Document:

ex10-1.htm

     

    EXHIBIT 10.1

     

    SEVERANCE
AGREEMENT

     

    This
SEVERANCE AGREEMENT (the "Agreement"), dated as of February 18, 2009 by and
between PMA Capital Corporation, a Pennsylvania corporation, and its
subsidiaries (the "Company"), and Anthony J. Ciofani (the
"Executive").

     

    WITNESSETH
THAT

     

    WHEREAS,
the Executive is Executive Vice President and Chief Underwriting Officer 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 9 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.

     

     

    
      
        
        

      

      
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    (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 provisions contained in subsection 14(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:   commits any act of fraud, embezzlement, theft or
commission of a felony in the course of his employment;  engages in
knowing and willful misconduct or gross negligence in the performance of his
duties;  unlawfully appropriates a corporate opportunity of the
Company or its affiliates and subsidiaries; or  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:

     

     

     

    
      
        
        

      

      
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              (i)

            	
              a
      material reduction in his duties, authority or
      responsibilities;

            

    

     

    
      	
               
      

            	
              (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 12(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 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.

     

     

    
      
        
        

      

      
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    (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,  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  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 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).

     

     

    
      
        
        

      

      
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    5.           Certain Tax
Consequences.  If the payments and benefits provided for in
this Agreement constitute "parachute payments" within the meaning of the Code,
and but for this Section 5, would be subject to the excise tax imposed by
Section 4999 of the Code, then the payments and benefits under this Agreement
will be payable as described below:

     

    (a)           if
the excise tax would be avoided by reducing the payments and/or benefits by 10%
or less, the payments and/or benefits will be reduced to the extent necessary so
that the excise tax is not applicable;

     

    (b)           if
the tax provisions would not be avoided by reducing the payments and/or benefits
by 10% or less, an excise tax gross-up payment will be made to the Executive in
an amount so that after payment of income, employment and any other taxes
imposed on the gross-up payment (including the 20% excise tax under Section
4999), the Executive would retain an amount equal to the 20% excise tax imposed
on the change in control related payments and benefits.  The gross-up
payment is intended to put the Executive in the same after tax position he or
she would have been in had the excise tax not been imposed.  The
excise tax gross up payment shall be paid in the taxable year in which the
Executive pays the 20% excise tax pursuant to Section 4999 of the
Code.

     

    6.           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 entitled as an officer of the Company or
its affiliates.

     

    7.           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.

     

    8.           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), 5 and 14(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.

     

     

    
      
        
        

      

      
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    9.           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
9).  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 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 9(a) through
(d).  Therefore, if a party violates or threatens to violate the
provisions of subsections 9(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 9, or the application thereof to any
person or circumstances shall, to any extent, be invalid or unenforceable, the
remainder of this section 9, 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 9 shall be valid and enforceable to the fullest extent permitted by
law.  Moreover, if a court of competent jurisdiction deems any
provision of subsections 9(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.

     

     

    
      
        
        

      

      
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    10.           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.

     

    11.           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.

     

    12.           Successors.

     

    (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 12 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.

     

    13.           Arbitration.  Except
for matters covered under section 9, 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.

     

     

    
      
        
        

      

      
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    14.           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.

     

    (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:

    

     

    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.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

    (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.

     

    (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:

                  	
                    February
      18, 2009

                  
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	
                    EXECUTIVE

                  
	 
      	 
      	 
      	 
      
	 
      	
                    /s/ Anthony J. Ciofani

                  
	 
      	
                    Name:

                  	
                    Anthony
      J. Ciofani

                  
	 
      	
                    Date:

                  	
                    February
      18, 2009

                  

          

        

      

     

     

     

    12ex10-2.htm

     

    EXHIBIT
10.2

     

    SEVERANCE
AGREEMENT

     

    This
SEVERANCE AGREEMENT (the "Agreement"), dated as of February 18, 2009 is by and
between PMA Capital Corporation, a Pennsylvania corporation, and its
subsidiaries (the "Company"), and John Santulli, III (the
"Executive").

     

    WITNESSETH
THAT

     

    WHEREAS,
the Executive is Executive Vice President – Risk Services and Sales 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 9 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.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (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 provisions contained in subsection 14(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:   commits any act of fraud, embezzlement, theft or
commission of a felony in the course of his employment;  engages in
knowing and willful misconduct or gross negligence in the performance of his
duties;  unlawfully appropriates a corporate opportunity of the
Company or its affiliates and subsidiaries; or  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:

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (i)

            	
              a
      material reduction in his duties, authority or
      responsibilities;

            

    

     

    
      	
               
      

            	
              (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 12(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;

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (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 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.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (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,  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  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 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).

     

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    5.           Certain Tax
Consequences.  If the payments and benefits provided for in
this Agreement constitute "parachute payments" within the meaning of the Code,
and but for this Section 5, would be subject to the excise tax imposed by
Section 4999 of the Code, then the payments and benefits under this Agreement
will be payable as described below:

     

    (a)           if
the excise tax would be avoided by reducing the payments and/or benefits by 10%
or less, the payments and/or benefits will be reduced to the extent necessary so
that the excise tax is not applicable;

     

    (b)           if
the tax provisions would not be avoided by reducing the payments and/or benefits
by 10% or less, an excise tax gross-up payment will be made to the Executive in
an amount so that after payment of income, employment and any other taxes
imposed on the gross-up payment (including the 20% excise tax under Section
4999), the Executive would retain an amount equal to the 20% excise tax imposed
on the change in control related payments and benefits.  The gross-up
payment is intended to put the Executive in the same after tax position he or
she would have been in had the excise tax not been imposed.  The
excise tax gross up payment shall be paid in the taxable year in which the
Executive pays the 20% excise tax pursuant to Section 4999 of the
Code.

     

    6.           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 entitled as an officer of the Company or
its affiliates.

     

    7.           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.

     

    8.           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), 5 and 14(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.

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    9.           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
9).  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 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 9(a) through
(d).  Therefore, if a party violates or threatens to violate the
provisions of subsections 9(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.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (ii)           If
any term or provision of this section 9, or the application thereof to any
person or circumstances shall, to any extent, be invalid or unenforceable, the
remainder of this section 9, 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 9 shall be valid and enforceable to the fullest extent permitted by
law.  Moreover, if a court of competent jurisdiction deems any
provision of subsections 9(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.

     

    10.           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.

     

    11.           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.

     

    12.           Successors.

     

    (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 12 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.

     

    13.           Arbitration.  Except
for matters covered under section 9, 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.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    14.           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.

     

    (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:

     

    

     

    

     

    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.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (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:

                  	
                    February
      18, 2009

                  
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	
                    EXECUTIVE

                  	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	
                    /s/ John Santulli, III

                  
	 
      	
                    Name:

                  	
                    John
      Santulli, III

                  
	 
      	
                    Date:

                  	
                    February
      18, 2009

                  

          

        

      

     

    12

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