10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

(MARK ONE)

/X/	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

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

Registrant's telephone number, including area code: (215) 665-5046

Securities registered pursuant to Section 12(b) of the Act:

	Name of each exchange on
Title of each class:	which registered:
8.50% Monthly Income Senior	American Stock Exchange
Notes due 2018

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, par value $5.00 per share

(Title of Class)

Rights to Purchase Preferred Stock

(Title of Class)

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 / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES /X/ NO / /

The aggregate market value of the Class A Common Stock held by non-affiliates of the registrant on June 30, 2004, based on the last price at which the Class A Common Stock was sold on such date, was $265,925,034.

There were 31,683,961 shares outstanding of the registrant’s Class A Common stock, $5 par value per share, as of the close of business on February 28, 2005.

DOCUMENTS INCORPORATED BY REFERENCE:

(1) Part III of this Form 10-K incorporates by reference portions of the registrant’s proxy statement for its 2005 Annual Meeting of Shareholders.

Explanatory Note

In November 2004, we exchanged $84.1 million aggregate principal amount of 6.50% Senior Secured Convertible Debentures due 2022 (the “6.50% Convertible Debt”) for an equal amount of our 4.25% Senior Convertible Debentures due 2022. The 6.50% Convertible Debt is secured by a first lien on a portion of the capital stock of our principal operating subsidiaries, PMA Capital Insurance Company, Pennsylvania Manufacturers Indemnity Company, Pennsylvania Manufacturers’ Association Insurance Company and Manufacturers Alliance Insurance Company. As a result of the security interest granted, we are required to file three years of separate audited GAAP financial statements for these subsidiaries. These financial statements are currently being prepared and when completed and audited will be filed by amendment to this Report on Form 10-K. The Annual Statements for these subsidiaries, which we file with the Pennsylvania Insurance Department, contain financial statements prepared in accordance with statutory accounting practices. Annual Statements covering the years ended December 31, 2004, 2003 and 2002 for each of these subsidiaries are available on the Investor Information portion of our website www.pmacapital.com.

INDEX

PART I		Page
Item 1.	Business	1
	Company Overview	1
	The PMA Insurance Group	2
	Run-off Operations	8
	Reinsurance and Retrocessional Protection	9
	Loss Reserves	9
	Investments	12
	Ratings	12
	Regulatory Matters	13
	Employees	17
	Available Information	17
	Glossary of Selected Insurance Terms	18
	Risk Factors	21
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Submission of Matters to a Vote of Security Holders	31
	Executive Officers of the Registrant	31
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Shareholder Matters and
	Issuer Purchases of Equity Securities	32
Item 6.	Selected Financial Data	33
Item 7.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	60
Item 8.	Financial Statements and Supplementary Data	61
Item 9.	Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure	97
Item 9A.	Controls and Procedures	97
PART III
Item 10.	Directors and Executive Officers of the Registrant	98
Item 11.	Executive Compensation	98
Item 12.	Security Ownership of Certain Beneficial Owners and Management	98
Item 13.	Certain Relationships and Related Transactions	99
Item 14.	Principal Accountant Fees and Services	99
PART IV
Item 15.	Exhibits and Financial Statement Schedules	100
Signatures		101
Index to Financial Statement Schedules		FS-1
Index to Exhibits		E-1

PART I

The “Business” Section and other parts of this Form 10-K contain forward-looking statements that involve inherent risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, and containing words such as “believe,” “estimate,” “anticipate,” “expect” or similar words are forward-looking statements. Our actual results may differ materially from the projected results discussed in the forward-looking statements. Factors that could cause such differences include, but are not limited to, those discussed in “Risk Factors” beginning on page 21 and in the “Cautionary Statements” in “Item 7 -Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”).

Item 1.Business

COMPANY OVERVIEW

We are a property and casualty insurance holding company, which offers through our subsidiaries workers’ compensation, integrated disability and, to a lesser extent, other standard lines of commercial insurance, primarily in the eastern part of the United States. These products are written through The PMA Insurance Group, our property and casualty insurance segment, which has been in operation since 1915. Our Run-off Operations include our prior reinsurance and excess and surplus lines operations. Additionally, we have a Corporate and Other segment, which primarily includes corporate expenses, including debt service. At December 31, 2004, we had total assets of $3.3 billion and shareholders’ equity of $445.5 million.

Our business profile changed significantly in 2003 and 2004. On November 4, 2003, we announced a third quarter pre-tax charge of $150 million to increase the loss reserves for our reinsurance business for prior accident years. Following this announcement, A.M. Best Company, Inc. (“A.M. Best”) reduced the financial strength ratings of PMA Capital Insurance Company (“PMACIC”), our reinsurance subsidiary, and The PMA Insurance Group companies, our primary insurance business, to B++ (Very Good). The B++ financial strength rating constrained The PMA Insurance Group’s ability to attract and retain business during 2004. As a result of the reserve charge and ratings change, on November 6, 2003, we announced our decision to cease writing reinsurance business and to run off our existing reinsurance business, previously known as PMA Re. Our Run-off Operations remain a significant component of our financial position, representing 40% of our consolidated assets as of December 31, 2004. We also decided to suspend payment of dividends on our Class A common stock.

We achieved our most important goal for 2004, the restoration of The PMA Insurance Group's A- (Excellent) financial strength rating, on November 15, 2004.

Financial information in the tables that follow is presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”), unless otherwise indicated. Certain reclassifications have been made to prior periods’ financial information to conform to the 2004 presentation. Revenues, pre-tax operating income (loss) and assets attributable to each of our operating segments and our Corporate and Other segment for the last three years are set forth in Note 15 in Item 8 of this Form 10-K.

Our gross and net premiums written by segment were as follows:

		2004						2003						2002
(dollar amounts in thousands)		Gross			Net			Gross			Net			Gross			Net
The PMA Insurance Group	$	423,054		$	377,795		$	678,434		$	603,593		$	515,332		$	452,276
Run-off Operations		(69,967	)		(75,360	)		751,998			589,449			882,095			653,602
Corporate and Other		(825	)		(825	)		(788	)		(788	)		(10,881	)		(881	)
Total	$	352,262		$	301,610		$	1,429,644		$	1,192,254		$	1,386,546		$	1,104,997

Property and casualty insurance and reinsurance companies provide loss protection to insureds in exchange for premiums. If earned premiums exceed the sum of losses and loss adjustment expenses (which we refer to as LAE), acquisition expenses, operating expenses and policyholders’ dividends, then underwriting profits are realized. When earned premiums do not exceed the sum of these items, the result is an underwriting loss.

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The “combined ratio” is a frequently used measure of property and casualty underwriting performance. The combined ratio computed on a GAAP basis is equal to losses and LAE, plus acquisition expenses, operating expenses and policyholders’ dividends, where applicable, all divided by net premiums earned. Thus, a combined ratio of under 100% reflects an underwriting profit. Combined ratios of The PMA Insurance Group were 105.4%, 102.8% and 103.2% for 2004, 2003 and 2002, respectively.

Because time normally elapses between the receipt of premiums and the payment of claims and certain related expenses, we invest the available premiums. Underwriting results do not include investment income from these funds. Given the long-tail nature of our liabilities, we believe that the operating ratios are also important in evaluating our business. The operating ratio is the combined ratio less the net investment income ratio, which is net investment income divided by premiums earned. The operating ratios of The PMA Insurance Group were 98.4%, 97.0% and 94.5% in 2004, 2003 and 2002, respectively.

A glossary of selected insurance terms used in this Form 10-K is included on pages 18 to 20.

THE PMA INSURANCE GROUP

Background

The PMA Insurance Group emphasizes its traditional core business, workers’ compensation insurance and integrated disability. We also provide a range of other commercial insurance products but generally only if they complement our workers’ compensation products, including commercial automobile and multi-peril coverages, general liability and related services. The PMA Insurance Group focuses primarily on middle-market and large accounts operating in our principal marketing territory concentrated in the eastern part of the United States. Approximately 87% of this business was produced through independent agents and brokers in 2004.

The PMA Insurance Group competes on the basis of its ability to offer tailored workplace disability management solutions to its clients, its long-term relationships with its agents and brokers, its localized service and its reputation as a high-quality claims and risk control service provider.

The PMA Insurance Group has the ability to handle multi-state clients based in its operating territory but which have operations in other parts of the U.S. by being authorized to do business in 52 jurisdictions (including Puerto Rico and the District of Columbia) for workers’ compensation, general liability and commercial automobile. The PMA Insurance Group intends to continue writing other lines of property and casualty insurance, but generally only if such writings are supported by its core workers’ compensation business. The PMA Insurance Group also provides integrated disability products, with 99 accounts as of December 31, 2004 that generated approximately $32 million in combined workers’ compensation and integrated disability written premiums in 2004. The PMA Insurance Group’s primary insurance subsidiaries (Pennsylvania Manufacturers’ Association Insurance Company, Manufacturers Alliance Insurance Company and Pennsylvania Manufacturers Indemnity Company) will sometimes be referred to as the Pooled Companies because they share results under an intercompany pooling agreement.

Products

The PMA Insurance Group's premiums written were as follows:

(dollar amounts in thousands)		2004			2003			2002
Gross premiums written:
Workers' compensation and integrated disability	$	375,643	88%	$	570,858	84%	$	410,977	80%
Commercial automobile		23,739	6%		55,899	8%		55,946	11%
Commercial multi-peril		16,046	4%		34,166	5%		34,898	7%
Other		7,626	2%		17,511	3%		13,511	2%
Total	$	423,054	100%	$	678,434	100%	$	515,332	100%
Net premiums written:
Workers' compensation and integrated disability	$	341,315	90%	$	512,151	85%	$	373,353	82%
Commercial automobile		21,796	6%		52,125	8%		44,743	10%
Commercial multi-peril		12,190	3%		28,374	5%		26,627	6%
Other		2,494	1%		10,943	2%		7,553	2%
Total	$	377,795	100%	$	603,593	100%	$	452,276	100%

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Workers’ Compensation Insurance

Most states require employers to provide workers’ compensation benefits to their employees for injuries and occupational diseases arising out of employment, regardless of whether such injuries result from the employer’s or the employee’s negligence. Employers may insure their workers’ compensation obligations subject to state regulation or, subject to regulatory approval, self-insure their liabilities. Workers’ compensation statutes require that a policy cover three types of benefits: medical expenses, disability (indemnity) benefits and death benefits. The amounts of disability and death benefits payable for various types of claims are set and limited by statute, but no maximum dollar limitation exists for medical benefits. Workers’ compensation benefits vary among states, and the insurance rates we charge to our customers are subject to differing forms of state regulation.

Statutory direct workers’ compensation business written by jurisdiction was as follows:

(dollar amounts in thousands)		2004			2003			2002
Pennsylvania	$	136,275	43%	$	193,129	40%	$	176,705	45%
New York		35,596	11%		43,978	9%		33,176	8%
New Jersey		27,784	9%		44,314	9%		36,312	9%
Florida		23,338	7%		21,723	4%		7,024	2%
Maryland		11,861	4%		21,133	4%		15,834	4%
Virginia		9,781	3%		22,400	5%		23,230	6%
North Carolina		8,470	3%		21,407	4%		17,726	5%
Georgia		7,753	2%		18,244	4%		10,325	3%
Other		57,623	18%		101,437	21%		69,908	18%
Total	$	318,481	100%	$	487,765	100%	$	390,240	100%

The PMA Insurance Group has focused primarily on the jurisdictions in the table above based upon its knowledge of their workers’ compensation systems and its assessment of each state’s respective business, economic, legal and regulatory climates. We closely monitor and take into consideration rate adequacy, regulatory climate and economic conditions in each state in the underwriting process. The PMA Insurance Group employs similar analyses in determining whether and to what extent it will offer products in additional jurisdictions.

The PMA Insurance Group is focused on expanding its premium base in territories that meet its underwriting standards. We continue to benefit from writing business for insureds mainly operating in The PMA Insurance Group’s principal marketing territory but with some operations in other states.

During 2004, premium writings were lower then in prior years, primarily reflecting the impact of the B++ A.M. Best financial strength rating between November 2003 and November 2004. Prior to November 2003, The PMA Insurance Group had increased its writings of workers’ compensation premiums through focused marketing efforts in its principal marketing territories.

Workers’ compensation insurers doing business in certain states are required to provide insurance for risks that are not otherwise written on a voluntary basis by the private market. We refer to this business as residual market business. Typically, an insurer’s share of this residual market business is assigned on a lag based on its market share in terms of direct premiums in the voluntary market. This system exists in all of The PMA Insurance Group’s marketing jurisdictions, except Pennsylvania, New York and Maryland. In these three states, separate governmental entities write all of the workers’ compensation residual market business. In 2004, The PMA Insurance Group wrote $34.1 million in premiums of residual market business, which constituted 10% of its gross workers’ compensation premiums written. Based upon data for policy year 2004 reported by the National Council on Compensation Insurance, the percentage of residual market business for the industry as a whole, in all states, was 15% of direct workers’ compensation premiums written.

The PMA Insurance Group offers a variety of workers’ compensation products to its customers. Rate-sensitive products are essentially based on manual rates filed and approved by state insurance departments, while loss-sensitive products are priced to a certain extent on the basis of the insured’s loss experience during the policy period. We have also developed and sold alternative market products, such as large deductible products and other programs

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and services to customers who agree to assume even greater exposure to loss than under more traditional loss-sensitive products. We decide which type of product to offer a customer based upon the customer’s needs, an underwriting review and credit history.

The PMA Insurance Group’s voluntary workers’ compensation direct premiums written by product type were as follows:

	2004	2003	2002
Rate-sensitive products	55%	59%	58%
Loss-sensitive products	35%	31%	33%
Alternative market products	10%	10%	9%
Total	100%	100%	100%

·   Rate-sensitive products include fixed-cost policies and dividend paying policies. The premium charged on a fixed-cost policy is essentially based upon the manual rates filed with and approved by the state insurance department and does not increase or decrease based upon the losses incurred during the policy period. Under policies that are subject to dividend plans, the customer may receive a dividend based upon loss experience during the policy period.

·   Loss-sensitive products enable us to adjust the amount of the insured’s premiums after the policy period expires based, to a certain extent, upon the insured’s actual losses incurred during the policy period. These loss-sensitive products are generally subject to less price regulation than rate-sensitive products and reduce, but do not eliminate, risk to the insurer. Under these types of policies, claims professionals periodically evaluate the reserves on losses after the policy period expires to determine whether additional premium adjustments are required under the policy. These policies are typically subject to adjustment for an average of five years after policy expiration. We generally restrict loss-sensitive products to accounts with minimum annual premiums in excess of $100,000.

·   The PMA Insurance Group offers a variety of alternative market products for larger accounts, including large deductible policies and off-shore captive programs. Typically, we receive a lower up-front premium for these types of alternative market product plans. However, under this type of business, the insured retains a greater share of the underwriting risk than under rate-sensitive or loss-sensitive products, which reduces the potential for unfavorable claim activity on the accounts and encourages loss control on the part of the insured. For example, under a large deductible policy, the customer is contractually obligated to pay its own losses up to the amount of the deductible for each occurrence, subject to an aggregate limit. The deductibles under these policies generally range from $250,000 to $1.0 million. In addition to these products, we offer our clients certain workers’ compensation services such as claims administration, risk management and other services.

The PMA Insurance Group has a product for group integrated occupational and non-occupational disability coverages, named PMA One^®. PMA One leverages what we consider to be one of The PMA Insurance Group’s most important core competencies: managing employee disabilities. PMA One offers employers the benefits of coordinated workers’ compensation and disability administration, reduced costs, programs designed to encourage faster return to work and heightened employee productivity. As of December 31, 2004, we had 99 PMA One clients, which generated approximately $32 million of combined workers’ compensation and integrated disability written premiums in 2004. PMA One clients include health care systems, educational institutions, manufacturers and financial institutions.

Through The PMA Insurance Group’s workers’ compensation product offerings, we provide a comprehensive array of managed care services to control loss costs. These include:

·   Case review and intervention by disability management coordinators, all of whom are registered nurses. This service is also provided for our integrated disability product. These disability management coordinators employ an early intervention model to proactively manage medical treatment and length of disability in concert with The PMA Insurance Group’s claims professionals and the insured employer. There are also case management nurses who manage more serious claims via on-site visits with injured workers and medical providers. These professionals are supplemented by a full time Medical Director, who

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assists in implementing programs to monitor the quality and medical necessity of recommended treatment and identifying peer experts for complex claims.

·   Access to the First Health^® Network, a workers’ compensation preferred provider network, which includes doctors, hospitals, physical therapists, outpatient clinics and imaging centers. Utilization of the network generally results in reduced medical costs, in comparison to medical costs incurred when a claim is handled outside this network.

·   Utilization of an automated medical bill review system to detect duplicate billings, unrelated charges and coding discrepancies. Complex bills are forwarded to our cost containment unit, which is staffed by registered nurses and other medical professionals, to resolve questions regarding causal relationship and appropriate utilization levels.

·   Use of Paradigm Corporation for the medical management of certain catastrophic injuries. Paradigm adds a team of catastrophic case management experts to assist in achieving enhanced clinical and financial outcomes on these catastrophic injuries.

·   TMESYS^® pharmacy benefit management program. TMESYS^® is the only “Cardless” pharmacy program designed specifically for the workers’ compensation industry. It includes access to a nationwide network of pharmacies, increased savings through volume pricing, on-line drug utilization review and the ability to capture the first prescription within the program.

Other Commercial Lines

The PMA Insurance Group writes other property and liability coverages for larger and middle market accounts that satisfy its underwriting standards. See “Underwriting” on page 6. These coverages feature commercial automobile, commercial multi-peril, general liability and umbrella business. The PMA Insurance Group offers these products, but generally only if they complement the core workers’ compensation business.

Other Products and Services

The PMA Insurance Group offers “rent-a-captive” products for certain insureds and associations. The purpose of a rent-a-captive program is to offer a customer an alternative method of managing its loss exposures by obtaining many of the benefits of a captive insurer without establishing and capitalizing its own captive; in effect, the insured is investing in a captive facility that we have already established.

Under this arrangement, the client purchases an insurance policy from us and chooses a participation level. We then cede a portion of the premium and loss exposures to either a Bermuda- or Cayman-based subsidiary. The client participates in the loss and investment experience of the portion ceded to the Bermuda- or Cayman-based subsidiary through a dividend mechanism. The client is responsible for any loss that may arise within its participation level, and this potential obligation is typically secured through a letter of credit or similar arrangement. Our principal sources of income from this rent-a-captive program are the premium revenue on the risk retained by us and captive management fees earned.

Through PMA Management Corp., The PMA Insurance Group provides claims administration, risk management, loss prevention and related services primarily to self-insureds under fee for service arrangements.

Distribution

The PMA Insurance Group distributes its products through multiple channels, including national, regional and local brokers and agents, employee benefits brokers, and direct sales representatives.

The PMA Insurance Group has contracts with 360 independent agents and brokers. The current distribution network generally consists of large regional agents and brokers, local agents, and national brokers that specialize in larger to middle market accounts that require the variety of workers’ compensation, commercial lines and alternative market products offered by The PMA Insurance Group. In 2004, independent brokers and agents accounted for approximately 87% of The PMA Insurance Group’s direct written premiums. The top ten independent brokers and

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agents accounted for 30% of The PMA Insurance Group’s direct written premiums, the largest of which accounted for 10% of its direct written premiums.

We typically pay commissions to the agents and brokers on individual policies placed with us.  We have also entered into agreements with our agents and brokers under which they have the potential to earn additional commission based on specified contractual criteria, primarily related to premium growth and retention.

The New York Attorney General and certain other state regulators have initiated investigations and commenced legal actions against certain brokers and other insurance companies concerning their compensation agreements and other practices.  Various states’ Insurance Departments and Attorneys General have also responded to recent publicity surrounding broker compensation practices by issuing inquiries and subpoenas to insurance companies and insurance producers domiciled or doing business in their states.  To date, we have received inquiries from the Pennsylvania and North Carolina Insurance Departments concerning our business relationships with brokers, as did most or all other insurance companies doing business in these jurisdictions. We have responded fully to these inquiries and believe that our contractual relationships and business practices with agents and brokers are in compliance with all applicable statutes and regulations.

The outcome of these investigations into broker compensation and placement practices and the impact of any future regulatory changes governing agent and broker commissions is uncertain.

As of December 31, 2004, The PMA Insurance Group employed 12 direct sales representatives who are generally responsible for certain business located in Pennsylvania and Delaware. These employees produced $49 million in direct premiums written in 2004.

The PMA Insurance Group’s underwriters review all business submissions before they are accepted. The PMA Insurance Group monitors several statistics with respect to its independent brokers and agents, including a complete profile of the broker/agent, the number of years the broker/agent has been associated with The PMA Insurance Group, the percentage of the broker/agent’s business that is underwritten by The PMA Insurance Group, the ranking of The PMA Insurance Group within the broker/agent’s business and the profitability of the broker/agent’s business.

As of December 31, 2004, our field organization consisted of 17 branch or satellite offices throughout The PMA Insurance Group’s principal marketing territory. Branch offices deliver a full range of services directly to customers located in their service territory, while satellite offices primarily offer risk control and claim adjustment services.

Underwriting

The PMA Insurance Group’s underwriters, in consultation with actuaries, determine the general type of business to be written using a number of criteria, including past performance, relative exposure to hazard, premium size, type of business and other indicators of potential loss. Specific types of business are referred to underwriting specialists and actuaries for individual pricing. The underwriting team also establishes classes of business that The PMA Insurance Group generally will not write, such as certain property exposures, certain hazardous products and activities, and certain environmental coverages. Because terrorism exclusions have never been permitted for workers' compensation business, we refined our workers’ compensation underwriting guidelines after September 11, 2001 to manage the underwriting exposure from terrorism risks, including the review of aggregation of risks by geographic location, evacuation and security of buildings in which insured employees work, and the type of entities located in the vicinity of the prospective insured. These refined procedures have not materially affected The PMA Insurance Group’s mix of business.

Underwriters and risk-control professionals in the field report functionally to the Chief Underwriting Officer and locally to branch vice presidents who are accountable for territorial operating results. Underwriters also work with the field marketing force to identify business that meets prescribed underwriting standards and to develop specific strategies to write the desired business. In performing this assessment, the field office professionals also consult with actuaries who have been assigned to the specific field office regarding loss trends and pricing and utilize actuarial loss rating models to assess the projected underwriting results of accounts.A formal underwriting quality assurance program is also employed to ensure consistent adherence to underwriting standards and controls.

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The PMA Insurance Group also employs credit analysts. These employees review the financial strength and stability of customers who utilize loss-sensitive and alternative market products and specify the type and amount of collateral that customers must provide under these arrangements. Premium auditors perform audits to determine that premiums charged accurately reflect the actual exposure bases.

Claims Administration

Claims services are delivered to customers primarily through employees located in branch or satellite offices. Claims are assigned to claims professionals based on coverage and jurisdictional expertise. Claims meeting certain criteria are referred to line of business claim specialists. Certain claims arising outside of our principal marketing territory are assigned to an independent claims service provider. A formal quality assurance program is carried out to ensure the consistency and effectiveness of claims adjustment activities. Claims professionals are also supported by a network of in-house legal counsel and an anti-fraud investigative unit. A special claims unit in the home office manages more complex specialized matters such as asbestos and environmental claims.

The PMA Insurance Group maintains a centralized claims processing center in order to minimize the volume of clerical and repetitive administrative demands on our claims professionals. The center’s ability to handle loss reports, perform claim set-up, issue payments and conduct statutory reporting allows the claims professionals to focus on immediate contact and timely, effective claim resolution. PMA’s Customer Service Center also houses a centralized call center providing 24 hour coverage for customer requests and inquiries. Currently, approximately 40% of new losses are reported electronically through our internet based technology, including Cinch^®, our internet risk management information technology.

Competition

The domestic property and casualty insurance industry is very competitive and consists of many companies, with no one company dominating the market for all products. In addition, the degree and nature of competition varies from state to state for a variety of reasons, including the regulatory climate and other market participants in each state. In addition to competition from other insurance companies, The PMA Insurance Group competes with certain alternative market arrangements, such as captive insurers, risk-sharing pools and associations, risk retention groups, and self-insurance programs. Many of our competitors are larger and have greater financial resources than us.

The main factors upon which entities in our markets compete are price, service, product capabilities and financial security. The PMA Insurance Group attempts to price its products in such a way that the prices charged to its clients are commensurate with the overall marketplace while still adhering to our underwriting standards. The PMA Insurance Group will reject or non-renew accounts where we believe the market rates, terms and conditions for such risks are not acceptable.

