with respect to Restricted Shares pursuant
                to Section 8(e) below.
 
        (d)     Issuance of Shares upon Vesting.  As soon as  practicable  after
                vesting  of  a  Participant's   Restricted   Shares  (or  Shares
                underlying   Restricted  Share  Units)  and  the   Participant's
                satisfaction of applicable
 
 
<PAGE>
 
 
                tax withholding  requirements,  the Company shall release to the
                Participant,  free from the vesting restrictions,  one Share for
                each  vested  Restricted  Share (or issue one Share  free of the
                vesting  restriction  for each vested  Restricted  Share  Unit),
                unless an Award  Agreement  provides  otherwise.  No  fractional
                shares  shall be  distributed,  and  cash  shall be paid in lieu
                thereof.
 
        (e)     Dividends  payable on Vesting.  Whenever  Shares are issued to a
                Participant  or  duly-authorized  transferee  under Section 8(d)
                above pursuant to the vesting of Restricted Shares or the Shares
                underlying   Restricted   Share  Units,   such   Participant  or
                duly-authorized  transferee  shall also be  entitled to receive,
                with respect to each Share  issued,  an amount equal to any cash
                dividends  (plus  simple  interest at a rate of five percent per
                annum,  or  such  other  reasonable  rate as the  Committee  may
                determine) and a number of Shares equal to any stock  dividends,
                which were  declared  and paid to the holders of Shares  between
                the Grant Date and the date such Share is issued.
 
        (f)     Section  83(b)  Elections.  If a  Participant  who has  received
                Restricted  Share Units  provides  the  Committee  with  written
                notice of his or her intention to make an election under Section
                83(b) of the Code with  respect  to the  Shares  subject to such
                Restricted  Share  Units (the  "Section  83(b)  Election"),  the
                Committee  may  in  its  discretion  convert  the  Participant's
                Restricted Share Units into Restricted  Shares, on a one-for-one
                basis,  in full  satisfaction  of the  Participant's  Restricted
                Share Unit Award.
 
        (g)     Deferral  Elections.  At any time  within the  calendar  year in
                which  a  Participant  who is a  member  of a  select  group  of
                management or highly  compensated  employees (within the meaning
                of the Code)  receives an Award of either  Restricted  Shares or
                Restricted Share Units, the Committee may permit the Participant
                to  irrevocably  elect,  on a form provided by and acceptable to
                the  Committee,  to defer the receipt of all or a percentage  of
                the  Shares  that  would   otherwise  be   transferred   to  the
                Participant  upon the vesting of such Award.  If the Participant
                makes this election, the Shares subject to the election, and any
                associated  dividends  and  interest,  shall be  credited  to an
                account  established  pursuant  to  Section 9 hereof on the date
                such Shares would  otherwise have been released or issued to the
                Participant pursuant to Section 8(d) above.  Notwithstanding the
                foregoing,  Shares with respect to which a  Participant  makes a
                Section  83(b) ?  Election  shall not be eligible  for  deferral
                pursuant to Section 9 below.
 
9.      Deferred Share Units
        --------------------
 
        (a)     Elections to Defer. The Committee may permit any Eligible Person
                who is a  Director,  Consultant  or member of a select  group of
                management or highly  compensated  employees (within the meaning
                of the Code) to  irrevocably  elect,  on a form  provided by and
                acceptable to the Committee (the "Election Form"), to forego the
                receipt  of cash or  other  compensation  (including  Restricted
                Shares for which a Section 83(b) Election has not been made, and
                Shares subject to Restricted  Share Units),  and in lieu thereof
                to have the Company  credit to an  internal  Plan  account  (the
                "Account")  a number of deferred  share units  ("Deferred  Share
                Units") having a Fair Market Value equal to the Shares and other
                compensation deferred.  These credits will be made at the end of
                each calendar month during which compensation is deferred.  Each
                Election  Form shall take  effect five  business  days after its
                delivery to the Company,  unless  during such five  business day
                period  the  Company  sends the  Participant  a  written  notice
                explaining why the Election Form is invalid. Notwithstanding the
                foregoing  sentence,  Election Forms shall be  ineffective  with
                respect to any compensation  that a Participant earns before the
                date on which the Company receives the Election Form.
 
        (b)     Vesting.  Each Participant  shall be 100% vested at all times in
                any Shares subject to Deferred Share Units.
 
        (c)     Issuances of Shares.  The Company  shall  provide a  Participant
                with  one  Share   for  each   Deferred   Share   Unit  in  five
                substantially  equal annual  installments that are issued before
                the last day of each of the five  calendar  years that end after
                the  date  on  which  the   Participant's   Continuous   Service
                terminates, unless:
 
 
<PAGE>
 
                (i)     the Participant has properly elected a different form of
                        distribution,  on a form approved by the Committee  that
                        permits the  Participant to select any  combination of a
                        lump sum and  annual  installments  that  are  completed
                        within   ten   years   following   termination   of  the
                        Participant's Continuous Service, and
 
                (ii)    the Company has received the Participant's  distribution
                        election  form  either more than 90 days before a Change
                        in  Control,  or more than one year  before  the date on
                        which the Participant's  Continuous  Service  terminates
                        for  any  reason   other  than  death,   or  before  the
                        Participant's death.
 
