Document:

ex10-2.htm

    Exhibit 10.2

      

       

      AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT

       

      THIS
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT, made. and entered into as
of the 15th day of March 2009, by and between PMA Capital Corporation, a
Pennsylvania corporation, with its principal place of business at 380 Sentry
Parkway, Blue Bell, Pennsylvania 19422-0754 and/or such of its affiliates and/or
subsidiaries it designates (hereinafter collectively referred to as “PMA
Capital”) and WILLIAM E. HITSELBERGER (“Executive”).

      

      WHEREAS,
Executive has significant experience in the insurance industry and currently
serves as the Chief Financial Officer and Executive Vice President of PMA
Capital pursuant to an Executive Employment Agreement made and entered into as
of March 15, 2006;

      

      WHEREAS,
PMA Capital desires to continue to avail itself of the expertise possessed by
Executive and to employ Executive as Chief Financial Officer and Executive Vice
President, in which position he will have access to confidential information of
PMA Capital;

      

      WHEREAS,
Executive desires to be so employed by PMA Capital;

      

      WHEREAS,
the parties desire to amend and restate the March 15, 2006 Employment
Agreement;

      

      NOW,
THEREFORE, in consideration of the promises and mutual covenants contained
herein, and each intending to be legally bound hereby, the parties agree as
follows:

      

      1.           Employment.  Subject
to the terms of this Agreement, PMA Capital hereby continues to employ Executive
as Chief Financial Officer and Executive Vice President. In this capacity,
Executive will perform such duties as are appropriate to the management of the
financial and operational aspects of PMA Capital’s business and such other
duties, consistent with the foregoing duties and his position, as directed by
the Board of Directors of PMA Capital and the Chief Executive Officer of PMA
Capital. Executive shall report directly to the Chief 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Executive
Officer of PMA Capital. Executive hereby accepts such employment and agrees to
serve PMA Capital on a full-time basis and to perform such duties faithfully,
diligently and to the best of his ability and in conformity with all federal,
state and local statutes, regulations and rules applicable to PMA Capital and in
accordance with the PMA Capital Business Ethics and Practices Policy. Executive
further agrees not to engage in any outside for-profit business, employment or
commercial activity, without first obtaining approval in writing from the Chief
Executive Officer of PMA Capital.

      

      2.            
Compensation.
PMA Capital agrees to pay Executive, and Executive agrees to accept from PMA
Capital, in full payment for Executive’s services, compensation consisting of
the following:

       

      (a)           A
minimum base salary at an annual rate of $445,000 payable on a semi-monthly
basis or on such other basis that PMA Capital may adopt as its regular payroll
practice. The Compensation Committee of the Board of Directors of PMA Capital
will review the base salary on at least an annual basis at the same time that it
reviews the annual incentive compensation awards;

       

      (b)           The
standard benefits PMA Capital makes available from time to time to its senior
executive employees and, in addition, Executive will participate in the
following employee benefit plans according to their terms, as amended and
restated from time to time: the PMA Capital Corporation Retirement Savings
Excess Plan; the PMA Capital Corporation Executive Management Pension Plan (the
“EMPP”); the PMA Capital Corporation Supplemental Executive Retirement Plan
(frozen as of 12/31/05); and a supplemental long-term disability benefit which
currently provides for a benefit of $6,250 per month, subject to policy
restrictions;

       

      
        
          
          

        

        
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      (c)           Annual
incentive compensation based on performance objectives established for 2009,
2010 and 2011, to be described in Exhibit A.  Such incentive
compensation is to be paid within two and a half months after the end of the
applicable year.  Annual incentive metrics will be established
annually by the Compensation Committee of the Board; and

       

      (d)           Eligibility
for such long-term incentive award(s) to be determined by the Compensation
Committee of the Board of Directors of PMA Capital under PMA Capital’s 2007
Equity Incentive Plan or any successor plan as described in Exhibit
B.

       

      3.           Expenses. PMA Capital
will reimburse Executive for such of his out-of-pocket expenses as are
reasonably necessary in connection with services rendered by Executive pursuant
to this Agreement, as provided in the business expense policies adopted by PMA
Capital from time to time.  Notwithstanding the foregoing, the amount
of expenses eligible for reimbursement during any calendar year shall not affect
the expenses eligible for reimbursement in any other calendar year, and the
reimbursement of an eligible expense shall be made as soon as practicable after
Executive requests such reimbursement, but not later than December 31 following
the calendar year in which the expense was incurred

       

      4.           Term. The term of
this Agreement is from March 15, 2009 through September 14, 2011. No later than July 1, 2011,
Executive shall inform the Chief Executive Officer of PMA Capital in writing
whether or not he is interested in negotiating an extension of this Agreement
for a new term and, if so, propose the terms and conditions for such an
extension. Within one week of receiving such written notice from Executive, PMA
Capital shall inform Executive if it is willing to negotiate an extension of
this Agreement. If both parties are interested in negotiating an extension of
this Agreement, they then will engage in good faith negotiations for an
extension of this Agreement, provided, however, that Executive’s failure to
negotiate in good faith will not be deemed to be “Cause” for termination of
Executive’s 

       

      
        
          
          

        

        
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      employment
hereunder, and will not be the basis for PMA Capital’s denial of or failure to
pay any severance payments, compensation or benefits due to Executive pursuant
to the provisions of this Agreement.

       

      5.           Termination:
Executive employment may be terminated before the end of the term of this
Agreement as follows:

       

      (a)           By
PMA Capital, at any time, for Cause, after providing Executive with at least
three (3) weeks written notice, specifying the circumstances amounting to Cause
and, if requested by Executive, the opportunity for Executive and his counsel to
appear before the Audit Committee of the Board of Directors of PMA Capital to
address these circumstances. “Cause” shall mean Executive: (i) commits any act
of fraud, embezzlement, theft or commission sofa felony in the course of his
employment; (ii) engages inknowing and willful misconduct or gross negligence in
the performance of his duties; (iii) unlawfully appropriates a corporate
opportunity of PMA Capital or its affiliates and subsidiaries (as defined in
paragraph 23 below); or (iv) knowingly and willfully breaches any of Executive’s
representations, warranties or covenants contained in this Agreement in any
material respect, each as reasonably determined by the Audit Committee of the
Board of Directors of PMA Capital after the recommendation of the Chief
Executive Officer of PMA Capital, In the event that “Cause” is based on gross
negligence, PMA Capital shall give Executive written notice specifying in
reasonable detail the conduct that it believes amounts to gross negligence, and
shall provide Executive with the three (3) week notice period specified above to
cease or correct such conduct;

       

      (b)           Automatically
on the date of Executive’s death;

       

      (c)           Automatically
if Executive becomes disabled or otherwise incapacitated so that Executive
cannot perform the essential functions of his job with or without reasonable
accommodation for a continuous period of more than one hundred eighty (180) days

       

      
        
          
          

        

        
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      or for
more than one hundred eighty (180) cumulative days in any one (1) year period
(“Permanent Disability”). Any question as to the existence of Permanent
Disability upon which Executive and PMA Capital cannot agree shall be determined
by a qualified independent physician selected by Executive (or, if Executive is
unable to make such selection, such selection shall be made by any adult member
of Executive’s immediate family or Executive’s legal representative) and
approved by PMA Capital, said approval not to be unreasonably withheld. The
determination of such physician shall be communicated in writing to PMA Capital
and to Executive and shall be final and, conclusive for all purposes of this
Agreement. Until the date of termination as defined herein by reason of
Permanent Disability, Executive shall continue to receive the compensation and
benefits as set forth in paragraph 2 of this Agreement. No termination of this
Agreement for Permanent Disability. shall impair any rights of Executive to
collect benefits according to the terms of any disability policy maintained by
PMA Capital for that Permanent Disability;

