Exhibit 10.26


 


AMENDED AND
RESTATED EMPLOYMENT AGREEMENT


 


This Amended and Restated Employment
Agreement, dated as of December 31, 2008 (this “Agreement”), is by
and between George M. Murphy (the “Executive”) and Safety Insurance
Group, Inc., a Delaware corporation (the “Company”);


 


W I T N E S S E T H:


 


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


 


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


 


WHEREAS, the Company wishes to secure the
Executive’s non-interference with the Companies’ business, upon the terms and
conditions herein set forth;


 


WHEREAS, the Executive and the Company
entered into an Employment Agreement, dated October 1, 2005 (the “Prior
Employment Agreement”); and


 


WHEREAS, the Executive and the Company desire
to amend and restate the Prior Employment Agreement.


 


NOW, THEREFORE, in consideration of the
mutual promises and covenants contained herein, and intending to be legally
bound hereby, the parties hereto agree as follows:


 


1.             Nature
of Employment


 


Subject to Section 3, the Company
shall continue to employ Executive, and Executive shall serve the Company, in
accordance with the terms 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 are customarily assigned to an executive in
such position and such other duties and responsibilities not inconsistent
therewith as may from time to time reasonably be assigned to the Executive by
the Board of Directors and/or Chairman of the Board, President and Chief
Executive Officer of the Company.  The
Executive also agrees to serve without additional compensation in such
capacities (including, without limitation, as an officer or director) with
Company affiliates as the Board of Directors and/or Chairman of the Board,
President and Chief Executive Officer of the Company may prescribe.  Upon termination of the Executive’s
employment with the Company, the Executive’s employment, board membership or
other service relationship with any Company affiliate shall automatically
terminate unless otherwise agreed to by the parties.


 

















 


2.             Extent of Employment


 


(a)           During
the Term of Employment, the Executive shall perform his obligations hereunder
faithfully and to the best of his ability at the principal executive offices of
the Company, under the direction of the Board of Directors and/or Chairman of
the Board, President and Chief Executive Officer of the Company, and shall
abide by the rules, customs and usages from time to time established by the
Companies.


 


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


 


(c)           Nothing
contained herein shall require Executive to follow any directive or to perform
any act which would violate any laws, ordinances, regulations or rules of
any governmental, regulatory or administrative body, agent or authority, any
court or judicial authority, or any public, private or industry regulatory
authority (collectively, the “Regulations”).  Executive shall act in good faith in
accordance with all Regulations.


 


3.             Term of Employment; Termination


 


(a)           The
“Term of Employment” shall commence on October 1, 2005 and shall
continue until December 31, 2008 (the “Initial Term”); provided,
that, (i) such term shall continue for the twelve month period following
such Initial Term, and for each twelve month period thereafter (each, an “Additional
Term”), unless at least 180 days prior to the scheduled expiration date of
the Initial Term or any Additional Term, either the Executive or the Company
notifies the other of its decision not to continue such term and (ii) should
the Executive’s employment by the Company be earlier terminated pursuant to Section 3(b) or
by the Executive pursuant to Section 3(c), the Term of Employment
shall end on the date of such earlier termination.


 


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


 


(i)            upon the death of
Executive;


 


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


 


(iii)          for Cause (as
defined in Section 3(d)) or Material Breach (as defined in Section 3(e));


 


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


 


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


 


Executive acknowledges that no
representations or promises have been made concerning the grounds for
termination or the future operation of the Companies’ business, and that
nothing contained herein or otherwise stated by or on behalf of any of the
Companies modifies or amends the right of the Company to terminate Executive at
any time, with or without Material Breach or Cause.  Termination shall become effective upon the
delivery by the Company to the Executive of notice specifying such termination
and the reasons therefor (i.e., Section 3 (b)(i)-(v)), subject to
the requirements for advance notice and an opportunity to cure provided in this
Agreement, if and to the extent applicable. 
Notwithstanding anything to the contrary in this Agreement, for purposes
of this Agreement, any reference to “termination,” as it relates to a
termination of the Executive’s employment, shall refer to a termination of
employment which constitutes a “separation from service” within the meaning of Section 409A
of the Internal Revenue Code of 1986, as amended and the regulations
promulgated thereunder (“Section 409A”).


