Document:

exv10w1

Exhibit 10.1

SECOND AMENDMENT TO CREDIT AGREEMENT

     THIS AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into this 18th day of
December, 2009, by and between ORION ENERGY SYSTEMS, INC., a Wisconsin corporation, and GREAT LAKES
ENERGY TECHNOLOGIES, LLC, a Wisconsin limited liability company (“Borrower”), and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Bank”).

RECITALS

     WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that
certain Credit Agreement between Borrower and Bank dated as of March 18, 2008, as amended from time
to time (“Credit Agreement”).

     WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set
forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said
changes.

     NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that the Credit Agreement shall be amended as follows:

     1. Section 1.1(a) and (b) are hereby deleted in their entirety, and restated as follows:

     “(a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank
hereby agrees to make advances to Borrower from time to time up to and including August 31, 2010,
not to exceed at any time the aggregate principal amount of TWENTY FIVE MILLION DOLLARS
($25,000,000.00) (“Line of Credit”), the proceeds of which shall be used for working capital or
other general corporate purposes. Borrower’s obligation to repay advances under the Line of Credit
shall be evidenced by a $25,000,000.00 promissory note dated the same date as this Agreement (“Line
of Credit Note”), the terms of which are incorporated by reference. The Line of Credit Note shall
be given as a replacement for, and not in satisfaction of, the Borrower’s $25,000,000 Revolving
Note dated December 22, 2005.

     (b) Limitation on Borrowings. Outstanding borrowings under the Line of Credit shall
not at any time exceed a 95% advance rate for aggregate Listed Money Market Funds acceptable to
Bank that are held in Borrower’s Account #                     maintained with Wells Fargo Securities, LLC, and
that have been pledged to Bank pursuant to the Security Agreement: Securities Account granting
Bank, less $300,000.00, representing Borrower’s purchasing card (P-Card) commitment from Bank.”

     2. Section 1.2 (c) is hereby deleted in its entirety, and the following substituted therefor:

     “(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to fifteen
hundredths percent (.15%) per annum (computed on the basis of a 360-day year, actual days elapsed)
on the average daily unused amount of the Line of Credit, which fee shall be calculated on a
quarterly basis by Bank and shall be due and payable by Borrower in arrears on the date of
this agreement, then the fee shall be calculated on the full amount of the increased Line of
Credit.”

 

 

     3. Section 1.4 is hereby deleted in its entirety and the following is substituted therefore:

     “SECTION 1.4. COLLATERAL. As security for all indebtedness and other obligations of Borrower
to Bank, Borrower granted to Bank pursuant to the Security Agreement: Continuing Rights to Payment
and Inventory dated March 18, 2008 (the “2008 Security Agreement”), a first lien security interest
in all Borrower’s accounts receivable and other rights to payment, general intangibles and
inventory, which security interest extends without limitation to all deposit accounts, securities
entitlements, investment property, and cash owned by each Borrower. Bank and Borrower have now
agreed that Bank shall deliver cash subject to this existing security interest to Bank for deposit
to securities account #                     maintained by Borrower with Wells Fargo Securities, LLC (the
“Securities Account”), which shall continue to secure all indebtedness and other obligations of
Borrower to Bank hereunder, pursuant to the terms of a Security Agreement: Securities Account,
dated the same date as the Second to Credit Agreement (the “2009 Security Agreement”), which 2009
Security Agreement shall continue the existing security interest in effect and replace the original
2008 Security Agreement.

     In consideration of Borrower delivering cash collateral to the Securities Account, which
account shall be controlled by Bank and thus subject to Bank’s perfected security interest, Bank
agrees that it will release its security interest in all other personal property collateral owned
by each Borrower and granted to Bank pursuant to the 2008 Security Agreement (other than the
security interest in collateral continued by the 2009 Security Agreement), which collateral being
released hereby that is owned by each Borrower has a value significantly in excess of the cash
collateral deposited to the Securities Account, and Bank further agrees to terminate its security
interest in collateral granted to it by Orion Asset Management, LLC and Clean Energy Solutions, LLC
pursuant to security agreements dated May 15, 2009 (although Bank shall retain guaranties given by
each of Orion Asset Management, LLC and Clean Energy Solutions, LLC dated May 15, 2009).

     All of the foregoing shall be evidenced by and subject to the terms of such security
agreements, financing statements and other documents as Bank shall reasonably require, all in form
and substance satisfactory to Bank. Borrower shall pay to Bank immediately upon demand the full
amount of all charges, costs and expenses (to include fees paid to third parties and all allocated
costs of Bank personnel), expended or incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of appraisals and
audits.”