       

      (d)           By
PMA Capital, at any time, for other than Cause upon thirty (30) days written
notice to Executive;

       

      (e)           By
Executive’s voluntary resignation , prior to his being employed for at least 90%
of the term of the Agreement, for other than Good Reason upon not less than
thirty (30) days prior written notice to PMA Capital;

       

      (f)           By
Executive’s voluntary resignation for Good Reason, which shall mean Executive
has given thirty (30) days prior written notice that he intends to resign due
to:  (i) a material adverse change in his duties, authority or
responsibilities without his agreement; (ii) a
material negative change in his office location which requires him to
relocate his office to executive offices outside of an area within a fifty (50)
mile radius of PMA Capital’s existing executive offices in Blue Bell,
Pennsylvania; (iii) there being a material reduction in the 

       

      
        
          
          

        

        
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      overall
value of the employee benefits being provided to him pursuant to paragraph 2(b)
unless the reduction is effective for all senior executive employees; or (iv) a
material breach by PMA Capital of any of its obligations to Executive under this
Agreement (“Good Reason Events”).  For a voluntary resignation to
constitute a voluntary resignation for Good Reason Executive (i) must provide
PMA Capital notice within sixty (60) days of the initial existence of one or
more of the Good Reason Events (“Good Reason Notice”) and PMA Capital fails to
remedy the Good Reason Event(s) within thirty (30) days of receipt of the notice
and (ii) must voluntarily incur a “separation from service” from PMA Capital
within the meaning of section 409A of the Code” within 120 days of the initial
existence of the Good Reason Event described in the Good Reason
Notice;

       

      (g)           By
Executive’s voluntary resignation between twelve and fourteen months following a
Section 409A Change in Control of PMA Capital Corporation, upon not less than
thirty (30) days prior written notice to PMA Capital, which notice is given not
earlier than eleven (11) months and not later than thirteen (13) months
following a Section 409A Change in Control. For purposes of this Agreement, a
“Section 409A Change in Control” is a “Change in Control” as set forth in
paragraph 9(b) of the PMA Capital Corporation 2007 Omnibus Incentive
Compensation Plan that is also a change in the ownership or effective control of
PMA Capital Corporation, or in the ownership of a substantial portion of the
assets of PMA Capital Corporation, as described in Section 409A(2)(A)(v) of the
Internal Revenue Code of 1986, as amended (the “Code”) and the Treasury
regulations promulgated thereunder; or

       

      (h)           By
Executive’s voluntary resignation for other than Good Reason  after being
employed for at least 90% of the term of
the Agreement (“Service Period”), upon not less than thirty (30) days prior
written notice to PMA Capital, provided Executive incurs a 

       

      
        
          
          

        

        
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      “separation
from service” from PMA Capital, within the meaning of Section 409A of the Code,
on or prior to the expiration of this Agreement.

       

      6.            
Incidents of Termination.

       

      (a)           If
Executive’s employment is terminated under subparagraph 5(a), (b), (c) or (e)
above, PMA Capital shall have no further obligation under this Agreement, except
as provided under paragraph 16 and except the obligation to:  (i) pay
Executive an amount equal to the portion of his compensation and out-of-pocket
business expenses, as defined in paragraph 3, as may be accrued and unpaid on
the date of termination; (ii) pay Executive such portion of Executive’s annual
incentive compensation for the year in which termination occurs as the
Compensation Committee of the Board of Directors of PMA Capital shall determine
was earned by Executive; and (iii) provide all benefits set forth pursuant to
the benefit, medical, pension or other plans and programs provided by PMA
Capital for which Executive qualifies (collectively “Benefits”) as are due under
the terms of the Benefits plans and programs, recognizing that Executive’s
employment has terminated.  In the event of Executive’s death, any
sums and benefits due to Executive under any provision of this Agreement shall
be paid to his estate or heirs, as applicable.  Any accrued
compensation and annual incentive compensation payable pursuant to this
subparagraph 6(a) shall be paid within 90 days of the date on which Executive’s
employment terminates.

       

      (b)           (1)  Except
as stated in subparagraph 6(d) below, if Executive’s employment is terminated
under subparagraph 5(d), 5(f) or 5(h) above
(and such termination constitutes a “separation from service” within the meaning
of section 409A of the Code), then PMA Capital shall pay Executive as described
in paragraph 6(a) above and as described in Exhibit B, plus it will pay any cash
portion of the annual incentive compensation for the year in which termination
occurs that is earned because Executive accomplished certain identifiable

       

      
        
          
          

        

        
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      tasks as
of the date of termination.  With regard only to payment of the cash
portion of the annual incentive compensation for the year in which termination
occurs, it is specifically understood that objectives related to profitability,
revenue growth, stock price and similar performance measures are not intended to
be measured other than at year end and accordingly will not qualify as
identifiable tasks on an interim basis and these are not eligible for payment of
incentive compensation unless deemed appropriate by the Compensation Committee
of the Board of Directors of PMA Capital in connection with their consideration
of payments as discussed above. Any cash portion of the annual incentive
compensation payable pursuant to this subparagraph 6(b)(1) shall be paid within
90 days of the date on which the
Executive’s employment terminates. In addition,
solely in the event of a termination under 5(d) or 5(f) above, PMA Capital shall
pay Executive eighteen (18) months of severance pay with each monthly payment
being equal to the sum of Executive's then current monthly base salary plus
1/12th of Executive's minimum targeted annual incentive compensation for the
year in which employment terminates, minus any appropriate withholdings and
deductions, without regard to whether Executive obtains another position with a
new employer. (For example, if Executive's annual base salary at the time of his
termination is $445,000 and his minimum targeted annual incentive compensation
at the time of his termination is $200,250, Executive's monthly severance
payment for each month of the severance period will equal 1/12th of $445,000
plus 1/12th of $200,250,, or $53,770.83, minus any appropriate withholdings or
deductions.) These severance payments will be made on or about the regular pay
dates recognized by PMA Capital, beginning on the next regular pay date
following Executive's last regular pay date on which he is paid his base salary,
provided that any severance triggered by a termination of Executive's employment
that occurs within the fourteen (14) month period following a Section 409A
Change in Control shall be paid in a lump sum on the first business day
following the six (6) month anniversary of Executive's
termination

       

      
        
          
          

        

        
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       date. Solely in the event of a termination under
5(h) above, PMA Capital shall pay Executive severance pay totaling
$967,875 in 18 equal monthly installments.  These severance payments
will be made on or about the regular pay dates recognized by PMA Capital,
beginning on the next regular pay date following Executive’s last regular pay
date on which he is paid his base salary, provided that any severance triggered
by a termination of Executive’s employment that occurs within the fourteen (14)
month period following a Section 409A Change in Control shall be paid in a lump
sum on the first business day following the six (6) month anniversary of
Executive's termination date.

