Document:

exv10w8

Exhibit 10.8

August 14, 2009

Jonathan C. Couch

303 Main Avenue

Clarks Summit, PA 18411

			
	Re:	 	Letter Agreement

Dear Jonathan:

     It is with great pleasure that we extend an offer setting forth the following terms for your
continued employment with PMMHC Corporation, (the “MHC”), Penn Millers Holding Corporation (the
“Holding Corporation”), and Penn Millers Insurance Company, (the “Insurance Company”) (the Holding
Corporation and the Insurance Company are sometimes referred to collectively or individually, as
the context requires, as the “Company,” and the MHC, the Holding Corporation, and the Insurance
Company, and their direct and indirect subsidiaries, are sometimes referred to collectively as the
“Penn Millers System”).

1. Term of Agreement. The term of this agreement (the “Agreement”) shall commence on the date
above (the “Effective Date”) and shall continue for a period of two (2) years thereafter.
Commencing on the first anniversary of the Effective Date and on each anniversary thereafter
(“Anniversary Date”), this Agreement shall automatically be renewed for one (1) additional year
beyond the term otherwise established, unless one party provides written notice to the other party,
at least ninety (90) days in advance of an Anniversary Date, of its intent not to renew this
Agreement for an additional one year term. Nothing in this provision shall preclude termination as
otherwise provided or permitted under this Agreement. Notwithstanding the foregoing, if a Change
in Control occurs after the Effective Date and during the term of this Agreement, this Agreement
shall continue in effect for a period of not less than two (2) years beyond the date of such Change
in Control.

2. Covenant Not to Compete; Nonsolicitation; Confidential Information.

     2.1 During your employment with the Company and during the Restricted Period (as defined
below), you shall not directly or indirectly, either for your own account or as an agent,
consultant, employee, partner, officer, director, proprietor, investor (except as an investor
owning less than 5% of the stock of a publicly owned company) or otherwise, of any person, firm,
corporation, or enterprise:

	 	a.	 	solicit or hire any employees of the Company or induce any of such employees to
terminate their employment relationship with the Company; or

 

 

	 	b.	 	solicit, induce or attempt to solicit or induce any customer, supplier or other
entity doing business with the Company to cease doing business with the Company
or, in the case of a customer, to place agribusiness insurance, as that term is
commonly understood in the industry, with any competitor of the Company. For
purposes of the foregoing provision, the term “customer” shall mean a business
that the Company insures on the date that your employment terminates (or has
insured during the previous twelve months) and a broker who has placed business
with the Company on the date that your employment terminates but only with respect
to those clients of the broker for which the broker has placed business with the
Company in the twelve-month period preceding the date that your employment
terminates.

     2.2 In addition to the limitations described in Section 2.1, during the Restricted Period you
shall not, directly or indirectly, own, manage, operate, render services for (as a consultant or an
advisor) or accept any employment with (a) Nationwide Agribusiness Insurance Company, Michigan
Millers Insurance Company or Westfield Insurance Company or any of their successors in interest or
(b) the agribusiness insurance business of any other insurance company whose business has, or could
reasonably be expected to have, a material adverse effect on the Company’s business insurance
business. In addition, you shall not, directly or indirectly, own, manage, operate, render
services for (as a consultant or an adviser) or accept any employment with, within a fifty
(50) mile radius of Wilkes-Barre, Pennsylvania, any other property and casualty insurance or
reinsurance line of business to the extent that such ownership, management, operating, rendering of
services or employment (and the activities necessarily incident thereto) have, or could reasonably
be expected to have, a material adverse effect on the Company’s business insurance business.

     2.3 You agree that you will not at any time during the term of this Agreement (as determined
under Section 1 hereof) or at any time thereafter for any reason, in any fashion, form or manner,
either directly or indirectly, divulge, disclose or communicate to any person, firm, corporation or
other business entity, in any manner whatsoever, any confidential information or trade secrets
concerning the business of the Company, including, without limiting the generality of the
foregoing, any customer lists or other customer identifying information, the techniques, methods or
systems of the Company’s operation or management, any information regarding its financial matters,
or any other material information concerning the business of the Company, its manner of operation,
its plan or other material data. The provisions of this Section 2.3 shall not apply to
(i) information that is public knowledge other than as a result of disclosure by you in breach of
this Section 2.3; (ii) information disseminated by the Company to third parties in the ordinary
course of business; (iii) information lawfully received by you from a third party who, based upon
inquiry by you, is not bound by a confidential relationship to the Company, or (iv) information
disclosed under a requirement of law or as directed by applicable legal authority having
jurisdiction over you.

     2.4 Although you and the Company consider the restrictions contained in Sections 2.1, 2.2 and
2.3 to be the minimum restriction reasonable for the purposes of preserving the Company’s goodwill
and other proprietary rights, if a final determination is made by a court that the time or
territory, or any other restriction contained in Sections 2.1, 2.2 and 2.3 is an unreasonable or
otherwise unenforceable restriction against you, the provisions of Sections 2.1,

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2.2 and 2.3 will not be rendered void, but will be deemed amended to apply as to such maximum
time and territory and to such other extent as the court may determine to be reasonable.

     2.5 Notwithstanding anything to the contrary in Sections 3.3 or 3.4, in the event that you
breach any of the covenants contained in this Section 2:

	 	a.	 	Any remaining payments or benefits to be provided under Sections 3.3 or 3.4
shall not be paid or shall cease immediately upon such breach; and
	 
	 	b.	 	The Company shall be entitled to the immediate repayment of all payments and
benefits provided under Sections 3.3 and 3.4.

     2.6 You agree that the covenants contained in this Section 2 may be assigned by the Company,
as needed, to affect its purpose and intent and that the Company’s assignee shall be entitled to
the full benefit of the restrictions enjoyed by the Company under the terms of these covenants.

     2.7 The term “Restricted Period” shall mean:

	 	a.	 	In the event you are terminated by the Company for Cause, the six (6) month
period following your termination of employment;
	 
	 	b.	 	In the event of a termination pursuant to Section 3.1, the six (6) month
period following your termination of employment;
	 
	 	c.	 	Notwithstanding Section 2.7.b., in the event of a termination pursuant to
Section 3.1 and such termination would amount to Good Reason but for the fact
that it occurred prior to a Change in Control, a period up to six (6) months
following your termination of employment, with the number of months, if any,
selected by the Company in its sole discretion by providing written notice of
such number to you within ten (10) days following the date on which you give
notice of your termination of employment;
	 
	 	d.	 	In the event you are terminated pursuant to Section 3.2, the date of your
termination of employment;
	 
	 	e.	 	In the event of a termination pursuant to Section 3.3, the six (6) month
period following your termination of employment; or
	 
	 	f.	 	In the event of a termination pursuant to Section 3.4, the twelve (12) month
period following your termination of employment.

3. Severance Benefits.

     3.1 Termination by You on Voluntary Basis. In the event that you voluntarily
terminate your employment hereunder without Good Reason, you shall be entitled to receive:

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	 	a.	 	If such termination occurs on or after age 65, a pro-rata payment from the
Success Sharing Plan (or other annual incentive plan in effect) based on the
number of full months that have elapsed from the start of the current annual
performance period to the date of your termination of employment and actual annual
performance through the end of the current annual performance period to the extent
that at the conclusion of such period, such award is deemed earned, payable at the
time such award would otherwise have been paid had your employment not terminated,
but in no event later than March 15 of the calendar year following the end of such
performance period;
	 
	 	b.	 	If such termination occurs on or after age 65, pro-rata vesting of any unvested
and outstanding performance-based equity awards granted to you, based on the
number of full months that have elapsed from the date of grant of such award to
the date of your termination of employment and actual performance through the end
of the applicable performance period to the extent that at the conclusion of such
period, such awards are deemed earned, payable in-kind at the time such award
would otherwise have been paid had your employment not terminated, but in no event
later than March 15 of the calendar year following the end of the applicable
performance period; provided that to the extent the benefits provided in this
paragraph conflict with the terms of any plan or other agreement under or pursuant
to which any equity awards were granted, the terms of such plan or other agreement
shall control; and
	 
	 	c.	 	If your voluntary termination of employment would amount to Good Reason but for
the fact that it occurred prior to a Change in Control, a lump sum cash payment
within sixty (60) days following termination of your employment equal to the
product of (i) the number of months selected by the Company pursuant to Section
2.7.c. and (ii) your annual base compensation, divided by twelve (12).

     3.2 Termination By Reason of Death or Permanent Disability: In the event your
employment is terminated by reason of your death or permanent disability (defined for this purpose
as a condition by reason of which you are entitled to and receiving disability benefits under the
Company’s long-term disability plan, if any, and if none, under the U.S. Social Security Act) you,
or your estate, shall be entitled to receive a pro-rata payment from the Success Sharing Plan (or
other annual incentive plan then in effect) as set forth in Section 3.1.a., without regard to the
age requirements contained in Section 3.1.a.

     3.3 Termination by the Company without Cause prior to a Change in Control: In the
event that your employment hereunder is terminated by the Company without Cause (as defined in
Section 3.7), before a Change in Control (as defined in Section 3.6 below), you shall be entitled
to receive:

	 	a.	 	Continuation of your annual base compensation then in effect for six (6) months
(commencing on the next payroll date following the date of your termination of
employment);

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	 	b.	 	Continuation of employer-provided healthcare benefits for six (6) months at the
levels and cost to you and your qualified dependents in effect on the date of your
termination, and thereafter to elect, at your or your qualified dependents’ cost,
COBRA continuation for the remainder of your or your qualified dependents’ COBRA
eligibility, if any, it being understood that your and your dependents’ COBRA
eligibility period will include the period during which the Company is providing
benefits under this Section 3.3.b.;
	 
	 	c.	 	If your termination of employment occurs prior to your attaining age 62,
payment of all fees and expenses related to the provision of outplacement services
through a firm of your choice, not to exceed $10,000; provided, however, that such
outplacement expenses: (i) must be incurred no later than the end of the second
full calendar year following the year of your termination of employment; and (ii)
must be paid no later than the end of the third full calendar year following the
year of your termination of employment; and
	 
	 	d.	 	A pro-rata payment from the Success Sharing Plan (or other annual incentive
plan then in effect) as set forth in Section 3.1.a., without regard to the age
requirements contained in Section 3.1.a.

     3.4 Termination by the Company Without Cause or by You with Good Reason on or after a
Change in Control: If a Change in Control (as defined in Section 3.6 below) shall occur and
concurrently therewith or during a period of twenty-four (24) months thereafter your employment
hereunder is terminated by the Company without Cause (as defined in Section 3.7) or by you with
Good Reason (as defined in Section 3.5 below), you shall be entitled to receive:

	 	a.	 	A lump sum cash payment within sixty (60) days following your termination of
employment equal to one-half (1/2) times your annual base compensation then in
effect (or immediately prior to any reduction resulting in a termination for Good
Reason);
	 
	 	b.	 	Continuation of your annual base compensation then in effect (or immediately
prior to any reduction resulting in a termination for Good Reason) for six (6)
months (commencing on the next payroll date following the date of your termination
of employment);
	 
	 	c.	 	Continuation of employer-provided healthcare benefits for one (1) year at the
levels and cost to you and your qualified dependents in effect on the date of your
termination (or immediately prior to any reduction resulting in a termination for
Good Reason), and thereafter to elect, at your or your qualified dependents’ cost,
COBRA continuation for the remainder of your or your qualified dependents’ COBRA
eligibility, if any, it being understood that your and your dependents’ COBRA
eligibility period will include the period during which the Company is providing
benefits under this Section 3.4.c.;
	 
	 	d.	 	If your termination of employment occurs prior to your attaining age 62,
payment of outplacement services as set forth in Section 3.3.c.;

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	 	e.	 	A pro-rata payment from the Success Sharing Plan (or other annual incentive
plan then in effect) as set forth in Section 3.1.a., without regard to the age
requirements contained in Section 3.1.a.; and
	 
	 	f.	 	Immediate and full vesting of equity awards as follows:

	 	i.	 	Immediate and full vesting of any unvested and outstanding
performance-based equity awards granted to you, with all such awards payable
in-kind at target levels for the applicable performance period within sixty
(60) days following the date your employment terminates; and
	 
	 	ii.	 	Immediate and full vesting of any unvested and outstanding
non-performance-based equity awards granted to you, payable in-kind within
sixty (60) days following the date your employment terminates.

Notwithstanding the foregoing, to the extent the benefits provided in this
Subsection f. conflict with the terms of any plan or other agreement under or
pursuant to which any equity awards were granted, the terms of such plan or other
agreement shall control.

     3.5 Good Reason: You shall be considered to have terminated employment hereunder for
Good Reason if such termination of employment occurs on or within twenty-four (24) months after a
Change in Control and is on account of any of the following actions by the Company without your
express written consent:

	 	a.	 	A material reduction in your annual base compensation as in effect immediately
prior to a Change in Control;
	 
	 	b.	 	Any material diminution of your positions, duties or responsibilities or the
assignment to you of duties or responsibilities that are materially inconsistent
with your then position, in effect immediately prior to a Change in Control;
	 
	 	c.	 	A failure by the Company to continue you as a participant in any incentive plan
or program (whether annual or long-term and whether paid in cash or in equity) on
at least the same basis with respect to the potential amount of incentives
thereunder immediately prior to a Change in Control;
	 
	 	d.	 	Any exclusion from full participation in or any material diminution in the
benefits you are entitled to receive under any of the employee benefit plans of
the Company in effect immediately prior to a Change in Control to the extent such
exclusion or reduction is not imposed on executive officers of the Company
generally;
	 
	 	e.	 	Any change in your principal place of work (other than a temporary change
occasioned by the Company’s business needs) that would increase your commute by
50 miles or more as of the date of the Change in Control; or
	 
	 	f.	 	A material breach by the Company of its obligations under this Agreement.

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     Notwithstanding the foregoing, a termination by you shall not be for “Good Reason,” unless you
shall have given the Company at least ten (10) business days written notice specifying the grounds
upon which you intend to terminate your employment hereunder for “Good Reason” and such notice is
received by the Company within ninety (90) days of the date the event of “Good Reason” occurred.
In addition, any action or inaction by the Company which is remedied within thirty (30) days
following such written notice shall not constitute “Good Reason” for termination hereunder.

     3.6 Change in Control. Change in Control shall have the same meaning as a “Change in
Control” under the Penn Millers Stock Incentive Plan, as such term may be amended from time to
time.

     3.7 Cause. “Cause” means any of the following events: (a) breach of your fiduciary
duty to the Company or your duty of loyalty to the Company; (b) willful act of material dishonesty
with respect to any material matter involving the Company; (c) theft or material misuse of Company
property; (d) engaging in personal conduct that would constitute grounds for liability for
discrimination or sexual harassment (as proscribed by the U.S. Equal Employment Opportunity
Commission Guidelines or any other applicable state or local regulatory body); (e) fraternization
which affects your objectivity in the treatment of fellow employees or abusive or threatening
behavior, after a warning by the Board of Directors of the Company (the “Board”), the Chief
Executive Officer, or Human Resources to cease; (f) excessive absenteeism (which shall not include
authorized absences for leave pursuant to the Family and Medical Leave Act, the Americans With
Disabilities Act, or the Company’s vacation, paid time off, or short-term disability leave plans,
policies, or arrangements) having a material adverse effect on Company business operations; (g)
conviction of, or plea of guilty or nolo contendere to, a felony, any criminal charge involving
moral turpitude, or illegal substance abuse charges; (h) illegal substance abuse or being under the
influence of illegal substances during working time; (i) continuing neglect of management duties
and responsibilities that has a material adverse effect on the Company; or (j) willful failure to
timely report to the Board or direct supervisor information having a material adverse effect on
Company business operations.

     3.8 Accrued Benefits. Upon your termination of employment for any reason, you, or
your estate, as applicable, shall receive your accrued but unpaid annual base compensation and any
accrued but unpaid or otherwise vested benefits under any Penn Millers System benefit or incentive
plan.

