Exhibit 10.25
Executive Employment Agreement
     This Executive Employment Agreement (this “Agreement”), is made this 14th
day of November, 2007 by and between ProCentury Corporation (the “Company”) and
James P. Flood (“Executive”).
Recitals
     Whereas, the Company desires to employ Executive as its Senior Vice
President of Operations, and Executive desires to be so employed under the terms
and conditions hereinafter set forth for a period through at least the second
anniversary of the Effective Date.
Statement of Agreement
     Now, therefore, in consideration of the mutual promises and covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Executive agree as follows:
SECTION 1
EMPLOYMENT AND DUTIES
     1.1 Duties and Position. During the term of this Agreement, Executive shall
provide services to the Company in accordance with this Agreement in the
capacities of Senior Vice President of Operations of the Company and as an
executive officer, in the capacities identified on Exhibit A, of one or more
Affiliates (as that term is defined in Section 5.4) of the Company; provided,
however, that at the request of the Company’s Board of Directors (the “Board”)
at any time and from time to time, Executive shall serve in such other capacity
or capacities, of at least equal standing and dignity as Senior Vice President
of Operations of the Company and, with respect to any Affiliate of the Company,
of at least equal standing and dignity as the positions identified on Exhibit A;
and provided further that Executive shall serve as Senior Vice President of
Operations of any Affiliate of the Company that is required to file periodic
reports pursuant to section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (“the Exchange Act”) and of any Affiliate that, as a result of
any reorganization involving the Company, is an entity controlling the Company
or the assets or operations that were the Company’s immediately prior to such
reorganization. Executive shall report directly to the Chief Executive Officer
and shall perform such duties and responsibilities consistent with his positions
as shall be assigned to him by the Board. Executive shall serve as director of
the board of directors of each operating subsidiary that is an Affiliate
controlled by the Company.
     1.2 Standard of Performance. Executive shall faithfully perform the duties
assigned to him pursuant to this Agreement. Executive agrees to abide by the
Company’s rules, regulations, policies and practices as they are presently in
force and as they may be revoked, adopted or modified at any time and from time
to time during the term of this Agreement.

 

--------------------------------------------------------------------------------

 

     1.3 Time Devoted to the Company. Executive shall be required to devote
substantially full time and attention to his duties under this Agreement.
Subject to the obligations of Executive pursuant to Section 4.5 hereof and the
immediately preceding sentence, Executive may engage in any other activity,
whether for pecuniary gain or not, which does not materially interfere with his
obligations under this Agreement.
SECTION 2
COMPENSATION AND BENEFITS
     2.1 Base Salary. The Company agrees to pay or cause to be paid to Executive
for Executive’s services during the term of this Agreement an annual base salary
at the gross rate prior to all taxes and other withholdings of not less than
$275,000 effective September 1, 2007. The base salary will be subject to annual
review and may be adjusted from time to time under the direction of the Board
(or, if the Board so directs, its Compensation Committee) considering factors
such as Executive’s performance, compensation of similar executives of similarly
sized companies and other pertinent factors (the “Base Salary”). The Base Salary
shall be payable to Executive in accordance with the then current payment
policies of the Company for its employees.
     2.2 Performance Based Incentive Bonus. Executive shall be entitled to an
annual performance based cash incentive bonus in an amount up to 40 percent of
the Base Salary (the “Bonus”). The Bonus shall be earned and paid in accordance
with the Company’s performance based incentive compensation plan (the “Incentive
Plan”); provided, however, that with respect to Executive, the “Performance
Period” (as defined in the Incentive Plan) shall be the calendar year beginning
with the 2007 calendar year and continuing for each calendar year thereafter. A
copy of the Performance Goals as so established shall be provided to Executive.
The Bonus shall be payable as provided in the Incentive Plan. The Performance
Goals for 2007 shall be as set forth in the March 22, 2005 Executive
Compensation Committee Meeting Minutes, as attached hereto as Exhibit B.
     2.3 Stock Options and Restricted Stock. To the extent not contrary to
applicable law, all of the options granted to the Executive prior to the date
hereof pursuant to the Company’s 2004 Stock Option and Award Plan (the “Stock
Option Plan”) shall become fully vested and remain exercisable pursuant to their
respective terms for the remainder of their respective Exercise Periods (as
defined in the Stock Option Plan), and all unvested Shares, if any, of
restricted stock granted to the Executive prior to the date hereof pursuant to
the Stock Option Plan shall become fully vested, effective upon termination of
Executive’s employment by reason of death, discharge by the Company pursuant to
3.4(a) other than for Cause, resignation by Executive pursuant to Section 3.5(b)
for Good Reason, termination by resignation or discharge for any reason other
than Cause upon or after a Change in Control, or “retirement” or “disability”
within the meaning of the Stock Option Plan; and all options granted, all shares
of restricted stock awarded, and any and all other awards made to Executive
pursuant to the Stock Option Plan after the date hereof shall be subject to such
terms and conditions as shall be determined at the time of any such award under
the direction of the Board pursuant to the Stock Option Plan. The Company shall
exercise best efforts to register with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, the issuance of shares of

2

--------------------------------------------------------------------------------

 

stock issued pursuant to the Stock Option Plan and to satisfy the current public
information requirements of Rule 144(c) for purpose of allowing Executive to
resell such shares.
     2.4 Benefits. In addition to the compensation to be paid under this
Agreement, the Company shall provide to, or for the benefit of, Executive the
following employee benefits:

  (a)   Participation in retirement plans, if any, which are made available from
time to time to the salaried employees of the Company or its Affiliates, to the
extent that Executive is eligible to participate therein pursuant to the terms
and conditions of such plans.     (b)   Participation in health, disability and
other welfare benefit and insurance plans, if any, which are made available from
time to time to the salaried employees of the Company or its Affiliates, to the
extent that Executive is eligible to participate therein pursuant to the terms
and conditions of such plans.     (c)   At the option of Executive, (1) whole
life insurance on the life of Executive in an amount equal to 2.5 times
Executive’s Base Salary, the premiums for which shall be timely paid by the
Company for so long as Executive remains employed with the duties and position
described in Section 2.1, provided that Executive is insurable at reasonable
prevailing rates; or (2) additional benefits specified by Executive at an annual
cost to the Company equal to the annual premium that would otherwise be payable
for such life insurance; provided, such amounts do not result in the deferral of
compensation, as determined under Section 409A of the Internal Revenue Code of
1986, as amended, including the regulations promulgated thereunder (the “Code”).
If Executive is not insurable at reasonable prevailing rates, then the Company
shall not be obligated to provide life insurance coverage pursuant to
Section 2.4(c)(1), but shall be obligated to provide additional benefits
pursuant to Section 2.4(c)(2) at an annual cost to the Company equal to such
reasonable prevailing rates. The beneficiary of the life insurance policy
covering the life of Executive (the “Policy”) shall be Executive’s spouse or
such other person(s) as Executive shall designate in writing to the insurance
company. The owner of the Policy shall be the Company. The Company shall not
borrow against the cash surrender value of such Policy nor cause the value
thereof to become subject to any lien. If Executive’s employment is terminated
pursuant to Section 3.3, 3.4(a), 3.5(a), 3.5(b), of this Agreement, or
“Qualified Retirement” as defined in the Incentive Plan, Executive shall have
the election, at her option, to require the Company (A) to assign the Policy to
Executive, provided that Executive shall be responsible for paying or
reimbursing the Company for all premiums and other policy charges which are or
become due and payable, in the case of terminations pursuant to Section 3.3 or
3.5(a), unless otherwise agreed, on or after the date of termination of
Executive’s employment, and in the case of terminations pursuant to
Section 3.4(a) or 3.5(b) or “Qualified Retirement” as defined in the Incentive
Plan, on or after the date that severance benefits cease to be payable pursuant
to Section 3.6(c), or (B) to cancel the Policy or to permit it to lapse, and to
pay the cash value of the Policy, in the case of terminations pursuant to
Section 3.3 or 3.5(a), unless otherwise agreed, as of

3

--------------------------------------------------------------------------------

 

      Executive’s date of termination to Executive, and in the case of
terminations pursuant to Section 3.4(a) or 3.5(b) or “Qualified Retirement” as
defined in the Incentive Plan, as of the date that severance benefits cease to
be payable pursuant to Section 3.6(c); provided, however, that if it is
determined by the Company upon the advice of legal counsel that this election
would be an extension of credit in the form of a personal loan within the
meaning of section 13(k) of the Exchange Act, the election provided in this
sentence shall be null and void. The option granted by Section 2.4(c) may be
exercised at one or more times during the term of Executive’s employment, with
Executive having the right to select either the insurance or additional benefit,
so long as the total cost to the Company during each year and in the aggregate
does not exceed the cost that the Company would have realized had Executive
elected whole life insurance at the time of the Effective Date.
    (d)   Sick leave in accordance with the policies of the Company in effect
from time to time.     (e)   Reasonable vacation time consistent with past
practice or as otherwise approved by the President or the Board.     (f)   Such
other benefits as may be approved by the Board or appropriate oversight
committee of the Board on a case-by-case basis for proper business purpose.

     2.5 Reimbursement of Business Expenses. Executive shall be entitled to
receive reimbursement for, or payment of, the legitimate business expenses
incurred by Executive on behalf of the Company in accordance with the Company
policy in effect from time to time, including meals, lodging, transportation and
other travel expenses.
SECTION 3
TERM OF AGREEMENT; TERMINATION
     3.1 Term. This Agreement shall become effective on the date first written
above and shall continue in force until terminated in accordance with this
Section 3. Executive’s employment with the Company pursuant to this Agreement
shall terminate concurrently with the termination of this Agreement.
     3.2 Termination upon Death. Executive’s employment under this Agreement
shall terminate automatically upon the death of Executive.
     3.3 Termination by Mutual Agreement. This Agreement may terminate at any
time upon the mutual agreement of the Company and Executive.
     3.4 Termination by the Company.

4

--------------------------------------------------------------------------------

 

     (a) The Company may terminate Executive’s employment under this Agreement
at any time, without Cause (as defined in Section 3.4(c)), upon thirty (30) days
prior written notice of termination to Executive. The Company, in its sole
discretion but without derogation to any rights of Executive under Section 2,
may place Executive on administrative leave during the thirty (30) day notice
period.
     (b) The Company may terminate Executive’s Employment under this Agreement
with Cause immediately upon written notice of termination to Executive, unless a
later termination date is specified in the notice.
     (c) For the purposes of this Agreement, “Cause” for termination shall exist
if Executive is:

  (1)   Convicted of, or pleads guilty or nolo contendere to, in a court of
competent jurisdiction, a felony amounting to embezzlement, fraud, theft or
other act of dishonesty harming the Company or any employee, supplier, customer
or other person doing business with the Company;     (2)   Convicted of, or
pleads guilty or nolo contendere to, in a court of competent jurisdiction, a
felony resulting in death or substantial bodily or psychological harm to, or
other act of moral turpitude harming, any person;     (3)   Barred or suspended
for a period of more than 60 days by any court or regulatory agency of competent
jurisdiction from performing employment duties for, engaging in any activities
on behalf of, or otherwise being associated with, the Company;     (4)   Found
liable by any court of competent jurisdiction for conduct undertaken with
deliberate intent to cause harm or injury, or undertaken with reckless disregard
to the harm or injury that would be caused, to the Company or any employee,
supplier, customer or other person doing business with the Company other than
conduct taken pursuant to advice of legal counsel to the Company; or     (5)  
Found by the Chief Executive Officer on behalf of the Company to have

