Document:

exv10w1

Exhibit 10.1

FAMOUS DAVE’S OF AMERICA, INC.

AMENDED AND RESTATED

2005 STOCK INCENTIVE PLAN

     1. Purpose. The purpose of the 2005 Stock Incentive Plan (the “Plan”) of Famous
Dave’s of America, Inc. (the “Company”) is to increase stockholder value and to advance the
interests of the Company by furnishing a variety of economic incentives (“Incentives”) designed to
attract, retain and motivate employees, certain key consultants and directors of the Company.
Incentives may consist of opportunities to purchase or receive shares of Common Stock, $0.01 par
value per share, of the Company (“Common Stock”) on terms determined under this Plan.

     2. Administration. The Plan shall be administered by the board of directors of the
Company (the “Board of Directors”) or by a stock option or compensation committee (the “Committee”)
of the Board of Directors. The Committee shall consist of not less than two directors of the
Company and shall be appointed from time to time by the Board of Directors. Each member of the
Committee shall be (i) a “non-employee director” within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934 (including the regulations promulgated thereunder, the “1934 Act”) (a
“Non-Employee Director”), and (ii) shall be an “outside director” within the meaning of Section
162(m) under the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations
promulgated thereunder. The Committee shall have complete authority to award Incentives under the
Plan, to interpret the Plan, and to make any other determination which it believes necessary and
advisable for the proper administration of the Plan. The Committee’s decisions and matters
relating to the Plan shall be final and conclusive on the Company and its participants. If at any
time there is no stock option or compensation committee, the term “Committee”, as used in the Plan,
shall refer to the Board of Directors; provided, however, all Incentives granted under the Plan to
Non-Employee Directors be approved and administered by a Committee satisfying the criteria set
forth in the second sentence of this Section 2.

     3. Eligible Participants. Officers of the Company, employees of the Company or its
subsidiaries, members of the Board of Directors, and consultants or other independent contractors
who provide services to the Company or its subsidiaries shall be eligible to receive Incentives
under the Plan when designated by the Committee. Participants may be designated individually or by
groups or categories (for example, by pay grade) as the Committee deems appropriate. Participation
by officers of the Company or its subsidiaries and any performance objectives relating to such
officers must be approved by the Committee. Participation by others and any performance objectives
relating to others may be approved by groups or categories (for example, by pay grade) and
authority to designate participants who are not officers and to set or modify such targets may be
delegated.

     4. Types of Incentives. Incentives under the Plan may be granted in any one or a
combination of the following forms: (a) performance shares (section 6); (b) incentive stock
options and non-statutory stock options (section 7); (c) stock appreciation rights (“SARs”)
(section 8); (d) stock awards (section 9); (e) restricted stock (section 9); and restricted stock
units (section 9).

 

 

     5. Shares Subject to the Plan.

     5.1. Number of Shares. Subject to adjustment as provided in Section 10.6, the
number of shares of Common Stock which may be issued under the Plan shall not exceed 950,000
shares of Common Stock. Shares of Common Stock that are issued under the Plan or are
subject to outstanding Incentives will be applied to reduce the maximum number of shares of
Common Stock remaining available for issuance under the Plan.

     5.2. Cancellation. To the extent that cash in lieu of shares of Common Stock
is delivered upon the exercise of a SAR pursuant to Section 8.4, the Company shall be
deemed, for purposes of applying the limitation on the number of shares, to have issued the
greater of the number of shares of Common Stock which it was entitled to issue upon such
exercise or on the exercise of any related option. In the event that a stock option or SAR
granted hereunder expires or is terminated or canceled unexercised as to any shares of
Common Stock, such shares may again be issued under the Plan either pursuant to stock
options, SARs or otherwise. In the event that shares of Common Stock are issued as
performance shares, restricted stock or pursuant to a stock award and thereafter are
forfeited or reacquired by the Company pursuant to rights reserved upon issuance thereof,
such forfeited and reacquired shares may again be issued under the Plan, either as
performance shares, restricted stock, pursuant to stock awards or otherwise.

     5.3. Type of Common Stock. Common Stock issued under the Plan in connection
with stock options, SARs, performance shares, restricted stock or stock awards, may be
authorized and unissued shares or treasury stock, as designated by the Committee.

     6. Performance Shares. A performance share consists of an award which shall be paid
in shares of Common Stock, as described below. The grant of a performance share shall be subject
to such terms and conditions as the Committee deems appropriate, including the following:

     6.1. Performance Objectives. Each performance share will be subject to
performance objectives for the Company or one of its operating units to be achieved by the
end of a specified period, which period shall be at least one year in length. The number of
performance shares granted shall be determined by the Committee and may be subject to such
terms and conditions, as the Committee shall determine. If the performance objectives are
achieved, each participant will be paid in shares of Common Stock. If such objectives are
not met, each grant of performance shares may provide for lesser payments in accordance with
formulas established in the award.

     6.2. Not Stockholder. The grant of performance shares to a participant shall
not create any rights in such participant as a stockholder of the Company, until the payment
of shares of Common Stock with respect to an award.

     6.3. No Adjustments. No adjustment shall be made in performance shares granted
on account of cash dividends which may be paid or other rights which may be issued to the
holders of Common Stock prior to the end of any period for which performance objectives were
established.

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     6.4. Expiration of Performance Share. If any participant’s employment or
consulting engagement with the Company is terminated for any reason other than normal
retirement, death or disability prior to the achievement of the participant’s stated
performance objectives, all the participant’s rights on the performance shares shall expire
and terminate unless otherwise determined by the Committee. In the event of termination of
employment or consulting by reason of death, disability, or normal retirement, the
Committee, in its own discretion may determine what portions, if any, of the performance
shares should be paid to the participant.

     7. Stock Options. A stock option is a right to purchase shares of Common Stock from
the Company. Each stock option granted by the Committee under this Plan shall be subject to the
following terms and conditions:

     7.1. Price. The option price per share shall be determined by the Committee,
subject to adjustment under Section 10.6; provided that option price shall be not less than
the Fair Market Value of the Common Stock subject to the option on the date of grant.

     7.2. Number. The number of shares of Common Stock subject to the option shall
be determined by the Committee, subject to adjustment as provided in Section 10.6. The
number of shares of Common Stock subject to a stock option shall be reduced in the same
proportion that the holder thereof exercises a SAR if any SAR is granted in conjunction with
or related to the stock option. Notwithstanding the foregoing, no person shall receive
grants of Stock Options under the Plan that exceed 75,000 shares during any one fiscal year
of the Company.

     7.3. Duration and Time for Exercise. Subject to earlier termination as
provided in Section 10.4, the term of each stock option shall be determined by the Committee
but shall not exceed ten years and one day from the date of grant. Each stock option shall
become exercisable at such time or times during its term as shall be determined by the
Committee at the time of grant, but shall not become exercisable more quickly than ratably
over three years unless the Committee determines in its discretion that a faster schedule is
warranted. The Committee may not accelerate the exercisability of any stock option unless
such acceleration is in connection with either a change of control of the Company, a
“transaction” (as defined in Section 10.12) or the death, disability or retirement of a Plan
participant.

     7.4. Manner of Exercise. A stock option may be exercised, in whole or in part,
by giving written notice to the Company, specifying the number of shares of Common Stock to
be purchased and accompanied by the full purchase price for such shares. The option price
shall be payable (a) in United States dollars upon exercise of the option and may be paid by
cash, uncertified or certified check or bank draft; (b) at the discretion of the Committee,
by delivery of shares of Common Stock in payment of all or any part of the option price,
which shares shall be valued for this purpose at the Fair Market Value on the date such
option is exercised; or (c) at the discretion of the Committee, by instructing the Company
to withhold from the shares of Common Stock issuable upon exercise of the stock option
shares of Common Stock in payment of all or any part of the exercise price and/or any
related withholding tax obligations, which shares shall be valued for this purpose at the
Fair Market Value or in such other manner as may be authorized from time to time by the
Committee.
The shares of Common Stock delivered by the participant pursuant to Section 6.4(b) must

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have been held by the participant for a period of not less than six months prior to the
exercise of the option, unless otherwise determined by the Committee. Prior to the issuance
of shares of Common Stock upon the exercise of a stock option, a participant shall have no
rights as a stockholder.

