Document:

Exhibit 10.16

EXHIBIT 10.16

Execution Copy

Penn Millers Holding Corporation

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

AS AMENDED AND RESTATED

Effective January 1, 2006

 

 

Penn Millers Holding Corporation

Supplemental Executive Retirement Plan

Plan Document

PENN MILLERS HOLDING CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

As Amended and Restated Effective January 1, 2006

Purpose

     The purpose of this Plan is to provide specified benefits to a select group of management and
highly compensated employees of Penn Millers Holding Corporation, a Pennsylvania corporation, and
its subsidiaries, if any, that sponsor this Plan. The Plan was originally effective July 1, 2002.
The Plan was amended and restated effective January 1, 2006 (except as otherwise specifically
provided herein) to bring it into compliance with Code Section 409A and make certain other
substantive changes. This Plan shall be unfunded for tax purposes and for purposes of Title I of
ER1SA. This Plan is intended to result in the deferral of federal income taxation under Code
Section 409A and the proposed regulations thereunder. If the final regulations under Code
Section 409A differ from the proposed regulations, the Plan shall be retroactively amended to
comply with such final regulations.

ARTICLE 1

Definitions

     For purposes hereof, unless otherwise clearly apparent from the context, the following phrases
or terms shall have the following indicated meanings:

	1.1	 	“Actuarial Equivalent” shall mean a benefit or benefits, or a payment or
payments, which are of equal value to the benefits for which they are to be substituted.
Equivalence of value is determined from actuarial calculations based on certain actuarial
assumptions as to mortality and interest, which assumptions are set forth in the definition
of “Actuarial Equivalence” in the Pension Plan.
	 
	1.2	 	“Average Compensation” shall mean the average of a Participant’s Compensation
for the five (5) full calendar years of employment, out of the last ten (10) full calendar
years of employment prior to the Determination Date that yields the highest average.
	 
	1.3	 	“Beneficiary” shall mean the individual designated in accordance with Article
10 that is entitled to receive benefits under this Plan upon the death of a Participant.
	 
	1.4	 	“Beneficiary Designation Form” shall mean the form established from time to
time by the Committee that a Participant completes, signs and returns to the Committee to
designate one or more Beneficiaries.
	 
	1.5	 	“Board” shall mean the board of directors of the Company.
	 
	1.6	 	“Cause” shall mean any event or circumstance which would entitle the Company to
terminate a Participant’s employment for Cause as such term is defined in the Participant’s
Executive Agreement, if any.

 

 

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Supplemental Executive Retirement Plan

Plan Document

	1.7	 	“Change in Control” shall have the meaning set forth in the applicable
Executive Agreement, to the extent permissible under Section 409A of the Code.
	 
	1.8	 	“Claimant” shall have the meaning set forth in Section 9.1.
	 
	1.9	 	“Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time.
	 
	1.10	 	“Committee” shall mean the Committee described in Article 8.
	 
	1.11	 	“Company” shall mean Penn Millers Holding Corporation, a Pennsylvania
corporation, and any successor to all or substantially all of the Company’s assets or
business.
	 
	1.12	 	“Compensation” shall mean, with respect to any calendar year, the base salary
paid by the Employer to the Employee for services actually rendered while an Employee that
constitute “wages” as defined in Section 3401(a) of the Code, without regard to any rules
under Section 3401(a) of the Code that limit the remuneration included in wages based on
the nature or location of the employment or services performed, but excluding an bonuses,
incentive compensation, vacation or paid time off payouts, stipends, expense
reimbursements, fringe benefits, perquisites and other irregular payments. Notwithstanding
the foregoing to the contrary, Compensation shall include elective contributions of wages
and salary made by an Employer on behalf of an Employee that are not includable in income
under Section 125, Section 132(f)(4), Section 401(k), Section 402(g)(3), Section 402(h),
Section 457(b), or Section 403(b) of the Code, and shall exclude fringe benefits that are
not included in gross income. Compensation shall be computed without regard to any limit
imposed by Code Section 401(a)(17), and shall recognize any wages and salary deferred under
any voluntary nonqualified deferred compensation plan and shall treat such wages and salary
as if they were not deferred.
	 
	1.13	 	“Death Benefit” shall mean the benefits due, if any, to the Participant’s
Beneficiary pursuant to Article 3 upon the Participant’s death.
	 
	1.14	 	“Deferred Retirement Benefit” shall mean the benefit set forth in Section 3.2.
	 
	1.15	 	“Determination Date” shall mean, for purposes of calculating the SERP Benefit,
the date on which the Participant dies or experiences a Disability, Early Retirement or
Normal Retirement, as the case may be.
	 
	1.16	 	“Disability” shall mean Separation from Service with all Employers on or after
the date on which the Vested Participant is awarded disability benefits by the Social
Security Administration.
	 
	1.17	 	“Early Retirement” shall mean Separation from Service with all Employers on or
after the date on which the Participant has both become Vested and attained age sixty (60),
but prior to the date on which the Participant attains Normal Retirement Age, for any
reason other than death or Disability.

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	1.18	 	“Early Retirement Benefit” shall mean the Participant’s Early Retirement
Benefit set forth in Section 3.3.
	 
	1.19	 	“Early Retirement Reduction Factor” shall mean one hundred percent (100%) minus
the sum of five ninths (5/9) of one percentage point (1%) for each of the first sixty (60)
months by which the benefit commencement date precedes the first day of the month
coincident with or next following the Participant’s sixty-fifth (65) birthday, and (ii)
five eighteenths (5/18) of one percentage point (1%) for each additional month by which the
benefit commencement date precedes the first day of the month coincident with or next
following the Participant’s sixty-fifth (65) birthday.
	 
	1.20	 	“Election Form” shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee to make an
election under the Plan.
	 
	1.21	 	“Employee” shall mean any individual employed by an Employer.
	 
	1.22	 	“Employer(s)” shall mean the Company and/or any of its subsidiaries (now in
existence or hereafter formed or acquired) that have been selected by the Board to
participate in the Plan and have adopted the Plan as a sponsor.
	 
	1.23	 	“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
	 
	1.24	 	“Estimated Social Security Benefit” shall mean the maximum benefit available as
of the Participant’s Social Security Normal Retirement Age under the Federal Social
Security Act, based on all assumptions selected by the Committee, in its sole discretion.
In the event the Participant’s Determination Date is a date other than his or her Social
Security Normal Retirement Age, the Committee shall adjust the above-described calculation
in the manner it deems appropriate, in its sole discretion, whether or not a monthly
benefit is payable to the Participant by the Social Security Administration on such
Determination Date. The Committee shall, in all events, apply all assumptions made
pursuant to this Section 1.24 consistently to similarly situated Participants in the Plan.
	 
	1.25	 	“Executive Agreement” shall mean the Executive Employment Agreement by and
between the Participant and the Employer, as amended from time to time.
	 
	1.26	 	“401(k) Employer Contributions” shall mean that portion of the Participant’s
balance in the 401(k) Plan which consists of the “company match contributions” and “profit
sharing contributions” thereunder plus any investment gains or losses attributable to such
contributions, valued as of the Determination Date.
	 
	1.27	 	“401(k) Plan” shall mean the Penn Millers Insurance Company 401(k) Plan, as
amended from time to time, or any successor plan thereto.

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	1.28	 	“Good Reason” shall have the meaning set forth in the applicable Executive
Agreement.
	 
	1.29	 	“Normal Retirement” shall mean Separation from Service with all Employers on or
after the attainment of age sixty-five (65), for any reason other than death or Disability.
	 
	1.30	 	“Normal Retirement Age” shall mean the Participant’s attainment of age
sixty-five (65).
	 
	1.31	 	“Normal Retirement Benefit” shall mean the benefit set forth in Section 3.1.
	 
	1.32	 	“Participant” shall mean any Employee (i) who is selected to participate in the
Plan, (ii) who elects to participate in the Plan, (iii) who signs a Plan Agreement and a
Beneficiary Designation Form, (iv) whose signed Plan Agreement Form and Beneficiary
Designation Form are accepted by the Committee, (v) who commences participation in the
Plan, and (vi) whose Plan Agreement has not terminated.
	 
	1.33	 	“Pension Plan” shall mean the Penn Millers Holding Corporation Pension Plan, as
amended and restated effective January 1, 1999, and as amended from time to time.
	 
	1.34	 	“Pension Plan Benefit” shall mean the Participant’s “accrued benefit” under the
Pension Plan, valued as of the Determination Date.
	 
	1.35	 	“Plan” shall mean the Company’s Supplemental Executive Retirement Plan, which
shall be evidenced by this instrument and by each Plan Agreement, as amended from time to
time.
	 
	1.36	 	“Plan Agreement” shall mean a written agreement, as may be amended from time to
time, which is entered into by and between an Employer and a Participant. Each Plan
Agreement executed by a Participant shall provide for the entire benefit to which such
Participant is entitled under the Plan; should there be more than one Plan Agreement, the
Plan Agreement bearing the latest date of acceptance by the Employer shall supersede all
previous Plan Agreements in their entirety and shall govern such entitlement. The terms of
any Plan Agreement may be different for any Participant, and any Plan Agreement may provide
additional benefits not set forth in the Plan or limit the benefits otherwise provided
under the Plan; provided, however, that any such additional benefits or benefit limitations
must be agreed to by both the Employer and the Participant.
	 
	1.37	 	“Plan Year” shall, for the first Plan Year, begin on July 1, 2002, and end on
December 31, 2002. For each Plan Year thereafter, the Plan Year shall begin on January 1
of each year and continue through December 31.
	 