                Fractional shares shall not be issued, and instead shall be paid
                out in cash.
 
        (d)     Crediting  of  Dividends.   Whenever  Shares  are  issued  to  a
                Participant  pursuant to Section  9(c) above,  such  Participant
                shall also be entitled to  receive,  with  respect to each Share
                issued,  a cash amount equal to any cash dividends  (plus simple
                interest  at a rate of five  percent  per  annum,  or such other
                reasonable rate as the Committee may determine), and a number of
                Shares equal to any stock dividends which were declared and paid
                to the  holders  of Shares  between  the Grant Date and the date
                such Share is issued.
 
        (e)     Hardship  Withdrawals.  In the event a  Participant  suffers  an
                unforeseeable  hardship within the contemplation of this Section
                9(e),  the  Participant  may  apply  to  the  Committee  for  an
                immediate  distribution of all or a portion of the Participant's
                Deferred Share Units. The hardship must result from a sudden and
                unexpected illness or accident of the Participant or a dependent
                of the Participant,  casualty loss of property, or other similar
                conditions  beyond the control of the  Participant.  Examples of
                purposes   which   are   not   considered    hardships   include
                post-secondary  school  expenses  or the  desire to  purchase  a
                residence. In no event will a distribution be made to the extent
                the  hardship  could  be  relieved   through   reimbursement  or
                compensation by insurance or otherwise, or by liquidation of the
                Participant's nonessential assets to the extent such liquidation
                would not itself cause a severe financial  hardship.  The amount
                of any  distribution  hereunder  shall be  limited to the amount
                necessary to relieve the Participant's  financial hardship.  The
                Committee shall determine whether a Participant has a qualifying
                hardship and the amount which  qualifies  for  distribution,  if
                any.  The  Committee  may  require  evidence  of the purpose and
                amount of the need, and may establish such  application or other
                procedures as it deems appropriate.
 
        (f)     Unsecured Rights to Deferred Compensation. A Participant's right
                to  Deferred  Share  Units  shall  at all  times  constitute  an
                unsecured  promise of the  Company to pay  benefits as they come
                due.  The  right  of  the   Participant  or  the   Participant's
                duly-authorized  transferee to receive benefits  hereunder shall
                be solely an unsecured  claim against the general  assets of the
                Company.   Neither  the   Participant   nor  the   Participant's
                duly-authorized  transferee  shall  have any  claim  against  or
                rights in any  specific  assets,  shares,  or other funds of the
                Company.
 
10.     Performance Awards
        ------------------
 
        (a)     Performance  Units.  The Committee may in its  discretion  grant
                Performance Units to any Eligible Person and shall evidence such
                grant in an Award Agreement that is delivered to the Participant
                which  sets  forth the  terms and  conditions  of the  Award.  A
                Performance  Unit is an Award which is based on the  achievement
                of specific  goals with respect to the Company or any  Affiliate
                or individual  performance of the Participant,  or a combination
                thereof,   over  a  specified   period  of  time.   The  maximum
                Performance  Unit  compensation  that  may be  paid  to any  one
                Participant   with  respect  to  any  one   Performance   Period
                (hereinafter  defined) shall be 450,000 Shares and $1,000,000 in
                cash.
 
        (b)     Performance  Compensation Awards. The Committee may, at the time
                of  grant  of a  Performance  Unit,  designate  such  Award as a
                "Performance  Compensation  Award"  in  order  that  such  Award
                constitutes  "qualified  performance-based  compensation"  under
                Code Section 162(m), in which event the Committee shall have the
                power to grant such  Performance  Compensation  Award upon terms
                and
 
<PAGE>
 
 
                conditions  that  qualify  it  as  "qualified  performance-based
                compensation"  within the meaning of Code Section  162(m).  With
                respect  to  each  such  Performance   Compensation  Award,  the
                Committee shall  establish,  in writing within the time required
                under Code Section 162(m), a "Performance  Period," "Performance
                Measure(s)",  and "Performance Formula(e)" (each such term being
                hereinafter defined). Once established for a Performance Period,
                the Performance  Measure(s) and Performance Formula(e) shall not
                be amended or otherwise modified to the extent such amendment or
                modification  would cause the  compensation  payable pursuant to
                the  Award  to fail to  constitute  qualified  performance-based
                compensation under Code Section 162(m).
 