We maintain service standards concerning turn-around time for underwriting submissions, information flow, claims handling and the quality of other services. These standards help ensure that clients are satisfied with our products and services. We periodically participate in client surveys to gain an understanding of the perceptions of our service as compared to our competitors.

We attempt to design products that meet the needs of clients in our markets. In recent years, The PMA Insurance Group has developed products that reflect the evolving nature of the workers' compensation market. Specifically, it has developed PMA One, a product that provides for group integrated occupational and non-occupational disability coverages. The PMA Insurance Group has also increased its focus on rehabilitation and managed care to control workers' compensation costs for the employers. In addition, it also continues to benefit from writing business for insureds mainly operating in The PMA Insurance Group's principal marketing territory but with some operations in other states. See "The PMA Insurance Group—Products" for additional discussion. We continually evaluate new product opportunities for The PMA Insurance Group.

Industry Trends

During the late 1990s and into 2000, the property and casualty insurance industry was characterized by excess capacity, which resulted in highly competitive market conditions evidenced by declining premium rates and, in many cases, policy terms less favorable to the insurers. As a result of this prolonged soft market, capacity in the property and casualty market began to contract late in 2000, as companies withdrew from the business or ceased operations.

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In response to market conditions, many insurance and reinsurance companies, including our companies, independently sought and achieved significant price increases and improved policy terms commencing in the second half of 2000. In 2002, we realized price increases at The PMA Insurance Group in excess of 15%. These increases continued in 2003 and 2004, but at a lesser rate. The PMA Insurance Group obtained price increases of 10% for its workers’ compensation business in 2003 and 6% in 2004. We have also increased the relative amount by which we can adjust insureds’ premiums based on actual losses incurred on loss-sensitive products.

Despite current market conditions, there can be no assurance that prices and premiums will increase at a level consistent with loss cost inflation. Even if the industry in general experiences those types of increases, we cannot assure you that we will see similar increases or that we will achieve price increases consistent with 2004. Further, any benefit that we derive from such price increases may be partially or completely offset by increases in ceded reinsurance premiums, frequency of reported losses or by loss cost inflation.

RUN-OFF OPERATIONS

In November 2003, we announced our decision to withdraw from the reinsurance business previously served by our PMA Re operating segment. We are no longer writing new reinsurance business. As a result of this decision, the results of PMA Re are reported as Run-off Operations. Run-off Operations also includes the results of our former excess and surplus lines business, which we placed in run-off in May 2002.

See Note 14 in Item 8 of this Form 10-K for additional information regarding the Run-off Operations.

Reinsurance is an arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance company, the ceding company, against all or a portion of the insurance risks underwritten by the ceding company under one or more insurance contracts. Reinsurance provides ceding companies with several benefits: reducing exposure on individual risks, protecting against catastrophic losses, stabilizing underwriting results and maintaining acceptable capital ratios.

Late in 2000, PMA Re invested in a Lloyd’s of London managing general agency, Cathedral Capital PLC, and commencing in 2001, we began participating in the results of Syndicate 2010, which primarily writes property and aviation reinsurance. Cathedral Capital primarily provides underwriting and management services for various Lloyd’s syndicates providing primarily property and casualty coverages. Cathedral Capital agreed to indemnify us for losses exceeding £300,000 arising from Syndicate 2010 related to the 2001 and 2002 underwriting years of account in which we participated. In consideration for the indemnification, we agreed to pay Cathedral Capital 30% of any underwriting profit related to the 2001 and 2002 years of account. During 2004, we sold our interest in Cathedral Capital and recorded a gain of $2.5 million on the sale.

PMA Re had five distinct underwriting units, organized by class of business. The Traditional-Treaty, Finite Risk and Financial Products, Specialty-Treaty, and Accident-Treaty units provided treaty reinsurance coverage. The fifth unit, Facultative, provided reinsurance on a facultative basis. The Traditional-Treaty underwriting unit wrote general property and casualty business. The Traditional casualty portfolio included general liability, umbrella, commercial automobile and workers’ compensation.

The Finite Risk and Financial Products underwriting unit provided PMA Re’s insurance company clients with risk management solutions that complemented their traditional reinsurance program. Under its finite risk covers, PMA Re assumed a measured amount of insurance risk in exchange for a specified margin. Our finite risk reinsurance covers typically included a combination of sub-limits and caps on the maximum gain or loss to PMA Re as the reinsurer. As part of our run-off strategy, we sold the renewal rights to the business in November 2003.

The Specialty-Treaty underwriting unit wrote business that fell outside the confines of our traditional property and casualty risks. The Facultative underwriting unit wrote property and casualty reinsurance on an individual risk basis and on a program/semi-automatic basis, in which we agreed to accept risks that fell within certain predetermined parameters. The Accident-Treaty unit offered a wide variety of accident products to life insurance companies, writers of workers’ compensation insurance and writers of Special Risk insurance. In 2004, we entered into a 100% quota share reinsurance agreement with a third-party reinsurer covering all of the liabilities of the Accident-Treaty unit occurring after December 31, 2003, in return for 100% of the Unit’s unearned premiums.

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Our excess and surplus lines business focused on excess and surplus lines of insurance for low frequency/high severity risks that were declined by the standard market. The Run-off Operations wrote business throughout the United States, generally through surplus lines brokers.

The claims departments of the Run-off Operations analyze reported claims, establish individual claim reserves, pay claims, provide claims-related services to clients and audit the claims activities of selected clients. The claims department’s evaluation of claims activity includes reviewing loss reports received from ceding companies to confirm that claims are covered under the terms of the relevant reinsurance contract, establishing reserves on an individual case basis and monitoring the adequacy of those reserves. The claims department also monitors the progress and ultimate outcome of the claims to determine that subrogation, salvage and other cost recovery opportunities have been adequately explored. The claims department performs these functions in coordination with the actuarial department.

In addition to evaluating and adjusting claims, the claims department conducts claims audits at the offices of selected ceding companies. The claims department also conducts annual claims audits of many client ceding companies.

REINSURANCE AND RETROCESSIONAL PROTECTION

We follow the customary insurance practice of reinsuring with other insurance companies a portion of the risks under the policies written by our insurance subsidiaries. This reinsurance is maintained to protect the insurance subsidiaries against the severity of losses on individual claims and unusually serious occurrences in which a number of claims produce an aggregate extraordinary loss. Although reinsurance does not discharge the insurance subsidiaries from their primary liabilities to policyholders for losses insured under the insurance policies, it does make the assuming reinsurer liable to the insurance subsidiaries for the reinsured portion of the risk.

The ceded reinsurance agreements of our insurance subsidiaries generally may be terminated at their annual anniversary by either party upon 30 to 120 days’ notice. In general, the reinsurance agreements are treaty agreements, which cover all underwritten risks of the types specified in the treaties. Our reinsurance is on a per risk and per occurrence basis. Per risk reinsurance offers reinsurance protection for each risk involved in each occurrence. Per occurrence reinsurance is a form of reinsurance under which the date of the loss event is deemed to be the date of the occurrence regardless of when reported and permits all losses arising out of one event to be aggregated.

See “Item 7 - MD&A - Reinsurance” and Note 5 in Item 8 of this 10-K for additional information.

LOSS RESERVES

Insurers establish reserves representing estimates of future amounts needed to pay claims with respect to insured events that have occurred, including events that have not been reported to the insurer. Reserves are also established for LAE representing the estimated expenses of settling claims, including legal and other fees, and general expenses of administering the claims adjustment process.

After a claim is reported, claims personnel establish a “case reserve” for the estimated amount of the ultimate payment. The estimate reflects the informed judgment of management based on reserving practices and management’s experience and knowledge regarding the nature and value of the specific type of claim. Claims personnel review and update their estimates as additional information becomes available and claims proceed toward resolution. In addition, reserves are also established on an aggregate basis:

·   to provide for losses incurred but not yet reported to the insurer;

·   to provide for the estimated expenses of settling claims, including legal and other fees and general expenses of administering the claims adjustment process; and

·   to adjust for the fact that, in the aggregate, case reserves may not accurately estimate the ultimate liability for reported claims.

Reserves are estimated using various generally accepted actuarial methodologies. As part of the reserving process, historical and industry data is reviewed and consideration is given to the anticipated impact of various factors such as legal developments, changes in social attitudes and economic conditions, including the effects of inflation. This

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process relies on the basic assumption that past experience, adjusted for the effect of current developments and probable trends, provides a reasonable basis for predicting future events. The reserving process provides implicit recognition of the impact of inflation and other factors affecting claims payments by taking into account changes in historic payment patterns and perceived probable trends. There is generally no precise method, however, for subsequently evaluating the adequacy of the consideration given to inflation or to any other specific factor, since the eventual deficiency or redundancy of reserves is affected by many factors, some of which are interdependent.

Due to the “long-tail” nature of a significant portion of our business, 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 us and our payment of that loss. We define long-tail business as those lines of business in which a majority of coverage involves average loss payment lags of several years beyond the expiration of the policy. Our major long-tail lines include our workers’ compensation and casualty reinsurance business. In addition, because reinsurers rely on their ceding companies to provide them with information regarding incurred losses, reported claims for reinsurers become known more slowly than for primary insurers and are generally subject to more unforeseen development and uncertainty. Estimating our ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management’s informed estimates, assumptions and judgments using data currently available. As additional experience and data become available regarding claims payment and reporting patterns, legal and legislative developments, judicial theories of liability, the impact of regulatory trends on benefit levels for both medical and indemnity payments, changes in social attitudes and economic conditions, the estimates are revised accordingly. If our ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at December 31, 2004, the related adjustments could have a material adverse effect on our financial condition, results of operations and liquidity.

The table on the next page presents the subsequent development of the estimated year-end property and casualty reserves, net of reinsurance (“net reserves”), for the ten years prior to 2004. The first section of the table shows the estimated net reserves that were recorded at the end of each respective year for all current and prior year unpaid losses and LAE. The second section shows the cumulative amounts of such previously recorded net reserves paid in succeeding years. The third section shows the re-estimates of the net reserves made in each succeeding year.

The cumulative deficiency (redundancy) as shown in the table represents the aggregate change in the reserve estimates from the original balance sheet dates through December 31, 2004; an increase in a loss estimate that related to a prior year occurrence generates a deficiency in each intervening year. For example, a deficiency first recognized in 2000 relating to losses incurred in 1994 would be included in the cumulative deficiency amount for each of the years 1994 through 1999. However, the deficiency would be reflected in operating results in 2000 only.

Conditions and trends that have affected the reserve development reflected in the table may change, and care should be exercised in extrapolating future reserve redundancies or deficiencies from such development.

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Consolidated Loss and Loss Adjustment Expense Development

December 31,

(dollar amounts in millions)

		1994			1995			1996			1997			1998		1999		2000		2001		2002		2003			2004
I. Initial estimated liability for
unpaid losses and LAE,
net of reinsurance	$	1,855.9		$	1,808.5		$	1,834.5		$	1,670.9		$	1,347.2	$	1,284.4	$	1,128.7	$	1,143.1	$	1,184.3	$	1,346.3		$	998.8
II. Amount of reserve paid,
net of reinsurance through:
- one year later	$	398.9		$	437.6		$	398.8		$	360.7		$	354.6	$	494.9	$	457.0	$	644.3	$	650.5	$	605.8		$	-
- two years later		763.7			780.0			669.6			646.0			717.7		764.1		838.8		1,064.2		1,015.2
- three years later		1,072.9			999.0			894.8			924.6			880.3		1,052.9		1,107.6		1,297.6
- four years later		1,252.2			1,183.5			1,118.2			1,013.0			1,125.8		1,248.3		1,226.1
- five years later		1,405.9			1,369.7			1,172.3			1,196.9			1,261.0		1,330.7
- six years later		1,573.2			1,407.9			1,325.2			1,289.7			1,327.8
- seven years later		1,595.8			1,542.2			1,394.5			1,336.0
- eight years later		1,722.5			1,609.8			1,428.2
- nine years later		1,783.3			1,637.1
- ten years later		1,806.1
III. Reestimated liability,
net of reinsurance, as of
- one year later	$	1,907.4		$	1,964.6		$	1,748.5		$	1,624.3		$	1,314.7	$	1,290.9	$	1,152.2	$	1,302.8	$	1,403.1	$	1,305.9		$	-
- two years later		2,073.4			1,866.8			1,700.5			1,557.6			1,299.7		1,304.1		1,269.4		1,499.0		1,395.6
- three years later		1,986.7			1,819.2			1,611.1			1,495.3			1,288.9		1,336.6		1,399.8		1,499.3
- four years later		1,942.0			1,742.1			1,542.3			1,480.8			1,326.3		1,426.9		1,397.3
- five years later		1,880.3			1,672.6			1,524.3			1,482.9			1,346.7		1,436.1
- six years later		1,822.1			1,658.0			1,519.0			1,487.5			1,350.2
- seven years later		1,807.6			1,655.3			1,514.0			1,492.4
- eight years later		1,807.3			1,650.0			1,517.8
- nine years later		1,804.9			1,655.1
- ten years later		1,804.7
IV. Cumulative deficiency
(redundancy):	$	(51.2	)	$	(153.4	)	$	(316.7	)	$	(178.5	)	$	3.0	$	151.7	$	268.6	$	356.2	$	211.3	$	(40.4	)	$	-
V. Net liability	$	1,855.9		$	1,808.5		$	1,834.5		$	1,670.9		$	1,347.2	$	1,284.4	$	1,128.7	$	1,143.1	$	1,184.3	$	1,346.3		$	998.8
Reinsurance recoverables		247.9			261.5			256.6			332.3			593.7		648.2		924.4		1,181.3		1,265.6		1,195.0			1,112.8
Gross liability	$	2,103.8		$	2,070.0		$	2,091.1		$	2,003.2		$	1,940.9	$	1,932.6	$	2,053.1	$	2,324.4	$	2,449.9	$	2,541.3		$	2,111.6
VI.  Re-estimated net liability	$	1,804.7		$	1,655.1		$	1,517.8		$	1,492.4		$	1,350.2	$	1,436.1	$	1,397.3	$	1,499.3	$	1,395.6	$	1,305.9
Re-estimated reinsurance recoverables		263.4			292.7			271.0			330.9			624.2		867.8		1,184.3		1,296.3		1,246.0		1,200.5
Re-estimated gross liability	$	2,068.1		$	1,947.8		$	1,788.8		$	1,823.3		$	1,974.4	$	2,303.9	$	2,581.6	$	2,795.6	$	2,641.6	$	2,506.4

For additional information regarding our loss reserves and prior year loss development, see Note 4 in Item 8 of this Form 10-K and the sections of our MD&A in Item 7 of this Form 10-K entitled “The PMA Insurance Group - Losses and Expenses,” “Run-off Operations” and “Loss Reserves and Reinsurance.”

Unpaid losses and LAE on a GAAP basis were $2,111.6 million and $2,541.3 million at December 31, 2004 and 2003, respectively. Unpaid losses and LAE on a statutory basis were $823.3 million and $1,080.1 million at December 31, 2004 and 2003, respectively. The difference between GAAP and statutory loss reserves reflects: 1) reinsurance receivables on unpaid losses and LAE, which are recorded as assets for GAAP but netted against statutory loss reserves, and 2) non-U.S. domiciled insurance companies, whose unpaid losses and LAE are included for GAAP purposes, but not for statutory purposes.

At December 31, 2004 and 2003, our gross unpaid losses and LAE were recorded net of discount of $244.2 million and $247.0 million, respectively. Our net liability for unpaid losses and LAE was recorded net of discount of $70.5 million and $82.3 million at December 31, 2004 and 2003, respectively. Unpaid losses for our workers’ compensation claims, net of reinsurance, at December 31, 2004 and 2003 were $448.7 million and $433.8 million,

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net of discount of $48.2 million and $54.6 million, respectively. Unpaid losses on certain workers’ compensation claims are discounted to present value using our payment experience and mortality and interest assumptions in accordance with statutory accounting practices prescribed by the Pennsylvania Insurance Department. We also discount unpaid losses and LAE for certain other claims at rates permitted by domiciliary regulators or if the timing and amount of such claims are fixed and determinable. Pre-tax income (loss) is negatively impacted by accretion of discount on prior year reserves and favorably impacted by recording of discount for current year reserves. The net of these amounts is referred to as net discount accretion. Net discount accretion reduced pre-tax results by $3.9 million in 2004 and benefited 2003 pre-tax results by $6.3 million.

At December 31, 2004, our loss reserves were stated net of $30.8 million of salvage and subrogation. Our policy with respect to estimating the amounts and realizability of salvage and subrogation is to develop accident year schedules of historic paid salvage and subrogation by line of business, which are then projected to an ultimate basis using actuarial projection techniques. The anticipated salvage and subrogation is the estimated ultimate salvage and subrogation less any amounts received by us. The realizability of anticipated salvage and subrogation is reflected in the historical data that is used to complete the projection, as historical paid data implicitly considers realization and collectibility.

INVESTMENTS

An important component of our financial results is the return on invested assets. Our investment objectives are to (i) seek competitive after-tax income and total return as appropriate, (ii) maintain medium to high investment grade asset quality and high marketability, (iii) maintain maturity distribution commensurate with our business objectives, (iv) provide portfolio flexibility for changing business and investment climates and (v) provide liquidity to meet operating objectives. Our investment strategy includes guidelines for asset quality standards, asset allocations among investment types and issuers, and other relevant criteria for our portfolio. In addition, invested asset cash flows, both current income and investment maturities, are structured after considering projected liability cash flows of loss reserve payouts using actuarial models. Property and casualty claim demands are somewhat unpredictable in nature and require liquidity from the underlying invested assets, which are structured to emphasize current investment income to the extent consistent with maintaining appropriate portfolio quality and diversity. The liquidity requirements are met primarily through publicly traded fixed maturities as well as operating cash flows and short-term investments.

The Strategy and Operations Committee of our Board of Directors is responsible for reviewing our investment objectives. We retain outside investment advisers to provide investment advice and guidance, supervise our portfolio and arrange securities transactions through brokers and dealers. Investments by the Pooled Companies and PMA Capital Insurance Company must comply with the insurance laws and regulations of the Commonwealth of Pennsylvania.

We do not currently have any derivative financial instruments in our investment portfolio. We do not use derivatives for speculative purposes. Our investment portfolio does not contain any significant concentrations in single issuers other than U.S. Treasury and agency obligations. In addition, we do not have a significant concentration of investments in any single industry segment other than finance companies, which comprise 10% of invested assets at December 31, 2004. Included in this industry segment are diverse financial institutions, including financing subsidiaries of automotive manufacturers.

For additional information on our investments, including carrying values by category, quality ratings and net investment income, see “Item 7 - MD&A - Investments” as well as Notes 2-B and 3 in Item 8 of this Form 10-K.

RATINGS

Nationally recognized ratings agencies rate the financial strength of our principal insurance subsidiaries and of the debt of PMA Capital Corporation. Ratings are not recommendations to buy our securities.

Rating agencies rate insurance companies based on financial strength and the ability to pay claims, factors more relevant to policyholders than investors. We believe that the ratings assigned by nationally recognized, independent rating agencies, particularly A.M. Best, are material to our operations. We currently participate in the ratings process of A.M. Best and Moody’s Investor Services. Other rating agencies also rate our securities, which we do not disclose in our reports.

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The rating scales of A.M. Best and Moody’s are characterized as follows:

·   A.M. Best—A++ to S (“Superior” to “Suspended”)

·   Moody’s—Aaa to C (Exceptional financial security to lowest-rated class)

As of February 28, 2005, the financial strength ratings of our principal insurance subsidiaries and the debt ratings of PMA Capital Corporation, as published by the principal rating agencies, are as follows:

Financial Strength Ratings:	A. M. Best			Moody's(1)
Pooled Companies(2)	A-	(4th of 16	)	Ba1	(11th of 21	)
PMA Capital Insurance Company	B+	(6th of 16	)	B1	(14th of 21	)
Senior Debt Ratings:	Moody's(1)
PMA Capital Corporation	B3	(16th of 21	)

(1)   Developing outlook.

(2)   The Pooled Companies represent the domestic subsidiary insurance companies through which The PMA Insurance Group writes its insurance business, which share results through an intercompany pooling agreement. The Pooled Companies are rated as one entity.

A downgrade in the A.M. Best financial strength rating of the Pooled Companies would result in a material loss of business as policyholders move to other companies with higher financial strength ratings. Accordingly, such a downgrade to our A.M. Best insurer financial strength rating would have a material adverse effect on our results of operations, liquidity and capital resources.

A downgrade in our debt ratings will affect our ability to raise additional debt with terms and conditions similar to our current debt, and, accordingly, will increase our cost of capital. In addition, a downgrade of our debt ratings will make it more difficult to raise capital to refinance any maturing debt obligations and to maintain or improve the current financial strength ratings of our principal insurance subsidiaries.

These ratings are subject to revision or withdrawal at any time by the rating agencies, and therefore, no assurance can be given that we or our principal insurance subsidiaries can maintain these ratings. Each rating should be evaluated independently of any other rating.

See “Risk Factors” beginning on page 21 for additional information regarding our ratings.

REGULATORY MATTERS

General

One or more of The PMA Insurance Group’s Pooled Companies are licensed to transact insurance business in, and are subject to regulation and supervision by, 52 jurisdictions (including Puerto Rico and the District of Columbia). PMACIC is licensed or accredited to transact business in, and is subject to regulation and supervision by, 49 states and the District of Columbia. Our insurance subsidiaries are authorized and regulated in all jurisdictions where they conduct insurance business.

In supervising and regulating insurance and reinsurance companies, state insurance departments, charged primarily with protecting policyholders and the public rather than investors, enjoy broad authority and discretion in applying applicable insurance laws and regulations for that purpose. The Pooled Companies and PMACIC are domiciled in Pennsylvania, and the Pennsylvania Insurance Department exercises principal regulatory jurisdiction over them. The extent of regulation by the states varies, but in general, most jurisdictions have laws and regulations governing standards of solvency, adequacy of reserves, reinsurance, capital adequacy and standards of business conduct.

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In addition, statutes and regulations usually require the licensing of insurers and their agents, the approval of policy forms, certain terms and conditions and related material and, for certain lines of insurance, including rate-sensitive workers’ compensation, the approval of rates. Property and casualty reinsurers are generally not subject to filing or other regulatory requirements applicable to primary standard lines insurers with respect to rates, underwriting rules and policy forms. The form and content of statutory financial statements are regulated.

The U.S. federal government does not directly regulate the insurance industry; however, federal initiatives from time to time can impact the insurance industry. In November 2002, the Terrorism Risk Insurance Act of 2002 (“TRIA”) became effective. TRIA provides federal reinsurance protection for property and casualty losses in the United States or to United States aircraft or vessels arising from certified terrorist acts through the end of 2005. TRIA expires on December 31, 2005 and although legislation has been introduced in Congress to extend TRIA, there is no assurance that it will be re-enacted or extended. For terrorist acts to be covered under TRIA, they must be certified as such by the United States Government and must be committed by individuals acting on behalf of a foreign person or interest. TRIA contains a “make available” provision, which requires insurers subject to the Act, to offer coverage for acts of terrorism that does not differ materially from the terms (other than price), amounts and other coverage limitations offered to the policyholder for losses from events other than acts of terrorism. The “make available” provision permits exclusions for certain types of losses, if a state permits exclusions for such losses. TRIA requires insurers to retain losses based on a percentage of their commercial lines direct earned premiums for the prior year equal to a 15% deductible for 2005. The federal government covers 90% of the losses above the deductible, while a company retains 10% of the losses. TRIA contains an annual limit of $100 billion of covered industry-wide losses. TRIA applies to commercial lines of property and casualty insurance, including workers’ compensation insurance, offered by The PMA Insurance Group, but does not apply to reinsurance. The PMA Insurance Group would have a deductible of approximately $70 million in 2005 if a covered terrorist act were to occur.

Workers’ compensation insurers were not permitted to exclude terrorism from coverage prior to the enactment of TRIA, and continue to be subject to this prohibition. When underwriting new and renewal commercial insurance business, The PMA Insurance Group considers the added potential risk of loss due to terrorist activity, and this may lead it to decline to write or non-renew certain business. Additional rates may be charged for terrorism coverage, and as of January 1, 2004, The PMA Insurance Group had adopted premium charges for workers’ compensation insurance in all states. The PMA Insurance Group has also refined its underwriting procedures in consideration of terrorism risks.

