Document:

Exhibit 10.4

 

Exhibit 10.4

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT, dated as of April 13, 2005, is by and between American Wholesale
Insurance Group, Inc., a Delaware corporation (the “Company”), and Mark M. Smith (the “Executive”)
(this “Agreement”).

BACKGROUND STATEMENT

     The Company has entered into a Stock Purchase Agreement, dated as of February 15, 2005 (the
“Stock Purchase Agreement”), among the Company, Willis of Greater New York, Inc., a New York
corporation (“Willis New York”), and Willis North America Inc., a Delaware corporation, pursuant to
which, effective as of the date of this Agreement, the Company has acquired all of the issued and
outstanding capital stock of Stewart Smith East, Inc., a New York corporation (“Stewart Smith”),
and McAlear Associates, Inc., a Michigan corporation (together with Stewart Smith and their
respective subsidiaries, the “Stewart Smith Group”). The Executive formerly served as the
President of Stewart Smith and/or one or more of its subsidiaries. In connection with the
transactions contemplated by the Stock Purchase Agreement, the Company and the Executive desire to
enter into this Agreement to set forth the terms and conditions on which the Executive will be
employed by the Company.

STATEMENT OF AGREEMENT

     In consideration of the premises and the respective covenants and agreements of the parties
herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:

     1.   Term. The Executive’s employment under this Agreement shall commence upon the date
of the closing (the “Closing”) of the transactions contemplated by the Stock Purchase Agreement
(the “Commencement Date”) and shall end, unless terminated earlier pursuant to Section 4, at the
close of business on the five (5) year anniversary of the Commencement Date (the “Term”);
provided, however, that the Term shall thereafter be automatically extended for
each succeeding one (1) year period unless either party hereto shall provide the other party with a
written notice at least one hundred eighty days (180) days prior to the end of the then current
Term, advising that the party providing the notice shall not agree to so extend the Term.

     2.   Title, Duties and Authority. The Executive shall serve as President of the
Company’s Wholesale Brokerage Division, and shall have such responsibilities and duties (consistent
with the Executive’s position as President of the Company’s Wholesale Brokerage Division) as may
from time to time be assigned to the Executive by the board of directors, the president or the
chief executive officer of the Company, and shall have all of the powers and duties usually
incident to such offices. In addition, throughout the Term, the Executive shall serve as a member
of the Company’s Executive Leadership Committee. The Executive shall devote substantially all of
his working time and efforts to the business and affairs of the Company, except for vacations,
illness and incapacity; provided, however, that the Executive may serve on the
boards of directors of non-public companies and charitable organizations and may devote reasonable
time to charitable and civic organizations, in all cases provided that the performance of his
duties and responsibilities on such boards and in such service does not interfere unreasonably with
the performance of his duties and responsibilities under this Agreement.

 

 

     3.   Compensation and Benefits.

	 	 	      (a)   Base Salary. During the Term, the Company shall pay the Executive an annual base
salary of $750,000 (“Base Salary”), payable in accordance with the Company’s normal payroll
practices and subject to annual review by the board of directors, the president and the chief
executive officer of the Company; provided, however, that for each subsequent
calendar year during the Term, commencing with the 2006 calendar year, the amount of the
Executive’s Base Salary shall be increased by not less than a percentage equal to the annual
percentage change in the Consumer Price Index, for all urban consumers for all items (U.S. City
Average, Not Seasonally Adjusted), as compiled by the Census Bureau and Bureau of Labor Statistics
and published in the Statistical Abstract of the United States for the calendar year preceding the
effective date of the adjustment.
	 
	 	 	      (b)   Bonus. The Executive shall be eligible to receive a cash bonus (“Bonus”) for each
calendar year (or partial calendar year) occurring during the Term, based upon the satisfaction of
certain predetermined financial goals determined by the board of directors, the president or the
chief executive officer of the Company and communicated to the Executive in writing by the Company
by no later than February 15 of each calendar year occurring during the Term. For the 2005
calendar year, the amount of the Bonus shall be calculated and paid in accordance with the terms
set forth on Exhibit A attached hereto. The parties acknowledge and agree that, in
subsequent calendar years, the Executive will have the opportunity to earn a Bonus of up to two
hundred percent (200%) of the Executive’s Base Salary for the year in which the Bonus was earned.
	 
	 	 	      (c)   Employee Benefits and Incentive Arrangements. Throughout the Term, the Executive
shall be entitled to participate in all of the Company’s employee benefit and incentive
compensation plans and arrangements made available during the Term to the senior executives of the
Company as may be in effect from time to time.
	 
	 	 	      (d)   Equity Investment Option. The Company shall cause American Wholesale Insurance
Holding Company, LLC (the “Parent”) to grant an option (the “Option”) to the Executive to purchase
up to Forty-One Thousand Six Hundred Thirty-Two (41,632) of the common units (the “LLC Units”) of
the Parent at a purchase price of Twelve Dollars And One Cent ($12.01) per LLC Unit. The Option
shall be exercisable on and after the Commencement Date and shall expire upon the earlier of the
termination of the Term and eighteen (18) months following the Commencement Date. To exercise the
Option with respect to all or any part of the LLC Units, the Executive shall execute and deliver to
the Parent a purchase agreement, in form and substance reasonably satisfactory to the Parent,
evidencing the purchase of the LLC Units and confirming the Executive’s agreement to be bound by
the terms of the Operating Agreement (as defined below), and pay the aggregate option price for the
purchased LLC Units in cash or by wire transfer of immediately available funds to an account
designated by the Parent. At any time or from time to time after the Commencement Date, the
Executive shall, at the request of the Company, execute and deliver such instruments or other
documents and take such further actions as the Company may reasonably request to evidence or give
effect to the Option, the issuance of

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	 	 	any LLC Units in connection therewith and to otherwise carry out the intent of the parties
hereunder.

	 	 	      (d)   Profits-Only Interest. On the Commencement Date, the Company shall cause the
Parent to issue to the Executive a “profits-only” interest in the Parent (the “Profits-Only
Interest”), which Profits-Only Interest shall entitle the Executive to 2.5% of the future
appreciation in the value of the Company over and above $12.01 per common unit (which represents an
enterprise value of One Hundred Fifty Million Dollars ($150,000,000.00)). The Profits-Only
Interest shall vest on a monthly basis over a period of sixty (60) months, beginning on the first
day of the calendar month following the calendar month in which the Commencement Date occurs. The
issuance of the Profits-Only Interest shall be conditioned upon Executive executing and delivering
to the Parent (A) the Parent’s Amended and Restated Operating Agreement, dated as of May 31, 2002,
as amended, by and among Americana Financial Services, LLC, Pegasus Partners, L.P., Pegasus Related
Partners, L.P. and the other persons listed on the signature pages thereto (the “Operating
Agreement”), (B) an Admission and Vesting Agreement evidencing the issuance of the Profits-Only
Interest and containing the vesting terms described above and provisions addressing compliance with
federal and state securities laws, in form and substance reasonably satisfactory to the Parent, (C)
a Voting Agreement, in form and substance reasonably satisfactory to the Parent, pursuant to which
the Executive provides a proxy in favor of Pegasus Partners, L.P. relating to any and all voting
rights he has in respect of the Profits-Only Interest, and (D) such other documentation reasonably
requested by the Parent to otherwise carry out the intent of the parties hereunder.
	 
	 	 	      (e)   Expenses. The Executive shall be entitled to receive prompt reimbursement of
customary and reasonable expenses incurred in the performance of his employment hereunder upon his
submission to the Company of reasonable and customary expense claims to the Company. In addition,
the Company shall promptly reimburse the Executive for his reasonable legal and other professional
adviser expenses incurred in negotiating the terms of this Agreement and the other documents
contemplated hereby, up to a maximum amount of Ten Thousand Dollars ($10,000).
	 