        A  Participant  shall be  eligible  to  receive  payment in respect of a
Performance   Compensation  Award  only  to  the  extent  that  the  Performance
Measure(s) for such Award are achieved and the Performance Formula(e) as applied
against such Performance  Measure(s) determines that all or some portion of such
Participant's  Award has been  earned  for the  Performance  Period.  As soon as
practicable  after the close of each  Performance  Period,  the Committee  shall
review and  certify in writing  whether,  and to what  extent,  the  Performance
Measure(s) for the Performance  Period have been achieved and, if so,  determine
and certify in writing the amount of the  Performance  Compensation  Award to be
paid to the  Participant  and,  in so  doing,  may use  negative  discretion  to
decrease,  but not increase,  the amount of the Award  otherwise  payable to the
Participant based upon such performance.  The maximum  Performance  Compensation
Award for any one  Participant  for any one  Performance  Period shall be 50,000
Shares and $1,000,000 in cash.
 
        (c)     Definitions.
 
                (i)     "Performance  Formula" means, for a Performance  Period,
                        one or more objective formulas or standards  established
                        by the Committee for purposes of determining  whether or
                        the  extent to which an Award has been  earned  based on
                        the level of performance attained or to be attained with
                        respect   to  one  or   more   Performance   Measure(s).
                        Performance Formulae may vary from Performance Period to
                        Performance  Period and from  Participant to Participant
                        and may be established on a stand-alone basis, in tandem
                        or in the alternative.
 
                (ii)    "Performance Measure" means one or more of the following
                        selected by the Committee to measure Company, Affiliate,
                        and/or  business  unit  performance  for  a  Performance
                        Period,   whether  in   absolute   or   relative   terms
                        (including, without limitation, terms relative to a peer
                        group or index):  basic,  diluted,  or adjusted earnings
                        per share;  sales or revenue;  earnings before interest,
                        taxes, and other adjustments (in total or on a per share
                        basis); basic or adjusted net income; returns on equity,
                        assets,  capital,  revenue or similar measure;  economic
                        value added; working capital;  total shareholder return;
                        and product development, product market share, research,
                        licensing,   litigation,  human  resources,  information
                        services,  mergers,  acquisitions,  sales of  assets  of
                        Affiliates or business units. Each such measure shall be
                        to the extent applicable,  determined in accordance with
                        generally accepted accounting principles as consistently
                        applied by the Company (or such other  standard  applied
                        by  the   Committee)   and,  if  so  determined  by  the
                        Committee, and in the case of a Performance Compensation
                        Award,  to  the  extent  permitted  under  Code  Section
                        162(m),  adjusted to omit the  effects of  extraordinary
                        items,  gain  or  loss  on the  disposal  of a  business
                        segment,  unusual or infrequently  occurring  events and
                        transactions  and  cumulative   effects  of  changes  in
                        accounting  principles.  Performance  Measures  may vary
                        from Performance  Period to Performance  Period and from
                        Participant to Participant,  and may be established on a
                        stand-alone basis, in tandem or in the alternative.
 
                (iii)   "Performance  Period"  means one or more periods of time
                        (of not less than one fiscal  year of the  Company),  as
                        the Committee may  designate,  over which the attainment
                        of one or more  Performance  Measure(s) will be measured
                        for the purpose of determining a Participant's rights in
                        respect of an Award.
 
 
<PAGE>
 
 
11.     Taxes
        -----
 
        (a)     General.  As a  condition  to the  issuance or  distribution  of
                Shares  pursuant to the Plan, the Participant (or in the case of
                the  Participant's   death,  the  person  who  succeeds  to  the
                Participant's  rights)  shall  make  such  arrangements  as  the
                Company  may  require  for the  satisfaction  of any  applicable
                federal,  state,  local or foreign  withholding  tax obligations
                that may arise in connection  with the Award and the issuance of
                Shares.  The  Company  shall not be required to issue any Shares
                until such  obligations are satisfied.  If the Committee  allows
                the   withholding   or   surrender   of  Shares  to   satisfy  a
                Participant's tax withholding  obligations,  the Committee shall
                not allow  Shares to be withheld  in an amount that  exceeds the
                minimum  statutory  withholding  rates for federal and state tax
                purposes, including payroll taxes.
 
        (b)     Default  Rule  for  Employees.  In  the  absence  of  any  other
                arrangement,  an Employee  shall be deemed to have  directed the
                Company to withhold or collect from his or her cash compensation
                an amount  sufficient to satisfy such tax  obligations  from the
                next payroll  payment  otherwise  payable  after the date of the
                exercise of an Award.
 
        (c)     Special  Rules.  In the  case  of a  Participant  other  than an
                Employee  (or in the case of an Employee  where the next payroll
                payment is not sufficient to satisfy such tax obligations,  with
                respect to any remaining tax obligations), in the absence of any
                other   arrangement  and  to  the  extent  permitted  under  the
                Applicable Law, the Participant  shall be deemed to have elected
                to have  the  Company  withhold  from the  Shares  or cash to be
                issued  pursuant to an Award that number of Shares having a Fair
                Market  Value  determined  as of the  applicable  Tax  Date  (as
                defined below) equal to the amount required to be withheld.  For
                purposes of this Section 11, the Fair Market Value of the Shares
                to be withheld  shall be  determined on the date that the amount
                of tax to be withheld is to be determined  under the  Applicable
                Law (the "Tax Date").
 