  (A)   Failed to exercise reasonable efforts (as determined in the reasonable
judgment of the Chief Executive Officer) to properly perform any of the
Executive’s obligations under this Agreement or any direction of the Chief
Executive Officer consistent with this agreement; however, that the refusal to
perform an obligation or direction should not constitute “Cause” if Executive in
good faith reasonably believes that such obligation or direction is not legal,
ethical or moral and Executive so notifies the Board of his belief.     (B)  
Willfully caused the Company other than pursuant to the advice of Company legal
counsel to violate a law which, in the opinion of Company legal counsel, is
reasonable grounds for civil or criminal penalties against the Company;

5

--------------------------------------------------------------------------------

 

  (C)   Willfully engaged in conduct which constitutes a violation of the
established written policies or procedures of the Company regarding the conduct
of its employees, including policies regarding sexual harassment of employees
and use of illegal drugs or substances;     (D)   Willfully engaged in conduct
demonstrably and materially injurious to the goodwill and reputation of the
Company;     (E)   Willfully engaged in any act of dishonesty against the
Company; or     (F)   Intentionally criticized, ridiculed or disparaged the
Company in any communications or with any customer or client, vendor or
supplier, or in any public statement.

     3.5 Termination by Executive.
     (a) Executive may terminate his employment under this Agreement at any time
without Good Reason (as defined in Section 3.5(c) below) upon thirty (30) days
prior written notice to the Company. The Company, in its sole discretion but
without derogation to any rights of Executive under Section 2, may place
Executive on administrative leave during the thirty (30) day notice period.
     (b) Executive may terminate his employment under this Agreement, upon
fifteen (15) days prior written notice to the Company, if he resigns for Good
Reason; provided that Executive shall not resign pursuant to this Section 3.5(b)
if, prior to the expiration of the fifteen (15) day notice period, the Company
causes the facts or events giving rise to the Good Reason for resignation to no
longer exist and provides evidence of a form and nature satisfactory to
Executive that such facts or events no longer and will not in the foreseeable
future exist. The Company, in its sole discretion but without derogation to any
rights of Executive under Section 2, may place Executive on administrative leave
during the fifteen (15) day notice period. Notwithstanding anything to the
contrary contained herein, Executive shall not be required to perform any act
stated in his written notice of resignation as Good Reason for his resignation
for the period beginning with the giving of such written notice and ending with
the effective date of the termination of his employment.
     (c) Executive shall be considered to have resigned for Good Reason if:

  (1)   Executive ceases to hold the position and title of Senior Vice President
as contemplated by Section 1.1 of this Agreement;     (2)   Executive is
assigned, without his consent, authority or responsibility materially
inconsistent with the authority and responsibility contemplated by Section 1.1
of this Agreement, including without limitation any material diminution of his
authority and responsibility or change in reporting requirements;     (3)  
Executive’s Base Salary is reduced, or there is any material delay in the
payment of Executive’s Base Salary, or there is any material reduction in the
nature and

6

--------------------------------------------------------------------------------

 

      amount of benefits (including benefits under the Incentive Plan or the
Stock Option Plan or any successor plans thereto) theretofore provided to
Executive pursuant to Section 2;

  (4)   Any requirement is imposed for Executive to reside or travel outside of
the Columbus, Ohio area, other than on travel reasonably required to carry out
Executive’s obligations under this Agreement and consistent with past practice;
    (5)   Executive becomes disabled to the extent that he cannot, with
reasonable accommodation, effectively perform the requirements of his position
for a period of three consecutive months (which determination shall be made by a
physician of Executive’s choice who is reasonably acceptable to the Company);  
  (6)   The Company commits a material breach of this Agreement (other than
breaches which may be covered by some other subsection of this Section 3.5(c)),
which breach is not cured within thirty (30) days after written notice thereof
is given by Executive; or     (7)   For so long as Executive remains employed
with the duties and position described in Section 2.1, Executive and
Messrs. Edward F. Feighan, and Christopher J. Timm, so long as each of them
remains employed by the Company or its Affiliate, do not continue to constitute
a majority of directors of, or otherwise control, the board of directors of each
operating subsidiary that is an Affiliate controlled by the Company.     (d)   A
Change in Control shall be deemed to have occurred if there is:     (1)   A
purchase or other acquisition in any one or more transactions by any person,
entity or group of persons (within the meaning of section 13(d)(3) or 14(d)(2)
of the Exchange Act or any comparable successor provisions), directly or
indirectly, which results in the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of such person, entity or group
of persons equaling fifty percent (50%) or more of the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (“Voting Securities”); excluding, however, any
acquisition (A) by the Company or any person controlled by the Company or the
Board of Directors of the Company, (B) by any employee benefit plan or related
trust sponsored or maintained by the Company, (C) by Executive; or (D) by
another group including Executive, but only if Executive and other executives of
the Company control such group;     (2)   A change, within any rolling two-year
period beginning with any date on or after the Effective Date, in the
composition of the Board such that the individuals who constitute the Board (the
“Incumbent Board”) at the beginning of such rolling period cease for any reason
to constitute at least a majority of the Board; provided, however, that for
purposes of this definition, any individual who becomes a member of the Board
after the Effective Date, whose election, or nomination for election, by the
Company’s security-holders was approved by a vote of at least a majority of
those individuals who are members of the Board and

7

--------------------------------------------------------------------------------

 

      who were also members of the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board; and provided, however,
that any such individual whose initial assumption of office occurs as a result
of or in connection with either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of any person other than the Board shall not be so considered as
a member of the Incumbent Board;     (3)   A merger, reorganization or
consolidation to which the Company is a party or a sale or other disposition of
all or substantially all of the assets of the Company (each, a “Corporate
Transaction”); excluding however, any Corporate Transaction pursuant to which
(A) persons who were security holders of the Company immediately prior to such
Corporate Transaction own (solely because of their Voting Securities owned
immediately prior to such Corporate Transaction) immediately thereafter more
than 50 percent of the combined voting power entitled to vote in the election of
directors of the then outstanding securities or the company surviving the
Corporate Transaction and (B) individuals who constitute the Incumbent Board
will immediately after the consummation of the Corporate Transaction constitute
at least a majority of the members of the board of directors of the company
surviving such Corporate Transaction; or     (4)   Approval by the
security-holders of the Company of a plan of complete liquidation or dissolution
of the Company.

