**Exhibit 10.27**

 

**EMPLOYMENT AGREEMENT**

 

This Employment Agreement, dated as of October 1,2005 (this “Agreement”), is by and between George M. Murphy (the “Executive”)and Safety Insurance Group, Inc., a Delaware corporation (the “Company”);

 

WITNESSETH:

 

WHEREAS, the Company wishes to obtain the futureservices of the Executive for and on behalf of the Companies (as defined in Section 11);

 

WHEREAS, the Executive is willing upon the terms andconditions herein set forth, to provide services to the Companies hereunder;and

 

WHEREAS, the Company wishes to secure the Executive’snon-interference with the Companies’ business, upon the terms and conditionsherein set forth;

 

NOW, THEREFORE, in consideration of the mutualpromises and covenants contained herein, and intending to be legally boundhereby, the parties hereto agree as follows:

 

1.                                       Natureof Employment

 

Subject to Section 3, the Company shallemploy Executive, and Executive shall serve the Company, in accordance with theterms of this Agreement, during the Term of Employment (as defined in Section 3(a)),as Vice President of the Company with such duties and responsibilities as arecustomarily assigned to an executive in such position and such other duties andresponsibilities not inconsistent therewith as may from time to timereasonably be assigned to the Executive by the Board of Directors and/orChairman of the Board, President and Chief Executive Officer of the Company. The Executive also agrees to serve withoutadditional compensation in such capacities (including, without limitation, asan officer or director) with Company affiliates as the Board ofDirectors and/or Chairman of the Board, President and Chief Executive Officerof the Company may prescribe. Upontermination of the Executive’s employment with the Company, the Executive’semployment, board membership or other service relationship with any Companyaffiliate shall automatically terminate unless otherwise agreed to by theparties.

 

2.                                       Extentof Employment

 

(a)                                  Duringthe Term of Employment, the Executive shall perform his obligationshereunder faithfully and to the best of his ability at the principal executiveoffices of the Company, under the direction of the Board of Directors and/orChairman of the Board, President and Chief Executive Officer of the Company,and shall abide by the rules, customs and usages from time to time establishedby the Companies.

 

(b)                                 Duringthe Term of Employment, the Executive shall devote all of his business time,energy and skill as may be reasonably necessary for the performance of hisduties, responsibilities and obligations hereunder (except for vacation periodsand reasonable periods of illness or other incapacity), consistent with pastpractices and norms in similar positions.

 

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(c)                                  Nothingcontained herein shall require Executive to follow any directive or to perform anyact which would violate any laws, ordinances, regulations or rules of anygovernmental, regulatory or administrative body, agent or authority, any courtor judicial authority, or any public, private or industry regulatory authority(collectively, the “Regulations”). Executive shall act in good faith inaccordance with all Regulations.

 

3.                                       Termof Employment; Termination

 

(a)                                  The“Term of Employment” shall commence on the date hereof and shallcontinue until December 31, 2008 (the “Initial Term”); provided,that, (i) such term shall continue for the twelve month period followingsuch Initial Term, and for each twelve month period thereafter (each, an “AdditionalTerm”), unless at least 180 days prior to the scheduled expiration date ofthe Initial Term or any Additional Term, either the Executive or the Companynotifies the other of its decision not to continue such term and (ii) shouldthe Executive’s employment by the Company be earlier terminated pursuant to Section 3(b) orby the Executive pursuant to Section 3(c), the Term of Employmentshall end on the date of such earlier termination.

 

(b)                                 Subjectto the payments contemplated by Sections 3(f) through 3(i),the Term of Employment may be terminated at any time by the Company:

 

(i)                                     uponthe death of Executive;

 

(ii)                                  inthe event that because of physical or mental disability Executive is unable toperform, and does not perform, in the view of the Company and as certified inwriting by a competent medical physician, his duties hereunder for a continuousperiod of three consecutive months or any sixty working days out of anyconsecutive six month period;

 

(iii)                               forCause (as defined in Section 3(d)) or Material Breach (as definedin Section 3(e));

 

(iv)                              uponthe continuous poor or unacceptable performance of the Executive’s duties tothe Companies (other than due to a physical or mental disability), which hasremained uncured for a period of 90 days after delivery of notice by theCompany to the Executive of such dissatisfaction with Executive’s performance,which notice shall describe in reasonable detail the areas of dissatisfaction;or

 

(v)                                 forany other reason or no reason, it being understood that no reason is required.

 

Executive acknowledges that no representations orpromises have been made concerning the grounds for termination or the futureoperation of the Companies’ business, and that nothing contained herein orotherwise stated by or on behalf of any of the Companies modifies or amends theright of the Company to terminate Executive at any time, with or withoutMaterial Breach or Cause. Termination shall become effective upon the deliveryby the Company to the Executive of notice specifying such termination and thereasons therefor (i.e., Section 3(b)(i)-(v)), subject

 

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to the requirements for advance notice and an opportunity to cureprovided in this Agreement, if and to the extent applicable.

