Document:

exv10w26

 

Exhibit 10.26

CONSULTING AGREEMENT

THIS
CONSULTING AGREEMENT (the “Agreement”) is dated
October 17, 2006, by and between First
Mercury Financial Corporation, a Delaware corporation (the “Company”), and Jerome M. Shaw
(“Consultant”).

PREAMBLE:

The Company, for itself and on behalf of its subsidiaries, desires to engage Consultant as a
consultant to the Company and to obtain the benefits of the covenants by, and restrictions imposed
on, Consultant contained herein; and

Consultant desires to be engaged by the Company and is willing to be bound by the covenants and
restrictions imposed on Consultant herein, all on the terms and conditions set forth herein.

THEREFORE, the Company and Consultant hereby agree as follows:

1. ENGAGEMENT.

1.1 Engagement. The Company, directly or through one of its subsidiaries, shall engage
Consultant as a consultant to the Company and Consultant hereby accepts such engagement, on the
terms and conditions set forth herein.

1.2 Commencement Date. Notwithstanding any other provision of this Agreement, this
Agreement shall constitute a binding obligation of the parties hereto as of the date hereof but
shall become effective only upon the closing of the Company’s initial public offering (the
“IPO”, and the date of such closing being hereinafter referred to as the “Commencement
Date”). If the IPO is not consummated on or prior to December 31, 2006, this Agreement shall,
at such time, be terminated without further obligation or liability of either party.

1.3 Prior Employment Agreement. Effective as of the Commencement Date, that certain
Amended and Restated Employment Agreement dated as of August 17, 2005 between the Consultant and
the Company (the “Prior Employment Agreement”) shall be terminated and of no further force
or effect. Other than with respect to amounts accrued and unpaid, it is expressly agreed that,
from and after the Commencement Date, the Company and its affiliates shall have no further
obligations under, and the Consultant shall have no further rights under, the Prior Employment
Agreement including, without limitation, any severance, termination, or change of control related
benefits.

2. DUTIES.

2.1 Duties. Consultant agrees to furnish, on the terms and conditions hereinafter set
forth, consulting services to the Company and its subsidiaries as may be reasonably requested from
time to time by the Company; provided, however, that such services and the performance of such
services shall be wholly consistent in both nature and extent with that which was required of
Consultant prior to the inception of this Agreement. Subject to the foregoing, Consultant shall at

 

 

all times act in a manner reasonably believed by Consultant to be in the best interest of the
Company and not in Consultant’s own interest or the interest of another person or entity.

2.2 Other Activities. Consultant shall be entitled to make and manage personal investments
consistent with Article 9 of this Agreement and engage in community and/or charitable activities,
so long as such activities do not interfere with the proper performance of his duties and
responsibilities to the Company as required hereunder.

3. TERM.

Consultant’s engagement shall commence as of the Commencement Date and shall continue for a period
of three (3) years thereafter, unless sooner terminated in accordance with Article 6 (the
“Term”).

4. CONSULTING FEE AND BENEFITS.

4.1 Consulting Fee. During the Term, the Company shall pay to Consultant a Consulting Fee
at the annual rate of $1,000,000 (the “Consulting Fee”). Consultant’s Consulting Fee shall
be payable in installments in accordance with the Company’s usual payroll practices for its
salaried employees. No additional compensation shall be payable to Consultant by reason of the
number of hours worked or any hours worked on Saturdays, Sundays or holidays, by reason of special
responsibilities assumed (whether on behalf of the Company or any of its Affiliates), special
projects completed, or otherwise.

4.2 Benefits. During the Term, to the extent Consultant qualifies to participate in the
Company’s benefit plans, Consultant shall be entitled to such employment benefits as are generally
made available by the Company to its executive employees (the “Benefits”). In addition,
the Company will continue to provide the Consultant with (i) the use of a company automobile
including insurance thereon and (ii) the use of an office at the Company’s headquarters and
secretarial support.