     7.5. Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, the following additional provisions shall apply to the grant of stock options
which are intended to qualify as Incentive Stock Options (as such term is defined in Section
422 of the Code):

     (a) The aggregate Fair Market Value (determined as of the time the option is
granted) of the shares of Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any participant during any calendar year
(under all of the Company’s plans) shall not exceed $100,000. The determination will
be made by taking incentive stock options into account in the order in which they
were granted. If such excess only applies to a portion of an Incentive Stock
Option, the Committee, in its discretion, will designate which shares will be
treated as shares to be acquired upon exercise of an Incentive Stock Option.

     (b) Any Incentive Stock Option certificate authorized under the Plan shall
contain such other provisions as the Committee shall deem advisable, but shall in
all events be consistent with and contain all provisions required in order to
qualify the options as Incentive Stock Options.

     (c) All Incentive Stock Options must be granted within ten years from the
earlier of the date on which this Plan was adopted by Board of Directors or the date
this Plan was approved by the stockholders.

     (d) Unless sooner exercised, all Incentive Stock Options shall expire no later
than 10 years after the date of grant.

     (e) The option price for Incentive Stock Options shall be not less than the
Fair Market Value of the Common Stock subject to the option on the date of grant.

     (f) If Incentive Stock Options are granted to any participant who, at the time
such option is granted, would own (within the meaning of Section 422 of the Code)
stock possessing more than 10% of the total combined voting power of all classes of
stock of the employer corporation or of its parent or subsidiary corporation, (i)
the option price for such Incentive Stock Options shall be not less than 110% of the
Fair Market Value of the Common Stock subject to the option on the date of grant and
(ii) such Incentive Stock Options shall expire no later than five years after the
date of grant.

     8. Stock Appreciation Rights. A SAR is a right to receive, without payment to the
Company, a number of shares of Common Stock, cash or any combination thereof, the amount of which
is determined pursuant to the formula set forth in Section 8.4. A SAR may be granted (a) with
respect to any stock option granted under this Plan, either concurrently with the grant of
such stock option or at such later time as determined by the Committee (as to all or any portion of
the

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shares of Common Stock subject to the stock option), or (b) alone, without reference to any
related stock option. Each SAR granted by the Committee under this Plan shall be subject to the
following terms and conditions:

     8.1. Number. Each SAR granted to any participant shall relate to such number
of shares of Common Stock as shall be determined by the Committee, subject to adjustment as
provided in Section 10.6. In the case of a SAR granted with respect to a stock option, the
number of shares of Common Stock to which the SAR pertains shall be reduced in the same
proportion that the holder of the option exercises the related stock option.

     8.2. Duration. Subject to earlier termination as provided in Section 10.4, the
term of each SAR shall be determined by the Committee but shall not exceed ten years and one
day from the date of grant. Unless otherwise provided by the Committee, each SAR shall
become exercisable at such time or times, to such extent and upon such conditions as the
stock option, if any, to which it relates is exercisable. The Committee may in its
discretion accelerate the exercisability of any SAR.

     8.3. Exercise. A SAR may be exercised, in whole or in part, by giving written
notice to the Company, specifying the number of SARs which the holder wishes to exercise.
Upon receipt of such written notice, the Company shall, within 90 days thereafter, deliver
to the exercising holder certificates for the shares of Common Stock or cash or both, as
determined by the Committee, to which the holder is entitled pursuant to Section 8.4.

     8.4. Payment. Subject to the right of the Committee to deliver cash in lieu of
shares of Common Stock (which, as it pertains to officers and directors of the Company,
shall comply with all requirements of the 1934 Act), the number of shares of Common Stock
which shall be issuable upon the exercise of a SAR shall be determined by dividing:

     (a) the number of shares of Common Stock as to which the SAR is exercised
multiplied by the amount of the appreciation in such shares (for this purpose, the
“appreciation” shall be the amount by which the Fair Market Value of the shares of
Common Stock subject to the SAR on the exercise date exceeds (1) in the case of a
SAR related to a stock option, the purchase price of the shares of Common Stock
under the stock option or (2) in the case of a SAR granted alone, without reference
to a related stock option, an amount which shall be determined by the Committee at
the time of grant, subject to adjustment under Section 10.6); by

     (b) the Fair Market Value of a share of Common Stock on the exercise date.

     In lieu of issuing shares of Common Stock upon the exercise of a SAR, the Committee may
elect to pay the holder of the SAR cash equal to the Fair Market Value on the exercise date
of any or all of the shares which would otherwise be issuable. No fractional shares of
Common Stock shall be issued upon the exercise of a SAR; instead, the holder of the SAR
shall be entitled to receive a cash adjustment equal to the same fraction of the Fair
Market Value of a share of Common Stock on the exercise date or to purchase the portion
necessary to make a whole share at its Fair Market Value on the date of exercise.

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     9. Stock Awards, Restricted Stock and Restricted Stock Units. A stock award consists
of the transfer by the Company to a participant of shares of Common Stock, without other payment
therefor, as additional compensation for services to the Company. Restricted stock consists of
shares of Common Stock which are sold or transferred by the Company to a participant at a price
determined by the Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to restrictions on their
sale or other transfer by the participant. Restricted stock units evidence the right to receive
shares of Common Stock at a future date. The transfer of Common Stock pursuant to stock awards and
the transfer and sale of restricted stock shall be subject to the following terms and conditions:

     9.1. Number of Shares. The number of shares to be transferred or sold by the
Company to a participant pursuant to a stock award or as restricted stock, or the number of
shares that may be issued pursuant to a restricted stock unit, shall be determined by the
Committee.

     9.2. Sale Price. The Committee shall determine the price, if any, at which
shares of restricted stock shall be sold to a participant, which may vary from time to time
and among participants and which may be below the Fair Market Value of such shares of Common
Stock at the date of sale.

     9.3. Restrictions. All shares of restricted stock transferred or sold
hereunder, and all restricted stock units granted hereunder, shall be subject to such
restrictions as the Committee may determine which restrictions shall lapse over a period not
less than three years from the date of grant as determined by the Committee, including,
without limitation any or all of the following:

     (a) a prohibition against either the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, or the delivery of shares pursuant to
restricted stock units, such prohibition to lapse at such time or times as the
Committee shall determine (whether in annual or more frequent installments, at the
time of the death, disability or retirement of the holder of such shares, or
otherwise);

     (b) a requirement that the holder of shares of restricted stock or restricted
stock units forfeit, or (in the case of shares sold to a participant) resell back to
the Company at his or her cost, any right to all or a part of such shares or units
in the event of termination of his or her employment or consulting engagement during
any period in which such shares or units are subject to restrictions;

     (c) such other conditions or restrictions as the Committee may deem advisable.

     9.4. Escrow. In order to enforce the restrictions imposed by the Committee
pursuant to Section 9.3, the participant receiving restricted stock or restricted stock
units, as applicable, shall enter into an agreement with the Company setting forth the
conditions of the
grant. Shares of restricted stock shall be registered in the name of the participant
and deposited, together with a stock power endorsed in blank, with the Company. Each such
certificate shall bear a legend in substantially the following form:

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The transferability of this certificate and the shares of Common Stock
represented by it are subject to the terms and conditions (including
conditions of forfeiture) contained in the 2005 Stock Incentive Plan of
Famous Dave’s of America, Inc. (the “Company”), and an agreement entered
into between the registered owner and the Company. A copy of the Plan and
the agreement is on file in the office of the secretary of the Company.

     9.5. Issuance and Delivery of Shares. Subject to Section 10.5, at the end of
any time period during which the shares of restricted stock are subject to forfeiture and
restrictions on transfer, such shares will be delivered free of all restrictions to the
participant or to the participant’s legal representative, beneficiary or heir. In the case
of restricted stock units, no shares shall be issued at the time such restricted stock units
are granted. Subject to Section 10.5, upon the lapse or waiver of restrictions applicable
to restricted stock units, or at a later time specified in the agreement governing the grant
of restricted stock units, any shares derived from the restricted stock units shall be
issued and delivered to the holder of the restricted stock units.

     9.6. Stockholder. Subject to the terms and conditions of the Plan, each
participant receiving restricted stock shall have all the rights of a stockholder with
respect to shares of stock during any period in which such shares are subject to forfeiture
and restrictions on transfer, including without limitation, the right to vote such shares.
Dividends paid in cash or property other than Common Stock with respect to shares of
restricted stock shall be paid to the participant currently. Any holder of restricted stock
units shall not be, and shall not have rights and privileges of, a stockholder with respect
to any shares that may be derived from the restricted stock units unless and until such
shares have been issued.