 

(c)                                  Subjectto the payments contemplated by Section 3(f), the Term ofEmployment may be terminated at any time by the Executive:

 

(i)                                     uponthe death of Executive;

 

(ii)                                  inthe event that because of physical or mental disability the Executive is unableto perform, and does not perform, in the view of the Company, and as certifiedby a competent medical physician, his duties hereunder for a continuous periodof three consecutive months or any sixty working days out of any consecutivesix month period;

 

(iii)                               asa result of a material reduction in Executive’s authority, perquisites,position or responsibilities (other than such a reduction in perquisites whichaffects all of the Company’s senior executives on a substantially equal orproportionate basis), the relocation of the Company’s primary place of businessor the relocation of Executive by any of the Companies to another office morethan 75 miles from Boston, Massachusetts, or the Company’s willful, materialviolation of its obligations under this Agreement, in each case, after60 days’ prior written notice to the Company and its Board of Directorsand the Company’s failure thereafter to cure such reduction or violation; or

 

(iv)                              as aresult of the Company’s willful and material violation of this Agreement, the2002 Management Omnibus Incentive Plan (the “Incentive Plan”), or any agreementbetween Executive and any of the Companies pertaining to awards made pursuantto the Incentive Plan or the Executive Incentive Compensation Plan, in eachcase as such agreements or plans may be amended from time to time.

 

(d)                                 Forthe purposes of this Section 3, “Cause” shall meanany of the following:

 

(i)                                     Executive’scommission or conviction of any crime or criminal offense involving monies orother property or any felony;

 

(ii)                                  Executive’scommission or conviction of fraud or embezzlement;

 

(iii)                               Executive’smaterial and knowing violation of any obligations imposed upon Executive,personally, as opposed to upon the Company, whether as a stockholder orotherwise, under this Agreement, the Stockholders Agreement, the Incentive Planor any other agreement between the Executive, on the one hand, and any of theCompanies, on the other hand, the Amended and Restated Certificate ofIncorporation, or the By-Laws of the Company, in each case as may beamended from time to time; provided, that the Executive has been givenwritten notice describing any such violation in reasonable detail and fails tocure the violation within 90 days from such notice; or

 

(iv)                              Executiveengages in egregious misconduct involving serious moral turpitude to the extentthat Executive’s credibility and reputation no longer conform to thestandard of the Company’s executives.

 

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(e)                                  Forthe purposes of this Section 3, “Material Breach” shall meanany of the following:

 

(i)                                     Executive’sbreach of any of his fiduciary duties to the Companies or their stockholders ormaking of a willful misrepresentation or omission which breach,misrepresentation or omission would reasonably be expected to materiallyadversely affect the business, properties, assets, condition (financial orother) or prospects of the Companies;

 

(ii)                                  Executive’swillful, continual and material neglect or failure to discharge his duties,responsibilities or obligations prescribed by this Agreement or any otheragreement between the Executive and any of the Companies (other than arisingsolely due to physical or mental disability);

 

(iii)                               Executive’shabitual drunkenness or substance abuse which materially interferes withExecutive’s ability to discharge his duties, responsibilities or obligationsprescribed by this Agreement or any other agreement between the Executive andany of the Companies; and

 

(iv)                              Executive’swillful and material violation of any non-competition, non-disparagement, orconfidentiality agreement with any of the Companies, including withoutlimitation, those set forth in Sections 7, 8 and 9 of thisAgreement, or any other agreements with any of the Companies;

 

in each case, for purposes of clauses (i) through (iv), after theCompany or the Board of Directors of the Company has provided Executive with 60days’ written notice describing such circumstances and the possibility of aMaterial Breach in reasonable detail, and Executive fails to cure suchcircumstances and Material Breach within those 60 days. No act or omissionshall be deemed willful if done, or omitted to be done, in good faith by theExecutive based upon a resolution duly adopted by the Company’s Board ofDirectors.

 

(f)                                    Inthe event Executive’s employment is terminated by the Company under anycircumstances described in Section 3(b)(v) or by Executiveunder the circumstances described in Section 3(c)(iii) or (iv),

 

(i)                                     theCompany shall pay or cause to be paid to the Executive, (A) within fivebusiness days after the date of termination, any earned but unpaid base salaryand any expense reimbursement payments owed to the Executive, and (B) withinfive business days after the date of termination or, if later, within 30 daysafter the issuance of audited financial statements for the Company for theprior year, any earned but unpaid annual bonus payments relating to the prioryear (the “Accrued Obligations”);

 

(ii)                                  theCompany shall pay or cause to be paid to the Executive, within thirty businessdays after the date of termination, a lump-sum payment equal to the annual basesalary the Executive would have received over the remaining Term of Employmentif his employment had not terminated, assuming for this purpose that a noticenot to extend the Term of Employment was provided on the date of termination(the “Severance Period”),

 

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based on the Executive’s base salary in effectimmediately prior to the date of termination; and

 

(iii)                               duringthe Severance Period, the Company will provide or cause to be provided to theExecutive (and any covered dependents), with life and health insurance benefits(but not disability insurance benefits) substantially similar to those theExecutive and any covered dependents were receiving immediately prior to thedate of termination and at the same dollar cost to the Executive as in effectimmediately prior to the termination of employment. If the Company provides orarranges to provide the Executive and covered dependents with life and healthinsurance benefits, those benefits will be reduced to the extent comparablebenefits are received by, or made available to, the Executive (at no greatercost to the Executive) by another employer during the Severance Periodfollowing the Executive’s date of termination. The Executive must report to theCompany any such benefits that he receives or that are made available. In lieuof the benefits described in this Section 3(f)(iii), the Company,in its sole discretion, may elect to pay or cause to be paid to theExecutive a lump sum cash payment equal to the monthly premiums that would havebeen paid to provide such benefits to the Executive for each month suchcoverage is not provided under this Section 3(f)(iii). Nothing inthis Section 3(f)(iii) will extend the COBRA continuationcoverage period.

