Document:

Exhibit 10.19

PENN MILLERS HOLDING CORPORATION

EMPLOYEE STOCK OWNERSHIP PLAN

(Effective                     , 2009)

 

Table of Contents

	 	 	 	 	 
	 	 	Page	 
	ARTICLE I
	 	 	 	 
	INTRODUCTION
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II
	 	 	 	 
	DEFINITIONS
	 	 	2	 
	 
	 	 	 	 
	ARTICLE III
	 	 	 	 
	ELIGIBILITY
	 	 	10	 
	 
	 	 	 	 
	3.1 Eligibility Generally
	 	 	10	 
	3.2 Commencement of Participation
	 	 	10	 
	3.3 Cessation of Participation
	 	 	10	 
	3.4 Participation upon Reemployment
	 	 	10	 
	3.5 Change in Control
	 	 	11	 
	 
	 	 	 	 
	ARTICLE IV
	 	 	 	 
	VESTING
	 	 	12	 
	 
	 	 	 	 
	4.1 In General
	 	 	12	 
	4.2 Normal Retirement Date
	 	 	12	 
	4.3 Death or Disability
	 	 	12	 
	4.4 Vesting upon Reemployment
	 	 	12	 
	4.5 Forfeiture of Account
	 	 	12	 
	4.6 Change in Control
	 	 	13	 
	 
	 	 	 	 
	ARTICLE V
	 	 	 	 
	CONTRIBUTIONS AND ALLOCATIONS
	 	 	14	 
	 
	 	 	 	 
	5.1 Company Contributions
	 	 	14	 
	5.2 Time and Manner of Contributions
	 	 	14	 
	5.3 Employee Contributions
	 	 	14	 
	5.4 Recovery of Contributions
	 	 	14	 
	5.5 Allocation of Employer Contributions
	 	 	14	 
	5.6 Income on Investments
	 	 	15	 
	5.7 Certain Stock Transactions
	 	 	15	 
	5.8 Valuation of Trust Fund
	 	 	15	 
	 
	 	 	 	 
	ARTICLE VI
	 	 	 	 
	MAXIMUM LIMITATION ON ALLOCATIONS
	 	 	16	 
	 
	 	 	 	 
	6.1 Participation Solely in This Plan
	 	 	16	 
	6.2 Participation in Another Defined Contribution Plan
	 	 	16	 
	6.3 Definitions
	 	 	16	 
	 
	 	 	 	 
	ARTICLE VII
	 	 	 	 
	INVESTMENT OF TRUST ASSETS
	 	 	18	 
	 
	 	 	 	 

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	 	 	Page	 
	ARTICLE VIII
	 	 	 	 
	COMPANY STOCK APPRAISAL
	 	 	19	 
	 
	 	 	 	 
	ARTICLE IX
	 	 	 	 
	DISTRIBUTIONS
	 	 	20	 
	 
	 	 	 	 
	9.1 Termination of Employment
	 	 	20	 
	9.2 Death
	 	 	20	 
	9.3 Time of Payment
	 	 	20	 
	9.4 Manner of Making Payments
	 	 	21	 
	9.5 Form of Payment
	 	 	21	 
	9.6 Direct Rollover
	 	 	21	 
	9.7 Diversification Election
	 	 	22	 
	9.8 Election to Retain Interests in Plan
	 	 	22	 
	9.9 Mandatory Distributions
	 	 	23	 
	9.10 Dividend Distributions
	 	 	23	 
	9.11 Right of First Refusal
	 	 	24	 
	9.12 Prohibited Allocations
	 	 	24	 
	 
	 	 	 	 
	ARTICLE X
	 	 	 	 
	RIGHT TO SELL COMPANY STOCK
	 	 	26	 
	 
	 	 	 	 
	10.1 Put Requirements
	 	 	26	 
	 
	 	 	 	 
	ARTICLE XI
	 	 	 	 
	VOTING AND TENDER OF COMPANY STOCK
	 	 	28	 
	 
	 	 	 	 
	11.1 Voting
	 	 	28	 
	11.2 Tender
	 	 	28	 
	11.3 Fiduciary Responsibilities
	 	 	29	 
	11.4 Procedures for Voting and Tender
	 	 	29	 
	 
	 	 	 	 
	ARTICLE XII
	 	 	 	 
	ADMINISTRATION
	 	 	30	 
	 
	 	 	 	 
	12.1 Fiduciary Responsibilities
	 	 	30	 
	12.2 The Administrative Committee
	 	 	30	 
	12.3 Plan Expenses
	 	 	31	 
	12.4 Meetings and Voting
	 	 	31	 
	12.5 Compensation
	 	 	31	 
	12.6 Claims Procedures
	 	 	32	 
	12.7 Liabilities
	 	 	33	 
	 
	 	 	 	 
	ARTICLE XIII
	 	 	 	 
	AMENDMENTS
	 	 	34	 
	 
	 	 	 	 
	13.1 Right to Amend
	 	 	34	 
	13.2 Amendment by Administrative Committee
	 	 	34	 
	13.3 Plan Merger and Asset Transfers
	 	 	34	 
	13.4 Amendment of Vesting Schedule
	 	 	34	 

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	 	 	Page	 
	ARTICLE XIV
	 	 	 	 
	TERMINATION
	 	 	35	 
	 
	 	 	 	 
	14.1 Right to Terminate
	 	 	35	 
	14.2 Effect of Termination
	 	 	35	 
	14.3 Change in Control
	 	 	35	 
	 
	 	 	 	 
	ARTICLE XV
	 	 	 	 
	MISCELLANEOUS
	 	 	36	 
	 
	 	 	 	 
	15.1 Non-alienation of Benefits
	 	 	36	 
	15.2 Appointment of Guardian
	 	 	36	 
	15.3 Satisfaction of Benefit Claims
	 	 	36	 
	15.4 Controlling Law
	 	 	36	 
	15.5 Non-guarantee of Employment
	 	 	36	 
	15.6 Severability and Construction of the Plan
	 	 	36	 
	15.7 No Requirement of Profits
	 	 	37	 
	15.8 All Risk on Participants and Beneficiaries
	 	 	37	 
	 
	 	 	 	 
	ARTICLE XVI
	 	 	 	 
	TOP-HEAVY PROVISIONS
	 	 	38	 
	 
	 	 	 	 
	16.1 Determination of Top-Heavy Status
	 	 	38	 
	16.2 Top-Heavy Definitions
	 	 	38	 
	16.3 Top-Heavy Rules
	 	 	40	 
	 
	 	 	 	 
	ARTICLE XVII
	 	 	 	 
	EXEMPT LOANS
	 	 	42	 
	 
	 	 	 	 
	17.1 General
	 	 	42	 
	17.2 Terms of Exempt Loan Agreements
	 	 	42	 
	17.3 Prohibition on Purchase Arrangements
	 	 	42	 
	17.4 Suspense Account
	 	 	42	 

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ARTICLE I

INTRODUCTION

          The Penn Millers Holding Corporation Employee Stock Ownership Plan (the “Plan”) is hereby
established by Penn Millers Holding Corporation (the “Company”) in order for its employees to
participate in the ownership of the Company. The Plan, effective as of                     , 2009, is
intended to be an employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Internal Revenue Code of 1986, as amended, and is designed to invest primarily in Company Stock,
which meets the requirements for qualifying employer securities under Code Section 409(l). The
purchase of Company Stock for the Plan may be made with the proceeds of exempt loans meeting the
requirements of Section 54.4975-7(b) of the Treasury Regulations (including any amendments thereto)
and Section 2550.408(b)-3 of the Department of Labor Regulations (including any amendments
thereto), employer contributions, dividends on qualified employer securities or a combination
thereof.

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ARTICLE II

DEFINITIONS

     The following initially capitalized words and phrases when used in the Plan shall have the
following meanings, unless the context clearly requires otherwise.

     2.1 Account means the bookkeeping account established for each Participant which
reflects the value of the Participant’s interest in the Plan. This Account shall include a Company
Stock Account, which reflects the number of shares of Company Stock allocated to the Participant
and an Investment Account which reflects other investments allocated to the Participant.

     2.2 Administrative Committee and Committee, used interchangeably, means the
named fiduciary of the Plan, which is appointed by the Board of Directors, as is more fully
described in Article XII. In the event the Board of Directors does not appoint an Administrative
Committee, Administrative Committee means the Board of Directors.

     2.3 Affiliate means the Company and any corporation which is a member of a controlled
group of corporations (as defined in Code Section 414(b)) which includes the Company; any trade or
business (whether or not incorporated) which is under common control (as defined in Code
Section 414(c)) with the Company; any organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in Code Section 414(m)) which includes the Company; and
any other entity required to be aggregated with the Company pursuant to regulations under Code
Section 414(o).

     2.4 Beneficiary means the individual(s) or entities entitled to receive the
Participant’s benefits under the Plan in the event of the Participant’s death prior to receiving
all benefits payable under the Plan.

     2.5 Board of Directors means the Board of Directors of the Company as constituted from
time to time.

     2.6 Break in Service means a Plan Year during which an Employee (a) has terminated
employment or is no longer employed with the Company or an Affiliate, and (b) fails to complete
more than five hundred (500) Hours of Service.

     2.7 Change in Control means the first to occur of any of the following events:

          (a) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended), except for any of the Company’s employee benefit plans, or any entity
holding the Company’s voting securities for, or pursuant to, the terms of any such plan (or any
trust forming a part thereof) (the “Benefit Plan(s)”), is or becomes the beneficial owner, directly
or indirectly, of the Company’s securities representing 19.9% or more of the combined voting power
of the Company’s then outstanding securities other than pursuant to a transaction excepted in
Clause (d);

          (b) there occurs a contested proxy solicitation of the Company’s shareholders that results in
the contesting party obtaining the ability to vote securities

2

 

representing 19.9% or more of the combined voting power of the Company’s then outstanding
securities;

          (c) a binding written agreement is executed providing for a sale, exchange, transfer, or other
disposition of all or substantially all of the assets of the Company to another entity, except to
an entity controlled directly or indirectly by the Company;

          (d) the shareholders of the Company approve a merger, consolidation, or other reorganization
of the Company, unless:

               (i) under the terms of the agreement providing for such merger, consolidation, or
reorganization, the shareholders of the Company immediately before such merger, consolidation, or
reorganization, will own, directly or indirectly immediately following such merger, consolidation,
or reorganization, at least 19.9% of the combined voting power of the outstanding voting securities
of the Company resulting from such merger, consolidation, or reorganization (the “Surviving
Company”) in substantially the same proportion as their ownership of the voting securities
immediately before such merger, consolidation, or reorganization;

               (ii) under the terms of the agreement providing for such merger, consolidation, or
reorganization, the individuals who were members of the Board immediately prior to the execution of
such agreement will constitute at least 19.9% of the members of the board of directors of the
Surviving Company after such merger, consolidation, or reorganization; and

               (iii) based on the terms of the agreement providing for such merger, consolidation, or
reorganization, no Person (other than (A) the Company or any Subsidiary of the Company, (B) any
Benefit Plan, (C) the Surviving Company or any Subsidiary of the Surviving Company, or (D) any
Person who, immediately prior to such merger, consolidation, or reorganization had beneficial
ownership of 19.9% or more of the then outstanding voting securities) will have beneficial
ownership of 19.9% or more of the combined voting power of the Surviving Company’s then outstanding
voting securities;

          (e) a plan of liquidation or dissolution of the Company, other than pursuant to bankruptcy or
insolvency laws, is adopted; or

          (f) during any period of two consecutive years, individuals, who at the beginning of such
period, constituted the Board cease for any reason to constitute at least a majority of the Board
unless the election, or the nomination for election by the Company’s shareholders, of each new
director was approved by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of the period.