However, because of the unpredictable nature of terrorism, TRIA’s uncertain application, the amount of terrorism losses that The PMA Insurance Group must retain under TRIA and the fact that TRIA does not apply to, and we do not have terrorism exclusions in all of, our reinsurance business, future terrorist attacks may result in losses that could have a material adverse effect on our financial condition, results of operations and liquidity. For additional information regarding The PMA Insurance Group’s underwriting criteria, see Business - The PMA Insurance Group, Underwriting on page 6 of this Form 10-K.

Further, although we do not write health insurance, federal and state rules and regulations affecting health care services can affect the workers’ compensation services we provide. We cannot predict what health care reform legislation will be adopted by Congress or by state legislatures where we do business or the effect, if any, that the adoption of health care legislation or regulations at the federal or state level will have on our results of operations.

State insurance departments in jurisdictions in which our insurance subsidiaries do business also conduct periodic examinations of their respective operations and accounts and require the filing of annual and other reports relating to their financial condition. The Pennsylvania Insurance Department has completed examinations of PMA Capital Insurance Company and the Pooled Companies as of December 31, 2002. The examinations did not result in any material adjustments to our statutory capital as previously filed in our statutory financial statements. No material qualitative matters were raised as a result of the examinations.

Insurance Holding Company Regulation

The Company and its insurance subsidiaries are subject to regulation pursuant to the insurance holding company laws of the Commonwealth of Pennsylvania. Pennsylvania’s state insurance holding company laws generally require an insurance holding company and insurers and reinsurers that are members of such insurance holding company's system to register with the insurance department authorities, to file with it certain reports disclosing information including their capital structure, ownership, management, financial condition, certain intercompany transactions, including material transfers of assets and intercompany business agreements, and to report material changes in that

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information. These laws also require that intercompany transactions be fair and reasonable and, under certain circumstances, prior approval of the Pennsylvania Insurance Department must be received before entering into an intercompany transaction. Further, these laws require that an insurer's policyholders’ surplus following any dividends or distributions to shareholder affiliates be reasonable in relation to the insurer's outstanding liabilities and adequate for its financial needs.

As a result of discussions with the Pennsylvania Insurance Department, PMACIC entered into a voluntary agreement with the Department, dated December 22, 2003. Pursuant to the agreement, PMACIC agreed to request the Department’s prior approval of certain actions, including: entering into any new reinsurance contracts, treaties or agreements, except as may be required by law; making any payments, dividends or other distributions to, or engaging in any transactions with, any of PMACIC’s affiliates; making any withdrawal of monies from PMACIC’s bank accounts or making any disbursements, payments or transfers of assets in an amount exceeding five percent (which equaled $32.9 million as of December 31, 2004) of the fair market value of PMACIC’s then aggregate cash and investments; incurring any debt, obligation or liability for borrowed money, pledging its assets or loaning monies to any person or entity (whether or not affiliated); appointing any new director or executive officer; or altering its or its Pennsylvania-domiciled insurance company subsidiaries’ ownership structure. The letter agreement shall remain in effect until the Commissioner, or PMACIC and the Commissioner, determine it is no longer necessary, or until and unless it is superseded by a regulatory order.

In June 2004, the Pennsylvania Insurance Department approved our application for the Pooled Companies, previously subsidiaries of PMACIC, to become direct, wholly owned subsidiaries of PMA Capital Corporation. However, in its Order approving the transfer of the Pooled Companies from PMACIC to PMA Capital Corporation, the Pennsylvania Insurance Department prohibited PMACIC from any declaration or payment of dividends, return of capital or any other types of distributions in 2004 and 2005 to PMA Capital Corporation. In 2006, PMACIC may declare and pay ordinary dividends or returns of capital without the prior approval of the Pennsylvania Insurance Department if, immediately after giving effect to the dividend or returns of capital, PMACIC’s risk-based capital equals or exceeds 225% of Authorized Control Level Capital as defined by the National Association of Insurance Commissioners. In 2007 and beyond, PMACIC may make dividend payments, as long as such dividends are not considered “extraordinary” under Pennsylvania insurance law.

Under Pennsylvania law, no person may acquire, directly or indirectly, a controlling interest in our capital stock unless such person, corporation or other entity has obtained prior approval from the Commissioner for such acquisition of control. Pursuant to the Pennsylvania law, any person acquiring, controlling or holding the power to vote, directly or indirectly, ten percent or more of the voting securities of an insurance company, is presumed to have "control" of such company. This presumption may be rebutted by a showing that control does not exist in fact. The Commissioner, however, may find that "control" exists in circumstances in which a person owns or controls a smaller amount of voting securities. To obtain approval from the Commissioner of any acquisition of control of an insurance company, the proposed acquirer must file with the Commissioner an application containing information regarding: the identity and background of the acquirer and its affiliates; the nature, source and amount of funds to be used to carry out the acquisition; the financial statements of the acquirer and its affiliates; any potential plans for disposition of the securities or business of the insurer; the number and type of securities to be acquired; any contracts with respect to the securities to be acquired; any agreements with broker-dealers; and other matters.

Other jurisdictions in which our insurance subsidiaries are licensed to transact business may have requirements for prior approval of any acquisition of control of an insurance or reinsurance company licensed or authorized to transact business in those jurisdictions. Additional requirements in those jurisdictions may include re-licensing or subsequent approval for renewal of existing licenses upon an acquisition of control. As further described below, laws that govern the holding company structure also govern payment of dividends to us by our insurance subsidiaries.

Restrictions on Subsidiaries’ Dividends and Other Payments

We are a holding company that transacts substantially all of our business directly and indirectly through subsidiaries. Our primary assets are the stock of our operating subsidiaries. Our ability to meet our obligations on our outstanding debt and to pay dividends and our general and administrative expenses depends on the surplus and earnings of our subsidiaries and the ability of our subsidiaries to pay dividends or to advance or repay funds to us.

Under Pennsylvania laws and regulations, our insurance subsidiaries may pay dividends only from unassigned surplus and future earnings arising from their businesses and must receive prior approval of the Pennsylvania

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Insurance Commissioner to pay a dividend if such dividend would exceed the statutory limitation. The current statutory limitation is the greater of (i) 10% of the insurer's policyholders' surplus, as shown on its last annual statement on file with the Pennsylvania Insurance Commissioner or (ii) the insurer's statutory net income for the previous calendar year, but in no event to exceed statutory unassigned surplus. Pennsylvania law gives the Pennsylvania Insurance Commissioner broad discretion to disapprove requests for dividends in excess of these limits. Pennsylvania law also provides that following the payment of any dividend, the insurer's policyholders' surplus must be reasonable in relation to its outstanding liabilities and adequate for its financial needs, and permits the Pennsylvania Insurance Commissioner to bring an action to rescind a dividend which violates these standards. In the event that the Pennsylvania Insurance Commissioner determines that the policyholders’ surplus of one subsidiary is inadequate, the Commissioner could use his or her broad discretionary authority to seek to require us to apply payments received from another subsidiary for the benefit of that insurance subsidiary.

The Pooled Companies paid dividends of $12.1 million to PMA Capital Corporation in 2004. As of December 31, 2004, The PMA Insurance Group’s Pooled Companies can pay up to $23.5 million in dividends to PMA Capital Corporation during 2005 without the prior approval of the Pennsylvania Insurance Department. In considering its future dividend policy, the Pooled Companies will consider, among other things, the impact of paying dividends on its financial strength ratings. See “Insurance Holding Company Regulation” on page 14 for information regarding restrictions on PMACIC’s ability to pay dividends to PMA Capital Corporation.

In addition to the regulatory restrictions, we may not declare or pay cash dividends or distributions on our Class A Common stock if we elect to exercise our right to defer interest payments on our $43.8 million of trust preferred debt outstanding.

Risk-Based Capital

The National Association of Insurance Commissioners (“NAIC”) has adopted risk-based capital requirements for property/casualty insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, asset and liability matching, loss reserve adequacy and other business factors. Under risk-based capital (“RBC”) requirements, regulatory compliance is determined by the ratio of a company’s total adjusted capital, as defined by the NAIC, to its authorized control level of RBC (known as the RBC ratio), also as defined by the NAIC.

Four levels of regulatory attention may be triggered if the RBC ratio is insufficient:

·   “Company action level”—If the RBC ratio is between 150% and 200%, then the insurer must submit a plan to the regulator detailing corrective action it proposes to undertake.

·   “Regulatory action level”—If the RBC ratio is between 100% and 150%, then the insurer must submit a plan, but a regulator may also issue a corrective order requiring the insurer to comply within a specified period.

·   “Authorized control level”—If the RBC ratio is between 70% and 100%, then the regulatory response is the same as at the “Regulatory action level,” but in addition, the regulator may take action to rehabilitate or liquidate the insurer.

·   “Mandatory control level”—If the RBC ratio is less than 70%, then the regulator must rehabilitate or liquidate the insurer.

At December 31, 2004, the RBC ratios of the Pooled Companies ranged from 428% to 1036% and PMACIC’s RBC ratio was 379%.

We believe that we will be able to maintain the RBC ratios of our insurance subsidiaries in excess of “Company action level” through prudent underwriting, claims handling, investing and capital management. However, no assurances can be given that developments affecting the insurance subsidiaries, many of which could be outside of our control, including but not limited to changes in the regulatory environment, economic conditions and competitive conditions in the jurisdictions in which we write business, will not cause the RBC ratios to fall below required levels resulting in a corresponding regulatory response.

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The NAIC has also developed a series of twelve ratios (known as the IRIS ratios) designed to further assist regulators in assessing the financial condition of insurers. These ratio results are computed annually and reported to the NAIC and the insurer’s state of domicile. In 2004, each of the Pooled Companies reported unusual values in two ratios, relating to: (1) change in net premiums written, and (2) investment yield. The unusual value related to change in net premiums written was a result of our decrease in writings primarily due to the B++ financial strength rating. The unusual value related to investment yield related primarily to a decrease in yield on our bond portfolio.

In 2004, PMACIC reported five unusual values, relating to: (1) liabilities to liquid assets ratio, (2) investment yield, (3) change in policyholder’s surplus, (4) the two-year overall operating ratio, and (5) change in net premiums. The unusual value relating to the liabilities to liquid assets ratio is principally due to assets, such as funds held by reinsureds and deposit accounting assets, that are not included as assets for purposes of the calculation. The unusual value related to investment yield relates primarily to a decrease in yield on our bond portfolio. The unusual value related to the change in policyholder’s surplus is due to the transfer of the Pooled Companies to PMA Capital Corporation during 2004. The unusual value relating to the two-year overall operating ratio related to the unfavorable prior year loss development in 2003. The unusual value for change in net premiums written related primarily to the cessation of writing new business at PMACIC.

EMPLOYEES

As of February 28, 2005, we had approximately 1,025 full-time employees. None of our employees are represented by a labor union and we are not a party to any collective bargaining agreements. We consider the relationship with our employees to be good.

AVAILABLE INFORMATION

The address for our internet website is www.pmacapital.com. We make available, free of charge, through our internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

The Annual Statements for PMACIC and the Pooled Companies, which we file with the Pennsylvania Insurance Department, contain financial statements prepared in accordance with statutory accounting practices. Annual Statements for the years ended December 31, 2004, 2003 and 2002 for each of these subsidiaries are available on the Investor Information portion of our website www.pmacapital.com.

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GLOSSARY OF SELECTED INSURANCE TERMS

Accident year	The year in which an occurrence occurs, regardless of when any policies covering it are written, when the occurrence is reported, or when the associated claims are closed and paid.
Acquisition expense	The cost of acquiring both new and renewal insurance business, including commissions to agents or brokers and premium taxes.
Agent	One who negotiates insurance contracts on behalf of an insurer. The agent receives a commission for placement and other services rendered.
Broker	One who negotiates insurance or reinsurance contracts between parties. An insurance broker negotiates on behalf of an insured and a primary insurer. A reinsurance broker negotiates on behalf of a primary insurer or other reinsured and a reinsurer. The broker receives a commission for placement and other services rendered.
Case reserves	Loss reserves established with respect to individual reported claims.
Casualty insurance and/or
reinsurance	Insurance and/or reinsurance that is concerned primarily with the losses caused by injuries to third persons (in other words, persons other than the policyholder) and the legal liability imposed on the insured resulting therefrom.
Catastrophe reinsurance	A form of excess of loss property reinsurance that, subject to a specified limit, indemnifies the ceding company for the amount of loss in excess of a specified retention with respect to an accumulation of losses resulting from a catastrophic event.
Cede; ceding company	When a company reinsures its risk with another, it “cedes” business and is referred to as the “ceding company.”
Claims-made policy	A term describing an insurance policy that covers claims made (reported or filed) during the year the policy is in force for any incidents that occur that year or during any previous period during which the insured was covered under a “claims-made” contract.
Combined ratio	The sum of losses and LAE, acquisition expenses, operating expenses and policyholders’ dividends, where applicable, all divided by net premiums earned.
Direct reinsurer, direct
underwriter, direct writer	A reinsurer that markets and sells reinsurance directly to its reinsureds without the assistance of brokers.
Excess and surplus lines	Surplus lines risks are those risks not fitting normal underwriting patterns, involving a degree of risk that is not commensurate with standard rates and/or policy forms, or that will not be written by standard carriers because of general market conditions. Excess insurance refers to coverage that attaches for an insured over the limits of a primary policy or a stipulated self-insured retention. Policies are bound or accepted by carriers not licensed in the jurisdiction where the risk is located, and generally are not subject to regulations governing premium rates or policy language.
Excess of loss reinsurance	The generic term describing reinsurance that indemnifies the reinsured against all or a specified portion of losses on underlying insurance policies in excess of a specified dollar amount, called a “layer” or “retention.” Also known as nonproportional reinsurance.

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Facultative reinsurance	The reinsurance of all or a portion of the insurance provided by a single policy. Each policy reinsured is separately negotiated.
Finite risk reinsurance	A form of reinsurance combining common features of traditional reinsurance with additional features that recognize the reinsured’s needs regarding cash flows, investment yields and capital management. This type of reinsurance usually includes caps on the maximum gain or loss to the reinsurer.

Funds held	The holding by a ceding company of funds representing the unearned premium reserve or the outstanding loss reserve applied to the business it cedes to a reinsurer.
Gross premiums written	Total premiums for direct insurance and reinsurance assumed during a given period.
Incurred but not reported
(“IBNR”) reserves	Loss reserves for estimated losses that have been incurred but not yet reported to the insurer or reinsurer.
Incurred losses	The total losses sustained by an insurance company under a policy or policies, whether paid or unpaid. Incurred losses include a provision for claims that have occurred but have not yet been reported to the insurer (“IBNR”).
Loss adjustment expenses
("LAE")	The expenses of settling claims, including legal and other fees and the portion of general expenses allocated to claim settlement costs.
Loss and LAE ratio	Loss and LAE ratio is equal to losses and LAE divided by earned premiums.
Loss reserves	Liabilities established by insurers and reinsurers to reflect the estimated cost of claims payments that the insurer or reinsurer ultimately will be required to pay in respect of insurance or reinsurance it has written. Reserves are established for losses and for LAE and consist of case reserves and bulk reserves.
Manual rates	Insurance rates for lines and classes of business that are approved and published by state insurance departments.
Net premiums earned	The portion of net premiums written that is earned during a period and recognized for accounting purposes as revenue.
Net premiums written	Gross premiums written for a given period less premiums ceded to reinsurers during such period.
Occurrence policy	A term describing an insurance policy that covers an incident occurring while the policy is in force regardless of when the claim arising out of that incident is asserted.
Per occurrence	A form of insurance or reinsurance under which the date of the loss event is deemed to be the date of the occurrence, regardless of when reported and permits all losses arising out of one event to be aggregated instead of being handled on a risk-by-risk basis.
Policyholders’ dividend ratio	The ratio of policyholders’ dividends to earned premiums.
Primary insurer	An insurance company that issues insurance policies to consumers or businesses on a first dollar basis, sometimes subject to a deductible.

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Pro rata reinsurance A form of reinsurance in which the reinsurer shares a proportional part of the ceded insurance liability, premiums and losses of the ceding company. Pro rata reinsurance also is known as proportional reinsurance or participating reinsurance.

Property insurance
and/or reinsurance	Insurance and/or reinsurance that indemnifies a person with an insurable interest in tangible property for his property loss, damage or loss of use.
Reinsurance	A transaction whereby the reinsurer, for consideration, agrees to indemnify the reinsured company against all or part of the loss the company may sustain under the policy or policies it has issued. The reinsured may be referred to as the original or primary insurer, the direct writing company or the ceding company.
Retention, retention layer	The amount or portion of risk that an insurer or reinsurer retains for its own account. Losses in excess of the retention layer are paid by the reinsurer or retrocessionaire. In proportional treaties, the retention may be a percentage of the original policy’s limit. In excess of loss business, the retention is a dollar amount of loss, a loss ratio or a percentage.
Retrocession;
retrocessionaire	A transaction whereby a reinsurer cedes to another reinsurer (the “retrocessionaires”) all or part of the reinsurance it has assumed. Retrocession does not legally discharge the ceding reinsurer from its liability with respect to its obligations to the reinsured.
Statutory accounting
principles ("SAP")	Recording transactions and preparing financial statements in accordance with the rules and procedures prescribed or permitted by state insurance regulatory authorities and the NAIC.
Statutory or policyholders’
surplus; statutory capital
& surplus	The excess of admitted assets over total liabilities (including loss reserves), determined in accordance with SAP.
Treaty reinsurance	The reinsurance of a specified type or category of risks defined in a reinsurance agreement (a “treaty”) between a primary insurer or other reinsured and a reinsurer. Typically, in treaty reinsurance, the primary insurer or reinsured is obligated to offer and the reinsurer is obligated to accept a specified portion of all agreed upon types or categories of risks originally written by the primary insurer or reinsured.
Underwriting	The insurer’s/reinsurer's process of reviewing applications submitted for insurance coverage, deciding whether to accept all or part of the coverage requested and determining the applicable premiums.
Unearned premiums	The portion of a premium representing the unexpired portion of the exposure period as of a certain date.
Unearned premium reserve	Liabilities established by insurers and reinsurers to reflect unearned premiums which are refundable to policyholders if an insurance or reinsurance contract is canceled prior to expiration of the contract term.

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RISK FACTORS

Our business faces significant risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition, results of operations or prospects could be affected materially.

Reserves are estimates and do not and cannot represent an exact measure of liability. If our actual losses from insureds exceed our loss reserves, our financial results would be adversely affected.

We establish reserves representing estimates of future amounts needed to pay claims with respect to insured events that have occurred, including events that have not been reported to us. We also establish reserves for loss adjustment expenses, which represent the estimated expenses of settling claims, including legal and other fees, and general expenses of administering the claims adjustment process. Our reserves as of December 31, 2004 were in the aggregate $2.1 billion, consisting of $1.2 billion related to The PMA Insurance Group and $919 million related to Run-off Operations. During the years ended December 31, 2003 and 2002, we increased our reserves for prior years’ losses and loss adjustment expenses by $218.8 million and $159.7 million, respectively. Reserves are estimates and do not and cannot represent an exact measure of liability. The reserving process involves actuarial models, which rely on the basic assumption that past experience, adjusted for the effect of current developments and likely trends in claims severity, frequency, judicial theories of liability and other factors, is an appropriate basis for predicting future events. The inherent uncertainties of estimating insurance reserves are generally greater for casualty coverages than for property coverages. Due to the “long-tail” nature of a significant portion of our business, 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 us and our payment of that loss. We define long-tail business as those lines of business in which a majority of coverage involves average loss payment lags of several years beyond the expiration of the policy. Our major long-tail lines include our workers’ compensation and casualty reinsurance business. In addition, because reinsurers rely on their ceding companies to provide them with information regarding incurred losses, liabilities for reinsurers become known more slowly than for primary insurers and are subject to more unforeseen development and uncertainty.

Reserve estimates are continually refined through an ongoing process as further claims are reported and settled and additional information concerning loss experience becomes known. Because setting reserves is inherently uncertain, our current reserves may prove inadequate in light of subsequent developments. If we increase our reserves, our earnings for the period will generally decrease by a corresponding amount. Therefore, future reserve increases could have a material adverse effect on our results of operations, financial condition and financial strength and credit ratings.

We have recorded significant reserve charges in the past and if we experience additional significant reserve charges it could adversely affect our ability to continue in the ordinary course of our business.

We have recorded significant reserve charges in the past. In the third quarter of 2003, we recorded a charge of $150 million pre-tax, related to higher than expected underwriting losses, primarily from casualty reinsurance business written in accident years 1997 to 2000. As a result of this charge, the financial strength ratings of our insurance subsidiaries and our debt ratings were reduced, and we decided to exit the reinsurance business. We also suspended the payment of our regular cash dividend. Our capital position was also diminished. If, in the future, actual losses and loss adjustment expenses develop larger than our loss reserve estimates, which may be due to a wide range of factors, including inflation, changes in claims and litigation trends and legislative or regulatory changes, we would have to increase reserves. A significant increase in reserves could have a material adverse effect on our ability to continue in the ordinary course of our business.

We experienced a significant reduction in premium volume in 2004 following our ratings downgrade.

We reported consolidated net premiums written of $1,192 million in 2003. For 2004, we had consolidated net premiums written of $302 million, a decrease of $890 million, or 75%, from 2003. The lower net premiums written in 2004 reflect the impact of our decision to exit the reinsurance business and, to a lesser extent, the impact to The PMA Insurance Group’s operations of its “B++” A.M. Best financial strength rating between November 2003 and November 2004. A further reduction in premium volume, or a continuation of the reduced volumes experienced in 2004, would have a material adverse effect on our results of operations, liquidity and capital resources.

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Because insurance ratings, particularly from A.M. Best, are important to our policyholders downgrades in our ratings may adversely affect us.

Nationally recognized ratings agencies rate the financial strength of our principal insurance subsidiaries. Ratings are not recommendations to buy our securities.

Between November 2003 and November 2004, The PMA Insurance Group’s financial strength rating was downgraded from “A-” to “B++” which constrained its ability to attract and retain business. Certain clients, particularly large account clients and clients in the construction industry will not purchase property and casualty insurance from insurers with less than an “A-” (4th of 16) A.M. Best rating. The PMA Insurance Group’s “A-” rating was restored on November 15, 2004, however, any future downgrade in The PMA Insurance Group’s A.M. Best rating could result in a material loss of business as policyholders could move to other companies with higher financial strength ratings and we could lose key executives necessary to operate our business. Accordingly, such a downgrade to our insurer financial strength ratings will likely result in lower premiums written and lower profitability and would have a material adverse effect on our results of operations, liquidity and capital resources.

These ratings are subject to revision or withdrawal at any time by the rating agencies, and therefore, no assurance can be given that we or our principal insurance subsidiaries can maintain or improve these ratings. Each rating should be evaluated independently of any other rating.

The Pennsylvania Insurance Department’s restriction on the declaration and payment of dividends from PMA Capital Insurance Company could adversely affect our ability to meet our obligations.

In June 2004, the Pennsylvania Insurance Department approved our application for our primary insurance subsidiaries that comprise The PMA Insurance Group, or the Pooled Companies, previously subsidiaries of PMACIC, to become direct, wholly owned subsidiaries of PMA Capital Corporation. As a result, the Pooled Companies became direct subsidiaries of PMA Capital Corporation and can pay dividends directly to PMA Capital Corporation. In its Order approving the unstacking, the Pennsylvania Insurance Department prohibited PMACIC from any declaration or payment of dividends or return of capital or any other types of distributions in 2004 and 2005 to PMA Capital Corporation. In 2006, PMACIC may declare and pay ordinary dividends or return of capital without the prior approval of the Pennsylvania Insurance Department if, immediately after giving effect to the dividend or return of capital, PMACIC’s risk-based capital equals or exceeds 225% of Authorized Control Level Capital, as defined by the National Association of Insurance Commissioners. In 2007 and beyond, PMACIC may make dividend payments, as long as such dividends are not considered “extraordinary” under Pennsylvania law. As a result, we may not be able to receive dividends from PMACIC at times and in amounts necessary to meet our debt obligations and corporate expenses. As of December 31, 2004, the statutory surplus of PMACIC was $224.5 million and its risk based capital ratio was 379% of Authorized Control Level Capital.

We may not have sufficient funds to satisfy our obligations under our indebtedness and our other financial obligations.