 


(c)           Subject
to the payments contemplated by Section 3(f) and 3(i),
the Term of Employment may be terminated at any time by the Executive:


 


(i)            upon the death of
Executive;


 


(ii)           as a result of a
material reduction in Executive’s authority, perquisites, position or
responsibilities (other than such a reduction in perquisites which affects all
of the Company’s senior executives on a substantially equal or proportionate
basis), the relocation of the Company’s primary place of business or the
relocation of Executive by any of the Companies to another office more than 75
miles from Boston, Massachusetts, or the Company’s willful, material violation
of its obligations under this Agreement, in each case, after 60 days’ prior
written notice to the Company and its Board of Directors and the Company’s
failure thereafter to cure such reduction or violation; or


 


(iii)          as a result of the
Company’s willful and material violation of this Agreement, the 2002 Management
Omnibus Incentive Plan (the “Incentive Plan”), or any agreement between
Executive and any of the Companies pertaining to awards made pursuant to the
Incentive Plan or the Executive Incentive Compensation Plan, in each case as
such agreements or plans may be amended from time to time.


 


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(d)                                 For
the purposes of this Section 3, “Cause” shall mean any of
the following:


 


(i)            Executive’s
commission or conviction of any crime or criminal offense involving monies or
other property or any felony;


 


(ii)           Executive’s
commission or conviction of fraud or embezzlement;


 


(iii)          Executive’s
material and knowing violation of any obligations imposed upon Executive,
personally, as opposed to upon the Company, whether as a stockholder or
otherwise, under this Agreement, the Incentive Plan or any other agreement
between the Executive, on the one hand, and any of the Companies, on the other
hand, the Amended and Restated Certificate of Incorporation, or the By-Laws of
the Company, in each case as may be amended from time to time; provided,
that the Executive has been given written notice describing any such violation
in reasonable detail and fails to cure the violation within 90 days from such
notice; or


 


(iv)          Executive engages in
egregious misconduct involving serious moral turpitude to the extent that
Executive’s credibility and reputation no longer conform to the standard of the
Company’s executives.


 


(e)                                  For
the purposes of this Section 3, “Material Breach” shall mean
any of the following:


 


(i)            Executive’s breach
of any of his fiduciary duties to the Companies or their stockholders or making
of a willful misrepresentation or omission which breach, misrepresentation or
omission would reasonably be expected to materially adversely affect the
business, properties, assets, condition (financial or other) or prospects of
the Companies;


 


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


 


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


 


(iv)          Executive’s willful
and material violation of any non-competition, non-disparagement, or
confidentiality agreement with any of the Companies, including without
limitation, those set forth in Sections 7, 8 and 9 of this
Agreement, or any other agreements with any of the Companies;


 


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


 


(f)            In
the event Executive’s employment is terminated by the Company under any
circumstances described in Section 3(b)(v) or by Executive
under the circumstances described in Section 3(c)(ii) or (iii),


 


(i)            the Company shall
pay or cause to be paid to the Executive, (A) within five business days
after the date of termination, any earned but unpaid base salary and, subject
to the provisions of Section 5, any expense reimbursement payments owed to
the Executive, and (B) any earned but unpaid annual bonus payments
relating to the prior year to be paid in accordance with the terms and
conditions of the Safety Insurance Group, Inc. Annual Performance
Incentive Plan, or any successor plan thereto (collectively, the “Accrued
Obligations”);


 


(ii)           the Company shall
pay or cause to be paid to the Executive, within thirty business days after the
date of termination, a lump-sum payment equal to the annual base salary the
Executive would have received over the remaining Term of Employment if his
employment had not terminated, assuming for this purpose that a notice not to
extend the Term of Employment was provided on the date of termination (the “Severance
Period”), based on the Executive’s base salary in effect immediately prior
to the date of termination; and


 


(iii)          subject to the
provisions of Section 5, during the Severance Period, the Company
will provide 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 receiving immediately prior to the date of termination
and at the same dollar cost to the Executive as in effect immediately prior to
the termination of employment.  Nothing
in this Section 3(f)(iii) will extend the COBRA continuation
coverage period.