      

      (2)              Notwithstanding
the foregoing, the severance payments described in subparagraph 6(b)(1) which
otherwise would be paid during the six (6) month period beginning on the day
following Executive’s separation from service described in subparagraph 5(d),
5(f), or 5(h) shall instead be paid to Executive in a single lump sum payment on
the first business day following the end of such six (6) month
period.  The lump sum payment shall be adjusted for simple interest
that accrues during the initial six (6) month period following Executive’s
termination of employment at the interest rate used to determine lump sum
payments under the PMA Capital Corporation Pension Plan.

      

      (3)              Further,
if Executive elects to continue his health insurance benefits under COBRA, PMA
Capital will continue to pay the same monthly subsidy of the premiums for such
insurance continuation as was being paid by PMA Capital before Executive’s
employment terminated, with the remainder of the premium being deducted from
Executive’s severance payments to the extent severance is paid in installments
pursuant to subparagraph 6(b)(1), through the earlier of eighteen (18) months
from the termination date or the date Executive becomes eligible to receive
and/or obtain alternative health insurance coverage through new
employment.  During the six (6) month period in which Executive’s
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      (as
described in subparagraph 6(b)(2)), PMA Capital shall pay the full premium for
Executive’s continued health insurance benefits, and shall be reimbursed for the
Executive’s portion of such premiums out of the lump sum severance payment to be
made to Executive on the first business day following the six (6) month
period.  It is intended that this provision of continuation health
coverage shall run concurrently with any period of continuation coverage
required under COBRA. Executive’s participation in the life insurance and
accidental death and disability insurance provided by the Company shall continue
through the end of eighteen (18) months from the termination
date.

       

      (4)              PMA
Capital’s obligation to provide the severance pay and benefits provided in this
paragraph is conditioned upon Executive signing and not revoking a valid general
release agreement in the form attached hereto as Exhibit C.  The
severance payments and benefits provided for in this Agreement shall be in lieu
of and not in addition to any severance pay or benefits that are payable to
Executive upon termination of employment under the PMA Capital Corporation and
PMA Capital Insurance Company Severance Pay Plan or any other applicable
severance plan or severance policy of PMA Capital.

       

      (c)           If
Executive’s employment is terminated under subparagraphs 5(b), (c), (d), (f),
(g) or (h) above (and such termination constitutes a “separation from service”
within the meaning of section 409A of the Code):

       

      (1)              Executive
shall have a fully (100%) vested and nonforfeitable interest in his “Retirement
Benefit” under the EMPP or any successor or replacement plan, except to the
extent his Retirement Benefit is reduced pursuant to the terms of the EMPP to
take into account the twenty-five (25) year service limit; and

       

      (2)              Executive’s
benefit under the PMA Capital Corporation Retirement Savings Excess Plan shall
be increased to the extent necessary so that his aggregate 

       

      
        
          
          

        

        
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      benefit
payable under the EMPP, and PMA Capital Corporation Retirement Savings Excess
Plan (amounts attributable to Retirement Credits only) (collectively, the
Ongoing Pension Arrangements) is not less than the aggregate benefit that would
have been payable under such Ongoing Pension Arrangements if Executive’s
employment had continued through the end of the calendar quarter that contains
the 18-month anniversary following Executive’s termination date (or, in the case
of a termination under subparagraph 5(g), above, through the end of the calendar
quarter containing the 24-month anniversary following such termination date),
assuming the Executive is paid at the same salary rate during such period as in
effect as of his termination of employment.  Notwithstanding the
foregoing, subparagraph 6(c)(2) shall apply only to the extent that it has the
effect of increasing the present value of the aggregate benefit payable under
the Ongoing Pension Arrangements.  Executive shall be entitled to
receive the increased benefit described in subparagraph 6(c)(2) during the
calendar quarter containing the 18-month anniversary following Executive’s
termination date (or, in the case of a termination under subparagraph 5(c), (d),
(f), (g), or (h), above, that occurs within fourteen (14) months following a
Section 409A Change in Control, the first business day following the 6-month
anniversary of Executive’s termination date).

       

      (d)           (1)  If
Executive’s employment is terminated under subparagraph 5(g) or if it is
terminated under subparagraph 5(d) within twelve (12) months following a Section
409A Change in Control (and such termination constitutes a “separation from
service” within the meaning of section 409A of the Code), then PMA Capital shall
pay Executive as described in paragraph 6(a) above and as described in Exhibit
B, plus it will pay any cash portion of the annual incentive compensation for
the year in which termination occurs if it is earned because Executive
accomplished certain identifiable tasks as of the date of
termination.  With regard only to payment of the cash portion of the
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      termination
occurs, it is specifically understood that objectives related to profitability,
revenue growth, stock price and similar performance measures are not intended to
be measured other than at year end and accordingly will not qualify as
identifiable tasks on an interim basis and these are not eligible for payment of
incentive compensation unless deemed appropriate by the Compensation Committee
of the Board of Directors of PMA Capital in connection with their consideration
of payments as discussed above.  Any cash portion of the annual
incentive compensation payable pursuant to this subparagraph 6(d)(1) shall be
paid within 90 days of the date on which Executive’s employment
terminates.

       

      (2)           In addition, , PMA
Capital shall pay Executive severance pay in a single sum.  The amount of such payment shall be equal
to: 

       

      

      
        
          
            
              
                	 	
                        (i)

                      	
                        two times the greater of (A)
      Executive's then current annual base
      salary or (B) Executive's annual base salary immediately preceding the
      Change in Control; plus
      

                      
	 	
                        (ii)

                      	
                        two times the greater of (A) the amount of Executive’s minimum
      targeted annual incentive award for the year of the termination or (B) the amount of that target for the year
      corresponding to the date immediately before the Change in Control, minus
      any appropriate withholdings and deductions 

                      

              

            

          

        

      

       

      to be
paid without regard to whether Executive obtains another position with a new
employer,  with such
sum to be paid on the first business day following the six (6) month anniversary
of Executive’s termination
date.

      

      
        (3)           Further,
if Executive elects to continue health insurance benefits under COBRA, PMA
Capital will continue to pay the same monthly subsidy of the premiums for such
insurance continuation as was being paid by PMA Capital before Executive’s
employment terminated, with the remainder of the premium payable by Executive,
through the earlier of the end of two (2) years from the termination date or the
date Executive becomes eligible to receive and/or 

         

        
          
            
            

          

          
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        obtain
alternative health insurance coverage through new
employment.  Notwithstanding the foregoing (i) the Executive will pay
the entire premium cost for the health insurance benefit for the six months of
coverage which following the Executive’s termination date and (ii) on the first
business day following the six month anniversary of the Executive’s termination
date PMA Capital will pay Executive in a single lump sum the portion of the
premiums that would otherwise have been paid by PMA Capital during such six
month period, but for the provisions of clause (i) in this
paragraph.”  For the period of health insurance continuation coverage
after the expiration of the COBRA coverage period provided for and used by
Executive pursuant to this provision, Executive shall pay the entire amount of
the applicable insurance premium. Executive’s life insurance and accidental
death and disability insurance coverage as provided by the Company shall
continue through the end of two(2) years from the termination
date.  PMA Capital shall pay Executive a bonus equal to the amount of
each premium paid by Executive after the expiration of the COBRA coverage
period, grossed up for taxes (computed consistent with the method for computing
a Gross Up under Section 7) in the same month in which the premium is
paid.