        (d)     Surrender  of Shares.  If  permitted  by the  Committee,  in its
                discretion, a Participant may satisfy the minimum applicable tax
                withholding  and employment tax  obligations  associated with an
                Award by surrendering  Shares to the Company  (including  Shares
                that would  otherwise be issued pursuant to the Award) that have
                a Fair Market Value  determined  as of the  applicable  Tax Date
                equal to the  amount  required  to be  withheld.  In the case of
                Shares previously acquired from the Company that are surrendered
                under this  Section  11, such Shares must have been owned by the
                Participant  for more than six  months on the date of  surrender
                (or such longer period of time the Company may in its discretion
                require).
 
12.     Non-Transferability of Awards
        -----------------------------
 
        (a)     General. Except as set forth in this Section 12, or as otherwise
                approved by the  Committee  for a select group of  management or
                highly compensated  Employees,  Awards may not be sold, pledged,
                assigned, hypothecated, transferred or disposed of in any manner
                other than by will or by the laws of  descent  or  distribution.
                The  designation  of a  beneficiary  by a  Participant  will not
                constitute  a transfer.  An Award may be  exercised,  during the
                lifetime  of the holder of an Award,  only by such  holder,  the
                duly-authorized  legal representative of a disabled Participant,
                or a transferee permitted by this Section 12.
 
        (b)     Limited Transferability Rights. Notwithstanding anything else in
                this Section 12, the Committee may in its discretion  provide in
                an  Award  Agreement  that  the  Award  may  be  transferred  by
                instrument  to an inter  vivos or  testamentary  trust (or other
                entity) in which the Award is to be passed to beneficiaries upon
                the death of the  trustor  (settlor),  or by gift to  charitable
                institutions,  the Participant's  "Immediate Family" (as defined
                below),  on such terms and  conditions  as the  Committee  deems
                appropriate.  "Immediate  Family"  means any  child,  stepchild,
                grandchild,  parent,  stepparent,  grandparent,  spouse,  former
                spouse,  sibling, niece, nephew,  mother-in-law,  father-in-law,
                son-in-law,  daughter-in-law,  brother-in-law, or sister-in-law,
                and shall include adoptive relationships.
 
 
<PAGE>
 
 
13.     Adjustments  Upon  Changes in  Capitalization,  Merger or Certain  Other
        Transactions
        ------------------------------------------------------------------------
 
        (a)     Changes in Capitalization.  The Committee shall equitably adjust
                the number of Shares covered by each outstanding  Award, and the
                number of Shares that have been  authorized  for issuance  under
                the Plan but as to which no Awards have yet been granted or that
                have been returned to the Plan upon cancellation, forfeiture, or
                expiration  of an Award,  as well as the price per Share covered
                by each such  outstanding  Award,  to reflect  any  increase  or
                decrease  in  the  number  of  issued  Shares  resulting  from a
                stock-split,  reverse stock-split, stock dividend,  combination,
                recapitalization or reclassification of the Shares, or any other
                increase  or decrease  in the number of issued  Shares  effected
                without receipt of consideration by the Company. In the event of
                any such  transaction  or event,  the  Committee  may provide in
                substitution  for any or all outstanding  Options under the Plan
                such  alternative  consideration  (including  securities  of any
                surviving  entity)  as it  may in  good  faith  determine  to be
                equitable under the  circumstances and may require in connection
                therewith the surrender of all Options so replaced. In any case,
                such substitution of securities shall not require the consent of
                any person who is granted options  pursuant to the Plan.  Except
                as  expressly  provided  herein,  no  issuance by the Company of
                shares of stock of any class,  or  securities  convertible  into
                shares of stock of any class, shall affect, and no adjustment by
                reason thereof shall be required to be made with respect to, the
                number or price of Shares subject to any Award.
 
        (b)     Dissolution or  Liquidation.  In the event of the dissolution or
                liquidation  of the  Company  other  than as part of a Change of
                Control,  each Award  will  terminate  immediately  prior to the
                consummation  of such action,  subject to the  discretion of the
                Committee to exercise any discretion authorized in the case of a
                Change in Control.
 
        (c)     Change  in  Control.  In the event of a Change  in  Control  (or
                beforehand  through an Award  Agreement  or  modification  of an
                Award  Agreement),  the  Committee  may in its sole and absolute
                discretion  and  authority,  without  obtaining  the approval or
                consent  of  the  Company's   shareholders  or  any  Participant
                (subject  to  the  specific   commitments   made  in  any  Award
                Agreement) with respect to his or her outstanding  Awards,  take
                one or more of the following actions:
 
                (i)     arrange for or otherwise  provide that each  outstanding
                        Award shall be assumed or a substantially  similar award
                        shall be  substituted  by a successor  corporation  or a
                        parent or subsidiary of such successor  corporation (the
                        "Successor Corporation");
 
                (ii)    accelerate  the vesting of Awards so that  Awards  shall
                        vest (and, to the extent applicable, become exercisable)
                        for any period that the Committee may authorize,  at the
                        end of which the Committee  may provide for  termination
                        of any  unexercised  Options  or SARs,  as to the Shares
                        that otherwise would have been unvested and provide that
                        repurchase  rights of the Company with respect to Shares
                        issued  upon  exercise of an Award shall lapse as to the
                        Shares subject to such repurchase right; or
 
                (iii)   arrange or otherwise  provide for the payment of cash or
                        other  consideration to Participants in exchange for the
                        satisfaction and cancellation of outstanding Awards; or,
 
                (iv)    make such other adjustments or amendments to outstanding
                        Awards or this Plan as the Committee  deems necessary or
                        appropriate.
 