4. Best Net Benefit Limitation. Anything contained in this Agreement to the contrary
notwithstanding, if any of the payments or benefits received or to be received by you pursuant to
this Agreement (which the parties agree will not include any portion of payments allocated to the
non-solicitation and non-compete provisions of Section 2 which are classified as payments of
reasonable compensation for purposes of Code Section 280G), when taken together with payments and
benefits provided to you under any other plans, contracts, or arrangements with the Penn Millers
System (all such payments and benefits being hereinafter referred to as the “Total Payments”), will
be subject to any excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended (the “Code”) (together with any interest or penalties, the “Excise Tax”), then such Total
Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to
the Excise Tax; provided, however, that if you would receive

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in the aggregate greater value (as determined under Code Section 280G and the regulations
thereunder) on an after tax basis if the Total Payments were not subject to such reduction, then no
such reduction shall be made. To effectuate the reduction described above, if applicable, the
Company shall first reduce or eliminate the payments and benefits provided under this Agreement.
All calculations required to be made under this Section, including the portion of the payments
hereunder to be allocated to the restrictive covenants set forth in Section 2, will be made by the
Company’s independent public accountants, subject to the right of your representative to review the
same. The parties recognize that the actual implementation of the provisions of this Section are
complex and agree to deal with each other in good faith to resolve any questions or disagreements
arising hereunder.

5. Binding Effect and Benefit.

     5.1 The Company shall require any successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business 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. Failure by
the Company to obtain such assumption and agreement prior to the effectiveness of any such
succession shall constitute a material breach of this Agreement. As used in this Agreement, “the
Company” shall mean the Company as hereinbefore defined and any successor to the respective
business or assets of the Company as aforesaid which assumes and agrees to perform this Agreement
by operation of law, or otherwise.

     5.2 This Agreement shall inure to the benefit of and be enforceable by your personal or legal
representatives, executors, administrators, heirs, distributees, devisees, and legatees. If you
should die while any amount is payable to you under this Agreement if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to your devisee, legatee, or other designee, or, if there is no such designee, to
your estate.

6. Assignment. This Agreement shall not be assignable by either party hereto, except as provided
in Section 2.6 and by the Company to any successor in interest to the business of the Company,
provided that the Company (if it remains a separate entity) shall remain fully liable under this
Agreement for all obligations, payments and otherwise.

7. No Mitigation or Offset. In the event of termination of your employment, you will be under no
obligation to seek other employment and there will be no offset against any payment or benefit
provided for in this Agreement on account of any remuneration or benefits from any subsequent
employment that he may obtain.

8. Application of Code Section 409A.

     8.1 Notwithstanding anything in this Agreement to the contrary, the receipt of any benefits
under this Agreement as a result of a termination of employment shall be subject to satisfaction of
the condition precedent that you undergo a “separation from service” within the meaning of Treas.
Reg. § 1.409A-1(h) or any successor thereto. In addition, if you are deemed to be a “specified
employee” within the meaning of that term under Code Section 409A(a)(2)(B),

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then with regard to any payment or the provisions of any benefit that is required to be
delayed pursuant to Code Section 409A(a)(2)(B), such payment or benefit shall not be made or
provided prior to the earlier of (i) the expiration of the six (6) month period measured from the
date of your “separation from service” (as such term is defined in Treas. Reg. § 1.409A-1(h)), or
(ii) the date of your death (the “Delay Period”). Within ten (10) days following the expiration of
the Delay Period, all payments and benefits delayed pursuant to this Section (whether they would
have otherwise been payable in a single sum or in installments in the absence of such delay) shall
be paid or reimbursed to you in a lump sum, and any remaining payments and benefits due under this
Agreement shall be paid or provided in accordance with the normal payment dates specified for them
herein. Notwithstanding the foregoing, to the extent that the foregoing applies to the provision
of any ongoing welfare benefits to you that would not be required to be delayed if the premiums
therefore were paid by you, you shall pay the full costs of premiums for such welfare benefits
during the Delay Period and the Company shall pay you an amount equal to the amount of such
premiums paid by you during the Delay Period within ten (10) days after the conclusion of such
Delay Period.

     8.2 Except as otherwise expressly provided herein, to the extent any expense reimbursement or
other in-kind benefit is determined to be subject to Code Section 409A, the amount of any such
expenses eligible for reimbursement or in-kind benefits in one calendar year shall not affect the
expenses eligible for reimbursement or in-kind benefits in any other taxable year (except under any
lifetime limit applicable to expenses for medical care), in no event shall any expenses be
reimbursed or in-kind benefits be provided after the last day of the calendar year following the
calendar year in which you incurred such expenses or received such benefits, and in no event shall
any right to reimbursement or in-kind benefits be subject to liquidation or exchange for another
benefit.

     8.3 Any payments made pursuant to Section 3.4, to the extent of payments made from the date of
termination through March 15th of the calendar year following such date, are intended to constitute
separate payments for purposes of Treas. Reg. §1.409A-2(b)(2) and thus payable pursuant to the
“short-term deferral” rule set forth in Treas. Reg. §1.409A-1(b)(4); to the extent such payments
are made following said March 15th, they are intended to constitute separate payments for purposes
of Treas. Reg. §1.409A-2(b)(2) made upon an involuntary termination from service and payable
pursuant to Treas. Reg. §1.409A-1(b)(9)(iii), to the maximum extent permitted by said provision.
Notwithstanding the foregoing, if the Company determines that any other payments hereunder fail to
satisfy the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue Code of 1986,
as amended (the “Code”), the payment of such benefit shall be delayed to the minimum extent
necessary so that such payments are not subject to the provisions of Code Section 409A(a)(1).

9. Miscellaneous.

     9.1 The invalidity or unenforceability of any provision of this Agreement will not affect the
validity or enforceability of any other provision of this Agreement, which will remain in full
force and effect.

     9.2 The validity, interpretation, construction and performance of this Agreement will be
governed by the laws of the Commonwealth of Pennsylvania.

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     9.3 No waiver by you or the Company at any time of any breach of, or compliance with, any
provision of this Agreement to be performed by the Company or you, respectively, will be deemed a
waiver of that or any other provision at any subsequent time.

     9.4 Upon any termination of employment that entitles you to payments and benefits under
Section 3 (other than pursuant to Section 3.8), you must, within prescribed time limits, execute a
legally enforceable release agreement substantially in the form of Exhibit A attached hereto prior
to the receipt of such payments and benefits. Any payments made to you will be paid net of any
applicable withholding required under federal, state or local law.

     9.5 This Agreement is the exclusive agreement with respect to the severance benefits payable
to you in the event of a termination of your employment. All prior negotiations and agreements are
hereby merged into this Agreement. You acknowledge and agree that any employment agreement, offer
letter and/or any agreement regarding change in control or termination benefits, previously entered
into between you and the Company are immediately null and void.

     9.6 Notwithstanding the termination of this Agreement, the provisions which specify continuing
obligations, compensation and benefits, and rights shall remain in effect until such time as all
such obligations are discharged, all such compensation and benefits are received, and no party or
beneficiary has any remaining actual or contingent rights under this Agreement.

10. Recovery of Bonuses and Incentive Compensation. Notwithstanding anything in this Agreement to
the contrary, all bonuses and incentive compensation paid to you (whether in equity or in cash)
shall be subject to recovery by the Company in the event that such bonuses or incentive
compensation are based on materially inaccurate financial statements (which includes, but is not
limited to, statements of earnings, revenues, or gains) or other materially inaccurate performance
metric criteria; provided that a determination as to the recovery of a bonus or incentive
compensation shall be made within twelve (12) months following the date such bonus or incentive
compensation was paid. In the event that the Board determines by at least a majority vote that a
bonus or incentive compensation payment to you is recoverable, you shall reimburse all or a portion
of such bonus or incentive compensation, to the fullest extent permitted by law, as soon as
practicable following written notice to you by the Company of the same.

11. Legal Fees. In the event of a dispute following a Change in Control, the Company, or its
successor, shall reimburse you for all reasonable legal fees and expenses incurred by you in
attempting to obtain or enforce rights or benefits provided by this Agreement, if, with respect to
any such right or benefit, you are successful in obtaining or enforcing such right or benefit
(including by negotiated settlement).

12. Indemnification.

     12.1 The Company shall indemnify you in the event you are made a party or are threatened to be
made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (including, without limitation, actions by or in the
right of the Company), by reason of the fact that you are or were a director or officer of the
Company, or a director or officer of the Company serving at the request

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of the Company as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys’ fees), amounts
paid in settlement, judgments, and fines actually and reasonably incurred by you in connection with
such action, suit, or proceeding; provided, however, that no indemnification shall be made in any
case where the act or failure to act giving rise to the claim for indemnification is determined by
a court to have constituted willful misconduct or recklessness.

     12.2 Expenses (including attorneys’ fees) incurred in defending a civil or criminal action,
suit, or proceeding, under Section 12.1 shall be paid by the Company in advance of the final
disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of
you to repay such amount if it shall be ultimately determined that you are not entitled to be
indemnified by the Company as authorized in this Section 12.

     12.3 The Company shall purchase and maintain directors’ and officers’ liability insurance on
behalf of you, at the Company’s expense, consistent with the amounts and terms provided to other
directors and officers of the Company.

     If you accept this offer, please sign and date this letter in the space provided below and
return a copy to the Company at 72 North Franklin Street, Wilkes-Barre, PA 18773-0016.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Sincerely,
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	/s/ Douglas Gaudet
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Penn Millers Holding Corporation
	 
	 	 	 	 	 	 
	Accepted:

	 	/s/ Jonathan C. Couch
 

	 	Date: 
	 	8/14/09                         Jonathan C. Couch

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EXHIBIT A

RELEASE AGREEMENT

THIS
RELEASE AGREEMENT (this “Release Agreement”) is made as of this ___ day of                     ,
20___, by and between PMMHC Corporation, Penn Millers Holding Corporation, and Penn Millers
Insurance Company (collectively, the “Employer”) and Jonathan C. Couch (the “Executive”).
Capitalized terms not defined in this Release Agreement shall have the meanings ascribed to them in
the Letter Agreement (as defined below). In consideration of the mutual agreements set forth
below, the Executive and the Employer hereby agree as follows:

     1. General Release.

          a. In consideration of the payments and benefits required to be provided to the Executive
under the agreement between the Employer and the Executive, dated August 14, 2009, (the “Letter
Agreement”) and after consultation with counsel, the Executive, for himself and on behalf of each
of the Executive’s heirs, executors, administrators, representatives, agents, successors and
assigns (collectively, the “Releasors”), hereby irrevocably and unconditionally releases and
forever discharges the Employer, its majority owned subsidiaries and affiliated companies, and each
of its officers, employees, directors, shareholders, and agents (collectively, the “Releasees”)
from any and all claims, actions, causes of action, rights, judgments, obligations, damages,
demands, accountings, or liabilities of whatever kind or character (collectively, “Claims”),
including, without limitation, any Claims under any federal, state, local, or foreign law, that the
Releasors may have, or in the future may possess, arising out of (i) the Executive’s employment
relationship with and service as an employee, officer, or director of the Employer and any of its
majority-owned subsidiaries and affiliates, or the termination of the Executive’s service in any
and all of such relevant capacities, (ii) the Letter Agreement, or (iii) any event, condition,
circumstance, or obligation that occurred, existed, or arose on or prior to the date hereof;
provided, however, that the release set forth in this Section shall not apply to (iv) the payment
and/or benefit obligations of the Employer or any of its affiliates, (collectively, the “Employer
Group”) under the Letter Agreement, (v) any Claims the Executive may have under any plans or
programs not covered by the Letter Agreement in which the Executive participated and under which
the Executive has accrued and become entitled to a benefit, and (vi) any indemnification or other
rights the Executive may have under the Letter Agreement or in accordance with the governing
instruments of any member of the Employer Group or under any director and officer liability
insurance maintained by the Employer or any such group member with respect to liabilities arising
as a result of the Executive’s service as an officer and employee of any member of the Employer
Group or any predecessor thereof. Except as provided in the immediately preceding sentence, the
Releasors further agree that the payments and benefits as required by the Letter Agreement shall be
in full satisfaction of any and all Claims for payments or benefits, whether express or implied,
that the Releasors may have against the Employer or any member of the Employer Group arising out of
the Executive’s employment relationship under the Letter Agreement and the Executive’s service as
an employee, officer or director of the Employer or a member of the Employer Group under the Letter
Agreement or the termination thereof, as applicable.

     2. Specific Release of Claims. In further consideration of the payments and benefits
provided to the Executive under the Letter Agreement, the Releasors hereby unconditionally

12

 

release and forever discharge the Releasees from any and all Claims that the Releasors may
have in connection with the Executive’s employment or termination of employment, arising under:

          a. Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act
(“ADEA”), the Americans With Disabilities Act of 1990 (“ADA”), the Rehabilitation Act of 1973, and
any similar federal, state or local laws, including without limitation, the Pennsylvania Human
Relations Act, as amended and any other non-discrimination and fair employment practices laws of
any state and/or locality in which the Executive works or resides, all as amended;

          b. the Fair Credit Reporting Act (“FCRA”), the Employee Retirement Income Security Act of 1974
(“ERISA”), the Worker Adjustment and Retraining Notification Act (“WARN”); and

          c. all common law Claims including, but not limited to, actions in tort and for breach of
contract, including, without limitation, Claims for incentive payments and/or commissions,
including but not limited to, Claims for incentive and/or commission payments under any Employer
incentive or commission plan, Claims for severance benefits, all Claims to any non-vested ownership
interest in the Employer, contractual or otherwise, including but not limited to Claims to stock or
stock options.

               This release applies to any and all Claims that the Executive may have relating to rights,
known or unknown to him, resulting from a change in ownership control of the Employer, including,
without limitation, rights pursuant to severance agreements, severance plans, incentive plans,
equity compensation plans, or any other plan or agreement relating to the Executive’s employment.

               Notwithstanding anything contained herein to the contrary, no portion of any release contained
in any Section of this Release Agreement shall release the Employer or the Employer Group from any
Claims the Executive may have for breach of the provisions of this Release Agreement or to enforce
this Release Agreement, that arise after the date of this Release Agreement, or to challenge the
validity of the Executive’s release of ADEA Claims.

               By signing this Release Agreement, the Executive hereby acknowledges and confirms the
following: (i) the Executive was advised by the Employer or his then employer in connection with
his termination of employment or retirement to consult with an attorney of his choice prior to
signing this Release Agreement and to have such attorney explain to the Executive the terms of this
Release Agreement, including, without limitation, the terms relating to the Executive’s release of
Claims arising under this Section, and the Executive has in fact consulted with an attorney; (ii)
the Executive was given a period of not fewer than 21 days to consider the terms of this Release
Agreement prior to its signing; and (iii) the Executive knowingly and voluntarily accepts the terms
of this Release Agreement.

     3. No Assignment of Claims. The Executive represents and warrants that he has not
assigned any of the Claims being released hereunder.

     4. Complaints. The Executive affirms that he has not filed any complaint against any
Releasee with any local, state or federal court and agrees not to do so in the future, except

13

 

for Claims challenging the validity of the release of ADEA Claims. The Executive affirms
further that he has not filed any claim, charge or complaint with the United States Equal
Employment Opportunity Commission (“EEOC”) or any state or local agency authorized to investigate
charges or complaints of unlawful employment discrimination (together, “Agency”). The Executive
understands that nothing in this Release Agreement prevents him from filing a charge or complaint
of unlawful employment discrimination with any Agency or assisting in or cooperating with an
investigation of a charge or complaint of unlawful employment discrimination by an Agency, provided
however that, the Executive acknowledges that he may not be able to recover any monetary benefits
in connection with any such claim, charge, complaint or proceeding and disclaim entitlement to any
such relief. Furthermore, if any Agency or court has now assumed or later assumes jurisdiction of
any claim, charge or complaint on the Executive’s behalf against any Releasee, the Executive will
disclaim entitlement to any relief.

     5. Revocation. This Release Agreement may be revoked by the Executive within the
seven-day period commencing on the date the Executive signs this Release Agreement (the “Revocation
Period”). In the event of any such revocation by the Executive, all obligations of the parties
under this Release Agreement shall terminate and be of no further force and effect as of the date
of such revocation. No such revocation by the Executive shall be effective unless it is in writing
and signed by the Executive and received by the Employer prior to the expiration of the Revocation
Period. In the event of revocation, the Executive shall not be entitled to the payments and
benefits under the Letter Agreement, the receipt of which is conditioned on the Executive’s
execution of this Release Agreement.