4.3 Exclusivity of Payments and Benefits. Consultant shall not be entitled to any payments
or benefits other than those provided under this Agreement or as otherwise required by applicable
law. Compliance with the provisions of this Article 4 shall in no way create or be deemed to
create any obligation, express or implied, on the part of the Company or any of its Affiliates with
respect to the continuation of any particular benefit or other plan or arrangement maintained by
them or their subsidiaries as of or prior to the date hereof or the creation and maintenance of any
particular benefit or other plan or arrangement at any time after the date hereof. For purposes of
this Agreement, “Affiliates” shall mean with respect to any person, trust, organization or
entity, any other person, trust, organization or entity that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with, such specified
person, trust, organization or entity.

5. REIMBURSEMENTS.

During the Term, Consultant shall be entitled to receive reimbursement by the Company for all
reasonable and necessary expenses incurred by him on behalf of the Company in performing his duties
hereunder, including all reasonable travel and entertainment expenses, in accordance with

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the Company’s policies for executive employees as approved by the Company’s Board of Directors or
Compensation Committee and in effect from time to time. As a condition to reimbursement,
Consultant must present such documentation and records as the Company’s Board of Directors,
Compensation Committee, policies and applicable regulations shall
from time to time reasonably require.

6. TERMINATION OF ENGAGEMENT.

6.1 Termination by the Company. The Company shall have the right to terminate the Term at
any time for any reason in its sole discretion. Upon termination of the Term pursuant to this
Section 6.1, the Company shall have no obligation to pay to Consultant any severance or similar
amounts; provided, however, that, in lieu of any such severance benefit, the
Company shall, subject to Section 10.2, pay to Consultant the Consulting Fee and Benefits, in
accordance with the Company’s past practice, from the date of termination of the Term through the
third anniversary of the Commencement Date, provided that Consultant executes a release, in the
form of Exhibit A, releasing the Company and its Affiliates and otherwise complies in all
material respects with all of Consultant’s duties and covenants hereunder.

6.2 Death or Disability. In the event of the death or disability of Consultant, the Term
shall automatically terminate, and the Company shall pay to Consultant the Consulting Fee and
Benefits, in accordance with the Company’s past practice, from the date of termination of the Term
through the third anniversary of the Commencement Date, provided that Consultant or his personal
representative executes a release, in the form of Exhibit A, releasing the Company and its
Affiliates and otherwise complies in all material respects with all of Consultant’s duties and
covenants hereunder.

6.3 Payment of Accrued and Unpaid Consulting Fee and Benefits Upon Termination. In the
event the Consultant terminates the Term for any reason, the Consultant shall be entitled only to
the amounts specified in this Section 6.3 (and not the amounts specified in Section 6.1). Upon
termination of the Term by the Consultant, the Company shall promptly pay Consultant his accrued
and unpaid Consulting Fee for the period prior to the termination and Consultant shall only be
entitled to such accrued and unpaid Benefits as are required to be paid under the terms of
applicable benefit plans (other than severance plans) or applicable law, provided that Consultant
or his personal representative executes a release, in the form of Exhibit A, releasing the
Company and its Affiliates and otherwise complies in all material respects with all of Consultant’s
duties and covenants hereunder.

7. THIRD PARTY AGREEMENTS AND RIGHTS.

Consultant hereby confirms that Consultant is not bound by the terms of any agreement with any
previous employer or other party that restricts in any way Consultant’s use or disclosure of
information or Consultant’s engagement in the business contemplated by this Agreement. Consultant
represents to the Company that Consultant’s execution of this Agreement, Consultant’s engagement
with the Company and the performance of Consultant’s proposed duties for the Company will not
violate any obligations Consultant may have to any such previous employer or other party. In
Consultant’s work for the Company, Consultant will not disclose or make use of any information in
violation of any agreements with or rights of any such

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previous employer or other party, and Consultant will not bring to the premises of the Company or
its subsidiaries any copies or other tangible embodiments of non-public information belonging to or
obtained from any such previous employment or other party.

8. LITIGATION AND REGULATORY COOPERATION.

During and after Consultant’s engagement, Consultant shall cooperate fully with the Company and its
Affiliates in the defense or prosecution of any claims or actions now in existence or which may be
brought in the future against or on behalf of the Company or its Affiliates or predecessors that
relate to events or occurrences that transpired while Consultant was employed or engaged by the
Company. Consultant’s full cooperation in connection with such claims or actions shall include,
but not be limited to, being available to meet with counsel to prepare for discovery or trial and
to act as a witness on behalf of the Company or its Affiliates or predecessors at mutually
convenient times. During and after Consultant’s engagement, Consultant also shall cooperate fully
with the Company and its Affiliates in connection with any investigation or review of any federal,
state or local regulatory authority as any such investigation or review relates to events or
occurrences that transpired while Consultant was employed or engaged by the Company. The Company
shall reimburse Consultant for any reasonable out-of-pocket expenses incurred in connection with
Consultant’s performance of obligations pursuant to this Article 8.