 

(g)                                 Inthe event the Executive’s employment is terminated within three years after aChange of Control (provided the Term of Employment has not already expired)under any circumstances described in Section 3(b)(v) or byExecutive under the circumstances described in Section 3(c)(iii) or(iv),

 

(i)                                     theCompany shall pay or cause to be paid to the Executive any Accrued Obligations;

 

(ii)                                  theCompany shall pay or cause to be paid to the Executive, within thirty businessdays after the date of termination, a lump-sum payment equal to two (2) timesthe sum of (A) the Executive’s annual base salary in effect immediatelyprior to the date of termination and (B) the most recent annual bonus paidto the Executive prior to the Change in Control; and

 

(iii)                               fora two (2) year period after the date of termination, the Company willprovide or cause to be provided to the Executive (and any covered dependents),with life and health insurance benefits (but not disability insurance benefits)substantially similar to those the Executive and any covered dependents werereceiving immediately prior to the date of termination and at the same dollarcost to the Executive as in effect immediately prior to the termination of employment.If the Company provides or arranges to provide the Executive and covereddependents with life and health insurance benefits, those benefits will bereduced to the extent comparable benefits are received by, or made availableto, the Executive (at no greater cost to the Executive) by another employerduring the two (2) year period following the Executive’s date oftermination. The Executive must report to the Company any such benefits that hereceives or that are made available. In lieu of the benefits described in this Section 3(g)(iii),the Company, in its sole discretion, may elect to pay or cause to be paidto the Executive a lump sum cash

 

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payment equal to the monthly premiums that would havebeen paid to provide such benefits to the Executive for each month suchcoverage is not provided under this Section 3(g)(iii). Nothing inthis Section 3(g)(iii) will extend the COBRA continuationcoverage period.

 

(h)                                 Inthe event Executive’s employment is terminated by the Company under thecircumstances described in Section 3(b)(iv),

 

(i)                                     theCompany shall pay or cause to be paid to the Executive any Accrued Obligations;

 

(ii)                                  theCompany shall pay or cause to be paid to the Executive, within thirty business daysafter the date of termination, a lump-sum payment equal to three (3) monthsbase salary, based on the Executive’s base salary in effect immediately priorto the date of termination; and

 

(iii)                               fora three (3) month period after the date of termination, the Company willprovide or cause to be provided to the Executive (and any covered dependents),with life and health insurance benefits (but not disability insurance benefits)substantially similar to those the Executive and any covered dependents were receivingimmediately prior to the date of termination and at the same dollar cost to theExecutive as in effect immediately prior to the termination of employment. Ifthe Company provides or arranges to provide the Executive and covereddependents with life and health insurance benefits, those benefits will bereduced to the extent comparable benefits are received by, or made availableto, the Executive (at no greater cost to the Executive) by another employerduring the three (3) month period following the Executive’s date oftermination. The Executive must report to the Company any such benefits that hereceives or that are made available. In lieu of the benefits described in this Section 3(h)(iii),the Company, in its sole discretion, may elect to pay or cause to be paidto the Executive a lump sum cash payment equal to the monthly premiums thatwould have been paid to provide such benefits to the Executive for each monthsuch coverage is not provided under this Section 3(h)(iii). Nothing inthis Section 3(h)(iii) will extend the COBRA continuation coverageperiod.

 

(i)                                     Inthe event Executive’s employment is terminated by the Company under thecircumstances described in Section 3(b)(i) or (ii) orby the Executive under Section 3(c)(i) or (ii),

 

(i)                                     theCompany will pay or cause to be paid to the Executive (or the Executive’sestate or representative, as the case may be) any Accrued Obligations;

 

(ii)                                  theCompany will pay or cause to be paid to the Executive (or the Executive’sestate or representative, as the case may be), within thirty business daysafter the date of termination, a lump-sum payment equal to 100% of theExecutive’s annual base salary in effect immediately prior to the date oftermination; and

 

(iii)                               fora one (1) year period after the date of termination, the Company willprovide or cause to be provided to the Executive (and any covered dependents),with life and health insurance benefits (but not disability insurance benefits)substantially similar

 

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to those the Executive and any covered dependents werereceiving immediately prior to the date of termination and at the same dollarcost to the Executive as in effect immediately prior to the termination ofemployment. If the Company provides or arranges to provide the Executive andcovered dependents with life and health insurance benefits, those benefits willbe reduced to the extent comparable benefits are received by, or made availableto, the Executive (at no greater cost to the Executive) by another employerduring the one (1) year period following the Executive’s date oftermination. The Executive must report to the Company any such benefits that hereceives or that are made available. In lieu of the benefits described in this Section 3(i)(iii),the Company, in its sole discretion, may elect to pay or cause to be paidto the Executive a lump sum cash payment equal to the monthly premiums thatwould have been paid to provide such benefits to the Executive for each monthsuch coverage is not provided under this Section 3(i)(iii). Nothing inthis Section 3(i)(iii) will extend the COBRA continuation coverageperiod.

 

(j)                                     Inthe event Executive’s employment is terminated by the Company under anycircumstances described in Section 3(b)(iii) or by Executiveas a result of resignation or voluntary termination due to any circumstanceother than the material reductions, relocation or violations described in Section 3(c)(iii) above,there will be no amounts owed to the Executive under Section 4 orany other part of this Agreement, from and after the effectiveness oftermination.

