Document:

ex10-3.htm

    Exhibit 10.3

    
      
        

      

    EXECUTIVE
SEVERANCE AGREEMENT

    

    

     

    THIS EXECUTIVE SEVERANCE AGREEMENT
(“Agreement”), effective as of  April 28, 2009 (the
Effective Date”), by and between Frontier Oil Corporation, a Wyoming corporation
(the “Company”), and Joshua W. Goodmanson (the “Executive”).

     

    WITNESSETH:

     

    WHEREAS, the Company and the
Executive desire to provide the Executive with certain benefits upon a Qualified
Termination of Employment, as defined below;

     

    NOW, THEREFORE, in
consideration of the premises and covenants herein contained and other good,
valuable and binding consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

     

    1. Term
of Agreement.

     

    1.01 This
Agreement is effective as of the Effective Date and, unless terminated earlier
as provided herein, shall terminate on the first anniversary of the Effective
Date; provided, however, on each anniversary of the Effective Date the term of
this Agreement (“Term”) shall be extended automatically for an additional
one-year period unless the Company shall have delivered to the Executive written
notice of non-renewal at least 90 days prior to the applicable
anniversary.

     

    1.02 Notwithstanding
any provision of this Agreement to the contrary, termination of this Agreement
shall not alter or impair any rights, benefits or obligations of the Executive
(or his estate or beneficiaries) that have arisen under this Agreement on or
prior to such termination.

     

    1.03 Nothing
in this Agreement shall operate or be construed to create any right or duty on
the part of the Company or the Executive to remain in the employment of the
Company for any period of time, each reserving all rights to terminate the “at
will” employment relationship of the Executive at any time.

     

    2. Qualified
Termination of Employment.

     

    2.01 In the
event of the Executive’s Qualified Termination of Employment, as defined in
paragraph 2.02 below, during the Term of this Agreement, the Executive shall be
entitled to receive the following payments and benefits, provided the Executive
timely executes and returns to the Company a Waiver and Release in the form
attached hereto as Attachment A and does not revoke such Waiver and
Release:

     

    (a) Continuation of Base
Salary: the Company shall pay to the Executive, beginning on the 15th day
of the calendar month that is 60 days after such Qualified Termination of
Employment occurs and continuing thereafter on the last day of such initial
calendar month and on the 15th day and the last day of each calendar month
thereafter until the earlier of the Executive’s date of death or the 24th
payment made under this paragraph 2.01(a) has been paid an amount equal to 50%
of his monthly base salary, as determined immediately prior to the Qualified
Termination of Employment, but disregarding any reductions in such monthly base
salary made in the preceding three months unless equal percentage reductions
were made in the base salaries of all other comparable executives of the
Company.  In accordance with Treasury Regulation §1.409A-2(b)(iii),
the Executive’s right to this series of installment payments shall at all times
be treated as a right to a series of separate payments, and in the event of a
“change in control event”, within the meaning of Section 409A(a)(2)(A)(v) of the
Internal Revenue Code (“Code”) and Treas. Reg. §1.409A-3(i)(5), all remaining
installment payments shall be accelerated and paid in a lump sum, subject to
paragraph 2.01(e)(v).

     

    (b) Pro Rated
Bonus:

     

    (i) With
respect to a bonus that is intended to qualify as “performance-based
compensation” under Section 162(m) of the Code at its time of grant (“Bonus”),
such Bonus shall continue pursuant to its terms except as provided
herein.  Notwithstanding anything in the Bonus agreement to the
contrary, to the extent that all or a part of the Bonus becomes payable (x)
pursuant to its terms as a result of the achievement of the performance targets
or goals applicable to such Bonus award (based on actual results compared to
target(s)), or (y) due to a change in control event, a prorated portion thereof
(based on the number of days in the performance period that have lapsed through
the Executive’s Qualified Termination of Employment date over the total number
of days in the performance period) shall be paid to the Executive in a lump sum
on or as soon as practical following the end of the performance period, or, if
earlier, the date of the change in control event, and in no event later than 21⁄2
months following the end of the performance period or the date of the change in
control event, if earlier.

     

    (ii) With
respect to a bonus that is not intended to be “performance-based compensation”
under Section 162(m) of the Code, the Company shall pay the Executive, in lieu
of such bonus, an amount equal to the product of (1) his annual base salary (his
monthly base salary as determined above multiplied by 12) and (2) his target
bonus percentage for the bonus year in which the qualified Termination of
Employment occurs or for the immediately preceding bonus year, if a higher
target percentage, with such product prorated based on the number of days the
Executive was an employee of the Company during the bonus year in which his
employment terminated over 365.  Such prorated bonus shall be paid on
the 60th day after the Qualified Termination of Employment.

     

    (c) COBRA
Premiums:  if the Executive timely elects COBRA continuation
coverage on his Qualified Termination of Employment, then, until the earliest of
(i) the end of the 12 month period following the Qualified Termination, (ii) the
termination of COBRA continuation coverage for the Executive for any reason, or
(iii) the Executive becomes employed by another employer, regardless of whether
he is covered under a group health plan of such other employer, the Company
shall remit on behalf of the Executive the full monthly premium for the COBRA
coverage elected by the Executive under the Company’s plan; provided, however,
such premium payment by the Company on behalf of the Executive shall constitute
and be treated by the parties as additional taxable severance compensation to
the Executive for all purposes.