     6. Non-Disparagement. The Executive agrees not to disparage or criticize the
Releasees, or any of them, or otherwise speak of Releasees, or any of them, in any negative or
unflattering way to anyone with regard to any matters relating to the Executive’s employment by the
Employer Group or the business or employment practices of such business entities. The Employer
agrees, on behalf of itself, and the Employer Group, not to disparage or criticize the Executive or
otherwise speak of the Executive in any negative or unflattering way to anyone with regard to any
matters relating to the Executive’s employment with the Employer Group. The parties understand
that this entire provision is a material provision of this Release Agreement. This Section shall
not operate as a bar to (i) statements reasonably necessary to be made in any judicial,
administrative or arbitral proceeding, or (ii) internal communications between and among the
employees of the Employer Group with a job-related need to know about this Release Agreement or
matters related to the administration of this Release Agreement.

     7. Cooperation. The Executive agrees to cooperate with the Employer with respect to
all matters arising during or related to his employment about which he has personal knowledge
because of his employment with the Employer, including but not limited to all matters (formal or
informal) in connection with any government investigation, internal Employer investigation,
litigation (potential or ongoing), administrative, regulatory, or other proceeding which currently
exists, or which may have arisen prior to or arise following the signing of this Release Agreement.
The Executive understands that the Employer agrees to reimburse Executive for his reasonable
out-of-pocket expenses (not including attorney’s fees, legal costs, or lost time or opportunity)
incurred in connection with such cooperation.

14

 

     8. No Admission of Liability. The Executive agrees that this Release Agreement does
not constitute, nor should it be construed to constitute, an admission by the Employer of any
violation of federal, state, or local law, regulation, or ordinance, nor as an admission of
liability under the common law or for any breach of duty the Employer owed or owes to the
Executive.

     9. Representations and Warranties. The Executive acknowledges and agrees that (i) he
is not aware of nor has he reported any conduct by any of the Releasees that violates any federal,
state, or local law, rule, or regulation, (ii) he has not been denied any rights or benefits under
the Family and Medical Leave Act of 1993 (“FMLA”) or any state or local law, act, or regulation
providing for family and/or medical leave or been discriminated against in any way for exercising
his rights under these laws, and (iii) in connection with offering the payments and benefits
provided under the Letter Agreement, the Employer has not provided to the Executive, and has no
obligation to provide to the Executive, any material non-public information as defined in
applicable federal securities laws, concerning the Employer.

     10. Confidentiality. The Executive agrees to maintain as confidential, the terms and
contents of this Release Agreement, and the contents of the negotiations and discussions resulting
in this Release Agreement, except (i) as needed to obtain legal counsel, financial, or tax advice,
(ii) to the extent required by federal, state, or local law or by order of court (iii) as needed to
challenge the release of ADEA Claims or to participate in an Agency investigation, or (iv) as
otherwise agreed to in writing by an officer of the Employer. The Executive agrees that before he
seeks legal counsel or financial or tax advice, he will secure an agreement from such counsel or
advisors to adhere to the same confidentiality obligations that apply to him. The Executive agrees
not to discuss either the existence of or any aspect of this Release Agreement with any employee or
ex-employee of the Employer.

     11. Successors. This Release Agreement is for the benefit of and is binding upon the
Executive and his heirs, administrators, representatives, executors, successors, beneficiaries and
assigns, and is also for the benefit of the Releasees and their successors and assigns.

     12. Violation. If the Executive violates any provisions of this Release Agreement,
the Employer will be entitled to the immediate repayment of all payments and benefits paid pursuant
to the Letter Agreement. The Executive agrees that repayment will not invalidate this Release
Agreement and acknowledges that he will be deemed conclusively to be bound by the terms of this
Release Agreement and to waive any right to seek to overturn or avoid it. If the Executive
violates any provisions of this Release Agreement before all of the payments and benefits under the
Letter Agreement have been provided, the Employer may discontinue any unpaid conditional payments
and benefits.

     13. Additional Damages Available for Violation. The Executive agrees that the Employer
will maintain all rights and remedies available to it at law and in equity in the event the
Executive violates any provision of this Release Agreement. These rights and remedies may include,
but may not be limited to, the right to bring court action to recover all consideration paid to the
Executive pursuant to this Release Agreement and any additional damages the Employer may suffer as
a result of such a breach.

15

 

     14. Entire Agreement and Amendment. This Release Agreement contains and constitutes
the entire understanding and agreement between the parties hereto with respect to the Executive’s
severance benefits and waiver and release of Claims against the Employer and cancels all previous
oral and written negotiations, agreements, commitments and writings in connection therewith. This
Release Agreement shall be binding upon the parties and may not be modified in any manner, except
by an instrument in writing of concurrent or subsequent date signed by a duly authorized
representative of the parties and their respective agents, assign, heirs, executors, successors,
and administrators. No delay or omission by the Employer in exercising any right under this
Release Agreement shall operate as a waiver of that or any other right. A waiver or consent given
by the Employer on any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion. The parties acknowledge and agree
that Sections 9.6 and 12 of the Letter Agreement shall survive the execution of this Release
Agreement and the termination of the Letter Agreement.

     15. Applicable Law. This Release Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard to choice of law
principles, and except as preempted by federal law. Should any provision of this Release Agreement
be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the
validity of the remaining parts, terms or provisions shall not be affected thereby and the illegal
or invalid part, term, or provision will be deemed not to be a part of this Release Agreement.

     16. Assignment. The Executive’s rights and obligations under this Release Agreement
shall inure to the Executive’s benefit and shall bind the Executive, his heirs and representatives.
The Employer’s rights and obligations under this Release Agreement shall inure to the benefit of
and shall bind the Employer, its successors and assigns. The Executive may not assign this Release
Agreement. The Employer may assign this Release Agreement, but it may not delegate the duty to
make any payments hereunder without the Executive’s written consent, which shall not be
unreasonably withheld.

     17. Severability. If any provision of this Release Agreement is held unenforceable by
a court of competent jurisdiction, all remaining provisions shall continue in full force and effect
without being impaired or invalidated in any way.

     18. Notices. All notices required by this Release Agreement shall be in writing and
shall be deemed to have been duly delivered in person or when mailed by certified mail, return
receipt requested, as follows:

          a. If to the Executive: 303 Main Avenue, Clarks Summit, PA 18411

          b. If to the Employer: 72 North Franklin St., Wilkes-Barre, PA 18773-0016

The Executive is hereby advised that the Executive has up to twenty-one (21) calendar days to
review this Release Agreement and that the Executive should consult with an attorney of the
Executive’s choice prior to execution of this Release Agreement.

16

 

     The Executive agrees that any modifications, material or otherwise, made to this Release
Agreement do not restart or affect in any manner the original twenty-one (21) calendar day
consideration.

     Having elected to execute this Release Agreement, to fulfill the promises and to receive the
payments and benefits under the Letter Agreement, the Executive freely and knowingly, after
due consideration, enters into this Release Agreement intending to waive, settle and release all
claims the Executive has or might have against the Employer.

Statement by the Executive who is signing below. By signing
this Release Agreement, I acknowledge that the Employer has advised
and encouraged me to consult with an attorney prior to executing
this Release Agreement. I have carefully read and fully understand
the provisions of this Release Agreement and have had sufficient
time and opportunity (over a period of 21 days) to consult with my
personal tax, financial and legal advisors prior to executing this
Release Agreement, and I intend to be legally bound by its terms.

     IN WITNESS WHEREOF, the Employer (on its behalf and on behalf of the members of the Employer
Group) and the Executive, intending to be legally bound have executed this Release Agreement on the
day and year first above written.

	 	 	 	 	 	 	 
	 	 	PENN MILLERS HOLDING CORPORATION
	 
	 	 	 	 	 	 
	 

	 	By
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Title
	 	 
 

	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Jonathan C. Couch	 	 

17exv10w19

EXHIBIT 10.19

PENN MILLERS HOLDING CORPORATION

EMPLOYEE STOCK OWNERSHIP PLAN

(Effective ___, 2009)

 

 

Table of Contents

	 	 	 	 	 
	 	 	Page	 
	ARTICLE I

INTRODUCTION
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II

DEFINITIONS
	 	 	2	 
	 
	 	 	 	 
	ARTICLE III

ELIGIBILITY
	 	 	10	 
	 
	 	 	 	 
	3.1 Eligibility Generally
	 	 	10	 
	3.2 Commencement of Participation
	 	 	10	 
	3.3 Cessation of Participation
	 	 	10	 
	3.4 Participation upon Reemployment
	 	 	10	 
	3.5 Change in Control
	 	 	11	 
	 
	 	 	 	 
	ARTICLE IV

VESTING
	 	 	12	 
	 
	 	 	 	 
	4.1 In General
	 	 	12	 
	4.2 Normal Retirement Date
	 	 	12	 
	4.3 Death or Disability
	 	 	12	 
	4.4 Vesting upon Reemployment
	 	 	12	 
	4.5 Forfeiture of Account
	 	 	12	 
	4.6 Change in Control
	 	 	13	 
	 
	 	 	 	 
	ARTICLE V

CONTRIBUTIONS AND ALLOCATIONS
	 	 	14	 
	 
	 	 	 	 
	5.1 Company Contributions
	 	 	14	 
	5.2 Time and Manner of Contributions
	 	 	14	 
	5.3 Employee Contributions
	 	 	14	 
	5.4 Recovery of Contributions
	 	 	14	 
	5.5 Allocation of Employer Contributions
	 	 	14	 
	5.6 Income on Investments
	 	 	16	 
	5.7 Certain Stock Transactions
	 	 	16	 
	5.8 Valuation of Trust Fund
	 	 	16	 
	 
	 	 	 	 
	ARTICLE VI

MAXIMUM LIMITATION ON ALLOCATIONS
	 	 	17	 
	 
	 	 	 	 
	6.1 Participation Solely in This Plan
	 	 	17	 
	6.2 Participation in Another Defined Contribution Plan
	 	 	17	 
	6.3 Definitions
	 	 	17	 
	 
	 	 	 	 
	ARTICLE VII

INVESTMENT OF TRUST ASSETS
	 	 	19	 

i

 

	 	 	 	 	 
	 	 	Page	 
	ARTICLE VIII

COMPANY STOCK APPRAISAL
	 	 	20	 
	 
	 	 	 	 
	ARTICLE IX

DISTRIBUTIONS
	 	 	21	 
	 
	 	 	 	 
	9.1 Termination of Employment
	 	 	21	 
	9.2 Death
	 	 	21	 
	9.3 Time of Payment
	 	 	21	 
	9.4 Manner of Making Payments
	 	 	22	 
	9.5 Form of Payment
	 	 	22	 
	9.6 Direct Rollover
	 	 	22	 
	9.7 Diversification Election
	 	 	23	 
	9.8 Election to Retain Interests in Plan
	 	 	23	 
	9.9 Mandatory Distributions
	 	 	24	 
	9.10 Dividend Distributions
	 	 	24	 
	9.11 Right of First Refusal
	 	 	25	 
	9.12 Prohibited Allocations
	 	 	25	 
	 
	 	 	 	 
	ARTICLE X

RIGHT TO SELL COMPANY STOCK
	 	 	27	 
	 
	 	 	 	 
	10.1 Put Requirements
	 	 	27	 
	 
	 	 	 	 
	ARTICLE XI

VOTING AND TENDER OF COMPANY STOCK
	 	 	29	 
	 
	 	 	 	 
	11.1 Voting
	 	 	29	 
	11.2 Tender
	 	 	29	 
	11.3 Fiduciary Responsibilities
	 	 	30	 
	11.4 Procedures for Voting and Tender
	 	 	30	 
	 
	 	 	 	 
	ARTICLE XII

ADMINISTRATION
	 	 	31	 
	 
	 	 	 	 
	12.1 Fiduciary Responsibilities
	 	 	31	 
	12.2 The Administrative Committee
	 	 	31	 
	12.3 Plan Expenses
	 	 	32	 
	12.4 Meetings and Voting
	 	 	32	 
	12.5 Compensation
	 	 	32	 
	12.6 Claims Procedures
	 	 	33	 
	12.7 Liabilities
	 	 	34	 
	 
	 	 	 	 
	ARTICLE XIII

AMENDMENTS
	 	 	35	 
	 
	 	 	 	 
	13.1 Right to Amend
	 	 	35	 
	13.2 Amendment by Administrative Committee
	 	 	35	 
	13.3 Plan Merger and Asset Transfers
	 	 	35	 
	13.4 Amendment of Vesting Schedule
	 	 	35	 

ii

 

	 	 	 	 	 
	 	 	Page	 
	ARTICLE XIV

TERMINATION
	 	 	36	 
	 
	 	 	 	 
	14.1 Right to Terminate
	 	 	36	 
	14.2 Effect of Termination
	 	 	36	 
	14.3 Change in Control
	 	 	36	 
	 
	 	 	 	 
	ARTICLE XV

MISCELLANEOUS
	 	 	37	 
	 
	 	 	 	 
	15.1 Non-alienation of Benefits
	 	 	37	 
	15.2 Appointment of Guardian
	 	 	37	 
	15.3 Satisfaction of Benefit Claims
	 	 	37	 
	15.4 Controlling Law
	 	 	37	 
	15.5 Non-guarantee of Employment
	 	 	37	 
	15.6 Severability and Construction of the Plan
	 	 	37	 
	15.7 No Requirement of Profits
	 	 	38	 
	15.8 All Risk on Participants and Beneficiaries
	 	 	38	 
	 
	 	 	 	 
	ARTICLE XVI

TOP-HEAVY PROVISIONS
	 	 	39	 
	 
	 	 	 	 
	16.1 Determination of Top-Heavy Status
	 	 	39	 
	16.2 Top-Heavy Definitions
	 	 	39	 
	16.3 Top-Heavy Rules
	 	 	41	 
	 
	 	 	 	 
	ARTICLE XVII

EXEMPT LOANS
	 	 	43	 
	 
	 	 	 	 
	17.1 General
	 	 	43	 
	17.2 Terms of Exempt Loan Agreements
	 	 	43	 
	17.3 Prohibition on Purchase Arrangements
	 	 	43	 
	17.4 Suspense Account.
	 	 	43	 

iii

 

ARTICLE I

INTRODUCTION

     The Penn Millers Holding Corporation Employee Stock Ownership Plan (the “Plan”) is hereby
established by Penn Millers Holding Corporation (the “Company”) in order for its employees to
participate in the ownership of the Company. The Plan, effective as of ___, 2009, is
intended to be an employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Internal Revenue Code of 1986, as amended, and is designed to invest primarily in Company Stock,
which meets the requirements for qualifying employer securities under Code Section 409(l). The
purchase of Company Stock for the Plan may be made with the proceeds of exempt loans meeting the
requirements of Section 54.4975-7(b) of the Treasury Regulations (including any amendments thereto)
and Section 2550.408(b)-3 of the Department of Labor Regulations (including any amendments
thereto), employer contributions, dividends on qualified employer securities or a combination
thereof.

1

 

ARTICLE II

DEFINITIONS

          The following initially capitalized words and phrases when used in the Plan shall have the
following meanings, unless the context clearly requires otherwise.

          2.1 Account means the bookkeeping account established for each Participant which
reflects the value of the Participant’s interest in the Plan. This Account shall include a Company
Stock Account, which reflects the number of shares of Company Stock allocated to the Participant
and an Investment Account which reflects other investments allocated to the Participant.

          2.2 Administrative Committee and Committee, used interchangeably, means the
named fiduciary of the Plan, which is appointed by the Board of Directors, as is more fully
described in Article XII. In the event the Board of Directors does not appoint an Administrative
Committee, Administrative Committee means the Board of Directors.

          2.3 Affiliate means the Company and any corporation which is a member of a controlled
group of corporations (as defined in Code Section 414(b)) which includes the Company; any trade or
business (whether or not incorporated) which is under common control (as defined in Code
Section 414(c)) with the Company; any organization (whether or not incorporated) which is a member
of an affiliated service group (as defined in Code Section 414(m)) which includes the Company; and
any other entity required to be aggregated with the Company pursuant to regulations under Code
Section 414(o).