 

(k)                                  Thepayments and benefits required by Section 3(f), 3(g), 3(h) or 3(i),as applicable, constitute severance and liquidated damages, and, except forpayments that may be required pursuant to Section 10, theCompany will be obligated to pay or cause to be paid any further amounts toExecutive under this Agreement or otherwise be liable to Executive inconnection with any termination.

 

(l)                                     Alldeterminations pursuant to this Section 3 shall be made by theCompany’s Board of Directors (not including Executive) in good faith.

 

(m)                               Terminationof the Term of Employment will not terminate Sections 7 through 10and 12 through 22, or any other provisions not associatedspecifically with the Term of Employment.

 

(n)                                 Inthe event the Term of Employment is terminated and the Company is obligated tomake or cause to be made payments pursuant to Section 3(f), theExecutive will use his reasonable efforts to seek and obtain alternativeemployment; provided, however, that the Executive shall not berequired to accept a position or positions of a substantially differentcharacter than the position(s) held by him under this Agreement; and providedfurther, if the Executive shall become physically or mentally disabled,he will not be under such duty. If Executive thereafter obtains alternativeemployment, then if and to the extent Executive obtains such employment, thepayment obligations under Section 3(f), including the obligation toprovide insurance coverage, if any, will be mitigated and reduced by and to theextent of Executive’s compensation under such alternative employment during theperiod for which payments are owed pursuant to Section 3(f). Moreover,in the event that after the Restricted

 

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Period pursuant to Section 8(a), Executive is employed byor engaged in a Competitive Business as contemplated by Section 8(a)(i),then the payments under Section 3(f) will thereupon cease.

 

(o)                                 Notwithstandingany provision herein to the contrary, as a condition to payment of any amountsor provision of any benefits pursuant to Sections 3(f) through 3(i) or10 of this Agreement (other than due to the Executive’s death), theExecutive shall be required to have executed a complete release of theCompanies and related parties in such form as is reasonably required bythe Company, and any waiting periods contained in such release shall haveexpired.

 

4.                                       Compensation

 

The Company shall pay or cause to be paid to Executivethe following compensation:

 

(a)                                  Duringthe Term of Employment, the Company shall pay or cause to be paid to Executiveas base compensation for his services hereunder, in monthly installments, abase salary at a rate of $150,000 per annum, as increased on an annualbasis to reflect the increase in the United States Cost of Living Index for AllUrban Consumer (CPI-U) for the Boston, Massachusetts area (the “CPI-U Index”).The January 2005 CPI-U Index shall provide the basis for calculations ofsuch increases. Notwithstanding the minimum increase set forth above, the Boardof Directors of the Company or a committee thereof may establish a highercompensation level.

 

(b)                                 Duringthe Term of Employment, the Company shall pay or cause to be paid to Executivean annual bonus based on Executive’s performance, as determined and approved bythe Board of Directors of the Company or a committee thereof. Such bonus willbe at the full discretion of the Board of Directors of the Company or acommittee thereof, and may not be paid at all. Executive acknowledges thatno bonus has been agreed upon or promised. If the Board of Directors of theCompany or a committee thereof decides to pay a bonus, it is to be paid within30 days after the issuance of audited financial statements for the Company.

 

5.                                       Reimbursementof Expenses

 

During the Term of Employment, the Company shallreimburse or cause Executive to be reimbursed for documented travel,entertainment and other expenses reasonably incurred by Executive in connectionwith the performance of his duties hereunder and, in each case, in accordancewith applicable rules, customs and usages promulgated by the Companies fromtime to time in effect.

 

6.                                       Benefits

 

(a)                                  Duringthe Term of Employment, the Executive shall be entitled to perquisites, paidvacations and benefits (including health, short and long term disability,pension and life insurance benefits consistent with past practice, or asincreased from time to time) established from time to time, by the Board ofDirectors of the Company for executives of the Companies, subject to thepolicies and procedures in effect regarding participation in such benefits.

 

(b)                                 Inrecognition of the use of an automobile for the efficient and expeditiousperformance of the Executive’s duties and obligations on behalf of the Company,the Company,

 

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at its cost, shall supply to the Executive for such use an automobileof such make and model and upon such terms and conditions as the Board ofDirectors shall determine from time to time.

 

7.                                       ConfidentialInformation

 

During and after the Term of Employment, Executivewill not, directly or indirectly in one or a series of transactions,disclose to any person, or use or otherwise exploit for the Executive’s ownbenefit or for the benefit of anyone other than the Companies, any ConfidentialInformation, whether prepared by Executive or not; provided, however,that any Confidential Information may be disclosed to officers,representatives, employees and agents of the Companies who need to know suchConfidential Information in order to perform the services or conduct theoperations required or expected of them in the Business (as defined in Section 11).Executive shall use his best efforts to prevent the removal of any ConfidentialInformation from the premises of the Companies, except as required in hisnormal course of employment by the Company. Executive shall use commerciallyreasonable efforts to cause all persons or entities to whom any ConfidentialInformation shall be disclosed by him hereunder to observe the terms andconditions set forth herein as though each such person or entity was boundhereby. Executive shall have no obligation hereunder to keep confidential anyConfidential Information if and to the extent disclosure of any thereof isspecifically required by law; provided, however, that in theevent disclosure is required by applicable law, the Executive shall provide theCompanies with prompt notice of such requirement, prior to making anydisclosure, so that the Companies may seek an appropriate protective order.At the request of the Companies, Executive agrees to deliver to the Companies,at any time during the Term of Employment, or thereafter, all ConfidentialInformation which he may possess or control. Executive agrees that allConfidential Information of the Companies (whether now or hereafter existing)conceived, discovered or made by him during the Term of Employment exclusivelybelongs to the Companies (and not to Executive). Executive will promptlydisclose such Confidential Information to the Companies and perform allactions reasonably requested by the Companies to establish and confirm suchexclusive ownership.

