Document:

exv10w5

 

EXHIBIT 10.5

EMPLOYMENT AGREEMENT

          This EMPLOYMENT AGREEMENT (“Agreement”) is dated as of May 1, 2007, between Enstar Group
Limited (formerly known as Castlewood Holdings Limited), a Bermuda corporation (“Company”), and
Richard J. Harris (“Executive”).

BACKGROUND

          Company desires to employ Executive, and Executive desires to be an employee of Company, on
the terms and conditions contained in this Agreement.

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

TERMS

	1.	 	CAPACITY AND DUTIES

     1.1 Employment; Acceptance of Employment. Company hereby employs Executive and
Executive hereby agrees to continue employment by Company for the period and upon the terms and
conditions hereinafter set forth. Effective on the date hereof, this Agreement replaces any prior
employment agreement, and the rights and obligations of each party shall be governed by this
Agreement.

     1.2 Capacity and Duties.

          (a) Executive shall serve as Chief Financial Officer of Company. Executive shall perform such
duties and shall have such authority consistent with his position as may from time to time be
specified by the Chief Executive Officer of Company. Executive shall report directly to the Chief
Executive Officer of Company and his principal place of business shall be Company’s office in
Bermuda. It is recognised that extensive travel may be necessary or appropriate in connection with
the performance of Executive’s duties hereunder.

          (b) Executive shall devote his full working time and energy, skill and best efforts to the
performance of his duties hereunder, in a manner that will comply with Company’s rules and policies
and will faithfully and diligently further the business and interests of Company. Executive shall
not be employed by or participate or engage in or in any manner be a part of the management or
operation of any business enterprise other than Company without the prior written consent of
Company, which consent may be granted or withheld in the reasonable discretion of the Board of
Directors of Company. Notwithstanding anything herein to the contrary, nothing shall preclude
Executive from (i) serving on the boards of directors of a reasonable number of other corporations
or the boards of a reasonable number of trade associations and/or charitable organizations, (ii)

 

 

engaging in charitable, community and other business affairs, and (iii) managing his personal
investments and affairs, provided that such activities do not materially interfere with the proper
performance of his responsibilities and duties hereunder.

	2.	 	TERM OF EMPLOYMENT

     2.1 Term. The term of Executive’s employment hereunder shall be five years commencing
on the date hereof, as further extended or unless sooner terminated in accordance with the other
provisions hereof (the “Term”). Except as hereinafter provided, on the fifth anniversary of the
commencement date and on each subsequent anniversary thereof, the Term shall be automatically
extended for one year unless either party shall have given to the other party written notice of
termination of this Agreement at least 120 days prior to such anniversary. If written notice of
termination is given as provided above, Executive’s employment under this Agreement shall terminate
on the last day of the Term.

	3.	 	COMPENSATION

     3.1 Basic Compensation. As compensation for Executive’s services during the first
twelve months of the Term, Company shall pay to Executive a salary at the annual rate of $415,000
payable in periodic installments in accordance with Company’s regular payroll practices in effect
from time to time. For each subsequent twelve-month period of Executive’s employment hereunder,
Executive’s salary shall be in the amount of his initial annual salary with such increases, as may
be established by the Board of Directors of Company in consultation with Executive provided that
the increase in base salary with respect to each subsequent twelve-month period shall not be less
than the product of Executive’s base salary multiplied by the annual percentage increase in the
retail price index (expressed as a decimal) for the United States, as reported in the most recent
report of the U.S. Department of Labor for the preceding twelve-month period. Once increased,
Executive’s annual salary cannot be decreased without the written consent of Executive.
Executive’s annual salary, as determined in accordance with this Section 3.1, is hereinafter
referred to as his “Base Salary.”

     3.2 Performance Bonus. Executive shall, following the completion of each fiscal year
of Company during the Term, be eligible for a performance bonus in accordance with Company’s
performance bonus plan. Executive shall also be eligible for additional equity and other incentive
awards, at a level commensurate with his position and in accordance with the policies and practices
of the Company.

     3.3 Employee Benefits. During the Term, Executive shall be entitled to participate in
such of Company’s employee benefit plans and benefit programs, as may from time to time be provided
by Company. In addition, during the Term, Executive shall be entitled to the following:

          (a) a housing allowance equal to $4,166.67 per month;

 

 

          (b) a life insurance policy in the amount of five times the Executive’s Base Salary, provided
that Executive assists Company in the procurement of such policy (including, without limitation,
submitting to any required physical examinations and completing accurately any applicable
applications and or questionnaires);

          (c) fully comprehensive medical and dental coverage on a worldwide basis for the Executive,
his spouse and dependents and an annual medical examination for same;

          (d) long term disability coverage, including coverage for serious illness, and full
compensation paid by Company during the period up to and until Executive begins receiving benefits
under such long term disability plan. In the event that the generally applicable group long-term
disability plan contains a limitation on benefits that would result in Executive’s being entitled
to benefit payments under such plan which are less than 50% of his salary, Company shall provide
Executive with an individual disability policy paying a benefit amount that, when coupled with the
group policy benefit payable, would provide Executive with aggregate benefits in connection with
his long-term disability equal to 50% of such salary (provided that, if an individual policy can
not be obtained for such amount on commercially reasonable rates and on commercially reasonable
terms, Company shall provide Executive with a policy providing for the greatest amount of
individual coverage that is available on such standard terms and rates). Provision of any
individual disability policy will also be contingent upon Executive being able to be insured at
commercially reasonable rates and on commercially reasonable terms and upon Executive assisting
Company in the procurement of such policy (including, without limitation, submitting to any
required physical examinations and completing accurately any applicable applications and or
questionnaires); and

          (e) payment from the company of an amount equal to 10% of Executive’s Base Salary each year to
Executive as contribution to his pension plans; and

     3.4 Vacation. During the Term, Executive shall be entitled to a paid vacation of 30
days per year (including 30 days during 2007).