9. BUSINESS OPPORTUNITIES.

Consultant agrees, while he is engaged by the Company, to offer or otherwise make known or
available to the Board of Directors of the Company and without additional compensation or
consideration, any business prospects, contracts or other business opportunities that Consultant
may discover, find, develop or otherwise have available to Consultant in the business of the
Company’s or its Affiliates’ general industry and further agrees that any such prospects, contacts
or other business opportunities shall be the property of the Company.

10. REMEDIES.

10.1 Injunctive Relief. Consultant agrees that any breach of Article 8 or 9 above will
result in irreparable damage to the Company for which the Company will have no adequate remedy at
law, and, therefore if such a breach should occur, Consultant consents to any temporary or
permanent injunction or decree of specific performance by any court of competent jurisdiction in
favor of the Company enjoining any such breach, without prejudice to any other right or remedy to
which the Company shall be entitled and without requirement of a bond or other security.

10.2 No Entitlement to Payments. In the event Consultant breaches (subject to any
applicable cure periods) in any material respect Article 8 or 9 of this Agreement or any of the
covenants set forth in the Non-Competition and Confidentiality Agreements during or after the Term,
Consultant shall not thereafter be entitled to the payment of any Consulting Fee or Benefits or
other amounts. For the purposes of this Agreement, the “Non-Competition and Confidentiality
Agreements” shall refer collectively to the following agreements: (i) Non-Competition and
Confidentiality Agreement between the Company and Consultant dated June 7, 2004, (ii)
Non-Competition and Confidentiality Agreement between American Risk Pooling Consultants, Inc., a

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Michigan corporation, and Consultant dated June 14, 2004, and (iii) Non-Competition and
Confidentiality Agreement between First Mercury Holdings, Inc. and Consultant dated August 17,
2005.

10.3 Construction. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement or the application thereof to any party or circumstance shall be prohibited by or
invalid under applicable law, including, without limitation, by reason of its being extended over
too great a period of time or too large a geographic area or over too great a range of activities
or otherwise, such provision shall be ineffective to the minimal extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the remaining provisions of
this Agreement or the application of such provision and, if applicable, such provision shall be
interpreted to extend only over the maximum period of time, geographic area or range of activities
as to which it may be enforceable.

10.4 Costs of Enforcement. In the event either party brings an action or proceeding to
enforce any provision or provisions of this Agreement or to obtain damages as a result of a breach
of this Agreement or to enjoin any breach of this Agreement, the prevailing party in such action or
proceeding shall be entitled to recover from the non-prevailing party any and all reasonable costs
and expenses (including without limitation attorneys’ fees) incurred by such prevailing party in
connection with such action or proceeding.

11. NOTICES.

Any notice required to be given with respect to this Agreement shall be in writing, and shall be
deemed to have been duly given:

	 	(a)	 	when delivered personally;
	 
	 	(b)	 	two (2) business days after being deposited with a nationally recognized
overnight courier with instructions for next day delivery;
	 
	 	(c)	 	five (5) business days after deposited in the mails, certified or registered,
return receipt requested, and with the proper postage prepaid, addressed as follows:

	 	 	 	 	 
	 

	 	If to the Company:
	 	First Mercury Financial Corporation
	 

	 	 	 	29621 Northwestern Highway
	 

	 	 	 	Southfield, Michigan 48034
	 

	 	 	 	Attention: Richard Smith
	 
	 	 	 	 
	 

	 	With a copy to:
	 	McDermott Will & Emery LLP
	 

	 	 	 	227 West Monroe Street
	 

	 	 	 	Chicago, Illinois 60606-5096
	 

	 	 	 	Attention: Scott M. Williams

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	 	If to Consultant:
	 	Jerome M. Shaw
	 

	 	 	 	3 Grove Isle
	 

	 	 	 	Penthouse 1
	 

	 	 	 	Coconut Grove, Florida 33133
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Larry J. Spilkin, P.C.
	 

