-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JrFjCHsMLjnolDDhkXpp2HnksoKu0mTrqfnG4HCXcc+p+Z5sO69eS05d0JK2v9w5 L7dtc9/GABmZtCCW8hBZJA== 0000950159-00-000199.txt : 20000515 0000950159-00-000199.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950159-00-000199 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PMA CAPITAL CORP CENTRAL INDEX KEY: 0001041665 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 232217932 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22761 FILM NUMBER: 629938 BUSINESS ADDRESS: STREET 1: 1735 MARKET STREET SUITE 2800 STREET 2: 380 SENTRY PKWY CITY: PHILADELPHIA STATE: PA ZIP: 19103-7590 BUSINESS PHONE: 2156655046 MAIL ADDRESS: STREET 1: 1735 MARKET STREET SUITE 2800 STREET 2: 380 SENTRY PARKWAY CITY: PHILADELPHIA STATE: PA ZIP: 19103-7590 FORMER COMPANY: FORMER CONFORMED NAME: PENNSYLVANIA MANUFACTURERS CORP DATE OF NAME CHANGE: 19970702 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ Commission File Number 000-22761 PMA Capital Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 23-2217932 ------------------------------- ------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Mellon Bank Center, Suite 2800 1735 Market Street Philadelphia, Pennsylvania 19103-7590 -------------------------------------- ----------- (Address of principal executive offices) (Zip Code) (215) 665-5046 -------------- (Registrant's telephone number, including area code) Not applicable -------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / There were 22,119,667 shares outstanding of the registrant's Class A Common Stock, $5 par value per share, as of the close of business on April 30, 2000. INDEX - -------------------------------------------------------------------------------- Page Part I. Financial Information Item 1. Financial statements Consolidated statements of operations for the three months ended March 31, 2000 and 1999 (unaudited) 1 Consolidated balance sheets as of March 31, 2000 (unaudited) and December 31, 1999 2 Consolidated statements of cash flows for the three months ended March 31, 2000 and 1999 (unaudited) 3 Consolidated statements of comprehensive income (loss) for the three months ended March 31, 2000 and 1999 (unaudited) 4 Notes to the consolidated financial statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 23 Signatures 24 Exhibit Index 25 PMA Capital Corporation Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, (dollar amounts in thousands, except per share data) 2000 1999 - ---------------------------------------------------------------------------------------- Revenues: Net premiums written $ 163,934 $ 168,517 Change in net unearned premiums (38,112) (59,195) --------- --------- Net premiums earned 125,822 109,322 Net investment income 28,193 27,109 Net realized investment gains (losses) (5,461) 877 Other revenues 3,387 3,138 --------- --------- Total revenues 151,941 140,446 --------- --------- Losses and expenses: Losses and loss adjustment expenses 94,288 81,736 Acquisition expenses 26,697 20,398 Operating expenses 16,452 17,084 Dividends to policyholders 4,690 5,068 Interest expense 3,075 3,013 --------- --------- Total losses and expenses 145,202 127,299 --------- --------- Income before income taxes and cumulative effect of accounting change 6,739 13,147 Income tax expense: Current 2,099 945 Deferred 262 3,734 --------- --------- Total 2,361 4,679 --------- --------- Income before cumulative effect of accounting change 4,378 8,468 Cumulative effect of accounting change (net of income tax benefit of $1,485) -- (2,759) --------- --------- Net income $ 4,378 $ 5,709 ========= ========= Income per share: Basic: Income before cumulative effect of accounting change $ 0.20 $ 0.36 Cumulative effect of accounting change -- (0.12) --------- --------- Net income $ 0.20 $ 0.24 ========= ========= Diluted: Income before cumulative effect of accounting change $ 0.19 $ 0.35 Cumulative effect of accounting change -- (0.11) --------- --------- Net income $ 0.19 $ 0.24 ========= =========
See accompanying notes to the consolidated financial statements. 1 PMA Capital Corporation Consolidated Balance Sheets
(Unaudited) As of As of March 31, December 31, (dollar amounts in thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- Assets: Investments: Fixed maturities available for sale, at fair value (amortized cost: 2000 - $1,607,414; 1999 - $1,648,894) $ 1,553,337 $ 1,579,640 Equity securities, at fair value (cost: 2000 - $46,925; 1999 - $37,779) 46,869 34,966 Short-term investments, at amortized cost which approximates fair value 349,495 303,429 ----------- ----------- Total investments 1,949,701 1,918,035 Cash 11,040 84,261 Accrued investment income 20,905 20,480 Premiums receivable (net of valuation allowance: 2000 - $17,373; 1999 - $18,088) 280,779 271,833 Reinsurance receivables (net of valuation allowance: 2000 - $3,890; 1999 - $5,528) 702,875 658,164 Deferred income taxes, net 98,825 105,363 Deferred acquisition costs 53,658 48,949 Other assets 165,575 138,002 ----------- ----------- Total assets $ 3,283,358 $ 3,245,087 =========== =========== Liabilities: Unpaid losses and loss adjustment expenses $ 1,927,755 $ 1,932,601 Unearned premiums 305,350 260,352 Long-term debt 163,000 163,000 Accounts payable and accrued expenses 109,686 109,447 Funds held under reinsurance treaties 108,343 94,445 Dividends to policyholders 14,636 13,782 Payable under securities loan agreements 215,964 242,317 ----------- ----------- Total liabilities 2,844,734 2,815,944 ----------- ----------- Commitments and contingencies (Note 4) Shareholders' Equity: Common stock, $5 par value (40,000,000 shares authorized; 2000 - 11,933,404 shares issued and 11,497,397 outstanding; 1999 - 13,084,665 shares issued and 12,648,658 outstanding) 59,667 65,423 Class A Common stock, $5 par value (40,000,000 shares authorized; 2000 - 12,509,541 shares issued and 10,618,990 outstanding; 1999 - 11,358,280 shares issued and 9,692,854 outstanding) 62,547 56,791 Additional paid-in capital - Class A Common stock 339 339 Retained earnings 394,069 391,981 Accumulated other comprehensive loss (35,187) (46,844) Notes receivable from officers (56) (56) Treasury stock, at cost: Common stock (shares: 2000 - 436,007 and 1999 - 436,007) (5,582) (5,582) Class A Common stock (shares: 2000 - 1,890,551 and 1999 - 1,665,426) (37,173) (32,909) ----------- ----------- Total shareholders' equity 438,624 429,143 ----------- ----------- Total liabilities and shareholders' equity $ 3,283,358 $ 3,245,087 =========== ===========
See accompanying notes to the consolidated financial statements. 2 PMA Capital Corporation Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - -------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 4,378 $ 5,709 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation and amortization 1,468 2,002 Provision for deferred income taxes 262 3,734 Net realized investment (gains) losses 5,461 (877) Cumulative effect of accounting change -- 2,759 Change in: Premiums receivable and unearned premiums, net 36,052 31,331 Dividends to policyholders 854 315 Reinsurance receivables (44,711) 4,871 Unpaid losses and loss adjustment expenses (4,846) (26,158) Accrued investment income (425) (3,071) Deferred acquisition costs (4,709) (11,584) Other, net (13,742) (1,863) --------- --------- Net cash flows provided by (used in) operating activities (19,958) 7,168 --------- --------- Cash flows from investing activities: Fixed maturities available for sale: Purchases (247,036) (292,740) Maturities or calls 45,187 30,955 Sales 236,789 278,168 Equity securities: Purchases (14,539) -- Sales 6,142 -- Net (purchases) sales of short-term investments (72,420) 2,349 Other, net (813) (1,052) --------- --------- Net cash flows provided by (used in) investing activities (46,690) 17,680 --------- --------- Cash flows from financing activities: Dividends paid to shareholders (1,887) (1,909) Proceeds from exercise of stock options 1,338 3,906 Purchase of treasury stock (6,024) (11,258) Net repayments of notes receivable from officers -- 289 --------- --------- Net cash flows used in financing activities (6,573) (8,972) --------- --------- Net increase (decrease) in cash (73,221) 15,876 Cash - beginning of period 84,261 2,562 --------- --------- Cash - end of period $ 11,040 $ 18,438 ========= ========= Supplementary cash flow information: Income taxes paid $ 1,500 $ 2,997 Interest paid $ 3,014 $ 3,061
See accompanying notes to the consolidated financial statements. 3 PMA Capital Corporation Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - -------------------------------------------------------------------------------------------- Net income $ 4,378 $ 5,709 -------- -------- Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities: Holding gains (losses) arising during the period 8,107 (24,299) Less: reclassification adjustment for (gains) losses included in net income (net of tax expense (benefit): 2000 - ($1,911); 1999 - $307) 3,550 (570) -------- -------- Other comprehensive income (loss), net of tax 11,657 (24,869) -------- -------- Comprehensive income (loss) $ 16,035 $(19,160) ======== ========
See accompanying notes to the consolidated financial statements. 4 PMA Capital Corporation Notes to the Consolidated Financial Statements 1. BUSINESS DESCRIPTION The accompanying consolidated financial statements include the accounts of PMA Capital Corporation and its wholly and majority owned subsidiaries (collectively referred to as "PMA Capital" or the "Company"). PMA Capital is an insurance holding company that operates three specialty risk management businesses, which are more fully described below. Reinsurance -- PMA Capital's reinsurance operations ("PMA Re") consist mainly of PMA Reinsurance Corporation, a Pennsylvania domiciled insurance company, and emphasize risk-exposed, excess of loss reinsurance and operate in the brokered market. PMA Re's business is predominantly in casualty lines of reinsurance. Workers' Compensation and Primary Standard Insurance -- PMA Capital's property and casualty insurance subsidiaries ("The PMA Insurance Group") include Pennsylvania domiciled insurance companies as well as certain foreign subsidiaries. The PMA Insurance Group primarily writes workers' compensation, integrated disability and to a lesser extent, other standard lines of commercial insurance, primarily in the Mid-Atlantic and Southern regions of the U.S. The majority of The PMA Insurance Group's business is produced by independent agents and brokers. Specialty Property and Casualty -- Caliber One writes business through surplus lines brokers and managing general agents on a national basis. Caliber One's excess and surplus lines insurance affiliate, Caliber One Indemnity Company, is an eligible surplus lines insurer in 41 states, the District of Columbia and Puerto Rico. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Presentation - The consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. It is management's opinion that all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Certain reclassifications of prior year amounts have been made to conform to the 2000 presentation. The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Due to this and certain other factors, such as the seasonal nature of portions of the insurance business as well as competitive and other market conditions, operating results for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and footnotes included in its 1999 Annual Report to Shareholders and incorporated by reference in its Form 10-K for the year ended December 31, 1999. B. Recent Accounting Pronouncements - Effective January 1, 2000, the Company adopted Statement of Position ("SOP") 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." This statement identifies several methods of deposit accounting and provides guidance on the application of each method. This statement classifies insurance and reinsurance contracts for which the deposit method is appropriate as contracts that (i) transfer only significant timing risk, (ii) transfer only significant underwriting risk, (iii) transfer neither significant timing nor underwriting risk and (iv) have an indeterminate risk. The adoption of SOP 98-7 did not have a material impact on the Company's financial condition, results of operations or liquidity. 5 Effective January 1, 1999, the Company adopted SOP 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance for determining when an insurance company should recognize a liability for guaranty fund and other insurance related assessments and how to measure that liability. As a result of adopting SOP 97-3, the Company recorded a liability of $4.3 million pre-tax and a resulting charge to earnings of $2.8 million, net of income tax benefit of $1.5 million, which has been reported as a cumulative effect of accounting change. This accounting change impacts The PMA Insurance Group segment. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as "derivatives") and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. While the Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial condition, results of operations or liquidity. 3. REINSURANCE In the ordinary course of business, PMA Capital's reinsurance and insurance subsidiaries assume and cede premiums with other insurance companies and are members of various pools and associations. The reinsurance and insurance subsidiaries cede business, primarily on an excess of loss basis, in order to limit the maximum net loss from large risks and limit the accumulation of many smaller losses. The reinsurance and insurance subsidiaries remain primarily liable to their clients in the event their reinsurers are unable to meet their financial obligations. The components of net premiums earned and losses and loss adjustment expenses ("LAE") incurred are as follows:
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - ------------------------------------------------------------------ Earned Premiums: Direct $ 98,049 $ 75,326 Assumed 82,679 69,446 Ceded (54,906) (35,450) --------- --------- Net $ 125,822 $ 109,322 ========= ========= Losses and LAE: Direct $ 101,489 $ 62,643 Assumed 59,433 36,056 Ceded (66,634) (16,963) --------- --------- Net $ 94,288 $ 81,736 ========= =========
6 4. COMMITMENTS AND CONTINGENCIES The Company's businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could affect them. Such changes could include various legislative and regulatory changes which may affect the pricing or profitability of the insurance products sold by the Company. In addition, it is always possible that judicial reinterpretation of insurance contracts after the policies were written may result in coverage unanticipated by the Company at the time the policies were issued, such as coverage for Year 2000, tobacco and other claims. The eventual effect on the Company of the changing environment in which it operates remains uncertain. In the event a property and casualty insurer operating in a jurisdiction where the Company's insurance subsidiaries also operate becomes or is declared insolvent, state insurance regulations provide for the assessment of other insurers to fund any capital deficiency of the insolvent insurer. Generally, this assessment is based upon the ratio of an insurer's voluntary premiums written to the total premiums written for all insurers in that particular jurisdiction. The Company is not aware of any material potential assessments at March 31, 2000 (see Note 2-B regarding SOP 97-3). The Company has provided guarantees of approximately $7.8 million, primarily related to loans on properties in which the Company has an interest. The Company is continuously involved in numerous lawsuits arising, for the most part, in the ordinary course of business, either as a liability insurer defending third party claims brought against its insureds, or as an insurer defending coverage claims brought against it by its policyholders or other insurers. While the outcome of all litigation involving the Company, including insurance-related litigation, cannot be determined, litigation is not expected to result in losses that differ from recorded reserves by amounts that would be material to the Company's financial condition, results of operations or liquidity. In addition, reinsurance recoveries related to claims in litigation, net of the allowance for uncollectible reinsurance, are not expected to result in recoveries that differ from recorded recoverables by amounts that would be material to the Company's financial condition, results of operations or liquidity. 5. EARNINGS PER SHARE A reconciliation of the shares used as the denominator of the basic and diluted earnings per share computations is presented below. For all periods presented, there were no differences in the numerator (income before cumulative effect of accounting change) for the basic and diluted earnings per share calculation:
Three Months Ended March 31, 2000 1999 - ---------------------------------------------------------------------------- Denominator: Basic shares - weighted average Common and Class A Common shares outstanding 22,265,688 23,317,630 Effect of dilutive stock options 550,599 785,822 ---------- ---------- Total diluted shares 22,816,287 24,103,452 ========== ==========
7 6. BUSINESS SEGMENTS The following table indicates the Company's revenues, all of which are generated within the U.S., and pre-tax operating income (loss) by principal business segment:
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - ------------------------------------------------------------------------------------ Revenues: PMA Re $ 77,991 $ 66,061 The PMA Insurance Group Excluding Run-off Operations 70,870 68,835 Run-off Operations 1,086 1,126 --------- --------- Total 71,956 69,961 Caliber One 6,975 3,046 Corporate and Other 480 501 Net realized investment gains (losses) (5,461) 877 --------- --------- Total revenues $ 151,941 $ 140,446 ========= ========= Components of pre-tax operating income(1) and net income: PMA Re $ 13,983 $ 12,749 The PMA Insurance Group: Excluding Run-off Operations 5,383 4,919 Run-off Operations 219 66 --------- --------- Total 5,602 4,985 Caliber One (2,273) (696) Corporate and Other (5,112) (4,768) --------- --------- Pre-tax operating income 12,200 12,270 Net realized investment gains (losses) (5,461) 877 --------- --------- Income before income taxes and cumulative effect of accounting change 6,739 13,147 Income tax expense 2,361 4,679 --------- --------- Income before cumulative effect of accounting change 4,378 8,468 Cumulative effect of accounting change, net of tax -- (2,759) --------- --------- Net income $ 4,378 $ 5,709 ========= ========= (1) Pre-tax operating income is defined as income from continuing operations before income taxes, excluding net realized investment gains (losses). The Company excludes net realized investment gains (losses) from the profit and loss measure it utilizes to assess the performance of its operating segments because (i) net realized investment gains (losses) are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains (losses) that do not relate to the operations of the individual segments.