 

8.                                       Non-Interference

 

(a)                                  Executiveacknowledges that the services to be provided give him the opportunity to havespecial knowledge of the Companies and their Confidential Information and thecapabilities of individuals employed by or affiliated with the Companies andthat interference in these relationships would cause irreparable injury to theCompanies. In consideration of this Agreement, Executive covenants and agreesthat:

 

(i)                                     Duringthe Restricted Period (which shall not be reduced by any period of violation ofthis Agreement by Executive or period which is required for litigation toenforce the rights hereunder), Executive will not, without the express writtenapproval of the Board of Directors of the Company, anywhere in the Market,directly or indirectly, in one or a series of transactions, own, manage,operate, control, invest or acquire an interest in, or otherwise engage orparticipate in, whether as a proprietor, partner, stockholder, lender,director, officer, employee, joint venturer, investor, lessor, supplier,customer, agent, representative or other participant, in any business whichcompetes, directly or indirectly, with the Business in the Market (“CompetitiveBusiness”) without

 

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regard to (A) whether the Competitive Businesshas its office, manufacturing or other business facilities within or withoutthe Market, (B) whether any of the activities of the Executive referred toabove occur or are performed within or without the Market or (C) whetherthe Executive resides, or reports to an office, within or without the Market; provided,however, that (x) the Executive may, anywhere in the Market, directly orindirectly, in one or a series of transactions, own, invest or acquire aninterest in up to five percent (5%) of the capital stock of a corporation whosecapital stock is traded publicly, or that (y) Executive may acceptemployment with a successor company to the Company.

 

(ii)                                  Duringthe Restricted Period (which shall not be reduced by any period of violation ofthis Agreement by Executive or period which is required for litigation toenforce the rights hereunder), Executive will not without the express priorwritten approval of the Board of Directors of the Company (A) directly orindirectly, in one or a series of transactions, recruit, solicit or otherwiseinduce or influence any proprietor, partner, stockholder, lender, director,officer, employee, sales agent, joint venturer, investor, lessor, supplier,customer, agent, representative or any other person which has a businessrelationship with the Companies or had a business relationship with theCompanies within the 24 month period preceding the date of the incident inquestion, to discontinue, reduce or modify such employment, agency or businessrelationship with the Companies, or (B) employ or seek to employ or causeany Competitive Business to employ or seek to employ any person or agent who isthen (or was at any time within 24 months prior to the date the Executive orthe Competitive Business employs or seeks to employ such person) employed or retainedby the Companies. Notwithstanding the foregoing, nothing herein shall preventthe Executive from providing a letter of recommendation to an employee withrespect to a future employment opportunity.

 

(iii)                               Thescope and term of this Section 8 would not preclude Executive fromearning a living with an entity that is not a Competitive Business.

 

(c)                                  Inthe event that Executive breaches his obligations in any material respect underSection 7, this Section 8 or Section 9, theCompany, in addition to pursuing all available remedies under this Agreement,at law or otherwise, and without limiting its right to pursue the same shallcease or cause to be ceased all payments to the Executive under this Agreementor any other agreement.

 

9.                                       Non-Disparagement

 

During and after the Term of Employment, the Executiveagrees that he shall not make any false, defamatory or disparaging statementsabout the Companies or the officers or directors of the Companies. During andafter the Term of Employment, the Company agrees, on behalf of the Companiesthat neither the officers nor the directors of the Companies shall make anyfalse, defamatory or disparaging statements about the Executive.

 

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10.                                 ExciseTax Gross-up Payments

 

(a)                                  Ifany payments or benefits paid or provided or to be paid or provided to theExecutive or for his benefit pursuant to the terms of this Agreement orotherwise in connection with, or arising out of, his employment with theCompany or the termination thereof (a “Payment”) would be subject to theexcise tax (the “Excise Tax”) imposed by Section 4999 of theInternal Revenue Code of 1986, as amended (the “Code”), then theExecutive will be entitled to receive an additional payment (a “Gross-UpPayment”) in an amount such that after payment by the Executive of allincome taxes, employment taxes and any Excise Tax imposed upon the Gross-UpPayment (including any related interest and penalties), the Executive retainsan amount of the Gross-Up Payment equal to the Excise Tax (including anyrelated interest and penalties) imposed upon the Payments.