     3.5 Expense Reimbursement. Company shall reimburse Executive for all reasonable
out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder
in accordance with its regular reimbursement policies as in effect from time to time.

	4.	 	TERMINATION OF EMPLOYMENT

     4.1 Death of Executive. If Executive dies during the Term, and for the year in which
Executive dies, Company achieves the performance goals established in accordance with any incentive
plan in which Executive participates, Company shall pay Executive’s estate an amount equal to the
bonus that Executive would have received had he been employed by Company for the full year,
multiplied by a fraction, the numerator

 

 

of which is the number of calendar days Executive was employed in such year and the
denominator of which is 365. In addition, Executive’s spouse and dependents (if any) shall be
entitled for a period of 36 months, to continue to receive medical benefits coverage (as described
in Section 3.3) at Company’s expense if and to the extent Company was paying for such benefits for
Executive’s spouse and dependents at the time of Executive’s death.

     4.2 Disability. If Executive is or has been materially unable for any reason to
perform his duties hereunder for 120 days during any period of 150 consecutive days, Company shall
have the right to terminate Executive’s employment upon 30 days’ prior written notice to Executive
at any time during the continuation of such inability, in which event Company shall thereafter be
obligated to continue to pay Executive’s Base Salary for a period of 36 months, periodically in
accordance with Company’s regular payroll practices and, within 30 days of such notice, shall pay
any other amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully
earned by, but not yet paid to, Executive under this Agreement as of the date of such termination.
The amount of payments to Executive under disability insurance policies paid for by Company shall
be credited against and shall reduce the Base Salary otherwise payable by Company following
termination of employment. If, for the year in which Executive’s employment is terminated pursuant
to this Section, Company achieves the performance goals established in accordance with any
incentive plan in which Executive participates, Company shall pay Executive an amount equal to the
bonus that Executive would have received had he been employed by Company for the full year,
multiplied by a fraction, the numerator of which is the number of calendar days Executive was
employed in such year and the denominator of which is 365. Executive shall be entitled for a
period of 36 months, to continue to receive at Company’s expense medical benefits coverage (as
described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) if and to
the extent Company was paying for such benefits to Executive and Executive’s spouse and dependents
at the time of such termination.

     4.3 Termination for Cause. Executive’s employment hereunder shall terminate
immediately upon notice that the Board of Directors of Company is terminating Executive for Cause
(as defined herein), in which event Company shall not thereafter be obligated to make any further
payments hereunder other than amounts (including salary, expense reimbursement, etc.) that have
been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such
termination. “Cause” shall mean (a) fraud or dishonesty in connection with Executive’s employment
that results in a material injury to Company, (b) conviction of any felony or crime involving fraud
or misrepresentation or (c) after Executive has received written notice of the specific material
and continuing failure of Executive to perform his duties hereunder (other than death or
disability) and has failed to cure such failure within 30 days of receipt of the notice, or (d)
material and continuing failure to follow reasonable instructions of the Board of Directors after
Executive has received at least prior written notice of the specific material and continuing
failure to follow instructions and has failed to cure such failure within 30 days of receipt of the
notice.

 

 

     4.4 Termination without Cause or for Good Reason.

          (a) If (1) Executive’s employment is terminated by Company for any reason other than Cause or
the death or disability of Executive, or (2) Executive’s employment is terminated by Executive for
Good Reason (as defined herein):

               (i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement,
etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the
date of such termination;

               (ii) Company shall pay Executive a lump sum amount equal to three times the Base Salary
payable to him;

               (iii) Executive shall be entitled to continue to receive medical benefits coverage (as
described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s
expense for a period of 36 months;

               (iv) Anything to the contrary in any other agreement or document notwithstanding, each
outstanding equity incentive award granted to Executive before, on or within three years after the
date hereof shall become immediately vested and exercisable on the date of such termination; and

               (v) In addition, if, for the year in which Executive is terminated, Company achieves the
performance goals established in accordance with any incentive plan in which Executive
participates, Company shall pay an amount equal to the bonus that Executive would have received had
he been employed by Company for the full year.

          (b) Upon making the payments described in this Section 4.4, Company shall have no further
obligation to Executive under this Agreement.

          (c) “Good Reason” shall mean the following:

               (i) material breach of Company’s obligations hereunder, provided that Executive shall have
given written notice thereof to Company, and Company shall have failed to remedy the circumstances
within 30 days;

               (ii) the relocation of Executive’s principal business office outside of Bermuda without the
Executive’s prior agreement; or

               (iii) any material reduction in Executive’s duties or authority.