     Notwithstanding Clause (a), a Change in Control shall not be deemed to have occurred if a
Person becomes the beneficial owner, directly or indirectly, of the Company’s securities
representing 19.9% or more of the combined voting power of the Company’s then outstanding
securities solely as a result of an acquisition by the Company of its voting securities which, by
reducing the number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 19.9% or more of the combined voting power of the

3

 

Company’s then outstanding securities; provided, however, that if a Person becomes a
beneficial owner of 19.9% or more of the combined voting power of the Company’s then outstanding
securities by reason of share purchases by the Company and shall, after such share purchases by the
Company, become the beneficial owner, directly or indirectly, of any additional voting securities
of the Company (other than as a result of a stock split, stock dividend or similar transaction),
then a Change in Control of the Company shall be deemed to have occurred with respect to such
Person under Clause (a). In no event shall a Change in Control of the Company be deemed to occur
under Clause (a) by virtue of the acquisition of the Company’s securities by Benefit Plans.

     2.8 Code means the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.

     2.9 Company means Penn Millers Holding Corporation and any Affiliate which adopts this
Plan with the approval of the Board of Directors of the Company and any successor to the business
of the Company that agrees to assume the Company’s obligations under the Plan.

     2.10 Company Stock means shares of common stock issued by the Company that are readily
tradable on an established securities market; provided, however, if the Company’s common stock is
not readily tradable on an established securities market, “Company Stock” means common stock issued
by the Company having a combination of voting power and dividend rates equal to or in excess of:
(a) that class of common stock of the Company having the greatest voting power and (b) that class
of common stock of the Company having the greatest dividend rights. Non-callable preferred stock
shall be treated as Company Stock for purposes of the Plan if such stock is convertible at any time
into stock that is readily tradable on an established securities market (or, if applicable, that
meets the requirements of (a) and (b) next above) and if such conversion is at a conversion price
that, as of the date of the acquisition by the Plan, is reasonable. For purposes of the
immediately preceding sentence, preferred stock shall be treated as non-callable if, after the
call, there will be a reasonable opportunity for a conversion that meets the requirements of the
immediately preceding sentence. Company Stock shall be held under the Trust only if such stock
satisfies the requirements of Section 407(d)(5) of ERISA. For purposes of this definition
“Company” includes any corporation that is a member of a controlled group of corporations with the
Company (within the meaning of Section 409(l)(4) of the Code).

     2.11 Compensation means wages within the meaning of Code Section 3401(a) and all other
payments of compensation to a Participant by the Employer during a Plan Year for which the Employer
is required to report on Form W-2. Compensation must be determined without regard to any rules
under Code Section 3401(a) that limit the remuneration included in wages based on the nature or
location of the employment or the services performed. Compensation also includes any salary
reduction contributions elected by a Participant which is not includible in the gross income of the
Participant pursuant to any plan maintained by the Company in accordance with Code Sections 401(k),
125 or 132(f)(4).

          Payments made within 2 1/2 months after severance from employment (within the meaning of Code
Section 401(k)(2)(B)(i)(I)) will be Compensation if they are payments that, absent a severance from
employment, would have been paid to the Participant

4

 

while the Participant continued in employment with the Employer and are regular compensation
for services during the Participant’s regular working hours, compensation for services outside the
Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses,
or other similar compensation, and payments for accrued bona fide sick, vacation or other leave,
but only if the Participant would have been able to use the leave if employment had continued. Any
payments not described above are not considered Compensation if paid after severance from
employment, even if they are paid within 2 1/2 months following severance from employment, except for
payments to an individual who does not currently perform services for the Employer by reason of
qualified military service (within the meaning of Code Section 414(u)(1)) to the extent these
payments do not exceed the amounts the individual would have received if the individual had
continued to perform services for the Employer rather than entering qualified military service.

          Notwithstanding the foregoing, Compensation shall not include any amounts earned prior to
becoming a Participant in the Plan.

          The annual compensation for each Participant taken into account under the Plan shall not
exceed $200,000, as adjusted by the Internal Revenue Service at the same time and in the same
manner as under Code Section 415(d).

     2.12 Disability means a medically determinable physical or mental impairment which is
of such permanence and degree that it can be expected to result in death or that a Participant is
unable, because of such impairment, to perform any substantial gainful activity for which the
Participant is suited by virtue of such Participant’s experience, training or education and which
would entitle the Participant to benefits under the Employer’s long-term disability plan, if any,
or to Social Security disability benefits as evidenced by a disability award letter.

     2.13 Disqualified Person means a person defined in Code Section 4975(e), including but
not limited to (i) a fiduciary of the Plan; (ii) a person providing services to the Plan; (iii) an
owner of 50% or more of the combined voting power or value of all classes of stock of the Company
entitled to vote or the total value of shares of all classes of stock of the Company and certain
members of such owner’s family; or (iv) an officer, director, 10% or greater shareholder or highly
compensated employee (who earns 10% or more of the yearly wages) of the Company.

     2.14 Effective Date means                     , 2009 which is the date on which the
provisions of this Plan become effective.

     2.15 Employee means an individual who is employed as a common law employee by the
Company or an Affiliate on a salaried or hourly basis and with respect to whom the Company or the
Affiliate is required to withhold taxes from remuneration paid to such Employee by the Company or
Affiliate for personal services rendered to the Company, including any officer or director who
shall so qualify. If an individual is not considered to be an Employee in accordance with the
preceding sentence for a Plan Year, a subsequent determination by the Company, any governmental
agency or court that the individual is a common law employee of the Company, even if such
determination is applicable to prior years, will not have a retroactive effect for purposes of
eligibility to participate in the Plan.

5

 

     2.16 Employer means the Company.

     2.17 Entry Date means January 1, March 1, July 1 and October 1 of each Plan Year.

     2.18 ERISA means the Employee Retirement Income Security Act of 1974, as amended from
time to time, including any regulations promulgated thereunder.

     2.19 Exempt Loan means the issuance of notes, a series of notes or other installment
obligations incurred by the Trustee, in accordance with the Trust, in connection with the purchase
of Company Stock, the terms of which shall satisfy the requirements of Treasury Regulations
Section 54.4975-7(b), including the requirements: (a) that the loan bear a reasonable rate of
interest, be for a definite period (rather than payable on demand), and be without recourse against
the Plan, and (b) that the only assets of the Plan that may be given as collateral are shares of
Common Stock purchased with the proceeds of that loan or with the proceeds of a prior Exempt Loan.

     2.20 Highly Compensated Employee

          (a) Highly Compensated Employee means an Employee who performs service during the
determination year and is described in one or more of the following groups:

               (i) An Employee who is a 5% owner, as defined in Code Section 416(i)(1)(A)(iii), at any time
during the determination year or the look-back year.

               (ii) An Employee who receives compensation in excess of $80,000 (indexed in accordance with
Code Section 415(d)) during the look-back year and is a member of the top-paid group for the
look-back year.

          (b) For purposes of the definition of Highly Compensated Employee, the following definitions
and rules shall apply:

               (i) The determination year is the Plan Year for which the determination of who is highly
compensated is being made.

               (ii) The look-back year is the 12 month period immediately preceding the determination year,
or if the Employer elects, the calendar year ending with or within the determination year.

               (iii) The top-paid group consists of the top 20% of employees ranked on the basis of
compensation received during the year. For purposes of determining the number of employees in the
top-paid group, employees described in Code Section 414(q)(8) and Treasury Regulations
Section 1.414(q)-1T Q&A 9(b) are excluded.

          (c) Compensation is compensation within the meaning of Code Section 415(c)(3), plus, for
purposes thereof, elective or salary reduction contributions to a cafeteria plan, cash or deferred
arrangement under Code Section 401(k) or tax-sheltered annuity

6

 

under Code Section 403(b), or made pursuant to Code Section 132(f)(4). Employers aggregated
under Code Sections 414(b), (c), (m), or (o) are treated as a single employer.

     2.21 Hours of Service means:

          (a) Performance of Duties. The actual hours for which an Employee is paid or entitled
to be paid by the Company for the performance of duties;

          (b) Nonworking Paid Time. Each hour for which an Employee is paid or entitled to be
paid by the Company on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to vacation, holiday,
illness, incapacity, disability (to the extent not already included in Compensation), layoff, jury
duty, military duty or leave of absence; provided, however, no more than 501 Hours of Service shall
be credited to an Employee under this subsection for any single continuous period (whether or not
such period occurs in a single computation period); and provided further that no credit shall be
given for payments made or due under a plan maintained solely for the purpose of complying with
applicable worker’s or unemployment compensation or disability insurance laws or for payments which
solely reimburse an Employee for medical or medically related expenses incurred by the Employee;
and

          (c) Maternity, Paternity and FMLA Leave. Solely for purposes of determining whether a
one year Break in Service has occurred for purposes of determining eligibility to participate and
vesting, each hour for which an Employee is absent from employment by reason of (i) pregnancy of
the Employee, (ii) birth of a child of the Employee, (iii) placement of a child in connection with
the adoption of the child by an individual, or (iv) caring for the child during the period
immediately following the birth or placement for adoption. Hours of Service shall also, for these
limited purposes, include each hour for which an Employee who has worked for the Company or an
Affiliate for at least 12 months and for at least 1,250 Hours of Service during the year preceding
the start of the leave, is absent from employment on an unpaid family leave for up to 12 weeks, as
provided for in the Family and Medical Leave Act of 1993 (the “FMLA Leave”), by reason of (A) the
birth or adoption of a child, (B) the care of a spouse, child or parent with a serious health
condition, or (C) the Employee’s own serious health condition, provided that such an Employee
provides the Company with a 30-day advance notice if the leave is foreseeable, and/or medical
certification satisfactory to support the Employee’s request for leave because of a serious health
condition. For purposes of determining whether an Employee’s leave qualifies as a “FMLA Leave” in
order to be credited with Hours of Service under this Plan, the Family and Medical Leave Act of
1993 (“FMLA”) and the regulations promulgated thereunder shall apply. During the period of
absence, the Employee shall be credited with the number of hours that would be generally credited
but for such absence or if the general number of work hours is unknown, eight Hours of Service for
each normal workday during the leave (whether or not approved). These hours shall be credited to
the computation period in which the leave of absence commences if crediting of such hours is
required to prevent the occurrence of a one year Break in Service in such computation period, and
in other cases, in the immediately following computation period. The computation period shall be
the same as the relevant period for determining eligibility computation periods and vesting
computation periods. Unless otherwise required under the FMLA and the regulations promulgated
thereunder, no more than 501 Hours of Service shall be

7

 

credited under this paragraph for any single continuous period (whether or not such period
occurs in a single computation period).

          (d) Back Pay. Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Company; provided, however, Hours of Service credited under
paragraphs (a), (b) and (c) above shall not be recredited by operation of this paragraph.

          (e) Equivalencies. The Administrative Committee shall have the authority to adopt any
of the following equivalency methods for counting Hours of Service that are permissible under
regulations issued by the Department of Labor: (i) Working Time; (ii) Periods of Employment;
(iii) Earnings; or (iv) Elapsed Time. The adoption of any equivalency method for counting Hours of
Service shall be evidenced by a certified resolution of the Committee, which shall be attached to
and made part of the Plan. Such resolution shall indicate the date from which such equivalency
shall be effective.