          2.4 Beneficiary means the individual(s) or entities entitled to receive the
Participant’s benefits under the Plan in the event of the Participant’s death prior to receiving
all benefits payable under the Plan.

          2.5 Board of Directors means the Board of Directors of the Company as constituted
from time to time.

          2.6 Break in Service means a Plan Year during which an Employee (a) has terminated
employment or is no longer employed with the Company or an Affiliate, and (b) fails to complete
more than five hundred (500) Hours of Service.

          2.7 Change in Control means the first to occur of any of the following events:

               (a) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended), except for any of the Company’s employee benefit plans, or any entity
holding the Company’s voting securities for, or pursuant to, the terms of any such plan (or any
trust forming a part thereof) (the “Benefit Plan(s)”), is or becomes the beneficial owner, directly
or indirectly, of the Company’s securities representing 25% or more of the combined voting power of
the Company’s then outstanding securities other than pursuant to a transaction excepted in
Clause (b);

               (b) the shareholders of the Company approve a merger, consolidation, or other reorganization
of the Company, unless:

2

 

                    (i) under the terms of the agreement providing for such merger, consolidation, or
reorganization, the shareholders of the Company immediately before such merger, consolidation, or
reorganization, will own, directly or indirectly immediately following such merger, consolidation,
or reorganization, at least 60% of the combined voting power of the outstanding voting securities
of the Company resulting from such merger, consolidation, or reorganization (the “Surviving
Company”) in substantially the same proportion as their ownership of the voting securities
immediately before such merger, consolidation, or reorganization;

                    (ii) under the terms of the agreement providing for such merger, consolidation, or
reorganization, the individuals who were members of the Board immediately prior to the execution of
such agreement will constitute at least a majority of the members of the board of directors of the
Surviving Company after such merger, consolidation, or reorganization; and

                    (iii) based on the terms of the agreement providing for such merger, consolidation, or
reorganization, no Person (other than (A) the Company or any Subsidiary of the Company, (B) any
Benefit Plan, (C) the Surviving Company or any Subsidiary of the Surviving Company, or (D) any
Person who, immediately prior to such merger, consolidation, or reorganization had beneficial
ownership of 25% or more of the then outstanding voting securities) will have beneficial ownership
of 25% or more of the combined voting power of the Surviving Company’s then outstanding voting
securities;

               (c) a plan of liquidation or dissolution of the Company, other than pursuant to bankruptcy or
insolvency laws, is adopted; or

               (d) during any period of two consecutive years, individuals, who at the beginning of such
period, constituted the Board cease for any reason to constitute at least a majority of the Board
unless the election, or the nomination for election by the Company’s shareholders, of each new
director was approved by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of the period.

     Notwithstanding Clause (a), a Change in Control shall not be deemed to have occurred if a
Person becomes the beneficial owner, directly or indirectly, of the Company’s securities
representing 25% or more of the combined voting power of the Company’s then outstanding securities
solely as a result of an acquisition by the Company of its voting securities which, by reducing the
number of shares outstanding, increases the proportionate number of shares beneficially owned by
such Person to 25% or more of the combined voting power of the Company’s then outstanding
securities; provided, however, that if a Person becomes a beneficial owner of 25% or more of the
combined voting power of the Company’s then outstanding securities by reason of share purchases by
the Company and shall, after such share purchases by the Company, become the beneficial owner,
directly or indirectly, of any additional voting securities of the Company (other than as a result
of a stock split, stock dividend or similar transaction), then a Change in Control of the
Corporation shall be deemed to have occurred with respect to such Person under Clause (a). In no
event shall a Change in Control of the Company be deemed to occur under Clause (a) by virtue of the
acquisition of the Company’s securities by Benefit Plans.

3

 

          2.8 Code means the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.

          2.9 Company means Penn Millers Holding Corporation and any Affiliate which adopts
this Plan with the approval of the Board of Directors of the Company and any successor to the
business of the Company that agrees to assume the Company’s obligations under the Plan.

          2.10 Company Stock means shares of common stock issued by the Company that are
readily tradable on an established securities market; provided, however, if the Company’s common
stock is not readily tradable on an established securities market, “Company Stock” means common
stock issued by the Company having a combination of voting power and dividend rates equal to or in
excess of: (a) that class of common stock of the Company having the greatest voting power and (b)
that class of common stock of the Company having the greatest dividend rights. Non-callable
preferred stock shall be treated as Company Stock for purposes of the Plan if such stock is
convertible at any time into stock that is readily tradable on an established securities market
(or, if applicable, that meets the requirements of (a) and (b) next above) and if such conversion
is at a conversion price that, as of the date of the acquisition by the Plan, is reasonable. For
purposes of the immediately preceding sentence, preferred stock shall be treated as non-callable
if, after the call, there will be a reasonable opportunity for a conversion that meets the
requirements of the immediately preceding sentence. Company Stock shall be held under the Trust
only if such stock satisfies the requirements of Section 407(d)(5) of ERISA. For purposes of this
definition “Company” includes any corporation that is a member of a controlled group of
corporations with the Company (within the meaning of Section 409(l)(4) of the Code).

          2.11 Compensation means wages within the meaning of Code Section 3401(a) and all
other payments of compensation to a Participant by the Employer during a Plan Year for which the
Employer is required to report on Form W-2. Compensation must be determined without regard to any
rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature
or location of the employment or the services performed. Compensation also includes any salary
reduction contributions elected by a Participant which is not includible in the gross income of the
Participant pursuant to any plan maintained by the Company in accordance with Code Sections 401(k),
125 or 132(f)(4).

               Payments made within 2 1/2 months after severance from employment (within the meaning of Code
Section 401(k)(2)(B)(i)(I)) will be Compensation if they are payments that, absent a severance from
employment, would have been paid to the Participant while the Participant continued in employment
with the Employer and are regular compensation for services during the Participant’s regular
working hours, compensation for services outside the Participant’s regular working hours (such as
overtime or shift differential), commissions, bonuses, or other similar compensation, and payments
for accrued bona fide sick, vacation or other leave, but only if the Participant would have been
able to use the leave if employment had continued. Any payments not described above are not
considered Compensation if paid after severance from employment, even if they are paid within 2 1/2
months following severance from employment, except for payments to an individual who does not
currently perform services for the Employer by reason of qualified military service (within the
meaning of Code Section 414(u)(1)) to the extent these payments do not exceed the amounts the
individual would have

4

 

received if the individual had continued to perform services for the Employer rather than
entering qualified military service.

               Notwithstanding the foregoing, Compensation shall not include any amounts earned prior to
becoming a Participant in the Plan.

               The annual compensation for each Participant taken into account under the Plan shall not
exceed $200,000, as adjusted by the Internal Revenue Service at the same time and in the same
manner as under Code Section 415(d).

          2.12 Disability means a medically determinable physical or mental impairment which is
of such permanence and degree that it can be expected to result in death or that a Participant is
unable, because of such impairment, to perform any substantial gainful activity for which the
Participant is suited by virtue of such Participant’s experience, training or education and which
would entitle the Participant to benefits under the Employer’s long-term disability plan, if any,
or to Social Security disability benefits as evidenced by a disability award letter.

          2.13 Disqualified Person means a person defined in Code Section 4975(e), including
but not limited to (i) a fiduciary of the Plan; (ii) a person providing services to the Plan;
(iii) an owner of 50% or more of the combined voting power or value of all classes of stock of the
Company entitled to vote or the total value of shares of all classes of stock of the Company and
certain members of such owner’s family; or (iv) an officer, director, 10% or greater shareholder or
highly compensated employee (who earns 10% or more of the yearly wages) of the Company.

          2.14 Effective Date means ___, 2009 which is the date on which the
provisions of this Plan become effective.

          2.15 Employee means an individual who is employed as a common law employee by the
Company or an Affiliate on a salaried or hourly basis and with respect to whom the Company or the
Affiliate is required to withhold taxes from remuneration paid to such Employee by the Company or
Affiliate for personal services rendered to the Company, including any officer or director who
shall so qualify. If an individual is not considered to be an Employee in accordance with the
preceding sentence for a Plan Year, a subsequent determination by the Company, any governmental
agency or court that the individual is a common law employee of the Company, even if such
determination is applicable to prior years, will not have a retroactive effect for purposes of
eligibility to participate in the Plan.

          2.16 Employer means the Company.

          2.17 Entry Date means January 1, March 1, July 1 and October 1 of each Plan Year.

          2.18 ERISA means the Employee Retirement Income Security Act of 1974, as amended from
time to time, including any regulations promulgated thereunder.

          2.19 Exempt Loan means the issuance of notes, a series of notes or other installment
obligations incurred by the Trustee, in accordance with the Trust, in connection with

5

 

the purchase of Company Stock, the terms of which shall satisfy the requirements of Treasury
Regulations Section 54.4975-7(b), including the requirements: (a) that the loan bear a reasonable
rate of interest, be for a definite period (rather than payable on demand), and be without recourse
against the Plan, and (b) that the only assets of the Plan that may be given as collateral are
shares of Common Stock purchased with the proceeds of that loan or with the proceeds of a prior
Exempt Loan.

          2.20 Highly Compensated Employee

               (a) Highly Compensated Employee means an Employee who performs service during the
determination year and is described in one or more of the following groups:

                    (i) An Employee who is a 5% owner, as defined in Code Section 416(i)(1)(A)(iii), at any time
during the determination year or the look-back year.

                    (ii) An Employee who receives compensation in excess of $80,000 (indexed in accordance with
Code Section 415(d)) during the look-back year and is a member of the top-paid group for the
look-back year.

               (b) For purposes of the definition of Highly Compensated Employee, the following definitions
and rules shall apply:

                    (i) The determination year is the Plan Year for which the determination of who is highly
compensated is being made.

                    (ii) The look-back year is the 12 month period immediately preceding the determination year,
or if the Employer elects, the calendar year ending with or within the determination year.

                    (iii) The top-paid group consists of the top 20% of employees ranked on the basis of
compensation received during the year. For purposes of determining the number of employees in the
top-paid group, employees described in Code Section 414(q)(8) and Treasury Regulations
Section 1.414(q)-1T Q&A 9(b) are excluded.

               (c) Compensation is compensation within the meaning of Code Section 415(c)(3), plus, for
purposes thereof, elective or salary reduction contributions to a cafeteria plan, cash or deferred
arrangement under Code Section 401(k) or tax-sheltered annuity under Code Section 403(b), or made
pursuant to Code Section 132(f)(4). Employers aggregated under Code Sections 414(b), (c), (m), or
(o) are treated as a single employer.

          2.21 Hours of Service means:

               (a) Performance of Duties. The actual hours for which an Employee is paid or entitled
to be paid by the Company for the performance of duties;

               (b) Nonworking Paid Time. Each hour for which an Employee is paid or entitled to be
paid by the Company on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to vacation,

6

 

holiday, illness, incapacity, disability (to the extent not already included in Compensation),
layoff, jury duty, military duty or leave of absence; provided, however, no more than 501 Hours of
Service shall be credited to an Employee under this subsection for any single continuous period
(whether or not such period occurs in a single computation period); and provided further that no
credit shall be given for payments made or due under a plan maintained solely for the purpose of
complying with applicable worker’s or unemployment compensation or disability insurance laws or for
payments which solely reimburse an Employee for medical or medically related expenses incurred by
the Employee; and

               (c) Maternity, Paternity and FMLA Leave. Solely for purposes of determining whether a
one year Break in Service has occurred for purposes of determining eligibility to participate and
vesting, each hour for which an Employee is absent from employment by reason of (i) pregnancy of
the Employee, (ii) birth of a child of the Employee, (iii) placement of a child in connection with
the adoption of the child by an individual, or (iv) caring for the child during the period
immediately following the birth or placement for adoption. Hours of Service shall also, for these
limited purposes, include each hour for which an Employee who has worked for the Company or an
Affiliate for at least 12 months and for at least 1,250 Hours of Service during the year preceding
the start of the leave, is absent from employment on an unpaid family leave for up to 12 weeks, as
provided for in the Family and Medical Leave Act of 1993 (the “FMLA Leave”), by reason of (A) the
birth or adoption of a child, (B) the care of a spouse, child or parent with a serious health
condition, or (C) the Employee’s own serious health condition, provided that such an Employee
provides the Company with a 30-day advance notice if the leave is foreseeable, and/or medical
certification satisfactory to support the Employee’s request for leave because of a serious health
condition. For purposes of determining whether an Employee’s leave qualifies as a “FMLA Leave” in
order to be credited with Hours of Service under this Plan, the Family and Medical Leave Act of
1993 (“FMLA”) and the regulations promulgated thereunder shall apply. During the period of
absence, the Employee shall be credited with the number of hours that would be generally credited
but for such absence or if the general number of work hours is unknown, eight Hours of Service for
each normal workday during the leave (whether or not approved). These hours shall be credited to
the computation period in which the leave of absence commences if crediting of such hours is
required to prevent the occurrence of a one year Break in Service in such computation period, and
in other cases, in the immediately following computation period. The computation period shall be
the same as the relevant period for determining eligibility computation periods and vesting
computation periods. Unless otherwise required under the FMLA and the regulations promulgated
thereunder, no more than 501 Hours of Service shall be credited under this paragraph for any single
continuous period (whether or not such period occurs in a single computation period).

               (d) Back Pay. Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Company; provided, however, Hours of Service credited under
paragraphs (a), (b) and (c) above shall not be recredited by operation of this paragraph.

               (e) Equivalencies. The Administrative Committee shall have the authority to adopt any
of the following equivalency methods for counting Hours of Service that are permissible under
regulations issued by the Department of Labor: (i) Working Time; (ii) Periods

7

 

of Employment; (iii) Earnings; or (iv) Elapsed Time. The adoption of any equivalency method
for counting Hours of Service shall be evidenced by a certified resolution of the Committee, which
shall be attached to and made part of the Plan. Such resolution shall indicate the date from which
such equivalency shall be effective.

               (f) Miscellaneous. Unless the Administrative Committee directs otherwise, the methods
of determining Hours of Service when payments are made for other than the performance of duties and
of crediting such Hours of Service to Plan Years set forth in Department of Labor Regulations
Sections 2530.200b-2(b) and (c), shall be used hereunder and are incorporated by reference into the
Plan.

               Participants on military leaves of absence who are not directly or indirectly compensated or
entitled to be compensated by the Company while on such leave shall be credited with Hours of
Service as required by the Uniformed Services Employment and Reemployment Rights Act.

               Notwithstanding any other provision of this Plan to the contrary, an Employee shall not be
credited with Hours of Service more than once with respect to the same period of time.

          2.22 Investment Manager means an investment advisor, bank or insurance company,
meeting the requirements of ERISA Section 3(38), appointed by the Company to manage the Plan’s
assets in accordance with the Trust Agreement.

          2.23 Leased Employee means any person who performs services for an Employer or an
Affiliate (the “recipient”) (other than an employee of the “recipient”) pursuant to an agreement
between the “recipient” and any other person (the “leasing organization”) on a substantially
full-time basis for a period of at least one year, provided that such services are performed under
primary direction of or control by the “recipient”.

          2.24 Normal Retirement Date means the first day of the calendar month coincident with
or following the later of (i) the date on which a Participant attains age 65 or (ii) the date on
which the Participant attains five Years of Service.

          2.25 Participant means an Employee participating in the Plan in accordance with
Article III.

          2.26 Plan means the Penn Millers Holding Corporation Employee Stock Ownership Plan,
as set forth in this document and in the Trust Agreement pursuant to which the Trust is maintained,
in each case as amended from time to time.

          2.27 Plan Year means the calendar year.

          2.28 Suspense Account means the account established and maintained to hold Company
Stock acquired with the proceeds of an Exempt Loan and held in the Trust, which Company Stock has
not been allocated to the Accounts of Participants with respect to the year of such acquisition.

8

 

          2.29 Trust or Trust Fund means all property held by the Trustee pursuant to
the terms of the Trust Agreement and this Plan. Such property shall be held for the exclusive
benefit of Participants and Beneficiaries.