      

       

      
        
        

      

      (2)              PMA
Capital’s obligation to provide the severance pay and benefits provided in this
paragraph is conditioned upon Executive signing and not revoking a valid general
release agreement in the form attached hereto as Exhibit C.  The
severance payments and benefits provided for in this Agreement shall be in lieu
of and not in addition to any severance pay or benefits payable to Executive
upon termination of employment under the PMA Capital Corporation and PMA Capital
Insurance Company Severance Pay Plan or any other applicable severance plan or
severance policy of PMA Capital.

       

      7.           Excise Taxes. If the
value of any compensation (in whatever form) provided pursuant to this Agreement
(a) is counted as a “parachute payment” within the meaning of section 28OG of
the Code, and the value of all such parachute payments would be subject to

       

      
        
          
          

        

        
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      the
excise tax imposed by section 4999 of the Code (the “4999 Excise Tax”), or (b)
is treated as “deferred compensation” within the meaning of section 409A of the
Code and is subject to interest and additional tax under section 409A(a)(1)(B)
(the “409A Penalties,” and together with the 4999 Excise Tax, the “Penalties”),
then Executive shall be entitled to receive from PMA Capital an additional
payment (a “Gross-Up Payment”) in an amount such that after payment by Executive
of all taxes (but not including any interest or penalties imposed with respect
to such taxes), including any Penalty imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Penalties
imposed upon such payments.  The Gross-Up Payment shall be paid to the
Executive no later than thirty (30) days after the date the Executive remits the
taxes to which such Gross-Up Payment relates.

       

      8.           Trade Secrets and
Confidential Information. Executive shall not disclose or use at any time
either during or after employment by PMA Capital, any Confidential Information
(as defined below) of which he becomes aware, whether or not any such
information is developed by him, except to the extent that such disclosure or
use is required or appropriate in the performance of the duties assigned to him
by PMA Capital or if Executive is required to testify under subpoena or court
order after Executive gives sufficient advance written notice of such
requirement to PMA Capital so that it may seek to limit or otherwise protect
such testimony from public disclosure. Executive shall follow all procedures
established by PMA Capital to safeguard Confidential Information and to protect
it against disclosure, misuse, espionage, loss or theft. “Confidential
Information” shall mean information that is not generally known or available to
the public, which is used, developed or obtained by PMA Capital, relating to its
business and the businesses of its clients, vendors, agents, brokers or
customers, including but not limited to: business and marketing strategies;
distribution channels; products or services; fees, costs and pricing structures;
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      analyses;
reports; computer software, including operating systems, applications and
program listings; flow charts; manuals and documentation; data bases; accounting
and business methods; inventions and new developments and methods, whether
patentable or unpatentable and whether or not reduced to practice; all
copyrightable works; PMA Capital’s existing and prospective clients, vendors,
agents, brokers or customers and their confidential information; existing and
prospective client, vendor, agent, broker or customer lists and other data
related thereto; all trade secret information protected by the federal Economic
Espionage Act of 1996, 18 U.S.C. §1831 et seq., the Pennsylvania Uniform Trade
Secrets Act and all similar and related information in whatever form.
Confidential Information shall not include any information that has been
published in a form generally available to the public prior to the date upon
which Executive proposes to disclose such information.

       

      9.           Creative Works and Other
Property.

       

      (a)           Executive
will promptly disclose to PMA Capital all inventions, concepts, processes,
improvements, methodologies and other creative works, including without
limitation insurance products, whether or not they can be patented or
copyrighted, that during his employment were or were caused to be conceived or
developed by him, either solely or jointly with others, relating to PMA
Capital’s business (collectively “Creative Works”) and Executive agrees that all
such Creative Works shall be the sole property of PMA Capital. Upon the request
and at the expense of PMA Capital, Executive will at any time (whether during
his employment or after its termination for any reason) assist PMA Capital and
fully cooperate with it to protect PMA Capital’s interest in such Creative Works
and to obtain, for PMA Capital’s benefit, patents or copyrights for any and all
Creative Works in the United States and in any and all foreign countries. This
paragraph does not apply to any Creative Work that Executive develops entirely
on his own time and for which no equipment, supplies, facility or Confidential
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      PMA
Capital was used, unless: (a) the Creative Work relates to PMA Capital’s
business or to the actual or anticipated research or development activities of
PMA Capital; or (b) the Creative Work results from any work Executive performs
for PMA Capital.

      

      (b)           Upon
the termination of Executive’s employment for PMA Capital, Executive shall
immediately, and without request, deliver to PMA Capital all copies and
embodiments, in whatever form, of all Confidential Information and all other
documents, materials or property belonging to PMA Capital even if they do not
contain Confidential Information, including but not limited to: written records,
notes, photographs, manuals, computers and computer equipment, cell phones,
notebooks, reports, keys, credit cards, documentation, flow charts and all
magnetic media such as tapes, disks or diskettes, wherever located, and, if
requested by PMA Capital, shall provide PMA Capital with written confirmation
that all such materials have been returned. Executive has no claim or right to
the continued use, possession or custody of such information, documents,
materials or property following the termination of his employment with PMA
Capital.

       

      10.           Restrictive
Covenants. While employed by PMA Capital and through the period ending
eighteen (18) months after termination of employment (whether voluntary or
involuntary and regardless of the reason for termination), with such period of
restriction being increased to twenty-four (24) months after termination of
employment within twelve (12) months following a Change in Control, Executive
agrees that, unless he obtains written approval in advance from the Chief
Executive Officer of PMA Capital, he shall not, except on behalf of PMA Capital,
in any way, directly or indirectly:

       

      (a)           engage
in any business that directly competes with PMA Capital within any geographic
territory in which PMA Capital operates or is doing business, either
individually or as an agent, employee, consultant, partner, officer, director,
stockholder, 

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      proprietor,
owner or otherwise, of any person, firm, corporation or organization; provided,
however, that ownership of less than one (1%) percent of the outstanding stock
of any publicly traded corporation will not be deemed to be a violation of this
restrictive covenant;

       

      (b)           contact,
employ, hire, solicit or attempt to persuade any person or entity that has at
any time within the one (1) year period before the termination of Executive’s
employment been an employee, agent, broker or independent contractor of PMA
Capital to terminate his, her or its relationship with PMA Capital or do any act
that may result in the impairment of the relationship between PMA Capital on the
one hand and the employees, agents, brokers or independent contractors of PMA
Capital on the other hand;

       

      (c)           contact,
solicit, serve or sell to, in furtherance of or in the context of any business
that directly competes with PMA Capital, any person or entity that has at any
time within the one (1) year period before the termination of Executive’s
employment been a client, customer, agent or broker or a prospective client,
customer, agent or broker of PMA Capital or attempt to persuade any such person
or entity to purchase or otherwise acquire or use any product(s) or service(s)
offered by any business of the same or similar nature as products or services
offered by PMA Capital. (For purposes of this sub-paragraph, a “prospective
client, customer, agent or broker” means a person or entity with whom or which
PMA Capital has had direct contact and made a proposal to provide products or
services.); or

       

      (d)           
engage in any activities or make any statements that may disparage or reflect
negatively on PMA Capital, its Directors, Officers or employees, except as
required to enforce the provisions of this Agreement or any of the Benefits
plans.