8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of the financial condition of PMA Capital as of March 31, 2000, compared with December 31, 1999, and the results of operations of PMA Capital for the quarter ended March 31, 2000, compared with the same period last year. This discussion should be read in conjunction with Management's Discussion and Analysis included in PMA Capital's 1999 Annual Report to Shareholders (pages 28 through 43), to which the reader is directed for additional information. The term "SAP" refers to the statutory accounting practices prescribed or permitted by applicable state insurance departments and the term "GAAP" refers to generally accepted accounting principles. CONSOLIDATED RESULTS The major components of operating revenues, pre-tax operating income and net income are as follows:
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - ----------------------------------------------------------------------------------- Operating revenues: Net premiums written $ 163,934 $ 168,517 ========= ========= Net premiums earned $ 125,822 $ 109,322 Net investment income 28,193 27,109 Other revenues 3,387 3,138 --------- --------- Total operating revenues $ 157,402 $ 139,569 ========= ========= Components of pre-tax operating income (1) and net income: PMA Re $ 13,983 $ 12,749 The PMA Insurance Group: Excluding Run-off Operations 5,383 4,919 Run-off Operations 219 66 --------- --------- Total 5,602 4,985 Caliber One (2,273) (696) Corporate and Other (5,112) (4,768) --------- --------- Pre-tax operating income 12,200 12,270 Net realized investment gains (losses) (5,461) 877 --------- --------- Income before income taxes and cumulative effect of accounting change 6,739 13,147 Income tax expense 2,361 4,679 --------- --------- Income before cumulative effect of accounting change 4,378 8,468 Cumulative effect of accounting change, net of tax -- (2,759) --------- --------- Net income $ 4,378 $ 5,709 ========= ========= (1) Pre-tax operating income is defined as income from continuing operations before income taxes, excluding net realized investment gains (losses). The Company excludes net realized investment gains (losses) from the profit and loss measure it utilizes to assess the performance of its operating segments because (i) net realized investment gains (losses) are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains (losses) that do not relate to the operations of the individual segments
9 Pre-tax operating income was $12.2 million for the three months ended March 31, 2000, compared to $12.3 million for the three months ended March 31, 1999. After-tax operating income was $7.9 million for both the three months ended March 31, 2000 and 1999. PMA Re and The PMA Insurance Group reported improvements in pre-tax operating income for the first quarter of 2000, compared with the first quarter of 1999. These improvements were offset by higher pre-tax operating losses at Caliber One and Corporate and Other. The Company currently expects operating earnings per share to improve in 2000 primarily reflecting higher operating income from PMA Re and The PMA Insurance Group, as well as the favorable effects of the share repurchase activities. This expectation may differ materially from actual results because of the risk factors noted in the "Cautionary Statements" on page 22. Net income was $4.4 million for the first quarter of 2000, compared to $5.7 million for the same period in 1999. Net income for 1999 includes an after-tax charge of $2.8 million for the effect of adopting Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." See Note 2-B to the Company's Consolidated Financial Statements for additional information. Net income also includes after-tax gains and losses on the sale of investments. The timing and recognition of such gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future operating performance. Accordingly, such gains and losses are not included as a component of operating income. After-tax net realized investment losses were $3.5 million for the three months ended March 31, 2000, compared to after-tax net realized investment gains of $600,000 for the same period in 1999. The net realized investment losses in the first quarter of 2000 reflect sales of investments in order to invest in yield enhancing investment opportunities. PMA RE Summarized financial results of PMA Re are as follows:
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - ----------------------------------------------------------------------------- Net premiums written $66,992 $78,327 ======= ======= Net premiums earned $63,137 $52,433 Net investment income 14,854 13,628 ------- ------- Operating revenues 77,991 66,061 ------- ------- Losses and loss adjustment expenses ("LAE") 45,416 37,861 Acquisition and operating expenses 18,592 15,451 ------- ------- Total losses and expenses 64,008 53,312 ------- ------- Pre-tax operating income $13,983 $12,749 ======= ======= - -----------------------------------------------------------------------------
PMA Re's pre-tax operating income increased to $14.0 million for the three months ended March 31, 2000, compared to $12.7 million for the same period in 1999, primarily due to an increase in net investment income. Underwriting results for the first quarter of 2000 were comparable to results for the first quarter of 1999. 10 Premiums PMA Re's gross and net premiums written by major category of business are as follows:
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - --------------------------------------------------------- Gross premiums written: Casualty lines $61,311 $73,188 Property lines 25,712 25,765 Other lines 457 542 ------- ------- Total $87,480 $99,495 ======= ======= Net premiums written: Casualty lines $45,365 $56,547 Property lines 21,176 21,252 Other lines 451 528 ------- ------- Total $66,992 $78,327 ======= ======= - ---------------------------------------------------------
Net premiums written were $67.0 million in the first quarter of 2000, compared with $78.3 million for the same period last year. Absent a revision in 1999 to PMA Re's estimation of unreported premiums on in-force contracts, gross and net premiums written for the first quarter of 2000 would have been essentially flat, compared to the first quarter of 1999. Expanded participations and improved rate adequacy led to growth in premiums for PMA Re's Traditional and Finite Risk and Financial Products units. However, this growth was substantially offset by lower premiums from the Specialty unit reflecting the effects of the highly competitive conditions in the professional liability reinsurance market. Generally, trends in net premiums earned follow patterns similar to net premiums written, with premiums being earned principally on a pro rata basis over the terms of the contracts. However, due to a revision late in 1999 in PMA Re's methodology used in estimating unearned premiums on in-force contracts, net premiums earned increased $10.7 million, or 20%, in the first quarter of 2000, compared to the first quarter of 1999. Losses and Expenses The components of PMA Re's GAAP combined ratios are as follows:
Three Months Ended March 31, 2000 1999 - -------------------------------------------------------- Loss and LAE ratio 71.9% 72.2% -------- -------- Expense ratio: Acquisition expenses 23.7% 23.2% Operating expenses 5.7% 6.3% -------- -------- Total expense ratio 29.4% 29.5% -------- -------- GAAP combined ratio(1) 101.3% 101.7% ======== ======== - -------------------------------------------------------- (1) The combined ratio computed on a GAAP basis is equal to losses and LAE, plus acquisition expenses and operating expenses, all divided by net premiums earned.
11 The loss and LAE ratio declined modestly in the first quarter of 2000, compared with the same period last year primarily reflecting a decline in the current accident year loss and LAE ratio partially offset by a reduction in favorable prior accident year loss development. The current accident year loss and LAE ratio improved by 1.9 points, reflecting improved rate adequacy on business written in 2000 and non-renewal of business that did not meet desired profitability targets. The acquisition expense ratio increased 0.5 points for the three months ended March 31, 2000, compared to the same period in 1999, primarily due to a change in the business mix in the quarter. The operating expense ratio decreased 0.6 points for the three months ended March 31, 2000, compared to the same period in 1999, primarily reflecting a 20% increase in earned premiums that outpaced a 10% increase in operating expenses. Net Investment Income Net investment income was $14.9 million for the first quarter of 2000, compared to $13.6 million for the same period last year. The improvement in net investment income primarily reflects higher average invested assets and an increase in investment yield resulting from a shift in invested assets towards higher yielding securities. 12 THE PMA INSURANCE GROUP Summarized financial results of The PMA Insurance Group are as follows:
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - ---------------------------------------------------------------- The PMA Insurance Group Net premiums written $87,446 $83,021 ======= ======= Net premiums earned $57,092 $54,399 Net investment income 12,233 13,133 Other revenues 2,631 2,429 ------- ------- Operating revenues 71,956 69,961 ------- ------- Losses and LAE 42,653 41,757 Acquisition and operating expenses 19,011 18,151 Dividends to policyholders 4,690 5,068 ------- ------- Total losses and expenses 66,354 64,976 ------- ------- Pre-tax operating income $ 5,602 $ 4,985 ======= ======= The PMA Insurance Group Excluding Run-off Operations Net premiums written $87,446 $83,021 ======= ======= Net premiums earned $57,092 $54,399 Net investment income 11,147 12,007 Other revenues 2,631 2,429 ------- ------- Operating revenues 70,870 68,835 ------- ------- Losses and LAE 41,950 41,209 Acquisition and operating expenses 18,847 17,639 Dividends to policyholders 4,690 5,068 ------- ------- Total losses and expenses 65,487 63,916 ------- ------- Pre-tax operating income $ 5,383 $ 4,919 ======= ======= Run-off Operations (1) Net investment income $ 1,086 $ 1,126 ------- ------- Losses and LAE 703 548 Acquisition and operating expenses 164 512 ------- ------- Total losses and expenses 867 1,060 ------- ------- Pre-tax operating income $ 219 $ 66 ======= ======= - ---------------------------------------------------------------- - ---------------- (1) Run-off operations ("Run-off Operations") of The PMA Insurance Group reinsure certain obligations primarily associated with workers' compensation claims written by The PMA Insurance Group's Pooled Companies for the years 1991 and prior.
13 Operating Results Pre-tax operating income for The PMA Insurance Group increased 12.4% to $5.6 million for the three months ended March 31, 2000, compared to $5.0 million for the same period in 1999. The increase in operating income for The PMA Insurance Group was primarily due to improved loss experience, partially offset by lower net investment income. The PMA Insurance Group Excluding Run-off Operations Premiums
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - ----------------------------------------------------------------------------------- Workers' compensation and integrated disability: Direct premiums written $ 77,475 $ 71,917 Premiums assumed 357 725 Premiums ceded (10,783) (9,624) --------- --------- Net premiums written $ 67,049 $ 63,018 ========= ========= Commercial Lines: Direct premiums written $ 26,752 $ 27,642 Premiums assumed 549 894 Premiums ceded (6,904) (8,533) --------- --------- Net premiums written $ 20,397 $ 20,003 ========= ========= Total: Direct premiums written $ 104,227 $ 99,559 Premiums assumed 906 1,619 Premiums ceded (17,687) (18,157) --------- --------- Net premiums written $ 87,446 $ 83,021 ========= ========= - -----------------------------------------------------------------------------------
Direct workers' compensation and integrated disability premiums written increased by $5.6 million for the three months ended March 31, 2000, compared to the same period in 1999, primarily due to an increase of $4.2 million in integrated disability premiums written and, to a lesser extent, an increase in the level of workers' compensation risks underwritten. Continued price competition and selected non-renewal of non-profitable accounts tempered increases in direct workers' compensation premiums written. Direct writings of commercial lines of business other than workers' compensation, such as commercial auto, general liability, umbrella, multi-peril and commercial property lines (collectively, "Commercial Lines") decreased by $890,000 for the three months ended March 31, 2000, compared to the same period in 1999. The decrease in reinsurance premiums ceded reflects a decrease in ceded premiums for Commercial Lines for the three months ended March 31, 2000, compared to the same period in 1999, due to an increase in the reinsurance retention for the commercial casualty lines of business from $175,000 to $250,000 effective January 1, 2000 and the reduction in direct premiums written for Commercial Lines. Partially offsetting this decrease was an increase in ceded premiums for workers' compensation for the three months ended March 31, 2000, compared to the same period in 1999 as a result of the increase in direct premiums written for this line. Net premiums earned increased $2.7 million for the three months ended March 31, 2000, compared to the same period in 1999. Generally, trends in net premiums earned follow patterns similar to net premiums written adjusted for the customary lag related to the timing of premium writings within the year. Direct premiums are earned principally on a pro rata basis over the terms of the policies. 14 Losses and Expenses The components of The PMA Insurance Group's GAAP combined ratios, excluding Run-off Operations, are as follows:
Three Months Ended March 31, 2000 1999 - --------------------------------------------------------------- Loss and LAE ratio 73.5% 75.8% -------- -------- Expense ratio: Acquisition expenses 18.9% 13.8% Operating expenses(1)(2) 11.0% 15.4% -------- -------- Total expense ratio 29.9% 29.2% Policyholders' dividend ratio 8.2% 9.3% -------- -------- GAAP combined ratio(1)(2)(3)(4) 111.6% 114.3% ======== ======== - --------------------------------------------------------------- (1) The expense ratio and the combined ratio for 1999 exclude the impact of the cumulative effect of accounting change of $4.3 million ($2.8 million after-tax) for insurance-related assessments. (2) The expense ratio and the combined ratio exclude $1.8 million for both 2000 and 1999 for direct expenses related to service revenues, which are not included in premiums earned. (3) The combined ratio computed on a GAAP basis is equal to losses and LAE, plus acquisition expenses, operating expenses and policyholders' dividends, all divided by net premiums earned. (4) The GAAP combined ratios for The PMA Insurance Group including the Run-off Operations were 113.1% and 116.2% in the first quarter of 2000 and 1999, respectively.
The loss and LAE ratio improved 2.3 points in the first quarter of 2000, compared to the first quarter of 1999, primarily due to an improved current accident year loss and LAE ratio and a decline in net discount accretion, partially offset by less favorable development of prior accident year reserves, excluding the accretion of discount ("prior year development"). The improvement in the current accident year loss and LAE ratio for the first quarter of 2000, compared to the same period in 1999, is due to pricing increases on renewal business and continued improved loss trends. The loss and LAE ratio is negatively impacted by accretion of discount on prior year reserves and favorably impacted by setting up discount for current year reserves. The net of these amounts is referred to as net discount accretion. Accretion of prior year discounted reserves exceeded the setting up of discount by $384,000 and $936,000 for the three months ended March 31, 2000 and 1999, respectively. The decline in net discount accretion is due to the increase in workers' compensation writings during the first quarter of 2000, compared to the first quarter of 1999. The PMA Insurance Group experienced $475,000 of favorable prior year development for the first quarter of 2000, compared to $905,000 of favorable prior year development for the same period in 1999. The favorable prior year development in 2000 reflects better than expected loss experience from rent-a-captive workers' compensation business and the favorable prior year development in 1999 reflects better than expected loss experience from loss-sensitive workers' compensation business. Policyholders' dividends for rent-a-captive business substantially offset the favorable prior year development in 2000, and premium adjustments for loss-sensitive business substantially offset the favorable prior year development in 1999. Overall, the GAAP expense ratio increased by 0.7 points for the three months ended March 31, 2000, compared to the same period in 1999. The policyholders' dividend ratio was 8.2% for the three months ended March 31, 2000, compared to 9.3% for the same period in 1999. Under policies that are subject to dividend plans, the customer may receive a dividend based upon loss experience during the policy period. The decrease in the policyholders' dividend ratio occurred primarily because The 15 PMA Insurance Group sold less business under dividend plans in the first quarter of 2000 than in the first quarter of 1999 and has shifted its participating business towards lower paying dividend plans. This decrease has been partially offset by higher dividends resulting from the favorable prior year development from rent-a-captive workers' compensation business. Net Investment Income Net investment income was $11.1 million for the three months ended March 31, 2000, compared to $12.0 million for the same period in 1999. The decrease in net investment income primarily reflects a lower asset base resulting from the paydown of loss reserves from prior accident years. Run-off Operations Pre-tax operating income for the Run-off Operations was $219,000 and $66,000 for the three months ended March 31, 2000 and 1999, respectively. The increase in pre-tax operating income primarily reflects lower operating expenses, partially offset by higher losses and LAE. 16 CALIBER ONE Summarized financial results of Caliber One are as follows:
Three Months Ended March 31, 2000 1999 - ----------------------------------------------------------------- Net premiums written $ 9,590 $ 7,322 ======= ======= Net premiums earned $ 5,687 $ 2,643 Net investment income 1,288 403 ------- ------- Operating revenues 6,975 3,046 ------- ------- Losses and LAE 6,219 2,118 Acquisition and operating expenses 3,029 1,624 ------- ------- Total losses and expenses 9,248 3,742 ------- ------- Pre-tax operating loss $(2,273) $ (696) ======= ======= - -----------------------------------------------------------------
Caliber One recorded a pre-tax operating loss of $2.3 million, for the three months ended March 31, 2000, compared to a pre-tax operating loss of $696,000 for the same period in 1999. The increase in pre-tax operating losses primarily reflects higher than expected net losses and LAE in professional liability and commercial automobile lines of business and an increase in acquisition and operating expenses associated with a growing operation. Premiums Caliber One's gross and net premiums written are as follows:
Three Months Ended March 31, (dollar amounts in thousands) 2000 1999 - ---------------------------------------------------------- Gross premiums written: Products Liability $ 5,462 $ 2,435 Professional Liability 10,617 2,197 Other Liability 6,482 4,564 Property 10,647 3,595 ------- ------- Total $33,208 $12,791 ======= ======= Net premiums written: Products Liability $ 4,001 $ 1,770 Professional Liability 809 1,729 Other Liability 1,379 3,293 Property 3,401 530 ------- ------- Total $ 9,590 $ 7,322 ======= ======= - ----------------------------------------------------------
Gross premiums written increased $20.4 million for the three months ended March 31, 2000, compared to the same period last year. The increase in gross premiums written reflects Caliber One's market acceptance and penetration as well as expanded product offerings. Net premiums written increased $2.3 million, or 31%, in the first quarter of 2000, compared to the first quarter of 1999, reflecting the increase in gross premiums written, partially offset by increased reinsurance premiums ceded pertaining primarily to the professional liability and commercial automobile (included in "other liability" in the table above) lines of business. 17 Net premiums earned increased $3.0 million for the three months ended March 31, 2000, compared to the same period in 1999. Generally, trends in net premiums earned follow patterns similar to net premiums written adjusted for the customary lag related to the timing of premium writings within the year. The increase in Caliber One's net premiums earned is greater than the increase in net premiums written primarily due to the increase in net premiums written in the latter half of 1999, compared to the latter half of 1998. Losses and Expenses The components of Caliber One's GAAP combined ratios are as follows:
Three Months Ended March 31, 2000 1999 - -------------------------------------------------------- Loss and LAE ratio 109.4% 80.1% -------- -------- Expense ratio: Acquisition expenses 16.2% 27.2% Operating expenses 37.0% 34.2% -------- -------- Total expense ratio 53.2% 61.4% -------- -------- GAAP combined ratio 162.6% 141.5% ======== ======== - --------------------------------------------------------