     10. General.

     10.1. Effective Date. The Plan will become effective upon its approval by the
Company’s stockholders. Unless approved by the stockholders within one year after the date
of the Plan’s adoption by the Board of Directors, the Plan shall not be effective for any
purpose.

     10.2. Duration. The Plan shall remain in effect until all Incentives granted
under the Plan have either been satisfied by the issuance of shares of Common Stock or the
payment of cash or been terminated under the terms of the Plan and all restrictions imposed
on shares of Common Stock in connection with their issuance under the Plan have lapsed. No
Incentives may be granted under the Plan after the tenth anniversary of the date the Plan is
approved by the stockholders of the Company.

     10.3. Non-transferability of Incentives. No stock option, SAR, restricted
stock, restricted stock unit or performance award may be transferred, pledged or assigned by
the holder thereof (except, in the event of the holder’s death, by will or the laws of
descent and
distribution to the limited extent provided in the Plan or the Incentive, or pursuant
to a qualified domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder), and the Company shall not be
required to recognize any attempted assignment of such rights by any participant.
Notwithstanding the preceding sentence, stock options may be transferred by the holder

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thereof to Employee’s spouse, children, grandchildren or parents (collectively, the “Family
Members”), to trusts for the benefit of Family Members, to partnerships or limited liability
companies in which Family Members are the only partners or shareholders, or to entities
exempt from federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended. During a participant’s lifetime, a stock option may be exercised
only by him or her, by his or her guardian or legal representative or by the transferees
permitted by the preceding sentence.

     10.4. Effect of Termination or Death. In the event that a participant ceases
to be an employee of or consultant to the Company for any reason, including death or
disability, any Incentives may be exercised (or payments or shares may be delivered
thereunder) or shall expire at such times as may be determined by the Committee and, if
applicable, set forth in the Incentive.

     10.5. Additional Condition. Notwithstanding anything in this Plan to the
contrary: (a) the Company may, if it shall determine it necessary or desirable for any
reason, at the time of award of any Incentive or the issuance of any shares of Common Stock
pursuant to any Incentive, require the recipient of the Incentive, as a condition to the
receipt thereof or to the receipt of shares of Common Stock issued pursuant thereto, to
deliver to the Company a written representation of present intention to acquire the
Incentive or the shares of Common Stock issued pursuant thereto for his or her own account
for investment and not for distribution; and (b) if at any time the Company further
determines, in its sole discretion, that the listing, registration or qualification (or any
updating of any such document) of any Incentive or the shares of Common Stock issuable
pursuant thereto is necessary on any securities exchange or under any federal or state
securities or blue sky law, or that the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with the award of any
Incentive, the issuance of shares of Common Stock pursuant thereto, or the removal of any
restrictions imposed on such shares, such Incentive shall not be awarded or such shares of
Common Stock shall not be issued or such restrictions shall not be removed, as the case may
be, in whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not acceptable to the
Company.

     10.6. Adjustment. In the event of any recapitalization, stock dividend, stock
split, combination of shares or other change in the Common Stock, the number of shares of
Common Stock then subject to the Plan, including shares subject to restrictions, options or
achievements of performance shares, shall be adjusted in proportion to the change in
outstanding shares of Common Stock. In the event of any such adjustments, the purchase
price of any option, the performance objectives of any Incentive, and the shares of Common
Stock issuable pursuant to any Incentive shall be adjusted as and to the extent appropriate,
in the discretion of the Committee, to provide participants with the same relative rights
before and after such adjustment.

     10.7. Incentive Plans and Agreements. Except in the case of stock awards, the
terms of each Incentive shall be stated in a plan or agreement approved by the Committee.
The Committee may also determine to enter into agreements with holders of options to
reclassify or convert certain outstanding options, within the terms of the Plan, as
Incentive

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Stock Options or as non-statutory stock options and in order to eliminate SARs
with respect to all or part of such options and any other previously issued options.

     10.8. Withholding.

     (a) The Company shall have the right to withhold from any payments made under
the Plan or to collect as a condition of payment, any taxes required by law to be
withheld. At any time when a participant is required to pay to the Company an
amount required to be withheld under applicable income tax laws in connection with a
distribution of Common Stock or upon exercise of an option or SAR, the participant
may satisfy this obligation in whole or in part by electing (the “Election”) to have
the Company withhold from the distribution shares of Common Stock having a value up
to the minimum amount of withholding taxes required to be collected on the
transaction. The value of the shares to be withheld shall be based on the Fair
Market Value of the Common Stock on the date that the amount of tax to be withheld
shall be determined (“Tax Date”).

     (b) Each Election must be made prior to the Tax Date. The Committee may
disapprove of any Election, may suspend or terminate the right to make Elections, or
may provide with respect to any Incentive that the right to make Elections shall not
apply to such Incentive. An Election is irrevocable.

     10.9. No Continued Employment, Engagement or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her participation, to
continue in the employ of the Company for any period of time or to any right to continue his
or her present or any other rate of compensation. Nothing contained in the Plan shall be
construed as giving an employee, a consultant, such persons’ beneficiaries or any other
person any equity or interests of any kind in the assets of the Company or creating a trust
of any kind or a fiduciary relationship of any kind between the Company and any such person.

     10.10. Deferral Permitted. Payment of cash or distribution of any shares of
Common Stock to which a participant is entitled under any Incentive shall be made as
provided in the Incentive. Payment may be deferred at the option of the participant if
provided in the Incentive.

     10.11. Amendment of the Plan. The Board may amend or discontinue the Plan at
any time. However, no such amendment or discontinuance shall adversely change or impair,
without the consent of the recipient, an Incentive previously granted. Further, no such
amendment shall, without approval of the shareholders of the Company, (a) increase the
maximum number of shares of Common Stock which may be issued to all participants under the
Plan, (b) change the class of persons eligible to receive Incentives under the Plan, or (c)
materially increase the benefits accruing to participants under the Plan.

     10.12 Sale, Merger, Exchange or Liquidation. Unless otherwise provided in the
agreement for an Incentive, in the event of an acquisition of the Company through the sale
of substantially all of the Company’s assets or through a merger, exchange, reorganization
or liquidation of the Company or a similar event as determined by the Committee
(collectively a “transaction”), the Committee shall be authorized, in its sole discretion,
to take any and all

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action it deems equitable under the circumstances, including but not
limited to any one or more of the following:

     (1) providing that the Plan and all Incentives shall terminate and the holders of (i)
all outstanding vested options shall receive, in lieu of any shares of Common Stock they
would be entitled to receive under such options, such stock, securities or assets, including
cash, as would have been paid to such participants if their options had been exercised and
such participant had received Common Stock immediately prior to such transaction (with
appropriate adjustment for the exercise price, if any), (ii) performance shares and/or SARs
that entitle the participant to receive Common Stock shall receive, in lieu of any shares of
Common Stock each participant was entitled to receive as of the date of the transaction
pursuant to the terms of such Incentive, if any, such stock, securities or assets, including
cash, as would have been paid to such participant if such Common Stock had been issued to
and held by the participant immediately prior to such transaction, and (iii) any Incentive
under this Agreement which does not entitle the participant to receive Common Stock shall be
equitably treated as determined by the Committee.

     (2) providing that participants holding outstanding vested Common Stock based
Incentives shall receive, with respect to each share of Common Stock issuable pursuant to
such Incentives as of the effective date of any such transaction, at the determination of
the Committee, cash, securities or other property, or any combination thereof, in an amount
equal to the excess, if any, of the Fair Market Value of such Common Stock on a date within
ten days prior to the effective date of such transaction over the option price or other
amount owed by a participant, if any, and that such Incentives shall be cancelled, including
the cancellation without consideration of all options that have an exercise price below the
per share value of the consideration received by the Company in the transaction.

     (3) providing that the Plan (or replacement plan) shall continue with respect to
Incentives not cancelled or terminated as of the effective date of such transaction and
provide to participants holding such Incentives the right to earn their respective
Incentives on a substantially equivalent basis (taking into account the transaction and the
number of shares or other equity issued by such successor entity) with respect to the equity
of the entity succeeding the Company by reason of such transaction.

     (4) providing that all unvested, unearned or restricted Incentives, including but not
limited to restricted stock for which restrictions have not lapsed as of the effective date
of such transaction, shall be void and deemed terminated, or, in the alternative, for the
acceleration or waiver of any vesting, earning or restrictions on any Incentive.