	 	 	      (f)   Vacations. The Executive shall be entitled to five (5) weeks paid vacation in
each calendar year during the Term with full and unlimited entitlement to carryover unusual
vacation time to future years.
	 
	 	 	      (g)   Supplemental Salary. During each calendar month of the Term, the Company shall
pay the Executive an additional salary (the “Supplemental Salary”) equal to (i) the actual dues
owed by the Executive for such month for membership at a country club, up to a maximum monthly
amount of One Thousand Five Hundred Dollars ($1,500.00), plus (ii) the actual expenses incurred by
the Executive in connection with his ownership or lease and maintenance of an automobile for such
month, up to a maximum monthly amount of One Thousand Five Hundred Dollars ($1,500.00). The
Executive shall provide the Company with supporting documentation of the dues and expenses incurred
by him that are used to calculate the Supplemental Salary.

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	 	 	      (h)   Transaction Fee. Upon the consummation of transactions contemplated by the Stock
Purchase Agreement, including the execution and delivery of this Agreement, the Company shall pay
the Executive a one-time fee in the amount of One Million Dollars ($1,000,000.00).

     4.   Termination. The Executive’s employment hereunder with the Company may be
terminated under the following circumstances:

	 	 	      (a)   Death or Disability. The Company may terminate the Executive’s employment
hereunder if the Executive shall die or become subject to a Permanent Disability. For purposes of
this Agreement, “Permanent Disability” means any physical or mental impairment that renders the
Executive unable to perform the essential functions of the Executive’s job under the terms of this
Agreement for a period of at least 180 days during a twelve-month period, either with or without
reasonable accommodation. At the Company’s request, the Executive shall submit to an examination
by a duly licensed physician who is mutually acceptable to the Company and the Executive for the
purpose of ascertaining the existence of a Permanent Disability, and shall authorize the physician
to release the results of the Executive’s examination to the Company.
	 
	 	 	      (b)   Cause. The Company may terminate the Executive’s employment hereunder for Cause.
For purposes of this Agreement, the Company shall have “Cause” to terminate the Executive’s
employment hereunder upon:

        (i)   the failure by the Executive to substantially perform the Executive’s
duties hereunder (other than any such failure resulting from the Executive’s death
or Permanent Disability, which shall be subject to the provisions of Section 4(a));

        (ii)   the willful violation by the Executive of any of the Executive’s material
obligations hereunder;

        (iii)   the willful engaging by the Executive in misconduct which is materially
injurious to the business or reputation of the Company or any of its affiliates;

        (iv)   the Executive’s conviction of a felony;

        (v)   the Executive’s material breach of any agreement between the Executive, the
Company, the Parent or any of their affiliates; or

        (vi)   the commission of an act by the Executive constituting financial dishonesty
against the Company or any of its affiliates.

        Notwithstanding the foregoing, the Executive shall not be terminated for Cause without:

          (A)   delivery of a written notice to the Executive setting forth

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the reasons for the Company’s intention to terminate the Executive’s
employment hereunder for Cause; and

          (B)   the failure of the Executive to cure the nonperformance, violation
or misconduct described in the notice referred to in clause (A) of this
paragraph, if cure thereof is possible, to the reasonable satisfaction of
the board of directors, the chief executive officer and the president of the
Company, within fifteen (15) days of the Executive’s receipt of such notice;
and

          (C)   an opportunity for the Executive, together with the Executive’s
counsel, to be heard before the board of directors of the Company.

	 	 	      (c)   Good Reason. The Executive may terminate his employment hereunder for “Good
Reason” upon the occurrence, without the Executive’s consent, of any of the following events that
has not been cured within fifteen (15) days after written notice thereof has been given to the
Company by the Executive;

        (i)   a material and adverse change in the Executive’s title, status, authority,
duties or function (in each case, other than as contemplated by this Agreement);

        (ii)   the Executive being required to report to anyone other than the board of
directors, the chief executive officer or the president of the Company;

        (iii)   any failure to pay the Executive’s Base Salary or Bonus when due;

        (iv)   a change of the Executive’s place of employment by the Company without the
Executive’s prior written consent to a location which is greater than thirty-five
(35) miles from the location of the Executive’s place of employment in New York, New
York as of the Commencement Date; or

        (v)   the willful violation by the Company of any of the Company’s material
obligations hereunder.

        Notwithstanding the foregoing, the Executive may not terminate his employment for Good Reason
without:

          (A)   delivery of a written notice to the Company setting forth the
reasons for the Executive’s intention to terminate his employment for Good
Reason; and

          (B)   the failure of the Company to cure the grounds for the Executive’s
intention to terminate his employment for Good Reason, if

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cure thereof is possible, to the reasonable satisfaction of the
Executive, within fifteen (15) days of the Company’s receipt of such notice.

	 	 	      (d)   Without Cause. The Company may terminate the Executive’s employment hereunder
without Cause.
	 
	 	 	      (e)   Without Good Reason. The Executive may terminate the Executive’s employment
hereunder without Good Reason.

     5.   Compensation upon Termination.

	 	 	      (a)   Death or Disability. If the Executive’s employment with the Company hereunder is
terminated on account of the Executive’s death or Permanent Disability pursuant to Section 4(a),
the Company shall pay to the Executive or the Executive’s estate, as applicable, or as may be
directed by the legal representatives of the Executive or the Executive’s estate, as applicable,
any Base Salary, Bonus and/or expense reimbursement entitlements accrued and due to the Executive
under Sections 3(a), 3(b) and/or 3(e) through the date of the Executive’s death or termination for
Disability, as applicable.
	 
	 	 	      (b)   By the Company for Cause or By the Executive Without Good Reason. If the
Executive’s employment with the Company hereunder is terminated by the Company for Cause pursuant
to Section 4(b) or by the Executive without Good Reason pursuant to Section 4(e), the Company
shall, as soon as practicable, pay the Executive any Base Salary and/or expense reimbursement
entitlements accrued and due to the Executive under Sections 3(a), 3(b) and/or 3(e) through the
Executive’s date of termination and the Executive shall forfeit his entire then unpaid Bonus, if
any.
	 
	 	 	      (c)   Termination By the Company Without Cause or By the Executive for Good Reason. If
the Company shall terminate the Executive’s employment hereunder without Cause pursuant to Section
4(d), or if the Executive terminates his employment with the Company hereunder for Good Reason
pursuant to Section 4(c), then the Company shall:

        (i)   as soon as practicable pay the Executive any Base Salary and/or expense
reimbursement entitlements accrued and due to the Executive under Sections 3(a)
and/or 3(e) through his date of termination. Additionally, within thirty (30) days
after the Bonus (if any) is calculated for the year in which such termination
occurs, the Company shall pay the Executive a lump sum cash payment equal to the pro
rata portion of the Bonus which would have been earned by the Executive through the
date of termination;

        (ii)   continue to provide the Executive with comparable health insurance and
benefits until the earlier of:

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          (A)   The date on which the Executive obtains subsequent employment which
provides for reasonable health insurance coverage; and

          (B)   (I) If EBITDA was less than Twenty-One Million Four Hundred
Thousand ($21,400,000), the third anniversary of the Commencement Date, or
(II) if EBITDA was equal to or greater than Twenty-One Million Four Hundred
Thousand ($21,400,000), the fifth anniversary of the Commencement Date; and

        (iii)   promptly, and in no event more than thirty (30) days following his
termination, pay the Executive a lump sum cash payment based on the following:

          (A)   If the Executive’s employment is terminated prior to the first
anniversary of the Commencement Date, an amount equal to one hundred
thirty-three and
1/

3
 percent (1331/

3%) of the Base Salary he would have received
if he had remained employed by the Company from the date of termination to
the third anniversary of the Commencement Date;