As of December 31, 2004, we had $214.5 million of outstanding indebtedness. Our ability to service our indebtedness and to meet our other financial obligations will depend upon our future operating performance, which in turn is subject to market conditions and other factors, including factors beyond our control. In order to obtain funds sufficient to satisfy our obligations under our indebtedness as well as meet our other financial obligations, we may need to raise additional capital through the sale of securities or certain of our assets. However, we may not be able to enter into or complete any such transactions by the maturity date or put date of our indebtedness or on terms and conditions that are acceptable to us. In addition, we may be required to use all or a portion of the proceeds of such transactions to repay obligations under our 6.50% Convertible Debt or our 8.50% Monthly Income Senior Notes due 2018. Accordingly, we cannot assure you that we will have sufficient funds to satisfy our obligations under our indebtedness and to meet our other financial obligations.

The indentures governing our indebtedness restrict our ability to engage in certain activities.

The indentures governing our indebtedness restrict our ability to, among other things:

·incur additional debt;

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·pay dividends on or redeem or repurchase capital stock;

·make certain investments;

·enter into transactions with affiliates;

·transfer or dispose of capital stock of subsidiaries; and

·merge or consolidate with another company.

The above restrictions could limit our ability to obtain future financing and may prevent us from taking advantage of attractive business opportunities.

Because credit ratings are important to our creditors, downgrades in our credit ratings may adversely affect us.

Nationally recognized rating agencies rate the debt of PMA Capital Corporation. Ratings are not recommendations to buy our securities. A downgrade in our debt ratings will affect our ability to raise additional debt with terms and conditions similar to our current debt, and, accordingly, will increase our cost of capital. In addition, a downgrade of our debt ratings will make it more difficult to raise capital to refinance any maturing debt obligations and to maintain or improve the current financial strength ratings of our principal insurance subsidiaries.

Our reserves for asbestos and environmental claims may be insufficient.

Estimating reserves for asbestos and environmental exposures continues to be difficult because of several factors, including: (i) evolving methodologies for the estimation of the liabilities; (ii) lack of reliable historical claim data; (iii) uncertainties with respect to insurance and reinsurance coverage related to these obligations; (iv) changing judicial interpretations; and (v) changing government standards and regulations. We believe that our reserves for asbestos and environmental claims are appropriately established based upon known facts, existing case law and generally accepted actuarial methodologies. However, due to changing interpretations by courts involving coverage issues, the potential for changes in federal and state standards for clean-up and liability, as well as issues involving policy provisions, allocation of liability and damages among participating insurers, and proof of coverage, our ultimate exposure for these claims may vary significantly from the amounts currently recorded, resulting in a potential future adjustment that could be material to our financial condition, results of operations and liquidity. At December 31, 2004, 2003 and 2002, gross reserves for asbestos-related losses were $27.9 million, $37.8 million, and $42.1 million, respectively ($14.0 million, $17.8 million and $25.8 million, net of reinsurance, respectively). Of the net asbestos reserves, approximately $10.3 million, $14.9 million and $22.9 million related to IBNR losses at December 31, 2004, 2003 and 2002, respectively. At December 31, 2004, 2003 and 2002, gross reserves for environmental-related losses were $16.1 million, $14.2 million and $18.2 million, respectively ($6.4 million, $8.8 million and $14.3 million, net of reinsurance, respectively). Of the net environmental reserves, approximately $3.0 million, $3.7 million and $7.9 million related to IBNR losses at December 31, 2004, 2003 and 2002, respectively. All incurred asbestos and environmental losses were for accident years 1986 and prior.

The effects of emerging claims and coverage issues on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may harm our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. Recent examples of emerging claims and coverage issues that have affected us include:

·   increases in the number and size of claims relating to construction defects and mold, which often present complex coverage and damage valuation questions, making it difficult for us to predict our exposure to losses; and

·   changes in interpretation of the named insured provision with respect to the uninsured/ underinsured motorist coverage in commercial automobile policies, effectively broadening coverage and increasing our exposure to claims.

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The effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict and could harm our business.

We rely on independent agents and brokers and therefore we are exposed to certain risks.

Approximately 87% of The PMA Insurance Group’s business in 2004 was produced through independent agents and brokers. We do business with a large number of independent brokers on a non-exclusive basis and we cannot rely on their ongoing commitment to our insurance products.

In accordance with industry practice, our customers often pay the premiums for their policies to agents and brokers for payment over to us. These premiums are considered paid when received by the broker and, thereafter, the customer is no longer liable to us for those amounts, whether or not we have actually received the premiums from the agent or broker. Consequently, we assume a degree of credit risk associated with our reliance on agents and brokers in connection with the settlement of insurance balances.

Additionally, the New York Attorney General and certain state regulators have initiated investigations and commenced legal actions against certain brokers and other insurance companies concerning their commission agreements and other practices.  The outcome of these investigations and actions and the impact of any regulatory changes governing agent and broker commissions is uncertain.  Any disruption in the ability of agents and brokers to sell our insurance products could harm our business.

Our failure to realize our deferred income tax asset could lead to a writedown, which could adversely affect our results of operations.

Realization of our deferred income tax asset is dependent upon the generation of taxable income in those jurisdictions where the relevant tax losses and other timing differences exist. As of December 31, 2004, our net deferred tax asset was $86.5 million. Failure to achieve projected levels of profitability could lead to a writedown in the deferred tax asset if the recovery period becomes uncertain or longer than expected.

We face a risk of non-collectibility of reinsurance, which could materially affect our results of operations.

We follow the insurance practice of reinsuring with other insurance and reinsurance companies a portion of the risks under the policies written by our insurance and reinsurance subsidiaries (known as ceding). During 2004, we had $352.3 million of gross premiums written of which we ceded $50.7 million, or 14% of gross premiums written, to reinsurers for reinsurance protection. This reinsurance is maintained to protect our insurance and reinsurance subsidiaries against the severity of losses on individual claims and unusually serious occurrences in which a number of claims produce an aggregate extraordinary loss. Although reinsurance does not discharge our subsidiaries from their primary obligation to pay policyholders for losses insured under the policies we issue, reinsurance does make the assuming reinsurer liable to the insurance subsidiaries for the reinsured portion of the risk. As of December 31, 2004, we had $1.1 billion of reinsurance receivables from reinsurers for paid and unpaid losses, for which they are obligated to reimburse us under our reinsurance contracts. Our ability to collect reinsurance is dependent upon numerous factors including the solvency of our reinsurers, the payment performance of our reinsurers and whether there are any disputes or collection issues with our reinsurers. We perform credit reviews on our reinsurers, focusing on, among other things, financial capacity, stability, trends and commitment to the reinsurance business. We also require assets in trust, letters of credit or other acceptable collateral to support balances due from reinsurers not authorized to transact business in the applicable jurisdictions. Despite these measures, a reinsurer’s insolvency, inability or unwillingness to make payments under the terms of a reinsurance contract could have a material adverse effect on our results of operations and financial condition.

Because we are heavily regulated by the states in which we do business, we may be limited in the way we operate.

We are subject to extensive supervision and regulation in the states in which we do business. The supervision and regulation relate to numerous aspects of our business and financial condition. The primary purpose of the supervision and regulation is the protection of our insurance policyholders, and not our investors. The extent of regulation varies, but generally is governed by state statutes. These statutes delegate regulatory, supervisory and administrative authority to state insurance departments.

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This system of supervision and regulation covers, among other things:

·   standards of solvency, including risk-based capital measurements;

·   restrictions of certain transactions between our insurance subsidiaries and their affiliates, including us;

·   restrictions on the nature, quality and concentration of investments;

·   limitations on the rates that we may charge on our primary insurance business;

·   restrictions on the types of terms and conditions that we can include in the insurance policies offered by our primary insurance operations;

·   limitations on the amount of dividends that insurance subsidiaries can pay;

·   the existence and licensing status of the company under circumstances where it is not writing new or renewal business;

·   certain required methods of accounting;

·   reserves for unearned premiums, losses and other purposes; and

·   assignment of residual market business and potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies.

On December 22, 2003, PMACIC entered into a voluntary agreement with the Pennsylvania Insurance Department. Pursuant to the agreement, PMACIC has agreed to request the Pennsylvania Insurance Department’s prior approval of certain actions, including: entering into any new reinsurance contracts, treaties or agreements, except as may be required by law; making any payments, dividends or other distributions to, or engaging in any transactions with, any of PMACIC’s affiliates; making any withdrawal of monies from PMACIC’s bank accounts or making any disbursements, payments or transfers of assets in an amount exceeding five percent of the fair market value of PMACIC’s then aggregate cash and investments; incurring any debt, obligation or liability for borrowed money, pledging its assets or loaning monies to any person or entity (whether or not affiliated); appointing any new director or executive officer; or altering its or its Pennsylvania-domiciled insurance company subsidiaries’ ownership structure. Finally, the Pennsylvania Insurance Department may impose additional operational or administrative restrictions deemed necessary by the Pennsylvania Insurance Commissioner for implementation of the agreement. These restrictions, as well as any further restrictions on the conduct of PMACIC’s business, may adversely affect its ability to efficiently conduct the run-off of its insurance liabilities.

In June 2004, the Pennsylvania Insurance Department approved our application for the Pooled Companies, previously subsidiaries of PMACIC, to become direct, wholly owned subsidiaries of PMA Capital Corporation. However, in its Order approving the transfer of the Pooled Companies from PMACIC to PMA Capital Corporation, the Pennsylvania Insurance Department prohibited PMACIC from any declaration or payment of dividends, return of capital or any other types of distributions in 2004 and 2005 to PMA Capital Corporation. In 2006, PMACIC may declare and pay ordinary dividends or returns of capital without the prior approval of the Pennsylvania Insurance Department if, immediately after giving effect to the dividend or returns of capital, PMACIC’s risk-based capital equals or exceeds 225% of Authorized Control Level Capital as defined by the National Association of Insurance Commissioners. In 2007 and beyond, PMACIC may make dividend payments, as long as such dividends are not considered “extraordinary” under Pennsylvania insurance law.

The regulations of the state insurance departments may affect the cost or demand for our products and may impede us from obtaining rate increases on insurance policies offered by our primary insurance operations or taking other actions we might wish to take to increase our profitability. Further, we may be unable to maintain all required licenses and approvals and our business may not fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations, which may change from time to

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time. Also, regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from carrying on some or all of our activities or impose substantial fines. Further, insurance regulatory authorities have relatively broad discretion to issue orders of supervision, which permit such authorities to supervise the business and operations of an insurance company. As of December 31, 2004, no state insurance regulatory authority had imposed on us any substantial fines or revoked or suspended any of our licenses to conduct insurance business in any state or issued an order of supervision with respect to our insurance subsidiaries, which would have a material adverse effect on our results of operations or financial condition. In light of recent insolvencies of large property and casualty insurers, it is possible that the regulations governing the level of the guaranty fund or association assessments against us may change, requiring us to increase our level of payments.

Our results may fluctuate as a result of many factors, including cyclical changes in the insurance industry.

The results of companies in the property and casualty insurance industry historically have been subject to significant fluctuations and uncertainties. The industry’s profitability can be affected significantly by:

·   rising levels of actual costs that are not known by companies at the time they price their products;

·   volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes;

·   changes in reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers’ liability develop;

·   fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect returns on invested capital and may impact the ultimate payout of losses; and

·   volatility associated with the long-tail nature of the reinsurance business, which may impact our operating results.

The property and casualty insurance industry historically is cyclical in nature. The demand for property and casualty insurance can vary significantly, rising as the overall level of economic activity increases and falling as such activity decreases. The property and casualty insurance industry has been very competitive and the fluctuations in demand and competition and the impact on us of other factors identified above could have a negative impact on our results of operations and financial condition.

We operate in a highly competitive industry which makes it more difficult to attract and retain new business.

Our business is highly competitive and we believe that it will remain so for the foreseeable future. The PMA Insurance Group has six major competitors: Liberty Mutual Insurance Company, American International Group, Inc., Zurich/Farmers Group, St. Paul Travelers, The Hartford Insurance Group and CNA. All of these companies and some of our other competitors have greater financial, marketing and management resources than we do.

A number of new, proposed or potential legislative or industry developments could further increase competition in our industry. These developments include:

·   an influx of new capital in the marketplace as existing companies attempt to expand their business and new companies attempt to enter the insurance and reinsurance business;

·   the enactment of the Gramm-Leach-Bliley Act of 1999 (which permits financial services companies, such as banks and brokerage firms, to engage in certain insurance activities), which could result in increased competition from financial services companies;

·   programs in which state-sponsored entities provide property insurance in catastrophe-prone areas or other alternative markets types of coverage; and

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·   changing practices caused by technology, which have led to greater competition in the insurance business.

Many commercial property and casualty insurers and industry groups and associations currently offer alternative forms of risk protection in addition to traditional insurance products. These products, including large deductible programs and various forms of self-insurance that utilize captive insurance companies and risk retention groups, have been instituted to allow for better control of risk management and costs. We cannot predict how continued growth in alternative forms of risk protection will affect our future results of operations, but it could reduce our premium volume.

Following the terrorist attacks on September 11, 2001, a number of new insurers and reinsurers have been formed to compete in our industry, and a number of existing market participants have raised new capital which may enhance their ability to compete with us. In addition, other financial institutions are now able to offer services similar to our own as a result of the Gramm-Leach-Bliley Act, which was adopted in November 1999.

Because our investment portfolio is primarily fixed-income securities, the fair value of our investment portfolio and our investment income could suffer as a result of fluctuations in interest rates.

We currently maintain and intend to continue to maintain an investment portfolio primarily of fixed-income securities. The fair value of these securities can fluctuate depending on changes in interest rates. Generally, the fair market value of these investments increases or decreases in an inverse relationship to changes in interest rates, while net investment income earned by us from future investments in fixed-income securities will generally increase or decrease with interest rates. Our overall investment strategy is to invest in high quality securities while maintaining diversification to avoid significant concentrations in individual issuers, industry segments and geographic regions. However, there can be no assurance that our investment securities will not become impaired or decline in quality or value. All of our fixed-income securities are classified as available for sale; as a result, changes in the market value of our fixed-income securities are reflected in our balance sheet. Accordingly, changes in interest rates may result in fluctuations in the income from, and the valuation of, our fixed-income investments, which could have an adverse effect on our results of operations and financial condition.

Our business is dependent upon our key executives, certain of whom do not have employment agreements with restrictive covenants and can leave our employment at any time.

Our success depends significantly on the efforts and abilities of our key executives. We currently have employment agreements that include restrictive covenants with three of our key executives; however, we do not have employment agreements with our other executives. Accordingly, such other executives may leave our employ at any time. Our future results of operations could be adversely affected if we are unable to retain our current executives, attract new executives or if our current executives leave our employ and join companies that compete with us.

We have exposure to catastrophic events, which can materially affect our financial results.

We are subject to claims arising out of catastrophes that may have a significant effect on our results of operations, liquidity and financial condition. Catastrophes can be caused by various events, including hurricanes, windstorms, earthquakes, hailstorms, explosions, severe winter weather and fires. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Insurance companies are not permitted to reserve for catastrophes until such event takes place. Therefore, although we actively manage our exposure to catastrophes through our underwriting process and the purchase of reinsurance protection, an especially severe catastrophe or series of catastrophes, or terrorist event, could exceed our reinsurance protection and may have a material adverse impact on our financial condition, results of operations and liquidity.

Man-made events, such as terrorism, can also cause catastrophes. For example, the attack on the World Trade Center has, to date, resulted in approximately $30 million in pre-tax losses to us, after deduction of all reinsurance and retrocessional protection, for 2001. Because of the jury verdict on December 6, 2004 that concluded that the attack on the World Trade Center was two occurrences instead of one, this estimate may change. However, it is difficult to fully estimate our losses from the attack given the uncertain nature of damage theories and loss amounts, the possible development of additional facts related to the attack and whether the recent court decision will

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be successfully appealed. As more information becomes available, we may need to change our estimate of these losses.

Although the Terrorism Risk Insurance Act of 2002 (“TRIA”) may mitigate the impact of future terrorism losses in connection with the commercial insurance business offered by The PMA Insurance Group, because of its uncertain application, the amount of losses a company must retain and the fact that it does not apply to reinsurance business, future terrorist attacks may result in losses that have a material adverse effect on our financial condition, results of operations and liquidity. TRIA expires on December 31, 2005 and although legislation has been introduced in Congress to extend TRIA, there is no assurance that it will be re-enacted or extended.

We face a risk of non-availability of reinsurance, which could materially affect our ability to write business and our results of operations.

Market conditions beyond our control, such as the amount of surplus in the reinsurance market and natural and man-made catastrophes, determine the availability and cost of the reinsurance protection we purchase. We cannot assure you that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as are currently available. If we are unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient, we would either have to be willing to accept an increase in our net exposures or reduce our insurance writings.

Purported class action lawsuits may result in financial losses and may divert management resources. In addition, we are subject to litigation in the ordinary course of our business.

We and certain of our directors and key executive officers are defendants in several purported class actions that were filed in 2003 in the United States District Court for the Eastern District of Pennsylvania by alleged purchasers of our Class A common stock, the 4.25% Senior Convertible Debentures due 2022 and 8.50% Monthly Income Senior Notes due 2018. On June 28, 2004, the District Court issued an order consolidating the cases under the caption In Re PMA Capital Corporation Securities Litigation (civil action no. 03-6121) and appointing Sheet Metal Workers Local 9 Pension Trust, Alaska Laborers Employers Retirement Fund and Communications Workers of America for Employees’ Pension and Death Benefits as lead plaintiff. On September 20, 2004, the plaintiffs filed an amended and consolidated complaint on behalf of an alleged class of purchasers of our securities between May 5, 1999 and February 11, 2004. The complaint alleges, among other things, that the defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder by making materially false and misleading public statements and material omissions during the class period regarding our underwriting performance, loss reserves and related internal controls. The complaint alleges, among other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act by making materially false and misleading statements in registration statements and prospectuses about our financial results, underwriting performance, loss reserves and related internal controls.

The complaint seeks unspecified compensatory damages, the right to rescind the purchases of securities in the public offerings, interest, and plaintiffs’ reasonable costs and expenses, including attorneys’ fees and expert fees. We intend to vigorously defend against the claims asserted in this consolidated action. The lawsuit is in its earliest stages; therefore, it is not possible at this time to reasonably estimate the impact on us. However, the lawsuit may have a material adverse effect on our financial condition, results of operations and liquidity.

We are 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 our insureds, or as an insurer defending coverage claims brought against it by our policyholders or other insurers.

We may require additional capital in the future, which may not be available or may be available only on unfavorable terms.

Our capital requirements depend on many factors, including our ability to write new and renewal business and rating agency capital requirements. To the extent that our existing capital is insufficient to meet these requirements, we may need to raise additional funds through financings.

Any equity or debt financing, if available at all, may be on terms that are not favorable to us. Equity financings could result in dilution to our shareholders and the securities may have rights, preferences and privileges that are senior to those of our shares of common stock. If our need for capital arises because of significant losses,

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the occurrence of these losses may make it more difficult for us to raise the necessary capital. If we cannot obtain adequate capital on favorable terms or at all, our business, operating results and financial condition could be adversely affected.

We are an insurance holding company with no direct operations. Statutory requirements governing dividends from our principal operating subsidiaries could adversely affect our ability to meet our obligations.

We are a holding company that transacts substantially all of our business directly and indirectly through subsidiaries. Our primary assets are the stock of our operating subsidiaries. Our ability to meet our obligations on our outstanding debt and to pay dividends and our general and administrative expenses depends on the surplus and earnings of our subsidiaries and the ability of our subsidiaries to pay dividends or to advance or repay funds to us. Payments of dividends within any twelve month period and advances and repayments by our insurance operating subsidiaries are restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds. Generally this limitation is the greater of statutory net income for the preceding calendar year or 10% of the statutory surplus, but only to the extent of unassigned surplus. In addition, insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels, and could refuse to permit the payment of dividends of the maximum amounts calculated under any applicable formula.

Provisions in our charter documents may impede attempts to replace or remove our board or management with management favored by shareholders.

Our Restated Articles of Incorporation and Amended and Restated Bylaws contain provisions that could delay or prevent changes in our board of directors or management that shareholders may desire. These provisions include:

·   requiring advance notice requirements for nominations for election to the board of directors or for proposing business that can be acted on by shareholders at meetings;

·   establishing a classified board of directors and permitting our board to increase its size and appoint directors to fill newly created board vacancies;

·   requiring shareholders to show cause to remove one or more directors; and

·   prohibiting shareholders from acting by written consent.

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Item 2.Properties

Our headquarters are located in a four story, 110,000 square foot building that we own in Blue Bell, Pennsylvania. We lease approximately 27,000 square feet in Philadelphia, Pennsylvania. We also lease approximately 63,000 square feet of office space in Yardley, Pennsylvania, which previously housed our excess and surplus lines business and now is subleased to an unaffiliated third party.

Through various wholly owned subsidiaries, we also own and occupy additional office facilities in three other locations and rent additional office space for our insurance operations in 16 other locations. We believe that such owned and leased properties are suitable and adequate for our current business operations.

Item 3.Legal Proceedings

We are 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 our insureds, or as an insurer defending coverage claims brought against it by our policyholders or other insurers. While the outcome of all litigation involving us, 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 our 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 receivables by amounts that would be material to our financial condition, results of operations or liquidity.

We and certain of our directors and key executive officers are defendants in several purported class actions that were filed in 2003 in the United States District Court for the Eastern District of Pennsylvania by alleged purchasers of our Class A common stock, the 4.25% Senior Convertible Debentures due 2022 and 8.50% Monthly Income Senior Notes due 2018. On June 28, 2004, the District Court issued an order consolidating the cases under the caption In Re PMA Capital Corporation Securities Litigation (civil action no. 03-6121) and appointing Sheet Metal Workers Local 9 Pension Trust, Alaska Laborers Employers Retirement Fund and Communications Workers of America for Employees’ Pension and Death Benefits as lead plaintiff. On September 20, 2004, the plaintiffs filed an amended and consolidated complaint on behalf of an alleged class of purchasers of our securities between May 5, 1999 and February 11, 2004. The complaint alleges, among other things, that the defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder by making materially false and misleading public statements and material omissions during the class period regarding our underwriting performance, loss reserves and related internal controls. The complaint alleges, among other things, that the defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act by making materially false and misleading statements in registration statements and prospectuses about our financial results, underwriting performance, loss reserves and related internal controls.

The complaint seeks unspecified compensatory damages, the right to rescind the purchases of securities in the public offerings, interest, and plaintiffs’ reasonable costs and expenses, including attorneys’ fees and expert fees. We intend to vigorously defend against the claims asserted in this consolidated action. The lawsuit is in its earliest stages; therefore, it is not possible at this time to reasonably estimate the impact on us. However, the lawsuit may have a material adverse effect on our financial condition, results of operations and liquidity.

On December 15, 2004, we filed a motion to dismiss with the United States District Court for the Eastern District of Pennsylvania. The Judge has scheduled oral arguments with respect to our motion on April 11, 2005.

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Item 4.Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of 2004.

Executive Officers of the Registrant

Our executive officers are as follows:

Name	Age	Position
Vincent T. Donnelly	52	President and Chief Executive Officer
William E. Hitselberger	47	Executive Vice President and Chief Financial Officer
Robert L. Pratter	60	Senior Vice President, General Counsel and Secretary

Vincent T. Donnelly was elected as President and Chief Executive Officer in February 2004 and served as head of the interim-Office of the President from November 2003 to February 2004. Prior to that, he served as President and Chief Operating Officer of The PMA Insurance Group since February 1997, and has served as Executive Vice President of PMA Capital Insurance Company since November 2000. Mr. Donnelly served as Senior Vice President Finance and Chief Actuary of The PMA Insurance Group from 1995 to 1997.

William E. Hitselberger was elected as Executive Vice President in April 2004 and serves as our Chief Financial Officer. Prior to that date, he had served as our Senior Vice President, Chief Financial Officer and Treasurer since June 2002. He has also served as Vice President and Chief Financial Officer of The PMA Insurance Group from 1998 to June 2002 and Vice President of The PMA Insurance Group from 1996 to 1998.

Robert L. Pratter has served as our Senior Vice President, General Counsel and Secretary since June 1999, and has served as Vice President and General Counsel of PMA Capital Insurance Company since November 2000. From 1969 to 1999, Mr. Pratter was an attorney and partner in the law firm of Duane Morris LLP.

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PART II

Item 5.Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our Class A Common stock is listed on The Nasdaq Stock Market^¨. It trades under the stock symbol: PMACA.