          2.30 Trust Agreement means the agreement of trust established by the Company and the
Trustee for purposes of holding title to the assets of the Plan.

          2.31 Trustee means the trustee as named in the Trust Agreement, or a successor
thereto or substitute therefor, in any case as appointed by the Board of Directors of the Company
in accordance with Article XII to hold legal title to the assets of the Trust and that expressly
agrees to be bound by the terms and conditions of the Trust Agreement.

          2.32 Valuation Date means the last business day of each calendar quarter, and such
other more frequent dates as the Administrative Committee may from time to time establish.

          2.33 Year of Service means a Plan Year during which a Participant is credited with at
least 1,000 Hours of Service.

9

 

ARTICLE III

ELIGIBILITY

          3.1 Eligibility Generally. An Employee is eligible to become a Participant in the
Plan when the Employee has completed six months of service. Months of service with the Employer
prior to the Effective Date of the Plan shall count for purposes of determining whether the
Employee has completed six months of service.

          Notwithstanding the foregoing, the following individuals shall not be eligible to participate
in the Plan:

               (a) Leased Employees;

               (b) Individuals whose employment with the Company or an Affiliate is governed by a collective
bargaining agreement between the Company and representatives of the employee bargaining unit if
evidence exists that retirement benefits were a subject of good faith bargaining between the
parties, and provided such bargaining agreement does not provide for participation in this Plan;
and

               (c) Non-resident aliens who do not receive earned income from sources within the United
States.

          3.2 Commencement of Participation. Each Employee who has satisfied the requirements
of Section 3.1 of the Plan shall commence participation in the Plan on the later of the Effective
Date or the Entry Date concurrent with or next following the date on which such requirements are
satisfied.

          3.3 Cessation of Participation. An Employee shall cease to be a Participant upon the
earliest of (a) the date on which the Employee retires under the Plan; (b) the date on which the
Employee’s employment with the Company terminates for any reason, including death or Disability;
(c) the date on which the Employee’s employment with the Company is governed by a collective
bargaining agreement that does not provide for participation in this Plan; or (d) the date on which
the Employee becomes a “leased employee” as defined in Code Section 414(n).

          3.4 Participation upon Reemployment. Upon the reemployment of any person after the
Effective Date who had previously been employed by the Company on or after the Effective Date, the
following rules shall apply in determining the Employee’s participation in the Plan under the Plan:

               (a) No Prior Participation. If the reemployed Employee was not a Participant in the
Plan during the prior period of employment and the reemployed Employee incurred a Break in Service,
only Service with the Company after reemployment will count for purposes of meeting the
requirements of Section 2.1 of the Plan. If the reemployed Employee was not a Participant in the
Plan during the prior period of employment and the reemployed Employee did not incur a Break in
Service, all Service with the Company (both before and after the Break in Service) will be
aggregated for purposes of meeting the requirements of Section 2.1 of the Plan.

10

 

               (b) Prior Participation. If the reemployed Employee was a Participant in the Plan
during the prior period of employment, the reemployed Employee shall be entitled to resume
participation in the Plan on the date of the Employee’s reemployment.

               (c) Veterans Reemployment Rights. Notwithstanding any other provision of the Plan to
the contrary, contributions, benefits, and service credit with respect to qualified military
service shall be provided in accordance with Code Section 414(u).

          3.5 Change in Control. Notwithstanding the provisions of this Article III or any
other provisions of the Plan to the contrary, upon a change in Control, no additional Employee
shall be eligible to become a Participant in the Plan.

11

 

ARTICLE IV

VESTING

          4.1 In General. Each Participant shall have a vested interest in the Participant’s
Account, if any, in accordance with the following vesting schedule:

	 	 	 	 	 
	Years of Service After the Effective Date	 	Vested Percentage
	0-1 Years of Service
	 	 	0	%
	2 Years of Service
	 	 	20	%
	3 Years of Service
	 	 	40	%
	4 Years of Service
	 	 	60	%
	5 Years of Service
	 	 	80	%
	6 or more Years of Service
	 	 	100	%

          4.2 Normal Retirement Date. Notwithstanding the provisions of Section 4.1 of the
Plan, a Participant whose employment terminates on or after such Participant’s Normal Retirement
Date shall be 100 percent vested.

          4.3 Death or Disability. Notwithstanding the provisions of Section 4.1 of the Plan,
a Participant whose employment is terminated on account of death or Disability shall be 100 percent
vested.

          4.4 Vesting upon Reemployment. Upon the reemployment of any person after the
Effective Date who had previously been employed by the Company on or after the Effective Date, the
following rules shall apply in determining the reemployed Employee’s vesting in the Plan:

               (a) Five Consecutive Breaks in Service. If a Participant has five consecutive Breaks
in Service, all Years of Service after such Breaks in Service will be disregarded for the purpose
of vesting the Employer-derived Account balance that accrued before such Breaks in Service. Both
pre-Break and post-Break service, however, will count for the purposes of vesting the
Employer-derived Account balance that accrues after such Breaks in Service. Both Accounts will
share in the earnings and losses of the fund.

               (b) Less than Five Consecutive Breaks in Service. If a Participant does not have five
consecutive Breaks in Service, both the pre-Break and post-Break service will count in vesting all
Account balances.

          4.5 Forfeiture of Account. If prior to being 100 percent vested, a Participant
terminates employment for a reason other than death, Disability or attainment of Normal Retirement
Date, the nonvested portion will be treated as a forfeiture. Assets in the Participant’s Account
other than Company Stock acquired with the proceeds of an Exempt Loan will be forfeited before
Company Stock acquired with the proceeds of an Exempt Loan are forfeited. Forfeitures shall be
allocated to the Accounts of Participants who were employed by the

12

 

Company on the last day of the Plan Year or, in the Company’s discretion, used to pay Plan
administrative expenses. Forfeitures allocated to Participants shall be allocated in the ratio
that the Compensation of each Participant for such Plan Year bears to the total Compensation of all
such Participants for such Plan Year. For purposes of this Section 4.5, if the value of a
Participant’s vested account balance is zero, the participant shall be deemed to have received a
distribution of such vested account balance.

               If any former Participant shall be reemployed by the Employer before incurring five
consecutive Breaks in Service, and such former Participant had received, or was deemed to have
received, a distribution of the Participant’s entire vested interest prior to reemployment, the
forfeited account shall be reinstated upon the reemployment of such Participant. In the event of a
deemed distribution, the undistributed portion of the Participant’s account must be restored in
full, unadjusted by any gains or losses occurring subsequent to the Valuation Date coinciding with
or next following the Participant’s termination of employment. The source for such reinstatement
shall be any forfeitures occurring during the Plan Year. If such source is insufficient, then the
Employer shall contribute an amount which is sufficient to restore any such forfeited account
provided, however, that if a discretionary contribution is made for such Plan Year pursuant to
Section 5.1, such contribution shall first be applied to restoring such accounts and the remainder
shall be allocated in accordance with Section 5.5.

          4.6 Change in Control. Notwithstanding the provisions of Section 4.1 of the Plan, a
Participant shall be 100 percent vested upon a Change in Control.

13

 

ARTICLE V

CONTRIBUTIONS AND ALLOCATIONS

          5.1 Company Contributions. For each Plan Year, the Company may contribute cash or
shares of Company Stock, or both, to the Plan in such amounts as may be determined by the Board of
Directors.

          In the event shares of Company Stock are sold to the Trustee for a Plan Year, the fair market
value of such Company Stock shall be determined in accordance with the provisions of Article VIII.

          5.2 Time and Manner of Contributions. All Company contributions shall be paid
directly to the Trustee, and a contribution for any Plan Year shall be made not later than the date
prescribed by law for filing the Company’s Federal income tax return (including extensions, if any)
for the Company’s taxable year that ends within or with that Plan Year.

          5.3 Employee Contributions. Participants are neither permitted nor required to make
contributions to the Plan.

          5.4 Recovery of Contributions. The Company may recover contributions to the Plan,
only as set forth in this Section 5.4.

               (a) Contributions made to the Plan shall be conditioned upon the initial and continuing
qualification of the Plan. If the Plan is determined to be disqualified, contributions made in
respect of any period subsequent to the effective date of such disqualification shall be returned
to the Company. With respect to the initial qualification of the Plan, the Company may recover
contributions only if (i) the Plan receives an adverse determination letter with respect to its
initial qualification and (ii) the application for determination letter is filed within the
applicable remedial amendment period that applies to new plans (determined in accordance with the
concepts of Rev. Proc. 2007-44).

               (b) Contributions made to the Plan shall be conditioned upon their deductibility under the
Code. To the extent that a deduction is disallowed for any contribution, such amount shall be
returned to the Company within one year after the disallowance of the deduction.

               (c) If a contribution, or any part thereof, is made on account of a mistake of fact, the
amount of the contribution attributable to such mistake shall be returned to the Company within one
year after it is made.

          5.5  Allocation of Employer Contributions. Subject to the limitations set forth in
Article VI, Employer contributions made to the Trust in the form of cash or Company Stock for a
Plan Year shall be allocated to the Accounts of Participants who completed 1,000 Hours of Service
during the Plan Year and are actively employed on the last day of the Plan Year. An eligible
Participant’s allocation of the Employer contribution for a Plan Year shall be determined by
multiplying a Participant’s allocation percentage by the Employer contribution made to the Trust.
A Participant’s allocation percentage is determined in three steps. First, a Participant’s
compensation ratio is determined by calculating the ratio of the Compensation of each eligible

14

 

Participant for the Plan Year to the total Compensation of all eligible Participants for the
Plan Year. Second, a Participant’s initial allocation percentage is determined by multiplying each
Participant’s compensation ratio determined in step 1 by the following factor based upon the
Participant’s combined age plus Years of Service as of the December 31 of the Plan Year to which
the allocation relates:

	 	 	 	 	 
	Combined Age plus Years of
	 	 
	Service as of December 31
	 	Factor
	20 – 29
	 	 	50	%
	30 – 39
	 	 	55	%
	40 – 49
	 	 	65	%
	50 – 54
	 	 	85	%
	55 – 59
	 	 	100	%
	60 – 64
	 	 	115	%
	65 – 69
	 	 	130	%
	70 – 74
	 	 	135	%
	75 – 79
	 	 	140	%
	80 – 84
	 	 	155	%
	85 – 89
	 	 	155	%
	90 +
	 	 	160	%

Third, the final allocation percentage for each eligible Participant is determined by calculating
the ratio of the initial allocation percentage determined in step 2 for each eligible Participant
to the total of all initial allocation percentages for all eligible participants determined in step
2.

Solely for purposes of determining a Participant’s Years of Service under this Section 5.5, a
Participant’s Years of Service shall include a Participant’s Years of Service under the Plan as of
December 31 of the Plan Year to which the allocation relates plus a Participant’s years of service
for benefit accrual purposes earned under the Penn Millers Holding Corporation Pension Plan as of
October 31, 2009.

In the event that allocations under this Section 5.5 would fail the general test for
nondiscrimination in amount of contributions under Treas. Reg. 1.401(a)(4)-2(c), the allocation to
Participants who are Highly Compensated Employees shall be reduced and reallocated to Participants
who are not Highly Compensated Employees pro-rata until the general test for nondiscrimination in
amount of contributions under Treas. Reg. 1.401(a)(4)-2(c) is passed.

15

 

          5.6 Income on Investments. The income, gains, and losses attributable to investments
under the Plan shall be allocated as of each Valuation Date or at such other times as the
Administrative Committee may determine to the Accounts of Participants and Beneficiaries who have
undistributed balances in their Accounts on the Valuation Date, in proportion to the amounts in the
Accounts immediately after the preceding Valuation Date, but after first reducing each Account by
any distributions, withdrawals or transfers from the Trust during the interim period and increasing
each Account by any transfers to the Trust and by contributions made to the Trust during the
interim period.

          Distributions from the Plan shall include income, gains, and losses accrued as of the
coincident or immediately preceding Valuation Date, and shall not be adjusted proportionately to
reflect any income, gains, or losses accrued after that Valuation Date. All valuations shall be
based on the fair market value of the assets in the Trust on the Valuation Date.

          5.7 Certain Stock Transactions. Shares of Company Stock received by the Trustee as a
result of a stock split, dividend, conversion, or as a result of a reorganization or other
recapitalization of the Company shall be allocated as of the day on which such shares are received
by the Trustee in the same manner as the shares of Company Stock to which they are attributable are
then allocated.

          5.8 Valuation of Trust Fund. As of each Valuation Date, the Trustee shall determine
the fair market value of the Trust, after deducting withdrawals, distributions, and any expenses of
Plan administration paid out of the Trust, and including any contributions allocated to
Participants’ Accounts, for the valuation period ending on the Valuation Date. In determining
value, the Trustee may use such generally accepted methods as the Trustee, in its discretion, deems
advisable, which, in the case of Company Stock shall be in accordance with the provisions of
Article VIII.

16

 

ARTICLE VI

MAXIMUM LIMITATION ON ALLOCATIONS

          6.1 Participation Solely in This Plan.

               (a) If the Participant does not participate in, and has never participated in another plan
qualified under Code Section 401(a) that is maintained by the Employer, or a welfare benefit fund
(as defined in Code Section 419(e)) maintained by the Employer, or an individual medical account
(as defined in Code Section 415(l)(2)) maintained by the Employer, which provides an Annual
Addition, the amount of Annual Additions which may be credited to the Participant’s Account for any
Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in the Plan. Except as provided in Section 6.1(d), if the Company’s
contribution that would otherwise be contributed or allocated to the Participant’s Account would
cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the
amount contributed or allocated will be reduced so that the Annual Additions for the Limitation
Year will equal the Maximum Permissible Amount.

               (b) Prior to determining the Participant’s actual Compensation for the Limitation Year, the
Company may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant’s Compensation for the Limitation Year, uniformly determined for all
Participants similarly situated.

               (c) As soon as is administratively feasible after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation Year will be determined on the basis of the Participant’s
actual Compensation for the Limitation Year.

          6.2 Participation in Another Defined Contribution Plan. This Section 6.2 applies if
a Participant is also covered under another defined contribution plan or a welfare benefit fund (as
defined in Code Section 419(e)), an individual medical account (as defined in Code
Section 415(l)(2) or a simplified employee pension (as defined in Code Section 408(k)) maintained
by the Employer which provides an Annual Addition during any Limitation Year. If the Participant
participates in one or more such plans, all reductions in Annual Additions shall be made under such
plans and not under this Plan. In the event that, notwithstanding the preceding sentence, the
Annual Additions to be credited under this Plan should exceed the Maximum Permissible Amount, the
Annual Additions which would otherwise be credited to the Participant’s Account under any other
such plan shall be reduced prior to making any reduction hereunder, which reduction shall be
reduced in the manner set forth in Section 6.1 of the Plan.

          6.3 Definitions. The following definitions apply solely for purposes of this Article
VI.

               (a) Annual Additions means the sum of the following amounts credited to a Participant’s
Account for the Limitation Year:

                    (i) employer contributions

                    (ii) employee contributions

17

 

                    (iii) forfeitures

                    (iv) amounts allocated to an individual medical account (as defined in Code
Section 415(l)(2)) which is part of a pension or annuity plan maintained by the Employer which are
treated as Annual Additions to a defined contribution plan, and

                    (v) amounts derived from contributions paid or accrued, which are attributable to
post-retirement medical benefits, allocated to the separate account of a key employee, as defined
in Code Section 419A(d)(3), under a welfare benefit fund maintained by the Employer which are
treated as Annual Additions to a defined contribution plan.

                    (vi) Excess amounts applied to reduce Employer contributions under Sections 6.2 or 6.1 of the
Plan in the Limitation Year will be Annual Additions for such Limitation Year.

               (b) Employer means the Company and all members of a controlled group of corporations (as
defined in Code Section 414(b) and modified by Code Section 415(h)) all commonly controlled trades
or businesses (as defined in Code Section 414(c) as modified by Code Section 415(h)), any
affiliated service group (as defined in Code Section 414(m)) of which the Company is a part, and
any other entity required to be aggregated with the Employer pursuant to regulations under Code
Section 414(o).

               (c) Excess Amount means the excess of the Participant’s Annual Additions for the Limitation
Year over the Maximum Permissible Amount.