     3.6 Compensation Upon Termination. In addition to any employee benefits to
which Executive is entitled pursuant to Section 2.4 and any reimbursement of
business expenses pursuant to Section 2.5 (with respect to which Executive and
the Company shall reasonably cooperate), Executive shall be entitled to the
following upon termination of Employment under this Agreement:

  (a)   In the event that the Company discharges Executive pursuant to
Section 3.4(b) for Cause, or Executive resigns (other than for Good Reason)
pursuant to Section 3.5(a), Executive shall be entitled to receive and the
Company shall cause to be paid (1) any earned but unpaid Base Salary through the
effective date of termination and (2) any award for which a Bonus was earned
under the Incentive Plan for any Performance Period which ended prior to the
effective date of termination but was not theretofore paid to Executive. All
such amounts shall be paid by the Company in a single sum cash payment within
thirty (30) days after the date of Executive’s discharge or resignation.     (b)
  In the event that Executive’s employment is terminated by death, Executive’s
estate or personal representative shall be entitled to receive and the Company
shall cause to be paid (1) any earned but unpaid Base Salary through the date of
Executive’s death; (2) any award for which a Bonus was earned under the
Incentive Plan for any Performance Period which ended prior to the effective
date of termination but was not theretofore paid to Executive; (3) payment of
Executive’s then current Base Salary for the ninety (90) day period following
the

8

--------------------------------------------------------------------------------

 

      date of his death; (4) an amount equal to the Target Incentive Award
established for Executive under the Incentive Plan for the then current
Performance Period had Executive’s employment not been terminated and had
Executive satisfied all Performance Goals established with respect to such
Performance Period, multiplied by a fraction the numerator of which is the
number of days in the then current Performance Period under the Incentive Plan
occurring prior to and including the date of Executive’s death, and the
denominator of which is the number of days of the whole Performance Period; and
(5) continued benefits (to the same extent and at the same level as were
provided by the Company to Executive’s family members immediately prior to
Executive’s death) under the health insurance plan(s) referenced in Section
2.4(b), for the ninety (90) day period following the date of termination, and,
to the extent permitted pursuant to such health insurance plan(s), for such
longer period as to which Executive’s beneficiaries pay the cost of coverage
thereof. All such amounts or benefits (other than health benefits continued
pursuant to Section 3.6(b)(5) above, which shall be payable in accordance with
the terms of the applicable plan) shall be paid or provided by the Company in a
single sum cash payment within thirty (30) days after the date of Executive’s
death; provided, that the Company has obtained satisfactory evidence of
Executive’s death.

     (c)  (1)    Except as provided in Section 3.6(c)(2) below, in the event
that the Company discharges Executive pursuant to Section 3.4(a) other than for
Cause or Executive resigns pursuant to Section 3.5(b) for Good Reason, Executive
shall be entitled to receive and the Company shall cause to be paid (A) any
earned but unpaid Base Salary through the date of termination; (B) any award for
which a bonus was earned under the Incentive Plan for any Performance Period
which ended prior to the effective date of termination but was not theretofore
paid to Executive; (C) continued payment of Executive’s then current Base Salary
for the twelve (12) month period following the date of termination; (D) an
amount equal to the product of (i) the Target Incentive Award established for
Executive under the Incentive Plan for the then current Performance Period had
Executive’s employment not been terminated and had Executive satisfied all
Performance Goals established with respect to such Performance Period,
multiplied by (ii) a fraction, the denominator of which shall be twelve (12) and
the numerator of which shall be twelve (12); and (E) continued benefits (to the
same extent and at the same benefit level as were provided by the Company to
Executive immediately prior to termination) under the retirement plans
referenced in Section 2.4(a), the health, disability and other welfare benefit
and insurance plans referenced in Section 2.4(b), and the Policy referenced in
Section 2.4(c), for the twelve (12) month period following the date of
termination, and, to the extent permitted pursuant to such health insurance
plan(s), for such longer period as to which Executive or Executive’s
beneficiaries pay the cost of coverage thereof; provided, that if any such plans
are terminated, or benefits thereunder reduced or eliminated, during such twelve
(12) month period, or if, as a result of termination or otherwise, Executive
ceases to be

9

--------------------------------------------------------------------------------

 

      eligible to participate in any such plans during such twelve (12) month
period, the Company shall provide to Executive substitute benefits which are no
less favorable to Executive than those received by Executive under such plan(s).
Subject to Section 3.8, all such amounts or benefits (other than the amounts
referenced in Section 3.6(c)(1)(C), which shall be paid in accordance with
Section 3.6(e), and the Continuation Benefits referenced in Section 3.6(c)(2),
which shall be payable or made available in accordance with the terms of the
applicable benefit plan and Sections 3.6(e) and (f)), otherwise available under
this Agreement shall be paid or made available by the Company in a single sum
cash payment within thirty (30) days after the date of Executive’s discharge or
resignation.