          (B)   If (x) the Executive’s employment is terminated after the first
anniversary, but prior to the third anniversary, of the Commencement Date,
and (y) EBITDA was less than Twenty-One Million Four Hundred Thousand
($21,400,000), an amount equal to one hundred thirty-three and 1/
3
 percent
(1331/

3
%) of the greater of (I) the Base Salary he would have received if he
had remained employed by the Company from the date of termination to the
third anniversary of the Commencement Date, or (II) one year of his Base
Salary in effect as of the date of termination;

          (C)   If (x) the Executive’s employment is terminated after the third
anniversary of the Commencement Date, and (y) EBITDA was less than
Twenty-One Million Four Hundred Thousand ($21,400,000), an amount equal to
one hundred thirty-three and
1/

3
 percent (133
1/

3
%) of one year of his Base
Salary in effect as of the date of termination;

          (D)   If (x) the Executive’s employment is terminated after the first
anniversary, but prior to the fifth anniversary, of the Commencement Date,
and (y) EBITDA was equal to or greater than Twenty-One Million Four Hundred
Thousand ($21,400,000), an amount equal to one hundred thirty-three and
1/

3

percent (133
1/

3
%) of the greater of (I) the Base Salary he would have received
if he had remained employed by the Company from the date of termination to
the fifth anniversary of the Commencement Date, or (II) one year of his Base
Salary in effect as of the date of termination; or

          (E)   If the Executive’s employment is terminated after the fifth
anniversary of the Commencement Date, an amount equal to one hundred

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thirty-three and
1/

3  percent (133
1/

3%) of one year of his Base Salary in
effect as of the date of termination (regardless of the EBITDA amount).

           For purposes of the foregoing, “EBITDA” means (i) the net income of the legacy business of the
Stewart Smith Group for the period beginning on the first day of the calendar month following the
calendar month in which the Commencement Date occurs and ending on the first anniversary thereof,
plus (ii) the sum of (A) cash interest expense of such business for such period, (B) the
allocated costs of such business for such period of the type described in the “Allocated Costs”
column of the 2005 Consolidating Plan attached hereto as Exhibit B, (C) federal, state,
local and other income taxes of such business for such period and (D) depreciation and amortization
of intangible assets of such business for such period, in all cases as determined in accordance
with generally accepted accounting principles as recognized by the American Institute of Certified
Public Accountants, consistently applied; provided, however, that the Company and
the Executive hereby acknowledge and agree that for purposes of determining EBITDA, the gross
compensation expense of the Executive for such period, excluding the fee payable pursuant to
Section 4(h), shall be included as an expense of the legacy business of the Stewart Smith Group.

           The Executive shall not be required to mitigate the amount of his severance benefits payable
pursuant to Section 5(c)(i) and 5(c)(iii).

	 	 	      (d)   No Other Payments. Other than the payments contemplated by this Section 5 in
connection with the termination of the Executive’s employment, the Company shall not be liable to
the Executive or his family or estate for the payment or delivery of any other salary, bonus,
benefits, property or payments of any kind, except as provided under the terms of any employee
benefit plans in which the Executive may be a participant.
	 
	 	 	      (e)   Breach. Notwithstanding the provisions of this Section 5, the Company shall not
be obligated to make any payments to the Executive if the Executive shall breach his obligations
set forth in Section 6 of this Agreement.
	 
	 	 	      (f)   Release. Notwithstanding any provisions of this Agreement to the contrary, the
Company’s payment obligations under Sections 5(c)(ii) and 5(c)(iii) shall be conditioned upon the
Executive executing a general release of all claims against the Company and its affiliates relating
to the termination of the Executive’s employment, which release shall be in a form reasonably
satisfactory to the Company and shall contain the terms set forth on Exhibit C.
	 
	 	 	      (g)   Withholding. All amounts payable under this Section 5shall be subject to and
reduced in accordance with any applicable federal and state income, social security and payroll tax
withholding requirements, as applicable.

     6.   Restrictive Covenants.

	 	 	      (a)   Reasonable Covenants. It is expressly understood by and between the Company and
the Executive that the covenants contained in this Section 6 are an essential element of this
Agreement and that but for the agreement by the Executive to comply with these covenants and
thereby not to diminish the value of the organization and goodwill of the

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	 	 	Company or any affiliate or subsidiary of the Company, including relations with their
employees, clients, customers and accounts, the Company would not enter into this Agreement. The
Executive has independently consulted with his legal counsel and after such consultation agrees
that such covenants are reasonable and proper.

	 	 	      (b)   Noncompetition; No Diversion of Customers; No Solicitation of Employees, Etc.
During the Term and for the twelve (12) month period immediately following the end of the Term, the
Executive shall not:

        (i)   engage, directly or indirectly, alone, in association with or as a
shareholder, principal, agent, partner, officer, director, employee or consultant of
any other organization, in any business conducted by the Company or any of its
affiliates or subsidiaries;

        (ii)   solicit, attempt to solicit or accept, in a manner or for purposes that
would be competitive with the Company or any of its affiliates or subsidiaries, the
business any existing customer of the Company or any of its affiliates or
subsidiaries, prospective customers that the Company or any of its affiliates or
subsidiaries has identified or has solicited at any time during the Executive’s
employment, or other business partners, including without limitation any insurance
carriers, retail insurance agents, or insured parties with which the Company or any
of its affiliates or subsidiaries has a business relationship, had such a
relationship prior to the termination of the Executive’s employment or proposes to
have such a relationship (collectively, “Company Business Partners”), or otherwise
induce or take any action that has the effect of causing any Company Business
Partner to reduce, terminate, restrict or alter its business relationships with the
Company or any of its affiliates or subsidiaries;

        (iii)   solicit or encourage any officer, employee or consultant of the Company
or any of its affiliates or subsidiaries to leave the employ or service of the
Company or any of its affiliates or subsidiaries;

provided, however, that the Executive may invest in stocks, bonds or other
securities of any competitor of the Company or any of its affiliates or subsidiaries if:

          (A)   such stocks, bonds, or other securities are listed on any national
or regional securities exchange or have been registered under Section 12(g)
of the Securities Exchange Act of 1934;

          (B)   his investment does not exceed, in the case of any class of the
capital stock of any one issuer, one percent (1%) of the issued and
outstanding shares, or, in the case of other securities, one percent (1%) of
the aggregate principal amount thereof issued and outstanding; and

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          (C)   such investment would not prevent, directly or indirectly, the
transaction of business by the Company and/or of its affiliates or
subsidiaries with any state, district, territory or possession of the United
States or any governmental subdivision, agency or instrumentality thereof by
virtue of any statute, law, regulation or administrative practice.

	 	 	      (c)   In recognition of the broad geographic scope of the business of the Company and its
affiliates and of the ease of competing with that business from any location throughout the world,
the restrictions on competition set forth in Section 6(b)(i) are intended to cover the following
geographic areas: (i) each city and county in which any office or facility of the Company or any of
its affiliates, or any office or facility of any of their competitors, is located; and (ii) each
state in which any office or facility of the Company or any of its affiliates, or any office or
facility of any of their competitors, is located; and (iii) the United States of America. If, at
any time, the provisions of this Section 6(b) shall be determined to be invalid or unenforceable by
reason of being vague or unreasonable as to area, duration or scope of activity, this Section 6(b)
shall be considered severable and shall become and shall be immediately amended solely with respect
to such area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter and the Executive hereby
agrees that this Section 6(b) as so amended shall be valid and binding as though any invalid or
unenforceable provision had not been included herein. Except as provided in this Section 6,
nothing in this Agreement shall prevent or restrict the Executive from engaging in any business or
industry in any capacity.
	 