     The Board may restrict the rights of participants or the applicability of this
Section 10.12 to the extent necessary to comply with Section 16(b) of the Securities
Exchange Act of 1934, the Internal Revenue Code or any other applicable law or
regulation. The grant of an Incentive award pursuant to the Plan shall not limit in any way
the right or power of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.

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     10.13. Definition of Fair Market Value. For purposes of this Plan, the “Fair
Market Value” of a share of Common Stock at a specified date shall, unless otherwise
expressly provided in this Plan, be the amount which the Committee or the Board of Directors
determines in good faith to be 100% of the fair market value of such a share as of the date
in question; provided, however, that notwithstanding the foregoing, if such shares are
listed on a U.S. securities exchange, then Fair Market Value shall be determined by
reference to the last sale price of a share of Common Stock on such U.S. securities exchange
on the applicable date. If such U.S. securities exchange is closed for trading on such
date, or if the Common Stock does not trade on such date, then the last sale price used
shall be the one on the date the Common Stock last traded on such U.S. securities exchange.

     10.14 Prohibition on Repricing. Except in connection with a corporate
transaction involving the Company (including, without limitation, any stock dividend, stock
split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination, or exchange of shares), the terms of outstanding Incentives
may not be amended to reduce the exercise price of outstanding Options or SARs or cancel
outstanding Options or SARS in exchange for cash, other awards or Options or SARs with an
exercise price that is less than the exercise price of the original Options or SARs without
shareholder approval.

     10.15 Code Section 409A Provisions. Notwithstanding anything in the Plan or any
Incentive agreement to the contrary, to the extent that any amount or benefit that
constitutes “deferred compensation” to a Participant under Section 409A of the Code and
applicable guidance thereunder is otherwise payable or distributable to a Participant under
the Plan or any Incentive agreement solely by reason of the occurrence of a change in
control or due to the Participant’s disability or separation from service, such amount or
benefit will not be payable or distributable to the Participant by reason of such
circumstance unless and until the Committee determines in good faith that (i) the
circumstances giving rise to such change in control, disability or separation from service
meet the definition of a change in ownership or control, disability, or separation from
service, as the case may be, in Section 409A(a)(2)(A) of the Code and applicable
regulations, or (ii) the payment or distribution of such amount or benefit would be exempt
from the application of Section 409A of the Code by reason of the short-term deferral
exemption or otherwise. Any payment or distribution that otherwise would be made to a
Participant who is a Specified Employee (as determined under Code Section 409A by the
Committee in good faith) on account of separation from service may not be made before the
date which is six (6) months after the date of the Specified Employee’s separation from
service (or death, if earlier) unless the payment or distribution is exempt from the
application of Section 409A of the Code by reason of the short term deferral exemption or
otherwise.

11exv10w1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated April 7, 2008, is made between Specialty
Underwriters’ Alliance, Inc., a Delaware corporation (the “Company”), and Courtney C. Smith (the
“Executive”).

WITNESSETH:

     WHEREAS, on November 19, 2003, the Company and the Executive (collectively, the “Parties”)
entered into an agreement (as such agreement was amended and amended and restated prior to the date
hereof, the “Prior Agreement”) whereby the Company agreed to employ the Executive as President and
Chief Executive Officer (“Chief Executive Officer”) and the Executive accepted such employment; and

     WHEREAS, the Company has an interest in ensuring continuity of its leadership; and

     WHEREAS, the Company wishes to continue the services of the Executive in the capacity of Chief
Executive Officer upon the terms and conditions hereinafter set forth and the Executive wishes to
accept such employment; and

     WHEREAS, it is desirable that the Prior Agreement be replaced by this Agreement so that, on
and after the date of this Agreement, this Agreement shall contain the terms and conditions
governing the employment of the Executive in the capacity as Chief Executive Officer of the
Company.

     NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and
agreements herein contained, and for other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:

          SECTION 1. Employment. The Company hereby employs the Executive, and the Executive
hereby accepts employment by the Company, upon the terms and conditions hereinafter set forth.

          SECTION 2. Term. The term of this Agreement shall commence on the date hereof and
shall terminate by its terms as follows: (i) on December 31, 2009, if on or before October 1, 2008
the Company delivers to the Executive a written notice that this Agreement shall not be extended
beyond December 31, 2009, or (ii) if no such notice is delivered by October 1, 2008, then this
Agreement automatically shall be extended as of each January 1st for an additional calendar year
unless, at least 15 months prior to the end of the then-current term, the Company shall have
delivered to the Executive a written notice that this Agreement shall not be so
extended1; and, provided, further, that the Executive’s employment hereunder may be
terminated on an earlier date in accordance with the provisions of this Agreement. Delivery of a
notice by the Company set forth in the preceding sentence shall serve only to set an ending date of
this Agreement and shall not, for any reason, be deemed to be a Termination Without Cause

 

			
	1	 	By way of example only, if the Company intends to have
this Agreement terminate by its terms on December 31, 2010, the Company must
give such written notice no later than September 30, 2009.

 

 

(as hereinafter defined). For purposes of this Agreement, all references to “Employment
Period” shall mean the period beginning on the date hereof and ending on the effective termination
of the Executive’s employment, and “Termination Date” shall mean the last day of the Executive’s
employment under this Agreement (and not the date on which any notice described in the first
sentence of this Section 2 is given).

          SECTION 3. Duties. During the Employment Period, the Executive shall be employed as
Chief Executive Officer of the Company and shall perform such duties consistent with such title and
shall report to the Board of Directors. If requested by the Company, during the Employment Period,
the Executive shall also serve, without additional compensation, in one or more executive positions
and/or as a member of the board of directors of the Company (the “Board of Directors”) or any
Affiliate (as defined herein) of the Company. The Executive shall comply fully with all applicable
laws, rules and regulations as well as with the Company’s policies, compliance manuals and
procedures.

          SECTION 4. Time to be devoted to Employment. The Executive shall devote his entire
working time to the business of the Company and shall use his best efforts, skills and abilities in
his diligent and faithful performance of his duties and responsibilities hereunder. During the
Employment Period, the Executive shall not engage in any other business activities or hold any
office or positions regardless of whether any such activity, office or position is pursued for
profit or other pecuniary advantage, without the prior consent of the Company; provided, however,
the Executive may own, solely as an investment, 1.0% or less of the securities of any publicly
traded corporation.

          SECTION 5. Compensation; Business Expenses; Benefits; Other Matters.
(a) Base Salary. The Company shall pay the Executive an annual salary (the “Base Salary”)
of $463,050, less applicable withholding and other deductions, payable in accordance with the
Company’s then current payroll practices. The Base Salary will be reviewed annually by the
Company’s Board of Directors or the Compensation Committee of the Board of Directors (the
“Compensation Committee”), and may be increased, but not decreased, in the sole discretion of the
Board of Directors or Compensation Committee. Upon any such increase the term “Base Salary” shall
mean such increased amount.

          (b) Annual Bonus. At such times that the Company has a bonus plan(s) for its senior executive
officers, the Executive shall be eligible to participate in such plan(s) and, if determined in the
sole judgment of the Board of Directors or any committee that administers such bonus plan, to
receive an annual bonus pursuant to such bonus plan. Notwithstanding the foregoing, nothing in
this Agreement shall be construed as requiring the Company to establish or maintain any bonus plan
or to pay to the Executive any annual bonus. The amount and timing of any annual bonus that may be
paid to the Executive will be in the sole discretion of the Board of Directors or any committee
that administers such bonus plan.

          (c) Equity Compensation. The Executive shall be eligible to receive such stock options,
awards of restricted stock or other types of equity-based compensation as may be determined by the
Board of Directors or the Compensation Committee in its sole discretion and upon such terms and
conditions as are determined by the Board of Directors or the Compensation Committee in its sole
discretion

2

 

          (d) Participation in Benefits. The Executive shall be eligible to participate in, and receive
benefits under, any pension, profit sharing, medical, group health, hospitalization and disability
insurance, stock purchase, stock option, stock ownership, vacation or other employee benefit plan,
program or policy of the Company which may be in effect at any time during the course of his
employment by the Company and which shall be generally available to senior executive officers of
the Company occupying positions of comparable status or responsibility, subject to the terms of
such plans, programs or policies. In addition, the Executive shall receive annual reimbursement of
up to $10,000 per calendar year for aggregate expenses incurred for financial planning, including
the preparation of income tax returns, upon presentation of appropriate receipts for such expenses;
provided that (i) the amount of such expenses eligible for reimbursement in one calendar year shall
not affect the amount of such expenses eligible for reimbursement in any other calendar year, and
(ii) such reimbursement shall be made promptly and in no event later than December 31st of the
calendar year next following the calendar year in which such expenses were paid by the Executive.