  (2)   Notwithstanding anything to the contrary in Section 3.6(C)(1) above, in
the event that (A) a Change in Control occurs and (B) within the twelve
(12) month period immediately following the date on which the Change in control
occurs, (i) the Company discharges Executive pursuant to Section 3.4(a) other
than for Cause or (ii) Executive resigns pursuant to Section 3.5(b) for Good
Reason, Executive shall be entitled to receive and the Company shall cause to be
paid in a single sum cash payment and within thirty (30) days of Executive’s
termination of employment an amount equal to (a) any earned but unpaid Base
Salary through the date of termination; plus (b) any award for which a bonus was
earned under the Incentive Plan for any Performance Period which ended prior to
the effective date of termination but was not theretofore paid to Executive;
plus (c) the product of one (1) times Executive’s then current Base Salary at
the date of termination, plus (d) the product of one (1) times the Target
Incentive Award established for Executive under the Incentive Plan for the then
current Performance Period had Executive’s employment not been terminated and
had Executive satisfied all Performance Goals established with respect to such
Performance Period. In addition, Executive shall be entitled to continued
benefits (to the same extent and at the same benefit level as were provided by
the Company to Executive immediately prior to termination) (the “Continuation
Benefits”) under the retirement plans referenced in Section 2.4(a), the health,
disability and other welfare benefit and insurance plans referenced in
Section 2.4(b), and the Policy referenced in Section 2.4(c), for the twelve
(12) month period following the date of termination, and, to the extent
permitted pursuant to such health insurance plan(s), for such longer period as
to which Executive or Executive’s beneficiaries pay the cost of coverage
thereof; provided, that if any such plans are terminated, or benefits thereunder
reduced or eliminated, during such twelve (12) month period, or if, as a result
of termination or otherwise, Executive ceases to be eligible to participate in
any such plans during such twelve (12) month period, the Company shall provide
to Executive substitute benefits which are no less favorable to Executive than
those received by Executive under such plan(s). Subject to Section 3.8, all such
amounts or benefits (other than the amounts referenced in Section 3.6(c)(1)(C),
which shall be paid in accordance with

10

--------------------------------------------------------------------------------

 

      Section 3.6(e), and the Continuation Benefits, which shall be payable or
made available in accordance with the terms of the applicable benefit plan and
Section 3.6(e)), otherwise available under this Agreement shall be paid by the
Company in a single sum cash payment within thirty (30) days after the date of
Executive’s discharge or resignation.

  (d)   Except as otherwise provided in Section 3.6(b) or 3.6(c), Executive’s
right, upon and after the termination of his employment under this Agreement
pursuant to this Section 3 or otherwise, to receive any benefit under the plans,
if any, in which Executive is entitled to participate pursuant to Section 2.4
shall be determined under the provisions of those plans.     (e)   Any amount or
benefit that is payable or to be provided to Executive, or on his behalf, in
accordance with Section 3.6(c) and which is not payable or to be provided in a
single sum cash payment shall be paid or provided to Executive, Executive’s
estate or personal representative, or Executive’s beneficiaries, as applicable,
in a series of substantially equal payments, in accordance with the Company’s
current payment policies for the period established in this Section 3.6. Subject
to Section 3.6(f), such payments or benefits shall commence being made within
thirty (30) days of Executive’s discharge or resignation.     (f)  
Notwithstanding any provision of this Agreement to the contrary, no payment
shall be made or benefit provided under Section 3.6 unless the event triggering
the payment or provision of benefits constitutes a “separation from service” as
determined under Code Section 409A. However, in the event Executive is a
“specified employee” (as determined under Code Section 409A) at the time of the
triggering event, then any payment or benefit that is otherwise due Executive
under this Agreement which is determined to provide for a deferral of
compensation pursuant to Code Section 409A shall not commence being paid or made
available to Executive until after six (6) months from the date of his
separation from service.

     3.7 Notices. Any termination of Executive’s employment for which notice of
termination is required to be given pursuant to this Section 3 shall be
communicated in a writing which shall indicate the specific provision in this
Section 3 relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination under the provision so
indicated.
     3.8 General Release. Notwithstanding anything in this Section 3 or
otherwise to the contrary, at the election of the Company no amount shall be
payable under this Section 3 in excess of (a) any earned but unpaid Base Salary
through the date of Executive’s death; (b) any award under the Incentive Plan
which was earned pursuant to the terms and conditions of such plan prior to the
effective date of termination but was not theretofore paid to Executive, unless
Executive (or his personal representative or trustee of his estate, in the case
of his disability or death) executes a general release of known claims (in form
and containing provisions reasonably required by the Company), provided,
however, that any such general release shall be mutual with

11

--------------------------------------------------------------------------------

 

respect to known claims of the Company against Executive and known claims of
Executive against the Company.
     3.9 No Mitigation. In the event of the termination of Executive’s
employment hereunder for any reason, Executive shall have no obligation to
mitigate damages.
SECTION 4
CONFIDENTIALITY AND NON-COMPETITION
     4.1 Confidential Information. Except as otherwise provided in Section 4.2,
the term “Confidential Information” shall mean all trade secrets and
confidential and proprietary information of the Company, whether in written or
oral, tangible or intangible form, including, without limitation, the following:

  (a)   The whole or any portion or phase of any data or information relating to
the Company’s processes or techniques relating to its business, whether or not
copyrighted, copyrightable, patented or patentable, (1) which is or has been
disclosed to Executive or about which Executive became or shall become aware of
as a consequence of, or through or during Executive’s employment with the
Company; (2) which has value to the Company; and (3) which is not generally
known by others;     (b)   Any software, programs, calculations, instructions or
other intellectual property and embodiments thereof of any media, including
electro magnetic, and in any form, including source code and object code,
whether or not copyrighted, copyrightable, patented or patentable;     (c)  
Business plans, marketing concepts and marketing and sales information of the
Company;     (d)   Financial, pricing and/or credit information regarding the
Company or customers and/or suppliers of the Company;     (e)   The names,
addresses, policy expiration dates and telephone numbers of customers, agents
and/or suppliers of the Company;     (f)   The internal corporate policies and
procedures of the Company;     (g)   Any information of any nature whatsoever
that gives the Company the opportunity to obtain any advantage over its
competitors who do not have access to or use of such information; and     (h)  
Any other information designated by the Company as confidential or proprietary
at the time of its disclosure to Executive.