	 	 	      (d)   Nondisclosure of Confidential Information. During the Term and at all times
thereafter, the Executive shall not use, shall keep secret and confidential, and shall not disclose
to any third party in any fashion or for any purpose whatsoever, (i) any information regarding this
Agreement, (ii) any confidential, proprietary or trade secret information of the Company and its
affiliates, and (iii) any other information regarding the Company or its affiliates or subsidiaries
which is not available to the general public, and/or not generally known outside the Company or any
such affiliate or subsidiary, to which he has or shall have had access at any time during the
course of his employment with the Company, including, without limitation, any information relating
to the Company’s (and its affiliates’ or subsidiaries’):

        (i)   business, operations, plans, strategies, prospects or objectives;

        (ii)   products, technologies, processes, specifications, research and
development operations and plans;

        (iii)   customers and customer lists;

        (iv)   distribution, sales, service, support and marketing practices and
operations;

        (v)   financial condition and results of operations;

        (vi)   operational strengths and weaknesses; and

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        (vii)   personnel and compensation policies and procedures.

           Notwithstanding the foregoing provisions of this Section 6, the Executive may discuss this
Agreement with the members of his immediate family and with his personal legal and tax advisors and
may disclose the existence of his employment with the Company to any third party.

	 	 	      (e)   Specific Performance. The Executive hereby agrees that damages at law would be an
insufficient remedy to the Company or its affiliates or subsidiaries in the event that the
Executive violates any of the provisions of this Section 6, and that, in addition to money damages,
the Company or its affiliates or subsidiaries may apply to a court of competent jurisdiction (not
to be arbitrated) for, and upon the requisite showing receive, injunctive relief, in any such court
of competent jurisdiction to restrain the breach or threatened breach of or otherwise to
specifically enforce any of the covenants contained in this Section 6.

     7.   Representations and Warranties. The Executive hereby represents and warrants to
the Company as follows:

	 	 	      (a)   The Executive has the full right, power and authority to execute and deliver this
Agreement and to perform all of his obligations hereunder.
	 
	 	 	      (b   This Agreement constitutes the legal, valid and binding obligation of the Executive and is
enforceable against the Executive in accordance with its terms, except as enforceability may be
limited by equitable principles or by bankruptcy, fraudulent conveyance or insolvency laws
affecting the enforcement of creditors’ rights generally.
	 
	 	 	      (c)   The Executive has provided the Company with true, correct and complete copies of each and
every agreement or other instrument or obligation to which the Executive is a party or is otherwise
bound with or without respect to his former employment with the Stewart Smith Group.
	 
	 	 	      (d)   There is no civil, criminal or administrative action, suit, claim, notice, hearing,
inquiry, proceeding or investigation at law or in equity by or before any court, arbitrator or
similar panel, governmental instrumentality or other agency now pending or, to the knowledge of the
Executive, threatened against the Executive or any of his assets or properties.
	 
	 	 	      (e)   As of the Commencement Date, the Executive has complied with all applicable laws, rules,
ordinances, codes, consents, authorizations, registrations, regulations, decrees, directives,
judgments and orders applicable to him and all of his previous business activities.
	 
	 	 	      (f)   There is no fact peculiar to the Executive or his previous business activities that he has
not disclosed to the Company and of which the Executive is aware that could adversely affect the
condition (financial or otherwise) of the Company and its affiliates or their results of
operations, business, prospects, assets or liabilities, material agreements or relationships.

     8.   Successors. This Agreement cannot be assigned by any of the parties hereto without
the prior written consent of the other party hereto, except that the Company may assign

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this Agreement and all of its rights, obligations and privileges hereunder to any of its
affiliates and to any other entity that succeeds to all or substantially all of the business and/or
assets of the Company (whether direct or indirect, by purchase, merger, consolidation or
otherwise).

     9.   Governing Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without regard to conflicts of law
principles.

     10.   Amendments. No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by the Executive and
such officers of the Company as may be specifically designated for such purpose by the Board.

     11.   Entire Agreement. This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto. The parties acknowledge
and agree that this Agreement supersedes and replaces all existing or previous employment
agreements between the Executive and any of the Stewart Smith Group, and that all such employment
agreements are hereby terminated and shall be of no further force and effect. The Executive shall
take such further actions and execute such other documents as reasonably requested by the Company
to further evidence the foregoing intent.

     12.   Indemnification. The Company shall indemnify the Executive, to the maximum extent
permitted by law, against expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with any threatened, pending or
competed action, suit or proceeding in which the Executive was or is a party or is threatened to be
made a party by reason of the fact that the Executive is or was an officer of the Company.
Notwithstanding the foregoing, the Company shall be required to indemnify the Executive in
connection with an action, suit or proceeding (or part thereof) initiated by the Executive only if
the initiation of such action, suit or proceeding (or part thereof) by the Executive was authorized
by the Board of Directors of the Company.

     13.   Notices. For all purposes of this Agreement, notices and all other communications
under or in connection with this Agreement shall be deemed to have been duly given when delivered
or mailed by United States certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:

			
		If to the Executive:	 Mark M. Smith

__________________

Hendersonville, Tennessee 37075

			
		If to the Company:	American Wholesale Insurance Group, Inc.

4064 Colony Road, Suite 450

Charlotte, North Carolina 28211

Attn: Scott M. Purviance

12

 

     14.   Binding Arbitration. Except for any controversy or claim relating to a breach or
alleged breach of the Executive’s obligations under Section 6, every other controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be resolved by final and
binding arbitration instituted and conducted pursuant to the Commercial Arbitration Rules of the
American Arbitration Association, and judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be conducted in New York, New
York. The costs of arbitration shall be borne by the parties as determined by the arbitrators in
their discretion.

     15.   Survival. The provisions of Sections 5 — 15 shall survive the expiration or
termination of the Term.

[signatures begin on next page]

13

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 	AMERICAN WHOLESALE INSURANCE

GROUP, INC.

 	 
	 	By:  	/s/ M. Steven DeCarlo
 	 
	 	 	Name:  	M. Steven DeCarlo 	 
	 	 	Title:  	Chief Executive Officer and

President
	 
	 
	 	MARK M. SMITH
	 
	 
	 	/s/ Mark M. Smith

Signature Page to Employment Agreement

 

 

EXHIBIT A

CALCULATION OF 2005 BONUS

     The Bonus for the 2005 calendar year shall be calculated in accordance with the schedule below
based on EBITDA (as defined in the Agreement), and shall be paid within seventy-five (75) days of
the first anniversary of the Commencement Date.

	 	 	 	 	 	 	 	 	 	 
	 	EBITDA	 	 	Bonus Percentage of Base Salary	 	Bonus	 
	 	$22,650,000 or greater
	 	 	160	%	 	$	1,200,000	 
	 	$22,400,000 or greater
	 	 	150	%	 	$	1,125,000	 
	 	$22,150,000 or greater
	 	 	140	%	 	$	1,050,000	 
	 	$21,900,000 or greater
	 	 	130	%	 	$	975,000	 
	 	$21,650,000 or greater
	 	 	115	%	 	$	862,500	 
	 	$21,400,000 or greater
	 	 	100	%	 	$	750,000	 
	 	$21,150,000 or greater
	 	 	80	%	 	$	600,000	 
	 	$20,900,000 or greater
	 	 	60	%	 	$	450,000	 
	 	$20,650,000 or greater
	 	 	40	%	 	$	300,000	 
	 	$20,400,000 or greater
	 	 	20	%	 	$	150,000	 
	 	$20,149,999 or less
	 	 	0	%	 	$	0	 

 

 

EXHIBIT B

2005 CONSOLIDATING PLAN

 

 

EXHIBIT C

TERMS OF RELEASE

     As consideration for the payments to be made to the Executive pursuant to Sections 5(c)(ii) and
5(c)(iii) of the Employment Agreement, the Executive, for himself, and his assigns, heirs and
executors, does hereby forever and unconditionally release the Company and its affiliates and
subsidiaries, and each of their respective past or present officers, managers, directors,
employees, agents and attorneys, from any and all claims, actions, causes of action, suits, claims,
counterclaims, charges, complaints, demands, liabilities or obligations of any kind whatsoever,
whether known or unknown, relating to or arising out of the termination, separation, retirement or
resignation of his employment with the Company or any such entities. The Executive agrees that
such entities may plead this release as a complete bar to any action or suit before any court or
administrative body with respect to any claim released herein.Exhibit 10.5

 

Exhibit 10.5

AMERICAN WHOLESALE INSURANCE GROUP, INC.