               (d) Limitation Year means the calendar year.

               (e) Maximum Permissible Amount means the Maximum Annual Additions that may be contributed or
allocated to a Participant’s Account for any Limitation Year. Such amount shall not exceed the
lesser of:

                    (i) $40,000 (as adjusted for increases in the cost-of-living under Code Section 415(d)), or

                    (ii) 100 percent of the Participant’s Compensation for the Limitation Year.

          The Maximum Permissible Amount shall be pro-rated in the case of any Limitation Year of less
than 12 months created by the changing of the Limitation Year.

          If no more than one-third of Company contributions to the Plan for a Plan Year which are
deductible under Code Section 404(a)(9) are allocated to the Accounts of Participants who are
Highly Compensated Employees, there shall be excluded in determining the Maximum Permissible Amount
of each Participant for such Plan Year (A) the contributions applied to the payment of interest on
an Exempt Loan; and (B) any forfeitures of Company contributions if the forfeited contributions
were Company Stock acquired with the proceeds of an Exempt Loan.

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ARTICLE VII

INVESTMENT OF TRUST ASSETS

          All assets of the Plan shall be held in the Trust. To the extent the Trustee deems practical,
the Trustee shall use all available cash, as directed by the Administrative Committee, to purchase
Company Stock in open market transactions, from other stockholders or to buy newly issued Company
Stock from the Company. If the purchase is from the Company or a Disqualified Person, such
purchase shall be for adequate consideration and no commission is to be charged with respect to the
purchase. If no such stock is available for purchase, or if the Trustee determines that the
purchase of such additional stock is not practical, the Trustee shall invest in other securities or
property, real or personal, consistent with the requirements of Title I of ERISA. These other
securities, property and cash shall be held by the Trustee in the Trust. The Trust income shall be
allocated as of each Valuation Date to Participant’s Investment Accounts in accordance with Section
5.6 of the Plan.

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ARTICLE VIII

COMPANY STOCK APPRAISAL

     The fair market value of Company Stock shall be determined, on any relevant day, as follows:
(a) if such stock is then traded in the over-the-counter market, the closing sale price (as
reported in the National Market System by NASDAQ with respect to such stock) for the most recent
date (including such relevant day) during which a trade in such stock has occurred, or (b) if such
stock is then traded on a national securities exchange, the closing sale price for the most recent
date (including such relevant date) during which a trade in such stock has occurred. In accordance
with the provisions of Code Section 401(a)(28)(C), if Company stock is not actively traded in the
over-the-counter market, or on a national securities exchange, a valuation of Company stock
required to be made under this Plan shall be made by an independent appraiser who satisfies
requirements similar to those contained in regulations issued under Code Section 170(a)(1).

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ARTICLE IX

DISTRIBUTIONS

          9.1 Termination of Employment. In the event of the Participant’s termination of
employment for any reason (including attainment of Normal Retirement Date or on account of death),
a Participant shall be entitled to a distribution of all amounts determined under Article IV that
are credited to the Participant’s Account at the times set forth in this Article IX.

          9.2 Death. Upon the death of a Participant, all amounts credited to the
Participant’s Account shall be distributed to the Participant’s Beneficiary, determined in
accordance with this Section 9.2.

               (a) The Administrative Committee may require such proof of death and such other evidence of
the right of any person to receive payment of the Account of a deceased Participant as the
Administrative Committee deems necessary. The Administrative Committee’s determination of death
and of the right of any person to receive payment shall be conclusive and binding on all parties.

               (b) The Beneficiary upon the death of a Participant shall be the Participant’s spouse;
provided, however, that the Participant may designate, on a form provided by the Administrative
Committee for such purpose, a Beneficiary other than the Participant’s spouse, if:

                    (i) the spouse has waived the right to be the Participant’s Beneficiary in the manner set
forth in subsection (c) of this Section 9.2; or

                    (ii) the Participant has established to the satisfaction of the Administrative Committee that
the Participant has no spouse or that the spouse cannot be located.

               (c) Any consent by a Participant’s spouse to waive a death benefit must be filed with the
Administrative Committee in writing, in a manner, and on a form provided by the Committee for such
purpose. The spouse’s consent must acknowledge the effect of the consent and must be witnessed by
a notary public or a Plan representative. The designation of a Beneficiary other than the spouse
made by a married Participant must be consented to by the Participant’s spouse and may be revoked
by the Participant in writing without the consent of the spouse. Any new beneficiary designation
must comply with the requirements of this subsection (c). A former spouse’s waiver shall not be
binding on a new spouse.

               (d) In the event the designated Beneficiary fails to survive the Participant, or if such
designation shall be ineffective for any reason, the Participant’s Account shall be paid in the
following order of priority: first to the Participant’s surviving spouse, if any; second, if there
is no surviving spouse, to the Participant’s surviving children, if any, in equal shares; third, if
there is neither a surviving spouse nor surviving children, to the legal representatives of the
estate of the Participant.

          9.3  Time of Payment. The distribution of a Participant’s Account shall begin as
soon as administratively feasible. Unless a Participant elects otherwise, such distribution shall

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not be later than 60 days after the latest of the close of the Plan Year in which occurs (i)
the date on which the Participant attains Normal Retirement Date, (ii) the 10th anniversary of the
year in which the Participant commenced participation in the Plan, or (iii) the date the
Participant terminates service with the Employer.

          9.4 Manner of Making Payments. A Participant’s Account will be distributed in one
lump sum.

          9.5 Form of Payment. Distributions of a Participant’s Account balance shall be made
in Company Stock unless the distributee elects cash. In the event the Participant’s Account
includes securities acquired with the proceeds of the Exempt Loan and such proceeds consist of more
than one class of securities, the amount distributed shall include substantially the same
proportion of each class of securities acquired with the proceeds of the Exempt Loan.

          Such distributions shall be the fair market value of each share multiplied by the number of
shares credited to the Participant’s Account, with appropriate adjustments to reflect intervening
stock dividends, stock splits, stock redemptions, or similar changes to the number of outstanding
shares. The fair market value of a share shall be determined as of the Valuation Date coinciding
with or immediately following the date of the distribution request or, in the case of a transaction
between the Plan and a Disqualified Person, determined as of the date of the transaction.

          9.6 Direct Rollover.

               (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a
distributee’s election under this Article IX, a distributee may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the distributee in a direct
rollover.

               For purposes of this Section 9.6, the following definitions apply:

          “Eligible rollover distribution”. An eligible rollover distribution is any distribution of
all or any portion of the balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life (or life expectancy)
of the distributee or the joint lives (or joint life expectancies) of the distributee and the
distributee’s designated Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code Section 401(a)(9); a
distribution on account of hardship; or the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).

          “Eligible retirement plan”. An eligible retirement plan is an eligible plan under Code
Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or
instrumentality of a state, or political subdivision of a state and which agrees to separately
account for amounts transferred into such plan from this Plan, an individual retirement account
described in Code Section 408(a), an individual retirement annuity described in Code

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Section 408(b), an annuity plan described in Code Section 403(a), an annuity contract
described in Code Section 403(b), a qualified plan described in Code Section 401(a), or a Roth IRA
described in Code Section 408A, that accepts the distributee’s eligible rollover distribution. The
definition of eligible retirement plan shall also apply in the case of a distribution to a
surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Code Section 414(p).

          “Distributee”. A distributee includes an employee or former employee. In addition, the
employee’s or former employee’s surviving spouse and the employee’s or former employee’s spouse or
former spouse who is the alternate payee under a qualified domestic relations order, as defined in
Code Section 414(p), are distributees with respect to the interest of the spouse or former spouse.
A distributee also includes the Participant’s nonspouse designated Beneficiary, in which case, the
direct rollover may be made only to an individual retirement account or annuity described in Code
Sections 408(a) or 408(b) that is established on behalf of the designated Beneficiary and that will
be treated as an inherited IRA pursuant to the provisions of Code Section 402(c)(11); provided,
however, that the determination of any required minimum distribution that is ineligible for
rollover shall be made in accordance with Notice 2007-7, Q&A 17 and 18.

          “Direct rollover”. A direct rollover is a payment by the plan to the eligible retirement plan
specified by the distributee.

          9.7  Diversification Election. Notwithstanding any provision of this Article to the
contrary, a Participant who has attained age 55 and completed at least ten years of participation
in this Plan may elect in writing, on a form provided by the Administrative Committee for such
purpose, within ninety days after the close of each Plan Year during the Qualified Election Period,
to direct the investment of a portion of the Participant’s interest in the Company Stock Account
not in excess of 25 percent of such interest, less amounts subject to all prior elections under
this Section 9.7 as a transfer to the applicable Penn Millers Insurance Company 401(k) Plan which
permits Participants to make investment elections. Upon a Participant’s election to diversify a
portion of the Participant’s interest in the Company Stock Account, Company Stock in an amount
equal to the portion so elected, valued as of the Valuation Date concurrent with or immediately
following the date of such election will be transferred to the applicable Penn Millers Insurance
Company 401(k) Plan which permits Participants to make investment elections. A participant may
then make investment elections among the several funds. Starting from the sixth Plan Year during
the Qualified Election Period of a Participant, 50 percent shall be substituted for 25 percent in
the preceding sentence.

          For purposes of this Section 9.7, “Qualified Election Period” means, with respect to a
Participant, the period beginning with the later of (a) the Plan Year in which the Participant
attains age 55 or (b) the Plan Year in which the Participant completes at least ten years of
participation in the Plan and ending with the year in which the Participant terminates employment
for any reason.

          9.8 Election to Retain Interests in Plan. No distribution shall be made to a
Participant before such Participant’s Normal Retirement Date unless (a) the Participant’s prior
written consent to the distribution has been obtained by the Administrative Committee, or (b) the

23

 

value of the Participant’s vested Account does not exceed $1,000 as of the date of the event
giving rise to the distribution.

          9.9 Mandatory Distributions.

               (a) notwithstanding any provision of this Plan to the contrary, all amounts credited to a
Participant’s Account shall commence to be distributed not later than the later of (i) April 1 of
the calendar year following the calendar year in which the Participant attains age 701/2 or (ii) the
date the Participant retires; except that distributions to a 5% owner (as defined in Code Section
416) must commence by the April 1 of the calendar year following the calendar year in which such
Participant attains age 701/2. Any and all subsequent distributions shall be made in accordance with
the rules set forth in Code Section 401(a)(9), including the minimum distribution incidental death
requirements of Code Section 401(a)(9)(G).

               (b) In the event the Participant dies after distributions have commenced under this Article IX
but before the Participant’s entire Account is distributed, the remaining portion of the
Participant’s Account shall be distributed at least as rapidly as under the method of distribution
being used as of the date of the Participant’s death.

               (c) In the event the Participant dies before distributions under this Article IX have
commenced, then, unless the Beneficiary of the Participant is the Participant’s spouse, the entire
balance in the Account of the Participant shall be distributed on or before the December 31 of the
calendar year in which occurs the fifth anniversary of the death of such Participant.

               (d) If the Participant’s designated Beneficiary is the surviving spouse of such Participant or
former Participant, such distribution shall not be required to begin prior to the date on which the
Participant or former Participant would have attained age 70 1/2 (if the surviving spouse dies prior
to commencement of distributions to such spouse, then this subsection (i) shall be applied as if
the surviving spouse were the Participant or former Participant).

          Any amount payable to a child pursuant to the death of a Participant or former Participant
shall be treated as if it were payable to the Participant’s or former Participant’s surviving
spouse if such amount would become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted by regulations).

          Any distribution required under the incidental death benefit requirements of Code
Section 401(a)(9) shall be treated as a distribution required under this Section of 9.9.

          9.10 Dividend Distributions.

               (a) Any cash dividends on Company Stock acquired with the proceeds of an Exempt Loan and held
in the Suspense Account shall be applied first to repay the principal and, at the Committee’s
discretion, the interest, of the Exempt Loan. In addition, if any cash dividends on shares of such
Company Stock allocated to Participant’s Accounts are used to pay the principal and/or the interest
of the Exempt Loan at the Committee’s discretion, Company

24

 

Stock with a fair market value not less than the amount of the dividends so used must be
allocated to the Participants’ Accounts to which such cash dividends would have been allocated.

               (b) After the payment of the principal and the interest of the Exempt Loan, any remaining cash
dividends on Company Stock may be used to purchase Company Stock or allocated to Accounts of
Participants in accordance with subsection (c) below.

               (c) In the case of any cash dividends on Company Stock that are allocable to the Accounts of
Participants with respect to vested shares, they may be paid currently (or within ninety days after
the end of the Plan Year in which the dividends are paid to the Trust) as cash, or the Company may
pay such dividends directly to the Participants’ Accounts as the Administrative Committee may
determine.

          9.11 Right of First Refusal. In the event a Participant, former Participant, or
Beneficiary desires to sell to a third person Company Stock received as a distribution from the
Plan, such person must first offer the Company, then the Plan, the right to purchase such Company
Stock at a price and on such terms not less favorable to the Participant than the greater of
(a) the price established by a bona fide offer or (b) the fair market value of the Company Stock
using the value determined as of the concurrent or next following Valuation Date. The right of the
Company and the Plan to purchase such stock shall lapse on the 14th day after such written notice
is given to the Company or the Plan of the fact that an offer has been received from a third party
to purchase the Company Stock and of the price and other terms of such offer.

          9.12 Prohibited Allocations.

               (a) No portion of the assets of the Plan attributable to (or allocable in lieu of) Company
Stock acquired by the Plan in a sale to which Code Section 1042 applies may be allocated to the
Account of (i) any Qualifying Selling Shareholder during the Nonallocation Period, or (ii) any
other person who owns more than 25 percent of (A) any class of outstanding stock of the Company or
any of its Affiliates, or (B) the total value of any class of outstanding stock of the Company or
any of its Affiliates.

               (b) For purposes of this Section 9.12, the following initially capitalized words shall carry
the following meanings:

                    (i) “Affiliate” means Affiliate as defined in Section 2.3 of the Plan, modified in accordance
with Code Section 409(l)(4).

                    (ii) “Qualifying Selling Shareholder” means any shareholder of Company Stock who makes an
election under Code Section 1042(a) with respect to Company Stock, or any individual who is related
to (within the meaning of Code Section 267(b)) the shareholder of Company Stock as defined above.
The term shall not include any lineal descendant of such shareholder or if the aggregate amount
allocated to the benefit of all such lineal descendants during the Nonallocation Period does not
exceed more than 5 percent of Company Stock (or amounts allocated in lieu thereof) held by the Plan
which are attributable to a sale to the Plan by any person related to such descendants (within the
meaning of Code Section 267(c)(4)) in a transaction to which Code Section 1042 applied.

25

 

                    (iii) “Nonallocation Period” means the period beginning on the date of the sale of Company
Stock and ending on the later of the date which is 10 years after the date of the sale, or the date
of the Plan allocation attributable to the final payment of acquisition indebtedness incurred in
connection with such sale.

26

 

ARTICLE X

RIGHT TO SELL COMPANY STOCK

          10.1 Put Requirements.

               (a) In the event Company Stock is distributed and is not publicly traded in the
over-the-counter market or on a national securities exchange at the time of distribution, the
Participant, former Participant, or Beneficiary may have an option (the “Put”) to require the
Company to purchase all of the shares actually distributed to such individual. The Put may be
exercised at any time during the Option Period (as defined in subsection (f) below) by giving the
Administrative Committee and the Company written notice of the election to exercise the Put. The
Put may be exercised by a former Participant or a Beneficiary only during the Option Period with
respect to which the former Participant or Beneficiary receives a distribution of Company Stock.

               (b) (i) The price paid for Company Stock sold to the Plan or the Company pursuant to the Put
shall be the fair market value of each share multiplied by the number of shares to be sold under
the Put, with appropriate adjustments to reflect intervening stock dividends, stock splits, stock
redemptions, or similar changes to the number of outstanding shares. The fair market value of a
share shall be determined (A) as of the Valuation Date concurrent with or immediately following the
date the Put is exercised, or (B) in the case of a transaction between the Plan and a Disqualified
Person, determined as of the date of the transaction.