The term “Confidential Information” also shall include all trade secrets and
confidential and proprietary information of any customer, agent, supplier, or
prospective customer, agent or supplier of the Company, whether in written or
oral, tangible or intangible form, which have

12

--------------------------------------------------------------------------------

 

been disclosed to the Company pursuant to the Company’s agreement to maintain
the confidentiality of such information.
     4.2 Excluded Information. Notwithstanding anything in Section 4.1 to the
contrary, the term “Confidential Information” shall not include any data or
information that (a) is voluntarily disclosed by the Company or has otherwise
become generally known to the insurance industry (except for such public
disclosure that has been made by or through Executive or by a third person with
the knowledge of Executive without authorization by the Company); (b) has been
independently developed and disclosed by parties other than Executive or the
Company to the public generally without a breach of any obligation of
confidentiality by any such person running directly or indirectly to the
Company; or (c) otherwise enters the public domain through lawful means.
     4.3 Confidentiality Agreement. Executive agrees and acknowledges that the
Confidential Information is the property of the Company, and that such
information is sensitive, confidential and important and is furnished by the
Company to Executive under the terms and conditions of this Agreement. Executive
shall keep the Confidential Information (whether obtained prior to or after the
date of this Agreement) strictly confidential during the term of this Agreement
and at all times thereafter provided, however, that Executive may disclose
Confidential Information in the performance of his employment to the extent that
he reasonably believes such disclosure is necessary or convenient, in his sole
discretion, in order to perform his duties.
     4.4 Return of Company Property. Executive agrees that upon termination of
this Agreement, Executive shall immediately surrender to the Company, without
request, or, at the Company’s request and in the Company’s sole discretion,
destroy or cause to be destroyed all memoranda, notes, reports, documents,
software and disks and all copies and other reproductions and extracts thereof,
including those prepared by Executive, which are in Executive’s possession or
under his control and which contain or are derived from Confidential
Information.
     4.5 Covenant Not to Compete or Solicit. Executive shall not, directly or
indirectly, do any of the following during the term of this Agreement and for a
period of twelve (12) months or, if longer, the entire period for which
Executive is entitled to (i) payments of Base Salary or Target or other
Incentive Awards or (ii) other benefits pursuant to Section 3 other than
payments and benefits pursuant to Section 3.6(c)(2) after a Change in Control:

  (a)   Be employed by, serve as consultant or independent contractor to, or
otherwise engage in, any property and casualty insurance company business that
directly competes with any insurance company subsidiary of the Company in the
continental United States, Canada or the Bahamas (a “Competitor”), to the extent
such employment, service as a consultant or independent contractor or otherwise
engaging in such property and casualty insurance company business is in a sales
or marketing capacity or other manner in which the Executive’s role would
involve soliciting or taking business away from the Company or its insurance
company subsidiaries;

13

--------------------------------------------------------------------------------

 

  (b)   Directly or indirectly beneficially own any equity or similar interest
in (except as the holder of not more than one percent (1%) of the voting
securities of any publicly traded entity or as a shareholder of the Company or
any successor thereto), any Competitor;     (c)   Solicit or cause to be
solicited, directly or indirectly, any property and casualty wholesale agents
under contract with the Company for any purpose (other than, during the term of
this Agreement, as an employee of the Company on behalf of the Company), without
the prior written consent of the Company, which written consent specifically
refers to this Agreement; or     (d)   Solicit or cause to be solicited,
directly or indirectly, or in any way be responsible for, an offer of employment
to any employee of the Company by any other person.

The restrictions contained in this Section 4.5 shall cease to apply to, and
shall not bind, Executive in the event that the Company fails to timely and
completely pay all amounts due and owing to Executive pursuant to Section 3.6 of
this Agreement. For the purposes of the preceding sentence, the Company will be
deemed to have failed to timely and completely pay all amounts due and owing to
Executive pursuant to Section 3.6 if the Company fails (other than as the result
of a prior breach of this Section 4.5 by Executive) to make any such payment to
Executive within ten (10) days of its due date.
     4.6 Additional Covenants. During the term of this Agreement, Executive
shall not take advantage of any Company opportunity without first offering the
opportunity with full disclosure of material facts to the Company and receiving
notice that the Company has declined such opportunity. For this purpose,
“Company opportunity” means any opportunity to engage in a business activity:
(a) of which Executive becomes aware (1) by virtue of Executive’s relationship
with, or in connection with performing functions in the business of, or in using
facilities or other resources of the Company; and (2) under circumstances that
should reasonably lead Executive to believe that the person offering the
opportunity expects it to be offered to the Company; or (b) which Executive
knows is closely related to a business in which the Company is engaged or
expected to engage.
     4.7 Remedies for Breach. Executive agrees that, in the event of any breach
or threatened breach of any provision of this Section 4 by Executive, the
Company shall be entitled to a temporary restraining order and other temporary
or permanent injunctive relief, provided that the Company has shown irreparable
harm. No remedy conferred upon the Company by this Agreement is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
under this Agreement or now or hereafter existing at law, in equity or by
statute.
     4.8 Reasonableness of Restrictions. Executive agrees and understands that
there are significant business reasons for the restrictions contained in this
Agreement and that such restrictions are reasonable and necessary to protect
legitimate business interests of the Company. Without limiting the generality of
the foregoing, Executive agrees and understands that because