     4. Section 4.9 is hereby deleted in its entirety, and the following substituted therefor:

     “SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower’s financial condition as follows using
generally accepted accounting principles consistently applied and used consistently with prior
practices (except to the extent modified by the definitions herein), with compliance determined
commencing with Borrower’s financial statements for the period ending December 31, 2007:

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     (a) Total Liabilities divided by Tangible Net Worth not greater than 1.0 to 1.0 at each fiscal
quarter end, with “Total Liabilities” defined as the aggregate of current liabilities and
noncurrent liabilities less subordinated debt, and with “Tangible Net Worth” defined as the
aggregate of total stockholders’ and members’ equity plus subordinated debt less any intangible
assets.

     (b) Minimum Net income after taxes not less than ($4,611,000.00) as of September 30, 2009,
($6,499,000.00) as of December 31, 2009, ($8,219,000.00) as of March 31, 2010, ($1,700,000.00) as
of June 30, 2010, determined as of each fiscal quarter end, and calculated on a fiscal year-to-date
basis.”

     5. As a condition precedent to the obligations of Bank hereunder, Borrower shall deliver to
Bank the 2009 Security Agreement, and Addendum to Security Agreement: Securities Account, and a
Securities Account Control Agreement, together with a deposit of cash in the amount of
$20,000,000.00 to the Securities Account, and Bank shall not be required to terminate its interest
in the other collateral until Bank’s counsel, in its sole discretion, determines that Bank has an
unimpaired first lien security interest in the Securities Account and all cash deposited thereto.

     6. Subject to the terms and conditions of this Amendment, Bank hereby waives its rights to
declare Borrower in default under the Agreement as a result of Borrowers’ failure to comply with
Sections 4.9(b) and 4.9(c) of the Agreement with respect to the breach for the period ending
September 30, 2009. This waiver applies only to the specific breaches referenced herein. It is not
a waiver of any subsequent breach of the same provision of the Agreement, nor is it a waiver of any
breach of any other provision of the Agreement. Except as expressly stated herein, Bank reserves
all rights, powers and remedies available to Bank under the Agreement and any other agreements
signed by Borrower, including the right to cease making advances and the right to accelerate any
indebtedness, if any subsequent breach of the same provisions or any other provisions of the
Agreement should occur.

     7. Except as specifically provided herein, all terms and conditions of the Credit Agreement
remain in full force and effect, without waiver or modification. All terms defined in the Credit
Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit
Agreement shall be read together, as one document.

     8. Borrower hereby remakes all representations and warranties contained in the Credit
Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the
date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any
condition, act or event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.

     9. Borrower and Guarantors ratify, reaffirm, acknowledge, and agree that the Agreement, as
hereby amended, represents valid, enforceable and collectible obligations of Borrower, and that
there are no existing claims, defenses, personal or otherwise, or rights of setoff whatsoever with
respect to any of these documents or instruments. In addition, Borrower and Guarantors hereby
expressly waive, release and absolutely and forever discharge Bank and its shareholders, directors,
officers, employees and agents, and their heirs, personal

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representatives, successors and assigns, from any and all liability, claims, demands, damages,
actions and causes of action that Borrower or Guarantors may now have, or have had prior to the
date hereof and, without limiting the generality of the foregoing, from any and all liability,
claims, demands, damages, actions and causes of action arising out of, or in any way connected
with, the Notes. Borrower and Guarantors further acknowledge and represent that no event of default
or unmatured event of default exists other than as set forth in Section 6 of this Amendment.

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day
and year first written above.

	 	 	 	 	 	 	 
	 

ORION ENERGY SYSTEMS, INC.	 	WELLS FARGO BANK,

NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 
	By:

	 	/s/ Neal R. Verfuerth
	 	By:
	 	/s/ Thomas Fameree
	 

	 	 
	 	 	 	 
	 

	 	Neal R. Verfuerth, Chairman/CEO
	 	 	 	Thomas Fameree, Vice President

	 	 	 	 	 
	GREAT LAKES ENERGY

TECHNOLOGIES, LLC

 	 	 
	By:  	s/ Michael J. Potts
 	 	 
	 	Title:  Executive Vice President 	 	 
	 	 	 	 
	 
	ACKNOWLEDGED AND AGREED TO

By Guarantors Orion Asset Management, LLC and Clean Energy Solutions, LLC

this 18th day of December, 2009.