          (f) Miscellaneous. Unless the Administrative Committee directs otherwise, the methods
of determining Hours of Service when payments are made for other than the performance of duties and
of crediting such Hours of Service to Plan Years set forth in Department of Labor Regulations
Sections 2530.200b-2(b) and (c), shall be used hereunder and are incorporated by reference into the
Plan.

          Participants on military leaves of absence who are not directly or indirectly compensated or
entitled to be compensated by the Company while on such leave shall be credited with Hours of
Service as required by the Uniformed Services Employment and Reemployment Rights Act.

          Notwithstanding any other provision of this Plan to the contrary, an Employee shall not be
credited with Hours of Service more than once with respect to the same period of time.

     2.22 Investment Manager means an investment advisor, bank or insurance company,
meeting the requirements of ERISA Section 3(38), appointed by the Company to manage the Plan’s
assets in accordance with the Trust Agreement.

     2.23 Leased Employee means any person who performs services for an Employer or an
Affiliate (the “recipient”) (other than an employee of the “recipient”) pursuant to an agreement
between the “recipient” and any other person (the “leasing organization”) on a substantially
full-time basis for a period of at least one year, provided that such services are performed under
primary direction of or control by the “recipient”.

     2.24 Normal Retirement Date means the first day of the calendar month coincident with
or following the later of (i) the date on which a Participant attains age 65 or (ii) the date on
which the Participant attains five Years of Service.

     2.25 Participant means an Employee participating in the Plan in accordance with
Article III.

8

 

     2.26 Plan means the Penn Millers Holding Corporation Employee Stock Ownership Plan, as
set forth in this document and in the Trust Agreement pursuant to which the Trust is maintained, in
each case as amended from time to time.

     2.27 Plan Year means the calendar year.

     2.28 Suspense Account means the account established and maintained to hold Company
Stock acquired with the proceeds of an Exempt Loan and held in the Trust, which Company Stock has
not been allocated to the Accounts of Participants with respect to the year of such acquisition.

     2.29 Trust or Trust Fund means all property held by the Trustee pursuant to
the terms of the Trust Agreement and this Plan. Such property shall be held for the exclusive
benefit of Participants and Beneficiaries.

     2.30 Trust Agreement means the agreement of trust established by the Company and the
Trustee for purposes of holding title to the assets of the Plan.

     2.31 Trustee means the trustee as named in the Trust Agreement, or a successor thereto
or substitute therefor, in any case as appointed by the Board of Directors of the Company in
accordance with Article XII to hold legal title to the assets of the Trust and that expressly
agrees to be bound by the terms and conditions of the Trust Agreement.

     2.32 Valuation Date means the last business day of each calendar quarter, and such
other more frequent dates as the Administrative Committee may from time to time establish.

     2.33 Year of Service means a Plan Year during which a Participant is credited with at
least 1,000 Hours of Service. Notwithstanding the foregoing, a Year of Service for purposes of
determining eligibility in the Plan under Article III shall be the earlier of (1) the
12-consecutive month period commencing with the day on which the Employee is first credited with an
Hour of Service if the Employee has been credited with at least 1,000 Hours of Service or (2) any
Plan Year commencing after the day on which the Employee first is credited with an Hour of Service
in which the Employee has been credited with at least 1,000 Hours of Service. For purposes of
determining eligibility to participate in the Plan under Article III, Years of Service shall
include periods of employment with the Employer prior to the Effective Date of the Plan.

9

 

ARTICLE III

ELIGIBILITY

     3.1 Eligibility Generally. An Employee is eligible to become a Participant in the
Plan when the Employee attains age 21 and has completed one Year of Service.

     Notwithstanding the foregoing, the following individuals shall not be eligible to participate
in the Plan:

          (a) Leased Employees;

          (b) Individuals whose employment with the Company or an Affiliate is governed by a collective
bargaining agreement between the Company and representatives of the employee bargaining unit if
evidence exists that retirement benefits were a subject of good faith bargaining between the
parties, and provided such bargaining agreement does not provide for participation in this Plan;
and

          (c) Non-resident aliens who do not receive earned income from sources within the United
States.

     3.2 Commencement of Participation. Each Employee who has satisfied the requirements
of Section 3.1 of the Plan shall commence participation in the Plan on the later of the Effective
Date or the Entry Date concurrent with or next following the date on which such requirements are
satisfied.

     3.3 Cessation of Participation. An Employee shall cease to be a Participant upon the
earliest of (a) the date on which the Employee retires under the Plan; (b) the date on which the
Employee’s employment with the Company terminates for any reason, including death or Disability;
(c) the date on which the Employee’s employment with the Company is governed by a collective
bargaining agreement that does not provide for participation in this Plan; or (d) the date on which
the Employee becomes a “leased employee” as defined in Code Section 414(n).

     3.4 Participation upon Reemployment. Upon the reemployment of any person after the
Effective Date who had previously been employed by the Company on or after the Effective Date, the
following rules shall apply in determining the Employee’s participation in the Plan and Years of
Service under the Plan:

          (a) No Prior Participation. If the reemployed Employee was not a Participant in the
Plan during the prior period of employment and the reemployed Employee incurred a Break in Service,
only Service with the Company after reemployment will count for purposes of meeting the
requirements of Section 2.1 of the Plan. If the reemployed Employee was not a Participant in the
Plan during the prior period of employment and the reemployed Employee did not incur a Break in
Service, all Service with the Company (both before and after the Break in Service) will be
aggregated for purposes of meeting the requirements of Section 2.1 of the Plan.

10

 

          (b) Prior Participation. If the reemployed Employee was a Participant in the Plan
during the prior period of employment, the reemployed Employee shall be entitled to resume
participation in the Plan on the date of the Employee’s reemployment.

          (c) Years of Service. Upon reemployment following a Break in Service, any Employee
who was previously entitled to a nonforfeitable (vested) benefit will have all Years of Service
(both before and after the Break in Service) aggregated. Any Employee who was not eligible for a
nonforfeitable (vested) benefit will have all Years of Service (both before and after the Break in
Service) aggregated unless the period of unemployment with the Company exceeds the greater of
(i) Years of Service prior to the Break in Service or (ii) five years. For purposes of this
paragraph (c) of this Section 2.5, the period of unemployment commences with the Employee’s
termination date and ends with the date of reemployment.

          (d) Veterans Reemployment Rights. Notwithstanding any other provision of the Plan to
the contrary, contributions, benefits, and service credit with respect to qualified military
service shall be provided in accordance with Code Section 414(u).

     3.5 Change in Control. Notwithstanding the provisions of this Article III or any
other provisions of the Plan to the contrary, upon a change in Control, no additional Employee
shall be eligible to become a Participant in the Plan.

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ARTICLE IV

VESTING

     4.1 In General. Each Participant shall have a vested interest in the Participant’s
Account, if any, in accordance with the following vesting schedule:

	 	 	 	 	 
	Years of Service After the Effective Date	 	Vested Percentage
	0-1 Years of Service
	 	 	0	%
	2 Years of Service
	 	 	20	%
	3 Years of Service
	 	 	40	%
	4 Years of Service
	 	 	60	%
	5 Years of Service
	 	 	80	%
	6 or more Years of Service
	 	 	100	%

     4.2 Normal Retirement Date. Notwithstanding the provisions of Section 4.1 of the
Plan, a Participant whose employment terminates on or after such Participant’s Normal Retirement
Date shall be 100 percent vested.

     4.3 Death or Disability. Notwithstanding the provisions of Section 4.1 of the Plan, a
Participant whose employment is terminated on account of death or Disability shall be 100 percent
vested.

     4.4 Vesting upon Reemployment. Upon the reemployment of any person after the
Effective Date who had previously been employed by the Company on or after the Effective Date, the
following rules shall apply in determining the reemployed Employee’s vesting in the Plan:

          (a) Five Consecutive Breaks in Service. If a Participant has five consecutive Breaks
in Service, all Years of Service after such Breaks in Service will be disregarded for the purpose
of vesting the Employer-derived Account balance that accrued before such Breaks in Service. Both
pre-Break and post-Break service, however, will count for the purposes of vesting the
Employer-derived Account balance that accrues after such Breaks in Service. Both Accounts will
share in the earnings and losses of the fund.

          (b) Less than Five Consecutive Breaks in Service. If a Participant does not have five
consecutive Breaks in Service, both the pre-Break and post-Break service will count in vesting all
Account balances.

     4.5 Forfeiture of Account. If prior to being 100 percent vested, a Participant
terminates employment for a reason other than death, Disability or attainment of Normal Retirement
Date, the nonvested portion will be treated as a forfeiture. Assets in the Participant’s Account
other than Company Stock acquired with the proceeds of an Exempt Loan will be forfeited before
Company Stock acquired with the proceeds of an Exempt Loan are forfeited. Forfeitures shall be
allocated to the Accounts of Participants who were employed by the

12

 

Company on the last day of the Plan Year or, in the Company’s discretion, used to pay Plan
administrative expenses. Forfeitures allocated to Participants shall be allocated in the ratio
that the Compensation of each Participant for such Plan Year bears to the total Compensation of all
such Participants for such Plan Year. For purposes of this Section 4.5, if the value of a
Participant’s vested account balance is zero, the participant shall be deemed to have received a
distribution of such vested account balance.

          If any former Participant shall be reemployed by the Employer before incurring five
consecutive Breaks in Service, and such former Participant had received, or was deemed to have
received, a distribution of the Participant’s entire vested interest prior to reemployment, the
forfeited account shall be reinstated upon the reemployment of such Participant. In the event of a
deemed distribution, the undistributed portion of the Participant’s account must be restored in
full, unadjusted by any gains or losses occurring subsequent to the Valuation Date coinciding with
or next following the Participant’s termination of employment. The source for such reinstatement
shall be any forfeitures occurring during the Plan Year. If such source is insufficient, then the
Employer shall contribute an amount which is sufficient to restore any such forfeited account
provided, however, that if a discretionary contribution is made for such Plan Year pursuant to
Section 5.1, such contribution shall first be applied to restoring such accounts and the remainder
shall be allocated in accordance with Section 5.5.

     4.6 Change in Control. Notwithstanding the provisions of Section 4.1 of the Plan, a
Participant shall be 100 percent vested upon a Change in Control.

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ARTICLE V

CONTRIBUTIONS AND ALLOCATIONS

     5.1 Company Contributions. For each Plan Year, the Company may contribute cash or
shares of Company Stock, or both, to the Plan in such amounts as may be determined by the Board of
Directors.

     In the event shares of Company Stock are sold to the Trustee for a Plan Year, the fair market
value of such Company Stock shall be determined in accordance with the provisions of Article VIII.

     5.2 Time and Manner of Contributions. All Company contributions shall be paid
directly to the Trustee, and a contribution for any Plan Year shall be made not later than the date
prescribed by law for filing the Company’s Federal income tax return (including extensions, if any)
for the Company’s taxable year that ends within or with that Plan Year.

     5.3 Employee Contributions. Participants are neither permitted nor required to make
contributions to the Plan.

     5.4 Recovery of Contributions. The Company may recover contributions to the Plan,
only as set forth in this Section 5.4.

          (a) Contributions made to the Plan shall be conditioned upon the initial and continuing
qualification of the Plan. If the Plan is determined to be disqualified, contributions made in
respect of any period subsequent to the effective date of such disqualification shall be returned
to the Company. With respect to the initial qualification of the Plan, the Company may recover
contributions only if (i) the Plan receives an adverse determination letter with respect to its
initial qualification and (ii) the application for determination letter is filed within the
applicable remedial amendment period that applies to new plans (determined in accordance with the
concepts of Rev. Proc. 2007-44).