	1.38	 	“Reduced SERP Benefit” shall mean an amount, expressed as a single life
annuity, that is computed based on the following:

	 	(a)	 	The Participant’s Average Compensation multiplied by sixty-five percent (65%),
and multiplied by the Early Retirement Reduction Factor; less

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	 	(b)	 	The single life annuity benefit which is the Actuarial Equivalent of the
Participant’s 401(k) Employer Contributions; less
	 
	 	(c)	 	The single life annuity benefit that would be payable immediately to the
Participant under the Pension Plan; less
	 
	 	(d)	 	The Participant’s Estimated Social Security Benefit.

	1.39	 	“Retirement” or “Retires” shall mean Separation from Service with all
Employers on or after the date on which the Participant attains age sixty-five (65), for
any reason other than death or Disability.
	 
	1.40	 	“Separation from Service” means a Participant’s termination of employment with
all Employers that meets the requirements of a “separation from service” as defined in
section 409A of the Code and guidance thereunder. For these purposes, service with an
Employer does not include any period of required notice under applicable law prior to
Separation from Service, or during which a Participant is receiving severance pay or “pay
in lieu of notice.” A transfer of employment between Employers shall not be deemed a
Separation from Service.
	 
	1.41	 	“SERP Benefit” shall mean an amount, expressed as a single life annuity, that
is computed based on the following:

	 	(a)	 	The Participant’s Average Compensation multiplied by sixty-five percent (65%);
less
	 
	 	(b)	 	The single life annuity benefit which is the Actuarial Equivalent of the
Participant’s 401(k) Employer Contributions; less
	 
	 	(c)	 	The single life annuity benefit that would be payable to the Participant under
the Pension Plan; less
	 
	 	(d)	 	The Participant’s Estimated Social Security Benefit.

	1.42	 	“Service” shall, for purposes of this Plan, have the same meaning as such term
is defined in the Pension Plan, and shall be computed as of the Determination Date.
	 
	1.43	 	“Social Security Normal Retirement Age” shall have the same meaning as such
term is defined in the Federal Social Security Act, as amended.
	 
	1.44	 	“Termination of Employment” shall mean Separation from Service with all
Employers, voluntarily or involuntarily, for any reason other than Early Retirement,
Retirement, Disability, or death.
	 
	1.45	 	“Trust” shall mean the trust, if any, established by the Company as set forth
in Article 11.

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	1.46	 	“Vested” with regard to a Participant, shall mean such Participant has
completed ten (10) years of Service for an Employer.

ARTICLE 2

Eligibility

	2.1	 	Participant Selection. Participation in the Plan shall be limited to a select
group of management and highly compensated Employees of the Employers, as recommended by
the Committee and as approved by the Board in its sole discretion. From that group, the
Committee shall select, in its sole discretion, Employees to participate in the Plan.
	 
	2.2	 	Enrollment Requirements. As a condition to participation, each selected
Employee shall complete, execute and return to the Committee a Plan Agreement and a
Beneficiary Designation Form, all within the time period specified by the Committee. In
addition, the Committee shall establish from time to time such other enrollment
requirements as it determines in its sole discretion are necessary.
	 
	2.3	 	Commencement of Participation. Provided an Employee selected to participate in
the Plan has met all enrollment requirements set forth in this Plan and required by the
Committee, including returning all required documents to the Committee within the specified
time period, that Employee shall commence participation in the Plan on the date specified
by the Committee. If a selected Employee fails to meet all such requirements within the
period required, in accordance with Section 2.2, that Employee shall not be eligible to
participate in the Plan until the completion of those requirements.

ARTICLE 3

Benefits

	3.1	 	Normal Retirement Benefit. A Vested Participant who Retires at Normal
Retirement Age shall receive, as his or her Normal Retirement Benefit, a SERP Benefit which
shall commence on the first day of the month coincident with or next following the date he
or she Retires.
	 
	3.2	 	Deferred Retirement Benefit. A Vested Participant who Retires after he or she
attains Normal Retirement Age shall receive, as his or her Deferred Retirement Benefit, a
SERP Benefit which shall commence on the first day of the month coincident with or next
following the date he or she Retires.
	 
	3.3	 	Early Retirement Benefit. A Participant who experiences an Early Retirement
shall receive, as his or her Early Retirement Benefit under this Section 3.3, a Reduced
SERP Benefit which shall commence on the first day of the month coincident with or next
following the date of the Participant’s Early Retirement.
	 
	3.4	 	Disability Retirement Benefit. A Vested Participant who experiences a
Disability shall receive, as his or her Disability Retirement Benefit, a lump sum Reduced
SERP Benefit 

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(accrued as of the date of such Disability) which shall be payable as of the
first day of the month coincident with or next following the date the Participant
experiences the Disability.

	 
	3.5	 	
Death Prior to the Commencement of Benefits. If a Vested Participant dies
prior to the commencement of benefits, then his or her Beneficiary shall receive, as a
Death Benefit,
a lump sum Reduced SERP Benefit, accrued as of the date of death. The lump sum payment
shall be made to the Participant’s Beneficiary on the first day of the month coincident with
or next following the date of the Participant’s death.
	 
	3.6	 	Death After the Commencement of Benefits. Upon the death of a Participant
after his or her benefits commence under Sections 3.1 through 3.4, as applicable, the
remainder of the Participant’s benefits shall be paid in a lump sum to such Participant’s
Beneficiary.
	 
	3.7	 	Separation from Service following Change in Control. If a Vested Participant
who has attained age sixty (60) Separates from Service due to (i) involuntary termination
without Cause by the Company following a Change in Control, or (ii) termination by the
Participant for Good Reason following a Change in Control, then the Participant shall
receive a lump sum Reduced SERP Benefit, accrued as of the date of such Participant’s
Separation from Service, which shall be payable as of the first day of the month coincident
with or next following the date of such Participant’s Separation from Service.
	 
	3.8	 	Limitation on Benefits. Notwithstanding the foregoing provisions of this
Article 3, in no event shall a Participant or his or her Beneficiary receive more than one
form of benefit under this Article 3.
	 
	3.9	 	Withholding and Payroll Taxes. The Participant’s Employer shall withhold from
any and all benefits paid under this Article 3, all federal, state and local income,
employment and other taxes required to be withheld by such Participant’s Employer in
connection with the benefits hereunder, in amounts to be determined in the sole discretion
of the Employer.
	 
	3.10	 	No Payments Due to Separation from Service Prior to Age 60. Notwithstanding
anything in the Plan to the contrary, except in the case of death or Disability (but only
to the extent specifically provided in the Plan) prior to age 60, in no event is a
Participant or his or her Beneficiary entitled to any payments hereunder (including,
without limitation, an Early Retirement Benefit, Normal Retirement Benefit, and/or a
Deferred Retirement Benefit), if he or she has a Separation from Service prior to the
attainment of age 60, even if such Participant has completed ten (10) years of Service for
an Employer.

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ARTICLE 4

Forms of Benefit Payment

	4.1	 	Benefit Forms.

	 	(a)	 	Normal Form. A Participant must elect, within thirty (30) days
following such Participant’s commencement of Participation in the Plan to receive his
or her SERP Benefit or Reduced SERP Benefit in whole or in part, in the form of a (i)
Actuarial Equivalent lump sum or (ii) a number of installment payments to be received
annually for no more than 10 years as elected by the Participant, which is the
Actuarial Equivalent of a lump sum.
	 
	 	(b)	 	Alteration of Form. A Participant may make a subsequent election to
change the form of benefit prior to the date upon which such Participant would
otherwise commence receiving benefits under such Participant’s previous election by
submitting an Election Form to the Committee; provided, however, that in order for the
Election Form to be valid, it must be both submitted to and accepted by the Committee
in its sole discretion at least (13) months prior to the Participant’s Retirement,
Early Retirement, Disability or Termination of Employment, shall not be effective for
twelve (12) months, and may not permit payment earlier than five (5) years following
the date such Participant’s benefit would otherwise be paid under the Participant’s
previous election. A Participant’s Reduced SERP Benefit or SERP Benefit shall not be
increased to reflect the delay in a distribution due to any alteration in the form of
benefit hereunder.
	 
	 	(c)	 	Special Election Rule for 2006. Notwithstanding anything herein to the
contrary, a Participant who was a Participant in the Plan on or before January 1, 2006,
must make an election as to the form of benefit under Section 4.1(a) by December 31,
2006; provided, however, that such election cannot cause a payment to be made in 2006
prior to the date such payment would otherwise be made under the terms of the Plan
prior to such election nor shall it cause a payment that was to be made after 2006 to
be made in 2006.

	4.2	 	Automatic Lump Sum Benefit. If a Participant or his or her Beneficiary becomes
eligible to receive a distribution under this Plan on account of a Separation from Service
that is $10,000 or less, the Committee shall pay such amount in a lump sum, despite any
elections the Participant may have made regarding the form of benefit payments, provided
that:

	 	(a)	 	Upon receiving such distribution the Participant has no further interest in the
Plan or any other deferred compensation plan of the Company, and
	 
	 	(b)	 	The distribution is made on or before December 31 of the calendar year in which
the Participant experiences such Separation from Service or the fifteenth (15th) day of
the third month following such Participant’s Separation from Service.

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Supplemental Executive Retirement Plan

Plan Document

ARTICLE 5

Restrictive Covenants; Forfeiture of Benefits

	5.1	 	Restrictive Covenants. As a condition to Participation in this Plan and as
consideration, therefor, a Participant who is not otherwise bound by similar restrictive
covenants in an Executive Agreement, agrees to be bound by the terms of the provisions of
this Section 5.1.