 	 	 

	 	 	 	 	 	 	 
	ORION ASSET MANAGEMENT, LLC	 	CLEAN ENERGY SOLUTIONS, LLC
	 
	 	 	 	 	 	 
	By:

	 	/s/ Michael J. Potts
	 	By:
	 	s/ Michael J. Potts
	 

	 	 
	 	 	 	 
	 

	 	Title: Executive Vice
President
	 	 	 	Title: Executive Vice
President

-4-ex10-1.htm

     

    Exhibit
10.1

     

    SEVERANCE
AGREEMENT

     

    This
SEVERANCE AGREEMENT (the "Agreement"), dated as of December 21, 2009 is by and
between PMA Capital Corporation, a Pennsylvania corporation, and its
subsidiaries (the "Company"), and John M. Cochrane (the
"Executive").

     

    WITNESSETH
THAT

     

    WHEREAS,
the Executive is Senior Vice President, Finance of the Company or a subsidiary
of the Company;

     

    WHEREAS,
the Company wishes to encourage the Executive to continue his career and
services with the Company or a subsidiary, as the case may be;

     

    WHEREAS,
the Company has determined that it is in its best interests and the
shareholders' to assure continuity in the management of the Company's and it
subsidiaries in the event of a Change in Control by entering into this Agreement
with the Executive;

     

    NOW,
THEREFORE, in consideration of the premises and the mutual covenants contained
herein, the Company and the Executive hereby agree as follows:

     

    1.            
Term.  This
Agreement shall become effective on the Effective Date and shall continue in
effect throughout the Term of Employment; provided, however, the restrictive
covenants contained in section 8 of this Agreement and, as applicable, the
Company's and the Executive's obligations under the other provisions of this
Agreement shall survive the Term of Employment and shall continue in effect
through the periods provided therein and/or until the Company's and/or the
Executive's obligations, as applicable, thereunder are satisfied.

     

    2.             Compensation.  Except
as otherwise expressly set forth below, the Executive's compensation shall be
determined by, and in the sole discretion of, the Board of Directors of the
Company (the "Board") or a committee of the Board.

     

    (a)  Annual Base Salary
means the Executive's annual salary in effect on (i) the date of this Agreement,
as adjusted from time to time by the Board, (ii) the date in which a Change in
Control occurs, or (iii) the date preceding an occurrence which results in the
Executive's Good Reason termination of employment, whichever is
highest.

     

    (b)  Annual Bonus means
the amount awarded to the Executive under the Company's Officer Annual Incentive
Compensation Plan (the "Annual Plan") in effect on (i) the date of this
Agreement, as adjusted from time to time by the Board, (ii) the date in which a
Change in Control occurs, or (iii) the date preceding an occurrence which
results in the Executive's Good Reason termination of employment, whichever is
highest.

     

    (c)  Long Term Incentive
means the amount awarded to the Executive under the Company's Officer Long Term
Incentive Compensation Plan in effect on (i) the date of this Agreement, as
adjusted from time to time by the Board, (ii) the date on which a Change
in

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     Control
occurs, or (iii) the date preceding an occurrence which results in the
Executive's Good Reason termination of employment, whichever is
highest.

     

    (d)           
Employee
Benefits.  In addition to the foregoing, during the Term of
Employment,

     

    (i) to the
extent not duplicative of the specific benefits provided herein, the Executive
shall be eligible to participate in all incentive compensation, retirement,
supplemental retirement, and deferred compensation plans, policies and
arrangements that are provided generally to other executive officers of the
Company;

     

    (ii) the
Executive and, as applicable, the Executive's covered dependent(s) shall be
eligible to participate in all of the Company's health and welfare benefit plans
(within the meaning of Section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended); and

     

    (iii) the
Executive shall be entitled to receive fringe benefits provided for executive
officers of the Company as determined from time to time by the
Company.

     

    (e)           
Reimbursements.  To
the extent required by Section 409A of the Internal Revenue Code of 1986,
as amended, and the regulations promulgated thereunder (“409A”), with regard to
any provision of this Agreement that provides for the reimbursement of costs and
expenses, or for the provision of in-kind benefits:

     

    (i) the right
to such reimbursement or in-kind benefit shall not be subject to liquidation or
exchange for another benefit;

     

    (ii) the
amount of expenses or in kind benefits available or paid in one year shall not
affect the amount available or paid in any subsequent year; and

     

    (iii) such
payments shall be made on or before the last day of the Executive’s taxable year
which follows the year in which the expense occurred.

     

    (f)            Separate
Payments.  To the extent permissible by law, each payment and
each installment described in this Agreement shall be considered a separate
payment from each other payment or installment.