 


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


 


(i)            the Company shall
pay or cause to be paid to the Executive any Accrued Obligations in accordance
with Section 3(f)(i);


 


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


 


(iii)          subject to the
provisions of Section 5, for a two (2) year period after the
date of termination, the Company will provide 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 receiving immediately prior to the
date of termination and at the same dollar cost to the Executive as in effect
immediately prior to the termination of employment.  Nothing in this Section 3(g)(iii) will
extend the COBRA continuation coverage period.


 


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


 


(i)            the Company shall
pay or cause to be paid to the Executive any Accrued Obligations in accordance
with Section 3(f)(i);


 


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


 


(iii)          subject to the
provisions of Section 5, for a three (3) month period after
the date of termination, the Company will provide 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 receiving immediately prior to
the date of termination and at the same dollar cost to the Executive as in
effect immediately prior to the termination of employment.  Nothing in this Section 3(h)(iii) will
extend the COBRA continuation coverage period.


 


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


 


(i)            the Company will
pay or cause to be paid to the Executive (or the Executive’s estate or
representative, as the case may be) any Accrued Obligations in accordance with Section 3(f)(i);


 


(ii)           the Company will
pay or cause to be paid to the Executive (or the Executive’s estate or
representative, as the case may be), within thirty business days after the date
of termination, a lump-sum payment equal to 100% of the 


 


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Executive’s
annual base salary in effect immediately prior to the date of termination; and


 


(iii)          subject to the
provisions of Section 5, for a one (1) year period after the date
of termination, the Company will provide 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 receiving immediately prior to the
date of termination and at the same dollar cost to the Executive as in effect
immediately prior to the termination of employment.  Nothing in this Section 3(i)(iii) will
extend the COBRA continuation coverage period.


 


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


 


(k)           The
payments and benefits required by Section 3(f), 3(g), 3(h) or 3(i),
as applicable, constitute severance and liquidated damages, and, except for
payments that may be required pursuant to Section 10, the Company
will be obligated to pay or cause to be paid any further amounts to Executive
under this Agreement or otherwise be liable to Executive in connection with any
termination.


 


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


 


(m)          Termination
of the Term of Employment will not terminate Sections 7 through 10
and 12 through 23, or any other provisions not associated
specifically with the Term of Employment.


 


(n)           In
the event the Term of Employment is terminated and the Company is obligated to
make or cause to be made payments pursuant to Section 3(f), the
Executive will use his reasonable efforts to seek and obtain alternative
employment; provided, however, that the Executive shall not be
required to accept a position or positions of a substantially different
character than the position(s) held by him under this Agreement; and provided further,
if the Executive shall become physically or mentally disabled, he will not be
under such duty.  Moreover, in the event
that after the Restricted Period pursuant to Section 8(a),
Executive is employed by or engaged in a Competitive Business as contemplated
by Section 8(a)(i), then the payments under Section 3(f) will
thereupon cease.


 


(o)           Notwithstanding
any provision herein to the contrary, as a condition to payment of any amounts
or provision of any benefits pursuant to Sections 3(f) through 3(i) or
10 of this Agreement (other than due to the Executive’s death), the
Executive shall 


 


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be required to have executed a complete release of the Companies and
related parties in such form as is reasonably required by the Company.  Subject to Section 3(p), all
payments and benefits under this Section 3 shall be paid or
commenced on the sixtieth (60th) day following the date of termination of the
Executive’s employment, provided that the release described in the preceding
sentence becomes irrevocable prior to such sixtieth (60th) day.


 


(p)           Notwithstanding the foregoing, if the
Executive is a “specified employee” within the meaning of Section 409A at
the time of a termination, any portion of the payments under this Section 3
due hereunder during the first six months following the date of the Executive’s
termination, to extent that such payments constitute “deferred compensation”
under Section 409A, shall not be paid during such six-month period and
instead shall be paid on the first business day following the expiration of
such six-month period.  The remaining
portion of the payments due hereunder shall be paid as provided in the
applicable provisions of this Section 3.