     

    (d) Outplacement:  the
Company will provide the Executive with outplacement services (to the extent
reasonable with the Executive’s position as determined by the Company, but in no
event to exceed $15,000) during the 12 month period following the Qualified
Termination of Employment, through an outplacement services provider selected or
approved by the Company.

     

    (e) Company
Equity Awards:

     

    (i) All
Company stock options and stock appreciation rights (“SARs”) granted to the
Executive shall, upon a Qualified Termination of Employment, become fully vested
upon such Qualified Termination of Employment and shall remain exercisable until
the earliest of (i) the third anniversary of the date of the Qualified
Termination of Employment (but in no event later than the earlier of (x) the
10th
anniversary of the original grant date of the Option or SAR or (y) the latest
date on which the option or SAR could have expired by its original terms under
any circumstances), (ii) the date the option or SAR would have expired by its
terms if the Executive had not incurred a termination of employment, and (iii)
the date options and SARs granted under the Company’s equity plan are terminated
in connection with a change in control event of the Company;

     

    (ii) Except as
provided in clause (i) above, all Company equity-based awards that are intended
to qualify as “performance-based compensation” under Section 162(m) of the Code
(“Performance Awards”) on the date of grant shall, upon a Qualified Termination
of Employment, continue pursuant to their terms.  Notwithstanding
anything in a Performance Award agreement to the contrary, to the extent that
all or a part of the Performance Award becomes payable pursuant to (x) its terms
as a result of the achievement of the performance targets or goals applicable to
such Performance Award (based on actual results compared to target(s)) or (y)
the occurrence of a change in control event, a prorated portion (based on the
number of days in the performance period that have lapsed through the
Executive’s Qualified Termination of Employment date over the total number of
days in the performance period) of such Performance Amount shall be paid to the
Executive in a lump sum on or as soon as practical following the end of the
performance period or the date of the change in control event; but in no event
later than 21⁄2 months following the end of the performance period or the date of
the change in control event, if earlier; and

     

    (iii) Except as
provided in clause (i) above, all other Company equity-based awards that are not
intended to be Performance Awards shall vest in full (except as provided below)
(notwithstanding anything in such award’s grant agreement to the contrary) upon
a Qualified Termination of Employment (at their target level for those awards
with target levels and/or performance criteria) and shall be paid to the
Executive on the 60th day after his Qualified Termination of Employment;
provided, however, that if the Executive’s Qualified Termination of Employment
occurs in the year in which such award is granted to the Executive, only a
portion of such award shall vest (based on the number of days in the year that
have lapsed through the Executive’s Qualified Termination of Employment date
over 365) and such vested portion shall be paid to the Executive not later than
60 days after his Qualified Termination of Employment.

     

    (f) Life
Insurance:  if provided to the Executive immediately prior to the
Qualified Termination of Employment, the Company shall continue the Executive’s
coverage(s) in the Company’s basic and/or executive life insurance program(s)
for 12 months or until the Executive becomes employed by another employer,
whichever occurs first, provided such continued coverage(s) of the Executive is
permitted by the term(s) of the life insurance contract(s) issued to the Company
with respect to such program(s).

     

    (g) Waiver
and Release: the waiver and release required under this Section 2.01 for
payments and benefits to be made to the Executive hereunder must be executed and
returned to the Company by the Executive no later than the 45th day following
the Executive’s Qualified Termination of Employment; however, if the Executive
dies prior to the Waiver and Release becoming effective (or prior to the
execution of the Waiver and Release within such 45-day period), such requirement
shall be waived and the payment and benefits shall be made to the Executive’s
estate by the later of the end of the year of his death or 21⁄2 months after his
date of death.

     

    2.02 A
“Qualified Termination of Employment,” for purposes of this Agreement,
means:

     

    (a) a
termination of the Executive’s employment by the Company during the Term for any
reason other than for (i) Cause, as defined in paragraph 2.03 below, or (ii) a
disability that is anticipated to be permanent and total, as determined by the
Company’s long-term disability insurance carrier, and entitles the Executive to
receive benefits under the long-term disability plan of the Company or its
affiliates, or

     

    (b) a
termination by the Executive of his employment with the Company during the Term
based upon the occurrence of any of the following events:

     

    (i) a
material reduction in the Executive’s monthly base salary, unless comparable
reductions are made in the base salaries of all similar executives by the
Company,

     

    (ii) a
material reduction in the annual target percentage or bonus opportunities
provided to the Executive, as compared against those in effect in the
immediately preceding bonus year, unless comparable reductions are made in the
annual target percentages or bonus opportunities of all similar executives by
the Company, or

     

    (iii) a written
notice to the Executive of the relocation of his principal office location by
more than 50 miles from its then location, unless the Executive is provided with
relocation benefits and reimbursements by the Company that are comparable to the
relocation package customarily provided by the Company to similarly situated
executives of the Company and provides for the payment by the Company of the
costs for the relocation of the Executive’s household goods and for the
reimbursement of the costs of selling the Executive’s residence, if any, but
excluding any costs of repairs, improvements, income taxes or other similar
non-realtor selling or closing expenses.