	 	(a)	 	Restriction Period. During a Participant’s employment with Company and
for a two (2) year period thereafter (the “Restricted Period”), a Participant shall not
directly or indirectly, either for his own account or as an agent, consultant,
employee, partner, officer, director, proprietor, investor (except as an investor
owning less than 5% of the stock of a publicly owned company) or otherwise, of any
person, firm, corporation, or enterprise:

	 	(i)	 	solicit or hire any employees of Company or induce any of such
employees to terminate their employment relationship with Company; or
	 
	 	(ii)	 	solicit, induce or attempt to solicit or induce any customer,
supplier or other entity doing business with the Company to cease doing
business with the Company or, in the case of a customer, to place agribusiness
insurance, as that term is commonly understood in the industry, with any
competitor of the Company.

	 	(b)	 	Scope of Restrictions. The limitations described in Section 5.1(a)
shall be construed to prohibit a Participant from directly or indirectly owning,
managing, operating, rendering services for (as a consultant or an advisor) or
accepting any employment with (i) Nationwide Agribusiness Insurance Company, Michigan
Millers Insurance Company or Westfield Insurance Company, (ii) the agribusiness
insurance business of any other insurance company, and (iii) any other property and
casualty insurance or reinsurance line of business to the extent that such ownership,
management, operating, rendering of services or employment (and the activities
necessarily incident thereto) have, or could reasonably be expected to have, a material
adverse effect on the Company’s business insurance business within a one hundred (100)
mile radius of Wilkes-Barre, Pennsylvania.
	 
	 	(c)	 	Confidentiality. Each Participant agrees that he will not at any time
during his employment with the Company or at any time thereafter for any reason, in any
fashion, form or manner, either directly or indirectly, divulge, disclose or
communicate to any person, firm, corporation or other business entity, in any manner
whatsoever, any confidential information or trade secrets concerning the business of
Company, including, without limiting the generality of the foregoing, any customer
lists or other customer identifying information, the techniques, methods or systems of
the Company’s operation or management, any information

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	 	 	 	regarding its financial matters,
or any other material information concerning the business of Company, its manner of
operation, its plan or other material data. The provisions of this Section 5.1(c)
shall not apply to (i) information that is public knowledge other than as a result of
disclosure by the Participant in breach of this Section 5.1(c); (ii) information
disseminated by Company to third parties in the
ordinary course of business; (iii) information lawfully received by the Participant
from a third party who, based upon inquiry by the Participant, is not bound by a
confidential relationship to Company, or (iv) information disclosed under a
requirement of law or as directed by applicable legal authority having jurisdiction
over the Participant.
	 
	 	(d)	 	Blue Pencil. Although each Participant and Company consider the
restrictions contained in Sections 5.1(a), 5.1(b) and 5.1(c) to be the minimum
restriction reasonable for the purposes of preserving Company’s goodwill and other
proprietary rights, if a final determination is made by a court that the time or
territory, or any other restriction contained in Sections 5.1(a), 5.1(b) and 5.1(c) is
an unreasonable or otherwise unenforceable restriction against a Participant, the
provisions of Sections 5.1(a), 5.1(b) and 5.1(c) will not be rendered void, but will be
deemed amended to apply as to such maximum time and territory and to such other extent
as the court may determine to be reasonable.
	 
	 	(e)	 	Assignability. Notwithstanding anything in the Plan to the contrary
(including, but not limited to Section 12.4), the covenants contained in this Section
5.1 may be assigned by Company, as needed, to effect its purpose and intent and the
Company’s assignee shall be entitled to the full benefit of the restrictions enjoyed by
Company under the terms of this Section 5.1.

	5.2	 	Forfeiture. Notwithstanding any provision of this Plan to the contrary, the
right of a Participant and his or her Beneficiaries to be eligible to receive or to
continue to receive benefits hereunder is expressly conditioned upon the Participant
neither (i) having ceased to be employed by the Company or any of its subsidiaries for
Cause, nor, as applicable (ii) having violated any Executive Agreement, including without
limitation, the restrictive covenants contained in the Participant’s Executive Agreement,
or Section 5.1 of this Agreement. If the Committee determines that a Participant has
violated any of these conditions, the Participant and his or her Beneficiaries shall
forfeit any benefits not yet received under this Plan and shall be required to repay to the
Employer any benefits already received from the Plan.

ARTICLE 6

Termination, Amendment or Modification of the Plan

	6.1	 	Termination. Each Employer reserves the right to terminate the Plan at any
time with respect to its participating Employees by the actions of its board of directors.
The termination of the Plan shall not adversely affect any Participant or his or her
Beneficiary who has become entitled to the payment of any benefits under the Plan as of the
date of

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	 	 	termination; provided, however, that to the extent permitted by Section 409A of the
Code and the guidance thereunder, the Employer shall have the right to accelerate payments
by paying the remainder of the payments in a lump sum. For all other Participants, to the
extent permitted by Section 409A of the Code and the guidance thereunder, upon the
termination of the Plan, all Plan Agreements shall terminate and the Participant’s SERP
Benefit shall be paid out in a lump sum.
	 
	6.2	 	Amendment. The Board may, at any time, amend or modify the Plan in whole or in
part; provided, however, that no amendment or modification shall be effective to decrease
or restrict a Participant’s SERP Benefit if such Participant is Vested and has reached age
60 or such Participant has begun receiving payments hereunder; provided, further, however,
that to the extent permitted by Section 409A of the Code and the guidance thereunder, the
Employer shall have the right to accelerate payments by paying all payments hereunder
(including remaining payments for Participants who have begun receiving distributions) in a
lump sum.
	 
	6.3	 	Plan Agreement. Notwithstanding the provisions of Sections 6.1 and 6.2 above,
if a Participant’s Plan Agreement contains benefits or limitations that are not in this
Plan document, the Employer may only amend or terminate such provisions with the written
consent of the Participant.
	 
	6.4	 	Effect of Payment. Absent the earlier termination, modification or amendment
of the Plan, the full payment of the applicable benefit as provided under Articles 3 and 4
of the Plan shall completely discharge all obligations to a Participant and his or her
designated Beneficiaries under this Plan and the Participant’s Plan Agreement shall
terminate.

ARTICLE 7

Other Benefits and Agreements

	7.1	 	Coordination with Other Benefits. The benefits provided for a Participant
under this Plan are in addition to any other benefits available to such Participant under
any other plan or program for employees of the Employers. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or program except as may otherwise
be expressly provided.

ARTICLE 8

Administration of the Plan

	8.1	 	Committee Duties. This Plan shall be administered by the Compensation
Committee of the Board, or such other committee as the Board shall appoint. No member of
the Committee may be a Participant under this Plan. The Committee shall also have the
discretion and authority to (i) make, amend, interpret and enforce all appropriate rules
and regulations for the administration of this Plan and (ii) decide or resolve any and all
questions including interpretations of this Plan, as may arise in connection with the Plan.

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	 	 	When making a determination or calculation, the Committee shall be entitled to rely on
information furnished by a Participant or the Company.
	 
	8.2	 	Agents. In the administration of this Plan, the Committee may, from time to
time, employ agents and delegate to them such administrative duties as it sees fit
(including acting through a duly appointed representative) and may from time to time
consult with counsel who may be counsel to any Employer.
	 
	8.3	 	Binding Effect of Decisions. The decision or action of the Committee with
respect to any question arising out of or in connection with the administration,
interpretation and
application of the Plan and the rules and regulations promulgated hereunder shall be final
and conclusive and binding upon all persons having any interest in the Plan.
	 
	8.4	 	Indemnity of Committee. All Employers shall indemnify and hold harmless the
members of the Committee against any and all claims, losses, damages, expenses or
liabilities arising from any action or failure to act with respect to this Plan, except in
the case of willful misconduct by the Committee or any of its members.
	 
	8.5	 	Employer Information. To enable the Committee to perform its functions, each
Employer shall supply full and timely information to the Committee on all matters relating
to the compensation of its Participants, the date and circumstances of the retirement,
Disability, death or Termination of Employment of its Participants, and such other
pertinent information as the Committee may reasonably require.

ARTICLE 9

Claims Procedures

	9.1	 	Presentation of Claim. Any Participant or the Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may
deliver to the Committee a written claim for a determination with respect to the amounts
distributable to such Claimant from the Plan. If such a claim relates to the contents of a
notice received by the Claimant, the claim must be made within sixty (60) days after such
notice was received by the Claimant. All other claims must be made within 180 days of the
date on which the event that caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.
	 
	9.2	 	Notification of Decision. The Committee shall consider a Claimant’s claim
within a reasonable time, but no later than ninety (90) days after receiving the claim. If
the Committee determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the Claimant
prior to the termination of the initial ninety (90) day period. In no event shall such
extension exceed a period of ninety (90) days from the end of the initial period. The
extension notice shall indicate the special circumstances requiring an extension of time
and the date by which the Committee expects to render the benefit determination. The
Committee shall notify the Claimant in writing:

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	 	(a)	 	that the Claimant’s requested determination has been made, and that the claim
has been allowed in full; or
	 
	 	(b)	 	that the Committee has reached a conclusion contrary, in whole or in part, to
the Claimant’s requested determination, and such notice must set forth in a manner
calculated to be understood by the Claimant:

	 	(i)	 	the specific reason(s) for the denial of the claim, or any part
of it;
	 
	 	(ii)	 	specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;
	 
	 	(iii)	 	a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such
material or information is necessary;
	 
	 	(iv)	 	an explanation of the claim review procedure set forth in
Section 9.3 below; and
	 
	 	(v)	 	a statement of the Claimant’s right to bring a civil action
under ERISA Section 502(a) following an adverse benefit determination on
review.