	 	 	 	29621 Northwestern Hwy.
	 

	 	 	 	Southfield, Michigan 48034
	 

	 	 	 	Attention: Larry J. Spilkin

The address of any party hereto may be changed by a notice in writing given in accordance with the
provisions hereof.

12. MISCELLANEOUS.

12.1 Independent Contractors. It is expressly understood and agreed that the relationship
created by this Agreement between Consultant and Company shall be that of two independent
contractors. Nothing herein shall be construed as establishing a partnership, joint venture or
agency relationship between the parties hereto. Consultant is not an agent or employee of the
Company and shall have no power or authority to bind or obligate the Company in any manner or for
any purpose. Consultant agrees to pay and fully discharge all taxes and contributions required of
an employer or self-employed person under federal, state and local laws, including all unemployment
insurance, workers’ compensation, social security contribution and income taxes, and shall timely
file all reports related thereto.

12.2 Headings. The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or construction of any of
the provisions hereof.

12.3 Benefit. This Agreement shall inure to the benefit of, and be binding upon, the
Company and its successors and assigns. The duties of Consultant hereunder are personal in nature.
Therefore, this Agreement may not be assigned by Consultant.

12.4 GOVERNING LAW. THE VALIDITY AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF MICHIGAN.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF
BROUGHT IN MICHIGAN OR THE U.S. DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN, AND HEREBY
FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDINGS BROUGHT IN MICHIGAN OR IN
SUCH DISTRICT COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE

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PARTIES HERETO HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF, OR WITH RESPECT TO, THIS AGREEMENT AND AGREE THAT ANY SUCH SUIT, ACTION OR PROCEEDING SHALL
BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

12.5 Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall constitute one and the same instrument.

12.6 Delivery by Facsimile. This Agreement and any amendments hereto, to the extent signed
and delivered by means of a facsimile machine, shall be considered to have the same binding legal
effect as if it were the original signed version thereof delivered in person. No party hereto
shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or
agreement or instrument was transmitted or communicated through the use of a facsimile machine as a
defense to the formation or enforceability of this Agreement and each such party forever waives any
such defense.

12.7 Amendments. This Agreement may not be amended and the terms or covenants hereof may
not be waived, except by a written instrument executed by the Company (by a proper officer
designated by the Board after Board approval for such amendment or waiver shall have been obtained)
and Consultant or in the case of a waiver, by the party waiving compliance. The failure of either
party at any time or times to require performance of any provisions hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by either party hereto of the
breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

12.8 Survival. In addition to those provisions hereof which expressly survive the
expiration of the Term and termination of engagement, Articles 6, 7, 8, 10, 11 and 12 shall survive
the expiration of the Term and termination of engagement as set forth therein.

12.9 Consultant’s Acknowledgement. Consultant acknowledges (i) that he has consulted with
or has had the opportunity to consult with independent counsel of his own choice concerning this
Agreement and has been advised to do so by the Company, and (ii) that he has read and understands
this Agreement, is fully aware of its legal effect, and has entered into it freely based on his own
judgment.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.

	 	 	 	 	 
	 	 	CONSULTANT:
	 
	 	
/s/ Jerome M. Shaw 
	 	 	 
	 	 	Jerome M. Shaw
	 
	 	 	 	 
	 	 	COMPANY:
	 
	 	 	 	 
	 	 	First Mercury Financial Corporation
	 
	 	 	 	 
	 

	 	By:	 	/s/ Richard H. Smith 
	 

	 	 	 	 
	 	 	Name: Richard H. Smith
	 	 	Title:
  President & CEO

 

 