14

--------------------------------------------------------------------------------

 

the Company may sell its products, technology and services nationally and
internationally, the geographic scope of Executive’s agreement not to compete
with the Company is both reasonable and necessary.
     4.9 Severability. If any provision of this Section 4 is held invalid,
illegal or unenforceable, the remaining provisions shall continue in full force
and effect. If any provision of this Section 4 is for any reason held to be
excessively broad as to time, duration, geographic scope, activity or subject,
it shall be construed, by limiting and reducing it, so as to be enforceable to
the extent permitted by applicable law.
     4.10 Scope of Section 4. As used in this Section 4, the term the “Company”
shall include all Affiliates of the Company.
SECTION 5
MISCELLANEOUS
     5.1 Indemnification. The Company shall indemnify Executive if he was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, an action by or in the right of
the Company) by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, trustee, officer, employee, partner, joint venturer or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees and expenses),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by his in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action, suit or
proceeding, had no reasonable cause to believe his conduct was unlawful. No
indemnification shall be made in respect of any derivative claim, issue or
matter as to which Executive shall have been adjudged to be liable to the
Company unless, and only to the extent that, the court in which such action,
suit or proceeding was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of the case,
Executive is fairly and reasonably entitled to indemnity for such expenses.
Expenses (including reasonable attorneys’ fees and expenses) incurred in
defending any civil or criminal action, suit or proceeding referred to in this
Section shall be paid by the Company in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
Executive to repay such amount, unless it shall ultimately be determined that he
is not entitled to be indemnified by the Company as authorized in this Section.
The indemnification provided by this Section shall not be deemed exclusive of
any other rights to which Executive may be entitled under the common law, the
Ohio corporate law or the charter documents of the Company or any agreement,
vote of its shareholders or directors, or otherwise, both as to action in his
official capacity or as to action in another capacity while holding such office.

15

--------------------------------------------------------------------------------

 

     5.2 Key Man Life Insurance; COLI. Executive agrees to cooperate with the
Company in connection with, and consent to the placement of, “key man” or other
corporate owned insurance on Executive’s life by the Company, provided that,
except as provided in Section 2.4(c), nothing herein shall require the Company
to obtain or maintain any such insurance on Executive’s life.
     5.3 Breach of Agreement by Company. The Company agrees that, in the event
of any breach or threatened breach of this Agreement by the Company, Executive
shall be entitled to any appropriate remedy in law or in equity. No remedy
conferred upon Executive by this Agreement is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law, in equity or by statute. The
Company shall pay all legal expenses (including reasonable attorney’s fees and
expenses) and other damages incurred by Executive as the result of or in
connection with any breach of this Agreement by the Company. The Company is
aware that, following a Change in Control, the Board or a shareholder of the
Company may cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute, litigation seeking to have this Agreement
declared unenforceable, or may take, or attempt to take, other action to deny
Executive the benefits intended under this Agreement. In these circumstances,
the purpose of this Agreement could be frustrated. It is the intent of the
Company that Executive not be required to incur the expenses associated with the
enforcement of his rights under this Agreement by litigation or other legal
action because the cost and expense thereof would substantially detract from the
benefits intended to be extended to Executive hereunder, nor be bound to
negotiate any settlement of his rights hereunder under threat of incurring such
expenses. Accordingly, (a) if following a Change in Control (1) Executive
concludes that the Company has failed to comply with any of its obligations
under this Agreement or (2) the Company or any other person on behalf of the
Company or any shareholder or Affiliate of the Company takes any action to
declare this Agreement void or unenforceable, or institutes any litigation or
other legal action designed to deny, diminish, or recover from Executive the
benefits intended to be provided to Executive hereunder, and (b) if Executive
has complied with all of his obligations under this Agreement, the Company
irrevocably authorizes Executive from time to time to retain counsel of his
choice at the expense of the Company as provided in this 5.3, to represent
Executive in connection with the initiation or defense of any litigation or
other legal action, whether by or against the Company or any director, officer,
shareholder or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to Executive’s
entering into an attorney-client relationship with such counsel, and in that
connection, the Company and Executive agree that a confidential relationship
shall exist between Executive and such counsel. The reasonable fees and expenses
of counsel selected from time to time by Executive as hereinabove provided shall
be paid or reimbursed to Executive by the Company on a regular periodic basis
upon presentation by Executive of a statement or statements prepared by such
counsel in accordance with its customary practices (provided that such
statements need not contain descriptions of the services performed). The payment
of such fees and expenses shall not be contingent upon the success of such
counsel. Executive shall repay to the Company all such amounts paid by the
Company under this Section, and the Company shall not be obligated

16

--------------------------------------------------------------------------------

 

to make further payments hereunder, in connection with a contest originated by
Executive if the trier of fact in such contest determines that Executive’s claim
was patently frivolous.
     5.4 Affiliates. As used in this Agreement, an entity shall be deemed to be
an Affiliate of another entity if it controls, is controlled by or is under
common control with the other entity, where “control” means the power to vote
not less than ten percent (10%) of the voting securities of an entity.
     5.5 No Conflict. Executive represents that the performance by Executive of
all the terms of this Agreement, as an Executive of the Company, has not, does
not and will not breach any agreement as to which Executive is or was a party
and which requires Executive to keep any information in confidence or in trust.
Executive has not entered into, and will not enter into, any written or oral
agreement in conflict herewith.
     5.6 Notices. Any and all notices required to be given under this Agreement
shall be given, and be deemed given, as follows: (a) by personal delivery which
shall be deemed given when delivered; (b) by U. S. first-class mail, postage
prepaid, which shall be deemed given the third (3rd) day after deposit; or
(c) by telecopy (if telecopy number is listed) with confirmation of receipt
which shall be deemed given when sent. Any such notice shall be addressed, if to
the Company at its principal place of business (attn: President) and, if to
Executive at his most current home address on record with the Company for
payroll and other corporate purposes, unless a different address for notice
purposes is designated by Executive in a written notice complying with and
referring to this Section 5.6.
     5.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio without regard to conflict of law
principles.
     5.8 Amendment and Waiver. This Agreement shall not be amended or modified,
and none of the provisions hereof shall be waived, except in a writing signed on
behalf of the Company and by Executive or, in the case of a waiver, on behalf of
the party making a waiver. In the event that any obligation, agreement or
covenant contained in this Agreement should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
     5.9 Section Headings. Section headings contained in this Agreement are for
convenience only and shall not be considered in construing any provision hereof.
     5.10 Assignment. This Agreement is personal to Executive and Executive may
not assign or delegate any of his rights or obligations hereunder. Subject to
the foregoing, this Agreement shall inure to the benefit of and be binding upon
Executive and the Company and their respective heirs, administrators, executors,
successors and assigns, including successive as well as immediate heirs,
administrators, executors, successors and assigns.