 


4.             Compensation


 


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


 


(a)           During
the Term of Employment, the Company shall pay or cause to be paid to Executive
as base compensation for his services hereunder, in monthly installments, a
base salary at a rate of $150,000 per annum, as increased on an annual basis to
reflect the increase in the United States Cost of Living Index for All Urban
Consumer (CPI-U) for the Boston, Massachusetts area (the “CPI-U Index”). 
The January 2004 CPI-U Index shall provide the basis for calculations of
such increases.  Notwithstanding the
minimum increase set forth above, the Board of Directors of the Company or a
committee thereof may establish a higher compensation level.


 


(b)           During
the Term of Employment, the Company shall pay or cause to be paid to Executive
an annual bonus based on Executive’s performance, as determined and approved by
the Board of Directors of the Company or a committee thereof under the Safety
Insurance Group, Inc. Annual Performance Incentive Plan, or any successor
thereto.  Such bonus will be at the full
discretion of the Board of Directors of the Company or a committee thereof, and
may not be paid at all.  Executive acknowledges
that no bonus has been agreed upon or promised.


 


5.             Reimbursement
of Expenses


 


During the Term of Employment, the Company
shall reimburse or cause Executive to be reimbursed for documented travel,
entertainment and other expenses reasonably incurred by Executive in connection
with the performance of his duties hereunder and, in each case, in accordance
with applicable rules, customs and usages promulgated by the Companies from
time to time in effect.  All reimbursements and in-kind benefits
provided under this Agreement, shall be made or provided in accordance 


 


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with the requirements of Section 409A,
including, where applicable, the requirement that (a) any reimbursement
shall be for expenses incurred during a specified period, (b) the amount
of expenses eligible for reimbursement, or in-kind benefits provided, during a
calendar year may not affect the expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other calendar year, (c) the
reimbursement of an eligible expense shall be made on or before the last day of
the calendar year following the year in which the expense is incurred (or such
earlier date if specified in this Agreement), and (d) the right to
reimbursement or in-kind benefits is not subject to liquidation or exchange for
another benefit.


 


6.             Benefits


 


During the Term of Employment, the Executive
shall be entitled to perquisites, paid vacations and benefits (including
health, short and long term disability, pension and life insurance benefits
consistent with past practice, or as increased from time to time) established
from time to time, by the Board of Directors of the Company for executives of
the Companies, subject to the policies and procedures in effect regarding
participation in such benefits.


 


7.             Confidential
Information


 


During and after the Term of Employment,
Executive will not, directly or indirectly in one or a series of transactions,
disclose to any person, or use or otherwise exploit for the Executive’s own
benefit or for the benefit of anyone other than the Companies, any Confidential
Information, 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 such
Confidential Information in order to perform the services or conduct the
operations 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 Confidential Information from the premises of the
Companies, except as required in his normal course of employment by the
Company.  Executive shall use
commercially reasonable efforts to cause all persons or entities to whom any
Confidential Information shall be disclosed by him hereunder to observe the
terms and conditions set forth herein as though each such person or entity was
bound hereby. Executive shall have no obligation hereunder to keep confidential
any Confidential Information if and to the extent disclosure of any thereof is
specifically required by law;  provided,
however, that in the event disclosure is required by applicable law, the
Executive shall provide the Companies with prompt notice of such requirement,
prior to making any disclosure, 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 Confidential Information which he may
possess or control.  Executive agrees that all Confidential Information of
the Companies (whether now or hereafter existing) conceived, discovered or made
by him during the Term of Employment exclusively belongs to the Companies (and
not to Executive).  Executive will
promptly disclose such Confidential Information to the 


 


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Companies and perform all actions reasonably requested by the Companies
to establish and confirm such exclusive ownership.