     4.5 Change in Control.

          (a) If, during the Term, there should be a Change of Control (as defined herein), and within 1
year thereafter either (i) Executive’s employment should be

 

 

terminated for any reason other than for Cause or (ii) Executive terminates his employment for
Good Reason (as defined in Section 4.4):

               (i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement,
etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the
date of such termination;

               (ii) Company shall pay Executive a lump sum amount equal to three times Executive’s then
current Base Salary;

               (iii) Executive shall be entitled to continue to receive medical benefits coverage (as
described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s
expense for a period of 36 months;

               (iv) Anything to the contrary in any other agreement or document notwithstanding, each
outstanding equity incentive award granted to Executive before, on or after the date hereof shall
become immediately vested and exercisable on the date of such termination; and

               (v) In addition, if, for the year in which Executive is terminated, Company achieves the
performance goals established in accordance with any incentive plan in which Executive
participates, Company shall pay an amount equal to the bonus that Executive would have received had
he been employed by Company for the full year.

          (b) Upon making the payments described in this Section 4.5, Company shall have no further
obligation to Executive under this Agreement.

          (c) A “Change in Control” of Company shall mean:

               (i) the acquisition by any person, entity or “group” required to file a Schedule 13D or
Schedule 14D-1 under the Securities Exchange Act of 1934 (the “1934 Act”) (excluding, for this
purpose, Company, its subsidiaries, any employee benefit plan of Company or its subsidiaries which
acquires ownership of voting securities of Company, and any group that includes Executive) of
beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of 50% or more of either
the then outstanding ordinary shares or the combined voting power of Company’s then outstanding
voting securities entitled to vote generally in the election of directors;

               (ii) the election or appointment to the Board of Directors of Company, or resignation of or
removal from the Board, of directors with the result that the individuals who as of the date hereof
constituted the Board (the “Incumbent Board”) no longer constitute at least a majority of the
Board, provided that any person who becomes a director subsequent to the date hereof whose
appointment, election, or nomination for election by Company’s shareholders, was approved by a vote
of at least a majority of the Incumbent Board (other than an appointment, election or nomination of

 

 

an individual whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of Company) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent Board; or

               (iii) approval by the shareholders of Company of: (i) a reorganization, merger or
consolidation by reason of which persons who were the shareholders of Company immediately prior to
such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of
the combined voting power of the reorganized, merged or consolidated company’s then outstanding
voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or
dissolution of Company or the sale, transfer, lease or other disposition of all or substantially
all of the assets of Company (whether such assets are held directly or indirectly).

	5.	 	RESTRICTIVE COVENANTS

     5.1 Restrictive Covenants.

          (a) Executive acknowledges that he is one of a small number of key executives and that in such
capacity, he will have access to confidential information of the Company and will engage in key
client relationships on behalf of the Company and that it is fair and reasonable for protection of
the legitimate interests of the Company and the other key executives of the Company that he should
accept the restrictions described in Exhibit A hereto.

          (b) Promptly following Executive’s termination of employment, Executive shall return to the
Company all property of the Company, and all documents, accounts, letters and papers of every
description relating to the affairs and business of the Company or any of its subsidiaries, and
copies thereof in Executive’s possession or under his control.

          (c) Executive acknowledges and agrees that the covenants and obligations of Executive in
Exhibit A and this Section 5.1 relate to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obligations will cause the Company irreparable
injury for which adequate remedies are not available at law. Therefore, Executive agrees that the
Company shall be entitled to an injunction, restraining order or such other equitable relief
(without the requirement to post bond) restraining Executive from committing any violation of the
covenants and obligations contained in Exhibit A and this Section 5.1. These injunctive remedies
are cumulative and are in addition to any other rights and remedies the Company may have at law or
in equity.

          (d) Executive agrees that if he applies for, or is offered employment by (or is to provide
consultancy services to) any other person, firm, company, business entity or other organization
whatsoever (other than an affiliate of the Company) during the

 

 

restriction periods set forth in Exhibit A, he shall promptly, and before entering into any
contract with any such third party, provide to such third party a full copy of Exhibit A and this
Section 5.1 in order to ensure that such other party is fully aware of Executive’s obligations
hereunder.

     5.2 Intellectual Property Rights. Executive recognizes and agrees that Executive’s
duties for the Company may include the preparation of materials, including written or graphic
materials for the Company or its affiliate, and that any such materials conceived or written by
Executive shall be done within the scope of his employment as a “work made for hire.” Executive
agrees that because any such work is a “work made for hire,” the Company (or the relevant affiliate
of the Company) will solely retain and own all rights in said materials, including rights of
copyright. Executive agrees to disclose and assign to the Company his entire right, title and
interest in and to all inventions and improvements related to the Company’s business or to the
business of the Company’s affiliates (including, but not limited to, all financial and sales
information), whether patentable or not, whether made or conceived by him individually or jointly
with others at any time during his employment by the Company hereunder. Such inventions and
improvements are to become and remain the property of the Company and Executive shall take such
actions as are reasonably necessary to effectuate the foregoing.