2002 STOCK OPTION PLAN

ARTICLE I

GENERAL PROVISIONS

     1.1 Purpose of the Plan. This Plan is intended to promote the interests of the
Company by giving eligible persons who provide services to the Company the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the Company as an
incentive to continue their employment or service. Capitalized terms used in the Plan shall have
the meanings given to them in Appendix A attached hereto.

     1.2 Administration of the Plan.

     (a) The Plan shall be administered by the Board; provided, however, that any
or all administrative functions otherwise exercisable by the Board may be delegated to the
Committee. Members of the Committee shall serve for such period of time as the Board may determine
and shall be subject to removal by the Board at any time. The Board also may, at any time,
terminate the functions of the Committee and reassume all powers and authority previously delegated
to the Committee. The Board or the Committee, as the Plan Administrator, shall have full power and
authority (subject to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for the proper administration of the Plan and to make such determinations under,
and issue such interpretations of, the Plan and any outstanding Options thereunder as it may deem
necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any Option issued hereunder.

     (b) Subject to the terms of the Plan, the Plan Administrator shall have full power and
authority to determine which eligible persons will receive Option grants, the time or times when
such grants will be made, the number of shares to be covered by each grant, the status of each
Option as either an Incentive Stock Option or a Non-Qualified Stock Option, the time or times when
each Option is exercisable, the vesting schedule (if any) applicable to granted Options, the
maximum term for which an Option shall remain outstanding, and all other terms and conditions of an
Option granted under the Plan. 

     1.3 Eligibility. Only Employees are eligible to receive grants of Incentive Stock
Options. The persons eligible to receive grants of Non-Qualified Stock Options are (a) Employees,
(b) non-employee members of the Board or the board of directors of any Parent or Subsidiary, and
(c) consultants and other independent advisors who provide services to the Company (or any Parent
or Subsidiary).

     1.4 Stock Subject to the Plan. The stock issuable under the Plan shall be shares of
authorized but unissued Common Stock. The maximum number of shares of Common Stock that may be
issued under the Plan shall not exceed 206,833 shares. Shares of Common Stock subject to
outstanding Options shall be available for subsequent issuance under the Plan to the extent (a) any
Options expire or terminate for any reason prior to their exercise in full or (b) any Options are
canceled in accordance with Section 2.10.

     1.5 Adjustments in Common Stock. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of
shares or other similar change, the Plan Administrator shall cause appropriate adjustments to be
made to (a) the maximum number and/or class of securities issuable under the Plan and (b) the
number and/or class of

 

 

securities and the exercise price per share in effect under each outstanding Option, in order
to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the
Plan Administrator shall be final, binding and conclusive.

ARTICLE II

OPTION GRANT PROGRAM

     2.1 Grant of Options. Each Option granted under this Plan shall have such terms and
conditions as approved by the Plan Administrator. Subject to the provisions of this Plan, each
Option shall be evidenced by one or more documents in the form approved by the Plan Administrator,
and no grant shall be effective unless and until both the Company and the person to whom the Option
is being granted shall have executed such documents as required by the Plan Administrator.

     2.2 Exercise Price. The exercise price per share of each Option shall be fixed by the
Plan Administrator and, subject to the terms and conditions set forth herein, may be less than,
equal to or greater than the Fair Market Value per share of Common Stock on the Option grant date.

     2.3 Vesting, Exercise and Term of Options. Each Option shall vest and be exercisable
at such time or times and for such number of shares as shall be determined by the Plan
Administrator and set forth in the documents evidencing the Option grant. No Option, however,
shall have a term in excess of ten (10) years from the Option grant date.

     2.4 Exercise Procedures.

     (a) Subject to Section 2.7, an Option may be exercised only by the Optionee to whom such
Option was granted under the Plan. An Option shall be exercisable at such time or times as set
forth herein and in the documents evidencing the grant of the Option. Notwithstanding anything in
the Plan to the contrary, the Plan Administrator, in its sole discretion, may at any time and from
time to time accelerate the date for exercising all or any part of an Option. In no event,
however, may an Option be exercised after the expiration of its fixed term.

     (b) Each Option granted under the Plan shall be deemed exercised when the holder thereof (i)
shall indicate the decision to do so in writing delivered to the Company, (ii) shall at the same
time tender to the Company payment in full of the exercise price for the shares for which the
Option is exercised in accordance with Section 2.4(c), (iii) shall likewise tender to the Company
payment in full of all federal and state withholding or other employment taxes applicable to the
taxable income, if any, of the holder resulting from such exercise, (iv) shall execute a purchase
agreement in form and substance satisfactory to the Plan Administrator, and (v) shall comply with
such other requirements as the Plan Administrator may establish.

     (c) In connection with the exercise of any Option, the Optionee shall pay the exercise price
to the Company in cash, by certified, bank or cashier’s check, or in such other manner as permitted
by the Plan Administrator, which may include the surrender of shares of Common Stock or other
unexercised Options held by the Optionee. Notwithstanding the foregoing, should the Common Stock
be registered under Section 12 of the Exchange Act at the time an Option is exercised, then the
exercise price may also be paid as follows:

2

 

     (i) in shares of Common Stock held for the requisite period necessary to avoid a charge
to the Company’s earnings for financial reporting purposes and valued at Fair Market Value
on the exercise date, or

     (ii) through a special sale and remittance procedure pursuant to which the Optionee
shall concurrently provide irrevocable instructions (A) to a Company-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable federal, state and local
income and employment taxes required to be withheld by the Company by reason of such
exercise and (B) to the Company to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.

     (d) An Option granted under the Plan may be exercised for any lesser number of shares than the
full amount for which it could be exercised. Such a partial exercise shall not affect the right to
exercise the Option for the remaining shares from time to time in accordance with the Plan and the
documents evidencing the grant of the Option.

     2.5 Effect of Termination of Service.

     (a) The following provisions shall govern the exercise of Options held by an Optionee at the
time of such Optionee’s cessation of Service or death:

     (i) Should the Optionee cease to remain in Service for any reason other than death,
Permanent Disability or Misconduct, then the Optionee shall have a period of three (3)
months following the date of cessation of Service to exercise each outstanding Option held
by such Optionee. 

     (ii) Should the Optionee’s Service terminate by reason of Permanent Disability, then
the Optionee shall have a period of twelve (12) months following the date of cessation of
Service to exercise each outstanding Option held by such Optionee.

     (iii) If the Optionee dies while holding an outstanding Option, then the personal
representative of his or her estate or the Person or Persons to whom the Option is
transferred pursuant to the Optionee’s will or the laws of inheritance shall have twelve
(12) months following the date of cessation of Service to exercise each outstanding Option
held by the Optionee.

     (iv) Should the Optionee’s Service be terminated for Misconduct, then all outstanding
Options held by the Optionee shall terminate immediately and cease to remain outstanding,
regardless of whether any Options have vested.

