8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 6, 2009

PMA Capital Corporation

(Exact name of registrant as specified in its charter)

Pennsylvania	001-31706	23-2217932
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

380 Sentry Parkway Blue Bell, Pennsylvania	19422
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (610) 397-5298

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.  Entry into a Material Definitive Agreement.

Item 1.02.  Termination of a Material Definitive Agreement.

On August 6, 2009, PMA Capital Corporation (the “Company”) and American Stock Transfer & Trust Company, LLC (“AST”) amended the Rights Agreement, dated May 3, 2000, between the Company and AST, as rights agent (the “Rights Plan”) to modify the expiration date of the Rights Plan from May 22, 2010 to August 6, 2009.

Also on August 6, 2009, the Board of Directors of the Company (the “Board”) approved andadopted a Section 382 Rights Agreement, dated as of August 6, 2009, between the Company and AST, as Rights Agent (the “Section 382 Rights Plan”).  Pursuant to the Section 382 Rights Plan, the Board approved a declaration of a dividend distribution of one preferred share purchase right (a “Right”) for each outstanding share of Class A Common Stock, par value $5.00 per share (“Class A Stock”). The dividend will be distributed to the shareholders of record at the close of business on August 17, 2009 (“Record Date”).

The Board adopted the Section 382 Rights Plan to help protect shareholder value.  The Section 382 Rights Plan is designed to protect the Company’s ability to use its tax net operating loss carryforwards (“NOLs”) to reduce potential future federal income tax obligations.  As of June 30, 2009, the Company had NOLs of approximately $230 million.  Under the Internal Revenue Code of 1986 (the “Code”) and rules promulgated by the Internal Revenue Service, the Company may carry forward the NOLs under certain circumstances to offset future income and thereby reduce its federal income tax liability.  Provided that the NOLs do not become limited, the Company believes that it will be able to use a significant amount of the NOLs.  However, pursuant to Section 382 of the Code (“Section 382”), if the Company experiences an “ownership change” in which holders of 5% or more of the Company’s Class A Stock collectively acquire 50% or more of the outstanding Class A Stock, the Company’s ability to use the NOLs will be severely limited, and the value of the NOLs could be significantly impaired.

The summary of the Section 382 Rights Plan provided herein does not purport to be complete and is qualified in its entirety by reference to the Section 382 Rights Plan, which has been filed as an exhibit to the Company’s Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on August 7, 2009.

The Rights.  The Rights are intended to protect the Company’s NOLs by deterring any person or group from triggering Section 382 by acquiring 5% or more of the Company’s Class A Stock with out the approval of the Board.  The Board has authorized the issuance of a Right with respect to each share of Class A Stock outstanding on the Record Date. The Rights will initially trade with, and will be inseparable from, the Class A Stock, and no separate Rights certificates will be issued. The Rights will be evidenced only by certificates that represent shares of Class A Stock or, with respect to uncertificated shares, by ownership statements.  New Rights will accompany any new shares of Class A Stock issued after the Record Date until the date when the Rights become exercisable.

Exercise Price.  If the Rights become exercisable, each Right will allow its holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock (“Preferred Share”) for the price of $35 (“Exercise Price”). Prior to exercise, the Right does not give its holder any dividend, voting, liquidation or other rights as a shareholder of the Company.

Exercisability. The Rights will separate from the Class A Stock and become exercisable as of the date (the “Distribution Date”) which is the earlier of:

·   10 Business Days after the date of a public announcement that a person or group of affiliated or associated persons has become an “Acquiring Person” by obtaining beneficial ownership of 5% or more of the outstanding Class A Stock, except pursuant to a “Permitted Offer” (defined below), and

·   10 Business Days after a person or group begins, or publicly announces its intent to begin, a tender or exchange offer, which, if consummated, would result in that person or group becoming an Acquiring Person.