     

    3.             Termination of
Employment.

     

    (a) Termination of Employment
and Term of Employment.  The Company or the Executive may
terminate the Executive's employment at any time and for any reason in
accordance with subsection 3(b) below.  The Term of Employment shall
be deemed to have ended on the last day of the Executive's
employment.  The Term of Employment shall terminate upon the
Executive's death.

     

    (b) Notice of
Termination.  Any purported termination of the Executive's
employment (other than by reason of death) shall be communicated by written
Notice of Termination from one party hereto to the other party hereto in
accordance with the notice 

     

     

    
      
        
        

      

      
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    provisions
contained in subsection 13(b) below.  For purposes of this Agreement,
a "Notice of Termination" shall mean a notice that indicates the Date of
Termination and, with respect to a termination due to Disability, Cause or Good
Reason, sets forth in reasonable detail the facts and circumstances that are
alleged to provide a basis for such termination.  A Notice of
Termination from the Company shall specify whether the termination is with or
without Cause or due to the Executive's Disability.  A Notice of
Termination from the Executive shall specify whether the termination is with or
without Good Reason and, if the termination is without Good Reason, whether the
termination is due to Executive's Disability.

     

    (c)   Date of
Termination.  For purposes of this Agreement, "Date of
Termination" shall mean the date specified in the Notice of Termination (but in
no event shall such date be earlier than the 30th day following the date the
Notice of Termination is given, unless expressly agreed to by the parties hereto
or the date of the Executive's death).

     

    (d)   No
Waiver.  The failure to set forth any fact or circumstance in a
Notice of Termination, which fact or circumstance was not known to the party
giving the Notice of Termination when the notice was given, shall not constitute
a waiver of the right to assert such fact or circumstance in an attempt to
enforce any right under or provision of this Agreement.

     

    (e)   Cause.  For
purposes of this Agreement, the term "Cause" shall mean
Executive:  (i) commits any act of fraud, embezzlement, theft or
commission of a felony in the course of his employment; (ii) engages in knowing
and willful misconduct or gross negligence in the performance of his duties;
(iii) unlawfully appropriates a corporate opportunity of the Company or its
affiliates and subsidiaries; or (iv) knowingly and willfully breaches any of
Executive's covenants contained in this Agreement in any material
respect.  No act or failure to act directly related to Company action
or inaction that constitutes Good Reason shall constitute Cause under this
Agreement if the Executive has provided a Notice of Termination based on such
Good Reason event prior to the Company's giving of the Notice of Termination for
Cause.  The Executive's termination for Cause shall be effective when
and if a resolution is duly adopted by an affirmative vote of the Board (less
the Executive), stating that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in the Notice of Termination, and
such conduct constitutes Cause under this Agreement; provided, however, that the
Executive shall have been given the opportunity (i) to cure any act or omission
that constitutes Cause if capable of cure and (ii), together with counsel,
during the 30-day period following the receipt by the Executive of the Notice of
Termination and prior to the adoption of the Board's resolution, to be heard by
the Board.

     

    (f)   Disability.  For
purposes of this Agreement, the Executive shall be deemed to have a Disability
if the Executive is entitled to long-term disability benefits under the
Company's long-term disability plan or policy, as the case may be, as in effect
on the Date of Termination.

     

    (g)   Good
Reason.  For purposes of this Agreement, the term "Good Reason"
means the occurrence (without the Executive's express written consent) of any of
the following acts or failures to act by the Company:

     

    
      	
                                                             
      (i)  

            	
              a
      material reduction in his duties, authority or responsibilities in his
      role as Senior Vice President,
Finance;

            

    

     

     

    
      
        
        

      

      
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      (ii)  

            	
              requiring
      the Executive to be based more than 50 miles away from the Company's
      headquarters in Blue Bell,
Pennsylvania;

            

    

     

    
      	
                                                             
      (iii)  

            	
              the
      material breach, and failure to cure, by the Company of any of its other
      obligations under this Agreement;

            

    

     

    
      	
                                                              (iv)  

            	
              the
      failure of the Company to obtain the assumption of this Agreement as
      contemplated in subsection 11(b) hereof;
or

            

    

     

    
      	
                                                              (v)  

            	
              any
      reduction in the Executive's Annual Base Salary or Annual Bonus target
      that does not affect all similarly situated Executives; provided that any
      reduction in the Executive's Annual Base Salary or Annual Bonus target
      shall constitute Good Reason in connection with a Change of
      Control.