     (v) During the applicable post-Service exercise period, an Option may be exercised only
if it has vested and for no more than the aggregate number of shares for which the vested
Option is exercisable on the date of the Optionee’s cessation of Service. The Option shall,
immediately upon the Optionee’s cessation of Service, terminate and cease to be outstanding
with respect to any and all Option shares for which the Option is not otherwise exercisable
at that time. Upon the expiration of the applicable exercise period or (if earlier) upon
the expiration of the Option term, the Option shall terminate and cease to be outstanding.

     (b) The Plan Administrator shall have the discretion to do any of the following at any time:

3

 

     (i) extend the period of time for which an Option remains exercisable following the
Optionee’s cessation of Service or death to such greater period of time as the Plan
Administrator deems appropriate in its sole discretion, but in no event beyond the
expiration of the Option term; and/or

     (ii) before or after the Optionee’s cessation of Service, permit the Option to be
exercised in accordance with this Plan with respect to one or more additional installments
of shares that could have been purchased if the Option continued to vest while the Optionee
remained in Service.

     2.6 Stockholder Rights. The holder of an Option shall have no stockholder rights with
respect to the shares subject to the Option until such Person shall have exercised the Option in
accordance with Section 2.4 and become the record holder of the purchased shares. Each Person who
validly exercises an Option and is issued shares of Common Stock by the Company shall be subject to
all of the terms and conditions set forth in the applicable purchase agreement to be executed by
such person upon exercise.

     2.7 Transferability of Options.

     (a) Except as set forth in Section 2.7(b), Options may be transferred only by will or the laws
of inheritance upon the death of an Optionee. Otherwise, no Option may be assigned, pledged,
hypothecated or transferred in any manner. Upon any attempt to assign, pledge, hypothecate or
transfer an Option, such Option shall immediately be cancelled and terminated.

     (b) The Plan Administrator, may, in its sole discretion, permit a Non-Qualified Stock Option
to be assigned in whole or in part during the Optionee’s lifetime as a gift to (i) one or more
members of the Optionee’s immediate family, (ii) a trust in which Optionee and/or one or more of
such family members hold more than fifty percent (50%) of the beneficial interest, or (iii) an
entity in which more than fifty percent (50%) of the voting interests are owned by the Optionee
and/or one or more of such family members. The terms applicable to the assigned Non-Qualified
Stock Option shall be the same as those in effect for such Option immediately prior to the
assignment, as more fully set forth herein and in the documents evidencing the grant of the Option.

     2.8 Incentive Stock Options. All Incentive Stock Options shall be subject to the
terms set forth in this Section 2.8. Options that are not specifically designated as Incentive
Stock Options in the documentation evidencing the grant of such Options, or that are specifically
designated as Non-Qualified Stock Options, shall not be subject to the terms of this
Section 2.8.

     (a) Eligibility. Incentive Stock Options may be granted only to Employees.

     (b) Exercise Price. An Incentive Stock Option’s exercise price per share of Common
Stock shall not be less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the date such Option is granted.

     (c) Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock
(determined as of the respective date or dates of grant) for which one or more Incentive Stock
Options granted to any Employee under the Plan (or any other option plan of the Company or any
Parent or Subsidiary) may for the first time become exercisable during any one calendar year shall
not exceed One Hundred Thousand Dollars ($100,000). To the extent an Employee holds two or more
Incentive Stock Options which become exercisable for the first time in the same calendar year, the
foregoing limitation on

4

 

the exercisability of such Incentive Stock Options shall be applied on the basis of the order
in which such Options are granted.

     (d) Ten Percent (10%) Stockholder. If an Employee to whom an Incentive Stock Option
is granted is a Ten Percent (10%) Stockholder, then the Incentive Stock Option’s exercise price per
share of Common Stock shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the Option grant date, and the Incentive Stock Option’s term
shall not exceed five years from the date of grant.

     2.9 Change of Control Transactions.

     (a) The Plan Administrator may, in its sole and absolute discretion, determine that any
outstanding Option shall become fully exercisable on an accelerated basis immediately prior to a
Change of Control, notwithstanding the fact that any portion of such Option shall not have vested.

     (b) Unless otherwise determined by the Plan Administrator, (i) upon consummation of a Change
of Control in which the Company is not the surviving entity, all outstanding Options, to the extent
not exercised, shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof), and (ii) upon consummation of a Change of Control in
which the Company is the surviving entity, all outstanding Options, to the extent not exercised,
shall remaining outstanding in full force and effect on the same terms and conditions.

     (c) The Plan Administrator shall have the discretion at any time to provide for the immediate
termination of any consent, repurchase or first refusal rights of the Company with respect to the
shares subject to those Options upon the occurrence of a Change of Control, whether or not the
Options are to be assumed by any successor corporation (or parent thereof).

     (d) In the event that any Option shall survive and remain outstanding after a Change of
Control, the Plan Administrator shall have full power and authority at any time to structure or
amend an Option so that it will automatically vest on an accelerated basis should the Optionee’s
Service terminate by reason of an Involuntary Termination within a designated period following the
effective date of the Change of Control.

     (e) The portion of any Incentive Stock Option accelerated in connection with a Change of
Control shall remain exercisable as an Incentive Stock Option only to the extent the applicable One
Hundred Thousand Dollars ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of an Option shall be exercisable as a
Non-Qualified Stock Option and shall be treated as such under the federal tax laws.

     (f) The grant of Options under the Plan shall in no way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge,
enter into a share exchange, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

     2.10 Cancellation and Regrant of Options. The Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the affected Option
holders, the cancellation of any or all outstanding Options under this Plan and to grant in
substitution new Options covering the same or a different number of shares of Common Stock, but
with an exercise price per share based on the Fair Market Value per share of Common Stock on the
new grant date. The Plan Administrator may require an Optionee to voluntarily surrender any
outstanding Options held by such Optionee as a condition precedent to the grant of new Option(s) to
such Optionee under this Plan. The Plan Administrator shall determine the terms and conditions of
any new Option(s), including the prices at

5

 

and periods during which they may be exercised, and such terms and conditions may differ from
the terms and conditions of the Option(s) surrendered. Any such new Option(s) shall be subject to
all relevant provisions of this Plan. The granting of new Option(s) in connection with the
surrender of outstanding Option(s) shall be considered for the purposes of this Plan as a grant of
new Option(s) and not an alteration, amendment or modification of the Plan or of the Option(s)
being surrendered.

ARTICLE III

MISCELLANEOUS

     3.1 Compliance with Securities Laws. The Plan Administrator shall take such action as
may be necessary to cause the administration of this Plan, including the grant of Options and the
issuance of shares of Common Stock pursuant to the exercise thereof, to be made in compliance with
all federal and state securities laws.

     3.2 Effective Date and Term.

     (a) The Plan shall become effective when adopted by the Board, but no Option granted under the
Plan may be exercised, and no shares shall be issued pursuant to the exercise of any Options, until
the Plan is approved by the Company’s stockholders. Additionally, no Incentive Stock Option shall
be deemed to have been granted unless and until this Plan is approved by the Company’s
stockholders. If such stockholder approval is not obtained within twelve (12) months after the
date of the Board’s adoption of the Plan, then all Options previously granted under the Plan shall
terminate and cease to be outstanding, and no further Options shall be granted and no shares shall
be issued pursuant to the exercise of any Options.

     (b) No further Options may be granted under the Plan upon the earlier of (a) the
expiration of the ten (10)-year period from the date the Plan is adopted by the Board, (b) the date
on which all shares available for issuance under the Plan shall have been issued or (c) the
termination of all outstanding Options in connection with an Change of Control in which the Company
is not the surviving entity or otherwise. All Options outstanding upon the expiration of the ten
(10)-year period referenced in subclause (a) above shall continue to have full force and effect in
accordance with the provisions of the documents evidencing the grant of such Options.