However, in general, a person who owned 5% or more of the outstanding shares of Class A Stock on August 6, 2009 and properly filed a Schedule 13G with respect to such ownership prior to August 6, 2009 will not be an Acquiring Person so long as such person does not acquire additional shares of Class A stock so that such person’s ownership equals or exceeds 10% of the Company’s outstanding Class A Stock at any time.  Also, a person will not be an Acquiring Person if the Board determines that the person’s beneficial ownership of 5% or more of the outstanding Class A Stock will not jeopardize or endanger the Company’s use of the NOLs.

After the Distribution Date, the Rights will separate from the Class A Stock and be evidenced by Rights certificates that the Company will mail to all eligible holders of Class A Stock. Any Rights held by an Acquiring Person and certain transferees of an Acquiring Person will be void and may not be exercised.

Consequences of a Person or Group Becoming Acquiring Person.

·   Flip In. If a person or group becomes an Acquiring Person, all holders of Rights except the Acquiring Person may purchase that number of shares of the Class A Stock (or such other debt or equity securities or other substitution as may be determined by the Company in accordance with the Section 382 Rights Plan) having a market value equal to twice the Exercise Price of the Right. This feature of the plan is referred to as a “Flip In.”

·   Flip Over. If, at any time after a person or group becomes an Acquiring Person, the Company is acquired in a merger or similar business combination, or 50% or more of the Company’s assets or earning power is sold, all holders of Rights except the Acquiring Person may purchase that number of shares of the acquiring entity having a market value equal to twice the Exercise Price of the Right. This feature of the plan is referred to as a “Flip Over.”

Permitted Offer. A tender or exchange offer for all outstanding Class A Stock at a price and on terms determined, prior to the purchase of any shares under the tender or exchange offer, by at least a majority of the disinterested directors on the Board to be adequate (taking into account all factors that such directors deem relevant) and otherwise in the best interests of the Company and its shareholders (other than the Acquiring Person) will be a Permitted Offer. “Disinterested directors” are directors of the Company who are not officers or employees of the Company and who are not the Acquiring Person or an associate or affiliate of the Acquiring Person, or have not been proposed or nominated as a director of the Company by the Acquiring Person.

Preferred Share Provisions. Each one one-thousandth of a Preferred Share, if issued:  will not be redeemable; will entitle holders to quarterly dividend payments of $.001, or an amount equal to the dividend paid on one share of Class A Stock, whichever is greater; will entitle holders upon liquidation to receive $1.00, or an amount equal to the payment made on one share of Class A Stock, whichever is greater; will have the same voting power as one share of Class A Stock; and will entitle holders to receive a payment equal to the payment made on one share of Class A Stock in the event shares of Class A Stock are exchanged in a merger or similar business combination.

The value of each one one-thousandth of a Preferred Share should approximate the value of one share of Class A Stock.

Expiration. The Rights will expire on the earliest of (i) August 6, 2019, (ii) the date the Rights are redeemed, (iii) the date the rights are exchanged, (iv) the repeal, modification or amendment of Section 382 of the Code or any successor statute if the Board determines that this Agreement is no longer necessary for the preservation of NOLs, (v) the beginning of a taxable year of the Company in which the Board determines that no NOLs may be carried forward and (vi) August 6, 2010, if shareholder approval of the Section 382 Rights Plan has not been obtained.

Redemption. The Board may redeem the Rights for $.001 per Right at any time before the close of business on the tenth Business Day after the first date of public announcement by the Company or an Acquiring Person that a person has become an Acquiring Person. If the Board redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $.001 per Right. The redemption price will be adjusted in the event of a stock split or stock dividends of the Class A Stock.

Exchange. After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the outstanding Class A Stock, the Board may extinguish the Rights by exchanging one share of Class A Stock or any equivalent security for each Right, other than Rights held by the Acquiring Person.

Amendments. The terms of the Section 382 Rights Plan may be amended by the Board without the consent of the holders of the Rights. After the Distribution Date, the Board may not amend the Section 382 Rights Plan in a way that adversely affects holders of the Rights.

Item 3.03.  Material Modification to Rights of Security Holders.