            

    

     

    The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder; provided, however, that no such event described above shall
constitute Good Reason unless the Executive has given a Notice of Termination to
the Company specifying the condition or event relied upon for such termination
within 90 days of the occurrence of such event, the Company has failed to cure
the condition or event constituting Good Reason within the 30 day period
following receipt of the Executive's Notice of Termination, and the Executive’s
Termination Date is within six months of the event that constitutes Good
Reason.

     

    4.             
Obligations of the Company
upon Termination.

     

    (a)           Termination by the Company
for other than Cause or by the Executive for Good Reason.  If
the Executive's employment is terminated by the Company for any reasons other
than Cause or Disability or by the Executive for Good Reason:

     

    (i)  The
Company shall pay to the Executive, within thirty business days of the Date of
Termination, any earned but unpaid Annual Base Salary;

     

    (ii)  The
Company shall pay to the Executive, within thirty business days of the Date of
Termination, a prorated Annual Bonus which is the product of (A) the target
Annual Bonus opportunity in the year in which the Date of Termination occurs or
the prior year if no target Annual Bonus opportunity has yet been determined,
(B) the average payout factor of the Annual Plan for the prior three years, and
(C) the fraction of the year the Executive was employed.

     

    (iii)  Upon the
execution and non-rescission of the release noted in Section 6, the Company
shall commence to pay as of the next regular Company payroll to the Executive,
in accordance with the Company's regular payroll practice for its executive
officers, payments equal to the sum of 100% of (A) the Executive's Annual Base
Salary, less any applicable deductions for taxes and/or benefits, and (B) the product of
(I) the Executive's target Annual Bonus opportunity for the year in which the
Date of Termination occurs or the prior year if no target Annual Bonus
opportunity has yet been determined and (II) the average payout factor of the
Annual Plan for the prior three years;

     

     

    
      
        
        

      

      
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    (iv)  For a one
(1) year period after the Date of Termination, the Company will arrange to
provide the Executive (and any covered dependents), with life, accident and
health insurance benefits substantially similar to those the Executive and any
covered dependents were receiving immediately prior to the Notice of
Termination, except for any such benefits that were waived by the Executive in
writing.  Nothing in this subsection 4(a)(iv) will affect the
Executive's right to elect COBRA continuation coverage in accordance with
applicable law or extend the COBRA continuation coverage period;
and

     

    (v)  The
Executive shall have at least three (3) months (or until the last day of the
stock option term or the tenth anniversary of the date of the grant; whichever
occurs first) to exercise any then vested outstanding stock
options.  Executive's outstanding Long Term Incentive awards shall be
deemed earned as set forth in the original award, except that the amount earned
shall be prorated based on a fraction, the numerator of which is the number of
full months Executive was employed during the performance period of such award
and the denominator of which is the number of months in such performance
period.  Such awards will be payable under the terms set forth in the
award.  All of the Executive's other unvested equity-based awards
shall be forfeited.

     

    (vi)  The
Company agrees to engage the services, on Executive's behalf and at the
Company's expense, the services of an outplacement company, who will assist
Executive with job search support.  Services will be available for one
year following the Date of Termination.

     

    (b)           Termination in Connection
with a Change in Control.

     

    If, in
anticipation of or within the 18 month period following a Change in Control (as
defined below), the Executive's employment is terminated by the Company for any
reason other than Cause or Disability or by the Executive for Good Reason, the
Executive shall receive the payments and benefits described in subsection 4(a),
except that

     

    (i)  the
payment described in section 4(a)(iii) shall be equal to 150% of the amounts
described in (A) and (B) thereof,

     

    (ii)  all of
the Executive's Long Term Incentive awards shall be paid as if 100% of the
performance target(s) had been attained and shall be payable within two and one
half (2.5) months from the Date of Termination;

     

    (iii)  all of
the Executive's other outstanding equity-based awards shall become fully vested
on the Date of Termination; and

     

    (iv)  the
continuation period described in section 4(a)(iv) shall be for one and one half
(1.5) years.

     

    For
purposes of this Agreement, a "Section 409A Change in Control" is a "Change in
Control" as set forth in paragraph 9(b) of the PMA Capital Corporation 2007
Omnibus Incentive Compensation Plan that is also a change in the ownership or
effective control of the Company, or in the ownership of a substantial portion
of the assets of the Company, as described in Section 

     

     

    
      
        
        

      

      
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    409A(2)(A)(v)
of the Code and the Treasury regulations promulgated thereunder; or the approval
by the shareholders of a plan or proposal for the liquidation or dissolution of
the Company.