	9.3	 	Review of a Denied Claim. On or before sixty (60) days after receiving a
notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant’s duly authorized representative) may file with the Committee a written
request for a review of the denial of the claim. The Claimant (or the Claimant’s duly
authorized representative):

	 	(a)	 	may, upon request and free of charge, have reasonable access to, and copies of,
all documents, records and other information relevant to the claim for benefits;
	 
	 	(b)	 	may submit written comments or other documents; and/or
	 
	 	(c)	 	may request a hearing, which the Committee, in its sole discretion, may grant.

	9.4	 	Decision on Review. The Committee shall render its decision on review
promptly, and no later than sixty (60) days after the Committee receives the Claimant’s
written request for a review of the denial of the claim. If the Committee determines that
special circumstances require an extension of time for processing the claim, written notice
of the extension shall be furnished to the Claimant prior to the termination of the initial
sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days
from the end of the initial period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the Committee expects to
render the benefit determination. In rendering its decision, the Committee shall take into
account all comments, documents, records and other information submitted by the Claimant
relating

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	 	 	to the claim, without regard to whether such information was submitted or
considered in the initial benefit determination. The decision must be written in a manner
calculated to be understood by the Claimant, and it must contain:

	 	(a)	 	specific reasons for the decision;
	 
	 	(b)	 	specific reference(s) to the pertinent Plan provisions upon which the decision
was based;
	 
	 	(c)	 	a statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the Claimant’s
claim for benefits; and
	 
	 	(d)	 	a statement of the Claimant’s right to bring a civil action under ERISA Section
502(a).

	9.5	 	Legal Action. A Claimant’s compliance with the foregoing provisions of this
Article 9 is a mandatory prerequisite to a Claimant’s right to commence any legal action
with respect to any claim for benefits under this Plan.

ARTICLE 10

Beneficiary Designation

	10.1	 	Beneficiary. Each Participant shall have the right, at any time, to designate
his or her Beneficiary(ies) (both primary as well as contingent) to receive any Death
Benefits payable under the Plan to the Participant’s Beneficiary upon the death of a
Participant. The Beneficiary designated under this Plan may be the same as or different
from the Beneficiary designation under any other plan of an Employer in which the
Participant participates.
	 
	10.2	 	Beneficiary Designation; Change. A Participant shall designate his or her
Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to
the Committee or its designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the terms of the
Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from
time to time. Upon the acceptance by the Committee of a new Beneficiary Designation Form,
all Beneficiary designations previously filed shall be cancelled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by the Participant and
accepted by the Committee prior to his or her death.
	 
	10.3	 	Acknowledgment. No designation or change in designation of a Beneficiary shall
be effective until received, accepted and acknowledged in writing by the Committee or its
designated agent.

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	10.4	 	No Beneficiary Designation. If a Participant fails to designate a Beneficiary
as provided in Sections 10.1, 10.2, and 10.3 above, or if all designated Beneficiaries
predecease the Participant or die prior to complete distribution of the Participant’s
benefits hereunder, the benefits remaining under the Plan shall be payable to the executor
or personal representative of the Participant’s estate.
	 
	10.5	 	Doubt as to Beneficiary. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right,
exercisable in its discretion, to cause the Participant’s Employer to withhold such
payments until this matter is resolved to the Committee’s satisfaction.
	 
	10.6	 	Discharge of Obligations. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the Committee from all
further obligations under this Plan with respect to the Participant, and that Participant’s
Plan Agreement shall terminate upon such full payment of benefits.

ARTICLE 11

Trust

	11.1	 	Establishment of the Trust. In order to provide assets from which to fulfill
the obligations to the Participants and their Beneficiaries under the Plan, the Company may
establish a Trust by a trust agreement with a third party, the trustee. Each Employer may,
in its discretion, contribute cash or other property, including securities issued by the
Company, to the Trust in order to provide for the benefits payments under the Plan.
	 
	11.2	 	Interrelationship of the Plan and the Trust. The provisions of the Plan and
the Plan Agreement shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust, if any, shall govern the rights of the
Employers, Participants and the creditors of the Employers to the assets transferred to the
Trust. Each Employer shall at all times remain liable to carry out its obligations under
the Plan.
	 
	11.3	 	Distributions From the Trust. Each Employer’s obligations under the Plan may
be satisfied with Trust assets distributed pursuant to the terms of the Trust, if any, and
any such distribution shall reduce the Employer’s obligations under this Agreement.

ARTICLE 12

Miscellaneous

	12.1	 	Status of the Plan. The Plan is intended to be a plan that is not qualified
within the meaning of Code Section 401(a) and that “is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for a select group of
management or highly compensated employees” within the meaning of ERISA Sections 201(2),
301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted to the extent
possible in a manner consistent with that intent.

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	12.2	 	Unsecured General Creditor. Participants, their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests or claims in any
property or assets of an Employer. For purposes of the payment of benefits under this
Plan, any and all of an Employer’s assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. An Employer’s obligation under the Plan shall be
merely that of an unfunded and unsecured promise to pay money in the future.
	 
	12.3	 	Employer’s Liability. An Employer’s liability for the payment of benefits
shall be defined only by the Plan and the Plan Agreement, as entered into between the
Employer and a Participant. An Employer shall have no obligation to a Participant under
the Plan except as expressly provided in the Plan and his or her Plan Agreement.
	 
	12.4	 	Nonassignability. Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the
amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which
are, expressly declared to be, unassignable and non-transferable. No part of the amounts
payable shall,
prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for
the payment of any debts, judgments, alimony or separate maintenance owed by a Participant
or any other person, be transferable by operation of law in the event of a Participant’s or
any other person’s bankruptcy or insolvency or be transferable to a spouse as a result of a
property settlement or otherwise.
	 
	12.5	 	Not a Contract of Employment. The terms and conditions of this Plan shall not
be deemed to constitute a contract of employment between any Employer and the Participant.
Such employment is hereby acknowledged to be an “at will” employment relationship that can
be terminated at any time for any reason, or no reason, with or without cause, and with or
without notice, unless expressly provided in an Executive Agreement. Nothing in this Plan
shall be deemed to give a Participant the right to be retained in the service of any
Employer or to interfere with the right of any Employer to discipline or discharge the
Participant at any time.
	 
	12.6	 	Furnishing Information. A Participant or his or her Beneficiary will cooperate
with the Committee by furnishing any and all information requested by the Committee and
take such other actions as may be requested in order to facilitate the administration of
the Plan and the payments of benefits hereunder, including but not limited to taking such
physical examinations as the Committee may deem necessary.
	 
	12.7	 	Terms. Whenever any words are used herein in the masculine, they shall be
construed as though they were in the feminine in all cases where they would so apply; and
wherever any words are used herein in the singular or in the plural, they shall be
construed as though they were used in the plural or the singular, as the case may be, in
all cases where they would so apply.

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	12.8	 	Captions. The captions of the articles, sections and paragraphs of this Plan
are for convenience only and shall not control or affect the meaning or construction of any
of its provisions.
	 
	12.9	 	Governing Law. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the Commonwealth of
Pennsylvania without regard to its conflict of laws principles.
	 
	12.10	 	Notice. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by
registered or certified mail, to the address below:

Penn Millers Holding Corporation

Attn: Compensation Committee of the Board

72 North Franklin Street

P.O. Box P

Wilkes-Barre, PA 18773-0016

	 	 	Such notice shall be deemed given as of the date of delivery or, if delivery is made by
mail, as of the date shown on the postmark on the receipt for registration or certification.
	 
	 	 	Any notice or filing required or permitted to be given to a Participant under this Plan
shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known
address of the Participant.
	 
	12.11	 	Successors. The provisions of this Plan shall bind and inure to the benefit
of the Participant’s Employer and its successors and assigns and the Participant and the
Participant’s Beneficiary.
	 
	12.12	 	Spouse’s Interest. The interest in the benefits hereunder of a spouse of a
Participant who has predeceased the Participant shall automatically pass to the Participant
and shall not be transferable by such spouse in any manner, including but not limited to
such spouse’s will, nor shall such interest pass under the laws of intestate succession.
	 
	12.13	 	Validity. In case any provision of this Plan shall be illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining parts hereof, but
this Plan shall be construed and enforced as if such illegal and invalid provision had
never been inserted herein.
	 
	12.14	 	Incompetent. If the Committee determines in its discretion that a benefit
under this Plan is to be paid to a minor, a person declared incompetent or to a person
incapable of handling the disposition of that person’s property, the Committee may direct
payment of such benefit to the guardian, legal representative or person having the care and
custody of such minor, incompetent or incapable person. The Committee may require proof of
minority, incompetency, incapacity or guardianship, as it may deem appropriate prior to

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	 	 	distribution of the benefit. Any payment of a benefit shall be a payment for the account
of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a
complete discharge of any liability under the Plan for such payment amount.
	 
	12.15	 	Court Order. The Committee is authorized to make any payments directed by
court order in any action in which the Plan or Committee has been named as a party. In
addition, if a court determines that a spouse or former spouse of a Participant has an
interest in the Participant’s benefits under the Plan in connection with a property
settlement or otherwise, the Committee, in its sole discretion, shall have the right,
notwithstanding any election made by a Participant, to immediately distribute the spouse’s
or former spouse’s interest in the Participant’s benefits under the Plan to that spouse or
former spouse.
	 
