Tax Indemnification Agreement

EXHIBIT 10.3


INDEMNIFICATION AGREEMENT


THIS INDEMNIFICATION AGREEMENT (the "Agreement"), dated as of May 23, 2006, is by and among Castlewood Holdings Limited, a Bermuda company ("Parent"), The Enstar Group, Inc., a Georgia corporation (the "Company") and J. Christopher Flowers, an individual whose principal place of business is located at 717 Fifth Avenue, New York, New York 10022 ("JCF").


W I T N E S S E T H


WHEREAS, Parent, CWMS Subsidiary Corp., a Georgia corporation and direct wholly-owned subsidiary of Parent ("Merger Sub"), and the Company, are entering into an Agreement and Plan of Merger, dated as of May 23, 2006 (as the same may from time to time be amended, modified, supplemented or restated, the "Merger Agreement"), pursuant to which Merger Sub will be merged with and into the Company (the "Merger") and the Company shareholders will receive, in exchange for shares of common stock of the Company, Ordinary Shares of Parent;


WHEREAS, JCF owns approximately 22% of the outstanding shares of capital stock of the Company and is agreeing, pursuant to an Agreement with Parent (the "Support Agreement"), to vote such shares in favor of the Merger; and


WHEREAS, JCF is a person who owns (or may be treated as owning for purposes of Treas. Reg. section. 1.367(a)-3(c)(5)(ii)) five (5) percent or more of Parent stock after the Effective Time.


NOW THEREFORE, in consideration of JCF's willingness to enter into the Support Agreement, the premises and the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:


1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:


"The Company" has the meaning specified in the recitals to this Agreement.


"Code" means the United States Internal Revenue Code of 1986, as amended.


"Disposition of Company Assets" means a sale or other disposition treated as an exchange under the Code, within the period beginning immediately after the Effective Time and ending five years after the last day of the taxable year that includes the Effective Time, by Parent or the Company of all or substantially all of the assets of the Company other than (A) in the ordinary course of business, or (B) in a transfer (i) in which gain or loss will not be required to be recognized under U.S. federal income tax principles, (ii) in which the transferee agrees, with respect to any subsequent transfer of


such assets, to the same requirements under this Agreement that apply to Parent and the Company with respect to transfers of such assets, (iii) in which the Company agrees not to transfer the interest received in exchange for the assets transferred except in a transaction that would satisfy the requirements of clauses (i), (ii) and (iv) in the definition of Disposition of Shares of the Company if such interest were shares of the Company transferred by Parent, and (iv) in which the Company (and any other recipient of an interest described in clause (iii)) agrees to notify the Notice Persons of any transfer described in clause (iii) in the manner required by Section 4 of this Agreement.


"Disposition of Shares of the Company" means the sale or other disposition treated as an exchange under the Code, within the period beginning immediately after the Effective Time and ending five years after the last day of the taxable year that includes the Effective Time, by Parent of any shares of the Company in any manner other than in a transaction: (i) in which all of the shares of the Company are transferred to a single transferee; (ii) in which such transferee of the Company shares agrees to assume the obligations of Parent and the Company under this Agreement; (iii) in which Parent (or any other transferor that has assumed the obligations of Parent under this Agreement) agrees not to transfer the interest received in exchange for the Company shares transferred except in a transaction that satisfies the requirements of clauses (i), (ii) and (iv) of this sentence and to notify the Notice Persons of any such transfer in the manner required by Section 4 of this Agreement; and (iv) with respect to which gain or loss will not be required to be recognized by Parent (or by any transferor of the Company shares that assumed the obligations of Parent under this Agreement) under U.S. federal income tax principles.


"Effective Time" has the meaning specified in the Merger Agreement.


"JCF" has the meaning specified in the recitals to this Agreement.


"Parent" has the meaning specified in the recitals to this Agreement.


"IRS" means the United States Internal Revenue Service.


"Merger" has the meaning specified in the recitals to this Agreement.


"Merger Agreement" has the meaning specified in the recitals to this Agreement.


"Merger Sub" has the meaning specified in the recitals to this Agreement.


"Notice Person" has the meaning specified in Section 11.


"Ordinary Shares" means the ordinary shares, of $1.00 nominal value per share, of Parent and any American Depositary Receipts representing such shares.


2. Representations and Warranties.


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