     

    2.03 For
purposes of this Agreement, the termination of the Executive’s employment by the
Company shall be deemed to have been for “Cause” only if:

     

    (a) such
termination shall have been the result of an act or acts of dishonesty on the
part of the Executive resulting or intended to result, directly or indirectly,
in gain or personal enrichment to the Executive at the expense of the Company or
an affiliate;

     

    (b) the
Executive’s unwillingness to perform his duties in a satisfactory manner, as
determined in good faith by the Board of Directors of the Company (the “Board”);
or

     

    (c) the
Executive, after written notice from the Company, shall have failed, within the
period provided in such notice, to perform his duties at a level consistent with
his performance prior to the failure that gave rise to the notice from the
Company, as determined in good faith by the Board.

     

    2.04 If the
Executive’s employment with the Company and its affiliates is terminated for any
reason other than a Qualified Termination of Employment, this Agreement shall
automatically terminate on such termination of employment without any payments
or benefits due the Executive under this Agreement.

     

    2.05 Notwithstanding
anything in this Agreement to the contrary, if any payment to the Executive
under this Agreement would subject the Executive to the additional tax provided
by Section 409A of the Code if made before the date that is six months after the
Qualified Termination of Employment, such payment(s) shall be deferred (and
accumulated without interest if more than one) and paid in a single sum on the
first business day of the seventh month following the date of the Qualified
Termination of Employment or on such earlier date, if any, as would not subject
the Executive to such additional tax.

     

    2.06 Notwithstanding
anything in this Agreement to the contrary, a “termination of Executive’s
employment” means a “separation from service” for purposes of Section 409A of
the Code.

     

    3. Confidential
Information

     

    3.01 The
Executive agrees not to disclose, either while in the Company’s employ or at any
time thereafter, to any person not employed by the Company or an affiliate, or
not engaged to render services to the Company or an affiliate, or any person who
is not authorized to receive such disclosure, any confidential information
concerning the Company’s businesses, operations, financial affairs, policies,
procedures, personnel, business plans or any other confidential information
relating to the business of the Company or an affiliate obtained by him while in
the employ of the Company or an affiliate; provided, however, that this
provision shall not preclude the Executive from use or disclosure of information
known generally to the public or of information not considered confidential by
persons engaged in the business conducted by the Company or an affiliate or from
disclosure required by law.

     

    3.02 The
Executive agrees that upon leaving the Company’s employ he will not take with
him, without the prior written consent of an officer authorized to act in the
matter by the Board, any document, notes, disc, tape, or electronic medium or
other property, including copies thereof, containing any information of the
Company or its affiliates that is of a confidential nature.

     

    3.03 The
Executive shall not, for his own account or the account of any other person or
entity, during his employment with the Company and the one-year period following
the termination of his employment for any reason, solicit or in any manner
induce or attempt to induce any employee of the Company or an affiliate to
terminate his or her employment or interfere in any manner with any such
employment relationship.

     

    3.04 The
Company and the Executive agree that neither party shall at any time during or
after the termination of the Executive’s employment disparage the other party in
any manner, including any parent, subsidiary, affiliate, director, agent,
officer, employee, agent or shareholder of the Company.

     

    3.05 The
foregoing obligations of this Section 3 will survive and remain binding and
enforceable on the parties, notwithstanding the termination of this Agreement,
the Executive’s termination of employment and without regard to the reason for
such termination.

     

    4. Notices

     

    All
notices, requests, demands and other communications provided for by this
Agreement shall be deemed to have been duly given if and when mailed in the
continental United States by registered or certified mail, return receipt
requested, postage prepaid, or personally delivered or sent by telex or other
telegraphic means to the party entitled thereto at the address stated below or
to such changed address as the addressee may have given by a similar
notice:

     

    To the
Company:                              Frontier
Oil Corporation

    10000 Memorial Drive

    Suite 600

    Houston,
Texas  77024

    Attn:  General
Counsel

    

    To the
Executive:                              Joshua
W. Goodmanson

    1210 Rolling Hills Drive

    Augusta,
KS  67010

    

     

    5. General
Provisions

     

    5.01 Except as
provided in paragraph 5.11, there shall be no right of set-off, mitigation or
counterclaim in respect of any claim, debt or obligation, against any payments
to the Executive, his dependents, beneficiaries or estate provided for in this
Agreement.

     

    5.02 The
Company and the Executive recognize that each party will have no adequate remedy
at law for breach by the other of any of the agreements contained herein and, in
the event of any such breach, the Company and the Executive hereby agree and
consent that the other shall be entitled to a decree of specific performance,
mandamus, injunction or other appropriate remedy to enforce performance of such
agreements.

     

    5.03 No right
or interest in any payments under this Agreement shall be assignable by the
Executive; provided, however, that this provision shall not preclude the legal
representative of his estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate.

     

    5.04 No right,
benefit or interest hereunder shall be subject to anticipation, alienation,
sale, assignment, encumbrance, charge, pledge, hypothecation, or set-off in
respect of any claim, debt or obligation, or to execution, attachment, levy or
similar process, or assignment by operation of law, except as provided in
paragraph 5.03. Any attempt, voluntary or involuntary, to effect any action
specified in the immediately preceding sentence shall, to the full extent
permitted by law, be null, void and of no effect.