        Notwithstanding  the above, in the event a Participant  holding an Award
assumed or  substituted  by the Successor  Corporation in a Change in Control is
Involuntarily  Terminated by the Successor  Corporation  in connection  with, or
within 12 months  following  consummation  of, the Change in  Control,  then any
assumed or substituted  Award held by the terminated  Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full. The acceleration of vesting and lapse of repurchase  rights
provided  for in the  previous  sentence  shall occur  immediately  prior to the
effective date of the Participant's termination.
 
 
<PAGE>
 
 
        (d)     Certain  Distributions.  In the event of any distribution to the
                Company's  shareholders  of  securities  of any other  entity or
                other assets (other than  dividends  payable in cash or stock of
                the Company)  without receipt of  consideration  by the Company,
                the Committee may, in its discretion,  appropriately  adjust the
                price per Share covered by each outstanding Award to reflect the
                effect of such distribution.
 
14.     Time of Granting Awards
        -----------------------
 
        The date of grant ("Grant  Date") of an Award shall be the date on which
the Committee makes the determination  granting such Award or such other date as
is determined by the  Committee,  provided that in the case of an ISO, the Grant
Date  shall  be the  later  of  the  date  on  which  the  Committee  makes  the
determination granting such ISO or the date of commencement of the Participant's
employment relationship with the Company.
 
15.     Modification of Awards and Substitution of Options
        --------------------------------------------------
 
        (a)     Modification,  Extension,  and  Renewal  of  Awards.  Within the
                limitations of the Plan and any Award  Agreement,  the Committee
                may modify an Award,  to accelerate  the rate at which an Option
                or SAR may be exercised (including without limitation permitting
                an Option or SAR to be exercised  in full without  regard to the
                installment  or  vesting  provisions  of  the  applicable  Award
                Agreement   or  whether  the  Option  or  SAR  is  at  the  time
                exercisable,   to  the  extent  it  has  not   previously   been
                exercised), to accelerate the vesting of any Award, to extend or
                renew  outstanding  Awards,  or to accept  the  cancellation  of
                outstanding Awards to the extent not previously exercised either
                for the  granting  of new Awards or for other  consideration  in
                substitution or replacement thereof.
 
        (b)     Substitution  of  Options.   Notwithstanding   any  inconsistent
                provisions or limits under the Plan, in the event the Company or
                an Affiliate acquires (whether by purchase, merger or otherwise)
                all or substantially all of outstanding  capital stock or assets
                of another  corporation or in the event of any reorganization or
                other transaction  qualifying under Section 424 of the Code, the
                Committee  may,  in  accordance  with  the  provisions  of  that
                Section,  substitute  Options for options  under the plan of the
                acquired  company  provided (i) the excess of the aggregate fair
                market  value of the  shares  subject  to an option  immediately
                after the  substitution  over the aggregate option price of such
                shares is not more than the similar  excess  immediately  before
                such  substitution and (ii) the new Option does not give persons
                additional  benefits,  including  any  extension of the exercise
                period.
 
16.     Term of Plan
        ------------
 
        The Plan shall  continue in effect for a term of ten (10) years from its
effective date as determined  under Section 20 below,  unless the Plan is sooner
terminated under Section 17 below.
 
17.     Amendment and Termination of the Plan
        -------------------------------------
 
        (a)     Authority to Amend or Terminate. Subject to Applicable Laws, the
                Board may from time to time amend, alter, suspend,  discontinue,
                or terminate the Plan.
 
        (b)     Effect of Amendment or Termination. No amendment, suspension, or
                termination of the Plan shall  materially  and adversely  affect
                Awards already granted unless either it relates to an adjustment
                pursuant to Section 13 above, or it is otherwise mutually agreed
                between the Participant and the Committee,  which agreement must
                be in writing  and signed by the  Participant  and the  Company.
                Notwithstanding the foregoing,  the Committee may amend the Plan
                to  eliminate  provisions  which  are no longer  necessary  as a
                result of changes in tax or securities laws or  regulations,  or
                in the interpretation thereof.
 
18.     Conditions Upon Issuance of Shares
        ----------------------------------
 
        Notwithstanding any other provision of the Plan or any agreement entered
into by the Company  pursuant to the Plan,  the Company  shall not be obligated,
and shall have no liability  for  failure,  to issue or deliver any Shares
 
 
<PAGE>
 
 
under the Plan unless such  issuance or delivery  would  comply with  Applicable
Law, with such  compliance  determined by the Company in  consultation  with its
legal counsel.
 