	6.	 	MISCELLANEOUS

     6.1 Key Employee Insurance. Company shall have the right at its expense to purchase
insurance on the life of Executive, in such amounts as it shall from time to time determine, of
which Company shall be the beneficiary. Executive shall submit to such physical examinations as
may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance.

     6.2 Indemnification/Litigation. Company shall indemnify and defend Executive against
all claims arising out of Executive’s activities as an officer or employee of Company or its
affiliates to the fullest extent permitted by law and under Company’s organizational documents. At
the request of Company, Executive shall during and after the Term render reasonable assistance to
Company in connection with any litigation or other proceeding involving Company or any of its
affiliates. Company shall provide reasonable compensation to Executive for such assistance
rendered after the Term.

     6.3 No Mitigation. In no event shall Executive be required to seek other employment
or take any other action by way of mitigation of the amounts payable to Executive under this
Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment
after termination of his employment hereunder.

     6.4 Severability. The invalidity or unenforceability of any particular provision or
part of any provision of this Agreement shall not affect the other provisions or parts hereof.

 

 

     6.5 Assignment; Benefit. This Agreement shall not be assignable by Executive, and
shall be assignable by Company only with the Executive’s consent and only to any person or entity
which may become a successor in interest (by purchase of assets or stock, or by merger, or
otherwise) to Company in the business or substantially all of the business presently operated by
it. Any Change in Control is deemed an assignment. Subject to the foregoing, this Agreement and
the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the
parties hereto and each of their respective permitted successors, assigns, heirs, executors and
administrators.

     6.6 Notices. All notices hereunder shall be in writing and shall be sufficiently
given if hand-delivered, sent by documented overnight delivery service or registered or certified
mail, postage prepaid, return receipt requested or by facsimile, receipt acknowledged, addressed as
set forth below or to such other person and/or at such other address as may be furnished in writing
by any party hereto to the other. Any such notice shall be deemed to have been given as of the
date received, in the case of personal delivery, or on the date shown on the receipt or
confirmation therefor, in all other cases. Any and all service of process and any other notice in
any action, suit or proceeding shall be effective against any party if given as provided in this
Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve
process in any other manner permitted by law.

	 	(a)	 	If to Company:
	 
	 	 	 	Enstar Group Limited

P.O. Box HM 2267

Windsor Place, 3rd Floor

18 Queen Street

Hamilton HM JX

Bermuda
	 
	 	 	 	Attention: Paul O’Shea

Facsimile No.: 1 441 292 6603
	 
	 	(b)	 	If to Executive:
	 
	 	 	 	Richard J. Harris

Birthday Cottage

25 Devon Point Lane

Devonshire FL 05

Bermuda

     6.7 Entire Agreement; Modification; Advice of Counsel.

          (a) This Agreement constitutes the entire agreement between the parties hereto with respect to
the matters contemplated herein and supersedes all prior

 

 

agreements and understandings with respect thereto. No addendum, amendment, modification, or
waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay
on the part of any party to exercise any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right or remedy preclude any other or
further exercise of the same or of any other right or remedy with respect to such occurrence or
with respect to any other occurrence.

          (b) Executive acknowledges that he has been afforded an opportunity to consult with his
counsel with respect to this Agreement.

     6.8 Governing Law. This Agreement is made pursuant to, and shall be construed and
enforced in accordance with, the laws of Bermuda, to the extent applicable, without giving effect
to otherwise applicable principles of conflicts of law.

     6.9 Headings; Counterparts. The headings of paragraphs in this Agreement are for
convenience only and shall not affect its interpretation. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of which, when taken
together, shall be deemed to constitute the same Agreement.

     6.10 Further Assurances. Each of the parties hereto shall execute such further
instruments and take such additional actions as the other party shall reasonably request in order
to effectuate the purposes of this Agreement.

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

	 	 	 	 	 
	 	ENSTAR GROUP LIMITED

 	 
	 	By:  	/s/ Dominic Silvester
 	 
	 	 	Name:  	Dominic Silvester 	 
	 	 	Title:  	Chief Executive Officer 	 
	 
	 	 	 
	 	                                                    /s/ Richard J. Harris
 	 
	 	Richard J. Harris 	 
	 	 	 

 

 

	 	 	 	 	 

Exhibit A

Restrictive Covenants

	A.	 	Noncompetition. During the Term and, if Executive fails to remain employed through
the fifth anniversary of the date hereof, for a period of eighteen (18) months after
Executive’s employment terminates (the “Restriction Period”), Executive shall not, without the
prior written permission of the Board, directly or indirectly engage in any Competitive
Activity. The term “Competitive Activity” shall include (i) entering the employ of, or
rendering services to, any person, firm or corporation engaged in the insurance and
reinsurance run-off or any other business in which the Company or any of its affiliates has
been engaged at any time during the last twelve months of the Term and to which Executive has
rendered services or about which Executive has acquired Confidential Information or by which
Executive has been engaged at any time during the last twelve months of his period of
employment hereunder and in each case in any jurisdiction in which the Company or any of its
affiliates has conducted substantial business (hereinafter defined as the “Business”); (ii)
engaging in the Business for Executive’s own account or (becoming interested in any such
Business, directly or indirectly, as an individual, partner, shareholder, member, director,
officer, principal, agent, employee, trustee, consultant, or in any other similar capacity;
provided, however, nothing in this Paragraph A shall prohibit Executive from owning, solely as
a passive investment, 5% or less of the total outstanding securities of a publicly-held
company, or any interest held by Executive in a privately-held company as of the date of this
Agreement; provided further that the provisions of this Paragraph A shall not apply in the
event Executive’s employment with the Company is terminated without Cause or with Good Reason.