 


8.             Non-Interference


 


(a)           Executive
acknowledges that the services to be provided give him the opportunity to have
special knowledge of the Companies and their Confidential Information and the
capabilities of individuals employed by or affiliated with the Companies and that
interference in these relationships would cause irreparable injury to the
Companies.  In consideration of this
Agreement, Executive covenants and agrees that:


 


(i)            During the
Restricted Period (which shall not be reduced by any period of violation of this
Agreement by Executive or period which is required for litigation to enforce
the rights hereunder), Executive will not, without the express written approval
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 or participate 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 which competes, directly
or indirectly, with the Business in the Market (“Competitive Business”)
without regard to (A) whether the Competitive Business has its office,
manufacturing or other business facilities within or without the Market, (B) whether
any of the activities of the Executive referred to above occur or are performed
within or without the Market or (C) whether the Executive resides, or
reports to an office, within or without the Market; provided, however,
that (x) the Executive may, anywhere in the Market, directly or
indirectly, in one or a series of transactions, own, invest or acquire an
interest in up to five percent (5%) of the capital stock of a corporation whose
capital stock is traded publicly, or that (y) Executive may accept
employment with a successor company to the Company.


 


(ii)           During the
Restricted Period (which shall not be reduced by any period of violation of
this Agreement by Executive or period which is required for litigation to
enforce the rights hereunder), Executive will not without the express prior
written approval of the Board of Directors of the Company (A) directly or
indirectly, in one or a series of transactions, recruit, solicit or otherwise
induce 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 business
relationship with the Companies or had a business relationship with the
Companies within the 24 month period preceding the date of the incident in
question, to discontinue, reduce or modify such employment, agency or business
relationship with the Companies, or (B) employ or seek to employ or cause
any Competitive Business to employ or seek to employ any person or agent who is
then (or was at any time within 24 months prior to the date the Executive or
the Competitive Business employs or seeks to employ such person) employed or
retained by the Companies.


 


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Notwithstanding the
foregoing, nothing herein shall prevent the Executive from providing a letter
of recommendation to an employee with respect to a future employment
opportunity.


 


(iii)          The scope and term of this Section 8
would not preclude Executive from earning a living with an entity that is not a
Competitive Business.


 


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


 


9.             Non-Disparagement


 


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


 


10.           Excise Tax
Gross-up Payments


 


(a)           If any payments or
benefits paid or provided or to be paid or provided to the Executive or for his
benefit pursuant to the terms of this Agreement or otherwise in connection
with, or arising out of, his employment with the Company or the termination
thereof (a “Payment”) would be subject to the excise tax (the “Excise
Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”), then the Executive will be entitled to receive an
additional payment (a “Gross-Up Payment”) in an amount such that after
payment by the Executive of all income taxes, employment taxes and any Excise
Tax imposed upon the Gross-Up Payment (including any related interest and
penalties), the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax (including any related interest and penalties) imposed upon the
Payments.


 


(b)           An initial
determination of whether a Gross-Up Payment is required pursuant to this
Agreement, and the amount of such Gross-Up Payment, will be made at the Company’s
expense by an accounting firm selected by the Company.  The accounting firm
will provide its determination, together with detailed supporting calculations
and documentation, to the Company and the Executive within 10 days after the
date of termination of Executive’s employment, or such other time as may be
requested by the Company or the Executive.  If the accounting firm
determines that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it will furnish the Executive with an opinion to that
effect.  If a Gross-Up Payment becomes payable, such Gross-Up Payment
shall be paid to the Executive within thirty business days of the receipt of
the accounting firm’s determination.  Within 10 days after the accounting
firm 


 


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delivers
its determination to the Executive, the Executive will have the right to
dispute the determination.  The existence
of a dispute will not in any way affect the Executive’s right to receive the
Gross-Up Payment in accordance with the determination.  If there is no dispute, the determination
will be binding, final, and conclusive upon the Company and the Executive.  If there is a dispute, the Company and the
Executive will together select a second accounting firm, which will review the
determination and the Executive’s basis for the dispute and then will render
its own determination, which will be binding, final, and conclusive on the
Company and on the Executive for purposes of determining 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) additional Gross-Up Payments are made, such
additional Gross-Up Payment will be paid to the Executive within thirty
business days of the receipt of the second accounting firm’s
determination.  The Company will pay or
caused to be paid all costs associated with the second accounting firm’s
determination, unless such determination does not result in additional Gross-Up
Payments to the Executive, in which case all such costs will be borne by the
Executive.  Notwithstanding anything
contained herein to the contrary, any such Gross-Up Payment shall be paid no
later than the end of the Executive’s taxable year next following the Executive’s
taxable year in which the Executive remits the related taxes.