19.     Reservation of Shares
        ---------------------
 
        The Company, during the term of this Plan, will at all times reserve and
keep  available  such  number of Shares as shall be  sufficient  to satisfy  the
requirements of the Plan.
 
20.     Effective Date
        --------------
 
        This Plan shall  become  effective  on the date of its  approval  by the
Board; provided that this Plan shall be submitted to the Company's  shareholders
for approval,  and if not approved by the shareholders  within one year from the
date of approval by the Board, this Plan and any Awards shall be null, void, and
of no force and effect.  Awards granted under this Plan before  approval of this
Plan by the shareholders shall be granted subject to such approval and no Shares
shall be distributed before such approval.
 
21.     Controlling Law
        ---------------
 
        All  disputes  relating to or arising from the Plan shall be governed by
the  internal  substantive  laws (and not the laws of  conflicts of laws) of the
State of New York, to the extent not preempted by United States  federal law. If
any  provision of this Plan is held by a court of competent  jurisdiction  to be
invalid and unenforceable,  the remaining  provisions shall continue to be fully
effective.
 
22.     Laws And Regulations
        --------------------
 
        (a)     U.S.  Securities  Laws. This Plan, the grant of Awards,  and the
                exercise of Options and SARs under this Plan, and the obligation
                of the  Company  to  sell  or  deliver  any  of  its  securities
                (including,  without  limitation,  Options,  Restricted  Shares,
                Unrestricted  Shares,  Restricted  Share Units,  Deferred  Share
                Units,  and  Shares)  under  this Plan  shall be  subject to all
                Applicable  Law. In the event that the Shares are not registered
                under the Securities Act of 1933, as amended (the "Act"), or any
                applicable  state  securities laws prior to the delivery of such
                Shares, the Company may require,  as a condition to the issuance
                thereof,  that  the  persons  to whom  Shares  are to be  issued
                represent and warrant in writing to the Company that such Shares
                are being  acquired by him or her for  investment for his or her
                own  account  and not with a view to, for  resale in  connection
                with, or with an intent of participating  directly or indirectly
                in, any  distribution  of such Shares  within the meaning of the
                Act,  and  a  legend  to  that  effect  may  be  placed  on  the
                certificates representing the Shares.
 
        (b)     Other Jurisdictions. To facilitate the making of any grant of an
                Award  under this  Plan,  the  Committee  may  provide  for such
                special  terms  for  Awards  to  Participants  who  are  foreign
                nationals  or who are  employed by the Company or any  Affiliate
                outside of the United  States of  America as the  Committee  may
                consider necessary or appropriate to accommodate  differences in
                local law, tax policy or custom. The Company may adopt rules and
                procedures  relating to the operation and administration of this
                Plan to accommodate the specific  requirements of local laws and
                procedures  of  particular   countries.   Without  limiting  the
                foregoing, the Company is specifically authorized to adopt rules
                and  procedures  regarding  the  conversion  of local  currency,
                taxes, withholding procedures and handling of stock certificates
                which  vary with the  customs  and  requirements  of  particular
                countries.   The  Company  may  adopt  sub-plans  applicable  to
                particular locations and countries.
 
23.     No Shareholder Rights
        ---------------------
 
        Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share  certificate  to a Participant  or a
transferee  of a Participant  for such Shares in  accordance  with the Company's
governing  instruments  and  Applicable  Law.  Prior to the  issuance  of Shares
pursuant  to an  Award,  a  Participant  shall  not have the right to vote or to
receive  dividends  or any other  rights as a  shareholder  with  respect to the
Shares underlying the Award,
 
 
<PAGE>
 
 
notwithstanding its exercise in the case of Options and SARs. No adjustment will
be made for a dividend or other right that is determined  based on a record date
prior  to the  date  the  stock  certificate  is  issued,  except  as  otherwise
specifically provided for in this Plan.
 
24.     No Employment Rights
        --------------------
 
        The Plan shall not confer upon any  Participant any right to continue an
employment,  service or consulting  relationship with the Company,  nor shall it
affect in any way a Participant's  right or the Company's right to terminate the
Participant's employment,  service, or consulting relationship at any time, with
or without Cause.
 
 
<PAGE>
 
 
                                  NYMAGIC, INC.
                                  -------------
 
                          2004 LONG-TERM INCENTIVE PLAN
                          -----------------------------
 
                                   __________
 
                             Appendix A: Definitions
 
                                   __________
 
As used in the Plan, the following definitions shall apply:
 
"Affiliate" means any entity,  including any "parent corporation" or "subsidiary
corporation"  within the meaning of Section 424 of the Code, which together with
the  Company is under  common  control  within the meaning of Section 414 of the
Code.
 
"Applicable Law" means the legal requirements  relating to the administration of
options and share-based  plans under applicable U.S. federal and state laws, the
Code,  any  applicable  stock  exchange or automated  quotation  system rules or
regulations,  and the applicable laws of any other country or jurisdiction where
Awards are granted,  as such laws, rules,  regulations and requirements shall be
in place from time to time.
 