     

    5.05 In the
event of the Executive’s death or a judicial determination of his incompetence,
reference in this Agreement to the Executive shall be deemed, where appropriate,
to his beneficiary or beneficiaries. This Agreement shall inure to the benefit
of and be enforceable by Executive’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.

     

    5.06 The
titles to sections in this Agreement are intended solely for convenience and no
provision of this Agreement is to be construed by reference to the title of any
section.

     

    5.07 No
provision of this Agreement may be amended, modified or waived unless such
amendment, modification or waiver shall be authorized by the Board or any
authorized committee of the Board and shall be agreed to in writing, signed by
the Executive and by an officer of the Company thereunto duly
authorized.

     

    5.08  Except
as otherwise specifically provided in this Agreement, no waiver by either party
hereto of any breach by the other party hereto of any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of a
subsequent breach of such condition or provision or a waiver of a similar or
dissimilar provision or condition at the same or at any prior or subsequent
time.

     

    5.09 In the
event that any provision or portion of this Agreement shall be determined to be
invalid or unenforceable for any reason, the remaining provisions and portions
of this Agreement shall be unaffected thereby and shall remain in full force and
effect to the fullest extent permitted by law.

     

    5.10 This
Agreement shall be governed by and construed in accordance with the laws of the
State of Texas.  THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS IN HARRIS
COUNTY, TEXAS FOR THE PURPOSES OF ANY PROCEEDING ARISING OUT OF THIS
AGREEMENT.

     

    5.11 If the
Executive is entitled to severance payments or severance benefits pursuant to an
individual employment agreement or change of control agreement with the Company,
the parties hereto intend for there not to be a duplication of such payments or
benefits with any severance payments or severance benefits to which the
Executive may be entitled to receive under this Agreement and the payments and
benefits under such other agreement shall reduce or offset any similar payment
or benefit to which the Executive is entitled to receive under this Agreement
and which has not yet been paid or provided.

     

    5.12 The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise.

     

    5.13 Nothing
in this Agreement shall limit or otherwise adversely effect such rights as the
Executive may have under the terms of any equity award, employee benefit plan,
incentive compensation arrangement or other agreement with the Company or any of
its affiliates.

     

    5.14 The
Company shall withhold from all payments and benefits provided under this
Agreement all taxes required to be withheld by the Company by applicable
law.

     

    5.15 For
purposes of this Agreement, “employment with the Company” shall include any
employment of the Executive with a parent, subsidiary or affiliate of the
Company.

     

    5.16 It is the
intent of the parties that payments under this Agreement constitute separation
pay and comply with the requirements of Section 409A of the Internal Revenue
Code so that the Executive is not subject to the additional tax provided under
said section.  The parties agree that the Agreement shall be
interpreted and modified as necessary to comply with Section 409A.

     

    IN WITNESS WHEREOF, the
parties hereto have executed this Agreement effective for all purposes as of the
Effective Date.

     

    FRONTIER OIL CORPORATION

     

    By:          /s/
Michael C.
Jennings                                              

    Name:     Michael C. Jennings

    Title:       President & CEO

     

    

    

    EXECUTIVE

    

                                        /s/ Joshua W.
Goodmanson
                                    Joshua W.
Goodmansonexhb10-1_seip.htm

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    Exhibit
10.1

     

    

     

    

     

    

     

    HARLEYSVILLE
GROUP INC.

     

    SENIOR
EXECUTIVE INCENTIVE COMPENSATION PLAN

     

    

     

    

     

    EFFECTIVE
JANUARY 1, 2009

     

    ADOPTED
BY STOCKHOLDERS: APRIL 22, 2009

     

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    

    HARLEYSVILLE
GROUP INC.

    SENIOR
EXECUTIVE INCENTIVE COMPENSATION PLAN

    EFFECTIVE
JANUARY 1, 2009

    TABLE OF
CONTENTS

     

    
       

      
        	
                 

                ARTICLE

              	
                I.

              	
                PURPOSE

              	 
      	
                1

              
	
                 

                ARTICLE

              	
                II.

              	
                DEFINITIONS

              	 
      	
                1

              
	
                 

                ARTICLE

              	
                III.

              	
                ADMINISTRATION

              	 
      	
                2

              
	
                 

                ARTICLE

              	
                IV.

              	
                EFFECTIVE
      DATE

              	 
      	
                3

              
	
                 

                ARTICLE

              	
                V.

              	
                PARTICIPATION

              	 
      	
                3

              
	
                 

                ARTICLE

              	
                VI.

              	
                MINIMUM
      INCENTIVE AWARD THRESHOLD

              	 
      	
                3

              
	
                 

                ARTICLE

              	
                VII.

              	
                MAXIMUM
      AWARDS

              	 
      	
                4

              
	
                 

                ARTICLE

              	
                VIII

              	
                COMMITTEE
      CERTIFICATION

              	 
      	
                5

              
	
                 

                ARTICLE

              	
                IX.

              	
                PAYMENT
      OF INCENTIVE AWARDS

              	 
      	
                5

              
	
                 

                ARTICLE

              	
                X.

              	
                DEFERRED
      PAYMENT ELECTION

              	 
      	
                5

              
	
                 

                ARTICLE

              	
                XI.