Following is information regarding trading prices for our Class A Common Stock:

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
2004
Class A Common Stock Prices:
High	$	7.08	$	9.13	$	9.16	$	10.85
Low		4.70		6.01		5.70		6.74
Close		6.07		9.00		7.55		10.35
2003
Class A Common Stock Prices:
High	$	15.00	$	12.76	$	13.10	$	14.25
Low		6.40		6.28		11.53		3.88
Close		6.77		12.12		12.53		5.12

There were 192 holders of record of our Class A Common stock at February 28, 2005. We declared quarterly dividends of $0.105 per share for our Class A Common stock in the first three quarters of 2003. On November 4, 2003, our Board of Directors resolved to suspend the dividends on our Class A Common stock. Our domestic insurance subsidiaries’ ability to pay dividends to us is limited by the insurance laws and regulations of Pennsylvania. Furthermore, in its Order approving the transfer of the Pooled Companies from PMA Capital Insurance Company ("PMACIC") to PMA Capital Corporation, the Pennsylvania Insurance Department prohibited PMACIC from any declaration or payment of dividends, return of capital or any other types of distributions in 2004 and 2005. In 2006, PMACIC may declare and pay ordinary dividends or returns of capital without the prior approval of the Pennsylvania Insurance Department if, immediately after giving effect to the dividend or returns of capital, PMACIC’s risk-based capital equals or exceeds 225% of Authorized Control Level Capital as defined by the National Association of Insurance Commissioners. For additional information on these restrictions, see “Item 7 - MD&A - Liquidity and Capital Resources.”

Issuer Purchase of Equity Securities

The following table provides information regarding repurchases we made of our convertible debt during 2004:

Period	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May yet be Purchased Under Publicly Announced Plans or Programs
10/1/04-10/31/04	-		-	-	-
11/1/04-11/30/04	-		-	-	-
12/1/04-12/31/04(1)	72,397	$	16.368	-	-

(1) Transactions represent the repurchase of a portion of our outstanding 4.25% Convertible Debt prior to its scheduled maturity. The average price paid per share is calculated by dividing the total cash paid for the debt by the number of shares of Class A common stock into which the debt is currently convertible.

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Item 6.Selected Financial Data

(dollar amounts in thousands, except per share data)		2004		2003(1	)		2002(1	)		2001(1	)		2000
Net Premiums Written	$	301,610	$	1,192,254		$	1,104,997		$	769,058		$	545,555
Consolidated Results of Operations:
Net premiums earned	$	518,585	$	1,198,165		$	991,011		$	732,440		$	531,424
Net investment income		56,945		68,923			84,881			86,945			102,591
Net realized investment gains (losses)		6,493		13,780			(16,085	)		7,988			11,975
Other revenues		25,941		20,379			15,330			22,599			14,000
Total consolidated revenues	$	607,964	$	1,301,247		$	1,075,137		$	849,972		$	659,990
Net income (loss)	$	1,830	$	(93,569	)	$	(48,024	)	$	7,103		$	1,325
Per Share Data:
Weighted average shares:
Basic		31,344,858		31,330,183			31,284,848			21,831,725			21,898,967
Diluted		31,729,061		31,330,183			31,284,848			22,216,695			22,353,622
Net income (loss) per share
Basic	$	0.06	$	(2.99	)	$	(1.53	)	$	0.33		$	0.06
Diluted	$	0.06	$	(2.99	)	$	(1.53	)	$	0.32		$	0.06
Dividends declared per Common share(2)	$	-	$	-		$	-		$	-		$	0.08
Dividends declared per Class A Common share(2)	$	-	$	0.315		$	0.42		$	0.42		$	0.39
Shareholders' equity per share	$	14.06	$	14.80		$	18.56		$	19.64		$	20.40
Consolidated Financial Position:
Total investments	$	1,427,832	$	2,012,187		$	1,828,610		$	1,775,335		$	1,826,949
Total assets		3,253,985		4,187,958			4,105,794			3,802,979			3,469,406
Reserves for unpaid losses and LAE		2,111,598		2,541,318			2,449,890			2,324,439			2,053,138
Debt		214,467		187,566			151,250			62,500			163,000
Shareholders' equity		445,451		463,667			581,390			612,006			440,046

(1)   Results for 2003 were impacted by $49 million from the recording of a valuation allowance on the Company’s deferred tax asset.Results for 2002 were impacted by $43 million pre-tax ($28 million after-tax) for costs associated with the exit from and run off of Caliber One, our former excess and surplus lines business. Results for 2001 were impacted by $30 million pre-tax ($20 million after-tax) for World Trade Center losses.

(2)   Effective at the close of business April 24, 2000, all shares of Common Stock were reclassified as Class A Common stock. Accordingly, all dividends subsequent to April 24, 2000 are for the Class A Common stock.

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(dollar amounts in thousands)		2004			2003	(1)		2002	(1)		2001	(1)		2000
Components of net income (loss)(3):
Pre-tax operating income (loss):
The PMA Insurance Group	$	13,166		$	21,541		$	25,346		$	23,148		$	21,601
Run-off Operations(4)		5,509			(80,376	)		(74,204	)		(29,355	)		(14,436	)
Corporate and Other		(21,223	)		(22,691	)		(14,214	)		(6,197	)		(19,017	)
Net realized investment gains (losses)		6,493			13,780			(16,085	)		7,988			11,975
Income (loss) before income taxes		3,945			(67,746	)		(79,157	)		(4,416	)		123
Income tax expense (benefit)		2,115			25,823			(31,133	)		(11,519	)		(1,202	)
Net income (loss)	$	1,830		$	(93,569	)	$	(48,024	)	$	7,103		$	1,325
GAAP Insurance Ratios:
The PMA Insurance Group:
Loss and LAE ratio		74.9%			77.6%			75.0%			74.7%			74.9%
Expense Ratio(5)		29.4%			25.1%			26.4%			26.7%			29.3%
Policyholders' dividend ratio		1.1%			0.1%			1.8%			4.1%			7.5%
Combined ratio(6)		105.4%			102.8%			103.2%			105.5%			111.7%
Operating ratio(7)		98.4%			97.0%			94.5%			94.1%			92.7%

(3) In addition to providing consolidated net income (loss), we also provide segment operating income (loss) because we believe that it is a meaningful measure of the profit or loss generated by our operating segments. Operating income (loss), which is GAAP net income (loss) excluding net realized investment gains and losses, is the financial performance measure used by our management and Board of Directors to evaluate and assess the results of our insurance businesses. Accordingly, we report operating income by segment in Note 16 to our Consolidated Financial Statements as required by SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." Our management and Board of Directors use operating income as the measure of financial performance because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments 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 and losses that do not relate to the operations of the individual segments. Operating income (loss) does not replace net income (loss) as the GAAP measure of our consolidated results of operations.

(4) On November 6, 2003, we announced our decision to withdraw from the reinsurance business previously served by PMA Re. As a result of this decision, the results of PMA Re are reported as Run-off Operations. In May 2002, we exited the excess and surplus lines business and placed this business, formerly known as Caliber One, into run-off.

(5) The expense ratio equals the sum of acquisition and insurance-related operating expenses divided by net premiums earned. Acquisition and insurance-related expenses for The PMA Insurance Group were $129.7 million, $142.7 million, $108.6 million, $92.3 million and $72.5 million for 2004, 2003, 2002, 2001 and 2000.

(6) The combined ratio computed on a GAAP basis is equal to losses and loss adjustment expenses plus acquisition expenses and policyholders' dividends (where applicable), all divided by net premiums earned.

(7) The operating ratio is equal to the combined ratio less the net investment income ratio, which is computed by dividing net investment income by net premiums earned.

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Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of the financial condition of PMA Capital Corporation and its consolidated subsidiaries (“PMA Capital” or the “Company” which also may be referred to as “we” or “us”) as of December 31, 2004, compared with December 31, 2003, and the results of operations of PMA Capital for 2004 and 2003, compared with the immediately preceding year. The balance sheet information presented below is as of December 31 for each respective year. The statement of operations information is for the year ended December 31 for each respective year.

This discussion and analysis should be read in conjunction with our audited Consolidated Financial Statements and Notes thereto presented in Item 8 of this Form 10-K (“Consolidated Financial Statements”). You should also read our discussion of Critical Accounting Estimates beginning on page 55 for an explanation of those accounting estimates that we believe are most important to the portrayal of our financial condition and results of operations and that require our most difficult, subjective and complex judgments.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains forward-looking statements, which involve inherent risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, and containing words such as “believe,” “estimate,” “anticipate,” “expect” or similar words, are forward-looking statements. These statements are based upon current estimates, assumptions and projections. Actual results may differ materially from those projected in such forward-looking statements, and therefore, you should not place undue reliance on them. See “Cautionary Statements” beginning on page 59 for a list of factors that could cause our actual results to differ materially from those contained in any forward-looking statement. Also, see “Item 1 - Business - Risk Factors” for a further discussion of risks that could materially affect our business.

OVERVIEW

We are a property and casualty insurance holding company, which offers through our subsidiaries workers’ compensation, integrated disability and, to a lesser extent, other standard lines of commercial insurance, primarily in the eastern part of the United States. These products are written through The PMA Insurance Group business segment. Our Run-off Operations include our prior reinsurance and excess and surplus lines operations.

Our business profile changed significantly in 2003 and 2004. On November 4, 2003, we announced a third quarter pre-tax charge of $150 million to increase the loss reserves for our reinsurance business for prior accident years. Following this announcement, A.M. Best Company, Inc. (“A.M. Best”) reduced the financial strength ratings of PMA Capital Insurance Company (“PMACIC”), our reinsurance subsidiary, and The PMA Insurance Group companies, our primary insurance business, to B++ (Very Good). On November 6, 2003, we announced our decision to cease writing reinsurance business and to run off our existing reinsurance business. We also decided to suspend payment of dividends on our Class A common stock. The B++ financial strength rating constrained The PMA Insurance Group’s ability to attract and retain business during 2004.

We achieved our most important goal for 2004, the restoration of The PMA Insurance Group's A- (Excellent) financial strength rating, on November 15, 2004. We believe the restoration of The PMA Insurance Group’s A-financial strength rating will enable us to achieve measured written premium growth in 2005, compared to 2004.

In June 2004, the Pennsylvania Insurance Department approved our application for our primary insurance subsidiaries that comprise The PMA Insurance Group, or the Pooled Companies, previously subsidiaries of PMACIC, to become direct, wholly owned subsidiaries of PMA Capital Corporation. As a result, the Pooled Companies can pay dividends directly to PMA Capital Corporation. In 2004, the Pooled Companies paid dividends of  $12.1 million to PMA Capital and can pay up to $23.5 million in dividends in 2005 without the prior approval of the Pennsylvania Insurance Department.

In its Order approving the transfer of the Pooled Companies from PMACIC to PMA Capital Corporation, the Pennsylvania Insurance Department prohibited PMACIC from any declaration or payment of dividends, return of capital or any other types of distributions in 2004 and 2005 to PMA Capital Corporation. In 2006, PMACIC may declare and pay ordinary dividends or returns of capital without the prior approval of the Pennsylvania Insurance Department if, immediately after giving effect to the dividend or return of capital, PMACIC’s risk-based capital equals or exceeds 225% of Authorized Control Level Capital as defined by the National Association of Insurance Commissioners. In 2007 and beyond, PMACIC may make dividend payments, as long as such dividends are not

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considered “extraordinary” under Pennsylvania insurance law. At December 31, 2004, PMACIC’s risk-based capital is 379% of Authorized Control Level Capital.

On November 15, 2004, we exchanged $84.1 million aggregate principal amount of 6.50% Senior Secured Convertible Debt due 2022 (“6.50% Convertible Debt”) for $84.1 million aggregate principal amount of 4.25% Senior Convertible Debt due 2022 (“4.25% Convertible Debt”). We did not receive any proceeds as a result of the exchange offer. The exchange allowed us to extend the first put date associated with our convertible debt from September 2006 to June 2009. We also raised an additional $15 million of capital from the sale of 6.50% Convertible Debt on November 15, 2004. We expect to be able to receive capital distributions from our principal operating subsidiaries sufficient to repurchase the new debt on the put date of June 30, 2009.

The PMA Insurance Group earns revenue and generates cash primarily by writing insurance policies and collecting insurance premiums. The PMA Insurance Group also earns other revenues by providing risk control and claims adjusting services to customers. Because time normally elapses between the receipt of premiums and the payment of claims and certain related expenses, we invest the available premiums and earn investment income. From our revenues are deducted:

·   losses we pay under insurance policies that we write;

·   loss adjustment expenses (“LAE”), which are the expenses of settling claims;

·   acquisition and operating expenses, which are direct and indirect costs of acquiring both new and renewal business, including commissions paid to agents and brokers, and the internal expenses to operate the business segment; and

·   dividends that are paid to policyholders of certain of our insurance products.

These items are further described elsewhere in the MD&A and in “Item 1-Business.”

Losses and LAE are the most significant expense items affecting our insurance business and represent the most significant accounting estimates in our financial statements. We establish reserves representing estimates of future amounts needed to pay claims with respect to insured events that have occurred, including events that have not been reported to us. We also establish reserves for LAE, which represent the estimated expenses of settling claims, including legal and other fees, and general expenses of administering the claims adjustment process. Reserves are estimates of amounts to be paid in the future for losses and LAE and do not and cannot represent an exact measure of liability. If actual losses and LAE are larger than our loss reserve estimates, or if actual claims reported to us exceed our estimate of the number of claims to be reported to us, we have to increase reserve estimates with respect to prior periods. Changes in reserve estimates may be due to a wide range of factors, including inflation, changes in claims and litigation trends and legislative or regulatory changes. We incur a charge to earnings in the period the reserves are increased.

RESULTS OF OPERATIONS

Consolidated Results

We recorded net income of $1.8 million in 2004, compared to net losses of $93.6 million in 2003 and $48.0 million in 2002. The exchange and sale of the 6.50% Convertible Debt reduced 2004 results by $6.4 million after-tax ($9.8 million pre-tax), which included a loss on the debt exchange of $3.9 million after-tax ($6.0 million pre-tax) and a loss of $2.5 million after-tax ($3.8 million pre-tax) for the subsequent increase in the fair value of the derivative component of the 6.50% Convertible Debt. The loss associated with the derivative component is included in net realized investment gains and losses.

Including the increase in the fair value of the derivative component of the 6.50% Convertible Debt, after-tax net realized investment gains were $4.2 million for 2004, primarily reflecting sales reducing our per issuer exposure and general duration management trades. After-tax net realized gains were $9.0 million in 2003, compared to after-tax losses of $10.5 million in 2002. Net realized investment gains in 2003 were primarily attributable to sales intended to change the duration of our investment portfolio in order to better match our cash flows with our liability payouts. Net realized investment losses for 2002 primarily reflect impairment losses of $15.4 million after-tax ($23.8 million pre-tax) on fixed income securities, primarily corporate bonds issued by telecommunications and energy companies.

Results for 2004 were also reduced by $3.9 million after-tax ($6.0 million pre-tax) which was attributable to our purchasing reinsurance that protects our statutory capital in the event of further adverse loss development at the Run-

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off Operations. Also included in 2004 results was an after-tax gain of $4.3 million ($6.6 million pre-tax) on the sale of a partnership interest.

The net loss for 2003 reflects a third quarter after-tax charge of $97.5 million ($150 million pre-tax), to increase loss reserves for our reinsurance business. On November 6, 2003, we announced our decision to exit the reinsurance business and we are no longer writing new reinsurance business. Additionally, we established a valuation allowance of $49 million on our deferred tax asset in 2003.

Results for 2002 were reduced by approximately $76 million after-tax ($116 million pre-tax: $64 million for our reinsurance business and $52 million for our excess and surplus lines business) due to unfavorable prior year loss development at the Run-off Operations. Additionally, results for 2002 included a charge of $28 million after-tax for non-reserve charges ($43 million pre-tax) associated with our decision to exit and run off our excess and surplus lines business.

Consolidated revenues were $608.0 million, $1,301.2million and $1,075.1 million in 2004, 2003 and 2002. The lower revenues in 2004 reflect lower net premiums earned due to our fourth quarter 2003 withdrawal from the reinsurance business and, to a lesser extent, the impact of the B++ financial strength rating on The PMA Insurance Group. The increase in revenues in 2003, compared to 2002, primarily reflected higher net premiums earned.

In this MD&A, in addition to providing consolidated net income (loss), we also provide segment operating income (loss) because we believe that it is a meaningful measure of the profit or loss generated by our operating segments. Operating income (loss), which is GAAP net income (loss) excluding net realized investment gains and losses, is the financial performance measure used by our management and Board of Directors to evaluate and assess the results of our insurance businesses. Accordingly, we report operating income by segment in Note 15 to the Consolidated Financial Statements as required by SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." Our management and Board of Directors use operating income as the measure of financial performance because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments 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 and losses that do not relate to the operations of the individual segments. Operating income (loss) does not replace net income (loss) as the GAAP measure of our consolidated results of operations.

Following is a reconciliation of our segment operating results to GAAP net income (loss). See Note 15 to our Consolidated Financial Statements for additional information.

(dollar amounts in thousands)		2004			2003			2002
Components of net income (loss):
Pre-tax operating income (loss):
The PMA Insurance Group	$	13,166		$	21,541		$	25,346
Run-off Operations (1)		5,509			(80,376	)		(74,204	)
Corporate and Other		(21,223	)		(22,691	)		(14,214	)
Net realized investment gains (losses)		6,493			13,780			(16,085	)
Income (loss) before income taxes		3,945			(67,746	)		(79,157	)
Income tax expense (benefit)		2,115			25,823			(31,133	)
Net income (loss)	$	1,830		$	(93,569	)	$	(48,024	)

(1) In November 2003 we announced our decision to withdraw from the reinsurance business previously served by our PMA Re operating segment. As a result of this decision, the results of PMA Re are reported as Run-off Operations. Run-off Operations also includes the results of our former excess and surplus lines business.

We also provide combined ratios and operating ratios for The PMA Insurance Group on page 38. The “combined ratio” is a measure of property and casualty underwriting performance. The combined ratio computed using GAAP-basis numbers is equal to losses and LAE, plus acquisition expenses, insurance-related operating expenses and policyholders’ dividends, where applicable, all divided by net premiums earned. A combined ratio of less than 100% reflects an underwriting profit. Because time normally elapses between the receipt of premiums and the payment of claims and certain related expenses, we invest the available premiums. Underwriting results do not include investment income from these funds. Given the long-tail

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nature of our liabilities, we believe that the operating ratios are also important in evaluating our business. The operating ratio is the combined ratio less the net investment income ratio, which is net investment income divided by net premiums earned.

Segment Results

The PMA Insurance Group

Summarized financial results of The PMA Insurance Group are as follows:

(dollar amounts in thousands)		2004			2003			2002
Net premiums written	$	377,795		$	603,593		$	452,276
Net premiums earned		442,343			570,032			410,266
Net investment income		30,984			32,907			35,613
Other revenues		19,008			17,493			14,694
Total revenues		492,335			620,432			460,573
Losses and LAE		331,181			442,502			307,734
Acquisition and operating expenses		142,989			155,748			119,906
Dividends to policyholders		4,999			641			7,587
Total losses and expenses		479,169			598,891			435,227
Pre-tax operating income	$	13,166		$	21,541		$	25,346
Combined ratio		105.4	%		102.8	%		103.2	%
Less: net investment income ratio		7.0	%		5.8	%		8.7	%
Operating ratio		98.4	%		97.0	%		94.5	%

Pre-tax operating income for The PMA Insurance Group was $13.2 million in 2004, compared to $21.5million in 2003 and $25.3 million in 2002. The lower pre-tax operating income in 2004, compared to 2003, primarily reflects lower underwriting results and lower net investment income. The lower pre-tax operating income in 2003, compared to 2002, primarily reflects lower underwriting results from accident years 2001 and 2002 in the workers’ compensation lines of business and lower net investment income, partially offset by improved current accident year underwriting results.

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Premiums

The PMA Insurance Group’s premiums written are as follows:

(dollar amounts in thousands)		2004			2003			2002
Workers' compensation and integrated disability:
Direct premiums written	$	341,242		$	546,059		$	397,639
Premiums assumed		34,401			24,799			13,338
Premiums ceded		(34,328	)		(58,707	)		(37,624	)
Net premiums written	$	341,315		$	512,151		$	373,353
Commercial Lines:
Direct premiums written	$	45,801		$	106,399		$	102,918
Premiums assumed		1,610			1,177			1,437
Premiums ceded		(10,931	)		(16,134	)		(25,432	)
Net premiums written	$	36,480		$	91,442		$	78,923
Total:
Direct premiums written	$	387,043		$	652,458		$	500,557
Premiums assumed		36,011			25,976			14,775
Premiums ceded		(45,259	)		(74,841	)		(63,056	)
Net premiums written	$	377,795		$	603,593		$	452,276

Direct workers’ compensation and integrated disability premiums written were $341.2 million in 2004, compared to $546.1 million in 2003, primarily reflecting the impact of the B++ A.M. Best financial strength rating between November 2003 and November 2004. This rating constrained our ability to write new business and to retain existing business in 2004. In 2003, direct workers' compensation and integrated disability premiums written increased by 37%, compared to 2002, primarily due to an increase in the volume of risks underwritten, and to a lesser extent, pricing increases. In addition, direct workers' compensation premiums written for 2003 included $35 million of retrospectively rated premiums recorded in the fourth quarter under loss-sensitive policies that are attributable to the higher than expected losses from accident years 2001 and 2002. See “Losses and Expenses” beginning on page 40 for additional information. Our renewal retention rate on existing workers’ compensation accounts was 62% for 2004, compared to 84% for 2003 and 82% for 2002. New workers’ compensation and integrated disability business was $42.1 million for 2004, compared to $133.3 million and $123.3 million for 2003 and 2002, respectively. We obtained price increases of approximately 6% in 2004, 10% in 2003 and 17% in 2002 on workers’ compensation business.

For workers’ compensation coverages, the premium charged on fixed-cost policies is primarily based upon the manual rates filed with state insurance departments. Manual rates in The PMA Insurance Group’s principal marketing territories for workers’ compensation increased on average 4% in 2004, 8% in 2003 and 13% in 2002. These increases in manual rates generally reflect the effects of higher average medical and indemnity costs in recent years. Manual rate changes directly affect the prices that The PMA Insurance Group can charge for its rate sensitive workers’ compensation products, which comprise 55% of workers’ compensation premiums for 2004.

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 $60.6 million in 2004, compared to 2003, reflecting the impact of The PMA Insurance Group’s B++ A.M. Best financial strength rating, partially offset by price increases that averaged 19% in 2004. Direct writings increased by $3.5 million in 2003, compared to the immediately preceding year, primarily due to weighted average price increases of approximately 17% in 2003.

Premiums assumed increased $10.0 million and $11.2 million in 2004 and 2003, respectively, compared to the immediately preceding year, primarily due to an increase in the amount of residual market business in The PMA Insurance Group’s principal marketing territories. Companies that write premiums in certain states generally must share in the risk of insuring entities that cannot obtain insurance in the voluntary market. Typically, an insurer’s share of this residual market business is

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assigned on a lag based on its market share in terms of direct premiums in the voluntary market. These assignments are accomplished either by direct assignment or by assumption from pools of residual market business.

Premiums ceded decreased $29.6 million in 2004 and increased $11.8 million in 2003, compared to the immediately preceding years. Premiums ceded for workers’ compensation and integrated disability decreased by $24.4 million in 2004, compared to 2003, as a result of lower direct premiums written for those lines and because The PMA Insurance Group increased its aggregate annual deductible for losses in excess of $250,000 to $18.8 million from $5.0 million on its workers’ compensation reinsurance program. Premiums ceded for workers’ compensation and integrated disability increased by $21.1 million in 2003, compared to 2002, as a result of the increase in direct premiums written as well as higher rates being charged by reinsurers. Premiums ceded for Commercial Lines were lower by $5.2 million and $9.3 million in 2004 and 2003, respectively, compared to the immediately preceding years, primarily reflecting the decrease in direct premiums written for commercial lines in 2004 and the increase in our net retentions in Commercial Lines from $500,000 in 2002 to $1.5 million in 2003.

Net premiums written and earned decreased 37% and 22%, respectively, in 2004, compared to 2003 and increased 33% and 39%, respectively, in 2003, compared to 2002. 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. In periods of decreasing premium writings, the decrease in net premiums written will typically be greater than the decrease in net premiums earned, as was the case in 2004. Direct premiums are earned principally on a pro rata basis over the terms of the policies. However, with respect to policies that provide for premium adjustments, such as experience-rated or exposure-based adjustments, such premium adjustment may be made subsequent to the end of the policy’s coverage period and will be recorded as earned premium in the period in which the adjustment is made. We made such an adjustment in 2003 as described above.