          (b) Contributions made to the Plan shall be conditioned upon their deductibility under the
Code. To the extent that a deduction is disallowed for any contribution, such amount shall be
returned to the Company within one year after the disallowance of the deduction.

          (c) If a contribution, or any part thereof, is made on account of a mistake of fact, the
amount of the contribution attributable to such mistake shall be returned to the Company within one
year after it is made.

     5.5  Allocation of Employer Contributions. Subject to the limitations set forth in
Article VI, Employer contributions made to the Trust in the form of cash or Company Stock for a
Plan Year shall be allocated to the Accounts of Participants in the ratio of the Compensation of
each Participant for the Plan Year to the total Compensation of all Participants for the Plan Year,
provided that the Participant has completed 1,000 Hours of Service and is actively employed on the
last date of the Plan Year.

14

 

     5.6 Income on Investments. The income, gains, and losses attributable to investments
under the Plan shall be allocated as of each Valuation Date or at such other times as the
Administrative Committee may determine to the Accounts of Participants and Beneficiaries who have
undistributed balances in their Accounts on the Valuation Date, in proportion to the amounts in the
Accounts immediately after the preceding Valuation Date, but after first reducing each Account by
any distributions, withdrawals or transfers from the Trust during the interim period and increasing
each Account by any transfers to the Trust and by contributions made to the Trust during the
interim period.

     Distributions from the Plan shall include income, gains, and losses accrued as of the
coincident or immediately preceding Valuation Date, and shall not be adjusted proportionately to
reflect any income, gains, or losses accrued after that Valuation Date. All valuations shall be
based on the fair market value of the assets in the Trust on the Valuation Date.

     5.7 Certain Stock Transactions. Shares of Company Stock received by the Trustee as a
result of a stock split, dividend, conversion, or as a result of a reorganization or other
recapitalization of the Company shall be allocated as of the day on which such shares are received
by the Trustee in the same manner as the shares of Company Stock to which they are attributable are
then allocated.

     5.8 Valuation of Trust Fund. As of each Valuation Date, the Trustee shall determine
the fair market value of the Trust, after deducting withdrawals, distributions, and any expenses of
Plan administration paid out of the Trust, and including any contributions allocated to
Participants’ Accounts, for the valuation period ending on the Valuation Date. In determining
value, the Trustee may use such generally accepted methods as the Trustee, in its discretion, deems
advisable, which, in the case of Company Stock shall be in accordance with the provisions of
Article VIII.

15

 

ARTICLE VI

MAXIMUM LIMITATION ON ALLOCATIONS

     6.1 Participation Solely in This Plan.

          (a) If the Participant does not participate in, and has never participated in another plan
qualified under Code Section 401(a) that is maintained by the Employer, or a welfare benefit fund
(as defined in Code Section 419(e)) maintained by the Employer, or an individual medical account
(as defined in Code Section 415(l)(2)) maintained by the Employer, which provides an Annual
Addition, the amount of Annual Additions which may be credited to the Participant’s Account for any
Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in the Plan. Except as provided in Section 6.1(d), if the Company’s
contribution that would otherwise be contributed or allocated to the Participant’s Account would
cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the
amount contributed or allocated will be reduced so that the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount.

          (b) Prior to determining the Participant’s actual Compensation for the Limitation Year, the
Company may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant’s Compensation for the Limitation Year, uniformly determined for all
Participants similarly situated.

          (c) As soon as is administratively feasible after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s
actual Compensation for the Limitation Year.

     6.2 Participation in Another Defined Contribution Plan. This Section 6.2 applies if a
Participant is also covered under another defined contribution plan or a welfare benefit fund (as
defined in Code Section 419(e)), an individual medical account (as defined in Code
Section 415(l)(2) or a simplified employee pension (as defined in Code Section 408(k)) maintained
by the Employer which provides an Annual Addition during any Limitation Year. If the Participant
participates in one or more such plans, all reductions in Annual Additions shall be made under such
plans and not under this Plan. In the event that, notwithstanding the preceding sentence, the
Annual Additions to be credited under this Plan should exceed the Maximum Permissible Amount, the
Annual Additions which would otherwise be credited to the Participant’s Account under any other
such plan shall be reduced prior to making any reduction hereunder, which reduction shall be
reduced in the manner set forth in Section 6.1 of the Plan.

     6.3 Definitions. The following definitions apply solely for purposes of this Article
VI.

          (a) Annual Additions means the sum of the following amounts credited to a Participant’s
Account for the Limitation Year:

               (i) employer contributions

               (ii) employee contributions

16

 

               (iii) forfeitures

               (iv) amounts allocated to an individual medical account (as defined in Code Section 415(l)(2))
which is part of a pension or annuity plan maintained by the Employer which are treated as Annual
Additions to a defined contribution plan, and

               (v) amounts derived from contributions paid or accrued, which are attributable to
post-retirement medical benefits, allocated to the separate account of a key employee, as defined
in Code Section 419A(d)(3), under a welfare benefit fund maintained by the Employer which are
treated as Annual Additions to a defined contribution plan.

               (vi) Excess amounts applied to reduce Employer contributions under Sections 6.2 or 6.1 of the
Plan in the Limitation Year will be Annual Additions for such Limitation Year.

          (b) Employer means the Company and all members of a controlled group of corporations (as
defined in Code Section 414(b) and modified by Code Section 415(h)) all commonly controlled trades
or businesses (as defined in Code Section 414(c) as modified by Code Section 415(h)), any
affiliated service group (as defined in Code Section 414(m)) of which the Company is a part, and
any other entity required to be aggregated with the Employer pursuant to regulations under Code
Section 414(o).

          (c) Excess Amount means the excess of the Participant’s Annual Additions for the Limitation
Year over the Maximum Permissible Amount.

          (d) Limitation Year means the calendar year.

          (e) Maximum Permissible Amount means the Maximum Annual Additions that may be contributed or
allocated to a Participant’s Account for any Limitation Year. Such amount shall not exceed the
lesser of:

               (i) $40,000 (as adjusted for increases in the cost-of-living under Code Section 415(d)), or

               (ii) 100 percent of the Participant’s Compensation for the Limitation Year.

          The Maximum Permissible Amount shall be pro-rated in the case of any Limitation Year of less
than 12 months created by the changing of the Limitation Year.

          If no more than one-third of Company contributions to the Plan for a Plan Year which are
deductible under Code Section 404(a)(9) are allocated to the Accounts of Participants who are
Highly Compensated Employees, there shall be excluded in determining the Maximum Permissible Amount
of each Participant for such Plan Year (A) the contributions applied to the payment of interest on
an Exempt Loan; and (B) any forfeitures of Company contributions if the forfeited contributions
were Company Stock acquired with the proceeds of an Exempt Loan.

17

 

ARTICLE VII

INVESTMENT OF TRUST ASSETS

          All assets of the Plan shall be held in the Trust. To the extent the Trustee deems practical,
the Trustee shall use all available cash, as directed by the Administrative Committee, to purchase
Company Stock in open market transactions, from other stockholders or to buy newly issued Company
Stock from the Company. If the purchase is from the Company or a Disqualified Person, such
purchase shall be for adequate consideration and no commission is to be charged with respect to the
purchase. If no such stock is available for purchase, or if the Trustee determines that the
purchase of such additional stock is not practical, the Trustee shall invest in other securities or
property, real or personal, consistent with the requirements of Title I of ERISA. These other
securities, property and cash shall be held by the Trustee in the Trust. The Trust income shall be
allocated as of each Valuation Date to Participant’s Investment Accounts in accordance with Section
5.6 of the Plan.

18

 

ARTICLE VIII

COMPANY STOCK APPRAISAL

          The fair market value of Company Stock shall be determined, on any relevant day, as follows:
(a) if such stock is then traded in the over-the-counter market, the closing sale price (as
reported in the National Market System by NASDAQ with respect to such stock) for the most recent
date (including such relevant day) during which a trade in such stock has occurred, or (b) if such
stock is then traded on a national securities exchange, the closing sale price for the most recent
date (including such relevant date) during which a trade in such stock has occurred. In accordance
with the provisions of Code Section 401(a)(28)(C), if Company stock is not actively traded in the
over-the-counter market, or on a national securities exchange, a valuation of Company stock
required to be made under this Plan shall be made by an independent appraiser who satisfies
requirements similar to those contained in regulations issued under Code Section 170(a)(1).

19

 

ARTICLE IX

DISTRIBUTIONS

     9.1 Termination of Employment. In the event of the Participant’s termination of
employment for any reason (including attainment of Normal Retirement Date or on account of death),
a Participant shall be entitled to a distribution of all amounts determined under Article IV that
are credited to the Participant’s Account at the times set forth in this Article IX.

     9.2 Death. Upon the death of a Participant, all amounts credited to the
Participant’s Account shall be distributed to the Participant’s Beneficiary, determined in
accordance with this Section 9.2.

          (a) The Administrative Committee may require such proof of death and such other evidence of
the right of any person to receive payment of the Account of a deceased Participant as the
Administrative Committee deems necessary. The Administrative Committee’s determination of death
and of the right of any person to receive payment shall be conclusive and binding on all parties.

          (b) The Beneficiary upon the death of a Participant shall be the Participant’s spouse;
provided, however, that the Participant may designate, on a form provided by the Administrative
Committee for such purpose, a Beneficiary other than the Participant’s spouse, if:

               (i) the spouse has waived the right to be the Participant’s Beneficiary in the manner set
forth in subsection (c) of this Section 9.2; or

               (ii) the Participant has established to the satisfaction of the Administrative Committee that
the Participant has no spouse or that the spouse cannot be located.

          (c) Any consent by a Participant’s spouse to waive a death benefit must be filed with the
Administrative Committee in writing, in a manner, and on a form provided by the Committee for such
purpose. The spouse’s consent must acknowledge the effect of the consent and must be witnessed by
a notary public or a Plan representative. The designation of a Beneficiary other than the spouse
made by a married Participant must be consented to by the Participant’s spouse and may be revoked
by the Participant in writing without the consent of the spouse. Any new beneficiary designation
must comply with the requirements of this subsection (c). A former spouse’s waiver shall not be
binding on a new spouse.

          (d) In the event the designated Beneficiary fails to survive the Participant, or if such
designation shall be ineffective for any reason, the Participant’s Account shall be paid in the
following order of priority: first to the Participant’s surviving spouse, if any; second, if there
is no surviving spouse, to the Participant’s surviving children, if any, in equal shares; third, if
there is neither a surviving spouse nor surviving children, to the legal representatives of the
estate of the Participant.

     9.3  Time of Payment. The distribution of a Participant’s Account shall begin as
soon as administratively feasible. Unless a Participant elects otherwise, such distribution shall

20

 

not be later than 60 days after the latest of the close of the Plan Year in which occurs (i)
the date on which the Participant attains Normal Retirement Date, (ii) the 10th anniversary of the
year in which the Participant commenced participation in the Plan, or (iii) the date the
Participant terminates service with the Employer.

     9.4 Manner of Making Payments. A Participant’s Account will be distributed in one
lump sum.

     9.5 Form of Payment. Distributions of a Participant’s Account balance shall be made
in Company Stock unless the distributee elects cash. In the event the Participant’s Account
includes securities acquired with the proceeds of the Exempt Loan and such proceeds consist of more
than one class of securities, the amount distributed shall include substantially the same
proportion of each class of securities acquired with the proceeds of the Exempt Loan.