     

    (c)  Termination by the Company
for Cause or by the Executive without Good Reason.  If the
Executive's employment is terminated by the Company for Cause, the Company shall
pay to the Executive, within thirty business days of the Date of Termination,
any earned but unpaid Annual Base Salary and all outstanding stock options
(whether or not then exercisable) and all of the Executive's unvested
equity-based and other incentive awards shall be forfeited as of the Date of
Termination.  If the Executive's employment is terminated by the
Executive without Good Reason (and not due to death, Disability or retirement),
the Company shall pay to the Executive, within thirty business days of the Date
of Termination, any earned but unpaid Annual Base Salary, the Executive shall
have three months (or until the last day of the stock option term, whichever
occurs first) to exercise any outstanding vested stock options and all of the
Executive's unvested equity-based awards shall be forfeited as of the Date of
Termination.

     

    (d)  Termination due to Death or
Disability.  If the Executive's employment is terminated due:
to death or Disability, (i) the Company shall pay to the Executive (or to the
Executive's estate or personal representative in the case of the Executive's
death), within thirty business days after the Date of Termination, (A) any
earned but unpaid Annual Base Salary and (B) a prorated Annual Bonus which is
the product of (I) the target Annual Bonus opportunity in the year in which the
Date of Termination occurs or the prior year if no target Annual Bonus
opportunity has yet been determined, (II) the average payout factor of the
Annual Plan for the prior three years, and (III) the fraction of the year the
Executive was employed, and (ii) all of the Executive's outstanding equity-based
awards shall vest on the Date of Termination and the Executive's outstanding
stock options shall remain exercisable for one year following the Date of
Termination (or until the last day of the stock option term, whichever occurs
first).

     

    (e)  Specified
Employee.  To the extent necessary to avoid adverse tax
consequences, and except as described below, any payment to which the Executive
becomes entitled under the Agreement, or any arrangement or plan referenced in
this Agreement, that constitutes “deferred compensation” under 409A, and is
payable upon the Executives termination at a time when the Executive is a
“specified employee” as defined by 409A shall not be made until the earliest
of:

     

    (i)  the
expiration of the six month period (the “Deferral Period”) measured from the
date of the Executive’s ‘separation from service’ under 409A; or

     

    (ii)  the date
of the Executive’s death.

     

    Upon the
expiration of the Deferral Period, all payments that would have been made during
the Deferral Period (whether in a single lump sum or in installments) shall be
paid as a single lump sum to the Executive or, if applicable, his
beneficiary.  This section shall not apply to any payment which
constitutes “separation pay” as described in Internal Revenue Regulations
Section 409A-1(b)(9) (in general, payments (i) that are made on an involuntary
separation from service which (ii) do not exceed the lesser of two times (x) the
Executive’s annualized compensation for the taxable year preceding the year in
which the separation from service occurs or (y) the Code Section 401(a)(17)
limit on compensation for the year in which separation from 

     

     

    
      
        
        

      

      
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    service
occurs and (iii) are paid in total by the end of the second calendar year
following the calendar year in which the separation from service
occurs).

     

    5.            
Release.  Notwithstanding
any provision herein to the contrary, the Company will require that, prior to
payment of any amount under section 4 of this Agreement (other than due to the
Executive's death), the Executive shall have executed a complete release of the
Company and  its affiliates and related parties in such form as is
reasonably required by the Company.  Notwithstanding the foregoing,
the Executive shall not be required to release any rights to indemnification or
insurance coverage to which he/she was or may thereafter be entitled as an
officer of the Company or its affiliates.

     

    6.            
Non-Exclusivity of
Rights.  Except as otherwise provided in this Agreement,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies for which the Executive may qualify
(other than severance policies).  Vested benefits and other amounts
that the Executive is otherwise entitled to receive under any other plan,
program, policy, or practice of, or any contract or agreement with, the Company
or any of its affiliated companies on or after the Date of Termination shall be
payable in accordance with the terms of each such plan, program, policy,
practice, contract or agreement, as the case may be, except as expressly
modified by this Agreement.

     

    7.            
Full
Settlement.  In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as otherwise provided in subsections 4(a)(iv) and 13(e), the amount
of any payment or benefit provided for in this Agreement shall not be reduced by
any compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.