	B.	 	Confidentiality. Without the prior written consent of the Company, except to the
extent required by an order of a court having competent jurisdiction or under subpoena from an
appropriate regulatory authority, Executive shall not disclose and shall use his best
endeavours to prevent the disclosure of any trade secrets, customer lists, market data,
marketing plans, sales plans, management organization information (including data and other
information relating to members of the Board and management), operating policies or manuals,
business plans or financial records, or other financial, commercial, business or technical
information relating to the Company or any of its subsidiaries or affiliates or information
designated as confidential or proprietary that the Company or any of its subsidiaries or
affiliates may receive belonging to clients or others who do business with the Company or any
of its subsidiaries or affiliates (collectively, “Confidential Information”) to any
third person unless such Confidential Information has been previously disclosed to the public
by the Company or any of its subsidiaries or affiliates or is in the public domain (other than
by reason of Executive’s breach of this Paragraph B). In the event that Executive is required
to

 

 

	 	 	disclose Confidential Information in a legal proceeding, Executive shall provide the
Company with notice of such request as soon as reasonably practicable, so that the Company
may timely seek an appropriate protective order or waive compliance with this Paragraph B,
except if such notice would be unlawful or would place Executive in breach of an
undertaking he is required to give by law or regulation. 
	 
	C.	 	Non-Solicitation of Employees. During the Restriction Period, Executive shall not,
without the prior written permission of the Board, directly or indirectly induce any Senior
Employee of the Company or any of its affiliates to terminate employment with such entity, and
shall not directly or indirectly, either individually or as owner, agent, employee, consultant
or otherwise, offer employment to or employ any Senior Employee unless such person shall have
ceased to be employed by the Company or any affiliate for a period of at least six (6) months.
For the purpose of this Paragraph C, “Senior Employee” shall mean a person who, at
any time during the last twelve months of Executive’s period of employment hereunder:

(i) is engaged or employed (other than in a clerical, secretarial or administrative
capacity) as an employee, director or consultant of the Company or its affiliates;
and

(ii) is or was engaged in a capacity in which he obtained Confidential Information;
and

(iii) had personal dealings with Executive.

	D.	 	Non-Disparagement. Executive shall not do or say anything adverse or harmful to, or
otherwise disparaging of, the Company or its subsidiaries and their respective goodwill. The
Company shall not, and shall use reasonable efforts to ensure that its officers, directors,
employees and subsidiaries do not do or say anything adverse or harmful to, or otherwise
disparaging of, Executive and his goodwill; provided that no action by either
party in connection with the enforcement of its rights hereunder shall be construed as a
violation of this Paragraph D.

	E.	 	Definition. In this Exhibit A, “directly or indirectly” (without prejudice to the
generality of the expression) means whether as principal or agent (either alone or jointly or
in partnership with any other person, firm or company) or as a shareholder, member or holder
of loan capital in any other company or being concerned or interested in any other person,
firm or company and whether as a director, partner, consultant, employee or otherwise.

	F.	 	Severability. Each of the provisions contained in this Exhibit A is and shall be
construed as separate and severable and if one or more of such provisions is held to be
against the public interest or unlawful or in any way an unreasonable

 

 

restraint of trade or unenforceable in whole or in part for any reason, the remaining
provisions of this Exhibit A or part thereof, as appropriate, shall continue to be in full
force and effect.exv10w1

 

 

    THE
    PHILADELPHIA INSURANCE COMPANIES

    2007 CASH BONUS PLAN

    Effective as of January 1, 2007

 

    1. PURPOSE

 

    The purpose of the Plan, as adopted by the Board, subject to
    shareholder approval, is to provide performance-based cash bonus
    compensation for key executives based on the attainment of one
    or more performance goals or targets that are related to the
    financial success of the Company, and that are established from
    time to time by the Committee, as part of an integrated
    compensation program which is intended to assist the Company in
    motivating and retaining employees of superior ability, industry
    and loyalty.

 

    2. DEFINITIONS

 

    The following words and phrases as used herein shall have the
    following meanings, unless a different meaning is plainly
    required by the context:

 

    (a) “Board” or “Board of
    Directors” shall mean the board of directors of the
    Company.

 

    (b) “Bonus Base” shall mean a percentage
    of a Participant’s base salary in effect for the Plan Year
    that may be any percentage between zero percent (0%) and one
    hundred percent (100%). For these purposes, the
    Participant’s base salary for the Plan Year shall be the
    Participant’s actual annual base salary, unless otherwise
    specified by the Committee when establishing the Maximum
    Percentage Schedule for the Plan Year.

 

    (c) “Code” shall mean the Internal Revenue
    Code of 1986, as amended, or any successor thereto.