     Such distributions shall be the fair market value of each share multiplied by the number of
shares credited to the Participant’s Account, with appropriate adjustments to reflect intervening
stock dividends, stock splits, stock redemptions, or similar changes to the number of outstanding
shares. The fair market value of a share shall be determined as of the Valuation Date coinciding
with or immediately following the date of the distribution request or, in the case of a transaction
between the Plan and a Disqualified Person, determined as of the date of the transaction.

     9.6 Direct Rollover.

          (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a
distributee’s election under this Article IX, a distributee may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the distributee in a direct
rollover.

          For purposes of this Section 9.6, the following definitions apply:

     “Eligible rollover distribution”. An eligible rollover distribution is any distribution of
all or any portion of the balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies) of the distributee and the
distributee’s designated Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code Section 401(a)(9); a
distribution on account of hardship; or the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).

     “Eligible retirement plan”. An eligible retirement plan is an eligible plan under Code
Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or
instrumentality of a state, or political subdivision of a state and which agrees to separately
account for amounts transferred into such plan from this Plan, an individual retirement account
described in Code Section 408(a), an individual retirement annuity described in Code

21

 

Section 408(b), an annuity plan described in Code Section 403(a), an annuity contract
described in Code Section 403(b), or a qualified plan described in Code Section 401(a), that
accepts the distributee’s eligible rollover distribution. The definition of eligible retirement
plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former
spouse who is the alternate payee under a qualified domestic relations order, as defined in Code
Section 414(p).

     “Distributee”. A distributee includes an employee or former employee. In addition, the
employee’s or former employee’s surviving spouse and the employee’s or former employee’s spouse or
former spouse who is the alternate payee under a qualified domestic relations order, as defined in
Code Section 414(p), are distributees with respect to the interest of the spouse or former spouse.
A distributee also includes the Participant’s nonspouse designated Beneficiary, in which case, the
direct rollover may be made only to an individual retirement account or annuity described in Code
Sections 408(a) or 408(b) that is established on behalf of the designated Beneficiary and that will
be treated as an inherited IRA pursuant to the provisions of Code Section 402(c)(11); provided,
however, that the determination of any required minimum distribution that is ineligible for
rollover shall be made in accordance with Notice 2007-7, Q&A 17 and 18.

     “Direct rollover”. A direct rollover is a payment by the plan to the eligible retirement plan
specified by the distributee.

     9.7  Diversification Election. Notwithstanding any provision of this Article to the
contrary, a Participant who has attained age 55 and completed at least ten years of participation
in this Plan may elect in writing, on a form provided by the Administrative Committee for such
purpose, within ninety days after the close of each Plan Year during the Qualified Election Period,
to direct the investment of a portion of the Participant’s interest in the Company Stock Account
not in excess of 25 percent of such interest, less amounts subject to all prior elections under
this Section 9.7 as a transfer to the applicable Penn Millers Insurance Company 401(k) Plan which
permits Participants to make investment elections. Upon a Participant’s election to diversify a
portion of the Participant’s interest in the Company Stock Account, Company Stock in an amount
equal to the portion so elected, valued as of the Valuation Date concurrent with or immediately
following the date of such election will be transferred to the applicable Penn Millers Insurance
Company 401(k) Plan which permits Participants to make investment elections. A participant may
then make investment elections among the several funds. Starting from the sixth Plan Year during
the Qualified Election Period of a Participant, 50 percent shall be substituted for 25 percent in
the preceding sentence.

     For purposes of this Section 9.7, “Qualified Election Period” means, with respect to a
Participant, the period beginning with the later of (a) the Plan Year in which the Participant
attains age 55 or (b) the Plan Year in which the Participant completes at least ten years of
participation in the Plan and ending with the year in which the Participant terminates employment
for any reason.

     9.8 Election to Retain Interests in Plan. No distribution shall be made to a
Participant before such Participant’s Normal Retirement Date unless (a) the Participant’s prior
written consent to the distribution has been obtained by the Administrative Committee, or (b) the

22

 

value of the Participant’s vested Account does not exceed $1,000 as of the date of the event
giving rise to the distribution.

     9.9 Mandatory Distributions.

          (a) notwithstanding any provision of this Plan to the contrary, all amounts credited to a
Participant’s Account shall commence to be distributed not later than the later of (i) April 1 of
the calendar year following the calendar year in which the Participant attains age 701/2 or (ii) the
date the Participant retires; except that distributions to a 5% owner (as defined in Code Section
416) must commence by the April 1 of the calendar year following the calendar year in which such
Participant attains age 701/2. Any and all subsequent distributions shall be made in accordance with
the rules set forth in Code Section 401(a)(9), including the minimum distribution incidental death
requirements of Code Section 401(a)(9)(G).

          (b) In the event the Participant dies after distributions have commenced under this Article IX
but before the Participant’s entire Account is distributed, the remaining portion of the
Participant’s Account shall be distributed at least as rapidly as under the method of distribution
being used as of the date of the Participant’s death.

          (c) In the event the Participant dies before distributions under this Article IX have
commenced, then, unless the Beneficiary of the Participant is the Participant’s spouse, the entire
balance in the Account of the Participant shall be distributed on or before the December 31 of the
calendar year in which occurs the fifth anniversary of the death of such Participant.

          (d) If the Participant’s designated Beneficiary is the surviving spouse of such Participant or
former Participant, such distribution shall not be required to begin prior to the date on which the
Participant or former Participant would have attained age 70 1/2 (if the surviving spouse dies prior
to commencement of distributions to such spouse, then this subsection (i) shall be applied as if
the surviving spouse were the Participant or former Participant).

     Any amount payable to a child pursuant to the death of a Participant or former Participant
shall be treated as if it were payable to the Participant’s or former Participant’s surviving
spouse if such amount would become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted by regulations).

     Any distribution required under the incidental death benefit requirements of Code
Section 401(a)(9) shall be treated as a distribution required under this Section of 9.9.

     9.10 Dividend Distributions.

          (a) Any cash dividends on Company Stock acquired with the proceeds of an Exempt Loan and held
in the Suspense Account shall be applied first to repay the principal and, at the Committee’s
discretion, the interest, of the Exempt Loan. In addition, if any cash dividends on shares of such
Company Stock allocated to Participant’s Accounts are used to pay the principal and/or the interest
of the Exempt Loan at the Committee’s discretion, Company

23

 

Stock with a fair market value not less than the amount of the dividends so used must be
allocated to the Participants’ Accounts to which such cash dividends would have been allocated.

          (b) After the payment of the principal and the interest of the Exempt Loan, any remaining cash
dividends on Company Stock may be used to purchase Company Stock or allocated to Accounts of
Participants in accordance with subsection (c) below.

          (c) In the case of any cash dividends on Company Stock that are allocable to the Accounts of
Participants with respect to vested shares, they may be paid currently (or within ninety days after
the end of the Plan Year in which the dividends are paid to the Trust) as cash, or the Company may
pay such dividends directly to the Participants’ Accounts as the Administrative Committee may
determine.

     9.11 Right of First Refusal. In the event a Participant, former Participant, or
Beneficiary desires to sell to a third person Company Stock received as a distribution from the
Plan, such person must first offer the Company, then the Plan, the right to purchase such Company
Stock at a price and on such terms not less favorable to the Participant than the greater of
(a) the price established by a bona fide offer or (b) the fair market value of the Company Stock
using the value determined as of the concurrent or next following Valuation Date. The right of the
Company and the Plan to purchase such stock shall lapse on the 14th day after such written notice
is given to the Company or the Plan of the fact that an offer has been received from a third party
to purchase the Company Stock and of the price and other terms of such offer.

     9.12 Prohibited Allocations.

          (a) No portion of the assets of the Plan attributable to (or allocable in lieu of) Company
Stock acquired by the Plan in a sale to which Code Section 1042 applies may be allocated to the
Account of (i) any Qualifying Selling Shareholder during the Nonallocation Period, or (ii) any
other person who owns more than 25 percent of (A) any class of outstanding stock of the Company or
any of its Affiliates, or (B) the total value of any class of outstanding stock of the Company or
any of its Affiliates.

          (b) For purposes of this Section 9.12, the following initially capitalized words shall carry
the following meanings:

               (i) “Affiliate” means Affiliate as defined in Section 2.3 of the Plan, modified in accordance
with Code Section 409(l)(4).

               (ii) “Qualifying Selling Shareholder” means any shareholder of Company Stock who makes an
election under Code Section 1042(a) with respect to Company Stock, or any individual who is related
to (within the meaning of Code Section 267(b)) the shareholder of Company Stock as defined above.
The term shall not include any lineal descendant of such shareholder or if the aggregate amount
allocated to the benefit of all such lineal descendants during the Nonallocation Period does not
exceed more than 5 percent of Company Stock (or amounts allocated in lieu thereof) held by the Plan
which are attributable to a sale to the Plan by any person related to such descendants (within the
meaning of Code Section 267(c)(4)) in a transaction to which Code Section 1042 applied.

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               (iii) “Nonallocation Period” means the period beginning on the date of the sale of Company
Stock and ending on the later of the date which is 10 years after the date of the sale, or the date
of the Plan allocation attributable to the final payment of acquisition indebtedness incurred in
connection with such sale.

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ARTICLE X

RIGHT TO SELL COMPANY STOCK

     10.1 Put Requirements.

          (a) In the event Company Stock is distributed and is not publicly traded in the
over-the-counter market or on a national securities exchange at the time of distribution, the
Participant, former Participant, or Beneficiary may have an option (the “Put”) to require the
Company to purchase all of the shares actually distributed to such individual. The Put may be
exercised at any time during the Option Period (as defined in subsection (f) below) by giving the
Administrative Committee and the Company written notice of the election to exercise the Put. The
Put may be exercised by a former Participant or a Beneficiary only during the Option Period with
respect to which the former Participant or Beneficiary receives a distribution of Company Stock.

          (b) (i) The price paid for Company Stock sold to the Plan or the Company pursuant to the Put
shall be the fair market value of each share multiplied by the number of shares to be sold under
the Put, with appropriate adjustments to reflect intervening stock dividends, stock splits, stock
redemptions, or similar changes to the number of outstanding shares. The fair market value of a
share shall be determined (A) as of the Valuation Date concurrent with or immediately following the
date the Put is exercised, or (B) in the case of a transaction between the Plan and a Disqualified
Person, determined as of the date of the transaction.

               (ii) If the distribution of Company Stock to a former Participant or Beneficiary constituted
a distribution within one taxable year of the balance of the Participant’s Account, the Company
reserves the right to establish guidelines to be exercised in a uniform and nondiscriminatory
manner, to make payment for the shares subject to the Put on an installment basis in substantially
equal annual, quarterly or monthly payments over a period not to exceed five years, such period
beginning no later than thirty days after exercise of the Put. The Company shall pay reasonable
interest at least annually on the unpaid balance of the price and shall provide to the former
Participant or Beneficiary adequate security with respect to the unpaid balance. If the
distribution was part of an installment distribution, the Company shall pay the Participant in cash
within thirty days after exercise of the Put.

          (c) The Put shall not be assignable, except that the Participant’s or former Participant’s
legal representative (in the event of a Participant’s incapacity) or, the Participant’s Beneficiary
(in the event of a Participant’s or former Participant’s death) shall be entitled to exercise the
Put during the Option Period for which it is applicable.

          (d) The Trustee (on behalf of the Plan) in its discretion, may assume the Company’s
obligations under this Section at the time a Participant, former Participant, or Beneficiary
exercises the Put, with the Company’s consent. If the Trustee assumes the Company’s obligations,
the provisions of this Section that apply to the Company shall also apply to the Trustee.