                    (ii) If the distribution of Company Stock to a former Participant or Beneficiary constituted
a distribution within one taxable year of the balance of the Participant’s Account, the Company
reserves the right to establish guidelines to be exercised in a uniform and nondiscriminatory
manner, to make payment for the shares subject to the Put on an installment basis in substantially
equal annual, quarterly or monthly payments over a period not to exceed five years, such period
beginning no later than thirty days after exercise of the Put. The Company shall pay reasonable
interest at least annually on the unpaid balance of the price and shall provide to the former
Participant or Beneficiary adequate security with respect to the unpaid balance. If the
distribution was part of an installment distribution, the Company shall pay the Participant in cash
within thirty days after exercise of the Put.

               (c) The Put shall not be assignable, except that the Participant’s or former Participant’s
legal representative (in the event of a Participant’s incapacity) or, the Participant’s Beneficiary
(in the event of a Participant’s or former Participant’s death) shall be entitled to exercise the
Put during the Option Period for which it is applicable.

               (d) The Trustee (on behalf of the Plan) in its discretion, may assume the Company’s
obligations under this Section at the time a Participant, former Participant, or Beneficiary
exercises the Put, with the Company’s consent. If the Trustee assumes the Company’s obligations,
the provisions of this Section that apply to the Company shall also apply to the Trustee.

27

 

               (e) The Administrative Committee shall notify each Participant, former Participant, and
Beneficiary who is eligible to exercise the Put of the fair market value of each share of Company
Stock as soon as practicable following its determination. The Administrative Committee shall send
all notices required under this Section to the last known address of a Participant, former
Participant, or Beneficiary, and it shall be the duty of those persons to inform the Administrative
Committee of any changes in address.

               (f) For purposes of this Section, the “Option Period” is the period of sixty days following
the day on which a Participant, former Participant, or Beneficiary receives a distribution. If
such person does not exercise the Put during that sixty-day period, the Option Period shall also be
the sixty-day period beginning on the first anniversary of the day on which such person received a
distribution. Notwithstanding the preceding sentences, when Company Stock is acquired with the
proceeds of an Exempt Loan, the “Option Period” shall be the fifteen (15) month period beginning on
the date such Company Stock is distributed to a Participant (or the Participant’s Beneficiary).
Such 15-month period shall be extended by a period equal to the number of days, if any, during
which the Company is precluded from honoring the put option by reason of applicable federal or
state law.

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ARTICLE XI

VOTING AND TENDER OF COMPANY STOCK

          11.1 Voting.

               (a) All shares of Company Stock held in the Trust shall be voted by the Trustee.

               (b) Each Participant and Beneficiary shall be entitled to direct the Trustee as to the manner
in which Company Stock allocated to the Participant’s Account is to be voted on any and all matters
which may be presented to the shareholders of Company Stock.

               (c) With respect to (i) allocated Company Stock as to which no direction is received,
(ii) unallocated shares of Company Stock in the Suspense Account and (iii) allocated shares of
Company Stock that are not subject to voting right pass through requirement under Code
Section 409(e), the Trustee shall vote such shares in the same ratio as the allocated and voted
shares. When voting such shares, however, the Trustee shall comply with its fiduciary duties as
required by ERISA.

          11.2 Tender.

               (a) The Trustee shall not sell, alienate, encumber, pledge, transfer or otherwise dispose of
any Company Stock; except (i) as specifically provided for in the Plan or a Trust Agreement, or
(ii) in the case of a “tender or exchange offer”, as set forth in subsection (b) of this
Section 11.2.

          For purposes of this Article XI, the term “tender or exchange offer” shall mean: (A) any
offer for, or request for or invitation for tenders or exchanges of, or offers to purchase or
acquire any shares of Company Stock that is directed generally to shareholders of the Company, or
(B) any transaction involving Company Stock which may be defined as a “tender offer” under proposed
or final rules or regulations promulgated by the Securities and Exchange Commission.

               (b) (i) In the event of a tender or exchange offer, each Participant or, if the Participant
is not alive, the Participant’s Beneficiary, shall have the right to determine confidentially
whether to tender or exchange any whole and fractional shares of Company Stock allocated to the
Participant’s Account and shall be entitled to instruct the Trustee as to the tender of such
shares. Upon receipt of such instructions, the Trustee shall act with respect to such Company
Stock as instructed. With respect to Company Stock as to which no instruction is received and
shares of Company Stock in the Suspense Account, the Trustee shall tender such shares in the
Trustee’s discretion. In exercising such discretion, the Trustee shall comply with its fiduciary
requirements of ERISA.

                    (ii) All shares of Company Stock held in the Fund and not tendered pursuant to
subsection (b)(i) of this Section 11.2, including allocated shares for which no instructions are
received, shall continue to be held by the Trustee.

                    (iii) Any shares of Company Stock not tendered by a Participant or Beneficiary pursuant to
subsection (b)(i) of this Section 11.2 shall continue to be held by the

29

 

Trustee in such Participant’s or Beneficiary’s Account. The Account of each Participant or
Beneficiary tendering shares of Company Stock pursuant to subsection (b)(i) of this Section 11.2
shall be credited with the cash received by the Trustee in exchange for the shares tendered from
such Participant’s or Beneficiary’s Account.

          11.3 Fiduciary Responsibilities.

          Each Participant shall be a “named fiduciary,” within the meaning of ERISA Section 402(a),
with respect to the voting and tender of Company Stock pursuant to Sections 11.1 and 11.2 of the
Plan.

          11.4 Procedures for Voting and Tender.

               (a) The Administrative Committee shall establish and maintain procedures by which Participants
and Beneficiaries shall be (i) timely notified of their right to direct the voting and tender of
Company Stock allocated to their Accounts and the manner in which any such directions are to be
conveyed to the Trustee, and (ii) given information relevant to making such decisions. No
directions shall be honored by the Trustee unless timely and properly conveyed in accordance with
such procedures.

               (b) Voting instructions received from Participants and Beneficiaries shall be held in
confidence by the Trustee or its delegate for this purpose and shall not be divulged to the Company
or to any officer or employee of the Company or to any other person.

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ARTICLE XII

ADMINISTRATION

          12.1 Fiduciary Responsibilities. A fiduciary shall have only those specific powers,
duties, responsibilities and obligations as are specifically given to such person under the Plan or
the Trust. The Company shall have sole responsibility to make the contributions provided for under
the Plan and, by action of the Board of Directors, to amend or terminate, in whole or in part, the
Plan or the Trust. The Board of Directors shall have sole responsibility to appoint and remove
members of the Administrative Committee and the Trustees of the Plan. The Administrative Committee
shall have sole responsibility for the general administration of this Plan and for the investment
policies of the Plan, for the selection of the Plan’s investment funds pursuant to the Plan, and
for the appointment and removal of any Investment Manager. Subject to the provisions of the Plan
and the Trust Agreement, the Trustee shall have sole responsibility for the administration of the
Trust and the management of the assets held in the Trust, as set forth in the Plan and the Trust.
It is intended that each fiduciary shall be responsible for the proper exercise of such fiduciary’s
own powers, duties, responsibilities, and obligations and, except as otherwise provided by law,
shall not be responsible for any act or failure to act by another fiduciary. A fiduciary may serve
in more than one fiduciary capacity with respect to the Plan. A fiduciary of the Plan who is also
an Employee shall not be compensated in such individual’s capacity as fiduciary.

          12.2 The Administrative Committee. Any member of the Administrative Committee may
resign with sixty (60) days advance written notice to the Board of Directors. The Administrative
Committee shall select a Chairman and a Secretary to keep records or to assist it in the discharge
of its responsibilities. The Administrative Committee shall have such duties and powers as are
necessary to discharge its responsibilities under the Plan, including, but not limited to, the
following:

               (a) To require any person to furnish such information as it requests for the purpose of the
proper administration of the Plan;

               (b) To make and enforce such rules and regulations and prescribe the use of such forms as it
deems necessary for the efficient administration of the Plan;

               (c) To construe and interpret the Plan, including the right to determine eligibility for
participation, eligibility for payment, the amount of benefits payable, the timing of distributions
and all other issues arising under the Plan as well as the right to remedy possible ambiguities,
inconsistencies or omissions; provided, however, that all such interpretations and decisions shall
be applied in a uniform manner to all similarly situated Participants and Beneficiaries;

               (d) To employ and rely upon such advisors (including attorneys, independent public
accountants, investment advisors and enrolled actuaries) as it deems appropriate or helpful in
connection with the operation and administration of the Plan;

               (e) To maintain complete records of the administration of the Plan;

31

 

               (f) To prepare and file with the appropriate governmental agencies such reports as required
from time to time with respect to the Plan under ERISA, the Code, or other laws and regulations
governing the administration of the Plan;

               (g) To furnish or disclose to Participants, Employees who may become Participants, and
Beneficiaries information about the Plan and statements of accrued benefits under the Plan, in
accordance with ERISA, the Code, or other laws and regulations governing the administration of the
Plan;

               (h) To delegate to one or more members of the Administrative Committee, or to persons other
than Administrative Committee members, any authority, duty or responsibility pertaining to the
administration or operation of the Plan; provided, however, that each such delegation shall be made
by a written instrument authorized by the Administrative Committee and maintained with the records
of the Plan. If any person other than an Employee is so designated, such person must acknowledge,
in writing, acceptance of the duties and responsibilities delegated. All such instruments and
acknowledgments shall be considered a part of the Plan;

               (i) To determine, pursuant to procedures adopted by it, whether a state domestic relations
order served upon the Plan is a “qualified domestic relations order” (as defined in Code
Section 414(p)); to place in escrow any benefits payable in the period during which the
Administrative Committee determines the status of an order; and to take any necessary action to
administer distributions under the terms of a “qualified domestic relations order”;

               (j) To discharge any responsibilities which are allocated to the Administrative Committee
elsewhere in this Plan.

          All decisions and interpretations of the Administrative Committee shall be binding and shall
be entitled to the maximum deference permitted under the law.

          12.3 Plan Expenses. All expenses authorized and incurred by the Administrative
Committee shall be from the assets of the Plan, except to the extent such expenses are paid by the
Company.

          12.4 Meetings and Voting. The Administrative Committee shall act by a majority vote
of its respective members at a meeting or, by written consent of a majority of its members, without
a meeting. The Administrative Committee shall hold meetings, as deemed necessary by them, although
any member may call a special meeting of the committee by giving reasonable notice to the other
members. The Secretary of the Administrative Committee shall have authority to give certified
notice in writing of any action taken by the committee.

          12.5 Compensation. The members of the Administrative Committee, if Employees, shall
serve without compensation.

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          12.6 Claims Procedures.

               (a) Any Participant or Beneficiary (“Claimant”) may file a written claim for a benefit under
the Plan with the Administrative Committee or with a person named by the Administrative Committee
to receive such claims;

               (b) In the event of a denial or limitation of any benefit or payment due or requested by any
Claimant, such Claimant shall be given a written notification containing specific reasons for the
denial or limitation of the benefit. The written notification shall contain specific reference to
the pertinent Plan provisions on which the denial or limitation is based. In addition, it shall
contain a description of any additional material or information necessary for the Claimant to
perfect a claim and an explanation of why such material or information is necessary. Further, the
notification shall provide appropriate information as to the steps to be taken if the Claimant
wishes to submit such claim for review. This written notification shall be given to a Claimant
within ninety days after receipt of the claim by the Administrative Committee (or its delegatee to
receive such claims), unless special circumstances require an extension of time for processing the
claim. If such an extension of time is required, written notice of the extension shall be
furnished to the Claimant prior to the termination of the ninety-day period and such notice shall
indicate the special circumstances which make the postponement appropriate;

               (c) In the event of a denial or limitation of benefits, the Claimant or the Claimant’s duly
authorized representative shall be permitted to review pertinent documents and to submit issues and
comments in writing to the Administrative Committee. In addition, the Claimant or the Claimant’s
duly authorized representative may make a written request for a full and fair review of the claim
and its denial by the Administrative Committee; provided, however, that such written request must
be received by the Administrative Committee (or its delegatee to receive such requests) within
sixty days after receipt by the Claimant of written notification of the denial or limitation. The
sixty-day requirement may be waived by the Administrative Committee in appropriate cases; and

               (d) (i) A decision shall be rendered by the Administrative Committee within sixty days after
the receipt of the request for review; provided, however, that where special circumstances require
an extension of time for processing the decision, it may be postponed, on written notice to the
Claimant (prior to the expiration of the initial sixty-day period) for an additional sixty days,
but in no event shall the decision be rendered more than one hundred and twenty days after the
receipt of such request for review.

                    (ii) Notwithstanding subsection (d)(i) of this Section 12.6, if the Administrative Committee
holds regularly scheduled meetings at least quarterly to review such appeals, a Claimant’s request
for review shall be acted upon at the meeting immediately following the receipt of the Claimant’s
request unless such request is filed within thirty days preceding such meeting. In such instance,
the decision shall be made no later than the date of the second meeting following the receipt of
such request by the Administrative Committee (or its delegatee to receive such requests). If
special circumstances require a further extension of time for processing a request, a decision
shall be rendered not later than the third meeting of the Administrative Committee following the
receipt of such request for review, and written notice of the extension shall be furnished to the
Claimant prior to the commencement of the extension.

33

 

                    (iii) Any decision by the Administrative Committee shall be furnished to the Claimant in
writing and in a manner calculated to be understood by the Claimant and shall set forth the
specific reason(s) for the decision and the specific Plan provision(s) on which the decision is
based.

          12.7 Liabilities. The Administrative Committee, each member or former member of such
Committee, and each person to whom duties and responsibilities have been delegated under the Plan
shall be indemnified and held harmless by the Company, to the fullest extent permitted by ERISA,
other applicable laws, and the charter and By-laws of the Company.

34

 

ARTICLE XIII

AMENDMENTS

          13.1 Right to Amend. Except as otherwise set forth in this Article XIII or as may be
required by law, the Board of Directors reserves the right to amend the Plan at any time and in any
manner, without prior notification, consultation, or bargaining with any Employee or representative
of Employees by written resolution of the Board of Directors adopted at a duly convened meeting of
the Board of Directors in accordance with the By-Laws of the Company and the laws of the
Commonwealth of Pennsylvania. To the extent required by the Code or ERISA, no amendment to the
Plan shall decrease a Participant’s benefit or eliminate an optional form of distribution. No
amendment shall make it possible for any assets of the Plan to be used for or diverted to any
purposes other than for the exclusive benefit of Participants and Beneficiaries.

          13.2 Amendment by Administrative Committee. The Administrative Committee may adopt
any ministerial and nonsubstantive amendment it deems necessary or appropriate to (a) facilitate
the administration, management and interpretation of the Plan, (b) conform the Plan to current
practice, or (c) cause the Plan and its related Trust to qualify under Code Sections 401(a)(1),
501(a) and 4975(e)(7) or to comply with ERISA or any other applicable laws; provided that such
amendment does not have any material effect on the estimated cost to the Company of maintaining the
Plan.

          13.3 Plan Merger and Asset Transfers. No assets of the Trust shall be merged or
consolidated with, nor shall any assets or liabilities be transferred to any other plan, unless the
benefits payable to each Participant or Beneficiary, if this Plan were terminated immediately after
such action, would be equal to or greater than the benefits such individuals would have been
entitled to receive if this Plan had been terminated immediately before such action.

          13.4 Amendment of Vesting Schedule. Notwithstanding anything to the contrary, no
amendment to the Plan shall have the effect of decreasing a Participant’s nonforfeitable percentage
determined without regard to such amendment as of the later of the date such amendment is adopted
or the date it becomes effective. If the Plan’s vesting schedule is amended, or the Plan is
amended in any way that directly or indirectly affects the computation of a Participant’s
nonforfeitable percentage, each Participant with at least 3 Years of Service may elect, within a
reasonable period after the adoption of the amendment, to have the nonforfeitable percentage
computed under the Plan without regard to such amendment. The Participant’s election may be made
at any time during the period ending on the latest of:

               (a) 60 days after the amendment is adopted;

               (b) 60 days after the amendment becomes effective; or

               (c) 60 days after the Participant is issued written notice of the amendment by the Company or
the Administrative Committee.