Caliber One's loss and LAE ratio increased 29.3 points for the three months ended March 31, 2000, compared to the same period last year. This increase was primarily due to higher than expected losses and LAE in the professional liability and commercial automobile lines of business. A substantial amount of the losses and LAE was covered by reinsurance treaties. Additionally, other steps were taken in the first quarter to minimize the impact of these lines, including de-emphasizing certain segments of the professional liability and commercial automobile lines, as well as refocusing underwriting emphasis on other lines and classes of business. As of December 31, 1999, Caliber One's reinsurance protection was $5.5 million in excess of $500,000 for casualty lines and $4.5 million in excess of $500,000 for property lines. In the first quarter of 2000, additional reinsurance with limits of at least $42 million was purchased on the professional liability and commercial automobile lines of business. The acquisition expense ratio decreased 11.0 points for the three months ended March 31, 2000, compared to the same period last year. The decrease in the acquisition expense ratio is primarily due to higher ceding commissions as a result of reinsurance purchases in the first quarter of 2000. The operating expense ratio increased 2.8 points for the quarter ended March 31, 2000, compared to the same period in 1999. This increase primarily reflects increases in operating expenses associated with Caliber's continuing growth, and net premiums earned that were reduced significantly in the first quarter of 2000 due to an increased use of reinsurance. Net Investment Income Net investment income increased to $1.3 million in the first quarter of 2000, compared to $403,000 in the first quarter of 1999. This increase primarily reflects a larger average invested asset base, due mainly to premium collections in excess of paid losses and expenses and, to a lesser extent, capital contributions received. 18 LOSS RESERVES Unpaid losses and LAE reflect management's best estimate of future amounts needed to pay claims and related settlement costs with respect to insured events which have occurred, including events that have not been reported to the Company. In many cases, significant periods of time, ranging up to several years or more, may elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the Company's payment of that loss. In general, liabilities for reinsurers become known more slowly than for primary insurers and are subject to more unforeseen development and uncertainty. As part of the process for determining these amounts, historical data is reviewed and consideration is given to the impact of various factors, such as legal developments, changes in social attitudes and economic conditions. Management believes that its unpaid losses and LAE are fairly stated at March 31, 2000. However, estimating the ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management's informed estimates and judgments using data currently available. As additional experience and data become available regarding claims payment and reporting patterns, legislative developments, regulatory trends on benefit levels for both medical and indemnity payments, and economic conditions, the estimates are revised accordingly. If the Company's ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at March 31, 2000, the related adjustments could have a material adverse effect on the Company's financial condition, results of operations and liquidity. For additional discussion of loss reserves and reinsurance, see pages 36 to 38 of the Management's Discussion and Analysis included in the Company's 1999 Annual Report to Shareholders, as well as pages 15 to 20 of the Company's Form 10-K for the year ended December 31, 1999. CORPORATE AND OTHER The Corporate and Other segment includes unallocated investment income, expenses, including debt service, as well as the results of certain of the Company's real estate properties. For the three months ended March 31, 2000, Corporate and Other recorded a pre-tax operating loss of $5.1 million, compared to a pre-tax operating loss of $4.8 million for the three months ended March 31, 1999. The increase in pre-tax operating loss primarily reflects higher operating expenses in the first quarter of 2000, compared to the same period in 1999. LIQUIDITY AND CAPITAL RESOURCES Liquidity is a measure of an entity's ability to secure enough cash to meet its contractual obligations and operating needs. At the holding company level, the Company requires cash to pay debt obligations, dividends to shareholders and taxes to the Federal government, as well as to capitalize subsidiaries from time to time. PMA Capital's primary sources of liquidity are dividends from subsidiaries, net tax payments received from subsidiaries and borrowings. At March 31, 2000 and December 31, 1999, the Company had $163.0 million of outstanding debt under its Revolving Credit Facility (the "Credit Facility"). The final expiration of the Credit Facility is December 31, 2002, and the Credit Facility matures in an installment of $38.0 million in December 2000 and installments of $62.5 million in 2001 and 2002. In addition to the Credit Facility, the Company maintains a committed facility of $50.0 million for letters of credit (the "Letter of Credit Facility"). The Letter of Credit Facility is utilized primarily for securing reinsurance obligations of the Company's insurance subsidiaries. As of March 31, 2000, the Company had $45.8 million outstanding in letters of credit under the Letter of Credit Facility, compared with $45.9 million as of December 31, 1999. The Company paid interest of $3.0 million and $3.1 million on both credit facilities for the three months ended March 31, 2000 and 1999, respectively. The Company's domestic insurance subsidiaries' ability to pay dividends to the holding company is limited by the insurance laws and regulations of Pennsylvania and Delaware (the laws of which are substantially similar with respect to dividends). Under Pennsylvania laws and regulations, dividends may not be paid without prior approval of the Pennsylvania Insurance Commissioner in excess of the greater of (i) 10% of policyholders' surplus as of the end of the preceding year or (ii) SAP net income for the preceding year, but in no event to exceed SAP unassigned surplus. Under this standard, the Pooled Companies and PMA Reinsurance Corporation can pay an aggregate of approximately $55 19 million of dividends without the prior approval of the Pennsylvania Insurance Commissioner during 2000. Caliber One Indemnity Company, a Delaware-domiciled company, is directly owned by PMA Reinsurance Corporation and, as such, its dividends may not be paid directly to PMA Capital. As stated above, Delaware's insurance laws as they apply to restricting the payment of dividends are substantially similar to Pennsylvania's insurance laws. Under Delaware insurance laws, Caliber One Indemnity Company can pay up to $3.3 million in dividends during 2000, without the prior approval of the Delaware Insurance Commissioner. Dividends received from subsidiaries were $4.8 million and $10.8 million for the first quarter of 2000 and 1999, respectively. Net tax payments received from subsidiaries were $4.4 million and $3.5 million for the three months ended March 31, 2000 and 1999, respectively. PMA Capital's dividends to shareholders are restricted by its debt agreements. Based upon the terms of the Credit Facility and the Letter of Credit Facility, under the most restrictive debt covenant, PMA Capital would be able to pay dividends of approximately $10 million in 2000. The Company paid dividends to shareholders of $1.9 million for both the three months ended March 31, 2000 and 1999. PMA Capital also made capital contributions in the form of cash to its subsidiaries totaling $2.6 million during the first quarter of 1999. No cash capital contributions were made to subsidiaries during the first quarter of 2000. In 1998, the Company's Board of Directors authorized a plan to repurchase shares of Common stock and Class A Common stock in an amount not to exceed $25.0 million. In 1999, an additional $50.0 million of share repurchase authority was approved by the Company's Board of Directors. During the first quarter of 2000, the Company repurchased 318,000 shares of Class A Common stock at a total cost of $6.0 million. Since the inception of its share repurchase program in February 1998, PMA Capital has repurchased a total of 2.8 million Class A shares at a total cost of $55.1 million, leaving $19.9 million of share repurchase authorization remaining. Decisions regarding share repurchases are subject to prevailing market conditions and the costs and benefits associated with alternative uses of capital. Management believes that the Company's sources of funds will provide sufficient liquidity to meet short-term and long-term obligations. The Company's total assets increased to $3,283.4 million at March 31, 2000, compared to $3,245.1 million at December 31, 1999. The increase in total assets is primarily attributable to increased reinsurance receivables related to the purchase of reinsurance for Caliber One's professional liability and commercial automobile lines of business. Presently, management believes that the existing capital structure is appropriate. However, management continually monitors the capital structure in light of developments in the business, and the present assessment could change as management becomes aware of new opportunities and challenges in the Company's business. 20 OTHER MATTERS The Company's businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could affect them. Such changes could include various legislative and regulatory changes which may affect the pricing or profitability of the insurance products sold by the Company. In addition, it is always possible that judicial reinterpretation of insurance contracts after the policies were written may result in coverage unanticipated by the Company at the time the policies were issued, such as coverage for Year 2000, tobacco and other claims. The eventual effect on the Company of the changing environment in which it operates remains uncertain. Comparison of SAP and GAAP Results Results presented in accordance with GAAP vary in certain respects from statutory accounting practices prescribed or permitted by the Pennsylvania Insurance Department and the Delaware Insurance Department, (collectively "SAP"). Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of National Association of Insurance Commissioners ("NAIC") publications. Permitted SAP encompasses all accounting practices that are not prescribed. In 1998, the NAIC adopted the Codification of Statutory Accounting Principles ("Codification") guidance, which will replace the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting. Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas, such as deferred income taxes. The Company's insurance subsidiaries will implement the Codification guidelines effective January 1, 2001. The Company is in the process of assessing the impact that Codification will have on its statutory surplus and currently expects that the impact of adopting Codification will not be material to statutory surplus. Recent Accounting Pronouncements Effective January 1, 2000, the Company adopted SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." This statement identifies several methods of deposit accounting and provides guidance on the application of each method. This statement classifies insurance and reinsurance contracts for which the deposit method is appropriate as contracts that (i) transfer only significant timing risk, (ii) transfer only significant underwriting risk, (iii) transfer neither significant timing nor underwriting risk and (iv) have an indeterminate risk. The adoption of SOP 98-7 did not have a material impact on the Company's financial condition, results of operations or liquidity. Effective January 1, 1999, the Company adopted SOP 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance for determining when an insurance company should recognize a liability for guaranty fund and other insurance related assessments and how to measure that liability. As a result of adopting SOP 97-3, the Company recorded a liability of $4.3 million pre-tax and a resulting charge to earnings of $2.8 million, net of income tax benefit of $1.5 million, which has been reported as a cumulative effect of accounting change in 1999. This accounting change impacts The PMA Insurance Group segment. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as "derivatives") and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. While the Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial condition, results of operations or liquidity. 21 CAUTIONARY STATEMENTS Except for historical information provided in this Management's Discussion and Analysis and otherwise in this report, statements made throughout this report are forward-looking and contain information about financial results, economic conditions, trends and known uncertainties. These forward-looking statements are based on currently available financial, competitive and economic data and the Company's current operating plans based on assumptions regarding future events. The Company's actual results could differ materially from those expected by the Company's management. The factors that could cause actual results to vary materially, some of which are described with the forward-looking statements, include, but are not limited to, changes in general economic conditions, including the performance of financial markets and interest rates; regulatory or tax changes, including changes in risk-based capital or other regulatory standards that affect the ability of the Company to conduct its business; competitive or regulatory changes that affect the cost of or demand for the Company's products; the Company's ability to meet its marketing objectives; the effect of changes in workers' compensation statutes and their administration; the Company's ability to predict and effectively manage claims related to insurance and reinsurance policies; reliance on key management; adequacy of reserves for claim liabilities; adverse property and casualty loss development for events the Company insured in prior years; adequacy and collectibility of reinsurance purchased by the Company; severity of natural disasters and other catastrophes; the effect of claims related to Year 2000 systems problems ("Y2K Problems") asserted against the Company by insureds in which coverage is found to exist by courts in various jurisdictions, and the costs of any litigation with respect to Y2K Problems regardless of whether coverage is found; and other factors disclosed from time to time in reports filed by the Company with the Securities and Exchange Commission. Investors should not place undue reliance on any such forward-looking statements. The Company disclaims any obligation to update forward-looking statements. 22 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The Exhibits are listed in the Index to Exhibits on page 25. (b) Reports on Form 8-K filed during the quarter ended March 31, 2000: During the quarterly period ended March 31, 2000, the Company filed the following Report on Form 8-K: - dated February 2, 2000, Item 5 - containing news releases regarding its 1999 results and 2000 Annual Meeting of Shareholders. 23 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PMA CAPITAL CORPORATION Date: 5/12/00 By: /s/ Francis W. McDonnell ------- ------------------------------------- Francis W. McDonnell Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) 24 Exhibit Index
Exhibit No. Description of Exhibit Method of Filing - ----------- ---------------------- ---------------- (3) Articles of Incorporation and Bylaws 3.1 Amended and Restated Articles of Incorporation Filed herewith of the Company as last amended on May 3, 2000 3.2 Amended and Restated Bylaws of the Company Filed herewith (10) Company's Annual Incentive Plan Filed as Annex C to the registrant's Definitive Proxy Statement on Schedule 14A dated March 23, 2000 and incorporated herein by reference (12) Computation of Ratio of Earnings to Fixed Charges Filed herewith (27) Financial Data Schedule Filed herewith (EDGAR version only)
25 EX-3.1 2 Commonwealth of Pennsylvania Department of State To All to Whom These Presents Shall Come, Greeting: Whereas, In and by Article VIII of the Business Corporation Law, approved the fifth day of May, Anno Domini one thousand nine hundred and thirty-three, P.L. 364, as amended, the Department of State is authorized and required to issue a CERTIFICATE OF AMENDMENT evidencing the amendment and restatement of the Articles of Incorporation in their entirety of a business corporation organized under or subject to the provisions of that Law; and Whereas, The stipulations and conditions of that Law pertaining to the amendment of Articles of Incorporation have been fully complied with by PENNSYLVANIA MANUFACTURERS CORPORATION Henceforth The "Articles," as defined in Article I of the Business Corporation Law, shall not include any prior documents; Therefore, Know Ye, That subject to the Constitution of this Commonwealth and under authority of the Business Corporation Law, I do by these presents, which I have caused to be Sealed with the Great Seal of the Commonwealth, extend the rights and powers of the corporation named above, in accordance with the terms and provisions of the Articles of Amendment presented by it to the Department of State, with full power and authority to use and enjoy such rights and powers, subject to all the provisions and restrictions of the Business Corporation Law and all other applicable laws of this Commonwealth. Given under my Hand and the Great Seal of the Commonwealth, at the City of Harrisburg, this 7th day of May in the year of our Lord one thousand nine hundred and eighty seven and of the Commonwealth the two hundred eleventh, /s/ James J. Hagerty - - ----------------------------- Secretary of the Commonwealth COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF STATE CORPORATION BUREAU APPLICANT'S ACCT. NO. Filed this day of May 07 1987 DSCB: BCL-806 (REV. 8-72) Commonwealth of Pennsylvania Department of State /s/ James J. Hagerty Secretary of the Commonwealth (Box for Certification) Articles of Amendment-- Domestic Business Corporation In compliance with the requirements of section 806 of the Business Corporation Law, act of May 5, 1933 (P.L.364) (15 P.S. SS.1806), the undersigned corporation, desiring to amend its Articles, does hereby certify that: 1. The name of the corporation is: Pennsylvania Manufacturers Corporation 2. The location of its registered office in this Commonwealth is (the Department of State is hereby authorized to correct the following statement to conform to the records of the Department): 1021 West Eighth Avenue ----------------------- (NUMBER) (STREET) King of Prussia Pennsylvania 19406 -------------------------------------------------------------------- (CITY) (ZIP CODE) 3. The statute by or under which it was incorporated is: Act of May 5, 1933, P.L. 364, as amended 4. The date of its incorporation is: February 23, 1982 5. (Check, and if appropriate, complete one of the following): /X/ The meeting of the shareholders of the corporation at which the amendment was adopted was held at the time and place and pursuant to the kind and period of notice herein stated. Time: The 27th day of April, 1987 Place: 925 Chestnut Street, Philadelphia, PA Kind and period of notice Written notice (Proxy Statement); 30 days / / The amendment was adopted by a consent in writing, setting forth the action so taken, signed by all of the shareholders entitled to vote thereon and filed with the Secretary of the corporation. 6. At the time of the action of shareholders: (a) The total number of shares outstanding was: 797,476 shares (b) The number of shares entitled to vote was: 797,476 shares 7. In the action taken by the shareholders: (a) The number of shares voted in favor of the amendment was: 699,557 shares (b) The number of shares voted against the amendment was: -0 against; 10,000 abstained 8. The amendment adopted by the shareholders, set forth in full, is as follows: See Exhibit A attached and incorporated by reference herein for the text of the Amended and Restated Articles of Incorporation of the Corporation. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer and its corporate seal, duly attested by another such officer, to be hereunto affixed this 27th day of April, 1987. PENNSYLVANIA MANUFACTURERS CORPORATION -------------------------------------- (NAME OF CORPORATION) Attest: By: /s/ David L. Johnson By: /s/ Frederick W. Anton ------------------------------- --------------------------------- (SIGNATURE) (SIGNATURE) David L. Johnson, Secretary Frederick W. Anton, III, President - - ----------------------------------- ---------------------------------- (TITLE; SECRETARY, (TITLE; PRESIDENT, ASSISTANT SECRETARY, ETC.) VICE PRESIDENT, ETC.) (CORPORATE SEAL) INSTRUCTIONS FOR COMPLETION OF FORM A. Any necessary copies of Form DSCB:17.2 (Consent to Appropriation of Name) or Form DSCB: 17.3 (Consent to Use of Similar Name) shall accompany Articles of Amendment effecting a change of name. B. Any necessary governmental approvals shall accompany this form. C. Where action is taken by partial written consent pursuant to the Articles, the second alternate of Paragraph 5 should be modified accordingly. D. If the shares of any class were entitled to vote as a class, the number of shares of each class so entitled and the number of shares of all other classes entitled to vote should be set forth in Paragraph 6(b). E. If the shares of any class were entitled to vote as a class, the number of shares of such class and the number of shares of all other classes voted for and against such amendment respectively should be set forth in Paragraphs 7(a) and 7(b). F. BCL Section 807 (15 P.S. Section 1807) requires that the corporation shall advertise its intention to file or the filing of Articles of Amendment. Proof of publication of such advertising should not be delivered to the Department, but should be filed with the minutes of the corporation. EXHIBIT A RESOLVED that, the Articles of Incorporation of Pennsylvania Manufacturers Corporation shall be amended and restated in their entirety as follows: AMENDED AND RESTATED ARTICLES OF INCORPORATION 1. The name of the Corporation is Pennsylvania Manufacturers Corporation. 2. The location and post office address of the registered office of the Corporation in this Commonwealth is 1021 West Eighth Avenue, King of Prussia, Pennsylvania 19406. 3. The Corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania for the following purpose or purposes: The Corporation shall have unlimited power to engage in and to do any or all lawful business for which corporations may be incorporated under the Act of Assembly approved May 5, 1933, P.S. 364, as amended, under which Act the Corporation is incorporated, including, without limitation of the foregoing, the power to manufacture, buy, sell, trade and generally deal in products, merchandise, goods and articles of any kind and description whatsoever. 4. The term for which the Corporation is to exist is perpetual. 