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          (e) The Administrative Committee shall notify each Participant, former Participant, and
Beneficiary who is eligible to exercise the Put of the fair market value of each share of Company
Stock as soon as practicable following its determination. The Administrative Committee shall send
all notices required under this Section to the last known address of a Participant, former
Participant, or Beneficiary, and it shall be the duty of those persons to inform the Administrative
Committee of any changes in address.

          (f) For purposes of this Section, the “Option Period” is the period of sixty days following
the day on which a Participant, former Participant, or Beneficiary receives a distribution. If
such person does not exercise the Put during that sixty-day period, the Option Period shall also be
the sixty-day period beginning on the first anniversary of the day on which such person received a
distribution. Notwithstanding the preceding sentences, when Company Stock is acquired with the
proceeds of an Exempt Loan, the “Option Period” shall be the fifteen (15) month period beginning on
the date such Company Stock is distributed to a Participant (or the Participant’s Beneficiary).
Such 15-month period shall be extended by a period equal to the number of days, if any, during
which the Company is precluded from honoring the put option by reason of applicable federal or
state law.

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ARTICLE XI

VOTING AND TENDER OF COMPANY STOCK

     11.1 Voting.

          (a) All shares of Company Stock held in the Trust shall be voted by the Trustee.

          (b) Each Participant and Beneficiary shall be entitled to direct the Trustee as to the manner
in which Company Stock allocated to the Participant’s Account is to be voted on any and all matters
which may be presented to the shareholders of Company Stock.

          (c) With respect to (i) allocated Company Stock as to which no direction is received,
(ii) unallocated shares of Company Stock in the Suspense Account and (iii) allocated shares of
Company Stock that are not subject to voting right pass through requirement under Code
Section 409(e), the Trustee shall vote such shares in the same ratio as the allocated and voted
shares. When voting such shares, however, the Trustee shall comply with its fiduciary duties as
required by ERISA.

     11.2 Tender.

          (a) The Trustee shall not sell, alienate, encumber, pledge, transfer or otherwise dispose of
any Company Stock; except (i) as specifically provided for in the Plan or a Trust Agreement, or
(ii) in the case of a “tender or exchange offer”, as set forth in subsection (b) of this
Section 11.2.

     For purposes of this Article XI, the term “tender or exchange offer” shall mean: (A) any
offer for, or request for or invitation for tenders or exchanges of, or offers to purchase or
acquire any shares of Company Stock that is directed generally to shareholders of the Company, or
(B) any transaction involving Company Stock which may be defined as a “tender offer” under proposed
or final rules or regulations promulgated by the Securities and Exchange Commission.

          (b) (i) In the event of a tender or exchange offer, each Participant or, if the Participant
is not alive, the Participant’s Beneficiary, shall have the right to determine confidentially
whether to tender or exchange any whole and fractional shares of Company Stock allocated to the
Participant’s Account and shall be entitled to instruct the Trustee as to the tender of such
shares. Upon receipt of such instructions, the Trustee shall act with respect to such Company
Stock as instructed. With respect to Company Stock as to which no instruction is received and
shares of Company Stock in the Suspense Account, the Trustee shall tender such shares in the
Trustee’s discretion. In exercising such discretion, the Trustee shall comply with its fiduciary
requirements of ERISA.

               (ii) All shares of Company Stock held in the Fund and not tendered pursuant to
subsection (b)(i) of this Section 11.2, including allocated shares for which no instructions are
received, shall continue to be held by the Trustee.

               (iii) Any shares of Company Stock not tendered by a Participant or Beneficiary pursuant to
subsection (b)(i) of this Section 11.2 shall continue to be held by the

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Trustee in such Participant’s or Beneficiary’s Account. The Account of each Participant or
Beneficiary tendering shares of Company Stock pursuant to subsection (b)(i) of this Section 11.2
shall be credited with the cash received by the Trustee in exchange for the shares tendered from
such Participant’s or Beneficiary’s Account.

          11.3 Fiduciary Responsibilities.

          Each Participant shall be a “named fiduciary,” within the meaning of ERISA Section 402(a),
with respect to the voting and tender of Company Stock pursuant to Sections 11.1 and 11.2 of the
Plan.

          11.4 Procedures for Voting and Tender.

               (a) The Administrative Committee shall establish and maintain procedures by which Participants
and Beneficiaries shall be (i) timely notified of their right to direct the voting and tender of
Company Stock allocated to their Accounts and the manner in which any such directions are to be
conveyed to the Trustee, and (ii) given information relevant to making such decisions. No
directions shall be honored by the Trustee unless timely and properly conveyed in accordance with
such procedures.

               (b) Voting instructions received from Participants and Beneficiaries shall be held in
confidence by the Trustee or its delegate for this purpose and shall not be divulged to the Company
or to any officer or employee of the Company or to any other person.

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ARTICLE XII

ADMINISTRATION

     12.1 Fiduciary Responsibilities. A fiduciary shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to such person under the Plan or
the Trust. The Company shall have sole responsibility to make the contributions provided for under
the Plan and, by action of the Board of Directors, to amend or terminate, in whole or in part, the
Plan or the Trust. The Board of Directors shall have sole responsibility to appoint and remove
members of the Administrative Committee and the Trustees of the Plan. The Administrative Committee
shall have sole responsibility for the general administration of this Plan and for the investment
policies of the Plan, for the selection of the Plan’s investment funds pursuant to the Plan, and
for the appointment and removal of any Investment Manager. Subject to the provisions of the Plan
and the Trust Agreement, the Trustee shall have sole responsibility for the administration of the
Trust and the management of the assets held in the Trust, as set forth in the Plan and the Trust.
It is intended that each fiduciary shall be responsible for the proper exercise of such fiduciary’s
own powers, duties, responsibilities, and obligations and, except as otherwise provided by law,
shall not be responsible for any act or failure to act by another fiduciary. A fiduciary may serve
in more than one fiduciary capacity with respect to the Plan. A fiduciary of the Plan who is also
an Employee shall not be compensated in such individual’s capacity as fiduciary.

     12.2 The Administrative Committee. Any member of the Administrative Committee may
resign with sixty (60) days advance written notice to the Board of Directors. The Administrative
Committee shall select a Chairman and a Secretary to keep records or to assist it in the discharge
of its responsibilities. The Administrative Committee shall have such duties and powers as are
necessary to discharge its responsibilities under the Plan, including, but not limited to, the
following:

          (a) To require any person to furnish such information as it requests for the purpose of the
proper administration of the Plan;

          (b) To make and enforce such rules and regulations and prescribe the use of such forms as it
deems necessary for the efficient administration of the Plan;

          (c) To construe and interpret the Plan, including the right to determine eligibility for
participation, eligibility for payment, the amount of benefits payable, the timing of distributions
and all other issues arising under the Plan as well as the right to remedy possible ambiguities,
inconsistencies or omissions; provided, however, that all such interpretations and decisions shall
be applied in a uniform manner to all similarly situated Participants and Beneficiaries;

          (d) To employ and rely upon such advisors (including attorneys, independent public
accountants, investment advisors and enrolled actuaries) as it deems appropriate or helpful in
connection with the operation and administration of the Plan;

          (e) To maintain complete records of the administration of the Plan;

30

 

          (f) To prepare and file with the appropriate governmental agencies such reports as required
from time to time with respect to the Plan under ERISA, the Code, or other laws and regulations
governing the administration of the Plan;

          (g) To furnish or disclose to Participants, Employees who may become Participants, and
Beneficiaries information about the Plan and statements of accrued benefits under the Plan, in
accordance with ERISA, the Code, or other laws and regulations governing the administration of the
Plan;

          (h) To delegate to one or more members of the Administrative Committee, or to persons other
than Administrative Committee members, any authority, duty or responsibility pertaining to the
administration or operation of the Plan; provided, however, that each such delegation shall be made
by a written instrument authorized by the Administrative Committee and maintained with the records
of the Plan. If any person other than an Employee is so designated, such person must acknowledge,
in writing, acceptance of the duties and responsibilities delegated. All such instruments and
acknowledgments shall be considered a part of the Plan;

          (i) To determine, pursuant to procedures adopted by it, whether a state domestic relations
order served upon the Plan is a “qualified domestic relations order” (as defined in Code
Section 414(p)); to place in escrow any benefits payable in the period during which the
Administrative Committee determines the status of an order; and to take any necessary action to
administer distributions under the terms of a “qualified domestic relations order”;

          (j) To discharge any responsibilities which are allocated to the Administrative Committee
elsewhere in this Plan.

     All decisions and interpretations of the Administrative Committee shall be binding and shall
be entitled to the maximum deference permitted under the law.

     12.3 Plan Expenses. All expenses authorized and incurred by the Administrative
Committee shall be from the assets of the Plan, except to the extent such expenses are paid by the
Company.

     12.4 Meetings and Voting. The Administrative Committee shall act by a majority vote
of its respective members at a meeting or, by written consent of a majority of its members, without
a meeting. The Administrative Committee shall hold meetings, as deemed necessary by them, although
any member may call a special meeting of the committee by giving reasonable notice to the other
members. The Secretary of the Administrative Committee shall have authority to give certified
notice in writing of any action taken by the committee.

     12.5 Compensation. The members of the Administrative Committee, if Employees, shall
serve without compensation.

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     12.6 Claims Procedures.

          (a) Any Participant or Beneficiary (“Claimant”) may file a written claim for a benefit under
the Plan with the Administrative Committee or with a person named by the Administrative Committee
to receive such claims;

          (b) In the event of a denial or limitation of any benefit or payment due or requested by any
Claimant, such Claimant shall be given a written notification containing specific reasons for the
denial or limitation of the benefit. The written notification shall contain specific reference to
the pertinent Plan provisions on which the denial or limitation is based. In addition, it shall
contain a description of any additional material or information necessary for the Claimant to
perfect a claim and an explanation of why such material or information is necessary. Further, the
notification shall provide appropriate information as to the steps to be taken if the Claimant
wishes to submit such claim for review. This written notification shall be given to a Claimant
within ninety days after receipt of the claim by the Administrative Committee (or its delegatee to
receive such claims), unless special circumstances require an extension of time for processing the
claim. If such an extension of time is required, written notice of the extension shall be
furnished to the Claimant prior to the termination of the ninety-day period and such notice shall
indicate the special circumstances which make the postponement appropriate;

          (c) In the event of a denial or limitation of benefits, the Claimant or the Claimant’s duly
authorized representative shall be permitted to review pertinent documents and to submit issues and
comments in writing to the Administrative Committee. In addition, the Claimant or the Claimant’s
duly authorized representative may make a written request for a full and fair review of the claim
and its denial by the Administrative Committee; provided, however, that such written request must
be received by the Administrative Committee (or its delegatee to receive such requests) within
sixty days after receipt by the Claimant of written notification of the denial or limitation. The
sixty-day requirement may be waived by the Administrative Committee in appropriate cases; and

          (d) (i) A decision shall be rendered by the Administrative Committee within sixty days after
the receipt of the request for review; provided, however, that where special circumstances require
an extension of time for processing the decision, it may be postponed, on written notice to the
Claimant (prior to the expiration of the initial sixty-day period) for an additional sixty days,
but in no event shall the decision be rendered more than one hundred and twenty days after the
receipt of such request for review.