	12.16	 	Distribution in the Event of Taxation. To the extent permitted by Section
409A of the Code and the guidance thereunder, if, for any reason, all or any portion of a
Participant’s benefit under this Plan becomes taxable to the Participant prior to receipt
or is necessary to pay any withholding required by federal law, a Participant may petition
the Committee for a distribution of that portion of his or her benefit that has become
taxable. Upon the grant of such a petition, which grant shall not be unreasonably
withheld, a Participant’s Employer shall distribute to the Participant immediately
available funds in an amount equal to the taxable portion of his or her benefit (which
amount shall not exceed a Participant’s unpaid SERP Benefit under the Plan). If the
petition is granted, the tax liability distribution shall be made within ninety (90) days
of
the date when the Participant’s petition is granted. Such a distribution shall affect and
reduce the benefits to be paid under this Plan.

IN WITNESS WHEREOF, the Penn Millers Holding Corporation has caused its duly authorized officers to
execute this Plan as of the 1st day of January, 2006.

	 	 	 	 	 	 	 	 	 
	PENN MILLERS HOLDING
CORPORATION	 	PENN MILLERS HOLDING
CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ John Churnetski	 	By:	 	/s/ Harvey Sproul	 	 
	 

	 	 

John Churnetski
	 	 	 	 

Harvey Sproul
	 	 
	 

	 	Chairman, Compensation Committee
	 	 	 	Chairman, Board of Directors	 	 

19Exhibit 10.17

EXHIBIT 10.17

Execution Copy

Penn Millers Holding Corporation

Nonqualified Deferred Compensation and

Company Incentive Plan

Effective June 1, 2006

 

 

Penn Millers Holding Corporation

Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

PENN MILLERS HOLDING CORPORATION

NONQUALIFIED DEFERRED COMPENSATION AND COMPANY INCENTIVE PLAN

Effective June 1, 2006

ARTICLE I.

PURPOSE

The purpose of this Plan is to provide the opportunity for certain highly compensated and
management employees of Penn Millers Holding Corporation, a Pennsylvania corporation, and it
Subsidiaries, if any, that sponsor this Plan, to (i) provide an additional reward opportunity for
retirement income and (ii) defer receipt of all or a portion of the Compensation such employees
would otherwise receive. It is intended that the Plan, by providing this deferral opportunity,
will assist the Company in retaining and attracting individuals of exceptional ability by providing
them with these benefits. This Plan is intended to result in the deferral of federal income
taxation under Code Section 409A and the proposed regulations thereunder. If the final regulations
under Code Section 409A differ from the proposed regulations, the Plan shall be retroactively
amended to comply with such final regulations.

ARTICLE II.

DEFINITIONS

     For the purpose of the Plan, the following terms shall have the meanings indicated, unless the
context clearly indicates otherwise:

     2.1 “Account” means the account maintained on the books of the Company used solely to
calculate the amount payable to each Participant under the Plan and shall not constitute a separate
fund of assets.

     2.2 “Base Salary” means the base salary and/or commissions payable to a Participant
with respect to employment services performed for the Company by the Participant which is
considered wages for purposes of Federal income tax withholding.

     2.3 “Beneficiary” means the person, persons or entity as designated by the
Participant, entitled under Article VII to receive any Plan benefits payable after the
Participant’s death.

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

     2.5 “Bonus” means a bonus payable under the Company’s Success Sharing Plan, or any
successor plan that measures a Participant’s performance for services rendered over a period of
twelve (12) months or longer.

     2.6 “Change in Control” shall have the meaning set forth in the applicable Executive
Agreement, to the extent permissible under Section 409A of the Code.

 

 

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

     2.8 “Committee” means the Compensation Committee of the Board, or such other committee
appointed by the Board to administer the Plan pursuant to Article IX.

     2.9 “Company” means Penn Millers Holding Corporation, a Pennsylvania corporation, and
any Subsidiary and any other affiliate of the Company designated by the Board, or any successor to
the business thereof.

     2.10 “Company Contribution” means each of and collectively, the Company Discretionary
Contribution and the Company Incentive Contribution.

     2.11 “Company Discretionary Contribution” means the discretionary Company
contribution, if any, credited to a Participant’s Account under Section 4.3.

     2.12 “Company Incentive Contribution” means the Company contribution credited to a
Participant’s Account under Section 4.2.

     2.13 “Compensation” means the Base Salary and/or Bonus of the Participant. For
purposes of the Plan only, Compensation shall be calculated before reduction for any amounts
deferred by the Participant pursuant to the PMI 401(k) plan or a cafeteria plan described in
section 125 of the Code, or pursuant to the Plan or any other non-qualified plan which permits the
voluntary deferral of compensation. Inclusion of any other forms of compensation is subject to
Committee approval.

     2.14 “Deferral Election” means an election made by a Participant to defer a portion of
Base Salary and/or Bonus as set forth in Article IV. The Deferral Election must designate a whole
percentage of Base Salary and/or Bonus to be deferred. A Deferral Election shall remain in effect
for subsequent Deferral Periods until revoked or revised by the Participant.

     2.15 “Deferral Period” means the calendar year (except that for the year that the Plan
is adopted, the Deferral Period shall be the period between the Effective Date and December 31,
2006).

     2.16 “Deferrals” means the Base Salary and/or Bonus that a Participant has elected to
defer with respect to any applicable Plan Year.

     2.17 “Disability” shall mean Separation from Service from the Company on or after the
date on which a Participant is awarded disability benefits by the Social Security Administration.

     2.18 “Distribution Election” means the form prescribed by the Committee and completed
by the Participant, on which the Participant elects the form of payment for benefits payable in the
event of Normal and Early Retirement, as applicable and whether the Participant would like his or
her Account distributed upon Early Retirement.

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     2.19 “Earnings” means the amount credited to a Participant’s Account daily, which
shall be based on the Valuation Funds chosen by the Participant as provided in Section 5.3. Such
credits to a Participant’s Account may be either positive or negative to reflect the increase or
decrease in value of the Account in accordance with the provisions of the Plan.

     2.20 “Early Retirement” means a Participant’s Separation from Service before attaining
age 65, but on or after attaining age 60.

     2.21 “Effective Date” shall mean June 1, 2006.

     2.22 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
regulations and guidance thereunder.

     2.23 “Executive Agreement” means the Executive Employment Agreement, if any, by and
between a Participant and the Company or its affiliates.

     2.24 “Participant” means any employee who is eligible, pursuant to Article III, to
participate in the Plan, and who has elected to defer Compensation under the Plan in accordance
with Article IV.

     2.25 “Plan” means this Penn Millers Holding Corporation Nonqualified Deferred
Compensation and Company Incentive Plan, as amended from time to time.

     2.26 “Plan Year” means a calendar year; provided that the first Plan Year shall begin
on the Effective Date and end on December 31, 2006.

     2.27 “PMI 401(k) Plan” means the Penn Millers Insurance Company 401(k) Plan, effective
January 1, 1971, as amended from time to time.

     2.28 “Normal Retirement” means a Participant’s Separation from Service on or after
attaining age sixty-five (65).

     2.29 “Separation from Service” means a Participant’s termination of employment with
the Company and its Subsidiaries that meets the requirements of a “separation from service” as
defined in section 409A of the Code and guidance thereunder. For these purposes, service with the
Company or its Subsidiaries does not include any period of required notice under applicable law
prior to Separation from Service, or during which a Participant is receiving severance pay or “pay
in lieu of notice.” A transfer of employment between the Company and a Subsidiary shall not be
deemed a Separation from Service.

     2.30 “Subsidiary” means any corporation (other than the Company) in an unbroken chain
of corporations or other entities beginning with the Company, if each of the entities other than
the last entity in the unbroken chain owns stock, partnership rights or other ownership interest
possessing fifty percent (50%) or more of the total combined voting power of all classes of stock,
partnership rights or other ownership interest in one of the other entities in such chain.

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     2.31 “Valuation Day” means each day that the applicable Valuation Funds are traded
and/or the investments that constitute such funds are valued or traded on a securities exchange or
a quotation system.

     2.32 “Valuation Funds” means the investment fund or funds, designated from
time-to-time by the Committee, for crediting Earnings to each Participant’s Account in accordance
with Article V. The Valuation Funds shall be the funds available under the PMI 401(k) Plan if no
such funds are designated by the Committee.

ARTICLE III.

ELIGIBILITY

          Eligibility to participate in the Plan shall be limited to those highly compensated and
management employees who are designated by the Committee as eligible to participate in the Plan,
from time to time. No member of the Committee may be a Participant under this Plan.

ARTICLE IV.

CONTRIBUTIONS

     4.1 Deferrals.

          (a) Timing of Deferral Elections.

          (i) Base Salary Deferrals. No Base Salary payable on account of a Participant’s
performance of services for the Company prior to the Effective Date may be deferred
hereunder. With respect to the Deferral Period beginning on the Effective Date, an eligible
employee may begin participation in the Plan with respect to deferring Base Salary that is
earned after the date the election is made by properly completing and submitting a Deferral
Election and such other administrative forms as designated by the Committee no later than
the date that is 30 days after the plan’s Effective Date. With respect to each subsequent
Deferral Period, such Participant’s Deferral Election shall be effective for successive
Deferral Periods unless revoked by the Participant prior to December 31st of the year before
the year the Base Salary is to be paid.