5. The aggregate number of shares which the Corporation shall have the authority to issue is: Two Million (2,000,000) shares of Common Stock, $5.00 par value per share (the "Common Stock"), and Two Million (2,000,000) shares of Class A Common Stock, $5.00 par value per share (the "Class A Common Stock"). A. Voting Rights and Powers. Except as otherwise required by the Pennsylvania Business Corporation Law or as otherwise provided in these Articles of Incorporation or the By-laws of the Corporation, with respect to all matters upon which shareholders are entitled to vote or to which shareholders are entitled to give consent, the holders of the outstanding shares of the Common Stock and the holders of any outstanding shares of the Class A Common Stock shall vote together without regard to class, and every holder of the outstanding shares of the Common Stock shall be entitled to cast thereon ten (10) votes in person or by proxy for each share of the Common Stock standing in his name, and every holder of any outstanding shares of the Class A Common Stock shall be entitled to cast thereon one (1) vote in person or by proxy for each share of the Class A Common Stock standing in his name. In all elections for directors, each shareholder is entitled to cumulate his votes. With respect to any proposed amendment to these Articles of Incorporation which would increase or decrease the number of authorized shares of either the Common Stock or the Class A Common Stock, increase or decrease the par value of the shares of the Common Stock or the Class A Common Stock, or alter or change the powers, preferences, relative voting power or special rights of the shares of the Common Stock or the Class A Common Stock so as to affect it adversely, the approval of a majority of the votes entitled to be cast by the holders of the class affected by the proposed amendment, voting separately as a class, shall be obtained in addition to the approval of a majority of the votes entitled to be cast by the holders of the Common Stock and the Class A Common Stock voting together without regard to class as hereinbefore provided. B. Dividends and Distributions. (a) Cash Dividends. At any time shares of the Class A Common Stock are outstanding, as and when cash dividends may be declared by the Board of Directors, the cash dividend payable on shares of the Class A Common Stock shall in all cases be at least ten percent (10%) higher on a per share basis than the cash dividend payable on shares of the Common Stock. (b) Other Dividends and Distributions. Each share of the Common Stock and each share of the Class A Common Stock shall be equal in respect of rights to dividends (other than cash) and distributions, when and as declared, in the form of stock or other property of the Corporation, except that in the case of dividends or other distributions payable in stock of the Corporation, including distributions pursuant to stock split-ups or divisions, which occur after the date shares of the Class A Common Stock are first issued by the Corporation, only shares of the Common Stock shall be distributed with respect to the Common Stock and only shares of Class A Common Stock shall be distributed with respect to Class A Common Stock. C. Other Rights. Except as otherwise required by the Pennsylvania Business Corporation Law or as otherwise provided in these Articles of Incorporation, each share of the Common Stock and each share of Class A Common Stock shall have identical powers, preferences and rights, including rights in liquidation. D. Conversion of the Common Stock. Each share of Common Stock may at any time be converted at the election of the holder thereof into one fully paid and nonassessable share of Class A Common Stock. Any holder of shares of Common Stock may elect to convert any or all of such shares at one time or at various times in such holder's discretion. Such right shall be exercised by the surrender of the certificate representing each share of Common Stock to be converted to the agent for the registration for transfer of shares of Common Stock at its office, or to the Corporation at its principal executive offices, accompanied by a written notice of the election by the holder thereof to convert and (if so required by the transfer agent or by the Corporation) by instruments of transfer, in form satisfactory to the transfer agent and to the Corporation, duly executed by such holder of his duly authorized attorney. The issuance of a certificate or certificates for shares of Class A Common Stock upon conversion of shares of Common Stock shall be made without charge for any stamp or other similar tax in respect of such issuance. However, if any such certificate or certificates is or are to be issued in a name other than that of the holder of the share or shares of Common Stock converted, the person or persons requesting the issuance thereof shall pay to the transfer agent or to the Corporation the amount of any tax which may be payable in respect of any such transfer, or shall establish to the satisfaction of the transfer agent or of the Corporation that such tax has been paid. As promptly as practicable after the surrender for conversion of a certificate or certificates representing shares of Common Stock and the payment of any tax as hereinbefore provided, the Corporation will deliver or cause to be delivered at the office of the transfer agent to, or upon the written order of, the holder of such certificate or certificates, a certificate or certificates representing the number of shares of Class A Common Stock issuable upon such conversion, issued in such name or names as such holder may direct. Such conversion shall be irrevocable and shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate or certificates representing shares of Common Stock (if on such date the transfer books of the Corporation shall be closed, then immediately prior to the close of business on the first date thereafter that said books shall be open), and all rights of A-2 such holder arising from ownership of such shares of Common Stock shall cease at such time, and the person or persons in whose name or names the certificate or certificates representing shares of Class A Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock at such time and shall have and may exercise all the rights and powers appertaining thereto. No adjustments in respect of past cash dividends shall be made upon the conversion of any share of Common Stock; provided, however, that if any shares of Common Stock shall be converted subsequent to the record date for the payment of a cash or stock dividend or other distribution on shares of Common Stock but prior to such payment, the registered holder of such shares at the close of business on such record date shall be entitled to receive the cash or stock dividend or the distribution payable to holders of the Common Stock. The Corporation shall at all times reserve and keep available, solely for the purpose of issue upon conversion of outstanding shares of Common Stock, such number of shares of Class A Common Stock as may be issuable upon the conversion of all such outstanding shares of Common Stock, provided, the Corporation may deliver shares of Class A Common Stock which are held in the treasury of the Corporation for shares of Common Stock to be converted. If any shares of Class A Common Stock require registration with or approval of any governmental authority under any federal or state law before such shares of Class A Common Stock may be issued upon conversion, the Corporation will cause such shares to be duly registered or approved, as the case may be. All shares of Class A Common Stock which may be issued upon conversion of shares of Common Stock will, upon issue, be fully paid and nonassessable. 6. Except with respect to shares, rights, options and other securities of the Corporation that are issued or granted in connection with any stock purchase plan, stock option plan or other similar benefit plan that has been approved by the holders of a majority of the Corporation's outstanding Common Stock, the holders of Common Stock of the Corporation shall be entitled, as such, as a matter of right, to subscribe for and to purchase any part of any new or additional issue of Common Stock, any rights or options to purchase Common Stock, or any securities convertible into, exchangeable for or carrying rights or options to purchase Common Stock, whether now or hereafter authorized, but only in those instances in which such shares of Common Stock, rights or options to purchase Common Stock are issued for a consideration consisting solely of money. In the event of the issuance of such shares or other securities solely for money, the preemptive right herein granted shall only be an opportunity to acquire such shares or other securities under such terms and conditions as the Board of Directors shall fix. The preemptive right herein granted shall not apply in any respect to the Corporation's Class A Common Stock, and holders of such Class A Common Stock, as such, shall have no preemptive rights. A-3 Commonwealth of Pennsylvania Department of State To All to Whom These Presents Shall Come, Greeting: Whereas, In and by Article VIII of the Business Corporation Law, approved the fifth day of May, Anno Domini one thousand nine hundred and thirty-three, P.L. 364, as amended, the Department of State is authorized and required to issue a CERTIFICATE OF AMENDMENT evidencing the amendment of the Articles of Incorporation of a business corporation organized under or subject to the provisions of that Law; and Whereas, The stipulations and conditions of that Law pertaining to the amendment of Articles of Incorporation have been fully complied with by PENNSYLVANIA MANUFACTURERS CORPORATION Therefore, Know Ye, That subject to the Constitution of this Commonwealth and under the authority of the Business Corporation Law, I do by these presents, which I have caused to be sealed with the Great Seal of the Commonwealth, extend the rights and powers of the corporation named above, in accordance with the terms and provisions of the Articles of Amendment presented by it to the Department of State, with full power and authority to use and enjoy such rights and powers, subject to all the provisions and restrictions of the Business Corporation Law and all other applicable laws of this Commonwealth. Given under my Hand and the Great Seal of the Commonwealth, at the City of Harrisburg, this 27th day of April in the year of our Lord one thousand nine hundred and eighty eight and of the Commonwealth the two hundred twelfth. /s/ James J. Hagerty - - ----------------------------- Secretary of the Commonwealth pjd DSCB-21 (7-73) COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF STATE CORPORATION BUREAU Filed this day of April 27 1988 Commonwealth of Pennsylvania Department of State /s/ James J. Hagerty Secretary of the Commonwealth (Box for Certification) Articles of Amendment-- Domestic Business Corporation In compliance with the requirements of section 806 of the Business Corporation Law, act of May 5, 1933 (P.L.364) (15 P.S. SS.1806), the undersigned corporation, desiring to amend its Articles, does hereby certify that: 1. The name of the corporation is: Pennsylvania Manufacturers Corporation 2. The location of its registered office in this Commonwealth is (the Department of State is hereby authorized to correct the following statement to conform to the records of the Department): 1021 West Eighth Avenue ----------------------- (NUMBER) (STREET) King of Prussia Pennsylvania 19406 -------------------------------------------------------------------- (CITY) (ZIP CODE) 3. The statute by or under which it was incorporated is: Act of May 5, 1933, P.L. 364, as amended 4. The date of its incorporation is: February 23, 1982 5. (Check, and if appropriate, complete one of the following): /X/ The meeting of the shareholders of the corporation at which the amendment was adopted was held at the time and place and pursuant to the kind and period of notice herein stated. Time: The 25th day of April, 1988 Place: 925 Chestnut Street, Philadelphia, PA Kind and period of notice Written notice (proxy statement); 30 days / / The amendment was adopted by a consent in writing, setting forth the action so taken, signed by all of the shareholders entitled to vote thereon and filed with the Secretary of the corporation. 6. At the time of the action of shareholders: (a) The total number of shares outstanding was: 749,605 shares of Common Stock and 206,511 shares of Class A Common Stock. (b) The number of shares entitled to vote was: 749,605 shares of Common Stock (entitled to cast ten votes per share) and 206,511 shares of Class A Common Stock (entitled to cast one vote per share). 7. In the action taken by the shareholders: (a) The number of shares voted in favor of the amendment was: 652,403 shares of Common Stock and 184,675 shares of Class A Common Stock. (b) The number of shares voted against the amendment was: 11,680 shares of Common Stock and 2,336 shares of Class A Common Stock. 8. The amendment adopted by the shareholders, set forth in full, is as follows: RESOLVED, that the first full paragraph of Article 5 of the Articles of Incorporation of Pennsylvania Manufacturers Corporation shall be amended and restated in its entirety as follows: 5. The aggregate number of shares which the Corporation shall have authority to issue is: Ten Million (10,000,000) shares of Common Stock, $5.00 par value per share (the "Common Stock"), and Ten Million (10,000,000) shares of Class A Common Stock, $5.00 par value per share (the "Class A Common Stock"). IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer and its corporate seal, duly attested by another such officer, to be hereunto affixed this 25th day of April, 1988. PENNSYLVANIA MANUFACTURERS CORPORATION -------------------------------------- (NAME OF CORPORATION) Attest: By: /s/ David L. Johnson By: /s/ Frederick W. Anton ------------------------------- --------------------------------- (SIGNATURE) (SIGNATURE) David L. Johnson, Secretary Frederick W. Anton, III, President - - ----------------------------------- -------------------------------- (TITLE; SECRETARY, (TITLE; PRESIDENT, ASSISTANT SECRETARY, ETC.) VICE PRESIDENT, ETC.) (CORPORATE SEAL) INSTRUCTIONS FOR COMPLETION OF FORM A. Any necessary copies of Form DSCB:17.2 (Consent to Appropriation of Name) or Form DSCB: 17.3 (Consent to Use of Similar Name) shall accompany Articles of Amendment effecting a change of name. B. Any necessary governmental approvals shall accompany this form. C. Where action is taken by partial written consent pursuant to the Articles, the second alternate of Paragraph 5 should be modified accordingly. D. If the shares of any class were entitled to vote as a class, the number of shares of each class so entitled and the number of shares of all other classes entitled to vote should be set forth in Paragraph 6(b). E. If the shares of any class were entitled to vote as a class, the number of shares of such class and the number of shares of all other classes voted for and against such amendment respectively should be set forth in Paragraphs 7(a) and 7(b). F. BCL Section 807 (15 P.S. Section 1807) requires that the corporation shall advertise its intention to file or the filing of Articles of Amendment. Proofs of publication of such advertising should not be delivered to the Department, but should be filed with the minutes of the corporation. Commonwealth of Pennsylvania Department of State To All to Whom These Presents Shall Come, Greeting: Whereas, In and by Article VIII of the Business Corporation Law, approved the fifth day of May, Anno Domini one thousand nine hundred and thirty-three, P.L. 364, as amended, the Department of State is authorized and required to issue a CERTIFICATE OF AMENDMENT evidencing the amendment of the Articles of Incorporation of a business corporation organized under or subject to the provisions of that Law; and Whereas, The stipulations and conditions of that Law pertaining to the amendment of Articles of Incorporation have been fully complied with by PENNSYLVANIA MANUFACTURERS CORPORATION Therefore, Know Ye, That subject to the Constitution of this Commonwealth and under the authority of the Business Corporation Law, I do by these presents, which I have caused to be sealed with the Great Seal of the Commonwealth, extend the rights and powers of the corporation named above, in accordance with the terms and provisions of the Articles of Amendment presented by it to the Department of State, with full power and authority to use and enjoy such rights and powers, subject to all the provisions and restrictions of the Business Corporation Law and all other applicable laws of this Commonwealth. Given under my Hand and the Great Seal of the Commonwealth, at the City of Harrisburg, this 24th day of April in the year of our Lord one thousand nine hundred and eighty-nine and of the Commonwealth the two hundred thirteenth. /s/ James J. Hagerty - ------------------------------ Secretary of the Commonwealth cas DSCB-21 (7-73) COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF STATE CORPORATION BUREAU Filed this day of April 24 1989 Commonwealth of Pennsylvania Department of State /s/ James J. Hagerty Secretary of the Commonwealth (Box for Certification) Articles of Amendment-- Domestic Business Corporation In compliance with the requirements of section 806 of the Business Corporation Law, act of May 5, 1933 (P.L.364) (15 P.S. SS.1806), the undersigned corporation, desiring to amend its Articles, does hereby certify that: 1. The name of the corporation is: Pennsylvania Manufacturers Corporation 2. The location of its registered office in this Commonwealth is (the Department of State is hereby authorized to correct the following statement to conform to the records of the Department): 1021 West Eighth Avenue ----------------------- (NUMBER) (STREET) King of Prussia Pennsylvania 19406 -------------------------------------------------------------------- (CITY) (ZIP CODE) 3. The statute by or under which it was incorporated is: Act of May 5, 1933, P.L. 364, as amended 4. The date of its incorporation is: February 23, 1982 5. (Check, and if appropriate, complete one of the following): /X/ The meeting of the shareholders of the corporation at which the amendment was adopted was held at the time and place and pursuant to the kind and period of notice herein stated. Time: The 17th day of April, 1989 Place: 925 Chestnut Street, Philadelphia, PA Kind and period of notice Written notice (proxy statement); 31 days / / The amendment was adopted by a consent in writing, setting forth the action so taken, signed by all of the shareholders entitled to vote thereon and filed with the Secretary of the corporation. 6. At the time of the action of shareholders: (a) The total number of shares outstanding was: 805,275 shares of Common Stock and 220,725 shares of Class A common Stock. (b) The number of shares entitled to vote was: 805,275 shares of Common Stock (entitled to cast ten votes per share) and 220,725 shares of Class A Common Stock (entitled to cast one vote per share). 7. In the action taken by the shareholders: (a) The number of shares voted in favor of the amendment was: 720,853 shares of Common Stock and 196,822 shares of Class A Common Stock. (b) The number of shares voted against the amendment was: 10,000 shares of Common Stock and 2,000 shares of Class A Common Stock. 8. The amendment adopted by the shareholders, set forth in full, is as follows: RESOLVED, that the first full paragraph of Article 5 of the Articles of Incorporation of Pennsylvania Manufacturers Corporation shall be amended and restated in its entirety as follows: 5. The aggregate number of shares which the Corporation shall have authority to issue is: Twenty Million (20,000,000) shares of Common Stock, $5.00 par value per share (the "Common Stock"), and Twenty Million (20,000,000) shares of Class A Common Stock, $5.00 par value per share (the "Class A Common Stock"). IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer and its corporate seal, duly attested by another such officer, to be hereunto affixed this 17th day of April, 1989. PENNSYLVANIA MANUFACTURERS CORPORATION -------------------------------------- (NAME OF CORPORATION) Attest: By: /s/ David L. Johnson By: /s/ Frederick W. Anton ------------------------------- --------------------------------- (SIGNATURE) (SIGNATURE) David L. Johnson, Secretary Frederick W. Anton, III, President - ------------------------------------ ---------------------------------- (TITLE; SECRETARY, (TITLE; PRESIDENT, ASSISTANT SECRETARY, ETC.) VICE PRESIDENT, ETC.) (CORPORATE SEAL) INSTRUCTIONS FOR COMPLETION OF FORM A. Any necessary copies of Form DSCB:17.2 (Consent to Appropriation of Name) or Form DSCB: 17.3 (Consent to Use of Similar Name) shall accompany Articles of Amendment effecting a change of name. B. Any necessary governmental approvals shall accompany this form. C. Where action is taken by partial written consent pursuant to the Articles, the second alternate of Paragraph 5 should be modified accordingly. D. If the shares of any class were entitled to vote as a class, the number of shares of each class so entitled and the number of shares of all other classes entitled to vote should be set forth in Paragraph 6(b). E. If the shares of any class were entitled to vote as a class, the number of shares of such class and the number of shares of all other classes voted for and against such amendment respectively should be set forth in Paragraphs 7(a) and 7(b). F. BCL Section 807 (15 P.S. Section 1807) requires that the corporation shall advertise its intention to file or the filing of Articles of Amendment. Proofs of publication of such advertising should not be delivered to the Department, but should be filed with the minutes of the corporation. ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION In compliance with the requirements of 15 Pa. C.S. ss. 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is Pennsylvania Manufacturers Corporation 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 1021 West Eighth Avenue King of Prussia Pennsylvania 19046 Montgomery ---------------------------------------------------------------------------- Number and Street City State Zip County (b) c/o: --------------------------------------------------------------------------- Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Act of Assembly approved May 5, 1933, P.S. 364 4. The date of its incorporation is: February 23, 1982 5. (Check, and if appropriate complete, one of the following): X The amendment shall be effective upon filing these Articles of Amendment in the Department of State. __ The amendment shall be effective on _________________ at _______________ Date Hour 6. (Check one of the following): X The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. ss. 1914(a) and (b). __ The amendment was adopted by the board of directors pursuant to 15 Pa. C.S. ss. 1914(c). 7. (Check, and if appropriate complete, one of the following): __ The amendment adopted by the corporation, set forth in full, as follows: X The amendment adopted by the corporation as set forth in full in Exhibit A attached hereto and made a part hereof. 8. (Check if the amendment restates the Articles): __ The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 22nd day of April 1991. PENNSYLVANIA MANUFACTURERS CORPORATION --------------------------------------- (Name of Corporation) BY: /s/ Frederick W. Anton, III ------------------------------- Frederick W. Anton, III TITLE: President ----------------- EXHIBIT A TO ARTICLES OF AMENDMENT OF PENNSYLVANIA MANUFACTURERS CORPORATION The first full paragraph of Article 5 of the Articles of Incorporation of Pennsylvania Manufacturers Corporation is amended and restated to read in its entirety as follows: "5. The aggregate number of shares which the Corporation shall have authority to issue is: Forty Million (40,000,000) shares of Common Stock, $5.00 par value per share (the "Common Stock"), and Forty Million (40,000,000) shares of Class A Common Stock, $5.00 par value per share (the "Class A Common Stock")." STATEMENT OF CHANGE OF REGISTERED OFFICE Indicate type of entity (check one) X Domestic Business Corporation (15 PA.C.S. ss. 1507) - --- Foreign Business Corporation (15 PA.C.S. ss. 4144) - --- Domestic Nonprofit Corporation (15 PA.C.S. ss. 5507) - --- Foreign Nonprofit Corporation (15 PA.C.S. ss. 6144) - --- Domestic Limited Partnership (15 PA.C.S. ss. 8506) - --- In compliance with the requirements of the applicable provisions of 15 Pa.C.S. (relating to corporations and unincorporated associations) the undersigned corporation or limited partnership, desiring to effect a change of registered office, hereby states that: 1. The name of the corporation or limited partnership is: Pennsylvania Manufacturers Corporation ---------------------------------------------------------------------------- 2. The (a) address of this corporation's or limited partnership's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is: (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 1021 W. Eighth Avenue, King of Prussia PA 19406 Montgomery ------------------------------------------------------------------------ Number and Street City State Zip County (b) c/o: -------------------------------------------------------------------- Name of Commercial Registered Office Provider County For a corporation or a limited partnership represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation or limited partnership is located for venue and official publication purposes. 