"Award" means any award made pursuant to the Plan,  including awards made in the
form of an Option,  an SAR, a  Restricted  Share,  a  Restricted  Share Unit,  a
Deferred Share Unit and a Performance Award, or any combination thereof, whether
alternative or cumulative, authorized by and granted under this Plan.
 
"Award Agreement" means any written document setting forth the terms of an Award
that has been  authorized by the Committee.  The Committee  shall  determine the
form or forms of documents to be used, and may change them from time to time for
any reason.
 
"Board" means the Board of Directors of the Company.
 
"Cause" for termination of a Participant's  Continuous Service will exist if the
Participant is terminated  from  employment or other service with the Company or
an Affiliate for any of the following reasons:
 
        (i)  the Participant's  willful failure to substantially  perform his or
             her  duties  and  responsibilities  to the  Company  or  deliberate
             violation of a material Company policy;
 
        (ii) the  Participant's   commission  of  any  material  act  of  fraud,
             embezzlement, dishonesty or any other willful misconduct;
 
        (iii)the  Participant's  material  unauthorized use or disclosure by the
             Participant of any proprietary  information or trade secrets of the
             Company  or any  other  party  to  whom  the  Participant  owes  an
             obligation of  nondisclosure as a result of his or her relationship
             with the Company; or
 
        (iv) Participant's  willful  and  material  breach  of any of his or her
             obligations  under  any  written  agreement  or  covenant  with the
             Company.
 
        The Committee  shall in its discretion  determine as to whether or not a
Participant is being terminated for Cause. The Committee's  determination shall,
unless arbitrary and capricious,  be final and binding on the  Participant,  the
Company,  and all other affected persons.  The foregoing  definition does not in
any way limit the Company's  ability to terminate a Participant's  employment or
consulting  relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.
 
"Change in Control" means any of the following:
 
(a)     Approval  by the  stockholders  of the  Company  of the  dissolution  or
        liquidation of the Company;
 
 
<PAGE>
 
 
(b)     Approval by the  stockholders of the Company of an agreement to merge or
        consolidate,  or otherwise reorganize, with or into one or more entities
        that are not  Affiliates,  as a result  of  which  less  than 50% of the
        outstanding  voting  securities  of the  surviving or  resulting  entity
        immediately after the reorganization are, or will be, owned, directly or
        indirectly,  by  stockholders  of the  Company  immediately  before such
        reorganization  (assuming for purposes of such  determination that there
        is no change in the record  ownership of the Company's  securities  from
        the record date for such  approval  until such  reorganization  and that
        such  record  owners  hold no  securities  of the other  parties to such
        reorganization),  but including in such  determination any securities of
        the other  parties  to such  reorganization  held by  Affiliates  of the
        Company);
 
(c)     Approval by the stockholders of the Company of the sale of substantially
        all of the Company's  business  and/or assets to a person or entity that
        is not an Affiliate of the Company;
 
(d)     Any  "person"  (as such term is used in Sections  13(d) and 14(d) of the
        Exchange Act but excluding any person  described in and  satisfying  the
        conditions of Rule 13d-1(b)(1) thereunder),  other than a person that is
        a  stockholder  of  the  Company  on the  Effective  Date,  becomes  the
        beneficial  owner (as  defined in Rule 13d-3  under the  Exchange  Act),
        directly or indirectly,  of securities of the Company  representing more
        than 50% of the combined voting power of the Company's then  outstanding
        securities  entitled to then vote generally in the election of directors
        of the Company; or
 
(e)     During any period not longer than two consecutive years, individuals who
        at  the  beginning  of  such  period  constituted  the  Board  cease  to
        constitute  at least a majority  thereof,  unless the  election,  or the
        nomination for election by the Company's stockholders, of each new Board
        member was  approved  by a vote of at least  three-fourths  of the Board
        members then still in office who were Board  members at the beginning of
        such period (including for these purposes, new members whose election or
        nomination was so approved).
 
"Code" means the U.S. Internal Revenue Code of 1986, as amended.
 
"Committee" means one or more committees or subcommittees of the Board appointed
by the Board to  administer  the Plan in accordance  with Section 4 above.  With
respect to any decision  involving an Award intended to satisfy the requirements
of  Section  162(m) of the Code,  the  Committee  shall  consist  of two or more
Directors  of the  Company  who are  "outside  directors"  within the meaning of
Section 162(m) of the Code.
 
"Company" means NYMAGIC, INC., a New York corporation.
 
"Consultant"  means any  person,  including  an  advisor,  who is engaged by the
Company  or any  Affiliate  to  render  services  and is  compensated  for  such
services.
 