 


(c)           For purposes of determining
the amount of the Gross-Up Payment, the Executive will be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and applicable state
and local income taxes at the highest marginal rate of taxation in the state
and locality of the Executive’s residence on the date of termination of
Executive’s employment, net of the maximum reduction in federal income taxes
that would be obtained from deduction of those state and local taxes.


 


(d)           As a result of the
uncertainty in the application of Section 4999 of the Code, it is possible
that Gross-Up Payments which will not have been made should have been made (“Underpayment”)
or Gross-Up Payments are made which should not have been made (“Overpayment”).  If it is determined that an Underpayment has
occurred, the accounting firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid
to or for the benefit of Executive. 
Notwithstanding anything contained herein to the contrary, any such
Underpayment shall be paid no later than the end of the Executive’s taxable
year next following the Executive’s taxable year in which the Executive remits
the related taxes.  If the Gross-Up
Payment exceeds the amount necessary to reimburse the Executive for his Excise
Tax, the Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate provided
in Section 1274(b)(2) of the Code) shall be promptly paid by
Executive (to the extent he has received a refund if the applicable Excise Tax
has been paid to the Internal Revenue Service) to or for the benefit of the
Company; provided, however, that if the Company determines that such repayment
obligation would be or result in an unlawful extension of credit under Section 13(k) of
the Securities Exchange Act, repayment shall not be required.  The Executive shall cooperate, to the extent
his expenses are reimbursed in 


 


12

















 


accordance
with this Section 10, with any reasonable requests by the Company in
connection with any contest or disputes with the Internal Revenue Service in
connection with the Excise Tax.


 


(e)           The Executive shall
notify the Company in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment of an Underpayment.  Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid.  The Executive shall not pay such
claim prior to the expiration of the thirty (30) day period following the date
on which he gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due).  If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:


 


(i)                                     give the
Company any information reasonably requested by the Company relating to such claim,


 


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


 


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


 


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


 


provided,
however, that the Company shall pay or cause to be paid all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including related interest and
penalties) imposed as a result of such representation and payment of costs and
expenses no later than 60 days after the end of the taxable year following the
year in which the Executive incurs such costs and expenses.  Without limitation on the foregoing
provisions of this Section 10(e), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, such payment shall
be advanced to the Executive, on an interest-free basis and the Executive shall
be indemnified and held harmless, on an after-tax basis, from any 


 


13

















 


Excise
Tax or income tax (including related interest or penalties) imposed with
respect to such 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 to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by 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 such
claim, the Executive shall (subject to the Company’s complying with the
requirements of Section 10(e)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto).  If,
after the receipt by the Executive of an amount advanced pursuant to Section 10(e) hereof,
a determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
forgiven and shall not be required to be repaid.


 


11.           Definitions


 


Capitalized terms used in this Agreement but not otherwise defined
shall have the meanings set forth below:


 


“Business” means any business conducted, or engaged in, by the
Companies prior to the date hereof or at any time during the Term 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 similar business
transaction involving the Company in which the holders of Company Common Stock
immediately prior to such closing are not the holders, directly or indirectly,
of a majority of the ordinary voting securities of the surviving person in such
transaction immediately after such closing, (ii) the closing of any sale
or transfer by the Company of all or substantially all of its assets to an
acquiring person in which the holders of Company Common Stock immediately prior
to such closing are not the holders of a majority of the ordinary voting
securities of the acquiring person immediately after such closings, or (iii) the
closing of any sale by the holders of Company Common Stock of an amount of
Company Common Stock that equals or exceeds a majority of the shares of Company
Common Stock immediately prior to such closing to a person in which the holders
of the Company Common Stock immediately prior to such closing are not the
holders of a majority of the ordinary voting securities of such person
immediately after such closing.


 


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


 


14

















 


“Company” is defined in the introduction.