3. (Complete part (a) or (b)): (a) The address to which the registered office of the corporation or limited partnership in this Commonwealth is to be changed is: 380 Sentry Parkway Blue Bell PA 19422-0754 Montgomery ------------------------------------------------------------------------ Number and Street City State Zip County (b) The registered office of the corporation or limited partnership shall be provided by: c/o: -------------------------------------------------------------------- Name of Commercial Registered Office Provider County For a corporation or a limited partnership represented by a commercial registered office provider, the count in (b) shall be deemed the county in which the corporation or limited partnership is located for venue and official publication purposes. 4. (Strike out if a limited partnership): Such change was authorized by the Board of Directors of the corporation. IN TESTIMONY WHEREOF, the undersigned corporation or limited partnership has caused this statement to be signed by a duly authorized officer thereof this 14 day of September, 1974. --- --------- ---- Pennsylvania Manufacturers Corporation ---------------------------------------- (Name of Corporation/Limited Partnership) BY: /s/ Robert Gaffney ------------------------------------ (Signature) TITLE: Secretary --------------------------------- ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION In compliance with the requirements of 15 Pa.C.S. (section) 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: Pennsylvania Manufacturers Corporation ------------------------------------------ - -------------------------------------------------------------------------------- 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) The PMA Building, 380 Sentry Parkway Blue Bell PA 19422 Montgomery ----------------------------------------------------------------------- Number and Street City State Zip County (b) c/o N/A ----------------------------------------------------------------------- Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Act of May 5, 1934, P.L. 364, as amended -------------------- 4. The date of its incorporation is: February 23, 1982 --------------------------------------- 5. (Check, and if appropriate complete, one of the following): X The amendment shall be effective upon filing these Articles of --- Amendment in the Department of State. --- The amendment shall be effective on: at -------------- --------------- Date Hour 6. (Check one of the following): X The amendment was adopted by the shareholders (or members) pursuant to --- 15 Pa.C.S. (section) 1914(a) and (b). --- The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. (section) 1914(c). 7. (Check, and if appropriate, complete one of the following): X The amendment adopted by the corporation, set forth in full, --- as follows: Article 7, the full text of which is set forth in its entirety below, is hereby added to the Amended and Restated Articles of Incorporation of the Corporation: "7. Subchapters E, F, G, H, I and J of Chapter 25 and Sections 2538 and 2539 of Subchapter D of Chapter 25 of the Pennsylvania Business Corporation Law of 1988, as amended, shall not be applicable to the Corporation." --- The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof. 8. (Check if the amendment restates the Articles): The restated articles of Incorporation supercede the original --- Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 25th day of June , 1997. ---------- ----------- ---- Pennsylvania Manufacturers Corporation -------------------------------------- (Name of Corporation) BY: /s/ Francis W. McDonnell ----------------------------------- (Signature) Francis W. McDonnell, Senior Vice President, TITLE: Chief Financial Officer and Treasurer ---------------------------------------------- ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 91) In compliance with the requirements of 15 Pa.C.S. (S) 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: PENNSYLVANIA MANUFACTURERS CORPORATION -------------------------------------- 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) The PMA Building, 380 Sentry Parkway, Blue Bell, Pennsylvania 19422-2328 Montgomery ------------------------------------------------------------------------- Number and Street City State Zip County (b) c/o: N/A ------------------------------------------------------------------------- Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Act of May 5, 1933, P.L. 364, as amended ---------------------------------------- 4. The date of its incorporation is: February 23, 1982 ----------------- 5. (Check, and if appropriate complete, one of the following): The amendment shall be effective upon filing these Articles of Amendment in the Department of State. X The amendment shall be effective on: December 7, 1998 at 12:01 a.m. ---------------- --------- Date Hour 6. (Check one of the following): The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. (S) 1914(a) and (b). X The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. (S) 1914(c). 7. (Check, and if appropriate complete, one of the following): X The amendment adopted by the corporation, set forth in full, is as follows: Resolved, that Article I of the Articles of Incorporation of the Corporation is hereby amended in its entirety, to read as follows: "I. The name of the Corporation is: PMA Capital Corporation." The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof. DSCB:15-1915 (Rev 91)-2 8. (Check if the amendment restates the Articles): The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 1st day of December, 1998. - ------------------------- Pennsylvania Manufacturers Corporation -------------------------------------- (Name of Corporation) BY: /s/ Francis W. McDonnell ---------------------------------- (Signature) Francis W. McDonnell, TITLE: Senior Vice President, Chief Financial Officer and Treasurer ------------------------------- Microfilm Number Filed with the Department of State on DEC 07 1998 ----------- ------------ Entity Number 742680 /s/ Kim Pizzingrilli ------- --------------------------------------- ACTING Secretary of the Commonwealth STATEMENT OF CHANGE OF REGISTERED OFFICE DSCB:15-1507/4144/5507/6144/8506 (Rev 90) Indicate type of entity (check one): X Domestic Business Corporation (15 PA.C.S. ss. 1507) - --- Foreign Business Corporation (15 PA.C.S. ss. 4144) - --- Domestic Nonprofit Corporation (15 PA.C.S. ss. 5507) - --- Foreign Nonprofit Corporation (15 PA.C.S. ss. 6144) - --- Domestic Limited Partnership (15 PA.C.S. ss. 8506) - --- In compliance with the requirements of the applicable provisions of 15 Pa.C.S. (relating to corporations and unincorporated associations) the undersigned corporation or limited partnership, desiring to effect a change of registered office, hereby states that: 1. The name of the corporation or limited partnership is: PMA Capital Corporation ---------------------------------------------------------------------------- 2. The (a) address of this corporation's or limited partnership's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is: (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) The PMA Building, 380 Sentry Parkway Blue Bell Pennsylvania 19422-2328 Montgomery -------------------------------------------------------------------------- Number and Street City State Zip County (b) c/o: -------------------------------------------------------------------- Name of Commercial Registered Office Provider County For a corporation or a limited partnership represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation or limited partnership is located for venue and official publication purposes. 3. (Complete part (a) or (b)): (a) The address to which the registered office of the corporation or limited partnership in this Commonwealth is to be changed is: 1735 Market Street, Suite 2800 Philadelphia Pennsylvania 19103-7590 Philadelphia -------------------------------------------------------------------------- Number and Street City State Zip County (b) The registered office of the corporation or limited partnership shall be provided by: c/o: -------------------------------------------------------------------- Name of Commercial Registered Office Provider County For a corporation or a limited partnership represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation or limited partnership is located for venue and official publication purposes. DSCB:15-1507/4144/5507/6144/8506 (Rev 90)-2 4. (Strike out if a limited partnership): Such change was authorized by the Board of Directors of the corporation. IN TESTIMONY WHEREOF, the undersigned corporation or limited partnership has caused this statement to be signed by a duly authorized officer thereof this 7th day of December, 1998. --- --------- ---- PMA Capital Corporation ---------------------------------------- (Name of Corporation/Limited Partnership) BY: /s/ Francis W. McDonnell ------------------------------------ (Signature) TITLE: Francis W. McDonnell, Senior Vice President, Chief Financial Officer and Treasurer --------------------------------- Microfilm Number -------------------- Filed with the Department of State on April 24, 2000 ----------------- Entity Number -------------------- - ------------------------------- Secretary of the Commonwealth ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 91) In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: PMA Capital Corporation ------------------------ 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 1735 Market Street, Suite 2800 Philadelphia PA 19103-7590 Philadelphia ----------------------------------------------------------------------- Number and Street City State Zip County (b) c/o __________________________________________________________________: Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Pennsylvania Business ----------------------- Corporation Law, Act of May 5, 1933, P.L. 364, as amended - --------------------------------------------------------- 4. The date of its incorporation is: February 23, 1982 ----------------- 5. (Check, and if appropriate complete, one of the following): - --- The amendment shall be effective upon filing these Articles of Amendment in the Department of State. X The amendment shall be effective on: April 24, 2000 at 5:00 P.M. - --- -------------- --------- Date Hour 6. (Check one of the following): X The amendment was adopted by the shareholders (or members) pursuant to 15 - --- Pa., C.S.ss.1914(a) and (b). - --- The amendment was adopted by the board of directors pursuant to 15 Pa. C.S.ss.1914(c). 7. (Check, and if appropriate complete, one of the following): The amendment adopted by the corporation, set forth in full, is as follows: - --- X The amendment adopted by the corporation is set forth in full in Exhibit A - --- attached hereto and made a part hereof. DSCB:15-1915 (Rev 91)-2 8. (Check if the amendment restates the Articles): The restated Articles of Incorporation supersede the original Articles and - --- all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 24th day of ---- April 2000 . - ---------- PMA Capital Corporation ---------------------------------- (Name of Corporation) BY: /s/ Charles A. Brawley, III --------------------------- (Signature) Charles A. Brawley, III TITLE: Vice President -Corporate Counsel EXHIBIT A ARTICLES OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF ---------------------------------------------------------- INCORPORATION OF PMA CAPITAL CORPORATION ---------------------------------------- Article 6 of the Amended and Restated Articles of Incorporation of PMA Capital Corporation (the "Corporation") is deleted in its entirety and Article 5 thereof is amended and restated to read in its entirety as follows: 5. The aggregate number of shares which the corporation shall have authority to issue is: Forty Million (40,000,000) shares of Class A Common Stock, $5.00 par value per share ("Class A Common Stock") and Two Million (2,000,000) shares of Preferred Stock $.01 par value per share ("Preferred Stock"). A. Class A Common Stock Except as otherwise required by the Pennsylvania Business Corporation Law or as otherwise provided in these Articles of Incorporation, with respect to all matters upon which shareholders are entitled to vote or to which shareholders are entitled to give consent, every holder of any outstanding shares of the Class A Common Stock shall be entitled to cast thereon one (1) vote in person or by proxy for each share of the Class A Common Stock standing in his name. In all elections for directors, holders of Class A Common Stock shall not be entitled to cumulate their votes. B. Conversion of the Common Stock. Each share of Common Stock, $5.00 par value per share ("Common Stock"), shall automatically, and without any action by the holder thereof, effective as of 5 p.m. (Eastern Time) on the date of the filing of these Articles of Amendment with the Pennsylvania Department of State ("Effective Time"), be converted into one fully paid and nonassessable share of Class A Common Stock. The issuance of a certificate or certificates for shares of Class A Common Stock, if requested by the holder thereof by reason of the foregoing conversion of shares of Common Stock, shall be made without charge. As of the Effective Time, the holder of any shares of Common Stock shall be treated for all purposes as having become the holder of the identical number of shares of Class A Common Stock at such time and shall have and may exercise all the rights and powers appertaining thereto. No adjustments in respect of past cash dividends shall be made by reason of the foregoing conversion of shares of Common Stock; provided, however, that if any shares of Common Stock shall be converted subsequent to the record date for the payment of a cash or stock dividend or other distribution on shares of Common Stock but prior to such payment, the registered holder of such shares at the close of business on such record date shall be entitled to receive the cash or stock dividend or the distribution payable to holders of the Common Stock. C. Preferred Stock (1) The Preferred Stock may be issued from time to time in one or more series by action of the Board of Directors of the Corporation. The Board of Directors of the Corporation shall have the full authority permitted by the Pennsylvania Business Corporation Law to establish by resolution one or more series, to determine the designation and the number of shares constituting each such series and to determine the voting rights, preferences, limitations, conversion rights and special or relative rights of any series of the Preferred Stock that may be desired. Except as otherwise provided in the terms of any series of the Preferred Stock and subject to the limitation on the total number of shares of Preferred Stock that the Corporation has authority to issue hereunder, the Board of Directors of the Corporation is also authorized to increase or decrease the number of shares of any series, subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolutions originally fixing the number of shares of such series. Without limiting the generality of the foregoing, the Board of Directors of the Corporation shall have full authority with respect to: (a) the designation of the series and the number of shares to constitute each series; (b) the dividend rate on the shares of each series, any conditions on which and times at which dividends are payable, whether dividends shall be cumulative, and the preference or relation (if any) with respect to such dividends (including possible preferences over dividends on the Class A Common Stock or any other class or classes or series of stock); (c) whether the series will be redeemable (at the option of the Corporation or the holders of such shares or both, or upon the happening of a specified event) and, if so, the redemption prices and the conditions and times upon which redemption may take place and whether for cash, property or rights, including securities of the Corporation or another corporation; (d) the terms and amount of any sinking, retirement or purchase fund; (e) the conversion or exchange rights (at the option of the Corporation or the holders of such shares or both, or upon the happening of a specified event), if any, including the conversion or exchange price and other terms of conversion or exchange; (f) the voting rights, if any (other than any voting rights that the Preferred Stock may have as a matter of law); (g) any restrictions on the issue or reissue or sale of additional Preferred Stock; (h) the rights of the holders upon voluntary or involuntary liquidation of the Corporation (including preferences, if any, over the Class A Common Stock or any other class or classes or series of stock); (i) the preemptive rights, if any, to subscribe to additional issues of stock or securities of the Corporation; and (j) such other special rights and privileges, if any, for the benefit of the holders of the Preferred Stock, as shall not be inconsistent with provisions of these Articles of Incorporation. (2) All shares of Preferred Stock of the same series shall be identical in all respects, except that shares of any one series issued at different times may differ as to dates, if any, from which dividends thereon may accumulate. All shares of Preferred Stock of each series shall be of equal rank and shall be identical in all respects except that any series may differ from any other series with respect to any one or more of the designations, relative rights, preferences and limitations described or referred to in subparagraph 5.C.(1) hereof. Microfilm Number -------------------- Filed with the Department of State on May 3, 2000 ------------ Entity Number -------------------- - ------------------------------- Secretary of the Commonwealth STATEMENT WITH RESPECT TO SHARES-DOMESTIC BUSINESS CORPORATION DSCB:15-1522 (Rev 90) In compliance with the requirements of 15 Pa.C.S. ss. 1522(b) (relating to statement with respect to shares), the undersigned corporation, desiring to state the designation and voting rights, preferences, limitations, and special rights, if any, of a class or series of its shares, hereby states that: 1. The name of the corporation is: PMA Capital Corporation ------------------------ 2. (Check and complete one of the following): The resolution amending the Articles under 15 Pa.C.S.ss. 1522(b) (relating - -- to divisions and determinations by the board), set forth in full, is as follows: X The resolution amending the Articles under 15 Pa.C.S.ss. 1522(b) is set - -- forth in full in Exhibit A attached hereto and made a part hereof. 3. The aggregate number of shares of such class or series established and designated by (a) such resolution, (b) all prior statements, if any, filed under 15 Pa.C.S.ss. 1522 or corresponding provisions of prior law with respect thereto, and (c) any other provision of the Articles is 2,000,000 --------- shares of preferred stock and 40,000 shares of Series A Junior Participating Preferred Stock. 4. The resolution was adopted by the Board of Directors or an authorized committee thereof on: May 3, 2000 ------------- 5. (Check, and if appropriate complete, one of the following): The resolution shall be effective upon the filing of this statement with respect to shares in the Department of State. X The amendment shall be effective on: May 3, 2000 at 5:00 P.M. - -- ----------- --------- Date Hour IN TESTIMONY WHEREOF, the undersigned corporation has caused this statement to be signed by a duly authorized officer thereof this 3rd day of May, 2000. PMA Capital Corporation ---------------------------------- (Name of Corporation) BY: /s/ Charles A. Brawley, III --------------------------- (Signature) Charles A. Brawley, III TITLE: Vice President and Corporate Counsel EXHIBIT A ATTACHED TO STATEMENT WITH RESPECT TO SHARES-DOMESTIC BUSINESS CORPORATION -------------------------------------------------------------- RESOLUTIONS OF THE BOARD OF DIRECTORS OF PMA CAPITAL CORPORATION ESTABLISHING GENERAL TERMS OF PREFERRED STOCK AND DESIGNATING FIRST SERIES THEREOF ENTITLED "SERIES A JUNIOR PARTICIPATING PREFERRED STOCK" A. General Terms of Preferred Stock -------------------------------- RESOLVED, that pursuant to the authority expressly vested in the Board of Directors of PMA Capital Corporation (herein called the "Corporation") by Article 5 of the Amended and Restated Articles of Incorporation of the Corporation, ("Articles of Incorporation") the Board of Directors hereby fixes and determines the number of shares and the voting rights, designations, preferences, limitations and special rights applicable to all shares of all series of the class of stock hereby designated as the "Preferred Stock" as follows: Section 1. General. The class of Preferred Stock shall consist of 2,000,000 shares, par value $.01 per share. The shares of Preferred Stock may be divided into and issued in series from time to time. All shares of any particular series Preferred Stock shall be identical to all other shares of that series. Except as otherwise subordinated in a resolution or resolutions of the Board of Directors creating a series of the Preferred Stock (any such resolution referred to hereinafter as an "Adopting Resolution"), all shares of Preferred Stock of all series shall rank ratably as to dividends and assets according to the respective rates and amounts provided in this resolution and in any Adopting Resolution. B. Specific Terms of Series A Junior Participating Preferred Stock --------------------------------------------------------------- RESOLVED, that pursuant to the authority expressly vested in the Board of Directors of the Corporation by Article 5 of the Articles of Incorporation, the Board of Directors hereby fixes and determines the number of shares and the voting rights, designations, preferences, limitations and special rights of shares of a series of Preferred Stock, by establishing and designating such series as follows: Section 1. Designation. There shall be a series of Preferred Stock which shall consist of 40,000 shares and designated as the "Series A Junior Participating Preferred Stock" (such series being herein called the "Series A Preferred Stock"). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Definitions. ------------ (A) The term "Common Stock" as used in this resolution shall be deemed to mean the Class A Common Stock of the Corporation and stock of the Corporation of any class, whether now or hereafter authorized, which has the right to participate in the distribution of either earnings or assets of the Corporation without limit as to the amount or percentage. (B) The term "Dividend Parity Stock" as used in this resolution with respect to Series A Preferred Stock shall be deemed to mean all other stock of the Corporation ranking equally therewith as to the payment of dividends. The term "Liquidation Parity Stock" as used in this resolution with respect to Series A Preferred Stock shall be deemed to mean all other stock of the Corporation ranking equally therewith as to distribution of assets upon liquidation. (C) The term "Junior Stock" as used in this resolution with respect to Series A Preferred Stock shall be deemed to mean the Common Stock and all other stock of the Corporation ranking junior to the Series A Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation. (D) The term "Senior Stock" as used in this resolution with respect to Series A Preferred Stock shall be deemed to mean all other stock of the Corporation ranking senior to the Series A Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation. Section 3. Dividends and Distributions. --------------------------- (A) Subject to the rights of the holders of any shares of any class of Senior Stock, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock and of any other Junior Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 10th day of January, April, July and October in each year (or, in each case if not a date the Corporation is open for business, the next date on which the Corporation is so open) (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, one thousand times the aggregate per share amount of all cash dividends, and one thousand times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment 2 of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 90 days prior to the date fixed for the payment thereof. Section 4. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to one thousand votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which 3 is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event; provided, however, that in no event shall any share of Series A Preferred Stock have more than one thousand votes per share. (B) Except as otherwise provided herein, in any other Adopting Resolution, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 5. Certain Restrictions. -------------------- (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 3 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (1) declare or pay dividends or make any other distributions, on any shares of Junior Stock; (2) declare or pay dividends, or make any other distributions, on any shares of Dividend Parity Stock, except dividends paid ratably on the Series A Preferred Stock and all such Dividend Parity Stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (3) redeem or purchase or otherwise acquire for consideration shares of any Junior Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such Junior Stock in exchange for shares of any other class of Junior Stock; or (4) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of Dividend Parity Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. 4 (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 5, purchase or otherwise acquire such shares at such time and in such manner. Section 6. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Adopting Resolution creating another series of Preferred Stock or as otherwise required by law. Section 7. Liquidation, Dissolution or Winding Up. -------------------------------------- (A) Upon any liquidation, dissolution or winding up (collectively a "Liquidation") of the Corporation, no distribution shall be made (1) to the holders of shares of Junior Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision of adjustment hereinafter set forth, equal to one thousand times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of Dividend Parity Stock, except distributions made ratably on the Series A Preferred Stock and all such Dividend Parity Stock in proportion to the total amounts to which the holders of all such shares are entitled upon Liquidation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the provision in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) None of the following shall be considered a Liquidation within the meaning of this section: (1) a consolidation or merger of the Corporation with or into any other corporation; (2) a merger of any other corporation into the Corporation; (3) a reorganization of the Corporation; (4) the purchase or redemption of all or part of the outstanding shares of any class or classes of the Corporation; 5 (5) a sale or transfer of all or any part of the assets of the Corporation; (6) a share exchange to which the Corporation is a party; or (7) a division of the Corporation Section 8. Consolidation, Merger etc. In case the Corporation shall enter into any consolidation, merger, division, share exchange, business combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, or a combination thereof, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to one thousand times the aggregate amount of stock, securities, cash or any other property, or a combination thereof (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 9. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 10. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, junior to all other classes of Preferred Stock (and series thereof) of the Corporation, whether now or hereafter authorized. Section 11. Amendment. The Articles of Incorporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. PH3-638400-8 6 EX-3.2 3 AMENDED AND RESTATED BYLAWS OF PMA CAPITAL CORPORATION Table of Contents Article/Section Title Page No Article 1 Corporate Office ................................... 1 Section 1.1 Registered Office .................................. 1 Section 1.2 Other Offices ...................................... 1 Article 2 Shareholder; Share Certificates .................... 1 Section 2.1 Shares; Share Certificates ........................ 1 Section 2.2 Lost Certificates .................................. 1 Section 2.3 Transfer of Shares ................................ 1 Section 2.4 Transfer Agents and Registrars .................... 2 Section 2.5 Transfer Rules .................................... 2 Section 2.6 Uncertificated Shares ............................. 2 Article 3 Shareholders Meetings ............................. 2 Section 3.1 Place of Meeting .................................. 2 Section 3.2 Annual Meetings ................................... 2 Section 3.3 Special Meetings .................................. 2 Section 3.4 Notice of Meetings ................................ 2 Section 3.5 Notice of Meeting Not Required .................... 2 Section 3.6 Electronic Shareholder Meetings ................... 3 Section 3.7 Nomination of Directors ........................... 3 Section 3.8 Notice of Shareholder Business .................... 4 Article 4 Quorum of Shareholders ............................ 5 Section 4.1 Requirement of Quorum ............................. 5 Section 4.2 Quorum ............................................ 5 Section 4.3 Continuation of Business .......................... 6 Section 4.4 Adjournments ...................................... 6 Section 4.5 Limits on Adjournments ............................ 6 Section 4.6 Votes Necessary ................................... 6 Article 5 Proxies ........................................... 6 Section 5.1 Proxies; Revocability ............................. 6 Section 5.2 Multiple Proxies .................................. 7 Article 6 Record Date ....................................... 7 Section 6.1 Fixing of Record Date ............................. 7 Article 7 Shareholder List .................................. 7 Section 7.1 Shareholder List .................................. 7 Section 7.2 Validity of Action ................................ 7 Section 7.3 Transfer Books .................................... 7 Section 7.4 Registered Shareholders ........................... 7 Article 8 Judges of Election ................................ 8 Section 8.1 Appointment ....................................... 8 Section 8.2 Vacancy ........................................... 8 Section 8.3 Duties ............................................ 8 Section 8.4 Reports ........................................... 8 Article 9 No Consent of Shareholders in Lieu of Meeting 8 Section 9.1 No Action by Consent .............................. 8 Article 10 Directors ......................................... 9 Section 10.1 Number; Powers .................................... 9 Section 10.2 Election .......................................... 9 Section 10.3 Qualification ..................................... 9 Section 10.4 Meeting without Notice ............................ 9 Section 10.5 Regular Meetings .................................. 9 Section 10.6 Special Meetings .................................. 9 Section 10.7 Quorum ............................................ 9 Section 10.8 Electronic Meetings ............................... 9 Article 11 Removal of Directors .............................. 10 Section 11.1 Removal by Shareholders ........................... 10 Section 11.2 Declared Vacancies ................................. 10 Section 11.3 Removal of Board .................................. 10 Article 12 Vacancies in the Board of Directors ............... 10 Section 12.1 Filling Vacancies .................................. 10 Section 12.2 Vacancies; Resignations ........................... 10 Article 13 Director Action by Unanimous Written Consent ....... 10 Section 13.1 Unanimous Consent ................................. 10 Article 14 Compensation of Directors ......................... 11 Section 14.1 Compensation ...................................... 11 Article 15 Committees ........................................ 11 Section 15.1 Establishment ..................................... 11 Section 15.2 Executive Committees .............................. 11 Section 15.3 Audit Committee ................................... 11 Section 15.4 Alternative Members ............................... 12 Section 15.5 Status of Committee Action ........................ 12 Article 16 Liability of Directors ............................ 12 Section 16.1 Fiduciary Duties .................................. 12 Section 16.2 Fiduciary Duties; Consideration ................... 12 Section 16.3 Presumption of Good Faith ......................... 13 Section 16.4 No Personal Liability; Exceptions................... 13 Section 16.5 Amendments ........................................ 13 Article 17 Officers .......................................... 13 Section 17.1 Numbers and Qualifications ........................ 13 Section 17.2 Election; Resignation ............................. 13 Section 17.3 Actions in Good Faith ............................. 14 Section 17.4 Removal ........................................... 14 Section 17.5 Voting of Stock in Other Corporations .............. 14 Article 18 Duties of Officers ................................ 14 Section 18.1 Chairman of the Board ............................. 14 Section 18.2 President ......................................... 14 Section 18.3 Vice President .................................... 15 Section 18.4 Secretary ......................................... 15 Section 18.5 Treasurer ......................................... 15 Section 18.6 Assistant Secretary ............................... 15 Section 18.7 Assistant Treasurer ............................... 15 Section 18.8 Assistant Officers ................................ 15 Section 18.9 Bonds ............................................. 15 Section 18.10 Designations ...................................... 16 Article 19 Indemnification of Officers, Directors, Employees, and Agents .............................. 16 Section 19.1 Indemnification ................................... 16 Section 19.2 Non-Exclusivity .................................... 16 Section 19.3 Expenses .......................................... 16 Section 19.4 Continuation ...................................... 16 Section 19.5 Securing Obligations .............................. 16 Section 19.6 Separate Agreement ................................ 17 Section 19.7 Defense of Claims ................................. 17 Section 19.8 Insurance ......................................... 17 Section 19.9 Amendment ......................................... 18 Article 20 Fiscal Year ....................................... 18 Section 20.1 Fiscal Year ....................................... 18 Article 21 Notices ........................................... 18 Section 21.1 Manner of Giving Written Notice ................... 18 Section 21.2 Waiver of Notice .................................. 18 Article 22 Amendments ........................................ 19 Section 22.1 Amendments Requiring Shareholder Approval ......... 19 Section 22.2 Amendments Requiring Notice ....................... 19 Section 22.3 Other Amendments .................................. 19 AMENDED AND RESTATED BYLAWS OF PMA CAPITAL CORPORATION ARTICLE 1 Corporate Office Section 1.1 Registered Office. The Corporation shall have and continuously maintain in the Commonwealth of Pennsylvania a registered office at an address to be designated from time to time by the Board of Directors which may, but need not, be the same as its place of business. Section 1.2 Other Offices. The Corporation may also have offices at such other places as the Board of Directors may from time to time designate or the business of the Corporation may require. ARTICLE 2 Shareholders; Share Certificates Section 2.1 Shares; Share Certificates. Except as set forth in Section 2.6, all shares issued by the Corporation shall be represented by certificates. The share certificates of the Corporation shall be numbered and registered in a share register as they are issued; shall state that the Corporation is incorporated under the laws of the Commonwealth of Pennsylvania; shall bear the name of the registered holder, the number and class of shares and the designation of the series, if any, represented thereby, the par value, if any, of each share or a statement that the shares are without par value, as the case may be; shall be signed by the President or a Vice President, and the Secretary or the Treasurer or any other person properly authorized by the Board of Directors, and shall bear the corporate seal, which seal may be facsimile engraved or printed. Where the certificate is signed by a transfer agent or a registrar, the signature of any corporate officer on such certificate may be a facsimile engraved or printed. In case any officer who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer because of death, resignation or otherwise before the certificate is issued, such share certificate may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the date of its issue. Section 2.2 Lost Certificates. Duplicate certificates may be issued for those lost or destroyed, under such terms as may be prescribed by the Board of Directors. Section 2.3 Transfer of Shares. Upon surrender to the Corporation or the transfer agent of the Corporation of a share certificate duly endorsed by the person named in the certificate or by attorney duly appointed in writing and accompanied where necessary by the proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto and the old certificate canceled and the transfer recorded on the share register of the Corporation. A transferee of shares of the Corporation shall not be a record holder of such shares entitled to the rights and benefits associated therewith unless and until the share transfer has been recorded on the share transfer books of the Corporation. No transfer shall be made if it would be inconsistent with the provisions of (i) Article 8 of the Pennsylvania Uniform Commercial Code or (ii) Article 2 of these Bylaws. -1- Section 2.4 Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. Section 2.5 Transfer Rules. The Board of Directors may make such additional rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. Section 2.6 Uncertificated Shares. Notwithstanding anything herein to the contrary, any or all classes and series of shares, or any part thereof, may be represented by uncertificated shares to the extent determined by the Board of Directors, except that shares represented by a certificate that is issued and outstanding shall continue to be represented thereby until the certificate is surrendered to the Corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof, a written notice containing the information required to be set forth or stated on certificates. The rights and obligations of the holders of shares represented by certificates and the rights and obligations of the holders of uncertificated shares of the same class and series shall be identical. Notwithstanding anything herein to the contrary, the provisions of Section 2.3 shall be inapplicable to uncertificated shares and in lieu thereof the Board of Directors shall adopt alternative procedures for registration of transfers. ARTICLE 3 Shareholders Meetings Section 3.1 Place of Meetings. All meetings of the shareholders shall be held at such time and place, within or without the Commonwealth of Pennsylvania, as may be determined from time to time by the Board of Directors and need not be held at the registered office of the Corporation. Section 3.2 Annual Meetings. An annual meeting of the shareholders for the election of directors and the transaction of such other business as may properly be brought before the meeting shall be held in each calendar year at such time and place as may be determined by the Board of Directors. Section 3.3 Special Meetings. Special meetings of the shareholders, may be called at any time only by the Chairman, President or the Board of Directors. Section 3.4 Notice of Meetings. Written notice of each meeting other than an adjourned meeting of shareholders, stating the place and time, and, in the case of a special meeting of shareholders, the general nature of the business to be transacted, shall be provided to each shareholder of record entitled to vote at the meeting at such address as appears on the books of the Corporation. Business transacted at any special meeting shall be limited to the purposes stated in the notice. Such notice shall be given, in accordance with the provisions of Article 21 of these Bylaws, at least (i) ten days prior to the day named for a meeting to consider a fundamental change under Chapter 19 of the Pennsylvania Business Corporation Law of 1988 (the "BCL") or (ii) five days prior to the day named for the meeting in any other case. Section 3.5 Notice of Meeting Not Required. Whenever the Corporation has been unable to communicate with a shareholder for more than 24 consecutive months because communications to the shareholder are returned unclaimed or the shareholder has otherwise failed to provide the Corporation with a current address, the giving of notice to such shareholder pursuant to Section 3.4 of these Bylaws shall not be required. Any action or meeting that is taken or held without notice or -2- communication to that shareholder shall have the same validity as if the notice or communication had been duly given. Whenever a shareholder provides the Corporation with a current address this Section 3.5 shall cease to be applicable to such shareholder. The Corporation shall not be required to give notice to any shareholder pursuant to Section 3.4 hereof if and for as long as communication with such shareholder is unlawful. Section 3.6 Electronic Shareholder Meetings. The Board of Directors may provide by resolution with respect to a specific meeting or with respect to a class of meetings that one or more shareholders may participate in such meeting or meetings of shareholders by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear one another. Participation in the meeting by such means shall constitute presence in person at the meeting. Any notice otherwise required to be given in connection with any meeting at which participation by conference telephone or other communications equipment is permitted shall so specify. Section 3.7 Nomination of Directors. (a) Nominations of persons for election to the Board of Directors of the Corporation may be made at an annual meeting of shareholders (x) by or at the direction of the Board of Directors or by a Nominating Committee appointed by the Board of Directors and consisting of directors continuing in office (the "Nominating Committee") or (y) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section 3.7(a), who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3.7(a). Such nominations, other than those made by or at the direction of the Board of Directors or Nominating Committee, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so received not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the earlier of the date on which public announcement of the date of the meeting is first made or the date the notice of the meeting is first mailed to shareholders. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (x) as to each person whom the shareholder proposes to nominate for election or reelection as a director the name and address of such person and all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (y) as to the shareholder giving notice (i) the name and address of the shareholder as they appear on the Corporation's share transfer books who intends to make the nomination ("Nominating Shareholder"); (ii) the name and address of the beneficial owner, if different than the Nominating Shareholder, of any of the shares owned of record by the Nominating Shareholder ("Beneficial Holder"); (iii) the number of shares of each class and series of shares of the Corporation which are owned of record and beneficially by the Nominating Shareholder and the number which are owned beneficially by any Beneficial Holder; (iv) a description of all arrangements and understandings between the Nominating Shareholder and any Beneficial Holder and any other person or persons (naming such person or persons) pursuant to which the -3- nomination is being made; and (v) a representation that the Nominating Shareholder is at the time of giving of the notice, was or will be on the record date for the meeting, and will be on the meeting date a holder of record of shares of the Corporation entitled to vote at such meeting, and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice. No person shall be eligible for election at any meeting of shareholders as a director of the Corporation unless nominated in compliance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in compliance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nominations shall be disregarded. Notwithstanding the foregoing provisions of this Section, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.7. (b) Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (x) by or at the direction of the Board of Directors or by the Nominating Committee or (y) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section 3.7(b) who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3.7(b). In the event the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons ( as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the shareholder's notice in the form required by Section 3.7(a) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the earlier of the date on which public announcement is first made of the date of the special meeting or the date the notice of the special meeting is first mailed to shareholders. In no event shall the pubic announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (c) For purposes of this Section 3.7, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, PR Newswire, Associate Press or comparable national news or wire service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act. Section 3.8 Notice of Shareholder Business. At the annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be a proper subject for shareholder action under these Bylaws and Pennsylvania law and must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the annual meeting by a shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section and who shall be entitled to vote at the meeting. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or -4- more than 60 days after such anniversary date, notice by the shareholder, to be timely, must be so received not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the earlier of the date on which public announcement of the date of the annual meeting is first made or the date notice of the meeting is first mailed to shareholders. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for giving of a shareholder's notice as described above. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) the name and address of the shareholder as it appears on the Corporation's share transfer books who intends to bring the business before the annual meeting ("Proposing Shareholder"); (b) the name and address of the beneficial owner, if different than the Proposing Shareholder, of any of the shares owned of record by the Proposing Shareholder ("Beneficial Owner"); (c) the number of shares of each class and series of shares of the Corporation which are owned of record and beneficially by the Proposing Shareholder and the number which are owned beneficially by any Beneficial Owner; d) any interest (other than an interest solely as a shareholder) which the Proposing Shareholder or a Beneficial Owner has in the business being proposed by the Proposing Shareholder; e) a description of all arrangements and understandings between the Proposing Shareholder and any Beneficial Owner and any other person or persons (naming such person or persons) pursuant to which the proposal in the Shareholder Notice is being made; (f) a description of the business which the Proposing Shareholder seeks to bring before the annual meeting, the reason for doing so and, if a specific action is to be proposed, the text of the resolution or resolutions which the Proposing Shareholder proposes that the Corporation adopt; and (g) a representation that the Proposing Shareholder is at the time of giving the Shareholder Notice, was or will be on the record date for the meeting, and will be on the meeting date a holder of record of shares of the Corporation entitled to vote at such meeting, and intends to appear in person or by proxy at the meeting to bring the business specified in the shareholder notice before the meeting. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in compliance with the procedures set forth in this Section 3.8. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in compliance with the provisions of this Section 3.8, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. At any special meeting of shareholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. For purposes of this Section 3.8, "public announcement" shall have the same meaning as set forth in Section 3.7(c). ARTICLE 4 Quorum of Shareholders Section 4.1 Requirement of Quorum. A meeting of shareholders duly called shall not be organized for the transaction of business unless a quorum is present. Section 4.2 Quorum. The presence, in person or by proxy, of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter to be voted upon at the meeting shall constitute a quorum for purposes of consideration and action on such matters. To the extent that a quorum is present with respect to consideration of and action on a particular matter or matters but a quorum is not present as to another matter or matters, consideration of an action on the matter or matters for which a quorum is present may occur and, after such consideration and action, the meeting may be adjourned for purposes of the consideration of and action on the matter or matters for which a quorum is not present. -5- Section 4.3 Continuation of Business. The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 4.4 Adjournments. If a meeting of shareholders cannot be organized because a quorum is not present, those present in person or by proxy, may, except as otherwise provided by statute, adjourn the meeting to such time and place as they may determine, without notice other than an announcement at the meeting, until the requisite number of shareholders for a quorum shall be present in person or by proxy. Section 4.5 Limits on Adjournments. Notwithstanding the provisions of Sections 4.1, 4.2, 4.3 and 4.4 of these Bylaws: (1) Any meeting at which directors are to be elected may be adjourned only from day to day, or for such longer periods not exceeding 15 days each, as the shareholders present and entitled to vote shall direct. (2) Those shareholders entitled to vote who attend a meeting called for election of directors that has been once previously adjourned for lack of a quorum, although less than a quorum as fixed in these Bylaws, shall nevertheless constitute a quorum for the purpose of electing directors. (3) Those shareholders entitled to vote who attend a meeting that has been previously adjourned for one or more periods aggregating at least 15 days because of an absence of a quorum, although less than a quorum as fixed in these Bylaws, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the meeting if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for the purpose of acting upon the matter. Section 4.6 Votes Necessary. Except as otherwise provided by statute, the Articles of Incorporation or these Bylaws, at any duly organized meeting of shareholders, the affirmative vote of a majority of the votes cast by all shareholders entitled to vote thereon shall decide any question brought before such meeting, and, if any shareholders are entitled to vote thereon as a class, the affirmative vote of a majority of the votes by the shareholders entitled to vote as a class shall decide any such question. ARTICLE 5 Proxies Section 5.1 Proxies; Revocability. Every shareholder entitled to vote at a meeting of shareholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or his duly authorized attorney-in-fact and filed with the Secretary of the Corporation. A proxy, unless coupled with an interest shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until written notice thereof has been given to the Secretary of the Corporation. An unrevoked proxy shall not be valid after three years from the date of its execution unless a longer time is expressly -6- provided therein. A proxy shall not be revoked by the death or incapacity of the maker, unless before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the Corporation. Section 5.2 Multiple Proxies. Where two or more proxies of a shareholder are present, the Corporation shall, unless otherwise expressly provided in the proxy, accept as the vote of all shares represented thereby the vote cast by a majority of them and, if a majority of the proxies cannot agree whether the shares represented shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among those persons. ARTICLE 6 Record Date Section 6.1 Fixing of Record Date. The Board of Directors may fix a time prior to the date of any meeting of shareholders as a record date for the determination of the shareholders entitled to notice of, or to vote at, the meeting, which time, except in the case of an adjourned meeting, shall not be more than 90 days prior to the date of the meeting of shareholders. Only shareholders of record on the date so fixed shall be entitled to notice of, or to vote at, such meeting, notwithstanding any transfer of shares on the books of the Corporation after any record date fixed as aforesaid. The Board of Directors may similarly fix a record date for the determination of shareholders of record for any other purpose, such as the payment of a distribution or conversion or exchange of shares. ARTICLE 7 Shareholder List Section 7.1 Shareholder List. The officer or agent having charge of the share transfer books of the Corporation shall make a complete alphabetical list of the shareholders entitled to vote at any meeting, with their addresses and the number of shares held by each. The list shall be produced and kept open at the time and place of the meeting for inspection by any shareholder during the entire meeting except that if the Corporation has 5,000 or more shareholders, in lieu of the making of the list the Corporation may make the information available at the meeting by other means. Section 7.2 Validity of Action. Failure to comply with the provisions of Section 7.1 of these Bylaws shall not affect the validity of any action taken at a meeting prior to a demand at the meeting by any shareholder entitled to vote thereat to examine the list. Section 7.3 Transfer Books. The original transfer books for shares of the Corporation, or a duplicate thereof kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to who are the shareholders entitled to examine the list or transfer books for shares or to vote at any meeting. Section 7.4 Registered Shareholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of a share of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments, if any, a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any -7- equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the BCL. ARTICLE 8 Judges of Election Section 8.1 Appointment. Prior to any meeting of shareholders, the Board of Directors may appoint judges of election, who may but need not be shareholders, to act at such meeting or any adjournment thereof. If judges of election are not so appointed, the presiding officer of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of judges shall be one or three. No person who is a candidate for an office to be filled at the meeting shall act as a judge of election. Section 8.2 Vacancy. In case any person appointed as a judge of election fails to appear or fails or refuses to act, the vacancy so created may be filled by appointment made by the Board of Directors in advance of the convening of the meeting or at the meeting by the presiding officer thereof. Section 8.3 Duties. The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies. The judges of election shall also receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result and do such other acts as may be proper to conduct the election or vote with fairness to all shareholders. The judges of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as practicable. If there are three judges of election, the decision, act or certificate of a majority shall be the decision, act or certificate of all. Section 8.4 Reports. On request of the presiding officer of the meeting or of any shareholder, the judges of election shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts found by them. ARTICLE 9 No Consent of Shareholders in Lieu of Meeting Section 9.1 No Action by Consent. No action of the shareholders shall be taken by either unanimous consent or partial consent or other consent in lieu of a meeting. -8- ARTICLE 10 Directors Section 10.1 Number; Powers. The business and affairs of the Corporation shall be managed under the direction of a Board of Directors of not less than 9 or more than 24 directors. The number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by the Board of Directors. The Board of Directors shall be divided into three classes consisting of as nearly equal in number of directors as possible, and directors of each class shall be elected for a term of three years and until their successors are elected and qualified or until their earlier death, resignation or removal. A decrease in the number of directors shall not have the effect of shortening the term of any incumbent director. The Board of Directors shall increase or decrease the number of directors in one or more classes as may be appropriate whenever it increases or decreases the number of directors that constitute the full Board of Directors in order to ensure that the three classes shall be as nearly equal in number of directors as possible. The Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are required or permitted to be exercised and done by statute, the Articles of Incorporation or these Bylaws. Section 10.2 Election. In all elections of directors, each shareholder, or his proxy, shall be entitled to the number of votes to which the shares of stock owned by him are entitled to cast under the Articles of Incorporation of the Corporation and shall not be entitled to cumulate his votes. Section 10.3 Qualification. Each director shall be a natural person of at least 18 years of age and need not be a resident of the Commonwealth of Pennsylvania or a shareholder of the Corporation. The Board may adopt such policies regarding qualifications for directors as it deems appropriate. Section 10.4 Meeting without Notice. A meeting of the Board of Directors may be held immediately following the annual meeting of shareholders at which directors have been elected without the necessity of notice to the directors. Section 10.5 Regular Meetings. Regular Meetings of the Board of Directors shall be held at such times and places within or without the Commonwealth of Pennsylvania as may be designated by the Board of Directors or in the notice of meeting. Section 10.6 Special Meetings. A special meeting of the Board of Directors may be called at any time by the Chairman of the Board or the President on 24 hours' notice to each director, either by telephone, or if in writing, in accordance with Article 21 of these Bylaws and shall be called by either of them or, in their absence, by the Secretary, upon the written request of three members of the Board of Directors. Such special meeting of the Board of Directors shall be held at a time and place designated in the notice. Section 10.7 Quorum. A majority of the directors then in office shall constitute a quorum for the transaction of business at any regular or special meeting of the Board of Directors, and the acts of a majority of the directors present and voting at a meeting at which a quorum is present shall be the acts of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these Bylaws. Section 10.8 Electronic Meetings. One or more directors may participate in any meeting of the Board of Directors, or of any committee thereof, by means of a conference telephone or similar -9- communications equipment by means of which all persons participating in the meeting can hear one another. Participation in a meeting by such means shall constitute presence in person at the meeting. ARTICLE 11 Removal of Directors Section 11.1 Removal by Shareholders. Except as otherwise provided in Section 11.3 of these Bylaws, the entire Board of Directors, or any class of the Board of Directors or any individual director, may be removed from office by vote of the shareholders entitled to vote thereon only for cause. If any directors are so removed, new directors may be elected at the same meeting. Section 11.2 Declared Vacancies. The Board of Directors may declare vacant the office of a director who has been judicially declared of unsound mind or who has been convicted of an offense punishable by imprisonment for a term of more than one year. Section 11.3 Removal of Board. The Board of Directors may be removed at any time with or without cause by the unanimous vote of shareholders entitled to vote thereon. ARTICLE 12 Vacancies in the Board of Directors Section 12.1 Filling Vacancies. Vacancies in the Board of Directors occurring for any reason, including vacancies resulting from an increase in the number of directors, shall be filled by a majority vote of the remaining members of the Board of Directors, though less than a quorum, or by a sole remaining director, and each person so elected shall be a director to serve for the balance of the unexpired term and until his successor has been elected and qualified or until his earlier death, resignation or removal. Section 12.2 Vacancies; Resignations. When one or more directors resign from the Board of Directors effective at a future date, the directors then in office, including those who have so resigned, shall have the power by a majority vote to fill the vacancies, the vote thereon to take effect when the resignations become effective. ARTICLE 13 Director Action by Unanimous Written Consent Section 13.1 Unanimous Consent. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if, prior or subsequent to the action, a consent or consents thereto signed by all of the directors is filed with the Secretary of the Corporation. -10- ARTICLE 14 Compensation of Directors Section 14.1 Compensation. Directors, as such, may receive a stated salary for their services or a fixed sum and expenses for attendance at regular and special meetings, or any combination of the foregoing as may be determined from time to time by resolution of the Board of Directors, and nothing contained herein shall be construed to preclude any director from receiving compensation for services rendered to the Corporation in any other capacity. ARTICLE 15 Committees Section 15.1 Establishment. The Board of Directors may, by resolution adopted by a majority of the directors in office, establish one or more committees consisting of one or more directors as may be deemed appropriate or desirable by the Board of Directors to serve at the pleasure of the Board. Any committee, to the extent provided in the resolution of the Board of Directors pursuant to which it was created, shall have and may exercise all of the powers and authority of the Board of Directors, except that no committee shall have any power or authority as to the following: (1) The submission to shareholders of any action requiring approval of shareholders; (2) The creation or filling of vacancies in the Board of Directors; (3) The adoption, amendment or repeal of these Bylaws; (4) The amendment or repeal of any resolution of the Board of Directors that by its terms is amendable or repealable only by the Board of Directors; and (5) Action on matters committed by the Bylaws or resolution of the Board of Directors to another committee of the Board of Directors, except that the Executive Committee of the Board of Directors may take action upon a subject matter committed by the Bylaws or resolution of the Board of Directors to another committee of the Board of Directors, unless the Bylaws or resolution of the Board of Directors expressly provides that another committee shall have exclusive authority with respect to such matters. Section 15.2 Executive Committee. There shall be an Executive Committee, which shall consist of at least three (3) and not more than six (6) directors. The Executive Committee shall have supervision of all business of the Corporation and shall have the authority in between the time of regular meetings of the Board of Directors to exercise all powers of the Corporation and do all such lawful acts and things as are required or permitted to be exercised and done by statute, the Articles of Incorporation or these Bylaws. The Executive Committee shall have the power to create offices and titles as deemed desirable or advisable. The holders of such offices need not be directors of the Corporation. Section 15.3 Audit Committee. There shall be an Audit Committee, which shall consist of at least three (3) members of the Board of Directors, none of whom shall be an officer or employee of the Corporation or of any entity controlling, controlled by or under common control with the Corporation and who are not beneficial owners of a controlling interest in the voting stock of the Corporation or any such entity. The Audit Committee shall perform such duties as are set for the in its charter. -11- Section 15.4 Alternate Members. The Board of Directors may designate one or more directors as alternate members of any committee who may replace any absent or disqualified members at any meeting of the committee or for the purposes of any written action by the committee. In the absence or disqualification of a member and alternate member or members of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of the absent or disqualified member. Section 15.5 Status of Committee Action. The term "Board of Directors" or "Board," when used in any provision of these Bylaws relating to the organization or procedures of or the manner of taking action by the Board of Directors, shall be construed to include and refer to any committee of the Board of Directors. Any provision of these Bylaws relating or referring to action to be taken by the Board of Directors or the procedure required thereafter shall be satisfied by the taking of corresponding action by a committee of the Board of Directors to the extent the authority to take the action has been delegated to the committee by the Board of Directors. ARTICLE 16 Liability of Directors Section 16.1 Fiduciary Duties. A director of the Corporation shall stand in a fiduciary relation to the Corporation and shall perform his duties as a director, including his duties as a member of any committee of the Board of Directors upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the Corporation, and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his duties, a director shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following: (i) one or more officers or employees of the Corporation whom the director reasonably believes to be reliable and competent in the matters presented; (ii) legal counsel, public accountants or other persons as to matters which the director reasonably believes to be within the professional or expert competence of such persons; or (iii) a committee of the Board of Directors upon which he does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. A director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause his reliance to be unwarranted. Section 16.2 Fiduciary Duties; Consideration. In discharging the duties of their respective positions, the Board of Directors, committees of the Board of Directors and individual directors may, in considering the best interests of the Corporation, consider to the extent they deem appropriate those factors set forth in Section 1715 of the BCL, including without limitation: (1) The effects of any action upon any or all groups affected by such action, including shareholders, employees, suppliers, customers and creditors of the Corporation, and upon communities in which offices or other establishments of the Corporation are located. (2) The short-term and long-term interests of the Corporation, including benefits that may accrue to the Corporation from its long-term plans and possibility that these interests may be best served by the continued independence of the Corporation. (3) The resources, intent and conduct (past, stated and potential) of any person seeking to acquire control of the Corporation. -12- (4) All other pertinent factors. The consideration of these factors shall not constitute a violation of Section 16.1 of this Article 16. Section 16.3 Presumption of Good Faith. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director or any failure to take any action shall be presumed to be in the best interests of the Corporation. Section 16.4 No Personal Liability; Exceptions. A director of the Corporation shall not be personally liable for monetary damages as such for any action taken, or any failure to take any action, unless: (i) the director has breached or failed to perform the duties of his office under Sections 16.1 through 16.3 of this Article 16; and (ii) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness. The provisions of this Section 16.4 of this Article 16 shall not apply to: (i) the responsibility or liability of a director pursuant to any criminal statute; or (ii) the liability of a director for the payment of taxes pursuant to local, state or federal law. Section 16.5 Amendments. Notwithstanding any other provisions of these Bylaws, the approval by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation shall be required to amend, repeal or adopt any provision as part of these Bylaws that is inconsistent with the purpose or intent of Sections 16.1, 16.2, 16.3, 16.4, or 16.5 of this Article 16, and, if any such action shall be taken, it shall become effective only on a prospective basis from and after the date of such shareholder approval. The provisions of Section 16.1, 16.3, and 16.4 were originally adopted by the shareholders of the Corporation on April 27, 1987. ARTICLE 17 Officers Section 17.1 Numbers and Qualifications. The Corporation shall have a Chairman of the Board, a President, a Secretary and a Treasurer or persons who shall act as such, regardless of the name or title by which they may be designated, elected or appointed and may have such other officers and assistant officers as the Board of Directors may authorize from time to time. The Chairman of the Board, President and Secretary shall be natural persons of at least 18 years of age. The Treasurer may be a corporation, but if a natural person shall be of at least 18 years of age. The Chairman of the Board or the President shall be the chief executive officer of the Corporation, as the Board of Directors may determine from time to time. The Chairman of the Board of Directors and the President shall be, and each officer may be, a director of the Corporation. The offices of Secretary and Treasurer may be filled by one person. Section 17.2 Election; Resignation. The officers shall be elected by the Board of Directors, or the Board of Directors may authorize the Chairman of the Board or President to appoint one or more classes of officers with such titles (including the titles of Vice President, Secretary and Treasurer), powers, duties and compensation as may be approved by such persons. Each officer shall hold office at the pleasure of the Board of Directors and until his successor has been elected and qualified or until his earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The resignation shall be effective upon receipt thereof by the Corporation or at such subsequent time as may be specified in the notice of resignation. -13- Section 17.3 Actions in Good Faith. Except as otherwise provided in the Articles of Incorporation, an officer shall perform his duties as an officer in good faith, in a manner he reasonably believes to be in the best interests of the Corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. A person who so performs his duties shall not be liable by reason of having been an officer of the Corporation. Section 17.4 Removal. Any officer or agent of the Corporation may be removed by the Board of Directors, with or without cause, at any time. Any officer appointed by the Chairman of the Board or President may also be removed, either with or without cause, at any time, by the Chairman of the Board or President. The removal shall be without prejudice to the contract rights, if any, of any person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 17.5 Voting of Stock in Other Corporations. If authorized by the Board of Directors, any officer of the Corporation may appoint an attorney or attorneys (who may be or include such officer), in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation any of whose shares or other securities are held by or for the Corporation, at meetings of the holders of the shares or other securities of such other corporation, or in connection with the ownership of such shares or other securities, to consent in writing to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its seal such written proxies or other instruments as such proxy may deem necessary or proper in the circumstances. ARTICLE 18 Duties of Officers Section 18.1 Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and at all meetings of the shareholders, appoint all committees not otherwise provided for in the Bylaws. To be eligible to serve, the Chairman of the Board must be a director of the Corporation. He may serve as a member of any committee of the Board, attend all meetings of any such committee and participate in the discussions of any such committee, except as may otherwise be determined by the Board or provided in these Bylaws. He shall perform all duties incident to the office of Chairman of the Board and such other duties as may be from time to time assigned to him by the Board of Directors. Section 18.2 President. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors and at all meetings of the shareholders. He shall be the chief executive of the Corporation, unless the Chairman of the Board is serving as Chief Executive Officer in which event the President shall be the Chief Operating Officer of the Corporation. Except as otherwise provided herein, the President shall be responsible for the general and active management of the business of the Corporation; shall see that all orders and resolutions of the Board of Directors are put into effect, subject, however, to the right of the Board of Directors to delegate any specific powers, except such as may be by statute exclusively conferred on the President, to any other officer or officers of the Corporation; and shall have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. He may serve as -14- a member of any committee of the Board, attend all meetings of any such committee and participate in the discussions of any such committee, except as may otherwise be determined by the Board or provided in these Bylaws. He shall perform all duties incident to the office of President and such other duties as may be from time to time assigned to him by the Board of Directors. Section 18.3 Vice President. The Vice President or, if more than one, the Vice Presidents in the order, if any, established by the Board of Directors shall, in the absence or incapacity of the President, have the authority to exercise all the powers and perform the duties of the President. The Vice Presidents, respectively, shall also have such other authority and perform such other duties as may be provided in the Bylaws or as shall be determined by the Board of Directors or the President. Any Vice President may, in the discretion of the Board of Directors, be designated as "executive," "senior" or by departmental or functional classification. Section 18.4 Secretary. The Secretary shall act under the direction and superintendence of the Corporation's chief executive officer; attend all the meetings of shareholders, directors and committees, and keep in suitable books the minutes thereof; superintend the keeping and have charge of the seal, books, papers and records pertaining to his office, sign such documents as shall require his attention, issue notices for all meetings; and perform generally all the duties incident to the office of Secretary and such other duties as may be assigned to him by the Board of Directors or the President. Section 18.5 Treasurer. The Treasurer shall be responsible for the custody of the corporate funds and securities; shall be responsible for full and accurate accounts of receipts and disbursements in books belonging to the Corporation; and shall perform such other duties as may be assigned to him by the Board of Directors or the President. He shall give bond in such sum and with such surety as the Board of Directors may from time to time directs. Section 18.6 Assistant Secretary. The Assistant Secretary (and if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there is no determination then by seniority)) shall, in the absence of the Secretary, perform the duties of the Secretary and such other duties as may be assigned to him by the Board of Directors, Chairman of the Board, President, Secretary, or such other officer as may be designated by one of the foregoing. Section 18.7 Assistant Treasurer. The Assistant Treasurer (and if there be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there is no determination then by seniority)) shall, in the absence of the Treasurer, perform the duties of the Treasurer and such other duties as may be assigned to him by the Board of Directors, Chairman of the Board, President, Treasurer, or such other officer as may be designated by one of the foregoing. Section 18.8 Assistant Officers. Each assistant officer shall assist in the performance of the duties of the officer to whom he is assistant and shall perform such duties in the absence of the officer. He shall perform such additional duties as the Board of Directors, the President or the officer to whom he is assistant may from time to time assign him. Such officers may be given such functional titles as the Board of Directors shall from time to time determine. Section 18.9 Bonds. If required by the Board of Directors, any officer or employee shall give bond for the faithful performance of their duties in such amount as is required by the Board of Directors or the Executive Committee of the Board of Directors. -15- Section 18.10 Designations. The Board of Directors may, by resolution, designate one or more officers to be any of the following: Chief Operating Officer, Chief Financial Officer, General Counsel, or Chief Accounting Officer. ARTICLE 19 Indemnification of Officers, Directors, Employees, and Agents Section 19.1 Indemnification. The Corporation shall indemnify any director or officer, and may indemnify any other employee or agent who was or is a party to, or is threatened to be made a party to or who is called as a witness in connection with, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding unless the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness. Section 19.2 Non-Exclusivity. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 19 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of shareholders or disinterested directors or pursuant to the direction, howsoever embodied, of any court of competent jurisdiction or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office. It is the policy of the Corporation that indemnification of, and advancement of expenses to, directors and officers of the Corporation shall be made to the fullest extent permitted by law. To this end, the provisions of this Article 19 shall be deemed to have been amended for the benefit of directors and officers of the Corporation effective immediately upon any modification of the BCL or any modification or adoption of any other laws that expands or enlarges the power or obligation of corporations organized under the BCL to indemnify, or advance expenses to, directors and officers of corporations. Section 19.3 Expenses. The Corporation shall pay expenses incurred by an officer or director, and may pay expenses incurred by any other employee or agent in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation. Section 19.4 Continuation. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article 19 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. Section 19.5 Securing Obligations. The Corporation shall have the authority to create a fund of any nature, which may, but need not, be under the control of an independent trustee, or otherwise secure or insure in any manner, its indemnification obligations, whether arising under these Bylaws or otherwise. The authority shall include, without limitation, the authority to: (i) deposit funds in trust or in escrow, (ii) establish any form of self-insurance, (iii) secure its indemnity obligation by -16- grant of a security interest, mortgage or other lien on the assets of the Corporation or (iv) establish a letter of credit, guaranty or surety arrangement for the benefit of such persons in connection with the anticipated indemnification or advancement of expenses contemplated by this Article 19. The provisions of this Article 19 shall not be deemed to preclude the indemnification of, or advancement of expenses to, any person who is not specified in Section 19.1 of this Article 19 but whom the Corporation has the power or obligation to indemnify, or to advance expenses for, under the provisions of the BCL or otherwise. The authority granted by this Section 19.5 shall be exercised by the Board of Directors of the Corporation. Section 19.6 Separate Agreement. The Corporation shall have the authority to enter into a separate indemnification agreement with any officer, director, employee or agent of the Corporation or any subsidiary providing for such indemnification of such person as the Board of Directors shall determine up to the fullest extent permitted by law. Section 19.7 Defense of Claims. As soon as practicable after receipt by any person specified in Section 19.1 of this Article 19 of notice of the commencement of any action, suit or proceeding specified in Section 19.1 of this Article 19, such person shall, if a claim with respect thereto may be made against the Corporation under Article 19 of these Bylaws, notify the Corporation in writing of the commencement or threat thereof; however, the omission so to notify the Corporation shall not relieve the Corporation from any liability under Article 19 of the Bylaws unless the Corporation shall have been prejudiced thereby or from any other liability which it may have to such person other than under Article 19 of these Bylaws. With respect to any such action as to which such person notifies the Corporation of the commencement or threat thereof, the Corporation may participate therein at its own expense, and except as otherwise provided below, to the extent that it desires, the Corporation, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof, with counsel selected by the Corporation to the reasonable satisfaction of such person. After notice from the Corporation to such person of its election to assume the defense thereof, the Corporation shall not be liable to such person under Article 19 of these Bylaws for any legal or other expenses subsequently incurred by such person in connection with the defense thereof other than as otherwise provided below. Such person shall have the right to employ his own legal counsel in such action, but the fees and expenses of such legal counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of such person unless: (i) the employment of legal counsel by such person shall have been authorized by the Corporation; (ii) such person shall have reasonably concluded that there may be a conflict of interest between the Corporation and such person in the conduct of the defense of such proceeding; or (iii) the Corporation shall not in fact have employed legal counsel to assume the defense of such action. The Corporation shall not be entitled to assume the defense of any proceeding brought by or on behalf of the Corporation or as to which such person shall have reasonably concluded that there may be a conflict of interest. If indemnification under Article 19 of these Bylaws or advancement of expenses are not paid or made by the Corporation, or on its behalf, within 90 days after a written claim for indemnification or a request for an advancement of expenses has been received by the Corporation, such person may, at any time thereafter, bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. The right to indemnification and advancement of expenses provided hereunder shall be enforceable by such person in any court of competent jurisdiction. The burden of proving that indemnification is not appropriate shall be on the Corporation. Expenses reasonably incurred by such person in connection with successfully establishing the right to indemnification or advancement of expenses, in whole or in part, shall also be indemnified by the Corporation. Section 19.8 Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the -17- Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another domestic or foreign corporation for profit or not-for-profit, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article 19. Section 19.9 Amendment. Notwithstanding any other provisions of these Bylaws, the approval by (i) the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation or (ii) a majority vote of the members of the Board of Directors shall be required to amend, repeal or adopt any provision as part of these Bylaws which is inconsistent with the purpose or intent of this Article 19, and, if any such action shall be taken, it shall become effective only on a prospective basis from and after the date of such approval. The provisions of Sections 19.1, 19.2, 19.3, 19.4, 19.5, 19.6, 19.7 and 19.8 were originally adopted by the shareholders of the Corporation on April 27, 1987. ARTICLE 20 Fiscal Year Section 20.1 Fiscal Year. The fiscal year of the Corporation shall be a calendar year, unless otherwise determined by the Board of Directors. ARTICLE 21 Notices Section 21.1 Manner of Giving Written Notice. Whenever written notice is required to be given to any person under the provisions of these Bylaws or the BCL, it may be given to the person either personally or by sending a copy thereof by first class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answer back received) or courier service, charges prepaid, or by facsimile transmission, to his address (or to his telex, TWX or facsimile number) appearing on the books of the Corporation or, in the case of written notice to directors, supplied by each director to the Corporation for the purpose of the notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex, TWX or facsimile, when dispatched. Section 21.2 Waiver of Notice. Any written notice required to be given to any person under the provisions of statute, the Corporation's Articles of Incorporation or these Bylaws may be waived in a writing signed by the person entitled to such notice whether before or after the time stated therein. Except as otherwise required by statute, and except in the case of a special meeting, neither the business to be transacted at, nor the purpose of, a meeting need be specified in the waiver of notice. In the case of a special meeting of shareholders, the waiver of notice shall specify the general nature of the business to be transacted. Attendance of any person, whether in person or by proxy, at any meeting shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. -18- ARTICLE 22 Amendments Section 22.1 Amendments Requiring Shareholder Approval. Neither this Section 22.1 nor Article 16 of these Bylaws may be altered, amended or repealed unless approved by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at a duly organized meeting of shareholders called for that purpose, provided that 30 days' notice of the proposed amendments shall have been mailed to the last recorded address of each shareholder as furnished to the Corporation, and that the same shall have been submitted to the Board of Directors at least 30 days prior to such meeting. Section 22.2 Amendments Requiring Notice. Neither this Section 22.2 nor Article 19 of these Bylaws may be altered, amended or repealed unless approved by: (i) the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at a duly organized meeting called for that purpose, provided that 30 days' notice of the proposed amendments shall have been mailed to the last recorded address of each shareholder as furnished to the Corporation, and that the same shall have been submitted to the Board of Directors at least 30 days prior to such meeting, or (ii) a majority vote of the members of the Board of Directors at any regular meeting or any special meeting duly convened after notice to the directors of that purpose, subject to the power of the shareholders to change such action by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at any duly organized meeting called for that purpose. Section 22.3 Other Amendments. All provisions of these Bylaws other than Articles 16 and 19 and Sections 22.1 and 22.2 may be altered, amended or repealed: (i) by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at a duly organized meeting called for that purpose, or (ii) by a majority vote of the members of the Board of Directors at any regular meeting or any special meeting duly convened after notice to the directors of that purpose, subject to the power of the shareholders to change such action by the affirmative vote of the holders of a majority of the outstanding voting power of the shares of stock of the Corporation at any duly organized meeting called for that purpose. -19- EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (In Thousands, except ratio)
For the three months ended March 31, 2000 1999 - -------------------------------------------------------------------------------- EARNINGS Pre-tax income $ 6,739 $13,147 Fixed charges 3,334 3,217 ------- ------- Total(a) $10,073 $16,364 ======= ======= FIXED CHARGES Interest expense and amortization of debt discount and premium on all indebtedness $ 3,075 $ 3,013 Interest portion of rental expenses 259 204 ------- ------- Total fixed charges(b) $ 3,334 $ 3,217 ======= ======= Ratio of earnings to fixed charges(a)/(b) 3.0x 5.1x ======= =======
EX-27 5
7 This schedule contains summary financial information extracted from the financial statements contained in Form 10-Q for the quarter ended March 31, 2000 for PMA Capital Corporation and is qualified in its entirety by reference to such statements. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1,553,337 0 0 46,869 0 0 1,949,701 11,040 702,875 53,658 3,283,358 1,927,755 305,350 0 14,636 163,000 0 0 122,214 316,410 3,283,358 125,822 28,193 (5,461) 3,387 94,288 26,697 21,142 6,739 2,361 0 0 0 0 4,378 0.20 0.19 0 0 0 0 0 0 0 - Represents reinsurance recoverable on paid and unpaid losses.
-----END PRIVACY-ENHANCED MESSAGE-----