       

      11.           Reasonableness of
Restrictions. Executive agrees and acknowledges that the type and scope
of restrictions described in paragraphs 8, 9 and 10 are fair and reasonable and
that the restrictions are intended to protect the legitimate interests of PMA
Capital and not to 

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      prevent
him from earning a living. Executive recognizes that his key position as Chief
Financial ‘Officer and Executive Vice President and his access to Confidential
Information make it necessary for PMA Capital to restrict his post-employment
activities, as set forth in this Agreement. Executive represents and warrants
that the knowledge, ability and skill he currently possesses are sufficient to
enable him to earn a livelihood satisfactory to him for a period of eighteen
(18) or twenty-four (24) months in the event his employment with PMA Capital
terminates, without violating any restriction in this Agreement. If, however,
any of the restrictions set forth in paragraphs 8, 9 or 10 are held invalid by a
court by reason of length of time, area covered, activity covered or any or all
of them, then such restriction or restrictions shall be reduced only to the
minimum extent necessary to cure such invalidity.

       

      12.           Remedies.  Executive
agrees that if he should breach any of the covenants contained in paragraphs 8,
9 or 10, irreparable damage would result to PMA Capital and that damages arising
out of such breach may be difficult to determine.  Executive therefore
further agrees that, in addition to all other remedies provided at law or at
equity (including without limitation damages and an equitable accounting of all
earnings, profits and other benefits arising from any such breach), PMA Capital
shall be entitled as a matter of course to specific performance and temporary
and permanent injunctive relief from any court of competent jurisdiction to
prevent any further breach of any such covenant by Executive, without the
necessity of proving actual damage to PMA Capital by reason of any such breach,
and Executive acknowledges that his employers, employees, partners, agents or
other associates, or any of them, may similarly be enjoined.  If
either party prevails in any lawsuit claiming breach of paragraphs 8, 9 or 10 of
this Agreement, the other party shall reimburse the prevailing party for

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      its or
his expenses incurred in connection with such a lawsuit, including without
limitation attorney’s fees and costs.  (For purposes of this
paragraph, PMA Capital will be considered to have prevailed in a lawsuit if it
is established by written adjudication that Executive has breached in any
material respect any provision of paragraphs 8, 9 or 10 as written or as
modified under paragraph 11.  Executive will be considered to have
prevailed in a lawsuit if it is established by written adjudication that he did
not breach in any material respect any provision of paragraphs 8, 9 or 10 as
written or as modified under paragraph 11).  Any reimbursement made by
PMA Capital pursuant to this paragraph 12 shall be payable as
follows:  (i) the amount of such expenses eligible for reimbursement
in any calendar year shall not affect the expenses eligible for reimbursement in
any other calendar year and (ii) all such reimbursements must be made on or
before the last day of the calendar year following the calendar year in which
the expense was incurred).

      13.           Previous Employment.
Executive represents and warrants that he is not under any legal restraint or
restriction that would prevent or make unlawful his execution of this Agreement
or his performing the obligations under this Agreement and that Executive has
disclosed to PMA Capital any and all restraints, confidentiality commitments or
employment restrictions that Executive has with any other employer or
organization.

      

      14.           Cooperation. At all
times during the term of this Agreement and for a period of three (3) years
thereafter, Executive will reasonably cooperate with PMA Capital in any
litigation or administrative proceedings involving any matters with which
Executive was involved during his employment by PMA Capital; provided that,
following the term of this Agreement, such activities will be scheduled at such
times and locations as PMA Capital and Executive may mutually agree. PMA Capital
will reimburse Executive for his reasonable out-of  pocket expenses,
if any, incurred in providing such assistance. In addition, if such assistance
is 

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      provided
by Executive after his employment has terminated and at a time when he is not
receiving severance payments under paragraph 6(b), then he also shall be paid
$205 per hour.

      

      15.           Assignment. Neither
PMA Capital nor Executive shall have the right to assign this Agreement or any
obligation hereunder without the written consent of the other, except that,
subject to Executive’s rights under paragraph 5(g) above, if there is a Change
of Control, PMA Capital may assign this Agreement to a successor or assignee in
connection with a merger, consolidation, sale or transfer of assets of PMA
Capital, provided that such successor or assignee expressly assumes all
obligations of PMA Capital under this Agreement.

      

      16.           Indemnification. PMA
Capital shall indemnify Executive or his estate to the full extent provided in
its articles of incorporation and/or its bylaws as of the date of this
Agreement.

      

      17.           No Mitigation.
Executive shall not be required to mitigate the amount of any payment or benefit
provided for in this Agreement or the Benefits plans by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement or the Benefits plans be reduced by any compensation or benefits
earned by Executive either as a result of his engaging in business or his
employment by another employer, or by retirement benefits payable after the
termination of this Agreement.

      

      18.           Indulgences. The
failure of PMA Capital or Executive at any time or times to enforce its or his
rights under this Agreement strictly in accordance with the same shall not be
construed as having created a custom in any way or manner contrary to the
specific provisions of this Agreement or as having in any way or manner modified
or waived the same.

      

      19.           Notices. Any notice
required or permitted to be given by this Agreement shall be in writing and
shall be sufficiently given to the parties if delivered in person or sent by
United States registered or certified mail or nationally recognized overnight
courier (return 

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      receipt
requested) or by telefax (with evidence of successful transmission) addressed to
the respective parties at the following addresses or at such other addresses as
may from time to time be designated in writing by the parties:

       

      

      
        
          
            	 
      	
                    If
      to Executive:

                  	
                    If
      to PMA Capital:

                  
	 
      	 
      	
                    PMA
      Capital Corporation

                  
	 
      	 
      	
                    c/o
      Chief Executive Officer

                  
	 
      	 
      	
                    380
      Sentry Parkway

                  
	 
      	 
      	
                    Blue
      Bell, PA 19422-0754

                  
	 
      	 
      	
                    Telefax
      Number: (610) 397-5334

                  

          

        

      

      

      20.           Entire Agreement.
This Agreement, together with the attachments hereto and PMA Capital’s Benefits
plans, sets forth the entire agreement between the parties with respect to the
matters covered herein, and supersedes all other agreements and understandings.
No waiver or amendment to this Agreement shall be effective unless reduced to
writing and executed by the parties hereto.

      

      21.           Arbitration. In order
to obtain the many benefits of arbitration over court proceedings, including
speed of resolution, lower costs and fees and more flexible rules of evidence,
all disputes between Executive and PMA Capital (except those relating to
unemployment compensation and workers’ compensation and except as provided in
paragraph 12 of this Agreement) arising out of Executive’s employment or
concerning the interpretation or application of this Agreement or its subject
matter (including without limitation those relating to any claimed violation of
any federal, state or local law, regulation or ordinance, such as Title VII of
the Civil Rights Act, the Age Discrimination in Employment Act, the Americans
with Disabilities Act and their state and local counterparts, if any) shall be
resolved exclusively by binding arbitration in Philadelphia, Pennsylvania
pursuant to the National Rules for the Resolution of Employment Disputes of the
American Arbitration Association, with PMA Capital bearing its own attorney’s
fees and costs and Executive being awarded his reasonable attorney’s fees and
costs so long as the Arbitrator determines that Executive’s claim(s) or
defense(s)

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

       (whichever
is applicable) is not frivolous.  Any award of attorney’s fees and
costs to Executive shall not affect the award of any attorney’s fees and costs
eligible for reimbursement in any other calendar year and all such
reimbursements must be made on or before the last day of the calendar year
following the calendar year in which the expense was incurred.  The
parties expressly waive their rights to have any such claims resolved by jury
trial.  The arbitration opinion and award shall be final, binding and
enforceable by any court under the Federal Arbitration Act.