              	
                FORFEITURE
      OF INCENTIVE AWARDS

              	 
      	
                5

              
	
                 

                ARTICLE

              	
                XII.

              	
                AMENDMENT,
      SUSPENSION OR TERMINATION

              	 
      	
                6

              
	
                 

                ARTICLE

              	
                XIII.

              	
                GOVERNING
      LAW

              	 
      	
                6

              
	
                 

                ARTICLE

              	
                XIV.

              	
                COSTS
      OF THE PLAN

              	 
      	
                6

              
	
                 

                ARTICLE

              	
                XV.

              	
                NON-ASSIGNABLE

              	 
      	
                6

              
	
                 

                ARTICLE

              	
                XVI

              	
                NO
      EMPLOYMENT CONTRACT

              	 
      	
                7

              
	 
      	 
      	 
      	 
      	 
      

      

      

       

    

    

     

     

     

    

     

    
      
         

      

      
        i 

        
          

        

      

      
         

      

    

    

     

    

    HARLEYSVILLE
GROUP INC.

    SENIOR EXECUTIVE INCENTIVE
COMPENSATION PLAN

    EFFECTIVE JANUARY 1,
2009

     

     

     

    ARTICLE
 I.        PURPOSE

     

    This
Senior Executive Incentive Compensation Plan (hereinafter referred to as the
"Plan") is intended to increase the profitability of Harleysville Group Inc.
("HGI"), Harleysville Mutual Insurance Company (“HMIC”) and their respective
subsidiaries by providing competitive incentive award opportunities for senior
management based on achievement of business-related objectives.  It is
the purpose of this Plan to motivate senior management to the attainment of
demanding goals by providing recognition and rewards in the form of incentive
payments which shall be paid in cash; provided that payment of an incentive
award may be deferred at the election of each Participant as set forth in this
Plan.  The Plan has the further objectives of attracting and retaining
senior management personnel of superior caliber and of affording them a means of
participating in the overall success of the business.

     

    ARTICLE 
II.        DEFINITIONS

     

    For the
purposes of this Plan, the following terms shall have the meanings set forth
below:

     

    
      	
              (A)  

            	
              “Base Salary” -
      A Participant’s base salary payable by one of the Companies, as in effect
      at the beginning of an Incentive Award Year; provided, that if, within the
      first 90 days of an Incentive Award Year, the Committee, or, with respect
      to CEO base salary, the independent members of the Board of Directors,
      determines a Participant’s base salary for that year retroactive to the
      beginning of such Incentive Award Year, that different base salary shall
      be used.

            

    

     

    
      	
              (B)  

            	
              "Board of
      Directors" - The Board of Directors of
  HGI.

            

    

     

    
      	
              (C)  

            	
              “CEO” - The
      chief executive officer of HGI.

            

    

     

    
      	
              (D)  

            	
              “Code” - The
      Internal Revenue Code of 1986, as
amended.

            

    

     

    
      	
              (E)  

            	
              "Committee" -
      The Compensation and Personnel Development Committee of the Board of
      Directors, which Committee members shall meet the requirements of section
      162(m) of the Code.

            

    

     

    
      	
              (F)  

            	
              “Companies” -
      HGI, HMIC and their respective subsidiaries.  Any of them may be
      individually referred to as a “Company” in this
  Plan.

            

    

     

    
      	
              (G)  

            	
              “EIP” – The
      Harleysville Group Inc. Amended and Restated Equity Incentive Plan or its
      successor.

            

    

     

    
      	
              (H)  

            	
              "Incentive Award
      Year" - A calendar year for which incentive awards may be
      paid.

            

    

     

    
      	
              (I)  

            	
              "Maximum Award"
      - The maximum incentive award amount for each Participant which may be
      paid only if the minimum incentive award threshold, as described in
      Article VI of this Plan, for such Incentive Award Year is
      satisfied.

            

    

     

    
      
        
          1

        

         

      

      
         

        
          

        

      

      
         

      

    

    

     

    

     

    
      	
              (J)  

            	
              "Participant" -
      An officer of one of the Companies who is designated as a participant by
      the Committee.

            

    

     

    
      	
              (K)  

            	
              “Return on Equity
      (ROE)” - The operating return on the average common stockholders
      equity of HGI.  To determine the average equity, the common
      equity at the beginning of the year and end of the year will be
      averaged.  Operating return is based on net income (after taxes)
      but excluding realized investment gains or losses, after
      taxes.  ROE will be calculated without the stockholders’ equity
      impact of SFAS Nos.  115.

            

    

     

    ARTICLE
III.        ADMINISTRATION

     

    
      	
              (A)  

            	
              The
      responsibility for the implementation and administration of this Plan is
      delegated to the Committee.  In addition to its duties as
      elsewhere set forth in this Plan, the Committee's functions shall include
      the following:

            

    

     

    
      	
              (1)  

            	
              interpretation
      of the Plan and establishment of the rules and regulations governing Plan
      administration,

            

    

     

    
      	
              (2)  

            	
              determination
      of who is a Participant,

            

    

     

    
      	
              (3)  

            	
              selection
      of appropriate incentive award criteria (from among those criteria
      specified in Article VI(B)) and thresholds,
and

            

    

     

    
      	
              (4)  

            	
              determination
      of the incentive awards under this Plan; provided that the Committee shall
      only have authority to reduce Maximum Awards from the maximums set forth
      in Article VII.