     3.3 Amendment of the Plan. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect any rights and obligations in respect of any outstanding
Options unless the holder thereof consents to such amendment or modification. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or regulations.

     3.4 Governing Law. This Plan shall be governed and construed in accordance with the
laws of the State of North Carolina.

     3.5 Severability. If any provision of this Plan or the application thereof to any
person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Plan
and the application of such provision to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.

     3.6 Section Titles. The headings herein are inserted as a matter of convenience only
and do not define, limit or describe the scope of this Plan or the intent of the provisions hereof.

6

 

     3.7 No Employment or Service Rights. Nothing in the Plan shall confer upon any
Optionee the right to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or
retaining such person) or of the Optionee, which rights are hereby expressly reserved by each, to
terminate such person’s Service at any time for any reason, with or without cause.

     3.8 Notices. Any notice required to be given or delivered to the Company under the
Plan shall be in writing addressed to the Company at its principal corporate offices. Any notice
required to be given to an Optionee shall be in writing and addressed to the address indicated on
the Optionee’s option agreement. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

7

 

APPENDIX A

Defined Terms

     The following terms shall have the following meanings under the Plan:

     “Board” means the Board of Directors of the Company.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Committee” means a committee of one or more Board members appointed by the Board to
exercise one or more administrative functions under the Plan.

     “Common Stock” means the common stock, $0.01 par value, of the Company.

     “Company” means American Wholesale Insurance Group, Inc., a Delaware corporation, and
any successor corporation to all or substantially all the assets or voting stock of American
Wholesale Insurance Group, Inc. that shall by appropriate action adopt the Plan.

     A “Change of Control” shall be deemed to have occurred on:

     (i) the date on which any “person” or “group” (as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)),
other than the Company, Pegasus Partners, L.P., Pegasus Related Partners, L.P. and their
affiliates or any entity owned, directly or indirectly, by the equity holders of American
Wholesale Insurance Holding Company, LLC in substantially the same proportions as their
ownership of equity immediately prior to such transaction, becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act) of equity in American Wholesale
Insurance Holding Company, LLC or, directly or indirectly, the Company representing more
that 50% of the combined voting power of the then-outstanding equity of such entity; or

     (ii) the date on which (i) American Wholesale Insurance Holding Company, LLC or the
Company merges with any other entity, (ii) either such entity enters into a consolidation, a
statutory share exchange or other similar transaction with another entity, or (iii) either
such entity conveys, transfers or leases all or substantially all of its assets to any
Person; provided, however, that in the case of subclauses (i), (ii) and
(iii), a Change of Control shall not be deemed to have occurred if the equity holders of
American Wholesale Insurance Holding Company, LLC immediately before such transaction own,
directly or indirectly, immediately following such transaction, more than 50% of the
combined voting power of the outstanding equity of American Wholesale Insurance Company,
LLC, the Company, or the resulting entity in substantially the same proportions as their
ownership of equity immediately before such transaction.

     “Employee” means an individual who is in the employ of the Company (or any Parent or
Subsidiary), subject to the control and direction of the employer entity as to both the work to be
performed and the manner and method of performance.

     “Exercise Date” means the date on which the Company shall have received written notice
of the exercise of an Option.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

A-1

 

     “Fair Market Value” per share of Common Stock on any relevant date shall be determined
in accordance with the following provisions:

     (i) If the Common Stock is at the time neither listed on any Stock Exchange nor traded
on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan Administrator shall deem
appropriate.

     (ii) If the Common Stock is at the time traded on the Nasdaq National Market, then the
Fair Market Value shall be the average closing selling price per share of Common Stock for
the ten (10) business days preceding the date in question, as such price is reported by the
National Association of Securities Dealers on the Nasdaq National Market.

     (iii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair
Market Value shall be the average closing selling price per share of Common Stock for the
ten (10) business days preceding the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange.

     “Incentive Stock Option” means an Option that satisfies the requirements of Section
422 of the Code.

     “Involuntary Termination” means the termination of the Service of any individual by
reason of:

     (i) such individual’s involuntary dismissal or discharge by the Company (or any
successor corporation or any Parent or Subsidiary, as applicable) for reasons other than
Misconduct, or

     (ii) such individual’s voluntary resignation following (A) a change in his or her
position with the Company (or any successor corporation or any Parent or Subsidiary, as
applicable) which materially reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonuses under any corporate-performance
based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of
such individual’s place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected without the individual’s consent;
provided, however, that at the time of such resignation, the Company (or any
successor corporation or any Parent or Subsidiary, as applicable) would not have reason to
terminate such individual’s employment for Misconduct.

     “Misconduct” means (i) the commission of any act of fraud, embezzlement or dishonesty
by a person against the Company (or any successor corporation or any Parent or Subsidiary, as
applicable), (ii) any unauthorized use or disclosure by such person of confidential information or
trade secrets of the Company (or any successor corporation or any Parent or Subsidiary, as
applicable), (iii) intoxication with alcohol or drugs while conducting employer business during
regular business hours, (iv) a conviction of, or a plea of guilty or nolo contendre by, such person
for a criminal felony conviction, (v) the continued failure or inability of such person to fulfill
the essential functions of his or her employment, or (vi) any other misconduct by such person that
causes or would reasonably be expected to cause material harm to the business of the Company (or
any successor corporation or any Parent or Subsidiary, as applicable), as reasonably determined in
good faith by the Board.

A-2

 

     “Non-Qualified Stock Option” means an Option that does not satisfy the requirements of
Section 422 of the Code.

     “Option” means an Incentive Stock Option or Non-Qualified Stock Option granted under
the Plan.

     “Optionee” means any person to whom an Option is granted under the Plan.

     “Parent” means any corporation or limited liability company (other than the Company)
in an unbroken chain of entities ending with the Company, provided each entity in the unbroken
chain (other than the Company) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all equity interests in one of the
other entities in such chain.

     “Permanent Disability” means the inability of a person to perform the essential
functions of the person’s duties as an Employee by reason of any medically determinable physical or
mental impairment that is expected to result in such person’s death or has lasted or can be
expected to last for a period of twelve (12) consecutive months or more, as reasonably determined
by the Board.

     “Plan” means the American Wholesale Insurance Group, Inc. 2002 Stock Option Plan, as
set forth herein.

     “Plan Administrator” means either the Board or the Committee acting in its capacity as
administrator of the Plan.

     “Service” means the provision of services to the Company (or any Parent or Subsidiary)
by a person in the capacity of an Employee, a non-employee member of the board of directors or a
consultant or independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the Option grant or stock issuance.

     “Stock Exchange” means either the American Stock Exchange or the New York Stock
Exchange.

     “Subsidiary” means any corporation or limited liability company with respect to which
the company owns, directly or indirectly, stock or other equity interests possessing fifty percent
(50%) or more of the total combined voting power of all classes of equity.

     “Ten Percent (10%) Stockholder” means the owner of stock (as determined under Section
424(d) of the Code) possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company (or any Parent or Subsidiary).

A-3

 

FIRST DECLARATION OF AMENDMENT TO THE 

AMERICAN WHOLESALE INSURANCE GROUP, INC. 2002 STOCK OPTION PLAN

     THIS FIRST DECLARATION OF AMENDMENT (this “Amendment”), effective as of September 30,
2002, amends the 2002 STOCK OPTION PLAN (the “Plan”) of AMERICAN WHOLESALE INSURANCE GROUP,
INC., a Delaware corporation (the “Company”). Capitalized terms used but not otherwise
defined herein shall have the meanings assigned to such terms in the Plan.

BACKGROUND STATEMENT

     Section 3.3 of the Plan states that the Company’s Board of Directors shall have complete and
exclusive power and authority to amend and modify the Plan in all respects, subject to certain
limitations. Additionally, to the extent any amendment would require the approval of the Company’s
Sole Stockholder under applicable law, such approval must be obtained prior to any amendment
becoming effective.