 

    (d) “Committee” shall mean the
    Compensation Committee of the Board of Directors, or such other
    committee established by the Board, in any case consisting
    exclusively of two or more Outside Directors, to act as the
    Committee with respect to the Plan, or such other committee as
    may be appointed by the Board of Directors to act as the
    Committee with respect to the Plan.

 

    (e) “Company” shall mean Philadelphia
    Consolidated Holding Corp., a Pennsylvania corporation, and any
    successor thereto, and shall also, except as otherwise required
    by the context, include any other affiliated employer whose
    employees are designated by the Committee as a Participant in
    the Plan.

 

    (f) “Covered Employee” means an employee
    who is a “covered employee” as that term is defined in
    Code Section 162(m) and regulations promulgated thereunder.

 

    (g) “Designated Beneficiary” shall mean
    the person, if any, specified in writing by the Participant to
    receive any payments due to the Participant in the event of the
    Participant’s death. In the event no person is specified by
    the Participant, the Participant’s estate shall be deemed
    to be the Designated Beneficiary.

 

    (h) “Effective Date” shall mean
    January 1, 2007.

 

    (i) “Outside Director” shall mean a member
    of the Board of Directors who is treated as an “outside
    director” for purposes of Code Section 162(m).

 

    (j) “Maximum Percentage” shall mean the
    percentage determined by reference to the Maximum Percentage
    Schedule established for each Plan Year by the Committee, which
    percentage may not exceed two hundred percent (200%).

 

    (k) “Maximum Percentage Schedule” shall
    mean the schedule pursuant to which a determination of the
    Participant’s Maximum Percentage is determined, based on
    the extent to which the performance goal or goals set forth
    therein have been achieved during the Plan Year, which schedule
    can be varied on a Participant by Participant basis, all as
    established at the discretion of the Committee.

    

    1

 

 

    (l) “Participant” shall mean those
    executives the Committee determines are or are reasonably likely
    to be Covered Employees and who are designated by the Committee
    to participate in the Plan from time to time.

 

    (m) “Performance-Based Bonus” shall mean
    the cash bonus payable to a Participant under Section 6(a).

 

    (n) “Performance Based Compensation Rules”
    shall mean those provisions of Code Section 162(m) and
    regulations promulgated thereunder that provide the rules
    pursuant to which compensation that is paid to executives on the
    basis of performance is exempt from the limitations on
    deductibility applicable to certain compensation paid to
    executives in excess of $1,000,000.

 

    (o) “Plan” shall mean The Philadelphia
    Insurance Companies 2007 Cash Bonus Plan.

 

    (p) “Plan Year” shall mean the taxable
    year of the Company.

 

    3. PARTICIPATION

 

    Those key executives as may be designated by the Committee to
    participate in the Plan from time to time are the participants
    in the Plan. Participants under the Plan for each Plan Year
    shall be specified no later than the time the Maximum Percentage
    Schedule (as described in Section 6(a) below) is
    established by the Committee, and may be set forth as part of
    that Schedule.

 

    4. TERM OF PLAN

 

    Subject to approval of the Plan by the shareholders of the
    Company, the Plan shall be in effect as of the Effective Date,
    and shall continue until terminated by the Board of Directors.

 

    Notwithstanding the foregoing, the Plan shall only continue in
    effect to the extent bonus payments may be characterized as
    “performance-based compensation” under the Performance
    Based Compensation Rules. Such Rules require, among other
    things, that material features of the Plan be periodically
    disclosed to the Company’s shareholders, and that the
    continuation of the Plan be subject to the approval of the
    Company’s shareholders.

 

    5. BONUS ENTITLEMENT

 

    A Participant shall be entitled to receive a bonus with respect
    to a Plan Year in accordance with the provisions of
    Section 6 of the Plan only after certification in writing
    by the Committee that the performance goals, consistent with the
    provisions of Section 6, and as set forth in the Maximum
    Percentage Schedule applicable for such Plan Year, have been
    satisfied. The bonus payment with respect to a Plan Year shall
    be payable to the Participant in the next Plan Year on or before
    March 15th of such next Plan Year; provided, however,
    that no bonus payment shall be made to any Participant who is
    not employed by the Company as of the date of such payment.
    Notwithstanding anything to the contrary contained herein, no
    bonus shall be payable under the Plan without the prior
    disclosure of the terms of the Plan to the shareholders of the
    Company and the approval of the Plan by such shareholders.

 

    6. DETERMINATION OF PERFORMANCE-BASED COMPENSATION BONUS

 

    (a) Performance-Based Bonus.  Each
    Participant, or the Designated Beneficiary of a deceased
    Participant, may be entitled to a bonus with respect to such
    Plan Years as are determined by the Committee that is equal to
    the “Maximum Percentage” of the Bonus Base, determined
    by reference to the Maximum Percentage Schedule in effect for
    the Plan Year; provided, however, that any bonus payment may be
    reduced or eliminated at the discretion of the Committee, as
    provided in Section 6(d) below.