            

    

     

    In
reaching its decisions, the Committee shall consider recommendations made by the
CEO.  The Committee may, in discharging its responsibilities under the
Plan, delegate such administrative duties to officers or other employees of one
of the Companies as it deems appropriate, other than such duties as relate to
compliance with section 162(m) of the Code.  The Committee may also
utilize the services of an independent compensation consultant or, to the extent
necessary, the services of the Company’s independent auditing firm, to the
extent necessary to provide information to be used by the Committee in its
administration of this Plan and determination of incentive awards under this
Plan.  No Committee Member shall be eligible for an incentive award
under this Plan.

     

    
      	
              (B)  

            	
              Any
      decision or action made or taken by the Committee, arising out of or in
      connection with the construction, administration, interpretation and
      effect of the Plan and of its rules and regulations, shall be conclusive
      and binding upon all Participants and any person claiming through or under
      any Participant.

            

    

     

    
      	
              (C)  

            	
              This
      Plan is intended to satisfy the applicable requirements of section 162(m)
      of the Code and the regulations thereunder so that the applicable
      Company’s tax deduction for incentive awards granted to “covered
      employees” (as defined in section 162(m)) is not disallowed in whole or in
      part by the operation of section 162(m).  The Committee shall
      interpret the terms of this Plan and any incentive award granted hereunder
      so as not to frustrate such intent.

            

    

     

    
      
         

      

      
        2 

        
          

        

      

      
         

      

    

    

     

    ARTICLE 
IV.        EFFECTIVE DATE

     

    This Plan
shall be effective for all Incentive Award Years beginning on or after January
1, 2009, subject to receipt of approval from the HGI stockholders, and will be
submitted for such approval at the 2009 Annual Meeting of
Stockholders.  Any incentive awards made for the Incentive Award Years
beginning on or after January 1, 2009 shall be conditioned upon receipt of such
stockholder approval.

     

    ARTICLE
 V.        PARTICIPATION

     

    
      	
              (A)  

            	
              No
      later than ninety (90) days after the beginning of each Incentive Award
      Year, the Committee shall designate the officers of Companies who shall
      participate in the Plan, retroactive back to January 1 for such Incentive
      Award Year.  If an officer otherwise becomes a Participant
      during an Incentive Award Year, he or she shall be eligible to participate
      on the same basis as other similarly situated officers; provided that he
      or she will be entitled to receive no more than that portion of his or her
      Maximum Award that he or she otherwise would have received under the Plan
      for the full Incentive Award Year which the number of complete calendar
      months of his or her participation in the Plan during such Incentive Award
      Year bears to twelve (12).  If prior to end of any Incentive
      Award Year, a Participant’s employment shall have been terminated for a
      reason other than retirement (as defined in the EIP), change in control
      (as defined in EIP), death or disability, such Participant shall not be
      entitled to any incentive award for that Incentive Award
      Year.  In addition, if prior to the end of an Incentive Award
      Year, an officer’s employment is not terminated, but such Participant’s
      eligibility is terminated because of change of duties or position, such
      officer shall not be entitled to any incentive award for that Incentive
      Award Year.

            

    

     

    
      	
              (B)  

            	
              If,
      prior to the end of an Incentive Award Year, a Participant's employment
      with all Companies ceases because of disability (as defined in HGI’s
      long-term disability insurance plan), retirement (as defined in the EIP),
      change in control (as defined in the EIP) or death, he or she shall be
      entitled to receive an incentive award not in excess of that proportion of
      his or her Maximum Award that he or she otherwise would have received
      under the Plan for the full Incentive Award Year which the number of
      complete calendar months of his or her participation in the Plan during
      such Incentive Award Year bears to twelve (12); provided, that such
      Maximum Award shall be subject to reduction by the Committee in the
      exercise of its negative discretion prior to such
    pro-ration.

            

    

     

                                                     
ARTICLE  VI.        MINIMUM
INCENTIVE AWARD THRESHOLD

     

    
      	
              (A)  

            	
              Except
      as provided in Article VI (B), below, the minimum incentive award
      threshold required for incentive awards to be paid under this Plan with
      respect to an Incentive Award Year shall be at least a five percent (5%)
      return on equity for HGI.  If such minimum threshold performance
      has not been attained by HGI for an Incentive Award Year, then no
      incentive award shall be paid under this Plan for such Incentive Award
      Year.