EXHIBIT A

GENERAL RELEASE AND WAIVER OF CLAIMS

     The undersigned, Jerome M. Shaw, a resident of the State of Michigan (“Releasor”), in
accordance with and pursuant to the terms of Article 6 of the Consulting Agreement dated as of
October 17, 2006, between First Mercury Financial Corporation (the “Company”) a Delaware
corporation, and Releasor (as amended and restated, the “Agreement”), hereby, in exchange
for the Company’s compliance with the Agreement, remises, releases and forever discharges and
covenants not to sue, and by these presents does for his, her or its legal representatives,
trustees, beneficiaries, heirs, legatees, executors and administrators (Releasor and such persons
referred to herein, collectively, as the “Releasing Parties”), the Company, and its
subsidiaries, owners, affiliated entities, successors and assigns (collectively, the
“Company”), their respective officers, directors, employees, equity holders, agent and
representatives and all of their respective successor and assigns (each a “Released Party”
and collectively, the “Released Parties”) of and from any and all manner of actions,
proceedings, claims, causes of action, suits, debts, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, controversies, contracts, leases, agreements, promises, variances,
trespasses, damages, judgments, executions, claims and demands, of any nature whatsoever, and of
every kind and description, choate and inchoate, known or unknown, at law or in equity
(collectively, “Claims”), which the Releasing Parties, or any of them, now have or ever
had, or hereafter can, shall or may have, for, upon or by reason of any matter, cause or thing
whatsoever, against the Released Parties, and each of them, from the beginning of time to the date
hereof;

     (i) arising from Releasor’s employment, engagement, compensation, commissions, deferred
compensation plans, insurance, employee benefits, and other terms and conditions of
employment or engagement or employment practices of Company or the Company under federal,
state or local law or regulation, including, but not limited to the Employee Retirement
Income Security Act of 1974, as amended;

     (ii) relating to the termination of Releasor’s employment or engagement or the
surrounding circumstances thereof;

     (iii) relating to payment of any attorneys’ fees incurred by Releasor in connection
with his employment or engagement or the surrounding circumstances thereof (other than as
contemplated by Section 10.4 of the Agreement);

     (iv) based on any alleged discrimination on the basis of race, color, religion, sex,
age, national origin, handicap, disability or another category protected by any federal,
state or local law or regulation, including, but not limited to, the Age Discrimination in
Employment Act (29 U.S.C. §§ 621 et seq.), Title VII of the Civil Rights Act of 1964
(42 U.S.C. §§ 2000et seq.), Sections 1981 through 1988 of Title 42 of the United
States Code (42 U.S.C. §§ 1981-88), the Americans with Disabilities Act (42 U.S.C. §§ 12101
et seq.), the Fair Labor Standards Act (29 U.S.C. §§ 201 et seq.), the Older
Workers Benefit Protection Act of 1990, or Consultant Order 11246 (as any of these laws or
orders may have been amended) or any other similar federal, state or local labor, employment
or anti-discriminatory laws;

 

 

     (v) based on any contract (relating to his employment or engagement), tort (based on
his termination), whistleblower, personal injury (arising from his termination), or
retaliatory or wrongful discharge theory; and

     (vi) based on any other federal, state or local constitution, regulation, law (whether
statutory or common), or legal theory relating to his employment or engagement or the term
thereof.

     Notwithstanding the foregoing, the Releasing Parties do not release (a) any vested rights
under any retirement plan, (b) any rights arising under the Stock Purchase Agreement dated March 1,
2004 regarding the sale of American Risk Pooling Consultants, Inc. and Public Entity Risk Services
of Ohio, Inc. and the transactions contemplated thereby, (c) any rights arising solely in their
capacities as stockholders of the Company and (d) any rights to payments or other entitlements
under Section 6.1, 6.2, or 6.3, as applicable.

     Releasor represents and warrants on behalf of the Releasing Parties that there has been, and
there will be, no assignment or other transfer of any right or interest in any Claims which he, she
or it has or may have against the Released Parties, and Releasor hereby agrees to indemnify and
hold each Released Party harmless from any Claims, costs, expenses and attorney’s fees directly or
indirectly incurred by any of the Released Parties as a result of any person asserting any right or
interest pursuant to his, her or its assignment or transfer of any such right or interest.

     Releasor agrees that if any Releasing Party hereafter commences, joins in, or in any manner
seeks relief through any suit arising out of, based upon, or relating to any of the Claims released
hereunder, or in any manner asserts against any Released Party any of the Claims released
hereunder, then Releasor will pay to such Released Party, in addition to any all damages and
compensation, direct or indirect, all attorney’s fees incurred in defending or otherwise responding
to such suit or Claims.