      

      22.           Controlling Law and Dispute
Resolution. This Agreement shall be construed and applied in accordance
with the laws of the Commonwealth of Pennsylvania without giving effect to the
principles of conflicts of law under Pennsylvania law. The parties agree to
submit to the jurisdiction and venue of the state and federal courts located in
Pennsylvania in the event that there is any claim that this Agreement has been
breached and that any such claim is not subject to arbitration as provided in
paragraph 21 of this Agreement.

      

      23.           Affiliates and/or
Subsidiaries. The affiliates and/or subsidiaries of PMA Capital
Corporation referred to in the first paragraph of this Agreement are:
Pennsylvania Manufacturers Association Insurance Company; Manufacturers Alliance
Insurance Company; Pennsylvania Manufacturers Indemnity Company; PMA Management
Corp. and any such other entity that is or becomes controlled by or under common
control with PMA Capital Corporation at the time of reference. PMA Capital and
each such affiliate and/or subsidiary of PMA Capital Corporation shall be
jointly and severally liable for the obligations to Executive under this
Agreement.

       

                 24.           409A. To the extent
necessary to avoid adverse tax consequences, and except as described below, any
payment to which Executive becomes entitled under this Agreement, or any
arrangement or plan referenced in this Agreement, that constitutes “deferred

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      compensation”
under Section 409A of the Internal Revenue Code (“409A”), and is (a)
payable upon your termination; (b) at a time when Executive is a “specified
employee” as defined by 409A shall not be made until the earliest
of:

      

      

      
        	
                 
      

              	
                ·

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

              

      

      
        	
                 
      

              	
                ·

              	
                the
      date of Executive’s death.

              

      

       

       

      Upon the
expiration of the Deferral Period, all payments that would have been made during
the Deferral Period (whether in a single lump sum or in installments) shall be
paid to Executive (or, if applicable, Executive’s estate) as a single lump
sum.  This section shall not apply to any payment which constitutes
“separation pay” as described in Internal Revenue Regulations Section
409A-1(b)(9) (in general, payments (i) that are made on an involuntary
separation from service which (ii) do not exceed the lesser of two times (x)
your annualized compensation for the taxable year preceding the year in which
the separation from service occurs or (y) the Code Section 401(a)(17) limit on
compensation for the year in which separation from service occurs and (iii) are
paid in total by the end of the second calendar year following the calendar year
in which the separation from service occurs.)  With regard to any
provision of this Agreement that provides for reimbursement of costs and
expenses or of in-kind benefits, except as permitted by Code Section 409A, (i)
the right to reimbursement or in-kind benefits shall not be subject to
liquidation or exchange for another benefit, (ii) the amount of expenses
eligible for reimbursement or in-kind benefits to be provided during any taxable
year shall not affect the expenses eligible for reimbursement or in-kind
benefits to be provided in any other taxable year, provided that the foregoing
clause (ii) shall not be violated with regard to expenses reimbursed under any
arrangement covered by Code Section 105(b) solely because such expenses are
subject to a limit related to the period the arrangement is in effect, and (iii)
such payments shall be made 

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

      before
the last day of your taxable year following the year in which the expense
occurred.  Each amount to be paid or benefit to be provided to you
shall be construed as a “separate identified payment” for purposes of Code
Section 409A to the fullest extent permitted therein.

       

      
 

      

      

      IN
WITNESS WHEREOF, this Agreement has been duly executed by and on behalf of the
parties hereto as of the day and year first above written.

      

      

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	 	
                                        PMA
      CAPITAL CORPORATION;

                                        PENNSYLVANIA
      MANUFACTURERS 

                                        ASSOCIATION
      INSURANCE COMPANY; 

                                        MANUFACTURERS
      ALLIANCE INSURANCE 

                                        COMPANY;
      AND PENNSYLVANIA 

                                        MANUFACTURERS
      INDEMNITY COMPANY

                                      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                                         

                                      	By:	
                                        /s/ Vincent T. Donnelly

                                      
	 
      	
                                         

                                      	Name:
      Vincent T. Donnelly
	 
      	
                                         

                                      	Title:
      Chief Executive Officer
	 
      	 
      	Date:
      March 13, 2009
	 	 	 
	 	 	 
	 
      	 
      	/s/ William E.
  Hitselberger
	 
      	
                                         

                                      	
                                        

                                          Name: William
      E. Hitselberger

                                        

                                      
	
                                         

                                      	
                                         

                                      	
                                        

                                          Date: March 13,
      2009

                                        

                                      

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

      
        
           

        

        
          24

          
            

          

        

        
           

        

      

      

       

      EXHIBIT
A

       

      Executive
will be eligible for an annual incentive award with regard to 2009, 2010 and
2011 that will be targeted at
forty-five percent (45%) of base salary as of the
beginning of the year to which such incentive compensation relates for
reaching pre-defined targeted objectives with a maximum of seventy-five percent
(75%) of base salary as of the beginning of the
year to which such incentive compensation relates for reaching
pre-defined goals over the targeted objectives.  Such targeted
objectives and goals will be set for 2009 by the Compensation Committee of the
Board of Directors of PMA Capital, with such targets and goals to be reviewed
and adjusted, if appropriate, by the Compensation Committee of the Board of
Directors of PMA Capital for 2010 and 2011 based on market
conditions.  Target objectives will be established within 90 days
following the beginning of the year to which they relate.  Any cash
portion of the annual incentive award will be paid in the next year, during the
period which begins on January 1 and ends on March 15, for successful
achievement of the targeted objectives and goals as determined by the Chairman
and the Compensation Committee of the Board of Directors of PMA Capital. Payment
of the annual incentive compensation awards will be in the amount and in the
form(s) (e.g., stock options, restricted stock, cash) as determined by the
Chairman and the Compensation Committee of the Board of Directors of PMA
Capital, except that the payment for the 2009 incentive compensation award will
be in cash.

       

      
        
          
             

          

           

        

        
          A-1

          
            

          

        

        
           

        

      

       

       

      EXHIBIT
B

       

      Executive
will be entitled to a long-term incentive award under the 2007 Equity Incentive
Plan (or any successor plan) that will be targeted at seventy percent (70%) of
$445,000 for achieving the pre-defined
targeted Return On Equity objective for the year ending December 31, 2011, with
a maximum of eighty-five percent (85%) of $445,000 for reaching predefined goals over the
targeted objective.  Such
targeted objectives and goals will be set for the three-year period ending
December 31, 2011 by the Compensation Committee of the Board of Directors of PMA
Capital, with targets and goals to be reviewed and adjusted, if appropriate, as
determined by the Compensation Committee of the Board of Directors of PMA
Capital for the three-year periods ending December 31, 2012 and December 31,
2013 based on market conditions.  Any long-term incentive award shall
be awarded no later than March 14th of the current year and will vest following
the end of the three-year performance period, based on successful achievement of
the targeted objectives and goals as determined by the Chairman and the
Compensation Committee of the Board of Directors of PMA Capital.  The
long-term incentive award for the three-year period ending December 31, 2011
shall be payable in Stock, with the value determined by the prior 6 month
trading average of 6.05, with fractional shares paid as cash. Such fractional
shares to be paid during the period January 1, 2012 through March 14, 2012, and
the number of shares of Stock distributable to Executive shall be determined on
the date the Award is established.  Payment of the long-term incentive
awards for the performance periods ending December 31, 2012 and December 31,
2013 will be in the amount and in the forms (e.g. stock options, restricted
stock, cash) as determined by the Chief Executive Officer of PMA Capital and
approved by the Compensation Committee of the Board of Directors of PMA
Capital.