          (ii) Bonus Deferrals. An eligible employee may elect to defer a Bonus for any
particular Deferral Period by properly completing and submitting a Deferral Election and
such other administrative forms as designated by the Committee no later than six (6) months
before the end of the performance period upon which the Participant’s Bonus is based. Such
Participant’s Deferral Election shall be effective for successive Bonuses unless revoked by
the Participant prior to six (6) months before the end of the performance period upon which
such Bonus is based.

          (iii) First-Year Participation. Notwithstanding Section 4.1(a)(1) or Section
4.1(a)(2), if an eligible employee first becomes eligible to participate in the Plan during
a Deferral Period, to begin participation in the Plan, a Deferral Election for the

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applicable Deferral Period must be submitted to the Committee within thirty (30) days
after the individual becomes eligible to participate. Such Deferral Election will be
effective only with regard to Compensation earned following the delivery of the Deferral
Election to the Committee.

          (b) Form of Deferral Election. A Participant may make a Deferral Election only in the
form permitted by the Committee. The Deferral Election shall specify the following:

          (i) Allocation to Valuation Funds, The Participant’s allocation of the
Deferrals to his or her Account among the various available Valuation Funds in a form and
manner permitted by the Committee.

          (ii) Maximum Deferral. The maximum amount of each payment of Base Salary that
may be deferred shall be fifty (50%), and the maximum amount of each payment of Bonus that
may be deferred shall be one hundred percent (100%).

          (c) Period of Deferral. Subject to Sections 4.1(d) and 4.1(e), a Participant’s
Deferral Election shall remain in effect for subsequent Deferral Periods until revoked or revised
by the Participant on or before the applicable date for making such elections under Section 4.1.

          (d) Deferral Election Limitations. If a Participant Separates from Service with the
Company prior to the end of a Deferral Period, the Deferral Election shall end as of such
Separation from Service.

          (e) Revocability of Deferral Election. A Deferral Election shall be irrevocable by
the Participant during a Deferral Period; provided, however, that a Participant who receives a
distribution due to a hardship distribution under the PMI 401(k) Plan in accordance with section
401(k)(2)(B)(i)(iv) of the Code shall have his or her election hereunder cancelled for the
remainder of the Deferral Period.

     4.2 Company Incentive Contributions. The Company shall make Company Incentive
Contributions to a Participant’s Account with respect to each year if the terms and conditions
described in Exhibit A are satisfied. Such Company Incentive Contributions shall be credited to a
Participant’s Account in the amounts described in Exhibit A, as amended from time to time, as soon
as practicable after the Board (or the Board’s authorized delegate) makes a determination that the
terms and conditions for such Company Incentive Contributions have been satisfied.

     4.3 Company Discretionary Contributions. The Company may make Company Discretionary
Contributions to a Participant’s Account at any time. Such Company Discretionary Contributions
shall be credited to a Participant’s Account at such times and in such amounts as determined by the
Board (or the Board’s authorized delegate) in its sole discretion.

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ARTICLE V.

PLAN ACCOUNTS

     5.1 Accounts. A Participant’s Deferrals, Company Contributions and Earnings shall be
credited to such Participant’s Account. An Account shall be used solely to calculate the amount
payable to each Participant under the Plan and shall not constitute a separate fund of assets.

     5.2 Timing of Credits; Withholding. A Participant’s Deferrals shall be credited as
soon as administratively practicable following the day on which the applicable Deferral would have
otherwise been payable to the Participant as Base Salary or a Bonus. Any withholding of taxes or
other amounts with respect to Deferrals that is required by local, state or Federal law shall be
withheld from the Participant’s non-deferred Compensation to the maximum extent possible, and any
remaining amount shall reduce the amount credited to the Participant’s Account in a manner
specified by the Committee.

     5.3 Valuation Funds. In accordance with terms established by the Committee, each
Participant may designate and allocate the hypothetical investment of his Account among Valuation
Funds for the sole purpose of determining the amount of Earnings to be credited or debited to such
Account. Each Participant’s selection of and allocation among Valuation Funds shall apply to each
succeeding Deferral until such time as the Participant shall alter such selection or allocation in
the manner and to the extent permitted by the Committee.

     5.4 Determination of Accounts. Each Participant’s Account as of the end of each
Valuation Day shall consist of the balance of the Account as of the immediately preceding Valuation
Day, adjusted as follows:

          (a) New Deferrals. Each Account shall be increased by any Deferrals credited under
his Deferral Election under Section 4.1.

          (b) Company Contributions. Each Account shall be increased by any Company
Contributions credited to such Account under Sections 4.2 and/or 4.3.

          (c) Distributions. Each Account shall be reduced by any payment provided for under
Article VI made from that Account. Distributions shall be deemed to have been made proportionally
from each of the Valuation Funds maintained within such Account based on the proportion that such
Valuation Fund bears to the sum of all Valuation Funds maintained within such Account for that
Participant as of the Valuation Day immediately preceding the date of payment.

          (d) Earnings. Each Account shall be increased or decreased by the Earnings credited
to such Account since the prior Valuation Day as though the balance of that Account as of such
prior Valuation Day had been invested in the applicable Valuation Funds chosen by the Participant.

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Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

     5.5 Vesting of Account. Each Participant shall be vested in the amounts credited to
such Participant’s Account and Earnings thereon as follows:

          (a) Amounts Deferred. A Participant shall be one hundred percent (100%) vested at all
times in his or her Deferrals and the Earnings thereon.

          (b) Company Contributions. With respect to each Company Contribution made to a
Participant’s Account and Earnings thereon, subject to the terms of any applicable Executive
Agreement, the following vesting schedule shall apply:

	 	 	 	 	 
	Years after Date Company Contribution was Credited	 	Vested 
	to a Participant’s Account	 	Percentage
	1 Year 
	 	 	20	%
	2 Years
	 	 	40	%
	3 Years
	 	 	60	%
	4 Years
	 	 	80	%
	5 Years
	 	 	100	%
	Death, Disability, a Change in Control, Termination of
the Plan under Article XI, or Normal Retirement (but not
Early Retirement) prior to a Separation from Service.
	 	 	100	%

          (i) Vesting will generally occur on the first day of the Deferral Period following the
Deferral Period in which such Company Contribution was credited to a Participant’s Account
or upon the occurrence of any of events described above.

          (ii) Notwithstanding the foregoing, only Company Contributions credited to a
Participant’s Account (and the Earnings thereon) on or prior to a Change in Control shall
become 100% vested upon the occurrence of a Change in Control. If Company Contributions are
made after the date of a Change in Control the above chart shall apply to such Company
Contributions without regard to the earlier occurrence of a Change in Control.

          (iii) invested amounts as of a Separation from Service are immediately forfeited.

ARTICLE VI.

DISTRIBUTIONS

     6.1 Permissible Distribution Events. A Participant’s Account, to the extent vested
under Section 5.5, shall commence distribution upon the earliest to occur of the following with
respect to such Participant :

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Plan Document

	 	(a)	 	Normal Retirement or Early Retirement,
	 
	 	(b)	 	Separation from Service,
	 
	 	(c)	 	Death, or
	 
	 	(d)	 	Disability.

     6.2 Forms and Timing of Distribution.

              (a) Retirement Optional Forms. Distributions upon Normal Retirement or Early
Retirement shall be made in a lump sum unless the Participant makes a Distribution Election no
later than 30 days after the Participant is first eligible to begin participating in the Plan to
receive such distributions in annual installments over a period not to exceed 10 years.
Distribution Elections shall be subject to the following additional limitations:

          (i) A Participant may make separate elections for a Normal Retirement or Early
Retirement.

          (ii) Annual installments shall be made for a period of no longer than ten (10) years
(as elected by the Participant).

          (iii) Each installment payment shall be equal to the balance of the Account immediately
prior to the installment payment, multiplied by a fraction, the numerator of which is one
(1) and the denominator of which commences at the number of annual installment payments
initially chosen and is reduced by one (1) when each succeeding installment payment is made.

          (iv) If a Participant elects annual installments, the first annual installments shall
be made as soon as practicable following the Participant’s Normal or Early Retirement, as
applicable, but in no event more than 2 1/2 months following the Participant’s Normal or
Early Retirement, as applicable, and subsequent annual distributions shall be made on the
anniversary of the Participant’s Normal or Early Retirement, as applicable, or the next
following business day if such anniversary is not a business day.

          (v) In the event that a Participant who has made a Distribution Election to receive
annual installments dies, becomes Disabled or a Change in Control occurs prior to all
installments being distributed, any remaining unpaid installments shall be paid as soon as
practicable following such death, Disability or Change in Control, but in no event more than
2 1/2 months following such Participant’s death, Disability or the occurrence of the Change
in Control.

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           (vi) With respect to a Participant who elects a lump sum distribution, such lump sum
shall be distributed as of the first business day of the second month following such
Participant’s Normal or Early Retirement, as applicable.

            (vii) A Participant may change his or her Distribution Election, in a manner and to the
extent permitted by the Committee, provided that such subsequent
Distribution Election must (A) be made at least twelve months prior to the
Participant’s Normal or Early Retirement, (B) result in the deferral of distributions
hereunder for a period of five years, (C) not accelerate any distributions hereunder, and
(D) not be effective until the date that is twelve months following the date it is made.

          (b) Lump Sum. In the case of a distribution made due to death, Disability or a
Separation from Service, a distribution shall be made as of the first business day of the second
month following the occurrence of such Participant’s death, Disability or Separation from Service,
as applicable.

     6.3 Small Accounts. Notwithstanding a Participant’s Distribution Election or anything
to the contrary in this Article VI, if a Participant’s Account is valued at less than $10,000 on
the date of such Participant’s Normal or Early Retirement, such Participant’s Account shall be
distributed as a lump sum.