 

    (b) Performance Goals.  The Maximum
    Percentage is the percentage derived from the Maximum Percentage
    Schedule established for each Plan Year by the Committee and set
    forth on that Plan Year’s Maximum Percentage Schedule,
    which shall be based on one or more of the following business
    criteria (which may be determined for these purposes either by
    reference to the Company as a whole or by reference to any one
    or more of its subsidiaries, operating divisions or other
    operating units): stock price, market share, gross sales, gross
    revenue, net revenues, pretax income, operating income, cash
    flow,

    

    2

 

    earnings per share, return on equity, return on invested capital
    or assets, cost reductions and savings, return on revenues or
    productivity, or any variation or combination of the preceding
    business criteria. In addition, the Committee may utilize as an
    additional performance measure (to the extent consistent with
    the Performance Based Compensation Rules) the attainment by a
    Participant of one or more personal objectives
    and/or goals
    that the Committee deems appropriate, including, but not limited
    to, implementation of Company policies, negotiation of
    significant corporate transactions, development of long-term
    business goals or strategic plans for the Company, or the
    exercise of specific areas of managerial responsibility;
    provided, however, that the measurement of the Company’s or
    a participant’s achievement of any of such goals must be
    objectively determinable and shall be determined, to the extent
    applicable, according to generally accepted accounting
    principles as in existence on the date on which the Maximum
    Percentage Schedule for the Plan Year is established. In all
    cases, the Committee shall establish the Maximum Percentage
    Schedule for each Plan Year no later than 90 days after the
    beginning of the Plan Year and shall endeavor to establish such
    Maximum Percentage Schedule in a manner that is consistent with
    the Performance Based Compensation Rules. In the event an
    Maximum Percentage Schedule is not established with respect to
    one or more Participants for a Plan Year, the Maximum Percentage
    Schedule for the prior Plan Year shall be treated as the Maximum
    Percentage Schedule for such Participant(s) for the current Plan
    Year.

 

    (c) Maximum Permissible Performance-Based
    Bonus.  Notwithstanding anything contained in
    the Plan to the contrary, no Participant shall be entitled to a
    Performance-Based Bonus with respect to any Plan Year in excess
    of $2,000,000 or two times the Participant’s base
    compensation, whichever is less.

 

    (d) Committee
    Discretion.  Notwithstanding the determination
    of a Participant’s bonus or bonuses under the provisions of
    this Section 6 (without regard to this Section 6(d)),
    the Committee may, at its sole discretion and at any time prior
    to the time a particular bonus is paid, reduce the amount of or
    totally eliminate any such bonus or bonuses to the extent the
    Committee determines that such reduction or elimination is
    appropriate under such facts and circumstances as the Committee
    deems relevant. In no event shall the Committee have the
    authority to increase the amount of any Participant’s bonus
    or bonuses as determined under the provisions of the Plan and
    taking into account the Maximum Percentage Schedule as initially
    established for a Plan Year and the terms and conditions
    initially established with respect to a Transaction Bonus.

 

    7. COMMITTEE

 

    (a) Powers.  The Committee shall
    have the power and duty to do all things necessary or convenient
    to effect the intent and purposes of the Plan and not
    inconsistent with any of the provisions hereof, whether or not
    such powers and duties are specifically set forth herein, and,
    by way of amplification and not limitation of the foregoing, the
    Committee shall have the power to:

 

    (i) provide rules and regulations for the management,
    operation and administration of the Plan, and, from time to
    time, to amend or supplement such rules and regulations;

 

    (ii) construe the Plan, which construction, as long as made
    in good faith, shall be final and conclusive upon all parties
    hereto; and

 

    (iii) correct any defect, supply any omission, or reconcile
    any inconsistency in the Plan in such manner and to such extent
    as it shall deem expedient to carry the same into effect, and it
    shall be the sole and final judge of when such action shall be
    appropriate.

 

    The resolution of any questions with respect to payments and
    entitlements pursuant to the provisions of the Plan shall be
    determined by the Committee, and all such determinations shall
    be final and conclusive.

 

    (b) Indemnity.  No member of the
    Committee shall be directly or indirectly responsible or under
    any liability by reason of any action or default by him as a
    member of the Committee, or the exercise of or failure to
    exercise any power or discretion as such member. No member of
    the Committee shall be liable in any way for the acts or
    defaults of any other member of the Committee, or any of its
    advisors, agents or representatives. The Company shall indemnify
    and save harmless each member of the

    

    3

 

    Committee against any and all expenses and liabilities arising
    out of his own membership on the Committee.

 

    (c) Compensation and
    Expenses.  Members of the Committee shall
    receive no separate compensation for services other than
    compensation for their services as members of the Board of
    Directors, which compensation can include compensation for
    services at any committee meeting attended in their capacity as
    members of the Board of Directors. Members of the Committee
    shall be entitled to receive their reasonable expenses incurred
    in administering the Plan. Any such expenses, as well as
    extraordinary expenses authorized by the Company, shall be paid
    by the Company.

 

    (d) Participant Information.  The
    Company shall furnish to the Committee in writing all
    information the Company deems appropriate for the Committee to
    exercise its powers and duties in administration of the Plan.
    Such information shall be conclusive for all purposes of the
    Plan and the Committee shall be entitled to rely thereon without
    any investigation thereof; provided, however, that the Committee
    may correct any errors discovered in any such information.