     Releasor acknowledges that (i) he, she or it has received the advice of legal counsel in
connection with this General Release and Waiver of Claims, (ii) he, she or it has read and
understands that this is a General Release and Waiver of Claims, and (iii) he, she or it intends to
be legally bound by the same.

     Releasor acknowledges that he has been given the opportunity to consider this Agreement for
twenty-one (21) days and has been encouraged and given the opportunity to consult with legal
counsel of his choosing before signing it. Releasor understands that he shall have seven (7) days
from the date on which he executes this General Release and Waiver of Claims (as indicated by the
date below his signature) to revoke his signature and agreement to be bound hereby by providing
written notice of revocation to Company within such seven (7) day period. Releasor further
understands and acknowledges this Agreement shall become effective, if not sooner revoked, on the
eighth day after the execution hereof by Releasor (the “Effective Date”).

 

 

     IN WITNESS WHEREOF, Releasor has executed and delivered this General Release and Waiver of
Claims on behalf of the Releasing Parties as of the day and year set forth below.

	 	 	 	 	 	 	 
	Dated:                    , 200__	 	 	 	RELEASOR:
	 
	 	 	 	 	 	 
	 

	 	 	 	Signature:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Jerome M. Shawexv10w27

 

Exhibit 10.27

October 4, 2006

Mr. John A. Marazza

400 Alton Road

Miami Beach, FL 33139

Dear John:

I am pleased to offer you the position of Executive Vice President, Chief Financial Officer,
Treasurer, and Secretary of First Mercury Financial Corporation (FMFC), effective as July 1, 2006,
with the following terms:

	•	 	Base Salary: $325,000 annual
	 
	•	 	Target Cash Bonus: 50% of base salary ($125,000 guaranteed for 2006)
	 
	•	 	Restricted Stock:

	 	•	 	52 Shares of restricted stock
	 
	 	•	 	50% vested on date of grant; 50% vests monthly over 4 years
	 
	 	•	 	Vesting accelerates to 100% (i) 6 months after completion of IPO or
change in control or (ii) upon termination of Marazza’s employment by
FMFC for any reason

	•	 	Annual long term incentive plan target award of $250,000 to $300,000 to be determined by
Compensation Committee
	 
	•	 	Participation in IPO related stock awards as determined by Compensation Committee.
	 
	•	 	Other customary benefits FMFC provides to its executives.
	 
	•	 	Temporary living expenses — 12 months at $4,000 per month.
	 
	•	 	$50,000 sign on bonus in lieu of relocation expenses.
	 
	•	 	Severance periods:

	 	•	 	Resignation for good reason — 12 months
	 
	 	•	 	Termination without cause — 12 months
	 
	 	•	 	Change in control:

	 	•	 	Occurring prior to 6/30/08 — 24 months
	 
	 	•	 	Occurring 7/1/08 to 6/30/09 — 18 months
	 
	 	•	 	Occurring after 7/1/09 — 12 months

	•	 	Severance benefits:

	 	•	 	Base Salary for severance period:

 

 

Mr. John A. Marazza

July 1, 2006

Page 2

	 	•	 	Target bonus for immediately prior year; if unpaid, plus year in
which termination occurred;
	 
	 	•	 	Vesting of all stock options/restricted stock awards

	 	•	 	1 year exercise period for all stock options; and

	 	•	 	Benefits for severance period.

	•	 	Non-compete/non-solicitation — same period as severance period.
	 
	•	 	Termination for cause:

	 	•	 	Narrow definition of objective criteria with right to cure.

	•	 	Resignation for good Reason:

	 	•	 	Ceases to hold titles or authority/responsibilities reduced;
	 
	 	•	 	Base salary is reduced;
	 
	 	•	 	Richard Smith no longer is CEO; or
	 
	 	•	 	Disability.

These terms will be reflected in an executive employment agreement to be executed by FMFC and you.

This agreement will supercede all prior agreements with respect to the terms of your employment
with FMFC.

Sincerely,

First Mercury Financial Corporation

/s/
Richard H. Smith
Richard H. Smith

President & CEO

	 	 	 	 	 	 	 
	Accepted by:

	 	/s/ John A. Marazza 	 	Date:	 	10/4/06 
	 

	 	 
	 	 	 	 
	 

	 	John A. Marazza

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