     The Company’s Board of Directors and Sole Stockholder, as of September 16, 2002, adopted
resolutions pursuant to which they (i) authorized and approved an increase in the maximum number of
shares of Common Stock that may be issued under the Plan to 223,500 shares in connection with the
transactions contemplated by the Contribution Agreement, dated as of September 30, 2002, by and
between Woodus K. Humphrey & Company, Inc., a Louisiana corporation (“WKH & Co.”), Woodus
K. Humphrey and American Wholesale Insurance Holding Company, LLC, a Delaware limited liability
company and the Sole Stockholder (“AmWins LLC”), pursuant to which AmWins LLC acquired all
the outstanding shares of WKH & Co., and (ii) authorized M. Steven DeCarlo, the President and Chief
Executive Officer of the Company, to take any and all actions in the name and on behalf of the
Company, and to execute such certificates, documents, agreements and instruments, as he deems
necessary or advisable to effectuate such increase. This Amendment evidences the increase in the
number of shares of Common Stock that may be issued under the Plan contemplated by such
resolutions.

STATEMENT OF AMENDMENT

     1. Amendment. The second sentence of Section 1.4 of the Plan is hereby deleted in its
entirety and replaced with the following sentence: “The maximum number of shares of Common Stock
that may be issued under the Plan shall not exceed 223,500 shares.”

     2. Full Force and Effect. This Amendment is limited to the modification set forth in
Section 1 and shall not constitute a modification, acceptance or waiver of any other provision of
the Plan. Except as expressly amended hereby, the Plan shall continue in full force and effect in
accordance with the provisions thereof.

     3. Applicable Law. This Amendment shall be governed by and construed in accordance
with the internal laws and judicial decisions of the State of North Carolina.

     IN WITNESS WHEREOF, the undersigned hereby executes this First Amendment as of the date
first above written and confirms that such amendment was duly authorized and approved in accordance
with the requirements of the Plan.

	 	 	 	 	 
	 	 	 
	 	By:  	                                              /s/ M. Steven DeCarlo
 	 
	 	 	M. Steven DeCarlo 	 
	 	 	President and Chief Executive Officer 	 

 

 

	 	 	 	 	 

SECOND DECLARATION OF AMENDMENT TO THE 

AMERICAN WHOLESALE INSURANCE GROUP, INC. 2002 STOCK OPTION PLAN

     THIS SECOND DECLARATION OF AMENDMENT (this “Second Amendment”), effective as of
December 31, 2002, amends the 2002 STOCK OPTION PLAN (the “Plan”) of AMERICAN WHOLESALE
INSURANCE GROUP, INC., a Delaware corporation (the “Company”), as amended by the FIRST
DECLARATION OF AMENDMENT, dated as of September 30, 2002 (the “First Amendment”).
Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such
terms in the Plan.

BACKGROUND STATEMENT

     Section 3.3 of the Plan states that the Company’s Board of Directors shall have complete and
exclusive power and authority to amend and modify the Plan in all respects, subject to certain
limitations. Additionally, to the extent any amendment would require the approval of the Company’s
Sole Stockholder under applicable law, such approval must be obtained prior to any amendment
becoming effective.

     The Company’s Board of Directors and Sole Stockholder, as of December 31, 2002, adopted
resolutions pursuant to which they (i) authorized and approved an increase in the maximum number of
shares of Common Stock that may be issued under the Plan to 398,500 shares, and (ii) authorized M.
Steven DeCarlo, the President and Chief Executive Officer of the Company, to take any and all
actions in the name and on behalf of the Company, and to execute such certificates, documents,
agreements and instruments, as he deems necessary or advisable to effectuate such increase. This
Amendment evidences the increase in the number of shares of Common Stock that may be issued under
the Plan contemplated by such resolutions.

STATEMENT OF AMENDMENT

     4. Amendment. The second sentence of Section 1.4 of the Plan, as amended by the First
Amendment, is hereby deleted in its entirety and replaced with the following sentence: “The maximum
number of shares of Common Stock that may be issued under the Plan shall not exceed 398,500
shares.”

     5. Full Force and Effect. This Amendment is limited to the modification set forth in
Section 1 and shall not constitute a modification, acceptance or waiver of any other provision of
the Plan. Except as expressly amended hereby, the Plan shall continue in full force and effect in
accordance with the provisions thereof.

     6. Applicable Law. This Amendment shall be governed by and construed in accordance
with the internal laws and judicial decisions of the State of North Carolina.

     IN WITNESS WHEREOF, the undersigned hereby executes this Second Amendment as of the date
first above written and confirms that such amendment was duly authorized and approved in accordance
with the requirements of the Plan.

	 	 	 	 	 
	 	 	 
	 	By:  	                                              /s/ M. Steven DeCarlo
 	 
	 	 	M. Steven DeCarlo 	 
	 	 	President and Chief Executive Officer 	 

 

 

	 	 	 	 	 

THIRD DECLARATION OF AMENDMENT TO THE 

AMERICAN WHOLESALE INSURANCE GROUP, INC. 2002 STOCK OPTION PLAN

     THIS THIRD DECLARATION OF AMENDMENT (this “Third Amendment”), effective as of April 1,
2006, amends the 2002 STOCK OPTION PLAN (the “Plan”) of AMERICAN WHOLESALE INSURANCE GROUP,
INC., a Delaware corporation (the “Company”), as amended by the FIRST DECLARATION OF
AMENDMENT, dated as of September 30, 2002 (the “First Amendment”), and the SECOND
DECLARATION OF AMENDMENT, dated as of December 31, 2002 (the “Second Amendment”).
Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such
terms in the Plan.

BACKGROUND STATEMENT

     Section 3.3 of the Plan states that the Company’s Board of Directors shall have complete and
exclusive power and authority to amend and modify the Plan in all respects, subject to certain
limitations. Additionally, to the extent any amendment would require the approval of the Company’s
Sole Stockholder under applicable law, such approval must be obtained prior to any amendment
becoming effective.

     The Company’s Board of Directors and Sole Stockholder have adopted resolutions pursuant to
which they (i) authorized and approved an increase in the maximum number of shares of Common Stock
that may be issued under the Plan to 762,582 shares and (ii) authorized M. Steven DeCarlo, the
President and Chief Executive Officer of the Company, to take any and all actions in the name and
on behalf of the Company, and to execute such certificates, documents, agreements and instruments,
as he deems necessary or advisable to effectuate such increase. This Amendment evidences the
increase in the number of shares of Common Stock that may be issued under the Plan contemplated by
such resolutions.

STATEMENT OF AMENDMENT

     7. Amendment. The second sentence of Section 1.4 of the Plan, as amended by the First
Amendment and the Second Amendment, is hereby deleted in its entirety and replaced with the
following sentence: “The maximum number of shares of Common Stock that may be issued under the Plan
shall not exceed 762,582 shares.”

     8. Full Force and Effect. This Amendment is limited to the modification set forth in
Section 1 and shall not constitute a modification, acceptance or waiver of any other provision of
the Plan. Except as expressly amended hereby, the Plan shall continue in full force and effect in
accordance with the provisions thereof.

     9. Applicable Law. This Amendment shall be governed by and construed in accordance
with the internal laws and judicial decisions of the State of North Carolina.

     IN WITNESS WHEREOF, the undersigned hereby executes this Third Amendment as of the date
first above written and confirms that such amendment was duly authorized and approved in accordance
with the requirements of the Plan.

	 	 	 	 	 
	 	 	 
	 	By:  	                                              /s/ M. Steven DeCarlo
 	 
	 	 	M. Steven DeCarlo 	 
	 	 	President and Chief Executive Officer

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