17

--------------------------------------------------------------------------------

 

     5.11 Entire Agreement. This Agreement terminates, cancels and supersedes
all previous written and oral employment agreements or other agreements relating
to the relationship of Executive with the Company entered into between the
parties hereto. This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter of this Agreement. Executive is
represented by independent legal counsel or has had the opportunity to retain
independent legal counsel to represent Executive’s interests. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring any party by virtue of authorship of any of the
specific provisions of the Agreement. EXECUTIVE ACKNOWLEDGES THAT, BEFORE
PLACING HIS SIGNATURE HEREUNDER, HE HAS READ ALL OF THE PROVISIONS OF THIS
AGREEMENT, AND HAS THIS DAY RECEIVED A COPY HEREOF.
     5.12 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such invalidity or unenforceability without
thereby rendering invalid or unenforceable the remaining terms and provisions
hereof or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
     5.13 Dispute Resolution.

  (a)   Notwithstanding any provision herein to the contrary, any determination
of (1) whether Cause for termination or Good Reason for resignation exists and
(2) whether something “materially” affects anything, or is “substantially” or
“reasonably” or “effectively” done, or is “material” or “reasonable,” as such
terms are used in this Agreement, shall be made in the first instance by the
Board or one of its appropriate oversight committees.     (b)   Any controversy,
claim or dispute arising out of or relating to this Agreement or the breach,
termination, enforceability or validity of this Agreement, including the
determination of the scope or applicability of the agreement to arbitrate set
forth in this Section 5.13(b) and any dispute of any determination by the
Company pursuant to Section 5.13(a), shall be determined exclusively by binding
arbitration in the City of Columbus, Ohio. The arbitration shall be governed by
the rules and procedures of the American Arbitration Association (the “AAA”)
under its Commercial Arbitration Rules and its Supplementary Procedures for
Large, Complex Disputes; provided that persons eligible to be selected as
arbitrators shall be limited to attorneys-at-law each of whom (i) is on the
AAA’s Large, Complex Case Panel or a Center for Public Resources (“CPR”) Panel
of Distinguished Neutrals, or has professional credentials comparable to those
of the attorneys listed on such AAA and CPR Panels and (ii) has actively
practiced law (in private or corporate practice or as a member of the judiciary)
for at least 15 years in the State of Ohio concentrating in either general
commercial litigation or general corporate and commercial matters. Any
arbitration proceeding shall be before one arbitrator mutually agreed to by the
parties to such proceeding (who shall have the credentials set forth above)
unless the amount in question exceeds $100,000, in which event, the mediation
shall be by a panel of three mediators or,

18

--------------------------------------------------------------------------------

 

      if the parties are unable to agree to the arbitrator(s) within 15 business
days of the initiation of the arbitration proceedings, then by the AAA. No
provision of, nor the exercise of any rights under, this Section 5.13(b) shall
limit the right of any party to request and obtain from a court of competent
jurisdiction in the State of Ohio, County of Franklin (which shall have
exclusive jurisdiction for purposes of this Section 5.13) before, during or
after the pendency of any arbitration, provisional or ancillary remedies and
relief including injunctive or mandatory relief or the appointment of a
receiver. The institution and maintenance of an action or judicial proceeding
for, or pursuit of, provisional or ancillary remedies shall not constitute a
waiver of the right of any party, even if it is the plaintiff, to submit the
dispute to arbitration if such party would otherwise have such right. Each of
the parties hereby submits unconditionally to the exclusive jurisdiction of the
state and federal courts located in the County of Franklin, State of Ohio for
purposes of this provision, waives objection to the venue of any proceeding in
any such court or that any such court provides an inconvenient forum and
consents to the service of process upon it in connection with any proceeding
instituted under this Section 5.13 in the same manner as provided for the giving
of notice under this Agreement. Judgment upon the award rendered may be entered
in any court having jurisdiction. The parties hereby expressly consent to the
nonexclusive jurisdiction of the state and federal courts situated in the County
of Franklin, State of Ohio for this purpose and waive objection to the venue of
any proceeding in such court or that such court provides an inconvenient forum.
The arbitrator(s) shall award recovery of all costs (including attorneys’ fees,
administrative fees, arbitrators’ fees and court costs) to the prevailing party.
No arbitrator shall have power, by award or otherwise, to vary any of the
provisions of this Agreement.

     5.14 Code Section 409A Compliance. This Agreement is intended to be
operated in compliance with the provisions of Code Section 409A (including any
rulings or regulations promulgated thereunder). In the event that any provision
of this Agreement fails to satisfy the provisions of Code Section 409A, then
such provision shall be void and shall not apply to a payment or benefit
otherwise due Executive, to the extent practicable. In the event that it is
determined to not be feasible to so void a provision of this Agreement as it
applies to a payment or benefit due Executive or Executive’s beneficiary(ies),
such provision shall be construed in a manner so as to comply with the
requirements of Code Section 409A. The Company expressly reserves the right to
amend this Agreement, in its sole discretion, to comply with Code Section 409A
in the event it later determines that any provision herein causes this Agreement
not to comply with Code Section 409A.

19

--------------------------------------------------------------------------------

 

Signatures
     In Witness Whereof, the parties have executed this Agreement as of the date
set forth above.

                          THE COMPANY:
PROCENTURY CORPORATION       EXECUTIVE:
 
                        By:   /s/ Edward F. Feighan       /s/ James P. Flood    
                Edward F. Feighan, Chairman of the Board
President and Chief Executive Officer     James P. Flood

20

--------------------------------------------------------------------------------

 

 
Exhibit A
Executive’s Positions for Subsidiaries
Senior Vice President

 

--------------------------------------------------------------------------------

 

Exhibit B
Performance Goals for 2007 are set forth in the March 22, 2005 Executive
Compensation Committee
Minutes.

2