       

      
        
          
          

        

        
          B-1

          
            

          

        

        
          
          

        

      

       

      To be
eligible for a payment of a long-term incentive award, Executive must remain
employed throughout the calendar year in which the pre-defined objective is set
and remain employed throughout the last day of the three year performance period
(the "Measurement Date"), except as stated below.  In the event the Executive experiences a
termination under 5(g) above, he will be treated as if all targets had been
achieved at 100% and will be paid a pro-rata portion of the bonus reflecting the
period prior to the termination of this Agreement.

      

      If
Executive remains employed throughout the calendar year in which the pre-defined
objective for a long-term incentive award is set, but is not so employed as of
the Measurement Date due to circumstances that cause Executive to be entitled to
severance pay under paragraph 6(b)(1) or under paragraph 6(d)(1) and (2) of this
Agreement, then, so long as the pre-defined target is met on the Measurement
Date, Executive will be deemed to be an Eligible Person under the 2007 Equity
Plan or any successor plan and Executive will be entitled to receive a pro rata
portion of his long-term incentive award, determined by the length of time
Executive was employed during the applicable three year measurement period. Such
a pro rata payment will be provided at the same time as the payment would have
been provided if Executive had remained an employee, For example, with respect
to the 2009 long-term incentive award, which is based on the pre-defined
targeted objective for the year ending December 31, 2011, if Executive’s
employment were to terminate on March 31, 2010 under circumstances that would
qualify Executive for severance pay under this Agreement and the pre-defined
targeted objective were achieved on December 31, 2011, then Executive would
receive a long-term incentive award of five-twelfths of the payment that he
would have received had he remained employed through the Measurement
Date.

       

      
        
          
          

        

        
          B-2

          
            

          

        

        
          
          

        

      

      
 

      In the
event that a distribution of a long-term incentive award described in this
Exhibit B would be limited under the terms of the 2007 Equity Incentive Plan,
the undistributed amount so limited shall be provided in the first year in which
Executive is not so limited.  The number of shares of Stock, if any,
attributable to the undistributed amount shall be determined as of the initial
distribution date.

       

      
        
          
             

          

           

        

        
          B-3 

          
            

          

        

        
           

        

      

      

       

      EXHIBIT
C

       

      General Release
Agreement

       

      THIS
GENERAL RELEASE AGREEMENT (hereinafter “Release”) is made and entered into as of
this ______day of _____________, 20__, by and among PMA Capital Corporation,
Pennsylvania Manufacturers Association Insurance Company, Manufacturers Alliance
Insurance Company, Pennsylvania Manufacturers Indemnity Company, and PMA
Management Corp. (collectively “PMA Capital”) on the one hand and William E.
Hitselberger (hereinafter “Executive”) on the other hand.

      

      WHEREAS,
PMA Capital and Executive entered into the Amended and Restated Executive
Employment Agreement (the “Employment Agreement”) effective as of March 15,
2009;

      

      WHEREAS,
under the terms of the Employment Agreement, Executive is entitled to severance
payments as provided therein;

      

      WHEREAS,
the Employment Agreement conditions receipt of the severance payments upon
Executive’s signing and not revoking a valid General Release
Agreement.

      

      NOW,
THEREFORE, intending to be legally bound hereby and in consideration of receipt
of the severance payments provided for in the Employment Agreement and for other
good and valuable consideration, Executive, for himself, and his executors,
administrators, heirs and assigns, agrees as follows:

      

      1.           Executive
hereby fully waives, releases, and forever discharges PMA Capital and each and
all of its past and present subsidiaries, parent and related corporations,
companies and divisions, and their past and present respective officers,
directors, shareholders, trustees, employees, attorneys, agents and affiliates,
and their predecessors, successors and assigns (hereinafter collectively
referred to as “Releasees”) of and from any and all rights, debts, 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      claims,
actions, liabilities, agreements, damages, or causes of action (hereinafter
collectively referred to as “claims”), of whatsoever kind or nature, whether in
law or equity, whether known or unknown, that Executive ever had or now has in
any capacity, either individually, or as a director, officer, representative,
agent or employee of Releasees against any or all of the Releasees, for, upon,
or by reason of any cause, matter, thing or event whatsoever occurring at any
time up to and including the date Executive signs this Release. Executive
acknowledges and understands that the claims and rights being released in this
paragraph include, but are not limited to, all claims and rights arising from or
in connection with any agreement of any kind Executive may have had with any of
the Releasees, or in connection with Executive’s employment or termination of
employment, all claims and rights for wrongful discharge, breach of contract,
either express or implied, interference with contract, emotional distress, back
pay, front pay, benefits, fraud, misrepresentation, defamation, claims and
rights arising under the Civil Rights Acts of 1964 and 1991, as amended, (which
prohibits the discrimination in employment based on race, color, national
origin, religion or sex), the Americans with Disabilities Act (ADA), as amended
(which prohibits discrimination in employment based on disability), the Age
Discrimination in Employment Act (ADEA), as amended (which prohibits age
discrimination in employment), Worker Adjustment and Retraining Notification Act
(WARN), the National Labor Relations Act, the Fair Labor Standards Act, the
Employee Retirement Income Security Act of 1974 (ERISA), as amended, the Family
and Medical Leave Act (FMLA), as amended, the Pennsylvania Wage and Hour Laws,
the Pennsylvania Wage Payment and Collection Law, the Pennsylvania Human
Relations Act, the Health Insurance Portability and Accountability Act (HIPAA), and any and all other claims or rights,
whether arising under federal, state, or local law, rule, regulation,
constitution, ordinance or public policy. Executive agrees that he will not
initiate any civil complaint or institute any civil lawsuit, or file

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      any
arbitration against Releasees, or any one of them, based on the fact or
circumstance occurring up to and including the date of the execution by
Executive of this Release. This Release and the foregoing covenant not to sue do
not cover claims relating to: (i) Executive’s right to indemnification under
paragraph 16 of the Employment Agreement, or pursuant to PMA Capital’s articles
of incorporation or bylaws as they may exist from time to time, or pursuant to
applicable law; (ii) Executive’s right to benefits under the Benefits plans;
(iii) Executive’s right to payments under the Employment Agreement; or (iv) the
validity or enforcement of this Release.

       

       2. Executive hereby agrees to waive any
provisions of state or federal law that explicitly or implicitly would prevent
the application of this Release to claims of which Executive does not know or
expect to exist in Executive’s favor at the time of executing this Release
which, if known by Executive, would have materially affected his decision to
execute this Agreement. In addition, Executive hereby agrees to waive any
provisions of state or federal law which might require a more detailed
specification of the claims being released pursuant to the provisions of this
Release.

      

      3. Executive acknowledges that he has carefully
read and understands the provisions of this Release, that he has had twenty-one
(21) days from the date he received a copy of this Release to consider entering
into this Release and accepting the severance payments, that if he signs and
returns this Release before the end of the 21-day period, he will have
voluntarily waived his right to consider this Release for the full twenty-one
(21) days and that he has executed this Release voluntarily and with full
knowledge of its significance, meaning and binding effect. Executive also
acknowledges that PMA Capital has advised him in writing to consult with an
attorney of his own choosing with regard to entering into this 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Release
and accepting the severance payments. Finally, Executive acknowledges that his
decision to sign this Release has not been influenced in any way by fraud,
duress, coercion, mistake or misleading information and that he has not relied
on any information except what is set forth in this Release and the Employment
Agreement.