               (ii) Notwithstanding subsection (d)(i) of this Section 12.6, if the Administrative Committee
holds regularly scheduled meetings at least quarterly to review such appeals, a Claimant’s request
for review shall be acted upon at the meeting immediately following the receipt of the Claimant’s
request unless such request is filed within thirty days preceding such meeting. In such instance,
the decision shall be made no later than the date of the second meeting following the receipt of
such request by the Administrative Committee (or its delegatee to receive such requests). If
special circumstances require a further extension of time for processing a request, a decision
shall be rendered not later than the third meeting of the Administrative Committee following the
receipt of such request for review, and written notice of the extension shall be furnished to the
Claimant prior to the commencement of the extension.

32

 

               (iii) Any decision by the Administrative Committee shall be furnished to the Claimant in
writing and in a manner calculated to be understood by the Claimant and shall set forth the
specific reason(s) for the decision and the specific Plan provision(s) on which the decision is
based.

          12.7 Liabilities. The Administrative Committee, each member or former member of such
Committee, and each person to whom duties and responsibilities have been delegated under the Plan
shall be indemnified and held harmless by the Company, to the fullest extent permitted by ERISA,
other applicable laws, and the charter and By-laws of the Company.

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ARTICLE XIII

AMENDMENTS

     13.1 Right to Amend. Except as otherwise set forth in this Article XIII or as may be
required by law, the Board of Directors reserves the right to amend the Plan at any time and in any
manner, without prior notification, consultation, or bargaining with any Employee or representative
of Employees by written resolution of the Board of Directors adopted at a duly convened meeting of
the Board of Directors in accordance with the By-Laws of the Company and the laws of the
Commonwealth of Pennsylvania. To the extent required by the Code or ERISA, no amendment to the
Plan shall decrease a Participant’s benefit or eliminate an optional form of distribution. No
amendment shall make it possible for any assets of the Plan to be used for or diverted to any
purposes other than for the exclusive benefit of Participants and Beneficiaries.

     13.2 Amendment by Administrative Committee. The Administrative Committee may adopt
any ministerial and nonsubstantive amendment it deems necessary or appropriate to (a) facilitate
the administration, management and interpretation of the Plan, (b) conform the Plan to current
practice, or (c) cause the Plan and its related Trust to qualify under Code Sections 401(a)(1),
501(a) and 4975(e)(7) or to comply with ERISA or any other applicable laws; provided that such
amendment does not have any material effect on the estimated cost to the Company of maintaining the
Plan.

     13.3 Plan Merger and Asset Transfers. No assets of the Trust shall be merged or
consolidated with, nor shall any assets or liabilities be transferred to any other plan, unless the
benefits payable to each Participant or Beneficiary, if this Plan were terminated immediately after
such action, would be equal to or greater than the benefits such individuals would have been
entitled to receive if this Plan had been terminated immediately before such action.

     13.4 Amendment of Vesting Schedule. Notwithstanding anything to the contrary, no
amendment to the Plan shall have the effect of decreasing a Participant’s nonforfeitable percentage
determined without regard to such amendment as of the later of the date such amendment is adopted
or the date it becomes effective. If the Plan’s vesting schedule is amended, or the Plan is
amended in any way that directly or indirectly affects the computation of a Participant’s
nonforfeitable percentage, each Participant with at least 3 Years of Service may elect, within a
reasonable period after the adoption of the amendment, to have the nonforfeitable percentage
computed under the Plan without regard to such amendment. The Participant’s election may be made
at any time during the period ending on the latest of:

          (a) 60 days after the amendment is adopted;

          (b) 60 days after the amendment becomes effective; or

          (c) 60 days after the Participant is issued written notice of the amendment by the Company or
the Administrative Committee.

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ARTICLE XIV

TERMINATION

     14.1 Right to Terminate. While the Company intends the Plan to be permanent, the
Board of Directors reserves the right to terminate the Plan at any time, without prior
notification, consultation, or bargaining with any Employee or representative of Employees by
written resolution of the Board of Directors adopted at a duly convened meeting of the Board of
Directors in accordance with the By-laws of the Company and the laws of the Commonwealth of
Pennsylvania.

     14.2 Effect of Termination. If the Plan is terminated, contributions shall cease,
and the assets remaining in the Trust, after payment of any expenses, including expenses of
administration or liquidation, shall be retained in the Trust for distribution in accordance with
the terms of the Plan. Upon termination (including a partial termination), or upon the complete
discontinuance of contributions by the Company, all Participants shall be 100 percent vested in
their Accounts.

     14.3 Change in Control. Notwithstanding the provisions of this Article XIII or any
other provisions of the Plan to the contrary, the Plan will terminate, upon a Change in Control.
Such termination shall be effective as of the date of an occurrence of Change in Control determined
under Section 2.7(a), (b), (e), or (f) of the Plan. For purposes of a Change in Control as
described under Plan Section 2.7(c), such termination shall be effective as of the “closing” or
“effective date” of a transaction described in Section 2.7(c) or (d).

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ARTICLE XV

MISCELLANEOUS

     15.1 Non-alienation of Benefits. Except as provided in Code Section 401(a)(13)
(relating to qualified domestic relations orders), Code Section 401(a)(13)(C) and (D) (relating to
offsets ordered or required under a criminal conviction involving the Plan, a civil judgment in
connection with a violation or alleged violation of fiduciary responsibilities under ERISA, or a
settlement agreement between the Participant and the Department of Labor in connection with a
violation or alleged violation of fiduciary responsibilities under ERISA), Section
1.401(a)-13(b)(2) of Treasury regulations (relating to Federal tax levies and judgments), or as
otherwise required by law, no benefit under the Plan at any time shall be subject in any manner to
anticipation, alienation, assignment (either at law or in equity), encumbrance, garnishment, levy,
execution, or other legal or equitable process; and no person shall have power in any manner to
anticipate, transfer, assign (either at law or in equity), alienate or subject to attachment,
garnishment, levy, execution, or other legal or equitable process, or in any way encumber the
Participant’s benefits under the Plan, or any part thereof, and any attempt to do so shall be void.

     15.2 Appointment of Guardian. Where it is established to the satisfaction of the
Administrative Committee that a guardian has been duly appointed on behalf of a person entitled to
a distribution under the Plan, the Administrative Committee may cause payment to be made to the
guardian for the benefit of the entitled person. The Administrative Committee shall have no
responsibility with respect to the application of amounts so paid.

     15.3 Satisfaction of Benefit Claims. The assets of the Trust shall be the sole
source of benefits under this Plan, and each Participant or any other person who shall claim the
right to any payment or benefit under this Plan shall be entitled to look only to the Trust for
such payment or benefit, and shall not have any right, claim or demand against the Company or any
officer or director of the Company. Such Participant or person shall not have a right to or
interest in any assets of the Trust, except as provided from time to time under this Plan.

     15.4 Controlling Law. The provisions of the Plan shall be construed, administered
and enforced under the laws of the United States and the Commonwealth of Pennsylvania.

     15.5 Non-guarantee of Employment. Nothing contained in this Plan shall be construed
as a contract of employment between the Company and any Employee, or as a right of any Employee to
be continued in the employment of the Company or as a limitation of the right of the Company to
discharge any of its Employees, with or without cause.

     15.6 Severability and Construction of the Plan.

          (a) If any provision of the Plan or the application of it to any circumstance(s) or person(s)
is invalid, the remainder of the Plan and the application of such provision to other circumstances
or persons shall not be affected thereby.

          (b) Unless the context otherwise indicates, the masculine wherever used shall include the
feminine and neuter; the singular shall include the plural; and words such as

36

 

“herein”, “hereof,” “hereby,” “hereunder” and words of similar import shall refer to the Plan
as a whole and not any particular part of it.

     15.7  No Requirement of Profits. Contributions may be made to the Plan without
regard to current or accumulated profits of the Company.

     15.8 All Risk on Participants and Beneficiaries. Each Participant and Beneficiary
shall assume all risk in connection with any decrease in the value of the assets of the Trust and
the Participants’ and Beneficiaries’ Accounts.

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ARTICLE XVI

TOP-HEAVY PROVISIONS

     16.1 Determination of Top-Heavy Status.

          (a) Any provision of this Plan to the contrary notwithstanding, for any Plan Year in which the
Plan is a Top-Heavy Plan, the provisions of this Article shall apply. The provisions of this
Article shall have effect only to the extent required under Code Section 416. This Plan shall be
deemed a Top-Heavy Plan only with respect to any Plan Year in which, as of the Determination Date,
the Top-Heavy Ratio exceeds 60 percent.

          (b) If the Plan is not included in a Required Aggregation Group with other plans, then it
shall be Top-Heavy only if (i) when considered by itself it is a Top-Heavy Plan and (ii) it is not
included in a Permissive Aggregation Group that is not a Top-Heavy Group.

          (c) If the Plan is included in a Required Aggregation Group with other plans, it shall be
Top-Heavy only if the Required Aggregation Group, including any permissively aggregated plans, is
Top-Heavy.

     16.2 Top-Heavy Definitions. Solely for purposes of this Article, the following words
and phrases shall have the following meaning;

          (a) “Aggregation Group or Top Heavy Group” means either a Required Aggregation Group or a
Permissive Aggregation Group.

          (b) “Determination Date” means, with respect to any Plan Year, the last day of the preceding
Plan Year or in the case of the first Plan Year of any plan, the last day of such Plan Year or such
other date as permitted under rules issued by the U.S. Department of the Treasury.

          (c) “The Company” means the Company and all members of a controlled group of corporations (as
defined in Code Section 414(b) as modified by Code Section 415(h)), all commonly controlled trades
or businesses (as defined in Code Section 414(c) as modified by Code Section 415(h)), or affiliated
service groups (as defined in Code Section 414(m)) of which the Company is a part.

          (d) “Key Employee” means any employee or former employee (including any deceased employee) who
at any time during the Plan Year that includes the Determination Date was an officer of the Company
having annual compensation greater than $130,000 (as adjusted under Code Section 416(i)(1)), a five
percent owner of the Company, or a one percent owner of the Company having annual compensation of
more than $150,000. For this purpose, annual compensation means compensation within the meaning of
Code Section 415(c)(3). The determination of who is a Key Employee will be made in accordance with
Code Section 416(i)(1) and the applicable regulations and other guidance of general applicability
issued thereunder.

          (e) “Non-Key Employee” means any Employee who is not a Key Employee.

38

 

          (f) “Permissive Aggregation Group” means a Required Aggregation Group plus any other plans
maintained and selected by the Company; provided that all such plans when considered together
satisfy the requirements of Code Sections 401(a)(4) and 410.

          (g) “Required Aggregation Group” means each qualified plan of the Company in which at least
one Key Employee participates or which enables any plan in which a Key Employee participates to
meet the requirements of Code Sections 401(a)(4) or 410.

          (h) “Top-Heavy Ratio” means:

               (i) If the Company maintains one or more defined contribution plans (including any Simplified
Employee Pension Plan) and the Company has not maintained any defined benefit plan which during the
5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy
Ratio is a fraction, the numerator of which is the sum of the Account balances of all Key Employees
as of the Determination Date(s) (including any part of any Account balance distributed in the
1-year period (5-year period in the case of a distribution made for a reason other than severance
from employment, death or disability) ending on the Determination Date(s)), and the denominator of
which is the sum of all Account balances (including any part of any Account balance distributed in
the 1-year period (5-year period in the case of a distribution made for a reason other than
severance from employment, death or disability) ending on the Determination Date(s)), both computed
in accordance with Code Section 416 and the regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as
of the Determination Date, but which is required to be taken into account on that date under Code
Section 416 and the regulations thereunder.