Please see the disclosure set forth under “Item 1.01. Entry into a Material Definitive Agreement,” which is incorporated by reference into this Item 3.03.

Item 9.01. Financial Statements and Exhibits.

(d)  Exhibits

Exhibit No.	Description
4.1	Section 382 Rights Agreement, dated August 6, 2009, between PMA Capital Corporation and American Stock Transfer & Trust Company, LLC (Incorporated by reference to Exhibit 4.1 to the Form 8-A filed by PMA Capital Corporation on August 7, 2009).

4.2	Second Amendment to Rights Agreement, dated August 6, 2009, to the Rights Agreement, dated May 3, 2000, between PMA Capital Corporation and American Stock Transfer & Trust Company, LLC (Incorporated by reference to Exhibit 4.1 to the Amendment No. 1 to Form 8-A filed by PMA Capital Corporation on August 7, 2009).
99.1	Press Release dated August 6, 2009.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PMA Capital Corporation
August 7, 2009	By:  /s/ Stephen L. Kibblehouse
	Name:  Stephen L. Kibblehouse
	Title:  Executive Vice President & General Counsel

Exhibit Index

Exhibit No.	Description
4.1	Section 382 Rights Agreement, dated August 6, 2009, between PMA Capital Corporation and American Stock Transfer & Trust Company, LLC (Incorporated by reference to Exhibit 4.1 to the Form 8-A filed by PMA Capital Corporation on August 7, 2009).
4.2	Second Amendment to Rights Agreement, dated August 6, 2009, to the Rights Agreement, dated May 3, 2000, between PMA Capital Corporation and American Stock Transfer & Trust Company, LLC (Incorporated by reference to Exhibit 4.1 to the Amendment No. 1 to Form 8-A filed by PMA Capital Corporation on August 7, 2009).
99.1	Press Release dated August 6, 2009.

EX-99.1

For Immediate Release Contact: William E. Hitselberger

  (610) 397-5298

  bhitselberger@pmacapital.com

PMA Capital Adopts NOL Rights Plan

Blue Bell, PA, August 6, 2009 -- PMA Capital Corporation (NASDAQ: PMACA) today announced that its Board of Directors terminated the shareholder rights plan adopted by the Company in May 2000 and adopted a shareholder rights plan designed to protect the Company’s ability to utilize its net operating loss carryforwards and other tax assets.  PMA Capital reported net operating loss carryforwards totaling approximately $230 million as of June 30, 2009. United States Federal income tax rules, and Section 382 of the Internal Revenue Code in particular, substantially limit the use of those tax assets if PMA Capital experiences an “ownership change.”  In general, an ownership change occurs if there is a cumulative change in the ownership of PMA Capital by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period.

Vincent T. Donnelly, President and Chief Executive Officer said, “This shareholder rights plan is designed to protect the substantial value that we expect PMA Capital’s net operating loss carryforwards will provide.  We believe that the rights plan is in the best interests of PMA Capital’s shareholders as it will reduce the risk of an ownership change occurring amongst our largest shareholders.  The rights plan was not adopted as an anti-takeover measure, it has a limited term and it will expire once we are able to utilize the tax assets that are available to the Company.”

The rights plan seeks to reduce the likelihood of such an ownership change by encouraging shareholders wanting to exceed the 5% ownership threshold to discuss their plans with PMA Capital.  The rights plan permits existing 5% shareholders to increase their share ownership so long as they do not equal or exceed the statutory limit of 10% of outstanding PMA Capital common shares.  The acquisition of a total of 10% or more of PMA Capital’s outstanding common shares by existing 5% shareholders would require the prior approval of state insurance regulators and, unless exempted by PMA Capital’s Board of Directors, would trigger the rights plan.

PMA Capital’s Board of Directors declared a dividend of one preferred stock purchase right for each outstanding common share as of the close of business on August 17, 2009.  Common shares issued after that date will also receive the rights.  Subject to certain limited exceptions, if any person or group becomes a 5% shareholder of PMA Capital without first obtaining the approval of the Company’s Board of Directors, holders of the rights would become entitled to purchase securities of the Company that would significantly dilute the voting power and economic ownership of the acquiring shareholder.  