      

      4. Executive acknowledges that he may revoke this
Release within seven (7) days of his execution of this document by submitting
written notice of his revocation to, Executive also understands that this
Release shall not become effective or enforceable until the expiration of that
7-day period.

      

      5. Executive agrees that if any provision of this
Release is or shall be declared invalid or unenforceable by a court of competent
jurisdiction, then such provision will be modified only to the extent necessary
to cure such invalidity and with a view to enforcing the parties’ intention as
set. forth in this Release to the extent permissible and the remaining
provisions of this Release shall not be affected thereby and shall remain in
full force and effect.

       

      

      
        
          
            	
                    Dated:                                           
      

                  	                                                                  
      
	 
      	
                    WILLIAM
      E. HITSELBERGERimxform8k090318_ex10-1.htm

    

      Exhibit
10.1

       

      

      March 12,
2009

      

      

      Implant
Sciences Corporation

      600 Research Drive

      Wilmington, Massachusetts 01887

      
      

      
      

      Attn: Mr.
Glenn D. Bolduc

      

      Re:           Bridge Bank Blocked
Account

      

      Mr.
Bolduc:

      

      Reference
is made to the Note and Warrant Purchase Agreement, dated December 10, 2008 (as
amended, modified, restated or supplemented from time to time, the “Purchase Agreement”)
among DMRJ Group LLC (“DMRJ”) and Implant
Sciences Corporation (the “Company”), and the
other agreements, documents and instruments referred to therein or at any time
executed and/or delivered in connection therewith or related thereto (all of the
foregoing, together with the Purchase Agreement, as the same now exist or may
hereafter be amended, restated, replaced, renewed, extended, supplemented,
substituted or otherwise modified from time to time being collectively referred
to herein as the “Transaction
Documents”).  Capitalized terms used in this letter agreement
and not otherwise defined shall have the meanings ascribed to them in the
Purchase Agreement.

       

      The
Company has advised DMRJ that the Company desires to have access to $250,000
from the funds currently held in the Blocked Account pursuant to Section 3.30 of
the Purchase Agreement (the “Access Right”) and to
decrease the Minimum Balance in the Blocked Account set forth in Section 3.30 of
the Purchase Agreement to $250,000, in each case, solely for the period
commencing on the date hereof up to, but not including, April 15, 2009 (the
“Consent
Period”).  In connection therewith, the Company has requested
that DMRJ consent to the Company’s Access Right during the Consent Period
notwithstanding anything to the contrary contained in Section 3.30 of the
Purchase Agreement.

       

      In
reliance upon the Company’s representations, warranties and covenants set forth
herein, DMRJ hereby consents to the Access Right notwithstanding anything to the
contrary contained in Section 3.30 of the Purchase Agreement (the “Consent Item”); provided, however, that DMRJ’s
consent to the Consent Item contained herein is subject to the satisfaction of
the following conditions precedent:

      

      
        	
                (i)  

              	
                prior
      execution and delivery by the Company of an Amended and Restated Senior
      Secured Convertible Promissory Note pursuant to which the Conversion Price
      (as defined in the Note) shall be eighteen cents ($0.18), subject to
      adjustments as set forth therein;
and

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	
                (ii)  

              	
                prior
      execution and delivery by the Company of an Amended and Restated Warrant
      pursuant to which the Warrant Price (as defined in the Warrant) shall be
      eighteen cents ($0.18), as such price may be adjusted from time to time as
      shall result from the adjustments specified
  therein.

              

      

      

      Such
consent shall in no way constitute a waiver of any default or Event of Default
which may occur or has occurred and shall not obligate DMRJ to provide any
further waiver or consent regarding noncompliance with Section 3.30, including
without limitation, failure to maintain a cleared balance of at least $500,000
in the Blocked Account following the Consent Period, or any other section of the
Purchase Agreement).  Upon the effectiveness of this letter agreement,
all references in the Transaction Documents to the Minimum Balance shall refer
to the amount of $250,000 solely during the Consent Period and to $500,000 at
all other times.  If the Company shall fail to maintain a cleared
balance of at least $500,000 in the Blocked Account on and after April 15, 2009,
DMRJ shall have all rights (and hereby reserves all such rights) available upon
the Company’s failure to comply with the requirements of Section 3.30 of the
Purchase Agreement, including, without limitation, in addition to any other
conditions that DMRJ may then establish, the right to require the Company to
engage in a sale process satisfactory to DMRJ in its sole
discretion.

      

      In order
to induce DMRJ to enter into this letter agreement, the Company represents,
warrants and covenants each of the following: (a) no default or Event of Default
has occurred and is continuing, and (b) each of the representations and
warranties contained in the Transaction Documents made by the Company or any
Guarantor is true and correct in all material respects as of the date
hereof.  Each of the representations and warranties set forth in this
paragraph shall be deemed to be remade by the Company on and as of the date the
Company is granted the Access Right.

       

      Upon the
satisfaction of the conditions precedent set forth above and the effectiveness
of this letter agreement, so long as no Event of Default has occurred and is
continuing, DMRJ agrees to provide Bridge Bank, N.A. (“Bank”) with written
instructions (the “Instructions”) to
accept or comply with any Order (as defined in that certain Deposit Account
Control Agreement among DMRJ, Company and Bank dated December 10, 2008 in
connection with the Blocked Account) thereafter received by the Bank from
the Company with respect to any disposition of funds contained in the Blocked
Account at any time and from time to time prior to the close of business on
April 14, 2009, but not after such time, so long as such Order does not cause or
result in the aggregate cleared balance held in the Blocked Account to be
less than $250,000 at any time; provided, however, the upon the
occurrence and during the continuance of an Event of Default, the Company agrees
and acknowledges that DMRJ may rescind the Instructions upon written notice to
the Bank.  DMRJ further agrees, promptly upon the receipt of the
Amended and Restated Senior Secured Convertible Promissory Note and the Amended
and Restated Warrant, to return to the Company, endorsed for cancellation, the
Company’s Senior Secured Convertible Promissory Note and Warrant, each issued to
DMRJ on December 10, 2008.

       

      This
letter agreement shall supplement the Purchase Agreement.  All of the
terms and conditions of the Purchase Agreement and other Transaction Documents,
except as expressly modified herein, are hereby ratified and confirmed and shall
continue unchanged and in full

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

         

        force and
effect, including, without limitation, the provisions set forth in Section 3.30
of the Purchase Agreement.  The effectiveness of this letter agreement
shall be subject to the due execution and delivery hereof by the Company and
DMRJ and the conditions precedent set forth above.  This letter
agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one the same agreement.  Delivery of an executed
counterpart of this letter by facsimile or electronic transmission shall be
equally as effective as delivery of an original executed counterpart by this
letter.

      

       

      

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          3

          
            

          

        

        
           

        

      

      Very
truly yours,

      

      DMRJ
GROUP LLC

      

      

      By:           /s/
Joan Janczewski

      Name:                      Joan
Janczewski

      Title:                      COO

      

      

      

      

      ACCEPTED
AND AGREED:

      

      IMPLANT
SCIENCES CORPORATION

      

      

      By:           /s/
Roger Deschenes

      Name:                      Roger
Deschenes

      Title:                      Vice
President – Finance

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