 

    (e) Inspection of Documents.  The
    Committee shall make available to each Participant and his
    Designated Beneficiary, for examination at the principal office
    of the Company (or at such other location as may be determined
    by the Committee), a copy of the Plan and such of its records,
    or copies thereof, as may pertain to any benefits of such
    Participant and beneficiary under the Plan.

 

    8. EFFECTIVE DATE, TERMINATION AND AMENDMENT

 

    (a) Effective Date of Participation in
    Plan.  Subject to shareholder and Committee
    approval of the Plan, the Plan shall be effective as of the
    Effective Date, and Participants who have been designated by the
    Committee as eligible for bonuses with respect to the Plan Year
    that commenced as of the Effective Date shall participate in the
    Plan pursuant to the terms of the Maximum Percentage Schedule as
    applicable to each such Participant.

 

    (b) Amendment and Termination of the
    Plan.  The Plan may be terminated or revoked
    by the Board at any time and amended by the Board from time to
    time, provided that neither the termination, revocation or
    amendment of the Plan may, without the written approval of the
    Participant, reduce the amount of a bonus payment that has been
    determined by the Committee to be due and payable, but has not
    yet been paid; and provided further that no modification to the
    Plan that would increase the amount of any bonus payable
    hereunder beyond the amount determined pursuant to
    Section 6 of the Plan shall be effective without
    (i) approval by the Committee, (ii) disclosure to the
    shareholders of the Company of such modification, and
    (iii) approval of such modification by the shareholders of
    the Company in a separate vote that takes place prior to the
    payment of any bonuses under such modified Plan provisions. The
    Plan may also be modified or amended by the Committee, as it
    deems appropriate, in order to comply with the Performance Based
    Compensation Rules.

 

    9. MISCELLANEOUS PROVISIONS

 

    (a) Unsecured Creditor Status.  A
    Participant entitled to a bonus payment hereunder shall rely
    solely upon the unsecured promise of the Company, as set forth
    herein, for the payment thereof, and nothing herein contained
    shall be construed to give to or vest in a Participant or any
    other person now or at any time in the future, any right, title,
    interest, or claim in or to any specific asset, fund, reserve,
    account, insurance or annuity policy or contract, or other
    property of any kind whatever owned by the Company, or in which
    the Company may have any right, title, or interest, now or at
    any time in the future.

 

    (b) Other Company Plans.  It is
    agreed and understood that any benefits under this Plan are in
    addition to any and all benefits to which a Participant may
    otherwise be entitled under any other contract, arrangement, or
    voluntary pension, profit sharing or other compensation plan of
    the Company, whether funded or unfunded, and that this Plan
    shall not affect or impair the rights or obligations of the
    Company or a Participant under any other such contract,
    arrangement, or voluntary pension, profit sharing or other
    compensation plan.

    

    4

 

 

    (c) Separability.  If any term or
    condition of the Plan shall be invalid or unenforceable to any
    extent or in any application, then the remainder of the Plan,
    with the exception of such invalid or unenforceable provision,
    shall not be affected thereby, and shall continue in effect and
    application to its fullest extent.

 

    (d) Continued Employment.  Neither
    the establishment of the Plan, any provisions of the Plan, nor
    any action of the Committee shall be held or construed to confer
    upon any Participant the right to a continuation of employment
    by the Company. The Company reserves the right to dismiss any
    employee (including a Participant), or otherwise deal with any
    employee (including a Participant) to the same extent as though
    the Plan had not been adopted.

 

    (e) Incapacity.  If the Committee
    determines that a Participant or Beneficiary is unable to care
    for his affairs because of illness or accident, or is a minor,
    any benefit due such Participant or Beneficiary under the Plan
    may be paid to his spouse, child, parent, or any other person
    deemed by the Committee to have incurred expense for such
    Participant or Beneficiary (including a duly appointed guardian,
    committee, or other legal representative), and any such payment
    shall be a complete discharge of the Company’s obligation
    hereunder.

 

    (f) Jurisdiction.  The Plan shall
    be construed, administered, and enforced according to the laws
    of the Commonwealth of Pennsylvania, except to the extent that
    such laws are preempted by the Federal laws of the United States
    of America.

 

    (g) Withholding.  The Participant
    or the Designated Beneficiary shall make appropriate
    arrangements with the Company for satisfaction of any federal,
    state or local income tax withholding requirements and Social
    Security or other tax requirements applicable to the accrual or
    payment of benefits under the Plan. If no other arrangements are
    made, the Company may provide, at its discretion, for any
    withholding and tax payments as may be required.

 

    (h) Interpretation.  The Plan is
    intended to pay compensation only on the attainment of the
    performance goals set forth above in a manner that will exempt
    such compensation from the limitations on the deduction of
    certain compensation payments under Code Section 162(m). To
    the extent that any provision of the Plan would cause a conflict
    with the conditions required for such an exemption or would
    cause the administration of the Plan to fail to satisfy the
    applicable requirements for the performance-based compensation
    exemption under Code Section 162(m), such provision shall
    be deemed null and void to the extent permitted by applicable
    law.

    

    5

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