          (e) Expense Reimbursement. The Company shall, upon presentation by the Executive to the
Company of such appropriate documentation as may be required by the Company, reimburse the
Executive, in accordance with its practice from time to time for officers of the Company, for all
reasonable and authorized expenses and other disbursements incurred by the Executive for or on
behalf of the Company in the performance of his duties hereunder.

          (f) Paid Time Off. During the Employment Period, the Executive shall be entitled to take
thirty-four paid time off days (“PTO”) for each year during the Employment Period, all or a portion
of which may be carried over from year to year in accordance with the then-current PTO policy of
the Company. The Executive may schedule the PTO as he elects, subject to the Company’s business
needs. The Executive shall also be entitled to the paid holidays set forth in the Company’s
policies.

          (g) Indemnification. To the fullest extent permitted under applicable law and the charter and
by-laws of the Company, the Company and any of its Affiliates shall indemnify and hold harmless the
Executive, and advance payment to Executive for costs and expenses, for all liability incurred by
him to any third party as a result of the performance of his duties under this Agreement, subject
to the recoupment of such advances by the Company if it is ultimately determined that the Executive
was not entitled to such indemnification. The Company shall ensure that the Executive is covered
by the Company’s director and officer liability insurance policies during the Employment Period and
for at least six (6) years thereafter in an amount reasonably determined by the Board of Directors.

          SECTION 6. Involuntary Termination. (a) Disability. If the Executive is
incapacitated or disabled (as determined by a physician mutually acceptable to the Company and the
Executive) by accident, sickness or otherwise so as to render him mentally or physically incapable
of performing the services required to be performed by him under this Agreement (such condition
being hereinafter referred to as a “Disability”) for an aggregate period of 180 days or more during
any twelve month period (whether or not consecutive and after using up any accrued PTO), the
Company may, at any time thereafter during the continuation of such Disability, at its option,
terminate the Employment Period and the employment of the Executive under this Agreement
immediately by giving him written notice to that effect. Until the

3

 

Executive’s employment hereunder shall have been terminated in accordance with the immediately
preceding sentence, the Executive shall be entitled to receive the compensation and benefits
provided in Section 5 notwithstanding any such Disability (less any Company-paid benefits that he
receives, such as short term disability or workers compensation, during such period).

          (b) Death. If the Executive dies, the Employment Period and his employment hereunder shall
cease as of the date of his death.

          SECTION 7. Termination For Cause. (a) The Company may terminate the employment of
the Executive hereunder at any time for Cause (as hereinafter defined) (such termination being
referred to herein as a “Termination For Cause”) by giving the Executive written notice of such
termination in accordance with Section 7(b). As used in this Agreement, “Cause” means that the
Executive: (i) has committed an act constituting a misdemeanor involving moral turpitude or a
felony under the laws of the United States or any state or political subdivision thereof; (ii) has
committed an act constituting a breach of fiduciary duty, gross negligence or willful misconduct;
(iii) has engaged in conduct that violated the Company’s then existing material internal policies
or procedures and which is detrimental to the business, reputation, character or standing of the
Company or any of its Affiliates; (iv) has committed an act of fraud, self dealing, conflict of
interest, dishonesty or misrepresentation; or (v) has materially breached his obligations as set
forth in this Agreement.

          (b) Termination for Cause shall occur only if the Company shall have given written notice to
the Executive specifying the nature of the breach or behavior, and, if the Termination for Cause is
pursuant to clauses (ii), (iii) or (v) of Section 7(a), the Executive fails to correct (if
correctable) such breach or behavior as soon as practicable thereafter but no later than ten (10)
days after receipt of the applicable notice, provided that there shall be only one notice and
opportunity to correct with respect to clauses (ii), (iii) or (v) of Section 7(a).

          SECTION 8. Termination Without Cause. The Company may terminate the employment of the
Executive hereunder without Cause (such termination being hereinafter referred to as a “Termination
Without Cause”) by giving the Executive written notice of such termination, such termination to
take effect on the date specified in such notice, which date shall not be earlier than the date on
which such notice is given. For the avoidance of doubt, any notice given by the Company to the
Executive pursuant to the first sentence of Section 2 shall not be deemed or considered a notice of
a Termination Without Cause.

          SECTION 9. Good Reason; Termination due to a Change in Control. (a) The Executive
may terminate his employment hereunder upon the existence of Good Reason. For purposes of this
Agreement, the following shall constitute “Good Reason”: after written notice setting forth the
alleged Good Reason by the Executive to the Company (which notice must be delivered within ninety
(90) days of the initial existence of the event or circumstances that constitutes the Good Reason),
and the expiration of a 60-day cure period, there continues to be: (i) a material diminution in
the Executive’s authority, duties or responsibilities; and/or (ii) a material breach by the Company
of any material provision of this Agreement.

4

 

          (b) If the Executive terminates this Agreement and his employment hereunder within twenty-four
(24) months of a Change in Control (as defined below) for Good Reason, for purposes of this
Agreement such termination shall be considered a “Termination due to a Change in Control”. For
purpose of this Agreement, any termination of the Executive’s employment by the Company within
twenty-four (24) months of a Change in Control other than pursuant to Section 6 or Section 7 also
shall be considered a Termination due to a Change in Control. A “Change in Control” shall be
deemed to have occurred if:

     (i) any “person” or group of “persons” (as the term “person” is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) (“Person”), acquires (or has
acquired during the twelve-month period ending on the date of the most recent acquisition by
such Person) direct or indirect beneficial ownership of securities of the Company
representing 50% or more of the combined voting power of the then outstanding securities of
the Company (provided that acquisitions by the Executive or any existing stockholder of the
Company owning more than 20% of the combined voting power of the then outstanding securities
of the Company as of the date of this Agreement shall be ignored for this purpose),

     (ii) a merger or consolidation of the Company with any other corporation is
consummated, other than a merger or consolidation which resulted in all or substantially all
of the holders of the Company’s voting securities immediately prior thereto continuing to
hold at least 50% of the combined voting power of the outstanding voting securities of the
Company or of the surviving entity immediately after such merger or consolidation,

     (iii) the Board of Directors of the Company approves a plan of complete liquidation of
the Company or the Company is sold or all or substantially all of the Company’s assets are
sold or disposed of other than any such sale or disposition where all or substantially all
of the holders of the Company’s voting securities immediately prior thereto continue to hold
at least 50% of the combined voting power of the outstanding voting securities of the
acquiror or transferee entity immediately after such sale or disposition, or

     (iv) individuals who, on the date following the date of the Company’s 2007 annual
meeting of stockholders, are directors (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the directors; provided, however, that if the appointment
or election (or nomination for election) of any new director was approved or recommended by
a majority vote of the Incumbent Board, such new director shall be considered a member of
the Incumbent Board, unless such new director’s initial assumption of office occurs as a
result of or in connection with either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended) or other actual or threatened solicitation of proxies or consents
by or on behalf of an entity other than the Incumbent Board.

     Notwithstanding the foregoing, for purposes of clause (i), a Change in Control will not be
deemed to have occurred if the power to control (directly or indirectly) the management and
policies of the Company is not transferred from a Person to another Person; and, for purposes of

5

 

clause (ii), a Change in Control will not be deemed to occur if the assets of the Company are
transferred: (A) to a stockholder in exchange for his stock, (B) to an entity in which the Company
has (directly or indirectly) more than 50% ownership, or (C) to a Person that has (directly or
directly) more than 50% ownership of the Company with respect to its stock outstanding, or to any
entity in which such Person possesses (directly or indirectly) more than 50% ownership.

          SECTION 10. Effect of Termination.