     6.4 Miscellaneous Distribution Provisions.

          (a) Unvested Balances. Any unvested balance in a Participant’s Account shall be
forfeited upon the Participant’s Separation from Service.

          (b) Withholding; Payroll Taxes. The Company shall withhold from any payment made
pursuant to the Plan any taxes required to be withheld from such payments under local, state or
Federal law.

          (c) Payment to Guardian. If a Plan benefit is payable to a minor or a person declared
incompetent or to a person incapable of handling the disposition of the property, the Committee may
direct payment to the guardian, legal representative or person having the care and custody of such
minor, incompetent or person. The Committee may require proof of incompetence, minority,
incapacity or guardianship as it may deem appropriate prior to distribution. Such distribution
shall completely discharge the Committee and the Company from all liability with respect to such
benefit.

          (d) Effect of Payment. The full payment of the applicable benefit under this
Article V shall completely discharge all obligations on the part of the Company to the Participant
(and the Participant’s Beneficiary) with respect to the operation of the Plan, and the
Participant’s (and Participant’s Beneficiary’s) rights under the Plan shall terminate.

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Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

ARTICLE VII.

BENEFICIARY DESIGNATION

     7.1 Beneficiary Designation. Each Participant shall have the right, at any time, to
designate one (1) or more persons or entities as Beneficiary (both primary as well as contingent
beneficiaries) to whom benefits under the Plan shall be paid in the event of the Participant’s
death prior to complete distribution of the Participant’s vested Account balance. Each
Beneficiary designation shall be in a written form prescribed by the Committee and shall be
effective only when filed with the Committee during the Participant’s lifetime.

     7.2 Changing Beneficiary. Any Beneficiary designation may be changed by a Participant
without the consent of the previously named Beneficiary by the filing of a new Beneficiary
designation with the Committee. Such new filing shall cancel all designations previously filed.

     7.3 No Beneficiary Designation. If any Participant fails to designate a Beneficiary
in the manner provided above, if the designation is void, or if the Beneficiary designated by a
deceased Participant dies before the Participant or before complete distribution of the
Participant’s benefits, the Participant’s Beneficiary shall be the person in the first of the
following classes in which there is a survivor:

	 	(a)	 	The Participant’s surviving spouse, or
	 
	 	(b)	 	The Participant’s estate.

     7.4 Effect of Payment. Payment to the Beneficiary shall completely discharge the Company’s
obligations under the Plan.

ARTICLE VIII.

RESTRICTIVE COVENANTS

          As a condition to Participation in this Plan and as consideration, therefor, a Participant who
is not otherwise bound by similar restrictive covenants in an Executive Agreement, agrees to be
bound by the terms of the provisions of this Article VIII. If the provisions of this Article VIII
(or as applicable, the restrictive covenant provisions of an Executive Agreement) are violated by
the Participant, among other remedies available to the Company, such Participant will immediately
forfeit any Company Contributions (and the Earnings thereon) and he or she must immediately repay
any distribution related to Company Contributions (and the Earnings thereon).

     8.1 Restriction Period. During a Participant’s employment with Company and for a two
(2) year period thereafter (the “Restricted Period”), a Participant shall not directly or
indirectly, either for his own account or as an agent, consultant, employee, partner, officer,
director, proprietor, investor (except as an investor owning less than 5% of the stock of a
publicly owned company) or otherwise, of any person, firm, corporation, or enterprise:

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Plan Document

          (a) solicit or hire any employees of Company or induce any of such employees to terminate
their employment relationship with Company; or

          (b) solicit, induce or attempt to solicit or induce any customer, supplier or other entity
doing business with the Company to cease doing business with the Company or, in
the case of a customer, to place agribusiness insurance, as that term is commonly understood
in the industry, with any competitor of the Company.

     8.2 Scope of Restrictions. The limitations described in Section 8.1 shall be
construed to prohibit a Participant from directly or indirectly owning, managing, operating,
rendering services for (as a consultant or an advisor) or accepting any employment with (a)
Nationwide Agribusiness Insurance Company, Michigan Millers Insurance Company or Westfield
Insurance Company, (b) the agribusiness insurance business of any other insurance company, and (c)
any other property and casualty insurance or reinsurance line of business to the extent that such
ownership, management, operating, rendering of services or employment (and the activities
necessarily incident thereto) have, or could reasonably be expected to have, a material adverse
effect on the Company’s business insurance business within a one hundred (100) mile radius of
Wilkes-Barre, Pennsylvania.

     8.3 Confidentiality. Each Participant agrees that he will not at any time during his
employment with the Company or at any time thereafter for any reason, in any fashion, form or
manner, either directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation or other business entity, in any manner whatsoever, any confidential information or
trade secrets concerning the business of Company, including, without limiting the generality of the
foregoing, any customer lists or other customer identifying information, the techniques, methods or
systems of the Company’s operation or management, any information regarding its financial matters,
or any other material information concerning the business of Company, its manner of operation, its
plan or other material data. The provisions of this Section 8.3 shall not apply to (i) information
that is public knowledge other than as a result of disclosure by the Participant in breach of this
Section 8.3; (ii) information disseminated by Company to third parties in the ordinary course of
business; (iii) information lawfully received by the Participant from a third party who, based upon
inquiry by the Participant, is not bound by a confidential relationship to Company, or (iv)
information disclosed under a requirement of law or as directed by applicable legal authority
having jurisdiction over the Participant.

     8.4 Blue Pencil. Although each Participant and Company consider the restrictions
contained in Sections 8.1, 8.2 and 8.3 to be the minimum restriction reasonable for the purposes of
preserving Company’s goodwill and other proprietary rights, if a final deteunination is made by a
court that the time or territory, or any other restriction contained in Sections 8.1, 8.2 and 8.3
is an unreasonable or otherwise unenforceable restriction against a Participant, the provisions of
Sections 8.1, 8.2 and 8.3 will not be rendered void, but will be deemed amended to apply as to such
maximum time and territory and to such other extent as the court may determine to be reasonable.

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Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

     8.5 Assignability. Notwithstanding anything in the Plan to the contrary (including,
but not limited to Section 12.5), the covenants contained in this Article VIII may be assigned by
Company, as needed, to effect its purpose and intent and the Company’s assignee shall be entitled
to the full benefit of the restrictions enjoyed by Company under the terms of this Article VIII.

ARTICLE IX.

ADMINISTRATION

     9.1 Committee; Duties. This Plan shall be administered by the Committee, which shall
consist of the individuals appointed by the Board. The Committee shall have the authority to make,
amend, interpret and enforce all appropriate rules and regulations for the administration of the
Plan and decide or resolve any and all questions, including interpretations of the Plan, as they
may arise in such administration. A majority vote of the Committee members shall control any
decision. Members of the Committee may not be Participants under the Plan.

     9.2 Agents. The Committee may, from time to time, employ agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult with counsel who may
be counsel to the Company.

     9.3 Binding Effect of Decisions. The decision or action of the Committee with respect
to any question arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder shall be final,
conclusive and binding upon all persons having any interest in the Plan.

     9.4 Indemnity of Committee. The Company shall indemnify and hold harmless the members
of the Committee against any and all claims, loss, damage, expense or liability arising from any
action or failure to act with respect to the Plan on account of such member’s service on the
Committee, except in the case of gross negligence or willful misconduct.

ARTICLE X.

CLAIMS PROCEDURE

     10.1 Claim. Any person or entity claiming a benefit, requesting an interpretation or
ruling under the Plan (hereinafter referred to as “Claimant”) shall present the claim or request in
writing to the Committee, which shall respond in writing as soon as practical. The Committee shall
establish administrative processes and safeguards to ensure that all claims for benefits are
reviewed in accordance with the Plan document and that, where appropriate, Plan provisions have
been applied consistently to similarly situated Claimants. Any notification to a Claimant required
hereunder may be provided in writing or by electronic media, provided that any electronic
notification shall comply with the applicable standards imposed under Department of Labor (“DOL”)
Reg. §2520.104b-1(c).

     10.2 Denial of Claim. If a claim is wholly or partially denied, the Committee shall,
notify the Claimant within a reasonable period of time, but not later than 90 days after receipt of

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Penn Millers Holding Corporation

Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

the claim, unless the Committee determines that special circumstances require an extension of time
for processing the claim. If the Committee determines that an extension of time for processing is
required, written notice of the extension shall be furnished to the Claimant prior to the
termination of the initial 90-day period. In no event shall such extension exceed a period of 180
days from receipt of the claim. The extension notice shall indicate: (i) the special circumstances
necessitating the extension and (ii) the date by which the Committee expects to
render a benefit determination. A benefit denial notice shall be written in a manner
calculated to be understood by the Claimant and shall set forth: (i) the specific reason or reasons
for the denial, (ii) the specific reference to the Plan provisions on which the denial is based,
(iii) a description of any additional material or information necessary for the Claimant to perfect
the claim, with reasons therefor, and (iv) the procedure for reviewing the denial of the claim and
the time limits applicable to such procedures, including a statement of the Claimant’s right to
bring a legal action under §502(a) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”) following an adverse benefit determination on review. A claim shall be deemed
denied if the Claimant does not receive a decision from the Committee within 90 days (or 180 days
in the event an extension notice is provided) of the Committee’s receipt of the claim.