     

    8.            
Confidential
Information; Non-Solicitation, Non-Interference and
Non-Disparagement.

     

    (a)  Confidential
Information.  The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge, trade secrets, methods, know-how or data relating to the Company or
its affiliates and their businesses or acquisition prospects that the Executive
obtained or obtains during the Executive's employment by the Company
("Confidential Information"), provided that "Confidential Information" shall not
include any secret or confidential information, knowledge, trade secrets,
methods, know-how or data that is or becomes generally known to the public
(other than as a result of the Executive's violation of this section
8).  Except as may be required and appropriate in connection with
carrying out his duties under this Agreement, the Executive shall not
communicate, divulge, or disseminate any material Confidential Information at
any time during or after the Executive's employment with the Company, except
with the prior written consent of the Company or as otherwise required by law or
legal process; provided, however, that if so required, the Executive will
provide the Company with reasonable notice to contest such
disclosure.

     

    (b)  Non-Solicitation.  During
the Term of Employment and for the one (1) year period following the Date of
Termination for any reason, the Executive will not, directly or 

     

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    indirectly,
initiate any action to solicit or recruit anyone who is then an employee of the
Company for the purpose of being employed by him or by any business, individual,
partnership, firm, corporation or other entity on whose behalf Executive is
acting as an agent, representative, employee or otherwise.

     

    (c)            Non-Interference with
Customers or Producers.  During the Term of Employment and for
the one (1) year period following the Date of Termination for any reason, the
Executive will not interfere with any business relationship between the Company
and any of its customers or agents or brokers that produce business for the
Company.

     

    (d)            Non-Disparagement.  The
parties agree that their professional and personal reputations are important and
should not be impaired by either party after this Agreement is
executed.  Executive therefore agrees not to disparage the
professional or personal reputation of the Company, its officers, shareholders,
directors, or management, and the Company agrees that it will not disparage
Executive's professional or personal reputation.

     

    (e)           
Remedies;
Severability.

     

    (i)  The
parties acknowledge that money damages will not afford an adequate remedy for a
breach or threat to breach any provision of subsections 8(a) through
(d).  Therefore, if a party violates or threatens to violate the
provisions of subsections 8(a) through (d), in whole or in part, the other party
shall be entitled to specific performance and injunctive relief, without
prejudice to other remedies that it may have at law or in equity.

     

    (ii)  If any
term or provision of this section 8, or the application thereof to any person or
circumstances shall, to any extent, be invalid or unenforceable, the remainder
of this section 8, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this section 8
shall be valid and enforceable to the fullest extent permitted by
law.  Moreover, if a court of competent jurisdiction deems any
provision of subsections 8(a) through (d) to be too broad in time, scope, or
area, it is expressly agreed that such provision shall be reformed to the
maximum degree that would not render it unenforceable.

     

    9.            
Attorneys'
Fees.  Each party shall pay its own legal fees, court costs,
litigation expenses and/or arbitration expenses (as applicable) in connection
with any dispute, litigation or arbitration regarding the validity or
enforceability of, or liability under or otherwise involving any provision of
this Agreement, except that if the Executive prevails on the majority of
material claims disputed, the Company shall pay all reasonable legal fees, court
cost, litigation expenses and/or arbitration expenses.

     

    10.           Indemnification.  The
Executive shall be indemnified by the Company for actions taken in his position
as an officer, director, employee and agent of the Company to the greatest
extent permitted by applicable law.  The Executive shall also be
covered as an insured by a liability insurance policy secured by and maintained
by the Company covering acts of its and its affiliates' officers and members of
the Board.

     

    11.          
Successors.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (a)  Assignment of
Agreement.  This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution.

     

    (b)  Successors of the
Company.  No rights or obligations of the Company under this
Agreement may be assigned or transferred except that the Company will require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.  As used in this Agreement,
"Company" shall mean the Company as herein before defined and any successor that
executes and delivers the agreement provided for in this section 11 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.

     

    12.           
Arbitration.  Except
for matters covered under section 8, in the event of any dispute or difference
between the Company and the Executive with respect to the subject matter of this
Agreement and the enforcement of rights hereunder, either the Executive or the
Company may, by written notice to the other, require such dispute or difference
to be submitted to arbitration.  The arbitrator or arbitrators shall
be selected by agreement of the parties or, if they cannot agree on an
arbitrator or arbitrators within 30 days after the date arbitration is required
by either party, then the arbitrator or arbitrators shall be selected by the
American Arbitration Association upon the application of the Executive or the
Company.  The determination reached in such arbitration shall be final
and binding on both parties without any right of appeal or further
dispute.  Execution of the determination by such arbitrator may be
sought in any court of competent jurisdiction.  The arbitrators shall
not be bound by judicial formalities and may abstain from following the strict
rules of evidence and shall interpret this Agreement as an honorable engagement
and not merely as a legal obligation.  Unless otherwise agreed by the
parties, any such arbitration shall take place in Philadelphia,
Pennsylvania.