          (a) Definitions. For purposes of this Agreement, the terms “Accrued Rights,” “Severance
Payments” and “Change in Control Severance Payments” shall have the following meanings:

Accrued Rights. The Company shall pay Executive a one-time, lump-sum amount equal
to the sum of (A) his earned but unpaid Base Salary, and, if applicable, any accrued and
unpaid bonus, each pro-rated through the Termination Date and (B) any unreimbursed business
expenses or other amounts due to Executive from the Company as of the Termination Date. In
addition, the Company shall provide to Executive all payments, rights and benefits due as of
the Termination Date under the terms of the Company’s employee and fringe benefit plans,
practices, programs and arrangements referred to in Section 5 hereof (together with clauses
(A) and (B), the “Accrued Rights”).

Severance Payments. The Company shall pay Executive a lump—sum amount equal to the
sum of (A) (i) 225% of his Base Salary if a Termination Without Cause or Termination for
Good Reason occurs on or before December 31, 2009 or (ii) 150% of his Base Salary if a
Termination Without Cause or Termination for Good Reason occurs on or after January 1, 2010,
and (B) any unreimbursed business expenses or other amounts due to Executive from the
Company as of the Termination Date (if not already covered by a payment of Accrued Rights).

Change in Control Severance Payments. The Company shall pay Executive a lump—sum
amount equal to the sum of (A) (i) three times his Base Salary, if the Change in Control
occurred on or before December 31, 2009 or (ii) two times his Base Salary, if the Change in
Control occurred on or after January 1, 2010 and (B) any unreimbursed business expenses or
other amounts due to Executive from the Company as of the Termination Date; in addition, all
stock options, restricted stock awards or other types of equity-based compensation then held
by the Executive which were not previously vested or exercised shall become fully vested
and/or exercisable.

          (b) Termination for Cause; Resignation by Executive; Disability; Death. Upon the termination
of the Executive’s employment hereunder due to a Termination for Cause, the Resignation by
Executive, Disability or death, neither the Executive nor his beneficiary or estate shall have any
further rights or claims against the Company under this Agreement or otherwise, except the Accrued
Rights, which shall be paid to the Executive immediately upon termination or as otherwise provided
pursuant to the applicable plan, practice, program or arrangement. For purposes of this Agreement,
the defined terms “Resignation” and “Resigns”

6

 

shall refer to the Executive voluntarily terminating his employment hereunder, other than for
Good Reason or Termination due to a Change in Control.

          (c) Termination Without Cause; Termination for Good Reason. Upon the termination of the
Executive’s employment hereunder due to a Termination Without Cause or Termination for Good Reason,
neither the Executive nor his beneficiary or estate shall have any further rights or claims against
the Company under this Agreement or otherwise, except the Accrued Rights and the Severance Payments
as provided herein. The Accrued Rights shall be paid to the Executive immediately upon termination
or as otherwise provided pursuant to the applicable plan, practice, program or arrangement. In
consideration for such Severance Payments, and as a condition of the receipt thereof, the Executive
agrees to execute a release releasing the Company and its Affiliates from all actions, claims,
demands, causes of action, obligations, damages, liabilities, expenses and controversies of any
nature, excluding those arising in connection with the enforcement of Executive’s indemnification
rights. As used in this Agreement, “Affiliate” means, with respect to any person or entity, any
other person or entity who directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such person or entity; “control” means the power,
directly or indirectly, to direct or cause the direction of the management and policies of a person
or entity whether through ownership of voting securities, by contract or otherwise. Such release
must become effective on or before March 15th of the calendar year next following the calendar year
in which such termination occurs. Provided the release becomes so effective, the Severance
Payments shall be paid to the Executive upon the effective date of the release (and no later than
such March 15th date).

          (d) Termination due to a Change in Control.

               (i) Upon the termination of the Executive’s employment hereunder due to a Termination due to a
Change in Control, neither the Executive nor his beneficiary or estate shall have any further
rights or claims against the Company under this Agreement or otherwise, except the Accrued Rights
and the Change in Control Severance Payments as provided herein. The Accrued Rights shall be paid
to the Executive immediately upon termination or as otherwise provided pursuant to the applicable
plan, practice, program or arrangement. In consideration for the Change in Control Severance
Payments, and as a condition of the receipt thereof, the Executive agrees to execute a release
releasing the Company and its Affiliates from all actions, claims, demands, causes of action,
obligations, damages, liabilities, expenses and controversies of any nature, excluding those
arising in connection with the enforcement of Executive’s indemnification rights. Such release
must become effective on or before March 15th of the calendar year next following the calendar year
in which such termination occurs. Provided the release becomes so effective, the Severance
Payments shall be paid to the Executive (and full vesting with respect to stock options, restricted
stock awards or other types of equity-based compensation shall occur) upon the effective date of
the release (and no later than such March 15th date).

               (ii) Notwithstanding any other provisions of this Agreement, if any of the benefits and
payments provided under this Agreement, either alone or together with other benefits and payments
which the Executive has the right to receive either directly or indirectly from the Company or any
of its Affiliates, would constitute an excess parachute payment (the

7

 

“Excess Payment”) under Section 280G of the Internal Revenue Code of 1986, as amended (the
“Code”), the Executive hereby agrees that the benefits and payments provided under this Agreement
shall be reduced (but not below zero) by the amount necessary to prevent any such benefits and
payments to the Executive from constituting an Excess Payment; provided, however, that such
reduction shall be made only if, by reason of such reduction, the Executive’s net after-tax
economic benefit shall exceed the net after-tax economic benefit to the Executive if such reduction
were not made.

               (iii) All determinations required to be made under clause (ii) of this Section 10(d), and the
assumptions to be utilized in arriving at such determination, shall be made by the certified public
accounting firm used for auditing purposes by the Company immediately prior to the date of
termination or, if the parties determine that the certified public accounting firm used for
auditing purposes by the Company immediately prior to the date of termination cannot make such
determination because of legal restrictions, the parties shall agree on a different certified
public accounting firm (such certified public accounting firm is hereinafter referred to as the
“Accounting Firm”), which shall promptly provide detailed supporting calculations both to the
Company and the Executive. The Company shall pay all fees and expenses of the Accounting Firm.

          (e) Severance upon expiration of this Agreement pursuant to Section 2. If the Company
delivers a timely notice to the Executive pursuant to Section 2 of this Agreement so that this
Agreement expires by its terms, then, as long as the Executive’s employment hereunder has not been
otherwise terminated on a date earlier than the applicable December 31st date in accordance with
the provisions of this Agreement, upon such expiration of this Agreement on such applicable
December 31st date the Executive’s employment shall terminate and neither the Executive nor his
beneficiary or estate shall have any further rights or claims against the Company under this
Agreement or otherwise, except the Accrued Rights and the Severance Payments as provided herein
(which, in connection with an expiration on December 31, 2009, shall be determined by reference to
clause (A)(i) in the definition of “Severance Payments” in Section 10(a) of this Agreement, and in
connection with any other such expiration by reference to clause (A)(ii) of such definition). The
Accrued Rights shall be paid to the Executive immediately upon termination or as otherwise provided
pursuant to the applicable plan, practice, program or arrangement. In consideration for such
Severance Payments, and as a condition of the receipt thereof, the Executive agrees to execute a
release releasing the Company and its Affiliates from all actions, claims, demands, causes of
action, obligations, damages, liabilities, expenses and controversies of any nature, excluding
those arising in connection with the enforcement of Executive’s indemnification rights. Such
release must become effective on or before March 15th of the calendar year next following the
calendar year in which such termination occurs. Provided the release becomes so effective, the
Severance Payments shall be paid to the Executive upon the effective date of the release (and no
later than such March 15th date).

          (f) 409A.

               (i) In the event that any cash severance benefit or other benefit under this Section 10 shall
be subject to Section 409A of the Code and would fail to satisfy the distribution requirement of
Section 409A(a)(2)(A) of the Code, as a result of the application of

8

 

Section 409A(a)(2)(B)(i) of the Code, then the payment of such benefits shall be delayed to
the minimum extent necessary so that such benefits are not subject to the provisions of Section
409A(a)(1) of the Code, and any such payments or benefits will be accumulated and paid or provided
on the earliest permissible date pursuant to Section 409A(a)(2)(B)(i) of the Code. The Board of
Directors or the Compensation Committee may attach conditions to or adjust the amounts paid
pursuant to this Section 10(f) to preserve, as closely as possible, the economic consequences that
would have applied in the absence of this Section 10(f); provided, however, that no
such condition or adjustment shall result in the payments being subject to Section 409A(a)(1) of
the Code. The awards or grants of options, restricted stock and/or other types of equity-based
compensation may contain additional provisions relating to the application of Section 409A of the
Code and to this Agreement and the payments and benefits distributed hereunder.