 


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


 


“Confidential Information” means any confidential 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 or consultant contracts, pricing
policies, operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans or 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 or intellectual property of the
Companies, whether or not in written or tangible form, 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 a result of a disclosure by the Executive not permissible
hereunder.


 


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


 


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


 


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


 


“Restricted Period” means the date commencing on the date of
this Agreement and ending on the later of (x) the date of termination of
the Term of Employment or (y) the end of the applicable severance period
provided under Section 3(f); provided, however, that
the “Restricted Period” may be extended, in the sole discretion of the Company,
for an additional period of up to twenty-four (24) months if the Company
continues to pay or to cause to be paid to the Executive (i) the full
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 communication required or
permitted to be given under this Agreement shall be given in writing and if
delivered personally, or sent 


 


15

















 


by
certified or registered mail, return receipt requested, as follows (or to such
other addressee or address as shall be set forth in a notice given in the same
manner):


 


	
  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 Brussard

  



 


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


 


13.           Executive’s
Representation


 


Executive hereby warrants and represents to the Company that Executive
has carefully reviewed this Agreement and has consulted with such advisors as
Executive considers appropriate in connection with this Agreement, and is not
subject to any covenants, agreements or restrictions, including without
limitation any covenants, agreements or restrictions arising out of Executive’s
prior employment which would be breached or violated by Executive’s execution
of this Agreement or by Executive’s performance of his duties hereunder.


 


14.           Other Matters


 


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


 


(b)           Notwithstanding
anything contained herein to the contrary, the Companies may withhold from any
amounts payable under, or benefits provided pursuant to, this Agreement all
federal, state, local, and foreign taxes that are required to be withheld by
applicable laws or regulations.


 


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


 


16

















 


15.           Validity


 


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


 


16.           Severability


 


Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable 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 in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.  If any court determines that
any provision of Section 8 or any other provision hereof is
unenforceable and therefore acts to reduce the scope or duration of such
provision, the provision in its reduced form shall then be enforceable.


 


17.           Waiver of Breach;
Specific Performance


 


The waiver by the Company or Executive of a breach of any provision of
this Agreement by the other party shall not operate or be construed as a waiver
of any other breach of such other party. 
Each of the parties (and third party beneficiaries) to this Agreement
will be entitled to enforce its respective rights under this Agreement and to
exercise all other rights existing in its favor.  The parties hereto agree and acknowledge that
money damages may not be an adequate remedy for any breach of the provisions of
Sections 7, 8 and 9 of this Agreement and that any
party (and third party beneficiaries) may in its sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions in order to enforce or prevent any
violations of the provisions of this Agreement. 
In the event either party takes legal action to enforce any of the terms
or provisions of this Agreement, the nonprevailing party shall pay the
successful party’s costs and expenses, including but not limited to, attorneys’
fees, incurred in such action.  If the
Executive prevails, the Company will reimburse the Executive’s legal fees no
later than 60 days after the end of the taxable year following the year in
which the Executive incurs such the costs and expenses.


 


18.           Assignment; Third
Parties


 


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


 


17

















 


19.           Amendment; Entire
Agreement


 


This Agreement may not be changed orally but only by an agreement in
writing agreed to by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. 
This Agreement embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter of this Agreement, and
supersedes and replaces all prior agreements, understandings and commitments
with respect to such subject matter, including, without limitation, the Prior
Employment Agreement.


 


20.           Litigation


 


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


 


21.           Further Action


 


Executive and the Company agree to perform any further acts and to
execute and deliver any documents which may be reasonable 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 shall constitute one and the same
instrument.


 


18

















 


23.           Section 409A


 


To the extent applicable, it is intended that this Plan comply with,
and should be interpreted consistent with, the requirements of Section 409A.


 


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


 


	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/George M. Murphy

  
	
   

  	
  Name: George M. Murphy

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SAFETY
  INSURANCE GROUP, INC.:

  
	
   

  	
   

  
	
   

  	
  /s/David F. Brussard

  
	
   

  	
  Name: David F. Brussard

  
	
   

  	
  Title: President,CEO and Chairman of the
  Board

  



 


19