 

(b)                                 Aninitial determination of whether a Gross-Up Payment is required pursuant tothis Agreement, and the amount of such Gross-Up Payment, will be made at theCompany’s expense by an accounting firm selected by the Company. The accountingfirm will provide its determination, together with detailed supportingcalculations and documentation, to the Company and the Executive within 10 daysafter the date of termination of Executive’s employment, or such other time as may berequested by the Company or the Executive. If the accounting firm determinesthat no Excise Tax is payable by the Executive with respect to a Payment orPayments, it will furnish the Executive with an opinion to that effect. If aGross-Up Payment becomes payable, such Gross-Up Payment shall be paid to theExecutive within thirty business days of the receipt of the accounting firm’sdetermination. Within 10 days after the accounting firm delivers its determinationto the Executive, the Executive will have the right to dispute thedetermination. The existence of a dispute will not in any way affect theExecutive’s right to receive the Gross-Up Payment in accordance with thedetermination. If there is no dispute, the determination will be binding,final, and conclusive upon the Company and the Executive. If there is adispute, the Company and the Executive will together select a second accountingfirm, which will review the determination and the Executive’s basis for thedispute and then will render its own determination, which will be binding,final, and conclusive on the Company and on the Executive for purposes ofdetermining whether a Gross-Up Payment is required pursuant to this Section 10(b).If as a result of any dispute pursuant to this Section 10(b) additionalGross-Up Payments are made, such additional Gross-Up Payment will be paid tothe Executive within thirty business days of the receipt of the secondaccounting firm’s determination. The Company will pay or caused to be paid allcosts associated with the second accounting firm’s determination, unless suchdetermination does not result in additional Gross-Up Payments to the Executive,in which case all such costs will be borne by the Executive.

 

(c)                                  Forpurposes of determining the amount of the Gross-Up Payment, the Executive willbe deemed to pay federal income taxes at the highest marginal rate of federalincome taxation in the calendar year in which the Gross-Up Payment is to bemade and applicable state and local income taxes at the highest marginal rateof taxation in the state and locality of the Executive’s residence on the dateof termination of Executive’s employment, net of the maximum reduction infederal income taxes that would be obtained from deduction of those state andlocal taxes.

 

(d)                                 Asa result of the uncertainty in the application of Section 4999 of theCode, it is possible that Gross-Up Payments which will not have been madeshould have been made (“Underpayment”) or Gross-Up Payments are madewhich should not have been made

 

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(“Overpayment”). If it is determined that an Underpayment hasoccurred, the accounting firm shall determine the amount of the Underpaymentthat has occurred and any such Underpayment (together with interest at the rateprovided in Section 1274(b)(2)(B) of the Code) shall be promptly paidto or for the benefit of Executive. If the Gross-Up Payment exceeds the amountnecessary to reimburse the Executive for his Excise Tax, the Accounting Firmshall determine the amount of the Overpayment that has been made and any suchOverpayment (together with interest at the rate provided in Section 1274(b)(2) ofthe Code) shall be promptly paid by Executive (to the extent he has received arefund if the applicable Excise Tax has been paid to the Internal RevenueService) to or for the benefit of the Company; provided, however, that if theCompany determines that such repayment obligation would be or result in anunlawful extension of credit under Section 13(k) of the SecuritiesExchange Act, repayment shall not be required. The Executive shall cooperate,to the extent his expenses are reimbursed in accordance with this Section 10,with any reasonable requests by the Company in connection with any contest ordisputes with the Internal Revenue Service in connection with the Excise Tax.

 

(e)                                  TheExecutive shall notify the Company in writing of any claim by the InternalRevenue Service that, if successful, would require the payment of anUnderpayment. Such notification shall be given as soon as practicable but nolater than ten (10) business days after the Executive is informed inwriting of such claim and shall apprise the Company of the nature of such claimand the date on which such claim is requested to be paid. The Executive shallnot pay such claim prior to the expiration of the thirty (30) day periodfollowing the date on which he gives such notice to the Company (or suchshorter period ending on the date that any payment of taxes with respect tosuch claim is due). If the Company notifies the Executive in writing prior tothe expiration of such period that it desires to contest such claim, theExecutive shall:

 

(i)                                     givethe Company any information reasonably requested by the Company relating tosuch claim,

 

(ii)                                  takesuch action in connection with contesting such claim as the Company shallreasonably request in writing from time to time, including, without limitation,accepting legal representation with respect to such claim by an attorneyreasonably selected by the Company,

 

(iii)                               cooperatewith the Company in good faith in order effectively to contest such claim, and

 

(iv)                              permitthe Company to participate in any proceeding relating to such claim;

 

provided, however, that the Company shall pay or cause to be paid allcosts and expenses (including additional interest and penalties) incurred inconnection with such contest and shall indemnify and hold the Executiveharmless, on an after-tax basis, for any Excise Tax or income tax (includingrelated interest and penalties) imposed as a result of such representation andpayment of costs and expenses. Without limitation on the foregoing provisionsof this Section 10(e), the Company shall control all proceedingstaken in connection with such contest and, at its sole option, may pursueor forgo any and all administrative appeals, proceedings, hearings andconferences with the taxing authority in respect of such claim and may, at itssole option, either

 

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direct the Executive to pay the tax claimed and sue for a refund orcontest the claim in any permissible manner, and the Executive agrees toprosecute such contest to a determination before any administrative tribunal,in a court of initial jurisdiction and in one or more appellate courts, as theCompany shall determine; provided, however, that if the Company directs theExecutive to pay such claim and sue for a refund, such payment shall beadvanced to the Executive, on an interest-free basis and the Executive shall beindemnified and held harmless, on an after-tax basis, from any Excise Tax orincome tax (including related interest or penalties) imposed with respect tosuch advance or with respect to any imputed income with respect to such advance.The Company’s control of the contest shall be limited to issues with respect towhich a Gross-Up Payment would be payable hereunder and the Executive shall beentitled to settle or contest, as the case may be, any other issue raisedby the Internal Revenue Service or any other taxing authority.