               (ii) To the extent required in order to comply with Section 409A of the Code (if applicable),
amounts that would otherwise be payable under Section 10 during the six-month period immediately
following the date of termination shall instead be paid on the first business day after the date
that is six months following the Executive’s “separation from service” within the meaning of
Section 409A of the Code.

          (g) Clawback. If the Company, based upon a final, non-appealable judicial or regulatory
determination, determines that Section 304 of the Sarbanes-Oxley Act of 2002 is applicable to the
Executive hereunder, to the extent that the Company is required to prepare an accounting
restatement due to the material noncompliance of the Company, as a result of misconduct, with any
financial reporting requirement under the securities laws, (A) the Executive shall reimburse the
Company for (i) any discretionary bonus or other incentive-based or equity-based compensation
received by the Executive from the Company or any of its Affiliates and (ii) any profits realized
from the sale of securities of the Company, in either case during the 12-month period following the
first public issuance or filing with the Securities and Exchange Commission (whichever first
occurs) of the financial document embodying such financial reporting requirement and (B) if the
material noncompliance resulted from misconduct by the Executive, (i) neither the Executive nor the
Executive’s estate shall be entitled to exercise any stock options or other types of equity-based
compensation then held by the Executive and (ii) such written conclusion of legal counsel or
judicial determination shall be the grounds for termination of the Executive’s employment by the
Company pursuant to Section 7 hereof.

          SECTION 11. Disclosure of Information; Work Product; Warranty. (i) The Executive
acknowledges and agrees that there are certain trade secrets and confidential and proprietary
information (collectively, “Confidential Information”) which have been developed by the Company and
which are used by the Company in its business. Confidential Information shall include, without
limitation: (i) customer lists and supplier lists; (ii) the details of the Company’s relationships
with its customers, including the financial relationship with a customer, knowledge of the internal
“politics"/workings of a customer organization, a customer’s technical needs and job
specifications, knowledge of a customer’s strategic plans and the identities of contact persons
within a customer’s organization; (iii) the Company’s marketing and development plans, business
plans; and (iv) other information proprietary to the Company’s business. The Executive shall not,
at any time during or after the Employment Period, use or disclose any Confidential Information,
except to authorized representatives of the Company or

9

 

the customer or as required in the performance of his duties and responsibilities hereunder.
Upon the termination of the Executive’s employment hereunder for any reason, the Executive shall as
promptly as practicable return all customer and/or Company property, such as computers, software
and cell phones, and documents (and any copies including in machine or human-readable form), to the
Company. The Executive shall not be required to keep confidential any information, which is or
becomes publicly available or is already in his possession (unless obtained from the Company or one
of its customers). Further, the Executive shall be free to use and employ his general skills,
know-how and expertise, and to use, disclose and employ any generalized ideas, concepts, know-how,
methods, techniques or skills, including those gained or learned during the course of the
performance of any services hereunder, so long as he applies such information without disclosure or
use of any Confidential Information.

               (ii) The Executive agrees that all copyrights, patents, trade secrets or other intellectual
property rights associated with any ideas, concepts, techniques, inventions, processes, or works of
authorship developed or created by him during the Employment Period and for a period of six (6)
months thereafter, that (i) relate, whether directly or indirectly, to the Company’s actual or
anticipated business, research or development or (ii) are suggested by or as a result of any work
performed by the Executive on the Company’s behalf, shall, to the extent possible, be considered
works made for hire within the meaning of the Copyright Act (17 U.S.C. § 101 et. seq.) (the “Work
Product”). All Work Product shall be and remain the property of the Company. To the extent that
any such Work Product may not, under applicable law, be considered works made for hire, the
Executive hereby grants, transfers, assigns, conveys and relinquishes, and agrees to grant,
transfer, assign, convey and relinquish from time to time, on an exclusive basis, all of his right,
title and interest in and to the Work Product to the Company in perpetuity or for the longest
period otherwise permitted by applicable law. Consistent with his recognition of the Company’s
absolute ownership of all Work Product, the Executive agrees that he shall (i) not use any Work
Product for the benefit of any party other than the Company and (ii) perform such acts and execute
such documents and instruments as the Company may now or hereafter deem reasonably necessary or
desirable to evidence the transfer of absolute ownership of all Work Product to the Company;
provided, however, if following ten (10) days’ written notice from the Company, the Executive
refuses, or is unable, due to disability, incapacity, or death, to execute such documents relating
to the Work Product, he hereby appoints any of the Company’s officers as his attorney-in-fact to
execute such documents on his behalf. This agency is coupled with an interest and is irrevocable
without the Company’s prior written consent.

               (iii) The Executive represents and warrants to the Company that (i) there are no claims that
would adversely affect his ability to assign all right, title and interest in and to the Work
Product to the Company; (ii) the Work Product does not violate any patent, copyright or other
proprietary right of any third party; (iii) the Executive has the legal right to grant the Company
the assignment of his interest in the Work Product as set forth in this Agreement; and (iv) he has
not brought and will not bring to his employment hereunder, or use in connection with such
employment, any trade secret, confidential or proprietary information, or computer software, except
for software that he has a right to use for the purpose for which it shall be used, in his
employment hereunder.

          SECTION 12. Restrictive Covenants. (a) Non-Competition. The Executive hereby
acknowledges and recognizes that during the Employment Period he will be privy to

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trade secrets and confidential information critical to the Company’s business and that the
Company would find it extremely difficult or impossible to replace the Executive. Accordingly,
Executive agrees that, in consideration of the premises contained herein, and the consideration to
be received by the Executive hereunder, he will not and will not permit any of his Affiliates to,
except with the Company’s prior written consent, during the Employment Period and for the
applicable period specified in Section 12(g) below from and after the Termination Date (the
Employment Period and such additional applicable period collectively being the “Non-Competition
Period”), engage, directly or indirectly, whether as an employee, officer, director, consultant or
otherwise, in any activity that competes with the Company or any of its Affiliates in the business
of insurance. Nothing in this Section 12(a) shall prohibit the Executive or any of his Affiliates
from owning for passive investment purposes less than 5% of the publicly traded securities of any
corporation listed on the New York Stock Exchange or the American Stock Exchange or the NASDAQ.

          (b) Customer Non-Solicitation. During the Non-Competition Period, the Executive shall not,
and shall not permit any of his Affiliates to solicit, directly or indirectly, any person or entity
which (i) is currently a customer or party to any insurance-related contract with the Company
and/or its Affiliates, (ii) has been a customer or party to any insurance-related contract with the
Company and/or its Affiliates during the two year period immediately preceding such solicitation or
(iii) was solicited by the Company and/or its Affiliates during the two year period immediately
preceding such solicitation, provided that in the case of (b)(i) above such solicitation diverted
or attempted to divert the business of the Company and/or its Affiliates to another person or
entity or in the case of (b)(ii) and (b)(iii) above, the business solicited is business in which
the Company is currently engaged.

          (c) Employee Non-Solicitation. During the Non-Competition Period, the Executive shall not,
and shall not permit any of his Affiliates to, directly or indirectly, (i) solicit for employment,
engage and/or hire, whether directly or indirectly, any person who is then employed by the Company
and/or its Affiliates or engaged by the Company and/or its Affiliates as an independent contractor
or consultant; and/or (ii) encourage or induce, whether directly or indirectly, any person who is
then employed by the Company and/or its Affiliates or engaged by the Company and/or its Affiliates
as an independent contractor or consultant to end his/her business relationship with the Company
and/or its Affiliates.

          (d) Non-Disparagement of the Company. The Executive covenants that he will not, directly or
indirectly at any time during or after the Employment Period, disparage the Company or any of its
shareholders, directors, officers, employees, or agents.

          (e) Non-Disparagement of the Executive. The Company covenants that it will not, directly or
indirectly at any time during or after the Employment Period, disparage the Executive.

          (f) Acknowledgement. The Executive understands that the foregoing restrictions may limit his
ability to earn a livelihood in a business similar to the business of the Company, but he
nevertheless believes that he has received and will receive sufficient consideration and other
benefits as an employee of the Company and as otherwise provided hereunder to clearly justify such
restrictions which, in any event (given his education, skills and

11

 

ability), the Executive does not believe would prevent him from earning a living other than in
a business which competes with the Company.