     

    13.           
Miscellaneous.

     

    (a)  Governing
Law.  This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania without reference
to principles of conflict of laws, and without regard to the doctrine of
contra-proferentum.

     

    (b)  Notices.  All
notices and other communications under this Agreement shall be in writing and
shall be given by hand delivery, email or by facsimile (provided confirmation of
receipt of such facsimile is received) to the other party or by registered or
certified mail, return receipt requested, postage prepaid, or by Federal Express
or other nationally-recognized overnight courier that requires signatures of
recipients upon delivery and provides tracking services, addressed as
follows:

     

    If to the
Executive:

     

    John M.
Cochrane

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    

    
      	
              If
      to the Company:

               

            
	
              PMA
      Capital Corporation

            
	
              380
      Sentry Parkway

            
	
              Blue
      Bell, PA  19422

            
	
              Attention:  General
      Counsel

            
	
              Facsimile:  610-397-5144

            

    

     

    or to
such other address as either party furnishes to the other in writing in
accordance with this subsection 14(b).  Notices and communications
shall be effective when actually received by the addressee.

     

    (c)           
Amendment.  This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal
representatives.

     

    (d)           
Severability.  The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement.  If any provision of this Agreement shall be held invalid
or unenforceable in part and if the rights and obligations of any to this
Agreement will not be materially and adversely affected thereby, the remaining
portion of such provision, together with all other provisions of this Agreement,
shallremain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.

     

    (e)           
Withholding.  Notwithstanding
any other provision of this Agreement, the Company may withhold from amounts
payable under this Agreement all federal, state, local, and foreign taxes that
are required to be withheld by applicable laws or regulations.

     

    (f)            
Waiver.  The
Executive's or the Company's failure to insist upon strict compliance with any
provision of, or to assert any right under, this Agreement (including, without
limitation, the right of the Executive to terminate employment for Good Reason)
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.

     

    (g)           
Entire Understanding;
Counterparts.  The Executive and the Company acknowledge that
this Agreement supersedes and terminates any other severance and/or employment
agreements between the Executive and the Company or any Company
affiliates.  This Agreement may be executed in several counterparts,
each of which shall be deemed an original and said counterparts shall constitute
but one and the same instrument.

     

    (h)           
Rights and Benefits
Unsecured.  The
rights and benefits of the Executive under this Agreement may not be
anticipated, assigned, alienated, or subject to attachment, garnishment, levy;
execution, or other legal or equitable process except as required by
law.  Any attempts by the Executive to anticipate, alienate, assign,
sell, transfer, pledge or encumber the same shall be void.  Payments
hereunder shall not be considered assets of the Executive in the event of
insolvency or bankruptcy.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (i)           
Noncontravention.  The
Company represents that the Company is not prevented from entering into, or
performing this Agreement by the terms of any law, order, rule or regulation,
its by-laws or declaration of trust, or any agreement to which it is a
party.

     

    (j)           
Section and Subsection
Headings.  The section and subsection headings in this
Agreement are for convenience of reference only; they form no part of this
Agreement and shall not affect its interpretation.

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

     

    IN
WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization of the Board, the Company has caused this
Agreement to be executed, all as of the day and year first above
written.

    

    

    
      	 	
              PMA
      CAPITAL CORPORATION;

              PENNSYLVANIA
      MANUFACTURERS

            
	 	
              ASSOCIATION
      INSURANCE COMPANY;

            
	 	
              MANUFACTURERS
      ALLIANCE INSURANCE

            
	 	
              COMPANY;
      PENNSYLVANIA

            
	 	
              MANUFACTURERS
      INDEMNITY COMPANY;

            
	 	
              AND
      PMA MANAGEMENT CORP.

               

               

               

               

               

            
	
               

            	By:	
              /s/
      Vincent T.
      Donnelly                                    
      

            	 
      
	 
      	 
      	 
      
	 
      	 	
              Name:
      Vincent T. Donnelly

            	 
      
	 
      	 	
              Title:  President
      and Chief Executive Officer

            	 
      
	 
      	 	
              Date:  December
      21, 2009

            	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
               

            	EXECUTIVE	 
      
	 
      	 
      	 
      
	
               

            	/s/ John M.
      Cochrane                                                    
      	 
      
	 
      	Name:
      John M. Cochrane	 
      
	
               

            	Date:
      December 21, 2009	 
      

    

     

     

     

     

     

     

    12

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