 

(f)                                    If,after the receipt by the Executive of an amount advanced pursuant to Section 10(e),the Executive becomes entitled to receive any refund with respect to suchclaim, the Executive shall (subject to the Company’s complying with therequirements of Section 10(e)) promptly pay to the Company theamount of such refund (together with any interest paid or credited thereonafter taxes applicable thereto). If, after the receipt by the Executive of anamount advanced pursuant to Section 10(e) hereof, adetermination is made that the Executive shall not be entitled to any refundwith respect to such claim and the Company does not notify the Executive inwriting of its intent to contest such denial of refund prior to the expirationof thirty (30) days after such determination, then such advance shall beforgiven and shall not be required to be repaid.

 

11.                                 Definitions

 

Capitalized terms used in this Agreement but nototherwise defined shall have the meanings set forth below:

 

“Business” means any business conducted, orengaged in, by the Companies prior to the date hereof or at any time during theTerm of Employment.

 

“Cause” is defined in Section 3(c).

 

“Change of Control” means any of the following:(i) the closing of any merger, combination, consolidation or similarbusiness transaction involving the Company in which the holders of CompanyCommon Stock immediately prior to such closing are not the holders, directly orindirectly, of a majority of the ordinary voting securities of the survivingperson in such transaction immediately after such closing, (ii) theclosing of any sale or transfer by the Company of all or substantially all ofits assets to an acquiring person in which the holders of Company Common Stock immediatelyprior to such closing are not the holders of a majority of the ordinary votingsecurities of the acquiring person immediately after such closings, or (iii) theclosing of any sale by the holders of Company Common Stock of an amount ofCompany Common Stock that equals or exceeds a majority of the shares of CompanyCommon Stock immediately prior to such closing to a person in which the holdersof the Company Common Stock immediately prior to such closing are not theholders of a majority of the ordinary voting securities of such personimmediately after such closing.

 

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“Companies” means the Company and itssuccessors or any of its direct or indirect parents or direct or indirectsubsidiaries, now or hereafter existing.

 

“Company” is defined in the introduction.

 

“Competitive Business” is defined in Section 8(a)(i).

 

“Confidential Information” means anyconfidential information including, without limitation, any study, data,calculations, software storage media or other compilation of information,patent, patent application, copyright, trademark, trade name, service mark,service name, “know-how”, trade secrets, customer lists, details of client orconsultant contracts, pricing policies, operational methods, marketing plans orstrategies, product development techniques or plans, business acquisition plansor any portion or phase of any scientific or technical information, ideas,discoveries, designs, computer programs (including source of object codes),processes, procedures, formulas, improvements or other proprietary orintellectual property of the Companies, whether or not in written or tangibleform, and whether or not registered, and including all files, records, manuals,books, catalogues, memoranda, notes, summaries, plans, reports, records,documents and other evidence thereof. The term “Confidential Information”does not include, and there shall be no obligation hereunder with respect to,information that becomes generally available to the public other than as aresult of a disclosure by the Executive not permissible hereunder.

 

“Executive” means George M. Murphy or hisestate, if deceased.

 

“Market” means any state in the United Statesof America and each similar jurisdiction in any other country in which theBusiness was conducted by or engaged in by the Companies prior to the datehereof or is conducted or engaged in, or in which the Companies are seekingauthorization to conduct Business at any time during the Term of Employment.

 

“Regulations” is defined in Section 2(c).

 

“Restricted Period” means the date commencingon the date of this Agreement and ending on the later of (x) the date oftermination of the Term of Employment or (y) the end of the applicableseverance period provided under Section 3(f); provided, however,that the “Restricted Period” may be extended, in the sole discretion ofthe Company, for an additional period of up to twenty-four (24) months if theCompany continues to pay or to cause to be paid to the Executive (i) thefull amounts to which he would be entitled as base compensation under Section 4(a) and(ii) customary benefits, in each case during such extended period.

 

“Term of Employment” is defined in Section 3(a).

 

12.                                 Notice

 

Any notice, request, demand or other communicationrequired or permitted to be given under this Agreement shall be given inwriting and if delivered personally, or sent by certified or registered mail,return receipt requested, as follows (or to such other addressee or address asshall be set forth in a notice given in the same manner):

 

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| If to Executive: | George M. Murphy                       |
|------------------|----------------------------------------|
|             | c/o Safety  Insurance Group, Inc. |
|             | 20 Custom House  Street                |
|             | Boston,  Massachusetts 02110           |
|             |                                   |
| If to Company:   | Safety Insurance  Group, Inc.     |
|             | 20 Custom House  Street                |
|             | Boston,  Massachusetts 02110           |
|             | Attention: David  F. Brussard          |

 

Any such notices shall be deemed to be given on the date personallydelivered or such return receipt is issued.

 

13.                                 Executive’sRepresentation

 

Executive hereby warrants and represents to theCompany that Executive has carefully reviewed this Agreement and hasconsulted with such advisors as Executive considers appropriate in connectionwith this Agreement, and is not subject to any covenants, agreements or restrictions,including without limitation any covenants, agreements or restrictions arisingout of Executive’s prior employment which would be breached or violated byExecutive’s execution of this Agreement or by Executive’s performance of hisduties hereunder.

 

14.                                 OtherMatters

 

(a)                                  Executiveagrees and acknowledges that the obligations owed to Executive under thisAgreement are solely the obligations of the Company, and that none of theCompanies’ stockholders, directors, officers, affiliates, representatives,agents or lenders will have any obligations or liabilities in respect of thisAgreement and the subject matter hereof.