            

    

     

    
      	
              (B)  

            	
              In
      lieu of the 5% return on equity minimum incentive award threshold
      described in Article VI (A), above, the Committee may, no later than
      ninety (90) days after the beginning of the Incentive Award Year (or, if
      earlier, no later than the date by which twenty five percent (25%) of the
      Incentive Award Year has elapsed), establish the minimum incentive award
      threshold from among the following performance criteria (which may be
      determined for these purposes either by reference to the Companies
      as

            

    

     

    
      
         

      

      
        3 

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              a
      whole or by reference to any one or more of the Companies, operating
      divisions or other operating units), or relative to achievement of similar
      performance measures at identified peer companies: combined ratio (the
      ratio which is the sum of: (1) the ratio of losses, loss adjustment
      expenses, and policy holder dividends to net earned premiums, plus (2) the
      ratio of underwriting expenses to net written premium, with the resulting
      fraction expressed as a percentage), net premium growth, change in
      surplus, total shareholder return, stock price, market share, gross sales,
      gross revenues, net revenues, pretax income, operating income, cash flows,
      cash flows from operations, earnings per share, diluted or basic, return
      on equity (at a different percentage), return on invested capital or
      assets, cost reductions and savings, return on revenues or productivity,
      operating margin or profit margin, working capital, cost of capital,
      capital expenditures, completion of acquisitions, business expansion,
      product diversification, or any variation or combination of the preceding
      business criteria.  In addition, the Committee may utilize as an
      additional performance measure (to the extent consistent with provisions
      of section 162(m) of the Code that provide the rules pursuant to which
      compensation that is paid to executives on the basis of performance is
      exempt from the limitations on deductibility) the attainment by a
      Participant of one or more personal objectives and/or goals that the
      Committee deems appropriate, including, but not limited to, implementation
      of Company policies, negotiation of significant corporate transactions,
      development of long- term business goals or strategic plans for the
      Company, customer satisfaction, agent satisfaction, or the exercise of
      specific areas of managerial responsibility; provided, however, that the
      measurement of the Company’s or a Participant’s achievement of any of such
      goals must be objectively determinable and shall be determined, to the
      extent applicable, according to generally accepted accounting principles;
      and provided further that the outcome of such threshold is substantially
      uncertain at the time the Committee actually establishes such threshold
      for the Incentive Award Year.  To the extent consistent with
      Section 162(m) of the Code, the Committee may determine that certain
      adjustments apply, in whole or in part, in such manner as determined by
      the Committee, to exclude the effect of any of the following events that
      occur during an Incentive Award Year: the impairment of tangible or
      intangible assets; litigation or claim judgments or settlements; the
      effect of changes in tax law, accounting principles or other such laws or
      provisions affecting reported results; accruals for reorganization and
      restructuring programs, including, but not limited to, reductions in force
      and early retirement incentives; currency fluctuations; and any
      extraordinary, unusual, infrequent or non-recurring items described in
      management’s discussion and analysis of financial condition and results of
      operations or the financial statements and notes thereto appearing in
      HGI’s annual report to shareholders for the applicable
    year.

            

    

     

    ARTICLE 
VII.        MAXIMUM AWARDS

     

    Each
Participant shall have a Maximum Award of 200% of his or her base
salary.  Notwithstanding the foregoing, no Maximum Award shall exceed
$1,500,000.  As long as the minimum incentive award threshold is
achieved, the Committee has the authority to make a Maximum Award to each
Participant, however, the Committee reserves the right to exercise negative
discretion to pay any Participant less than the Maximum Award.  In
exercising such negative discretion, the Committee may take into account
achievement of a Company, business unit and/or individual long-term and/or
short-term goals.

     

    
      
         

      

      
        4 

        
          

        

      

      
         

      

    

    

     

    ARTICLE 
VIII.        COMMITTEE
CERTIFICATION

     

    Prior to
payment of any incentive awards for an Incentive Award Year, the Committee shall
evaluate whether the minimum incentive award threshold was attained, as
described in Article VI of this Plan for such Incentive Award Year and certify,
in writing (which may be reflected in the minutes of the Committee meeting),
whether such minimum incentive award threshold was attained, thereby entitling
Participants to a payout.

     

    ARTICLE 
IX.        PAYMENT OF INCENTIVE
AWARDS

     

    The
amount of each Participant's incentive award shall be calculated following the
close of each Incentive Award Year.  Except as provided in Article X,
all incentive award payments shall be made in cash, less required statutory
withholding amounts, as soon as practicable after the Incentive Award Year, but
no later than the March 15th following the end of each Incentive Award
Year.  Payments may be made in two or more installments, but in no
event shall an installment be payable later than March 15th following the end of
the Incentive Award Year to which it relates.  The incentive award
payments shall not constitute earnings for purposes of determining benefits
under any life insurance, salary continuation or other employee benefit plan of
any of the Companies, except as may be provided in each such plan.

     

    ARTICLE 
X.        DEFERRED PAYMENT
ELECTION

     

    In lieu
of the payment provisions set forth in Article IX, a Participant may elect to
defer receipt of his or her incentive award pursuant to, and in accordance with,
the terms of the Harleysville Group Inc. Non-Qualified Deferred Compensation
Plan or its successor.

     

    ARTICLE
 XI.        FORFEITURE OF INCENTIVE
AWARDS

     

    
      	
              (A)  

            	
              With
      respect to any deferred amounts or amounts not yet paid, if a Participant
      at any time engages in any activity that the Committee determines, in its
      discretion, was or is harmful to the interests of one of the Companies,
      the Committee may determine whether or not, and if so, the extent to which
      any deferred amount of the Participant or any amount not yet paid shall be
      forfeited.  This provision shall apply
  to:

            

    

     

    
      	
              (1)  

            	
              activities
      that may occur prior to termination of service but did not result in
      termination of service, but which become known to the Committee after
      termination of service;

            

    

     

    
      	
              (2)  

            	
              activities
      that occur prior to and resulted in termination of service;
    or

            

    

     

    
      	
              (3)  

            	
              activities
      that occur following termination of service and prior to or during the
      period when the Participant would otherwise be entitled to receive payment
      of the deferred amounts or amounts not yet paid, credited to his
      account.