          (g) Period of Non-Competition following Employment Period. For purposes of this Agreement,
with respect to the Non-Competition Period, the applicable period following the Termination Date,
in respect of the following reasons for termination, shall be:

               (i) Resignation by Executive: two (2) years; unless the Executive shall have given the
Company at least nine (9) months notice of his effective resignation date, in which case fifteen
(15) months;

               (ii) Death or Disability: none;

               (iii) Termination for Cause: one (1) year;

               (iv) Termination Without Cause: one (1) year;

               (v) Termination for Good Reason: one (1) year;

               (vi) Termination due to Change in Control: two (2) years.

          SECTION 13. Enforcement; Severability; Etc. It is the desire and intent of the
Parties that this Agreement, including, without limitation, the provisions of Sections 11, 12, 13
and 14 of this Agreement, shall be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any
particular provision of Sections 11, 12 and 14 of this Agreement is adjudicated to be invalid or
unenforceable or shall for any reason be held to be excessively broad as to duration, geographic
scope, activity or subject, it shall be construed by limiting and reducing it, so as to be
enforceable to the extent compatible with applicable law and such provision shall be deemed
modified and amended to the extent necessary to render such provision enforceable in such
jurisdiction. The terms of this Agreement are intended to be, and shall be interpreted so as to,
comply with Section 409A of the Code, and without having the Executive incur any tax or penalty
under Section 409A of the Code as a consequence of the receipt of any payments or benefits under
this Agreement. In the event that it is determined that any term or provision of this Agreement
does not so comply, then such non-compliant term or provision shall be amended so as to conform to
Section 409A of the Code and, to the extent possible, preserve the original intent of the
Agreement.

          SECTION 14. Remedies. It is understood by the Parties hereto that the Executive’s
obligations and the restrictions and remedies set forth in Sections 11 and 12 are essential
elements of this Agreement and that but for his agreement to comply with and/or agree to such
obligations, restrictions and remedies, the Company would not have entered into this Agreement or
employed (or continued to employ) him. The Executive acknowledges and understands that the
provisions of Sections 11 and 12 of this Agreement are of a special and unique nature, the loss of
which cannot be adequately compensated for in damages by an action at law, and that the breach or
threatened breach of the provisions of Sections 11 and 12 of this Agreement would cause the Company
irreparable harm. In the event of a breach or threatened breach by the Executive of the provisions
of Sections 11 and 12 of this Agreement, the Company

12

 

shall be entitled to an injunction restraining him from such breach or other equitable relief,
without posting a bond, in addition to other remedies available to the Company. In the event of a
breach by the Executive of the provisions of Section 12 of this Agreement, the term of the
Non-Competition Period shall be extended by the period of the duration of such breach. All
remedies available for breach of this Agreement are cumulative, and neither the pursuit of any
remedy nor anything contained in this Agreement shall be construed as an election of a remedy or as
prohibiting the Company from or limiting the Company in pursuing any other remedies available for
any breach or threatened breach of this Agreement.

          SECTION 15. Notices. All notices, claims, certificates, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been duly given and
delivered if personally delivered or if sent by nationally recognized overnight courier, by
telecopy, or by registered or certified mail, return receipt requested and postage prepaid,
addressed, if to the Company, at Specialty Underwriters’ Alliance, Inc., 222 South Riverside Plaza,
Suite 1600, Chicago, IL 60606-6001, Facsimile: (312) 277-1800, Attention: General Counsel with a
copy to Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, NY 10038, Attn: William W.
Rosenblatt, Esq., Facsimile: 212-806-6006, and if to the Executive, at the address set forth under
the name of the Executive on the signature page hereto, or to such other address as the Party to
whom notice is to be given may have furnished to the other Party or Parties in writing in
accordance herewith. Any such notice or communication shall be deemed to have been received (a) in
the case of personal delivery, on the date of such delivery, (b) in the case of nationally
recognized overnight courier, on the next business day after the date when sent, (c) in the case of
telecopy transmission, when received, and (d) in the case of mailing, on the third business day
following that on which the piece of mail containing such communication is posted. Written notice
from the Company’s Board of Directors shall constitute proper notice from the Company in all cases
relating to this Agreement.

          SECTION 16. Tax Withholding. The payments and benefits under this Agreement may be
compensation and as such may be included in either the Executive’s W-2 earnings statements or 1099
statements. The Company may withhold from any amounts payable under this Agreement such federal,
state or local taxes as shall be required to be withheld pursuant to any applicable law or
regulation.

          SECTION 17. Binding Agreement; Benefit. Subject to Section 23 below, the provisions
of this Agreement will be binding upon, and will inure to the benefit of, the respective heirs,
legal representatives, successors and assigns of the Parties. The Executive acknowledges and
agrees that each Affiliate of the Company shall be an intended third party beneficiary of this
Agreement.

          SECTION 18. Governing Law. This Agreement will be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois without giving effect to any
principles of conflict of laws. Each Party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the State of Illinois, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit,

13

 

action or proceeding is improper. Each Party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or proceeding by mailing a
copy thereof to such Party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

          SECTION 19. Waiver of Breach. The failure of a Party to enforce any term, provision,
or condition of this Agreement at any time or times shall not be deemed a waiver of that term,
provision, or condition. The waiver by either Party of a breach of any provision of this Agreement
by the other Party must be in writing and shall not operate or be construed as a waiver of any
other or subsequent breach by such other Party.

          SECTION 20. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the Parties with respect to the subject matter hereof and supersedes all prior
agreements or understandings between the Parties with respect thereto. Notwithstanding the
foregoing, this Agreement is not intended to exclude any other types of benefits not addressed by
this Agreement that may be available to the Executive upon a termination of employment with the
Company or its Affiliates, such as “COBRA” continuation. This Agreement may be amended only by an
agreement in writing signed by the Parties hereto and authorized by the Company’s Board of
Directors or Compensation Committee.

          SECTION 21. Representations and Warranties by Executive. The Executive represents and
warrants that he is not a party to or subject to any restrictive covenants, legal restrictions or
other agreements in favor of any person or entity which would in any way preclude, inhibit, impair
or limit the Executive’s ability to perform his obligations under this Agreement, including, but
not limited to, non-competition agreements, non-solicitation agreements or confidentiality
agreements. The Executive acknowledges that he has had a sufficient period of time within which to
review this Agreement, including Sections 11 and 12, with an attorney of his choice and he has done
so to the extent he desired.

          SECTION 22. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement.

          SECTION 23. Assignment. This Agreement and the Executive’s performance hereunder are
personal to the Executive and shall not be assignable by the Executive. The Company may assign
this Agreement to any Affiliate or to any successor to all or substantially all of the business
and/or assets of the Company, whether directly or indirectly, by purchase, merger, consolidation,
acquisition of stock, or otherwise. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns. However, any such assignment by the Company shall
still be subject to the Executive’s rights under Sections 9(b) and 10(d).

14

 

          SECTION 24. Interpretation; Counterparts. No provision of this Agreement is to be
interpreted for or against any Party because that Party drafted such provision. For purposes of
this Agreement: “herein,” “hereby,” “hereinafter,” “herewith,” “hereafter” and “hereinafter” refer
to this Agreement in its entirety, and not to any particular subsection or paragraph. This
Agreement may be executed in counterparts, including a facsimile, and each such counterpart shall
be deemed to be an original instrument, but all such counterparts together shall constitute but one
agreement.

          SECTION 25. No Mitigation. The Executive shall not be required to mitigate the amount
of any benefits under this Agreement by seeking other employment or otherwise. The benefits to be
provided pursuant to this Agreement shall not be reduced by any compensation or benefits payable or
provided to the Executive as a result of employment by another employer after the date of
termination or otherwise.

          SECTION 26. Survival. The provisions of Sections 5(g), 11, 12, 13, 14, 15, 17, 18 and
21 and any other provisions of this Agreement that by their meaning are intended to survive shall
survive termination of this Agreement or termination of the employment of the Executive for any
reason.

15

 

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

	 	 	 	 	 
	 	SPECIALTY UNDERWRITERS’ ALLIANCE, INC.

 	 
	 	By:  	/s/ Peter E. Jokiel
 	 
	 	 	Peter E. Jokiel 	 
	 	 	Executive Vice President & Chief Financial Officer 	 
	 
	 	EXECUTIVE

 	 
	 	By:  	/s/ Courtney C. Smith
 	 
	 	 	Courtney C. Smith 	 
	 	 	President & Chief Executive Officer 	 
	 

16

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