 

(b)                                 Notwithstandinganything contained herein to the contrary, the Companies may withhold fromany amounts payable under, or benefits provided pursuant to, this Agreement allfederal, state, local, and foreign taxes that are required to be withheld byapplicable laws or regulations.

 

(c)                                  Inaddition to any obligations imposed by law upon any successor to the Company,the Company will require any successor (whether direct or indirect, bypurchase, merger, consolidation or otherwise) to all or substantially all ofthe business and/or assets of the Company, to expressly assume and agree to perform thisAgreement in the same manner and to the same extent that the Company would berequired to perform it if no such succession had taken place.

 

15.                                 Validity

 

If, for any reason, any provision hereof shall bedetermined to be invalid or unenforceable, the validity and effect of the otherprovisions hereof shall not be affected thereby.

 

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16.                                 Severability

 

Whenever possible, each provision of this Agreementwill be interpreted in such manner as to be effective and valid underapplicable law, but if any provision of this Agreement is held to be invalid,illegal or unenforceable in any respect under any applicable law or rule inany jurisdiction, such invalidity, illegality or unenforceability will notaffect any other provision or any other jurisdiction, but this Agreement willbe reformed, construed and enforced in such jurisdiction as if such invalid,illegal or unenforceable provision had never been contained herein. If anycourt determines that any provision of Section 8 or any otherprovision hereof is unenforceable and therefore acts to reduce the scope orduration of such provision, the provision in its reduced form shall thenbe enforceable.

 

17.                                 Waiverof Breach; Specific Performance

 

The waiver by the Company or Executive of a breach ofany provision of this Agreement by the other party shall not operate or beconstrued as a waiver of any other breach of such other party. Each of theparties (and third party beneficiaries) to this Agreement will be entitled toenforce its respective rights under this Agreement and to exercise all otherrights existing in its favor. The parties hereto agree and acknowledge thatmoney damages may not be an adequate remedy for any breach of theprovisions of Sections 7,8 and 9 of this Agreement andthat any party (and third party beneficiaries) may in its sole discretionapply to any court of law or equity of competent jurisdiction for specificperformance and/or injunctive relief, including temporary restraining orders,preliminary injunctions and permanent injunctions in order to enforce orprevent any violations of the provisions of this Agreement. In the event eitherparty takes legal action to enforce any of the terms or provisions of thisAgreement, the nonprevailing party shall pay the successful party’s costs andexpenses, including but not limited to, attorneys’ fees, incurred in suchaction.

 

18.                                 Assignment;Third Parties

 

Neither the Executive nor the Company may assign,transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreementor any of his or its respective rights or obligations hereunder, without theprior written consent of the other. The parties agree and acknowledge that eachof the Companies and the stockholders and investors therein are intended to bethird party beneficiaries of, and have rights and interests in respect of,Executive’s agreements set forth in Sections 7, 8 and 9.

 

19.                                 Amendment;Entire Agreement

 

This Agreement may not be changed orally but onlyby an agreement in writing agreed to by the party against whom enforcement ofany waiver, change, modification, extension or discharge is sought. ThisAgreement embodies the entire agreement and understanding of the parties heretoin respect of the subject matter of this Agreement, and supersedes and replacesall prior agreements, understandings and commitments with respect to suchsubject matter.

 

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20.                                 Litigation

 

THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED,APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OFMASSACHUSETTS, EXCEPT THAT NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLYANY LAW OTHER THAN THAT OF MASSACHUSETTS, AND NO DEFENSE, COUNTERCLAIM OR RIGHTOF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE OR JURISDICTION, ORARISING OUT OF THE ENACTMENT, MODIFICATION OR REPEAL OF ANY LAW, REGULATION,ORDINANCE OR DECREE OF ANY FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTIONHEREON. EXECUTIVE AND THE COMPANY AGREE THAT ANY ACTION OR PROCEEDING TOENFORCE OR ARISING OUT OF THIS AGREEMENT SHALL BE COMMENCED IN THE COURTS OFTHE COMMONWEALTH OF MASSACHUSETTS LOCATED IN BOSTON, MASSACHUSETTS OR THEUNITED STATES DISTRICT COURTS IN BOSTON, MASSACHUSETTS. EXECUTIVE AND THECOMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCHCOURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THECHOICE OF FORUM SET FORTH IN THIS SECTION 20 SHALL NOT BE DEEMED TOPRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKINGOF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION.

 

21.                                 FurtherAction

 

Executive and the Company agree to perform anyfurther acts and to execute and deliver any documents which may bereasonable to carry out the provisions hereof.

 

22.                                 Counterparts

 

This Agreement may be executed in counterparts,each of which shall be deemed an original, but all of which together shallconstitute one and the same instrument.

 

IN WITNESS WHEREOF, this Agreement has been executedas of the date first written above.

 
|       | **EXECUTIVE**:                         |
|------------|----------------------------------------|
|       | ** **                             |
|       | ** **                             |
| ** ** | **/s/George M. Murphy**                | ** ** |
|       | Name: George M. Murphy            |
|       |                                   |
|       |                                   |
| ** ** | **SAFETY INSURANCE GROUP, INC.:** |
| ** ** | ** **                             |
| ** ** | By                                     | ** ** | **/s/David F. Brussard** | ** ** |
|       | Name:                                  | David F. Brussard |
|       | Title:                                 | President, CEO and Chairman of the Board |
|            |                                        |  |  |  |

 

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