35

 

ARTICLE XIV

TERMINATION

          14.1 Right to Terminate. While the Company intends the Plan to be permanent, the
Board of Directors reserves the right to terminate the Plan at any time, without prior
notification, consultation, or bargaining with any Employee or representative of Employees by
written resolution of the Board of Directors adopted at a duly convened meeting of the Board of
Directors in accordance with the By-laws of the Company and the laws of the Commonwealth of
Pennsylvania.

          14.2 Effect of Termination. If the Plan is terminated, contributions shall cease,
and the assets remaining in the Trust, after payment of any expenses, including expenses of
administration or liquidation, shall be retained in the Trust for distribution in accordance with
the terms of the Plan. Upon termination (including a partial termination), or upon the complete
discontinuance of contributions by the Company, all Participants shall be 100 percent vested in
their Accounts.

          14.3 Change in Control. Notwithstanding the provisions of this Article XIII or any
other provisions of the Plan to the contrary, the Plan will terminate, upon a Change in Control.
Such termination shall be effective as of the date of an occurrence of Change in Control determined
under Section 2.7(a), (b), (e), or (f) of the Plan. For purposes of a Change in Control as
described under Plan Section 2.7(c), such termination shall be effective as of the “closing” or
“effective date” of a transaction described in Section 2.7(c) or (d).

36

 

ARTICLE XV

MISCELLANEOUS

          15.1 Non-alienation of Benefits. Except as provided in Code Section 401(a)(13)
(relating to qualified domestic relations orders), Code Section 401(a)(13)(C) and (D) (relating to
offsets ordered or required under a criminal conviction involving the Plan, a civil judgment in
connection with a violation or alleged violation of fiduciary responsibilities under ERISA, or a
settlement agreement between the Participant and the Department of Labor in connection with a
violation or alleged violation of fiduciary responsibilities under ERISA), Section
1.401(a)-13(b)(2) of Treasury regulations (relating to Federal tax levies and judgments), or as
otherwise required by law, no benefit under the Plan at any time shall be subject in any manner to
anticipation, alienation, assignment (either at law or in equity), encumbrance, garnishment, levy,
execution, or other legal or equitable process; and no person shall have power in any manner to
anticipate, transfer, assign (either at law or in equity), alienate or subject to attachment,
garnishment, levy, execution, or other legal or equitable process, or in any way encumber the
Participant’s benefits under the Plan, or any part thereof, and any attempt to do so shall be void.

          15.2 Appointment of Guardian. Where it is established to the satisfaction of the
Administrative Committee that a guardian has been duly appointed on behalf of a person entitled to
a distribution under the Plan, the Administrative Committee may cause payment to be made to the
guardian for the benefit of the entitled person. The Administrative Committee shall have no
responsibility with respect to the application of amounts so paid.

          15.3 Satisfaction of Benefit Claims. The assets of the Trust shall be the sole
source of benefits under this Plan, and each Participant or any other person who shall claim the
right to any payment or benefit under this Plan shall be entitled to look only to the Trust for
such payment or benefit, and shall not have any right, claim or demand against the Company or any
officer or director of the Company. Such Participant or person shall not have a right to or
interest in any assets of the Trust, except as provided from time to time under this Plan.

          15.4 Controlling Law. The provisions of the Plan shall be construed, administered
and enforced under the laws of the United States and the Commonwealth of Pennsylvania.

          15.5 Non-guarantee of Employment. Nothing contained in this Plan shall be construed
as a contract of employment between the Company and any Employee, or as a right of any Employee to
be continued in the employment of the Company or as a limitation of the right of the Company to
discharge any of its Employees, with or without cause.

          15.6 Severability and Construction of the Plan.

               (a) If any provision of the Plan or the application of it to any circumstance(s) or person(s)
is invalid, the remainder of the Plan and the application of such provision to other circumstances
or persons shall not be affected thereby.

               (b) Unless the context otherwise indicates, the masculine wherever used shall include the
feminine and neuter; the singular shall include the plural; and words such as

37

 

“herein”, “hereof,” “hereby,” “hereunder” and words of similar import shall refer to the Plan
as a whole and not any particular part of it.

          15.7  No Requirement of Profits. Contributions may be made to the Plan without
regard to current or accumulated profits of the Company.

          15.8 All Risk on Participants and Beneficiaries. Each Participant and Beneficiary
shall assume all risk in connection with any decrease in the value of the assets of the Trust and
the Participants’ and Beneficiaries’ Accounts.

38

 

ARTICLE XVI

TOP-HEAVY PROVISIONS

          16.1 Determination of Top-Heavy Status.

               (a) Any provision of this Plan to the contrary notwithstanding, for any Plan Year in which the
Plan is a Top-Heavy Plan, the provisions of this Article shall apply. The provisions of this
Article shall have effect only to the extent required under Code Section 416. This Plan shall be
deemed a Top-Heavy Plan only with respect to any Plan Year in which, as of the Determination Date,
the Top-Heavy Ratio exceeds 60 percent.

               (b) If the Plan is not included in a Required Aggregation Group with other plans, then it
shall be Top-Heavy only if (i) when considered by itself it is a Top-Heavy Plan and (ii) it is not
included in a Permissive Aggregation Group that is not a Top-Heavy Group.

               (c) If the Plan is included in a Required Aggregation Group with other plans, it shall be
Top-Heavy only if the Required Aggregation Group, including any permissively aggregated plans, is
Top-Heavy.

          16.2 Top-Heavy Definitions. Solely for purposes of this Article, the following words
and phrases shall have the following meaning;

               (a) “Aggregation Group or Top Heavy Group” means either a Required Aggregation Group or a
Permissive Aggregation Group.

               (b) “Determination Date” means, with respect to any Plan Year, the last day of the preceding
Plan Year or in the case of the first Plan Year of any plan, the last day of such Plan Year or such
other date as permitted under rules issued by the U.S. Department of the Treasury.

               (c) “The Company” means the Company and all members of a controlled group of corporations (as
defined in Code Section 414(b) as modified by Code Section 415(h)), all commonly controlled trades
or businesses (as defined in Code Section 414(c) as modified by Code Section 415(h)), or affiliated
service groups (as defined in Code Section 414(m)) of which the Company is a part.

               (d) “Key Employee” means any employee or former employee (including any deceased employee) who
at any time during the Plan Year that includes the Determination Date was an officer of the Company
having annual compensation greater than $130,000 (as adjusted under Code Section 416(i)(1)), a five
percent owner of the Company, or a one percent owner of the Company having annual compensation of
more than $150,000. For this purpose, annual compensation means compensation within the meaning of
Code Section 415(c)(3). The determination of who is a Key Employee will be made in accordance with
Code Section 416(i)(1) and the applicable regulations and other guidance of general applicability
issued thereunder.

               (e) “Non-Key Employee” means any Employee who is not a Key Employee.

39

 

               (f) “Permissive Aggregation Group” means a Required Aggregation Group plus any other plans
maintained and selected by the Company; provided that all such plans when considered together
satisfy the requirements of Code Sections 401(a)(4) and 410.

               (g) “Required Aggregation Group” means each qualified plan of the Company in which at least
one Key Employee participates or which enables any plan in which a Key Employee participates to
meet the requirements of Code Sections 401(a)(4) or 410.

               (h) “Top-Heavy Ratio” means:

                    (i) If the Company maintains one or more defined contribution plans (including any Simplified
Employee Pension Plan) and the Company has not maintained any defined benefit plan which during the
5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-Heavy
Ratio is a fraction, the numerator of which is the sum of the Account balances of all Key Employees
as of the Determination Date(s) (including any part of any Account balance distributed in the
1-year period (5-year period in the case of a distribution made for a reason other than severance
from employment, death or disability) ending on the Determination Date(s)), and the denominator of
which is the sum of all Account balances (including any part of any Account balance distributed in
the 1-year period (5-year period in the case of a distribution made for a reason other than
severance from employment, death or disability) ending on the Determination Date(s)), both computed
in accordance with Code Section 416 and the regulations thereunder. Both the numerator and
denominator of the Top-Heavy Ratio are increased to reflect any contribution not actually made as
of the Determination Date, but which is required to be taken into account on that date under Code
Section 416 and the regulations thereunder.

                    (ii) If the Company maintains or has maintained one or more defined benefit plans which
during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits,
the Top-Heavy Ratio for any required or permissive aggregation group as appropriate is a fraction,
the numerator of which is the sum of Account Balances under the aggregated defined contribution
plan or plans for all Key Employees, determined in accordance with (i) above, and the present value
of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of
the Determination Date(s), and the denominator of which is the sum of the Account balances under
the aggregated defined contribution plan or plans for all Participants, determined in accordance
with (i) above, and the present value of accrued benefits under the defined benefit plan or plans
for all Participants as of the Determination Date(s), all determined in accordance with Code
Section 416 and the regulations thereunder. The accrued benefits under a defined benefit plan in
both the numerator and denominator of the Top-Heavy Ratio are increased for any distribution of an
accrued benefit made in the 1-year period (5-year period in the case of a distribution made for a
reason other than severance from employment, death or disability) ending on the Determination Date.

                    (iii) For purposes of (i) and (ii) above the value of Account balances and the present value
of accrued benefits will be determined as of the most recent Valuation Date that falls within or
ends with the 12-month period ending on the Determination Date, except as provided in Code Section
416 and the regulations thereunder for the first and second plan years of a defined benefit plan.
The Account balances and accrued benefits of a Participant (1) who is

40

 

not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been
credited with at least one hour of service with any Employer maintaining the plan at any time
during the 1-year period ending on the Determination Date will be disregarded. The calculation of
the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into
account will be made in accordance with Code Section 416 and the regulations thereunder.
Deductible employee contributions will not be taken into account for purposes of computing the
Top-Heavy Ratio. When aggregating plans the value of Account balances and accrued benefits will be
calculated with reference to the Determination Dates that fall within the same calendar year.

                         The accrued benefit of a Participant other than a Key Employee shall be determined under (1)
the method, if any, that uniformly applies for accrual purposes under all defined benefit plans
maintained by the employer, or (2) if there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the fractional rule of Code Section
411(b)(1)(C).

               (i) “Valuation Date” means, for purposes of determining if the Plan is Top-Heavy, the most
recent Valuation Date in the period of twelve months ending on the Determination Date.

          16.3  Top-Heavy Rules. For any year in which a Plan is determined to be a Top-Heavy
Plan the following rules shall apply:

               (a) For each Plan Year in which the Plan is Top-Heavy, minimum contributions for a Participant
who is a Non-Key Employee shall be required to be made on behalf of each Participant who is
employed by the Company on the last day of the Plan Year. The amount of the minimum contribution
shall be the lesser of the following percentage of compensation:

                    (i) 3 percent, or

                    (ii) the highest percentage at which Contributions are made under the Plan for the Plan Year
on behalf of any Key Employee.

                         (A) For purposes of this paragraph (ii), all defined contribution plans included in a Required
Aggregation Group shall be treated as one plan.

                         (B) This paragraph (ii) shall not apply if the Plan is included in a Required Aggregation
Group and the Plan enables a defined benefit plan included in the Required Aggregation Group to
meet the requirements of Code Sections 401(a)(4) or 410.

                         (C) If the highest percentage at which Contributions are made under the Plan for a top-heavy
Plan Year on behalf of Key Employees is less than 3%, the amounts contributed as a result of a
salary reduction agreement must be included in determining Contributions made on behalf of Key
Employees.

          Any contributions that must be made under this subsection (a) shall be made under the Penn
Millers Insurance Company 401(k) Plan.

41

 

               (b) The vesting schedule when the Plan is Top-Heavy is as follows:

	 	 	 	 	 
	Years of Service After the Effective Date	 	Vested Percentage
	0-1 Years of Service
	 	 	0	%
	2 Years of Service
	 	 	20	%
	3 Years of Service
	 	 	40	%
	4 Years of Service
	 	 	60	%
	5 Years of Service
	 	 	80	%
	6 or more Years of Service
	 	 	100	%

42

 

ARTICLE XVII

EXEMPT LOANS

          17.1 General. The Trustee shall have the authority and discretion to borrow money
from a Disqualified Person, or another source which is guaranteed by a Disqualified Person for the
purpose of (a) purchasing Company Stock, or (b) repaying a prior Exempt Loan. Any Exempt Loan
shall satisfy all of the requirements of this Article XVII.

          17.2 Terms of Exempt Loan Agreements. All Exempt Loans shall satisfy the following
requirements:

               (a) The loan shall be primarily for the benefit of Participants and their Beneficiaries;

               (b) The loan shall be for a specified term and shall bear no more than a reasonable rate of
interest.

               (c) The collateral pledged by the Trustee shall consist only of the Company Stock purchased
with the borrowed funds, or Company Stock that was pledged as collateral in connection with a prior
Exempt Loan that was repaid with the proceeds of the current Exempt Loan.

               (d) Under the terms of the agreement, the lender shall have no recourse against the Trust, or
any of its assets, except with respect to the collateral and contributions (other than
contributions of Company Stock) by the Company that are made to satisfy its obligations under the
loan agreement and earnings attributable to such collateral and such contributions.

               (e) The payments made on the loan during a Plan Year shall not exceed an amount equal to the
sum of such contributions and the earnings received during or prior to the year less such payments
on the exempt loan in prior years.

               (f) In the event of default, the value of the assets transferred in satisfaction of the loan
shall not exceed the amount of default; moreover, if the lender is a Disqualified Person, the loan
agreement shall provide for a transfer of assets upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the loan.

          17.3 Prohibition on Purchase Arrangements. Except as provided in Article X and as
hereinafter provided in this Article XVII, no Company Stock shall be subject to a put, call, or
other option, or buy-sell or similar arrangement while held by and when distributed from the Trust,
whether or not at the time of distribution the Plan is an employee stock ownership plan. These
protections and rights which attach to Company Stock acquired with the proceeds of an Exempt Loan
shall not be terminable.

          17.4 Suspense Account.

               (a) Company contributions made to the Trust in the form of Company Stock purchased with the
proceeds of an Exempt Loan shall be held in the Suspense Account as

43

 

the collateral for that Exempt Loan. Such stock shall be released from the Suspense Account
on a pro-rata basis according to the amount of the payment on the Exempt Loan for the Plan Year,
determined under one of the following two alternative formulas in the discretion of the
Administrative Committee:

                    (i) for each Plan Year during the duration of the Exempt Loan, the number of shares of
Company Stock released shall equal the number of such shares held in the Suspense Account
immediately before release for the current Plan Year multiplied by a fraction, the numerator of
which is the amount of principal and interest paid for the year and the denominator of which is the
sum of the numerator plus the remaining principal and interest to be paid for all future years.
The number of future years under the Exempt Loan must be definitely ascertainable and must be
determined without taking into account any possible extensions or renewal periods. If the interest
rate under the loan is variable, the interest to be paid in future years must be computed by using
the interest rate applicable as of the end of the Plan Year. If the collateral includes more than
one class of Company Stock, the number of shares of each class to be released for a Plan Year must
be determined by applying the same fraction to each class; or

                    (ii) for each Plan Year during the duration of the Exempt Loan, the number of shares of
Company Stock released is determined solely with reference to the principal payment of the Exempt
Loan. If Company Stock in the Suspense Account is released in accordance with this
subsection (ii), (A) the Exempt Loan must provide for annual payments of principal and interest at
a cumulative rate that is not less rapid at any time than level annual payments of such amounts for
10 years; and (B) interest included in any payment is disregarded only to the extent that it would
be determined to be interest under standard loan amortization tables.

          This subsection (ii) will not be applicable if by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal period, the extension
period, and the duration of a new Exempt Loan exceeds 10 years.

               (b) Shares of Company Stock released in accordance with Section 17.4(a) of the Plan shall then
be allocated to the Accounts of Participants first, in an amount equal in value to any dividends
paid on shares previously allocated to Participant’s Accounts that are used to repay the Exempt
Loan. The remaining shares of such stock shall be allocated to the Accounts of Participants in the
same manner as described in Section 5.5.

44

 

          IN WITNESS WHEREOF, Penn Millers Holding Corporation has caused this Plan to be duly executed
under seal this ___day of ___, 2009.

	 	 	 	 	 
	 	PENN MILLERS HOLDING CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Attest:

	 	 	 
	 	 	 

[SEAL]

45

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