Losses and Expenses

The components of the GAAP combined ratios are as follows:

	2004	2003	2002
Loss and LAE ratio	74.9%	77.6%	75.0%
Expense ratio:
Acquisition expenses	19.5%	15.9%	17.5%
Operating expenses(1)	9.9%	9.2%	8.9%
Total expense ratio	29.4%	25.1%	26.4%
Policyholders' dividend ratio	1.1%	0.1%	1.8%
Combined ratio	105.4%	102.8%	103.2%

(1)   The operating expense ratio equals insurance-related operating expenses divided by net premiums earned. Insurance-related operating expenses were $43.7 million, $52.2 million and $36.7 million for 2004, 2003 and 2002, respectively.

The loss and LAE ratio improved 2.7 points in 2004, compared to 2003. The lower loss and LAE ratio in 2004, compared to 2003, primarily reflects the effects on the 2003 loss and LAE ratio of the higher than expected losses and LAE for workers’ compensation business written for accident years 2001 and 2002 as discussed below, partially offset by a higher current accident year loss and LAE ratio in 2004. Overall loss trends in workers’ compensation are rising modestly ahead of price increases. Medical cost inflation, which has contributed to increased severity of workers’ compensation losses, was the primary reason for the increasing accident year loss costs in 2004. We estimate our medical cost inflation for 2004 to be 11%, which is the same as our estimate for 2003. We expect medical cost inflation to remain a significant component of loss costs in 2005.

As part of the year end closing process, in the fourth quarter of 2003, our internal actuaries completed a comprehensive year-end actuarial analysis of loss reserves. Based on the actuarial work performed, we noticed higher than expected claims severity in our workers' compensation business written for accident years 2001 and 2002, primarily from loss-sensitive and participating workers' compensation business. As a result, The PMA Insurance Group increased loss reserves for prior years by $50 million. An independent actuarial firm also conducted a comprehensive review of The PMA Insurance Group’s loss reserves as of December 31, 2003 and concluded that such carried loss reserves were reasonable as of December 31, 2003. Under The PMA Insurance Group's loss-sensitive rating plans we adjust the

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amount of the insured's premiums after the policy period expires based, to a large extent, upon the insured's actual losses incurred during the policy period. Under policies that are subject to dividend plans, the ultimate amount of the dividend that the insured may receive is also based, to a large extent, upon loss experience during the policy period. Accordingly, offsetting the effects of this unfavorable prior year loss development were premium adjustments of $35 million under loss-sensitive plans and reduced policyholder dividends of $8 million, resulting in a net fourth quarter pre-tax charge of $7 million. This unfavorable prior year loss development and resulting premium and policyholders' dividend adjustments in 2003 increased the loss and LAE ratio by approximately 4 points and decreased the total expense ratio and policyholder's dividend ratio each by approximately 1.5 points. The total impact to the combined ratio was approximately 1 point.

Overall, the loss and LAE ratio increased by 2.6 points in 2003, compared to 2002, reflecting the effects of prior year loss development described above, partially offset by an improved current accident year loss and LAE ratio. Our current accident year loss and LAE ratio improved 5.3 points in 2003, compared to 2002, including 4.5 points due to the premium adjustment of $35 million recorded in the fourth quarter for policies of loss-sensitive plans. The remainder of the improvement is primarily due to price increases that outpaced increasing loss costs. Medical cost inflation was the primary reason for the increasing loss costs in 2003.

In addition to the 1.5 point impact in the total expense ratio for 2003 discussed above, the total expense ratio increased 2.8 points in 2004, compared to 2003. In 2004, we did not reduce our level of operating expenses as quickly as revenues decreased in order to be in a position to respond to anticipated market demand after the restoration of the A- financial strength rating.

Net Investment Income

Net investment income was $1.9 million lower in 2004 and $2.7 million lower in 2003, compared to the immediately preceding years. The lower net investment income in 2004, compared to 2003, primarily reflects a reduction in invested asset yields of approximately 50 basis points, partially offset by a higher invested asset base that increased approximately 5%. The decline in 2003, compared to 2002, primarily reflects a reduction in invested asset yields of approximately 90 basis points, partially offset by a higher invested asset base that increased approximately 12%.

Run-off Operations

In November 2003, we announced our decision to withdraw from the reinsurance business previously served by our PMA Re operating segment. We are no longer writing new reinsurance business. As a result of this decision, the results of PMA Re are reported as Run-off Operations. Run-off Operations also includes the results of our former excess and surplus lines business, which we placed in run-off in May 2002.

Summarized financial results of the Run-off Operations are as follows:

(dollar amounts in thousands)		2004			2003			2002
Net premiums written	$	(75,360	)	$	589,449		$	653,602
Net premiums earned		77,067			628,921			581,626
Net investment income		24,655			34,362			49,751
Other revenues		-			2,500			-
Total revenues		101,722			665,783			631,377
Losses and LAE		49,375			555,845			515,924
Acquisition and operating expenses		46,838			190,314			189,657
Total losses and expenses		96,213			746,159			705,581
Pre-tax operating income (loss)	$	5,509		$	(80,376	)	$	(74,204	)

The Run-off Operations recorded pre-tax operating income of $5.5 million in 2004, compared to pre-tax operating losses of $80.4 million and $74.2 million for 2003 and 2002, respectively. Net premiums earned, losses and LAE, and acquisition and operating expenses have decreased significantly in 2004, compared to 2003 and 2002, due to our  

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exit from the reinsurance business. Results for the Run-off Operations for 2004 will not be indicative of future results due to our expectation that earned premiums and related losses and expenses will decrease significantly and due to the unpredictability of the impact of future commutations, if any. Results for 2003 reflected the third quarter $150 million charge to increase loss reserves for our reinsurance business associated mainly with accident years 1997 to 2000. Results for 2002 were reduced by approximately $116 million ($64 million for our reinsurance business and $52 million for our excess and surplus lines business) due to unfavorable prior year loss development. Additionally, the Run-off Operations recorded a charge of $43 million pre-tax as a result of our decision to exit the excess and surplus line business in 2002.

Premiums written and earned declined significantly in 2004, compared to 2003 and 2002 due to our exit from the reinsurance business. Additionally, as we have continued our runoff of the business, ceding companies have cancelled reinsurance contracts, which results in negative gross and net premiums written. Net premiums written and earned for 2004 also reflect a charge of $6.0 million for a reinsurance agreement covering potential adverse loss development. Net premiums written declined in 2003, compared to 2002, due primarily to lower reinsurance premiums written. Additionally, premiums written for 2002 included an additional $58.1 million of gross premiums written ($44.2 million of net premiums written) recorded in the second quarter of 2002 as a result of a change in our estimate of ultimate premiums written. Because premiums from ceding companies are typically reported on a delayed basis, we monitor and update, as appropriate, the estimated ultimate premiums written. Our periodic review of estimated ultimate premiums written, comparing actual reported premiums to originally estimated premiums based on ceding company estimates, indicated that premiums written in recent years, primarily for 2001 and 2000 were higher than originally estimated. The increase in net premiums earned of $39.9 million in 2002 caused by this adjustment was offset by corresponding losses and LAE and acquisition expenses.

Generally, trends in net premiums earned follow patterns similar to net premiums written. In periods of decreasing premium writings, the decrease in net premiums written will typically be greater than the decrease in net premiums earned, as was the case in 2004 and 2003. Premiums are earned principally on a pro rata basis over the coverage periods of the underlying policies. However, with respect to policies that provide for premium adjustments, such as experience-rated or exposure-based adjustments, such premium adjustments may be made subsequent to the end of the policy’s coverage period and will be recorded as earned premiums in the period in which the adjustment is made.

Losses and LAE incurred decreased significantly for 2004, compared to 2003 and 2002, primarily due to the effects of lower net premiums earned in 2004, compared to 2003 and 2002, and the adverse prior year loss development recorded in 2003 and 2002.

During 2003, the Run-off Operations increased its net loss reserves for prior accident years for reinsurance business by $169.1 million, including $150 million during the third quarter. The third quarter 2003 reserve charge related to higher than expected underwriting losses, primarily from casualty business written in accident years 1997 through 2000. Approximately 75% of the charge was related to general liability business written from 1997 to 2000 with substantially all of the remainder of the charge from the commercial automobile line written during those same years. During the third quarter, our actuaries conducted their periodic comprehensive reserve review. Based on the actuarial work performed, which included analyzing recent trends in the levels of the reported and paid claims, an updated selection of actuarially determined loss reserve estimates was developed by accident year for each major line of reinsurance business written. The information derived during this review indicated that a large portion of the change in expected loss development was due to increasing loss trends emerging in calendar year 2003 for prior accident years. This increase in 2003 loss trends caused us to determine that the reserve levels, primarily for accident years 1997 to 2000, needed to be increased by $150 million. An independent actuarial firm also conducted a comprehensive review of our Traditional-Treaty, Specialty-Treaty and Facultative reinsurance loss reserves, and concluded that those carried loss reserves were reasonable at September 30, 2003.

This analysis was enhanced by an extensive review of specific accounts, comprising about 40% of the carried reserves of the reinsurance business for accident years 1997 to 2000. Our actuaries visited a number of former ceding company clients, which collectively comprised about 25% of the reinsurance business’s total gross loss and LAE reserves from accident years 1997 to 2000, to discuss reserving and reporting experience with these ceding companies. Our actuaries separately evaluated an additional number of other ceding companies, representing approximately 15% of the reinsurance business’s total gross loss and LAE reserves from accident years 1997 to 2000, to understand and examine data trends.

Net unfavorable prior year loss development impacted results by approximately $116 million ($64 million for our reinsurance business and $52 million for excess and surplus lines) in 2002. During 2002, company actuaries conducted reserve reviews to determine the impact of any emerging data on anticipated loss development trends and recorded unpaid losses and LAE reserves. Based on the actuarial work performed, which included analyzing recent trends in the

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levels of the reported and paid claims, an updated selection of actuarially determined loss reserve estimates was developed by accident year for each major line of business. Management’s selection of the ultimate losses resulting from their reviews indicated that net loss reserves for the excess and surplus lines business for prior accident years, mainly 1999 and 2000, needed to be increased by $52 million. This unfavorable prior year development reflects the impact of higher than expected claim severity and, to a lesser extent, frequency, that emerged in 2002 on casualty lines of business, primarily professional liability policies for the nursing homes class of business; general liability, including policies covering contractors’ liability for construction defects; and commercial automobile, mainly for accident years 1999 and 2000. For the reinsurance business, during the fourth quarter, our actuaries observed a higher than expected increase in the frequency and, to a lesser extent, severity of reported claims by our ceding companies. Management’s selection of the ultimate losses indicated that net loss and LAE reserves for prior accident years needed to be increased by $64 million in the fourth quarter of 2002, primarily for excess of loss and pro rata general liability occurrence contracts and, to a lesser extent, excess of loss general liability claims-made contracts, from accident years 1998, 1999 and 2000.

Operating expenses for 2004 were reduced by $2.5 million from a gain on the sale of our interest in Cathedral Capital PLC, a Lloyd’s of London managing general agency. Operating expenses for 2003 include exit costs of $2.6 million, mainly employee termination benefits, as a result of the decision to exit from and run off the reinsurance business. The majority of these costs were paid during 2004. Approximately 80 employees were terminated in accordance with our exit plan. Approximately 60 positions, primarily claims and financial personnel, remain after the terminations. We have established an employee retention arrangement for these remaining employees. Under this arrangement, expenses of $1.7 million were recorded in 2004, which includes retention bonuses and severance. We expect to incur an additional $1.3 million of these expenses in 2005.

As a result of our decision to exit from and run off our excess and surplus lines business, results for the Run-off Operations included a pre-tax charge of $43 million in 2002. Components of the pre-tax charge included approximately $16 million to write-down assets to their estimated net realizable value, including non-cash charges of approximately $6 million for leasehold improvements and other fixed assets and $1.3 million for goodwill. In addition, the $43 million pre-tax charge included expenses associated with the recognition of liabilities of approximately $27 million, including reinsurance costs of approximately $19 million, long-term lease costs of approximately $4 million and involuntary employee termination benefits of approximately $3 million. During 2003, the Run-off Operations recognized an additional $2.5 million write-down of assets, made up of approximately $2 million for reinsurance receivables and $500,000 for premiums receivable, reflecting an updated assessment of their estimated net realizable value. The write-down is included in operating expenses in the Statement of Operations for 2003.

Other revenues for 2003 reflected the gain on the sale of the capital stock of Caliber One Indemnity Company. Pursuant to the agreement of sale, we retained all assets and liabilities related to the in-force policies and outstanding claim obligations relating to Caliber One’s business written prior to closing on the sale.

Net investment income was $24.7 million, $34.4 million and $49.8 million in 2004, 2003 and 2002, respectively. The lower net investment income in 2004, compared to 2003, reflects lower yields of approximately 30 basis points on an average invested asset base that decreased approximately 18%, partially offset by lower net interest credited of $1.7 million on funds held. The decline in 2003, compared to 2002, reflected lower yields on the invested asset portfolio of approximately 110 basis points on an average invested asset base that increased approximately 9%, and lower interest earned of $7.5 million on funds held. For 2003, the reduction in interest earned on funds held arrangements was substantially offset by lower losses on the associated assumed Finite Risk and Financial Products contracts. In a funds held arrangement, the ceding company retains the premiums, and losses are offset against these funds in an experience account. Because the reinsurer is not in receipt of the funds, the reinsurer earns interest on the experience fund balance at a predetermined credited interest rate.

Corporate and Other

The Corporate and Other segment primarily includes corporate expenses, including debt service. This segment recorded pre-tax operating losses of $21.2 million, $22.7 million and $14.2 million in 2004, 2003 and 2002, respectively. During 2004, we sold a real estate partnership interest resulting in a pre-tax gain of $6.6 million, which is included in other revenues. Partially offsetting this gain was a pre-tax loss of $6.0 million related to the convertible debt exchange, including $4.7 million to record the 6.50% Convertible Debt at fair value and $1.3 million to write off the unamortized issuance costs on the 4.25% Convertible Debt. Results for 2004 also reflect lower operating expenses, partially offset by higher interest expense. Operating expenses for 2003 included approximately $3 million of accrued costs associated primarily with the remaining salary obligations under

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employment contracts with certain of our former executive officers. Interest expense increased by $2.5 million in 2004 and $6.6 million in 2003, compared to the immediately preceding years, primarily due to a higher average amount of debt outstanding.

Loss Reserves and Reinsurance

Loss Reserves

Our consolidated unpaid losses and LAE, net of reinsurance, at December 31, 2004 and 2003 were $998.8 million and $1,346.3 million, respectively, net of discount of $70.5 million and $82.3 million, respectively. Included in the consolidated unpaid losses and LAE are amounts related to our workers’ compensation claims of $448.7 million and $433.8 million, net of discount of $48.2 million and $54.6 million at December 31, 2004 and 2003, respectively. The discount rate used was approximately 5% at December 31, 2004 and 2003.

During 2004, our actuaries conducted their periodic reserve reviews of The PMA Insurance Group and the Run-off Operations. Based on the actuarial work performed, which included analyzing recent trends in the levels of the reported and paid claims, an updated selection of actuarially determined loss reserve estimates was developed by accident year for each major line of business. The information derived during these reviews indicated that general liability and professional liability lines written by the Run-off Operations continued to exhibit volatility. While the conclusion of the reviews indicated that no adjustments to reserves were necessary and that our carried reserves were reasonable, continued volatility could require adjustments in future periods.

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 us.Due to the Òlong-tailÓ nature of a significant portion of our business, 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 us and our payment of that loss. We define long-tail business as those lines of business in which a majority of coverage involves average loss payment lags of several years beyond the expiration of the policy. Our major long-tail lines include our workers’ compensation and casualty reinsurance business. In addition, because reinsurers rely on their ceding companies to provide them with information regarding incurred losses, reported claims 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 our unpaid losses and LAE, various actuarial models are used that analyze historical data and consider the impact of current developments and trends, such as trends in claims severity and frequency and claims settlement trends. Also considered are legal developments, regulatory trends, legislative developments, changes in social attitudes and economic conditions.

Management believes that its unpaid losses and LAE are fairly stated at December 31, 2004. However, estimating the ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management’s informed estimates, assumptions and judgments using data currently available. As additional experience and data become available regarding claims payment and reporting patterns, legal and legislative developments, judicial theories of liability, the impact of regulatory trends on benefit levels for both medical and indemnity payments, changes in social attitudes and economic conditions, the estimates are revised accordingly. If our ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at December 31, 2004, the related adjustments could have a material adverse effect on our financial condition, results of operations and liquidity. See the discussion under Losses and Expenses beginning on page 40, and Run-off Operations beginning on page 41 for additional information regarding increases in loss reserves for prior years.

At December 31, 2004, 2003 and 2002, our gross reserves for asbestos-related losses were $27.9 million, $37.8 million and $42.1 million, respectively ($14.0 million, $17.8 million and $25.8 million, net of reinsurance, respectively). At December 31, 2004, 2003 and 2002, our gross reserves for environmental-related losses were $16.1 million, $14.2 million and $18.2 million, respectively ($6.4 million, $8.8 million and $14.3 million, net of reinsurance, respectively).

Estimating reserves for asbestos and environmental exposures continues to be difficult because of several factors, including: (i) evolving methodologies for the estimation of the liabilities; (ii) lack of reliable historical claim data; (iii) uncertainties with respect to insurance and reinsurance coverage related to these obligations; (iv) changing judicial interpretations; and (v) changing government standards. Management believes that its reserves for asbestos and environmental claims are appropriately established based upon known facts, existing case law and generally accepted

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actuarial methodologies. However, due to changing interpretations by courts involving coverage issues, the potential for changes in Federal and state standards for clean-up and liability, as well as issues involving policy provisions, allocation of liability and damages among participating insurers, and proof of coverage, our ultimate exposure for these claims may vary significantly from the amounts currently recorded, resulting in a potential future adjustment that could be material to our financial condition and results of operations.

See “Critical Accounting Estimates — Unpaid Losses and Loss Adjustment Expenses” beginning on page 55 for additional information. In addition, see “Cautionary Statements” beginning on page 59 and “Item 1 - Business - Risk Factors” for a discussion of factors that may adversely impact our losses and LAE in the future.

Reinsurance

Under our reinsurance and retrocessional coverages in place during 2004, 2003 and 2002, we ceded premiums totaling $78.9 million, $228.6 million and $300.6 million, and we ceded losses and LAE of $99.8 million, $243.1 million and $223.2 million to reinsurers and retrocessionaires.

At December 31, 2004 and 2003, we had amounts receivable from our reinsurers and retrocessionaires totaling $1,142.6 million and $1,220.3 million, respectively. As of December 31, 2004 and 2003, $58.7 million and $39.1 million, or 5% and 3%, respectively, of these amounts were due to us on losses we have already paid. The remainder of the reinsurance receivables related to unpaid claims.

At December 31, 2004, we had reinsurance receivables due from the following unaffiliated reinsurers in excess of 5% of our shareholders’ equity:

		Reinsurance
(dollar amounts in thousands)		Receivables		Collateral
The London Reinsurance Group and Affiliates(1)	$	288,777	$	274,717
Swiss Reinsurance America Corporation		140,824		27,087
PXRE Reinsurance Company		128,542		72,509
St. Paul and Affiliates(2)		102,910		79,709
Houston Casualty Company		75,701		-
Imagine Insurance Company Limited		34,212		34,212
Partner Reinsurance Co		30,474		-
Hannover Ruckversicherungs AG		30,065		-

(1) Includes Trabaja Reinsurance Company ($264.1 million) and London Life & General Reinsurance Company ($24.7 million).

(2) Includes United States Fidelity & Guaranty Insurance Company ($68.6 million), Mountain Ridge Insurance Company ($24.6 million) and other affiliated entities ($9.7 million).

We perform credit reviews of our reinsurers focusing on, among other things, financial capacity, stability, trends and commitment to the reinsurance business. Reinsurers failing to meet our standards are excluded from our reinsurance programs. In addition, we require collateral, typically assets in trust, letters of credit or funds withheld, to support balances due from certain reinsurers, generally those not authorized to transact business in the applicable jurisdictions. At December 31, 2004 and 2003, our reinsurance receivables were supported by $507.2 million and $644.1 million of collateral. Of the uncollateralized reinsurance receivables at December 31, 2004, 94% were due from reinsurers rated “A-” or better by A.M. Best and is broken down as follows: “A++” - 5%; “A+” - 43%; “A” - 39% and “A-” - 7%. We believe that our reinsurance receivables, net of the valuation allowance, are fully collectible. In 2003 and 2002, we wrote off reinsurance receivables of $3.0 million and $3.5 million, respectively, all from the Run-off Operations. The timing and collectibility of reinsurance receivables have not had a material adverse effect on our liquidity.

The PMA Insurance Group has recorded reinsurance receivables of $13.9 million at December 31, 2004, related to certain umbrella policies covering years prior to 1977. The reinsurer has disputed the extent of coverage under these policies. The ultimate resolution of this dispute cannot be determined at this time. An unfavorable resolution of the dispute could have a material adverse effect on our financial condition and results of operations. See “Critical Accounting Estimates - Reinsurance Receivables” beginning on page 57 and Note 5 to our Consolidated Financial Statements for additional information.

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At December 31, 2004, our reinsurance and retrocessional protection for major lines of business that we write was as follows:

		Retention			Limits(1)
The PMA Insurance Group
Per Occurrence:
Workers' compensation	$	250,000	(2)	$	104.8 million	(3)
Other casualty lines (4)	$	1.5 million		$	48.5 million
Per Risk:
Property lines	$	500,000		$	19.5 million
Auto physical damage	$	500,000		$	2.5 million

(1) Represents the amount of loss protection above our level of loss retention.

(2) The PMA Insurance Group retains an aggregate $18.8 million deductible on the first layer of its workers' compensation reinsurance, which is $1.25 million excess $250,000.

(3) Our maximum limit for any one claimant is $4.8 million (increased to $5.8 million effective January 1, 2005).

(4) Effective January 1, 2005, the retention was reduced to $1.0 million and the limit was increased to $49.0 million.

The PMA Insurance Group does not write a significant amount of natural catastrophe exposed business. We actively manage our exposure to catastrophes through our underwriting process, where we generally monitor the accumulation of insurable values in catastrophe-prone regions. The PMA Insurance Group maintains property catastrophe reinsurance protection of 95% of $18.0 million excess of $2.0 million per occurrence.

In 2004, 2003 and 2002, our loss and LAE ratios were not significantly impacted by catastrophes.

With respect to the reinsurance and retrocessional protection shown in the table above, our treaties do not cover us for losses sustained from terrorist activities. Therefore, if future terrorist attacks occur, they may result in losses that have a material adverse effect on our financial condition, results of operations and liquidity.

In 2004, the Run-off Operations purchased reinsurance to protect its statutory capital from adverse loss development of its loss and LAE reserves. Under the agreement, we ceded $100 million in carried loss and LAE reserves and paid $146.5 million in cash. During 2004, the Run-off Operations incurred $6.0 million in ceded premiums for this agreement. In addition, the contract requires additional premiums of $2.5 million if it is not commuted by December 2007. At December 31, 2004, the Run-off Operations had $105 million of available coverage under this agreement for future adverse loss development. Any future cession of losses may require the Company to cede additional premiums of up to $35 million on a pro rata basis, at the following contractually determined levels:

Losses ceded	Additional premiums
$0 - $20 million	No additional premiums
$20 - $50 million	Up to $20 million
$50 - $80 million	Up to $15 million
$80 - $105 million	No additional premiums

The additional premiums have been prepaid and are included in other assets on the Balance Sheet. Because the coverage is retroactive, we will not record the benefit of this reinsurance in our consolidated Statements of Operations until we receive the related recoveries. See Run-off Operations beginning on page 41 for additional information regarding this reinsurance coverage.

See Note 5 to our Consolidated Financial Statements for additional discussion.