Rights owned by the acquiring shareholder would become void.  Persons who were 5% shareholders on the date the rights plan was adopted and properly filed a Schedule 13G indicating their ownership before such date only trigger the rights if they acquire additional common shares so that their ownership equals or exceeds 10% of PMA Capital’s outstanding common shares.

Shareholders will have the opportunity to approve the plan at PMA Capital’s next annual meeting of shareholders.  The plan will expire on August 6, 2010 if not approved by shareholders before that date.  The rights plan terminates if Section 382 of the Internal Revenue Code is repealed or if PMA Capital utilizes all of its net operating loss carryforwards and other tax assets that are subject to limitation under Section 382.  The latest that the rights plan will expire is August 6, 2019.

A detailed summary of the rights plan will be mailed to PMA Capital’s shareholders of record on August 17, 2009.  A copy of the rights plan will be filed as an exhibit to a registration statement on Form 8-A to be filed with the Securities and Exchange Commission.  The Form 8-A and the rights plan will be accessible on the Securities and Exchange Commission’s website at www.sec.gov.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 with respect to the  plans, objectives and expectations of the Company’s management.  Forward-looking statements can generally be identified by use of forward-looking terminology such as “may,” “will,” “plan,” “expect,” “intend,” “seek” “anticipate,” and “believe.”  These forward-looking statements may include estimates, assumptions or projections and are based on currently available data and the Company’s current operating plans.  All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.  The factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to:

·   adequacy of reserves for claim liabilities, including reserves for potential environmental and asbestos claims;

·   any future lowering or loss of one or more of our financial strength and debt ratings, and the adverse impact that any such downgrade may have on our ability to compete and to raise capital, and our liquidity and financial condition;

·   adequacy and collectibility of reinsurance that we purchase;

·   uncertainty as to the price and availability of reinsurance on business we intend to write in the future, including reinsurance for terrorist acts;

·   the effects of emerging claims and coverage issues, including changing judicial interpretations of available coverage for certain insured losses;

·   the success with which our independent agents and brokers sell our products and our ability to collect payments from them;

·   regulatory changes in risk-based capital or other standards that affect the cost of, or demand for, our products or otherwise affect our ability to conduct business, including any future action with respect to our business taken by the Pennsylvania Insurance Department or any other state insurance department;

·   our concentration in workers’ compensation insurance, which makes us particularly susceptible to adverse changes in that industry segment;

·   our ability to consummate the sale of our Run-off Operations in a timely manner;

·   severity of natural disasters and other catastrophes, including the impact of future acts of terrorism, in connection with insurance and reinsurance policies;

·   uncertainties related to possible terrorist activities or international hostilities and whether the Terrorism Risk Insurance Program Reauthorization Act of 2007 is extended beyond its December 31, 2014 termination date;

·   our ability to effectively compete in the highly competitive property and casualty insurance industry;

·   adverse economic or regulatory developments in the eastern part of the United States, particularly those affecting Pennsylvania, New York and New Jersey;

·   fluctuations in interest rates and other events that can adversely impact our investment portfolio;

·   disruptions in the financial markets that affect the value of our investment portfolio and our ability to sell our investments;

·   our ability to repay our indebtedness;

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·  our ability to raise additional capital on financially favorable terms when required;

·   restrictions on our operations contained in any document governing our indebtedness;

·   the impact of future results on the value of recorded goodwill and other intangible assets and the recoverability of our deferred tax asset;

·   our ability to attract and retain qualified management personnel;

·   the outcome of any litigation against us;

·   provisions in our charter documents that can inhibit a change in control of our company; and

·   other factors or uncertainties disclosed from time to time in our filings with the Securities and Exchange Commission.

You should not place undue reliance on any forward-looking statements in this press release.  Forward-looking statements are not generally required to be publicly revised as circumstances change and we do not intend to update the forward-looking statements in this press release to reflect circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

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