     10.3 Review of Claim. Any Claimant whose claim is denied or deemed denied may request
a review by notice given in writing to the Committee. Such request must be made within sixty (60)
days after receipt by the Claimant of the written notice of denial or within sixty (60) days after
a claim is deemed denied. Failure to submit a proper application for appeal within such 60 day
period will cause such claim to be deemed permanently denied. The Claimant or his representative
shall be provided, upon request and free of charge, reasonable access to, and copies of, all
documents, records and other information relevant to the claim. A document, record or other
information shall be deemed “relevant” to a claim in accordance with DOL Reg. §2560.503-1(m)(8).
The Claimant or his representative shall also be provided the opportunity to submit written
comments, documents, records and other information relating to the claim for benefits. The
Committee shall review the appeal taking into account all comments, documents, records and other
information submitted by the Claimant or his representative relating to the claim, without regard
to whether such information was submitted or considered in the initial benefit determination.

     10.4 Final Decision. The decision on review shall normally be made within sixty (60)
days after the Committee’s receipt of claimant’s claim or request. If an extension of time is
required for a hearing or other special circumstances, the Claimant shall be notified and the time
limit shall be one hundred twenty (120) days. The extension notice shall indicate: (i) the special
circumstances necessitating the extension and (ii) the date by which the Committee expects to
render a benefit determination. An adverse benefit decision on appeal shall be written in a manner
calculated to be understood by the Claimant and shall set forth: (i) the specific reason or reasons
for the adverse determination, (ii) the specific reference to the Plan provisions on which the
denial is based, (iii) a statement that the Claimant is entitled to receive, upon request and free
of charge, reasonable access to and copies of all documents, records, and other information
relevant to the Claimant’s claim (the relevance of a document, record or other information will

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Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

be determined in accordance with DOL Reg. §2560.503-1(m)(8)) and (iv) a statement of the Claimant’s
right to bring a legal action under §502(a) of ERISA.

     10.5 Litigation. In order to operate and administer the claims procedure in a timely
and efficient manner, any Claimant whose appeal with respect to a claim for benefits has been
denied, and who desires to commence a legal action with respect to such claim, must commence such
action in a court of competent jurisdiction within 90 days of receipt of notification of such
denial or date of deemed denial. Failure to file such action by the prescribed time will
forever bar the commencement of such action.

ARTICLE XI.

AMENDMENT AND TERMINATION OF PLAN

     11.1 Amendment. The Board may at any time amend the Plan by written instrument. No
amendment shall reduce the amount credited to a Participant’s Account as of the date of the
amendment. The Committee shall be permitted to change Valuation Funds on a prospective basis.

     11.2 Company’s Right to Terminate. The Board, in its sole discretion, may at any time
partially or completely terminate the Plan. In the event of a termination, except as specifically
provided below, existing Deferral and Distribution Elections will be frozen, benefit payments will
commence as elected by the Participant or provided by the Plan under its terms effective as of the
date of such Plan termination and no future Deferral Elections or Distribution Elections may be
made under the Plan. Notwithstanding the foregoing, the following additional rules shall apply:

          (a) In the event of a termination of the Plan within the 30 days before a Change in Control or
within 12 months following a Change in Control, the Committee may provide that all Accounts may be
distributed in a lump sum as soon as practicable following such termination of the Plan,

          (b) In the event of a termination of the Plan within 12 months of a corporate dissolution
taxed under Code section 331, or with the approval of a bankruptcy court pursuant to U.S.C.
§503(b)(I)(A), the Committee may provide that all Accounts may be distributed in a lump sum as soon
as practicable following such termination provided that the Deferrals are included in each
Participants’ gross incomes in the latest of: (1) The calendar year in which the plan termination
occurs (2) the calendar year in which the amount is no longer subject to a substantial risk of
forfeiture; or (3) the first calendar year in which the payment is administratively practicable.

          (c) The Committee may provide for earlier distributions, provided that,

          (i) All non-qualified deferred compensation arrangements sponsored by the Employer that
would be aggregated with any terminated arrangement under Code section 409A and the guidance
thereunder are terminated;

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Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

          (ii) No payments other than payments that would be payable under the terms of the Plan
if the termination had not occurred are made within 12 months of the termination of the
arrangements;

          (iii) All payments are made within 24 months of the termination of the Plan; and

          (iv) The Employer does not adopt a new arrangement that would be aggregated with any
the Plan under section 409A of the Code and the applicable guidance thereunder at any time
within five years following the date of termination of the Plan.

ARTICLE XII.

MISCELLANEOUS

     12.1 Unfunded Plan. This Plan is an unfunded plan maintained primarily to provide
deferred compensation benefits for a select group of “management or highly-compensated employees”
within the meaning of sections 201, 301, and 401 of ERISA, and therefore is exempt from the
provisions of Parts 2, 3 and 4 of Title I of ERISA.

     12.2 Company Obligation. The obligation to make benefit payments to any Participant
under the Plan shall be an obligation solely of the Company with respect to the deferred
Compensation receivable from, and contributions by, the Company and shall not be an obligation of
another company.

     12.3 Unsecured General Creditor. Notwithstanding any other provision of the Plan,
Participants and Participants’ Beneficiaries shall be unsecured general creditors, with no secured
or preferential rights to any assets of the Company or any other party for payment of benefits
under the Plan. Any property held by the Company for the purpose of generating the cash flow for
benefit payments shall remain its general, unpledged and unrestricted assets. The Company’s
obligation under the Plan shall be an unfunded and unsecured promise to pay money in the future.

     12.4 Trust Fund. The Company shall be responsible for the payment of all benefits
provided under the Plan. At its discretion, the Company may establish one (1) or more trusts, with
such trustees as the Board may approve, for the purpose of assisting in the payment of such
benefits. Although such a trust may be irrevocable, its assets shall be held for payment of all
the Company’s general creditors in the event of insolvency. To the extent any benefits provided
under the Plan are paid from any such trust, the Company shall have no further obligation to pay
them. If not paid from the trust, such benefits shall remain the obligation of the Company.

     12.5 Nonassignability. Neither a Participant nor any other person shall have any
right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be
unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to

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Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

seizure or sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be transferable by operation of law in
the event of a Participant’s or any other person’s bankruptcy or insolvency.

     12.6 Not a Contract of Employment. This Plan shall not constitute a contract of
employment between the Company and any Participant. Nothing in the Plan shall give a
Participant the right to be retained in the service of the Company or to interfere with the
right of the Company to discipline or discharge a Participant at any time.

     12.7 Application of Executive Agreement. Notwithstanding anything in the Plan to the
contrary, in the event that a Participant’s Executive Agreement contradicts, restricts, expands
upon or modifies the Company’s deferred compensation rights and obligations, the terms of the
Executive Agreement shall control.

     12.8 Protective Provisions. A Participant will cooperate with the Company by
furnishing any and all information requested by the Company, in order to facilitate the payment of
benefits hereunder, and by taking such physical examinations as the Company may deem necessary and
taking such other action as may be requested by the Company.

     12.9 Governing Law. The provisions of the Plan shall be construed and interpreted
according to the laws of the Commonwealth of Pennsylvania, without regard to the conflicts of law
provisions thereof, except as preempted by Federal law.

     12.10 Validity. If any provision of the Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts hereof, but the Plan
shall be construed and enforced as if such illegal and invalid provision had never been inserted
herein.

     12.11 Notice. Any notice required or permitted under the Plan shall be sufficient if
in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed
given as of the date of delivery or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification. Mailed notice to the Committee shall be
directed to the Company’s address. Mailed notice to a Participant or Beneficiary shall be directed
to the individual’s last known address in the Company’s records.

     12.12 Successors. The provisions of the Plan shall bind and inure to the benefit of
the Company and its successors and assigns. The term successors as used herein shall include any
corporate or other business entity which shall, whether by merger, consolidation, purchase or
otherwise acquire all or substantially all of the business and assets of the Company, and
successors of any such corporation or other business entity.

IN WITNESS WHEREOF, the Penn Millers Insurance Company has caused its duly authorized officers to
execute this Plan as of the 1st day of January, 2006.

	 	 	 
	PENN MILLERS INSURANCE
COMPANY

	 	PENN MILLERS INSURANCE
COMPANY

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Penn Millers Holding Corporation

Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ John Churnetski
 

John Churnetski
	 	By:
	 	/s/ Harvey Sproul
 

Harvey Sproul
	 	 
	 

	 	Chairman, Compensation Committee
	 	 	 	Chairman, Board of Directors	 	 

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Penn Millers Holding Corporation

Nonqualified Deferred Compensation and Company Incentive Plan

Plan Document

EXHIBIT A

COMPANY INCENTIVE CONTRIBUTIONS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	PERFORMANCE LEVEL
	Category	 	Title	 	Threshold	 	Target	 	Maximum
	1	 	Chief Executive Officer
	 	 	6	%	 	 	12	%	 	 	18	%
	2	 	Executive Vice President
	 	 	5	%	 	 	10	%	 	 	15	%
	 	 	Senior Vice President
	 	 	 	 	 	 	 	 	 	 	 	 
	3	 	Vice President
	 	 	4	%	 	 	8	%	 	 	12	%

The percentages in the above chart reflect percentage of Base Salary
Threshold, Target and Maximum Performance Levels shall be established annually by the Board.

No Company Incentive Contribution shall be made if the Threshold Performance Level is not obtained.
No Company Incentive Contribution shall exceed the amount set forth in the Maximum Performance
Level.

Amounts between Threshold and Target or Target and Maximum Performance Level shall be determined by
linear interpolation between the applicable reference points.

Unless otherwise determined by the Committee, a Participant must not have had a Separation from
Service prior to the date that the Company Incentive Contribution is credited to Participants’
Accounts.

18

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