Terrorism

In November 2002, the Terrorism Risk Insurance Act of 2002 (“TRIA”) became effective. TRIA provides federal reinsurance protection for property and casualty losses in the United States or to United States aircraft or vessels arising from certified terrorist acts through the end of 2005. TRIA expires on December 31, 2005 and although legislation has been introduced in Congress to extend TRIA, there is no assurance that it will be re-enacted or extended. For terrorist acts to be

46

covered under TRIA, they must be certified as such by the United States Government and must be committed by individuals acting on behalf of a foreign person or interest. TRIA contains a “make available” provision, which requires insurers subject to the Act, to offer coverage for acts of terrorism that does not differ materially from the terms (other than price), amounts and other coverage limitations offered to the policyholder for losses from events other than acts of terrorism. The “make available” provision permits exclusions for certain types of losses, if a state permits exclusions for such losses. TRIA requires insurers to retain losses based on a percentage of their commercial lines direct earned premiums for the prior year equal to a 15% deductible for 2005. The federal government covers 90% of the losses above the deductible, while a company retains 10% of the losses. TRIA contains an annual limit of $100 billion of covered industry-wide losses. TRIA applies to commercial lines of property and casualty insurance, including workers’ compensation insurance, offered by The PMA Insurance Group, but does not apply to reinsurance. The PMA Insurance Group would have a deductible of approximately $70 million in 2005 if a covered terrorist act were to occur.

Workers’ compensation insurers were not permitted to exclude terrorism from coverage prior to the enactment of TRIA, and continue to be subject to this prohibition. When underwriting existing and new commercial insurance business, The PMA Insurance Group considers the added potential risk of loss due to terrorist activity, and this may lead it to decline to write or non-renew certain business. Additional rates may be charged for terrorism coverage, and as of January 1, 2004, The PMA Insurance Group had adopted premium charges for workers’ compensation insurance in all states. The PMA Insurance Group has also refined its underwriting procedures in consideration of terrorism risks.

However, because of the unpredictable nature of terrorism, TRIA’s uncertain application and the amount of terrorism losses that The PMA Insurance Group must retain under TRIA, if future terrorist attacks occur, they may result in losses that could have a material adverse effect on our financial condition, results of operations and liquidity. For additional information regarding the underwriting criteria of our operating segments, see “Item 1 - Business - The PMA Insurance Group, Underwriting.”

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of an entity’s ability to secure sufficient cash to meet its contractual obligations and operating needs. Our insurance operations generate cash by writing insurance policies and collecting premiums. The cash generated is used to pay losses and LAE and operating expenses. Any excess cash is invested and earns investment income.

Operating cash flows declined significantly in 2004, compared to 2003, primarily due to the run-off of our reinsurance business, including the commutation and novation of certain reinsurance and retrocessional contracts of the Run-off Operations occurring in 2004 and the purchase of a reinsurance agreement covering potential adverse development at the Run-off Operations. See Notes 4 and 5 to the Consolidated Financial Statements for additional information regarding commutations and novations by the Run-off Operations and the reinsurance agreement covering potential adverse loss development, respectively. To a lesser extent, the impact of The PMA Insurance Group’s B++ financial strength rating between November 2003 and November 2004 also negatively impacted operating cash flows. Operating cash flows increased significantly in 2003, compared to 2002, reflecting higher revenues.

At the holding company level, our primary sources of liquidity are dividends and net tax payments received from subsidiaries, and capital raising activities. We utilize cash to pay debt obligations, including interest costs; taxes to the Federal government; corporate expenses; and dividends to shareholders.

In 2004, the Pennsylvania Insurance Department approved our application for the Pooled Companies, previously subsidiaries of PMACIC, to become direct, wholly owned subsidiaries of PMA Capital Corporation. However, in its Order approving the transfer of the Pooled Companies from PMACIC to PMA Capital Corporation, the Pennsylvania Insurance Department prohibited PMACIC, our reinsurance subsidiary which is currently in run-off, from any declaration or payment of dividends, return of capital or any other types of distributions in 2004 and 2005 to PMA Capital Corporation. In 2006, PMACIC may declare and pay ordinary dividends or returns of capital without the prior approval of the Pennsylvania Insurance Department if, immediately after giving effect to the dividend or returns of capital, PMACIC’s risk-based capital equals or exceeds 225% of Authorized Control Level Capital as defined by the National Association of Insurance Commissioners. In 2007 and beyond, PMACIC may make dividend payments, as long as such dividends are not considered “extraordinary” under Pennsylvania insurance law. At December 31, 2004, PMACIC’s risk-based capital is 379% of Authorized Control Level Capital.

The Pooled Companies, which are not subject to the Pennsylvania Insurance Department’s Order, paid dividends of $12.1 million to PMA Capital Corporation in 2004. The Pooled Companies can pay up to $23.5 million in dividends in 2005 without the prior approval of the Pennsylvania Insurance Department. In considering its future dividend policy, the Pooled Companies consider, among other things, the impact of paying dividends on its financial strength ratings. PMA Capital received dividends from subsidiaries of $24.0 million and $28.0 million in 2003 and 2002, respectively.

On November 15, 2004, we exchanged $84.1 million aggregate principal amount of 6.50% Convertible Debt for $84.1 million aggregate principal amount of 4.25% Convertible Debt. We did not receive any proceeds as a result of the exchange offer. The exchange allowed us to extend the first put date associated with our convertible debt from September 2006 to June 2009. Additionally, in November 2004, we received net proceeds of $15.2 million from the issuance of $15 million aggregate principal amount of 6.50% Convertible Debt in a private placement to a limited number of qualified institutional buyers. We expect to be able to receive capital distributions from our principal operating subsidiaries sufficient to repurchase the new debt on the put date of June 30, 2009.

On June 30, 2009, holders of the 6.50% Convertible Debt will have the right to require us to repurchase for cash any amounts outstanding for 114% of the principal amount of the debt plus accrued and unpaid interest, if any, to the settlement date. In 2006, in the event we receive any extraordinary dividends from our subsidiaries, we will be required to use 50% of those dividends to redeem up to $35 million principal amount of the debt at 110% of the original principal amount. Holders may elect to receive any premium over the principal amount in either cash or Class A common stock (with the number of shares determined based on a value of $8.00 per share).

The 6.50% Convertible Debt is secured equally and ratably with our $57.5 million 8.50% Monthly Income Senior Notes due 2018 (“Senior Notes”) by a first lien on 20% of the capital stock of our principal operating subsidiaries. We have agreed to make an additional pledge of the remainder of the capital stock of these subsidiaries if the A.M. Best financial strength rating of the Pooled Companies is not A- or higher on December 31, 2005 or is reduced below B++ prior to December 31, 2005. However, execution of any lien by the holders of the 6.50% Convertible Debt is subject to the approval by the Pennsylvania Insurance Department. The 6.50% Convertible Debt is

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convertible at the rate of 61.0948 shares, equivalent to a conversion price of $16.368 per share of Class A common stock. The indenture governing the 6.50% Convertible Debt contains restrictive covenants with respect to limitations on our ability to incur indebtedness, enter into transactions with affiliates or engage in a merger or sale of all or substantially all of the Company's assets. 

Net tax payments received from subsidiaries were $4.9 million, $5.6 million and $12.0 million in 2004, 2003 and 2002, respectively.

At December 31, 2004, we had $31.3 million of cash and short-term investments at the holding company and its non-regulated subsidiaries, which, we believe combined with our other capital sources, will continue to provide us with sufficient funds to meet our foreseeable ongoing expenses and interest payments.

Our contractual obligations by payment due period are as follows:

(dollar amounts in thousands)		2005		2006-2007		2008-2010		Thereafter		Total
Long-Term Debt (Principal and Interest):
6.50% Convertible Debt (1)	$	6,444	$	12,888	$	122,686	$	-	$	142,018
4.25% Convertible Debt (2)		39		79		118		1,387		1,623
Trust Preferred Debt (3)		2,853		5,705		8,557		108,168		125,284
8.50% Senior Notes		4,888		9,775		14,662		94,156		123,481
		14,224		28,447		146,023		203,711		392,405
Operating Leases (4)		6,741		10,121		7,458		3,080		27,400
Unpaid losses and loss adjustment expenses (5)		543,311		633,293		417,654		761,544		2,355,802
Total	$	564,276	$	671,861	$	571,135	$	968,335	$	2,775,607

(1)   Assumes holders require us to repurchase all of this debt on June 30, 2009 at 114% of the principal amount. This debt may be converted at any time, at the holder's option, at a current price of $16.368 per share.

(2)   Holders of the Convertible Debt, at their option, may require the Company to repurchase all or a portion of their debt on September 30, 2006, 2008, 2010, 2012 and 2017. This debt may be converted at any time, at the holder’s option, at a current price of $16.368 per share.

(3)   See discussion below for the variable interest rates on the Trust Preferred Debt. The obligations related to the Trust Preferred Debt have been calculated using the interest rates in effect at December 31, 2004.

(4)   The operating lease obligations referred to in the table above are primarily obligations of our insurance subsidiaries and are net of sublease payments of $1.5 million in 2005, $3.1 million in 2006-2007, $4.9 million in 2008-2010 and $6.2 million thereafter.

(5)   Our unpaid losses and LAE do not have contractual maturity dates and the exact timing of payments cannot be predicted with certainty. However, based on historical payment patterns, we have included an estimate, gross of discount of $244.2 million, of when we expect our unpaid losses and LAE (without the benefit of reinsurance recoveries) to be paid. We maintain an investment portfolio with varying maturities that we believe will provide adequate cash for the payment of claims.

In 2004, the Run-off Operations paid a $1.0 million fee to shorten the term of our Philadelphia office lease from fifteen years to seven years and reduce the leased space by approximately 75% effective October 1, 2004, which reduced our contractual obligations under the lease by $661,000 annually from 2005 through 2008, $870,000 in 2009 and $14.6 million thereafter. In addition to the reduced contractual obligations, we estimate that this change will also result in reduced related expenses of approximately $830,000 annually.

In 2003, we issued $57.5 million of 8.50% Senior Notes due June 15, 2018, from which we realized net proceeds of $55.1 million. We used the proceeds from the offering to repay the remaining balance outstanding under our prior bank credit facility, to increase the statutory capital and surplus of our insurance subsidiaries, and for general corporate purposes. We have the right to call these securities beginning in June 2008.

In 2003, we issued $43.8 million of 30-year floating rate subordinated debentures to three wholly owned statutory trust subsidiaries. We used all of the $41.2 million of net proceeds to pay down a portion of our then outstanding bank credit facility and for general corporate purposes. The trust preferred debt matures in 2033 and is redeemable, in whole or in part, in 2008 at its stated liquidation amount plus accrued and unpaid interest. The interest rates on the trust preferred debt equals the three-month London InterBank Offered Rate ("LIBOR") plus 4.10%, 4.20% and 4.05% and is payable on a quarterly basis. At December 31, 2004, the weighted average interest rate on the trust preferred securities was 6.51%.

We have the right to defer interest payments on the trust preferred securities for up to twenty consecutive quarters but, if so deferred, we may not declare or pay cash dividends or distributions on our Class A common stock. The obligations of the

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statutory trust subsidiaries are guaranteed by PMA Capital with respect to distributions and payments of the trust preferred securities.

In October 2002, we issued $86.25 million of 4.25% Convertible Debt from which we received net proceeds of $83.7 million. We used the proceeds from this offering primarily to increase the capital and surplus of our reinsurance and insurance subsidiaries. As discussed above, we exchanged $84.1 million of this debt in November 2004. During December 2004, we retired $1.2 million of this debt at par through open market purchases. As of December 31, 2004, $925,000 remained outstanding. See Note 6 to our Consolidated Financial Statements for additional information.

At December 31, 2004, we had $214.5 million of long-term debt, compared to $187.6 million at December 31, 2003. During 2004, 2003 and 2002, we incurred $12.4 million, $9.9 million and $3.3 million of interest expense, and paid interest of $11.6 million, $8.4 million and $2.1 million in each respective year.

During 2003 and 2002 we paid dividends to shareholders of $9.9 million and $12.1 million, respectively. We did not declare a dividend in the fourth quarter of 2003 and we have suspended common stock dividends at the current time.

We did not repurchase any shares during 2004 or 2003. We repurchased 90,000 shares of our Class A Common stock at a cost of $1.7 million in 2002. Decisions regarding share repurchases are subject to prevailing market conditions and an evaluation of the costs and benefits associated with alternative uses of capital.

In 2002, we contributed $16.5 million to our qualified pension plan in order to ensure that the plan assets were at least equal to our accumulated benefit obligation at the end of 2002. We did not make a contribution to our qualified pension plan in 2004 or 2003. We made the contribution in 2002 due to a significant decline in the market value of our plan assets, stemming from the broad market declines in the bond and equity markets over the previous three years. Our accumulated benefit obligation was greater than the fair value of plan assets by approximately $8 million and $3 million at December 31, 2004 and December 31, 2003, respectively, largely due to reductions in the discount rate used to measure the benefit obligation. As a result, we recorded a minimum pension liability of $25.3 million and reduced accumulated other comprehensive income by $15.6 million, after-tax in 2003. In 2004, we increased the additional minimum pension liability by $1.2 million and reduced accumulated other comprehensive income by $806,000 after-tax. In 2004 and 2003, the Company was not required to make any contribution to the pension plan under the minimum funding requirements of the Employee Retirement Income Security Act (“ERISA”) of 1974. Our plan assets are composed of 31% fixed maturities and 69% equities at December 31, 2004. We currently estimate that the pension plan’s assets will generate a long-term rate of return of 8.50%, which we believe is a reasonable long-term rate of return, in part, because of the historical performance of the broad financial markets. Pension expense in 2004, 2003 and 2002 was $4.9 million, $4.4 million and $3.0 million, respectively.

Off-Balance Sheet Arrangements

We had an interest in a real estate partnership for which we had provided a guaranty of $7.0 million related to loans on properties of the partnership. We sold our interest in the partnership in 2004, and as such, this guaranty terminated at the time of the sale.

At December 31, 2004, The PMA Insurance Group is guarantor of $2.2 million principal amount on certain premium finance loans made by unaffiliated premium finance companies to insureds.

Under the terms of the sale of one of our insurance subsidiaries, PMA Insurance Cayman, Ltd. (renamed Trabaja Reinsurance Company), to London Life and Casualty Reinsurance Corporation in 1998, we have agreed to indemnify the buyer, up to a maximum of $15.0 million if the actual claim payments in the aggregate exceed the estimated payments upon which the loss reserves of the former subsidiary were established. If the actual claim payments in the aggregate are less than the estimated payments upon which the loss reserves have been established, we will participate in such favorable loss reserve development. Trabaja Reinsurance Company is our largest reinsurer. See Note 5 to the Consolidated Financial Statements for additional information.

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INVESTMENTS

Our investment objectives are to (i) seek competitive after-tax income and total return, as appropriate, (ii) maintain medium to high investment grade asset quality and high marketability, (iii) maintain maturity distribution commensurate with our business objectives, (iv) provide portfolio flexibility for changing business and investment climates and (v) provide liquidity to meet operating objectives. Our investment strategy includes guidelines for asset quality standards, asset allocations among investment types and issuers, and other relevant criteria for our portfolio. In addition, invested asset cash flows, both current income and investment maturities, are structured after considering projected liability cash flows of loss reserve payouts using actuarial models. Property and casualty claim demands are somewhat unpredictable in nature and require liquidity from the underlying invested assets, which are structured to emphasize current investment income to the extent consistent with maintaining appropriate portfolio quality and diversity. The liquidity requirements are met primarily through publicly traded fixed maturities as well as operating cash flows and short-term investments.

Our investments at December 31 were as follows:

		2004			2003
(dollar amounts in millions)		Fair Value	Percent		Fair Value	Percent
U.S. Treasury securities and obligations of U.S. Government agencies	$	314.2	22%	$	351.3	17%
States, political subdivisions and foreign government securities		19.8	1%		20.8	1%
Corporate debt securities		468.2	33%		795.2	40%
Mortgage-backed and other asset-backed securities		501.9	35%		687.3	34%
Total fixed maturities available for sale	$	1,304.1	91%	$	1,854.6	92%
Short-term investments		123.7	9%		157.6	8%
Total	$	1,427.8	100%	$	2,012.2	100%

Our investment portfolio includes only fixed maturities, short-term investments and cash. The portfolio is diversified and does not contain any significant concentrations in single issuers other than U.S. Treasury and agency obligations. Our largest exposure to a single corporate issuer is $17.2 million, or 1%of total invested assets. In addition, we do not have a significant concentration of our investments in any single industry segment other than finance companies, which comprise 10% of invested assets at December 31, 2004. Included in this industry segment are diverse financial institutions, including the financing subsidiaries of automotive manufacturers. Substantially all of our investments are dollar denominated as of December 31, 2004.

Mortgage-backed and other asset-backed securities in the table above include collateralized mortgage obligations (“CMOs”) of $170.1 million and $209.2 million carried at fair value as of December 31, 2004 and 2003. CMO holdings are concentrated in securities with limited prepayment, extension and default risk, such as planned amortization class bonds.

As of December 31, 2004, the duration of our investments that support the insurance reserves was 3.6 years and the duration of our insurance reserves was 2.9 years. The difference in the duration of our investments and our insurance reserves reflects our decision to maintain a longer asset duration in order to enhance overall yield.

The net unrealized gain on our investments at December 31, 2004 was $20.8 million, or 1.5% of the amortized cost basis. The net unrealized gain included gross unrealized gains of $33.1 million and gross unrealized losses of $12.3 million.

For all but two securities, which were carried at a fair value of $16.9 million at December 31, 2004, we determine the market value of each fixed income security using prices obtained in the public markets. For these two securities, whose fair values are not reliably determined from these public market sources, we utilize the services of our outside professional investment asset managers to determine the fair value. The asset managers determine the fair value of the securities by using a discounted present value of the estimated future cash flows (interest and principal repayment).

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At December 31, our fixed maturities had an overall average credit quality of AA, broken down as follows:

		2004			2003
(dollar amounts in millions)		Fair Value	Percent		Fair Value	Percent
U.S. Treasury securities and AAA	$	813.1	62%	$	1,040.7	56%
AA		24.8	2%		63.1	3%
A		275.3	21%		435.9	24%
BBB		178.5	14%		299.3	16%
Below investment grade		12.4	1%		15.6	1%
Total	$	1,304.1	100%	$	1,854.6	100%

Ratings as assigned by Standard and Poor’s. Such ratings are generally assigned at the time of the issuance of the securities, subject to revision on the basis of ongoing evaluations.

Our investment income and net effective yield were as follows:

(dollar amounts in millions)		2004			2003			2002
Average invested assets(1)	$	1,677.4		$	1,886.2		$	1,716.1
Investment income(2)	$	65.6		$	79.1		$	87.4
Net effective yield(3)		3.91	%		4.19	%		5.09	%

(1)  Average invested assets throughout the year, at amortized cost, excluding amounts related to securities lending activities.

(2) Gross investment income less investment expenses and before interest credited on funds held treaties. Excludes net realized investment gains and losses and amounts related to securities lending activities.

(3) Investment income for the period divided by average invested assets for the same period.

We review the securities in our fixed income portfolio on a periodic basis to specifically review individual securities for any meaningful decline in market value below amortized cost. Our analysis addresses all securities whose fair value is significantly below amortized cost at the time of the analysis, with additional emphasis placed on securities whose fair value has been below amortized cost for an extended period of time. As part of our periodic review process, we utilize the expertise of our outside professional asset managers who provide us with an updated assessment of each issuer’s current credit situation based on recent issuer activities, such as quarterly earnings announcements or other pertinent financial news for the company, recent developments in a particular industry, economic outlook for a particular industry and rating agency actions.

In addition to company-specific financial information and general economic data, we also consider our ability and intent to hold a particular security to maturity or until the market value of the bond recovers to a level in excess of the carrying value. Our ability and intent to hold securities to such time is evidenced by our strategy and process to match the cash flow characteristics of the invested asset portfolio, both interest income and principal repayment, to the actuarially determined estimated liability pay-out patterns of each insurance company’s claims liabilities. As a result of this periodic review process, we have determined that there currently is no need to sell any of the fixed maturity investments prior to their scheduled/expected maturity to fund anticipated claim payments.

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As of December 31, 2004, our investment asset portfolio had gross unrealized losses of $12.3 million. For securities that were in an unrealized loss position at December 31, 2004, the length of time that such securities have been in an unrealized loss position, as measured by their month-end fair values, is as follows:

									Percentage
	Number of		Fair		Amortized		Unrealized		Fair Value to
(dollar amounts in millions)	Securities		Value		Cost		Loss		Amortized Cost
Less than 6 months	152	$	138.2	$	139.1	$	(0.9	)	99%
6 to 9 months	71		108.5		110.0		(1.5	)	99%
9 to 12 months	7		8.2		8.4		(0.2	)	98%
More than 12 months	34		44.0		49.4		(5.4	)	89%
Subtotal	264		298.9		306.9		(8.0	)	97%
U.S. Treasury and Agency securities	107		277.3		281.6		(4.3	)	98%
Total	371	$	576.2	$	588.5	$	(12.3	)	98%

Of the 34 securities that have been in an unrealized loss position for more than 12 months, 33 securities have an unrealized loss of less than $1 million each and less than 20% of each security's amortized cost. These 33 securities have a total fair value of 96% of the amortized cost basis at December 31, 2004, and the average unrealized loss per security is approximately $33,000. There is only one security out of the 34 with an unrealized loss in excess of $1 million at December 31, 2004, and it has a market value of $15.7 million and a par value and cost of $20.0 million. The security, which matures in 2011, is a structured security backed by a U.S. Treasury Strip, and is rated AAA. We have both the ability and intent to hold this security until it matures.

The contractual maturity of securities in an unrealized loss position at December 31, 2004 was as follows:

								Percentage
	Fair		Amortized		Unrealized			Fair Value to
(dollar amounts in millions)	Value		Cost		Loss			Amortized Cost
2005	$	21.9	$	22.0	$	(0.1	)		100%
2006-2009		102.0		103.2		(1.2	)		99%
2010-2014		37.5		38.3		(0.8	)		98%
2015 and later		9.5		9.7		(0.2	)		98%
Mortgage-backed and other asset-backed securities		128.0		133.7		(5.7	)		96%
Subtotal		298.9		306.9		(8.0	)		97%
U.S. Treasury and Agency securities		277.3		281.6		(4.3	)		98%
Total	$	576.2	$	588.5	$	(12.3	)		98%

For all securities that are in an unrealized loss position for an extended period of time, we perform an evaluation of the specific events attributable to the market decline of the security. We consider the length of time and extent to which the security’s market value has been below cost as well as the general market conditions, industry characteristics and the fundamental operating results of the issuer to determine if the decline is due to changes in interest rates, changes relating to a decline in credit quality of the issuer, or general market conditions. We also consider as part of the evaluation our intent and ability to hold the security until its market value has recovered to a level at least equal to the amortized cost. Where we determine that a security’s unrealized loss is other than temporary, a realized loss is recognized in the period in which the decline in value is determined to be other than temporary.

At December 31, 2004, 99% of our fixed income investments were publicly traded and all were rated by at least one nationally recognized credit rating agency. In addition, at December 31, 2004, $12.4 million, or 0.9%, of our total investments were below investment grade. Of these below investment grade investments, $2.9 million were in an unrealized loss position, which totaled $195,000.

During 2004, we determined there were other than temporary declines in the market value of securities issued by two companies, resulting in impairment losses of $334,000 in 2004. The impairment losses for 2004 were related to an asset-backed security and a security issued by an airline company.The write-downs were measured based on public market prices and our expectation of the future realizable value for the securities at the time we determined the decline in value was other than temporary.

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During 2003, we recorded other than temporary impairment charges for securities issued by four companies, resulting in impairment losses of $2.6 million in 2003, primarily related to securities issued by airline companies and one asset-backed security.During 2002, we impaired securities issued by 11 companies, resulting in impairment charges of $23.8 million during 2002, including $14.2 million for WorldCom. See Critical Accounting Estimates - Investments on page 56 for additional information.

Net Realized Investment Gains and Losses

We had pre-tax net realized investment gains of $6.5 million in 2004, compared to $13.8 million in 2003 and net realized investment losses of $16.1 million in 2002. During 2004, there were gross realized investment gains and losses of $20.1 million and $4.9 million, respectively. Also included in 2004 net realized investment gains were realized losses of $3.8 million related to the increase in the fair value of the derivative component of our 6.50% Convertible Debt and $4.9 million of foreign exchange losses. Gross realized losses in 2004 reflected sales reducing our per issuer exposure and general duration management trades, impairment losses of $334,000 on fixed income securities and realized losses of $380,000 on sales of securities where we reduced and/or eliminated our positions in certain issuers due to credit concerns.