            

    

     

    The
Committee shall have the authority, in its discretion, to determine what kinds
of activities shall be deemed harmful to the interests of the Companies for the
purposes of this Plan.  A determination by the Committee under this
Article, including its determination as to the time at which harmful activities
commenced, shall be conclusive; provided, however, that in each case where a
substantial forfeiture is determined by the Committee under this Article, the
Committee's action shall be reported to the Board of Directors for its
concurrence.

     

    
      
         

      

      
        5 

        
          

        

      

      
         

      

    

    

     

    
      	
              (B)  

            	
              All
      deferred amounts credited to a Participant's account in the Non-Qualified
      Deferred Compensation Plan shall be contingent and to the extent any such
      amount shall not have actually been paid to a Participant, it shall not be
      so paid and shall be forfeited in the following circumstances (unless the
      Committee, in its discretion, otherwise determines in view of extenuating
      circumstances in a particular
case):

            

    

     

    
      	
              (1)  

            	
              if
      a Participant's employment is terminated by a Company for willful
      misconduct; or

            

    

     

    
      	
              (2)  

            	
              if,
      after termination of employment for any reason, a Participant shall engage
      in activities which are harmful to the interests of a
    Company.

            

    

     

    
      	
              (C)  

            	
              All
      account balances that are forfeited under this Article shall be cancelled
      and removed from the applicable Company’s books and records and none of
      the Companies shall have further liability in connection
      therewith.

            

    

     

    ARTICLE 
XII.        AMENDMENT, SUSPENSION OR
TERMINATION

     

    While it
is the present intention of HGI and the Companies to grant incentive awards
annually, HGI by action of the Committee or the Board of Directors, reserves the
right to amend or modify this Plan from time to time or to repeal the Plan
entirely, or to direct a discontinuance of granted incentive awards either
temporarily or permanently; provided, however, that HGI shall seek stockholder
approval for any amendment or modification for which stockholder approval is
required under section 162(m) of the Code; and provided, further, however, that
no modification or termination of this Plan shall operate to annul, without the
consent of a Participant, an incentive award already granted hereunder,
regardless of whether such incentive award will be deferred in accordance with
Article X.

     

    ARTICLE
 XIII.        GOVERNING
LAW

     

    The place
of administration of this Plan shall be conclusively deemed to be within the
Commonwealth of Pennsylvania and the validity, construction, interpretation,
administration and effect of this Plan, and any of its rules and regulations,
and the rights of any and all persons having or claiming to have an interest
therein or thereunder, shall be governed by, and determined exclusively and
solely in accordance with the laws of the Commonwealth of
Pennsylvania.

     

    ARTICLE 
XIV.        COSTS OF THE
PLAN

     

    The
expenses incurred in administering this Plan, including any Committee fees, any
charges by HGI’s independent auditors, the costs of any compensation consultant
retained by the Committee, or any other costs, shall be borne by the applicable
Company and shall not be charged against the individual award
payments.

     

    ARTICLE
 XV.        NON-ASSIGNABLE

     

    Participants
are authorized to transfer the right to receive payment of an incentive award
under this Plan by will or through the laws of descent and
distribution.  Otherwise, a Participant's or beneficiary's rights and
interests under this Plan may not be assigned, transferred, pledged, or
hypothecated and are not subject to attachment, garnishment, execution or any
other creditor's processes.  HGI, within the limits of applicable law,
shall be

     

    
      
         

      

      
         6

        
          

        

      

      
         

      

    

    

     

    entitled
to ignore any attempted assignment or alienation or any creditor's process and
shall be entitled to pay any amount due directly to the Participant or
beneficiary.

     

    ARTICLE  
XVI.        NO EMPLOYMENT
CONTRACT

     

    Neither
the establishment of this Plan nor any action taken hereunder shall be construed
as giving any Participant any right to be retained in the employ of any Company,
and all Participants shall remain subject to discharge to the same extent as if
the Plan had never been adopted.

     

     

    TO RECORD
THE APPROVAL OF THIS PLAN, HGI HAS CAUSED ITS AUTHORIZED OFFICERS TO AFFIX THE
CORPORATE NAME AND SEAL HERETO THIS 22nd DAY OF April, 2009.

     

     

    

    

    
      	 	 	 HARLEYSVILLE
      GROUP INC.
	 	 	 
	 	 	 
	
               

            	
               BY:  

            	
              /s/  Michael
      L. Browne

            
	 
      	 
      	
              President
      and

            
	 
      	 
      	
              Chief Executive Officer

            

    

    

    
 

    
      

      
        	ATTEST:	 	 
	 	 	 
	 	 	 
	
                /s/ 
      Robert A. Kauffman

              	
                 

              	
                 

              
	 Senior
      Vice President, 	 
      	
                 

              
	 Secretary,
       General Counsel and	 	 
	 Chief
      Compliance Officer	 
      	
                 

              

      

      

       

    
      
         

      

      
         7

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