               (ii) If the Company maintains or has maintained one or more defined benefit plans which
during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits,
the Top-Heavy Ratio for any required or permissive aggregation group as appropriate is a fraction,
the numerator of which is the sum of Account Balances under the aggregated defined contribution
plan or plans for all Key Employees, determined in accordance with (i) above, and the present value
of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of
the Determination Date(s), and the denominator of which is the sum of the Account balances under
the aggregated defined contribution plan or plans for all Participants, determined in accordance
with (i) above, and the present value of accrued benefits under the defined benefit plan or plans
for all Participants as of the Determination Date(s), all determined in accordance with Code
Section 416 and the regulations thereunder. The accrued benefits under a defined benefit plan in
both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an
accrued benefit made in the 1-year period (5-year period in the case of a distribution made for a
reason other than severance from employment, death or disability) ending on the Determination Date.

               (iii) For purposes of (i) and (ii) above the value of Account balances and the present value
of accrued benefits will be determined as of the most recent Valuation Date that falls within or
ends with the 12-month period ending on the Determination Date, except as provided in Code Section
416 and the regulations thereunder for the first and second plan years of a defined benefit plan.
The Account balances and accrued benefits of a Participant (1) who is

39

 

not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been
credited with at least one hour of service with any Employer maintaining the plan at any time
during the 1-year period ending on the Determination Date will be disregarded. The calculation of
the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into
account will be made in accordance with Code Section 416 and the regulations thereunder.
Deductible employee contributions will not be taken into account for purposes of computing the
Top-Heavy Ratio. When aggregating plans the value of Account balances and accrued benefits will be
calculated with reference to the Determination Dates that fall within the same calendar year.

                    The accrued benefit of a Participant other than a Key Employee shall be determined under (1)
the method, if any, that uniformly applies for accrual purposes under all defined benefit plans
maintained by the employer, or (2) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional rule of Code Section
411(b)(1)(C).

          (i) “Valuation Date” means, for purposes of determining if the Plan is Top-Heavy, the most
recent Valuation Date in the period of twelve months ending on the Determination Date.

     16.3  Top-Heavy Rules. For any year in which a Plan is determined to be a Top-Heavy
Plan the following rules shall apply:

          (a) For each Plan Year in which the Plan is Top-Heavy, minimum contributions for a Participant
who is a Non-Key Employee shall be required to be made on behalf of each Participant who is
employed by the Company on the last day of the Plan Year. The amount of the minimum contribution
shall be the lesser of the following percentage of compensation:

               (i) 3 percent, or

               (ii) the highest percentage at which Contributions are made under the Plan for the Plan Year
on behalf of any Key Employee.

                    (A) For purposes of this paragraph (ii), all defined contribution plans included in a Required
Aggregation Group shall be treated as one plan.

                    (B) This paragraph (ii) shall not apply if the Plan is included in a Required Aggregation
Group and the Plan enables a defined benefit plan included in the Required Aggregation Group to
meet the requirements of Code Sections 401(a)(4) or 410.

                    (C) If the highest percentage at which Contributions are made under the Plan for a top-heavy
Plan Year on behalf of Key Employees is less than 3%, the amounts contributed as a result of a
salary reduction agreement must be included in determining Contributions made on behalf of Key
Employees.

     Any contributions that must be made under this subsection (a) shall be made under the Penn
Millers Insurance Company 401(k) Plan.

40

 

     (b) The vesting schedule when the Plan is Top-Heavy is as follows:

	 	 	 	 	 
	Years of Service After the Effective Date	 	Vested Percentage
	0-1 Years of Service
	 	 	0	%
	2 Years of Service
	 	 	20	%
	3 Years of Service
	 	 	40	%
	4 Years of Service
	 	 	60	%
	5 Years of Service
	 	 	80	%
	6 or more Years of Service
	 	 	100	%

41

 

ARTICLE XVII

EXEMPT LOANS

     17.1 General. The Trustee shall have the authority and discretion to borrow money
from a Disqualified Person, or another source which is guaranteed by a Disqualified Person for the
purpose of (a) purchasing Company Stock, or (b) repaying a prior Exempt Loan. Any Exempt Loan
shall satisfy all of the requirements of this Article XVII.

     17.2 Terms of Exempt Loan Agreements. All Exempt Loans shall satisfy the following
requirements:

          (a) The loan shall be primarily for the benefit of Participants and their Beneficiaries;

          (b) The loan shall be for a specified term and shall bear no more than a reasonable rate of
interest.

          (c) The collateral pledged by the Trustee shall consist only of the Company Stock purchased
with the borrowed funds, or Company Stock that was pledged as collateral in connection with a prior
Exempt Loan that was repaid with the proceeds of the current Exempt Loan.

          (d) Under the terms of the agreement, the lender shall have no recourse against the Trust, or
any of its assets, except with respect to the collateral and contributions (other than
contributions of Company Stock) by the Company that are made to satisfy its obligations under the
loan agreement and earnings attributable to such collateral and such contributions.

          (e) The payments made on the loan during a Plan Year shall not exceed an amount equal to the
sum of such contributions and the earnings received during or prior to the year less such payments
on the exempt loan in prior years.

          (f) In the event of default, the value of the assets transferred in satisfaction of the loan
shall not exceed the amount of default; moreover, if the lender is a Disqualified Person, the loan
agreement shall provide for a transfer of assets upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the loan.

     17.3 Prohibition on Purchase Arrangements. Except as provided in Article X and as
hereinafter provided in this Article XVII, no Company Stock shall be subject to a put, call, or
other option, or buy-sell or similar arrangement while held by and when distributed from the Trust,
whether or not at the time of distribution the Plan is an employee stock ownership plan. These
protections and rights which attach to Company Stock acquired with the proceeds of an Exempt Loan
shall not be terminable.

     17.4 Suspense Account.

          (a) Company contributions made to the Trust in the form of Company Stock purchased with the
proceeds of an Exempt Loan shall be held in the Suspense Account as

42

 

the collateral for that Exempt Loan. Such stock shall be released from the Suspense Account
on a pro-rata basis according to the amount of the payment on the Exempt Loan for the Plan Year,
determined under one of the following two alternative formulas in the discretion of the
Administrative Committee:

               (i) for each Plan Year during the duration of the Exempt Loan, the number of shares of
Company Stock released shall equal the number of such shares held in the Suspense Account
immediately before release for the current Plan Year multiplied by a fraction, the numerator of
which is the amount of principal and interest paid for the year and the denominator of which is the
sum of the numerator plus the remaining principal and interest to be paid for all future years.
The number of future years under the Exempt Loan must be definitely ascertainable and must be
determined without taking into account any possible extensions or renewal periods. If the interest
rate under the loan is variable, the interest to be paid in future years must be computed by using
the interest rate applicable as of the end of the Plan Year. If the collateral includes more than
one class of Company Stock, the number of shares of each class to be released for a Plan Year must
be determined by applying the same fraction to each class; or

               (ii) for each Plan Year during the duration of the Exempt Loan, the number of shares of
Company Stock released is determined solely with reference to the principal payment of the Exempt
Loan. If Company Stock in the Suspense Account is released in accordance with this
subsection (ii), (A) the Exempt Loan must provide for annual payments of principal and interest at
a cumulative rate that is not less rapid at any time than level annual payments of such amounts for
10 years; and (B) interest included in any payment is disregarded only to the extent that it would
be determined to be interest under standard loan amortization tables.

     This subsection (ii) will not be applicable if by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal period, the extension
period, and the duration of a new Exempt Loan exceeds 10 years.

          (b) Shares of Company Stock released in accordance with Section 17.4(a) of the Plan shall then
be allocated to the Accounts of Participants first, in an amount equal in value to any dividends
paid on shares previously allocated to Participant’s Accounts that are used to repay the Exempt
Loan. The remaining shares of such stock shall be allocated to the Accounts of Participants in the
same manner as described in Section 5.5.

43

 

     IN WITNESS WHEREOF, Penn Millers Holding Corporation has caused this Plan to be duly executed
under seal this ___ day of                                         , 2009.

	 	 	 	 	 
	 	PENN MILLERS HOLDING CORPORATION

 	 
	 	By  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Attest:

                                                            

[SEAL]

44Exhibit 10.5.1

 

FIRST ADDENDUM TO LEASE

 

This First Addendum to Lease (the “First Addendum”) made as of December 21, 2008, is to that certain Lease for the real property located at 350 Oakgrove Parkway, Vadnais Heights, Minnesota, made as of December 15, 2003, by and between Vadnais Heights Investment Company, a Minnesota general partnership, MCHA Capital, LLC, a Minnesota limited liability company, Robert Tipler and Richard K. Mathews (collectively “Lessor”) and Angeion Corporation, a Minnesota corporation, and
Medical Graphics Corporation, a Minnesota corporation, (collectively “Tenant”) (the “Lease”), which Lessor’s interest in the Lease has been assigned to VRT Properties, LLC, a Minnesota limited liability company. All capitalized terms in the Lease shall have the same meaning in this First Addendum, except that Lessor is now VRT Properties, LLC, a Minnesota limited liability company.

WHEREAS, the term of the Lease will expire as of June 30, 2009, and Lessor and Tenant desire to enter into this First Addendum regarding Tenant’s continued occupancy of the Premises.

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Lessor and Tenant agree that the following sections of the Lease are amended by this First Addendum as follows:

1.   TERM.   The term of this Lease (“Term”) shall be extended for one (1) year commencing July 1, 2009 and terminating on June 30, 2010.

4.   RENT.   Tenant agrees to pay Lessor rent in the annual amount of $316,800.00, which shall be payable in monthly installments of $26,400.00, payable in advance on the first day of each and every month for and during the full term of this Lease, at the office of Lessor.

 

21.    TAXES.   Tenant shall pay all real estate taxes and special assessments levied against the Premises during the Term (“Taxes”), making payment to Lessor at least thirty (30) days prior to the date Taxes are due. Lessor will thereupon make payment of the Taxes directly to the taxing authority, as required by law, before penalty attaches to the same. Lessor will send Tenant a copy of the tax statement for the Premises when it is received by Lessor, which is customarily in the first calendar quarter of each year. All other provisions of Section 21 of the Lease not inconsistent with the above remain in full force and effect,

[New]   RENEWAL OPTION.   Tenant shall have the option to renew this Lease for a term of four (4) additional years commencing July 1, 2010 and terminating on June 30, 2014. The rent during the renewal term will be in the annual amounts and monthly installments as follows:

 

	
First Year
 	
$303,600 per year
 	
$25,300 per month
 
	
Second Year
 	
$303,600 per year
 	
$25,300 per month
 
	
Third Year
 	
$309,600 per year
 	
$25,800 per month
 
	
Fourth Year
 	
$309,600 per year
 	
$25,800 per month
 

 

To exercise this renewal option Tenant must give Lessor written notice of intent to renew on or before December 31, 2009.

Except as amended or modified herein, all other provisions of the Lease remain in full force and effect.

IN TESTIMONY WHEREOF, Lessor and Tenant have executed this First Addendum to Lease as of the day and year first written.

 

	
LESSOR
 	
 
 	
TENANT
 
	
 
 	
 
 	
 
 
	
/s/ Albert Hafner
 	
 
 	
/s/ William J. Kullback, CFO
 
	
VRT Properties, LLC
 	
 
 	
Angeion Corporation
 
	
 
 	
 
 	
 
 
	
 
 	
 
 	
/s/ William J. Kullback, CFO
 
	
 
 	
 
 	
Medical Graphics Corporation

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