"Continuous  Service"  means the absence of any  interruption  or termination of
service as an Employee, Director, or Consultant. Continuous Service shall not be
considered  interrupted  in the case of: (i) sick leave;  (ii)  military  leave;
(iii) any other leave of absence  approved by the Committee,  provided that such
leave is for a period of not more  than 90 days,  unless  reemployment  upon the
expiration  of such  leave is  guaranteed  by  contract  or  statute,  or unless
provided  otherwise  pursuant to Company policy adopted from time to time;  (iv)
changes in status from Director to advisory director or emeritus status; or (iv)
in the case of  transfers  between  locations  of the  Company  or  between  the
Company,  its  Affiliates  or their  respective  successors.  Changes  in status
between service as an Employee,  Director,  and a Consultant will not constitute
an interruption of Continuous Service.
 
"Deferred Share Units" mean Awards pursuant to Section 9 of the Plan.
 
"Director" means a member of the Board, or a member of the board of directors of
an Affiliate.
 
"Eligible  Person"  means any  Consultant,  Director  or Employee  and  includes
non-Employees to whom an offer ofemployment has been extended.
 
 
<PAGE>
 
 
"Employee"  means any person whom the Company or any Affiliate  classifies as an
employee (including an officer) for employment tax purposes.  The payment by the
Company of a director's  fee to a Director shall not be sufficient to constitute
"employment" of such Director by the Company.
 
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
 
"Fair Market Value" means, as of any date (the "Determination  Date") means: (i)
the  closing  price of a Share on the New York Stock  Exchange  or the  American
Stock Exchange (collectively, the "Exchange"), on the Determination Date, or, if
shares were not traded on the Determination  Date, then on the nearest preceding
trading day during which a sale occurred; or (ii) if such stock is not traded on
the Exchange but is quoted on NASDAQ or a successor  quotation  system,  (A) the
last sales price (if the stock is then listed as a National  Market  Issue under
The  Nasdaq  National  Market  System)  or (B)  the  mean  between  the  closing
representative  bid and asked  prices (in all other  cases) for the stock on the
Determination Date as reported by NASDAQ or such successor  quotation system; or
(iii) if such  stock is not  traded on the  Exchange  or quoted on NASDAQ but is
otherwise traded in the  over-the-counter,  the mean between the  representative
bid and asked prices on the Determination Date; or (iv) if subsections (i)-(iii)
do not apply, the fair market value established in good faith by the Board.
 
"Grant Date" has the meaning set forth in Section 14 of the Plan.
 
"Incentive Share Option or ISO" hereinafter  means an Option intended to qualify
as an incentive  stock option  within the meaning of Section 422 of the Code, as
designated in the applicable Award Agreement.
 
"Involuntary  Termination"  means  termination  of  a  Participant's  Continuous
Service  under the  following  circumstances  occurring  on or after a Change in
Control:  (i)  termination  without  Cause by the  Company  or an  Affiliate  or
successor  thereto,  as  appropriate;  or  (ii)  voluntary  termination  by  the
Participant   within  60  days  following  (A)  a  material   reduction  in  the
Participant's job responsibilities, provided that neither a mere change in title
alone nor  reassignment to a substantially  similar  position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's  work site to a facility or  location  more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's  total compensation other than as part of an
reduction  by the  same  percentage  amount  in the  compensation  of all  other
similarly-situated Employees, Directors or Consultants.
 
"Non-ISO"  means an Option not intended to qualify as an ISO, as  designated  in
the applicable Award Agreement.
 
"Option" means any stock option granted pursuant to Section 6 of the Plan.
 
"Participant"  means any holder of one or more Awards, or the Shares issuable or
issued upon exercise of such Awards, under the Plan.
 
"Performance Awards" mean Performance Units and Performance  Compensation Awards
granted pursuant to Section 10.
 
"Performance  Compensation Awards" mean Awards granted pursuant to Section 10(b)
of the Plan.
 
"Performance  Unit" means Awards  granted  pursuant to Section 10(a) of the Plan
which may be paid in cash, in Shares,  or such combination of cash and Shares as
the Committee in its sole discretion shall determine.
 
"Plan" means this NYMAGIC, INC. 2004 Long-term Incentive Plan.
 
"Reporting  Person"  means an  officer,  Director,  or greater  than ten percent
shareholder  of the Company  within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file  reports  pursuant to Rule 16a-3 under the Exchange
Act.
 
"Restricted  Shares" mean Shares  subject to  restrictions  imposed  pursuant to
Section 8 of the Plan.
 
 
<PAGE>
 
 
"Restricted Share Units" mean Awards pursuant to Section 8 of the Plan.
 
"Rule 16b-3"  means Rule 16b-3  promulgated  under the Exchange  Act, as amended
from time to time, or any successor provision.
 
"SAR" or "Share  Appreciation  Right" means Awards granted pursuant to Section 7
of the Plan.
 
"Share" means an ordinary voting share of the Company, as adjusted in accordance
with Section 13 of the Plan.
 
"Ten Percent  Holder" means a person who owns stock  representing  more than ten
percent  (10%)  of the  combined  voting  power of all  classes  of stock of the
Company or any Affiliate.
 
"Unrestricted Shares" has the meaning set forth in Section 8 of the Plan.