Results for 2003 include gross realized gains and losses of $18.7 million and $4.9 million, respectively. Included in the gross realized losses were impairment losses of $2.6 million on fixed income securities, primarily securities issued by airline companies and one asset-backed security and realized losses of $800,000 on sales of securities where we reduced and/or eliminated our positions in certain issuers due to credit concerns. Realized losses also include sales reducing our per issuer exposure and general duration management trades. The net realized investment losses for 2002 primarily reflect impairment losses of $23.8 million on fixed income securities, primarily corporate bonds issued by telecommunications and energy companies.

See “Item 1 - Business - Investments” and Notes 2B and 3 to our Consolidated Financial Statements for additional discussion about our investment portfolio.

OTHER MATTERS

Other Factors Affecting Our Business

In general, our businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could affect them. Some of the changes include initiatives to restrict insurance pricing and the application of underwriting standards and reinterpretations of insurance contracts long after the policies were written in an effort to provide coverage unanticipated by us. The eventual effect on us of the changing environment in which we operate remains uncertain.

The Pennsylvania Insurance Department has completed examinations of PMA Capital Insurance Company and the Pooled Companies as of December 31, 2002. The examinations did not result in any material adjustments to our statutory capital in our previously filed statutory financial statements. No material qualitative matters were raised as a result of the examinations.

Comparison of SAP and GAAP Results

Results presented in accordance with GAAP vary in certain respects from results presented in accordance with statutory accounting practices prescribed or permitted by the Pennsylvania 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 publications. Permitted SAP encompasses all accounting practices that are not prescribed. Our domestic insurance subsidiaries use SAP to prepare various financial reports for use by insurance regulators.

Recent Accounting Pronouncements

In December 2003, the Financial Accounting Standards Board (“FASB”) revised Statement of Financial Accounting Standards (“SFAS”) No. 132, “Employers’ Disclosures About Pensions and Other Postretirement Benefits,” to require additional disclosures regarding defined benefit pension plans and other defined benefit postretirement plans. We have applied the disclosure provisions of SFAS No. 132, as revised, to our Consolidated Financial Statements.

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In December 2004, we adopted Emerging Issues Task Force (“EITF”) Consensus 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share,” which requires the inclusion of the dilutive effect of contingently convertible debt instruments in the computation of diluted income (loss) per share regardless of whether the contingency triggering convertibility has been met. Our earnings per share calculation for the first and second quarters of 2003 did not include the effects of potential conversion because the conditions for convertibility had not yet occurred. Adoption of EITF 04-8 resulted in a reduction in our first and second quarter 2003 diluted income per share by three and four cents, respectively, but has no effect for full year 2003, because the effect would have been anti-dilutive. Beginning in the third quarter of 2003, the conversion requirements were met on our convertible debt. See unaudited “Quarterly Financial Information” in Item 8 of this Form 10-K for additional information.

In March 2004, the EITF reached a consensus regarding EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.”  The consensus provides guidance for evaluating whether an investment is other-than-temporarily impaired.  The disclosure provisions of EITF 03-1 were effective for year-end 2003, with the recognition and measurement provisions scheduled to be effective for the third quarter of 2004. However, in September 2004, the FASB issued Staff Position EITF 03-1-1, which delays the effective date of the application of the recognition and measurement provisions of EITF 03-1. The delay of the recognition and measurement provisions is expected to be superseded concurrently with the issuance of a FASB Staff Position which will provide additional implementation guidance. We will assess whether this guidance will have a material impact on our financial condition or results of operations once the new guidance is released.

In December 2004, the FASB revised SFAS No. 123, “Share-Based Payment” to require the recognition of expenses relating to share-based payment transactions, including employee stock option grants, based on the fair value of the equity instruments issued. We are required to adopt the revised SFAS No. 123 in the third quarter of 2005. Effective with the third quarter of 2005, we will recognize an expense over the required service period for any stock options granted, modified, cancelled, or repurchased after that date and for the portion of grants for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards. In December 2002, we adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” which required prominent disclosures in financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. See Note 2-J to the Consolidated Financial Statements for the effect on net income (loss) if the fair value based method had been applied.

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP. Some of the accounting policies permitted by GAAP require us to make estimates of the amounts of assets and liabilities to be reported in our Consolidated Financial Statements. We have provided a summary of all of our significant accounting policies in Note 2 to our Consolidated Financial Statements. We recommend that you read all of these policies.

The following discussion is intended to provide you with an understanding of our critical accounting estimates, which are those accounting estimates that we believe are most important to the portrayal of our financial condition and results of operations, and that require our most difficult, subjective and complex judgments.

Unpaid losses and loss adjustment expenses

At December 31, 2004, we estimated that under all insurance policies and reinsurance contracts issued by our insurance businesses, our liability for all events that occurred as of December 31, 2004 is $2,111.6 million. This amount includes estimated losses from claims plus estimated expenses to settle claims. Our estimate also includes amounts for losses occurring prior to December 31, 2004 whether or not these claims have been reported to us.

In arriving at the estimate of unpaid claims, our actuaries performed detailed studies of historical data for customer mix, incurred claims, reported claims and paid claims for each major line of business and by accident year. The review of this data results in patterns and trends that are analyzed using various actuarial models that assume that historical development patterns will be predictive of future patterns. Along with this historical data, our actuaries consider the impact of legal and legislative developments, regulatory trends, changes in social attitudes and economic conditions. From this assessment, we develop various sets of assumptions that we believe are reasonable, valid and can be used to help us predict future claim trends. These assumptions are then applied to various actuarially accepted methods and techniques, which provide us with a range of possible outcomes of the ultimate claims to be paid by us in the future. Management uses its judgment to select the

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best estimate of the amounts needed to pay all future claims and related expenses from this range of possible outcomes. Under GAAP, we record a liability on our balance sheet equal to our best estimate of the ultimate claims liability.

It is important to realize and understand that the process of estimating our ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management’s informed estimates, assumptions and judgments using data currently available. As additional experience and data become available regarding claims payment and reporting patterns, legal and legislative developments, judicial theories of liability, the impact of regulatory trends on benefit levels for both medical and indemnity payments, and changes in social attitudes and economic conditions, we revise our estimates accordingly. Due to the long-tail nature of a significant portion of our business, 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 us and our payment of that loss. Furthermore, because reinsurers rely on their ceding companies to provide them with information regarding incurred losses, reported claims for reinsurers become known more slowly than for primary insurers and are subject to more unforeseen development and uncertainty. We believe that our liability for unpaid losses and loss adjustment expenses is fairly stated at December 31, 2004. However, if our future estimate of ultimate unpaid losses is larger than the recorded amounts, we would have to increase our reserves. Any increase in reserves would result in a charge to earnings in the period recorded. For example, in 2003 we increased net reserves for our reinsurance business by $169 million and took earnings charges as a result. Accordingly, any reserve adjustment could have a material adverse effect on our financial condition, results of operations and liquidity.

As outlined above, our loss and LAE reserves at December 31, 2004 have been established relying on generally accepted actuarial techniques and are based on numerous critical assumptions and informed judgments about reported and paid claim trends and their implication on our estimate of the ultimate loss for reported and incurred but unreported claims at the balance sheet date. We have established a loss and LAE reserve for unpaid claims at December 31, 2004 that we believe is a reasonable and adequate provision based on the information available to us. If we revised our assessment of loss reporting and claims payment patterns because of changes in those patterns, such that it resulted in a 1% change in our net loss and LAE reserves, then our pre-tax income would change by approximately $10 million.

For additional information about our liability for unpaid losses and loss adjustment expenses, see Notes 2-D and 4 to the Consolidated Financial Statements as well as “Item 1 - Business - Loss Reserves.”

Investments

All investments in our portfolio are carried at market value. For 99% of our investments, we determine the market value using prices obtained in the public markets, both primary and secondary markets. These market prices reflect publicly reported values of recent purchase and sale transactions for each specific, individual security. Therefore, we believe that the reported fair values for our investments at December 31, 2004 reflect the value that we could realize if we sold these investments in the open market at that time.

As part of determining the market value for each specific investment that we hold, we evaluate each issuer’s ability to fully meet their obligation to pay all amounts, both interest and principal, due in the future. Because we have invested in fixed income obligations with an overall average credit quality of AA, and all of our investments are currently meeting their obligations with respect to scheduled interest income and principal payments, we believe that we will fully realize the value of our investments. However, future general economic conditions and/or specific company performance issues may cause a particular issuer, or group of issuers in the same industry segment, to become unable to meet their obligation to pay principal and interest as it comes due. If such events were to occur, then we would evaluate our ability to fully recover the recorded value of our investment. Ultimately, we may have to write down an investment to its then determined net realizable value and reflect that write-down in earnings in the period such determination is made.

Based on our evaluation of securities with an unrealized loss at December 31, 2004, we do not believe that any additional other-than-temporary impairment losses, other than those already reflected in the financial statements, are necessary at the balance sheet date. However, if we were to have determined that all securities that were in an unrealized loss position at December 31, 2004 should have been written down to their fair value, we would have recorded an additional other-than-temporary impairment loss of $12.3 million pre-tax.

For additional information about our investments, see Notes 2-B, 3 and 11 of the Consolidated Financial Statements as well as “Investments” beginning on page 51.

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Reinsurance Receivables

We follow the customary insurance industry practice of reinsuring with other insurance and reinsurance companies a portion of the risks under the policies written by our insurance and reinsurance subsidiaries. Our reinsurance receivables total $1,142.6 million at December 31, 2004. We have estimated that $9.0 million of our total reinsurance receivables will be uncollectible, and we have provided a valuation allowance for that amount.

Although the contractual obligation of individual reinsurers to pay their reinsurance obligations is determinable from specific contract provisions, the collectibility of such amounts requires significant estimation by management. Many years may pass between the occurrence of a claim, when it is reported to us and when we ultimately settle and pay the claim. As a result, it can be several years before a reinsurer has to actually remit amounts to us. Over this period of time, economic conditions and operational performance of a particular reinsurer may impact their ability to meet these obligations and while they may still acknowledge their contractual obligation to do so, they may not have the financial resources to fully meet their obligation to us. If this occurs, we may have to write down a reinsurance receivable to its then determined net realizable value and reflect that write-down in earnings in the period such determination is made. We attempt to limit any such exposure to uncollectible reinsurance receivables by performing credit reviews of our reinsurers. In addition, we require collateral, such as assets held in trust or letters of credit, for certain reinsurance receivables. However, if our future estimate of uncollectible receivables exceeds our current expectations, we may need to increase our allowance for uncollectible reinsurance receivables. The increase in this allowance would result in a charge to earnings in the period recorded. Accordingly, any related charge could have a material adverse effect on our financial condition, results of operations and liquidity.

Based on our evaluation of reinsurance receivables at December 31, 2004, we have established an allowance for amounts that we have concluded are uncollectible at the balance sheet date. In evaluating collectibility, we considered historical payment performance of our reinsurers, the fact that our reinsurers are current on their obligations to our insurance subsidiaries, and any known disputes or collection issues as of the balance sheet date. To these factors, we applied our informed judgment in ascertaining the appropriate level of allowance for uncollectible amounts. At December 31, 2004, approximately $17.6 million of uncollateralized reinsurance receivables, including $6.5 million due for ceded IBNR, are due from reinsurers who have ratings that declined to below “Adequate,” defined as B++ or below by A.M. Best, in 2004 or who were under regulatory supervision or in liquidation in 2004.

For additional information about reinsurance receivables, see Note 5 to the Consolidated Financial Statements as well as “Reinsurance” beginning on page 45.

Deferred Tax Assets

We record deferred tax assets and liabilities to the extent of the tax effect of differences between the financial statement carrying values and tax bases of assets and liabilities. The recoverability of deferred tax assets is evaluated based upon management’s estimates of the future profitability of our taxable entities based on current forecasts. We establish a valuation allowance for deferred tax assets where it appears more likely than not that we will not be able to recover the deferred tax asset. At December 31, 2004, PMA Capital has a net deferred tax asset of $86.5 million, resulting from $170.9 million of gross deferred tax assets reduced by a deferred tax asset valuation allowance of $57.0 million and by $27.4 million of deferred tax liabilities. In establishing the appropriate value of this asset, management must make judgments about our ability to utilize the net tax benefit from the reversal of temporary differences and the utilization of operating loss carryforwards that expire mainly from 2018 through 2024.

In 2003, a valuation allowance in the amount of $49 million was established. In the fourth quarter of 2004, we reassessed the valuation allowance previously established against our net deferred tax assets and determined that it needed to be increased by $8 million. Included in management’s reassessment were such factors as the recent losses and revised projections of future earnings at the Run-off Operations. Accordingly, we have estimated at December 31, 2004 that our insurance operations will generate sufficient future taxable income to utilize the net deferred tax asset, net of the $57.0 million valuation allowance, over a period of time not exceeding the expiration of our operating loss carryforwards. As a result, we determined that it is more likely than not that we will be able to realize the future tax benefit of our net deferred tax asset. In making this determination, we have made reasonable estimates of our future taxable income. If our estimates of future income were to be revised downward and we determined that it was then more likely than not that we would not be able to realize the value of our net deferred tax asset, then this could have a material adverse effect on our results of operations. For additional information see Note 12 to our Consolidated Financial Statements.

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Premiums

Premiums, including estimates of additional premiums resulting from audits of insureds’ records, and premiums from ceding companies which are typically reported on a delayed basis, are earned principally on a pro rata basis over the terms of the policies. As discussed in “PMA Insurance Group - Premiums” beginning on page 39, in the fourth quarter of 2003, The PMA Insurance Group recorded $35 million of retrospectively rated premiums under loss sensitive policies that were attributable to higher than expected losses from accident years 2001 and 2002. Under The PMA Insurance Group’s loss-sensitive rating plans, we adjust the amount of the insured’s premiums after the policy period expires based, to a large extent, upon the insured’s actual loss experience during the policy period. Retrospectively rated premium adjustments and audit premium adjustments are recorded as earned in the period in which the adjustment is made.

The premiums on reinsurance business ceded are recorded as incurred on a pro rata basis over the contract period. Certain ceded reinsurance contracts contain provisions requiring us to pay additional premiums ranging from 20% to 50% of ceded losses or reinstatement premiums in the event that losses of a significant magnitude are ceded under such contracts. Under accounting rules, we are not permitted to establish reserves for potential additional premiums or record such amounts until a loss occurs that would obligate us to pay such additional or reinstatement premiums. As a result, the net benefit to our results from ceding losses to our retrocessionaires in the event of a loss may be reduced by the payment of additional premiums and reinstatement premiums to our retrocessionaires.

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CAUTIONARY STATEMENTS

Except for historical information provided in Management’s Discussion and Analysis and otherwise in this report, statements made throughout, are forward-looking and contain information about financial results, economic conditions, trends and known uncertainties. Words such as “believe,” “estimate,” “anticipate,” “expect” or similar words are intended to identify forward-looking statements. These forward-looking statements are based on currently available financial, competitive and economic data and our current operating plans based on assumptions regarding future events. Our actual results could differ materially from those expected by our 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:

·   our ability to effect an efficient withdrawal from the reinsurance business, including the commutation of reinsurance business with certain large ceding companies, without incurring any significant additional liabilities;

·   adverse property and casualty loss development for events that we insured in prior years, including unforeseen increases in medical costs;

·   our ability to have sufficient cash at the holding company to meet our debt service and other obligations, including any restrictions such as those imposed by the Pennsylvania Insurance Department on receiving dividends from our insurance subsidiaries in an amount sufficient to meet such obligations;

·   our ability to increase the amount of new and renewal business written by The PMA Insurance Group at adequate prices;

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

·   adequacy and collectibility of reinsurance that we purchased;

·   adequacy of reserves for claim liabilities;

·   the uncertain nature of damage theories and loss amounts and the development of additional facts related to the attack on the World Trade Center;

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

·   the impact of future results on the recoverability of our deferred tax asset;

·   the outcome of any litigation against us, including the outcome of the purported class action lawsuits;

·   competitive conditions that may affect the level of rate adequacy related to the amount of risk undertaken and that may influence the sustainability of adequate rate changes;

·   ability to implement and maintain rate increases;

·   the effect of changes in workers’ compensation statutes and their administration, which may affect the rates that we can charge and the manner in which we administer claims;

·   our ability to predict and effectively manage claims related to insurance and reinsurance policies;

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

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

·   changes in general economic conditions, including the performance of financial markets, interest rates and the level of unemployment;

·   uncertainties related to possible terrorist activities or international hostilities and whether TRIA is extended beyond its December 31, 2005 termination date; and

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

You should not place undue reliance on any such forward-looking statements. Unless otherwise stated, we disclaim any current intention to update forward-looking information and to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Caution should be used in evaluating our overall market risk from the information below, since actual results could differ materially because the information was developed using estimates and assumptions as described below, and because insurance liabilities and reinsurance receivables are excluded in the hypothetical effects (insurance liabilities represent 75% of our total liabilities and reinsurance receivables represent 35% of our total assets).

A significant portion of our assets and liabilities are financial instruments that are subject to the market risk of potential losses from adverse changes in market rates and prices. Our primary market risk exposures relate to interest rate risk on fixed rate domestic medium-term instruments and, to a lesser extent, domestic short- and long-term instruments. To manage our exposure to market risk, we have established strategies, asset quality standards, asset allocations and other relevant criteria for our investment portfolio. In addition, invested asset cash flows are structured after considering projected liability cash flows with actuarial models. All of our financial instruments are held for purposes other than trading. Our portfolio does not contain a significant concentration in single issuers other than U.S. Treasury and agency obligations. In addition, we do not have a significant concentration of our investments in any single industry segment other than finance companies, which comprise approximately 10% of invested assets at December 31, 2004. Included in this industry segment are diverse financial institutions, including the financing subsidiaries of automotive manufacturers. See Notes 2-B, 2-G, 2-L, 3, 6 and 11 to our Consolidated Financial Statements for additional information about financial instruments.

The hypothetical effects of changes in market rates or prices on the fair values of financial instruments as of December 31, 2004, excluding insurance liabilities and reinsurance receivables on unpaid losses because such insurance related assets and liabilities are not carried at fair value, would have been as follows:

·   If interest rates had increased by 100 basis points, there would have been a decrease of approximately $8 million in the fair value of our debt. The change in fair values was determined by estimating the present value of future cash flows using models that measure the change in net present values arising from selected hypothetical changes in market interest rates.

·   If interest rates had increased by 100 basis points, there would have been a net decrease of approximately $58 million in the fair value of our investment portfolio. The change in fair values was determined by estimating the present value of future cash flows using various models, primarily duration modeling.

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Item 8.Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Consolidated Balance Sheets at December 31, 2004 and 2003	62
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002	63
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	64
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2004, 2003 and 2002	65
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2004, 2003 and 2002	66
Notes to Consolidated Financial Statements	67
Reports of Independent Registered Public Accounting Firms	93
Quarterly Financial Information	96

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PMA CAPITAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)		2004			2003
Assets:
Investments:
Fixed maturities available for sale, at fair value (amortized cost:
2004 - $1,283,256; 2003 - $1,806,090)	$	1,304,086		$	1,854,555
Short-term investments		123,746			151,332
Short-term investments, loaned securities collateral		-			6,300
Cash		35,537			28,963
Total investments and cash		1,463,369			2,041,150
Accrued investment income		15,517			20,870
Premiums receivable (net of valuation allowance: 2004 - $7,049; 2003 - $7,972)		197,831			364,125
Reinsurance receivables (net of valuation allowance: 2004 - $9,002; 2003 - $6,769)		1,142,552			1,220,320
Deferred income taxes, net		86,501			76,962
Deferred acquisition costs		31,426			83,975
Funds held by reinsureds		142,064			124,695
Other assets		174,725			255,861
Total assets	$	3,253,985		$	4,187,958
Liabilities:
Unpaid losses and loss adjustment expenses	$	2,111,598		$	2,541,318
Unearned premiums		158,489			403,708
Long-term debt		214,467			187,566
Accounts payable, accrued expenses and other liabilities		196,744			314,830
Funds held under reinsurance treaties		121,234			262,105
Dividends to policyholders		5,977			8,479
Payable under securities loan agreements		25			6,285
Total liabilities		2,808,534			3,724,291
Commitments and contingencies (Note 7)
Shareholders' Equity:
Class A Common stock, $5 par value
(2004 - 60,000,000 shares authorized; 34,217,945 shares issued and 31,676,851 outstanding;
2003 - 60,000,000 shares authorized; 34,217,945 shares issued and 31,334,403 outstanding)		171,090			171,090
Additional paid-in capital		109,331			109,331
Retained earnings		213,313			216,115
Accumulated other comprehensive income (loss)		(1,959	)		19,622
Notes receivable from officers		-			(65	)
Treasury stock, at cost (2004 - 2,541,094 shares; 2003 - 2,883,542 shares)		(45,573	)		(52,426	)
Unearned restricted stock compensation		(751	)		-
Total shareholders' equity		445,451			463,667
Total liabilities and shareholders' equity	$	3,253,985		$	4,187,958

See accompanying notes to the consolidated financial statements.

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PMA CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)		2004		2003			2002
Revenues:
Net premiums written	$	301,610	$	1,192,254		$	1,104,997
Change in net unearned premiums		216,975		5,911			(113,986	)
Net premiums earned		518,585		1,198,165			991,011
Net investment income		56,945		68,923			84,881
Net realized investment gains (losses)		6,493		13,780			(16,085	)
Other revenues		25,941		20,379			15,330
Total revenues		607,964		1,301,247			1,075,137
Losses and Expenses:
Losses and loss adjustment expenses		380,556		998,347			823,658
Acquisition expenses		115,225		256,446			216,984
Operating expenses		84,912		103,672			102,808
Dividends to policyholders		4,999		641			7,587
Interest expense		12,354		9,887			3,257
Loss on debt exchange		5,973		-			-
Total losses and expenses		604,019		1,368,993			1,154,294
Income (loss) before income taxes		3,945		(67,746	)		(79,157	)
Income tax expense (benefit)		2,115		25,823			(31,133	)
Net income (loss)	$	1,830	$	(93,569	)	$	(48,024	)
Income (loss) per share:
Basic	$	0.06	$	(2.99	)	$	(1.53	)
Diluted	$	0.06	$	(2.99	)	$	(1.53	)

See accompanying notes to the consolidated financial statements.

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PMA CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)		2004			2003			2002
Cash flows from operating activities:
Net income (loss)	$	1,830		$	(93,569	)	$	(48,024	)
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Deferred income tax expense (benefit)		2,115			25,823			(27,527	)
Net realized investment (gains) losses		(6,493	)		(13,780	)		16,085
Depreciation and amortization		19,667			21,229			9,199
Loss on debt exchange		5,973			-			-
Change in:
Premiums receivable and unearned premiums, net		(78,925	)		(2,121	)		34,516
Reinsurance receivables		77,768			74,763			(34,319	)
Unpaid losses and loss adjustment expenses		(429,720	)		91,428			125,451
Funds held by reinsureds		(17,369	)		32,784			(12,240	)
Funds held under reinsurance treaties		(140,871	)		12,435			21,778
Deferred acquisition costs		52,549			5,247			(24,872	)
Accounts payable, accrued expenses and other liabilities		(118,116	)		38,329			25,836
Dividends to policyholders		(2,502	)		(6,519	)		(2,134	)
Accrued investment income		5,353			(2,270	)		521
Other, net		25,474			(34,149	)		(12,103	)
Net cash flows provided by (used in) operating activities		(603,267	)		149,630			72,167
Cash flows from investing activities:
Fixed maturities available for sale:
Purchases		(484,142	)		(1,062,420	)		(964,047	)
Maturities and calls		231,622			319,241			256,625
Sales		779,494			395,287			634,480
Net (purchases) sales of short-term investments		28,664			147,584			(29,942	)
Proceeds from sale of subsidiary, net of cash sold		-			17,676			-
Proceeds from other assets sold		41,147			-			-
Other, net		(1,043	)		(3,358	)		(20,961	)
Net cash flows provided by (used in) investing activities		595,742			(185,990	)		(123,845	)
Cash flows from financing activities:
Dividends paid to shareholders		-			(9,870	)		(12,102	)
Issuance of long-term debt		15,825			100,000			151,250
Debt issue costs		(600	)		(3,662	)		(3,009	)
Repayment of debt		(1,185	)		(65,000	)		(62,500	)
Proceeds from exercise of stock options		-			2			2,866
Purchase of treasury stock		-			-			(1,726	)
Net repayments of notes receivable from officers		59			-			96
Net cash flows provided by financing activities		14,099			21,470			74,875
Net increase (decrease) in cash		6,574			(14,890	)		23,197
Cash - beginning of year		28,963			43,853			20,656
Cash - end of year	$	35,537		$	28,963		$	43,853
Supplementary cash flow information:
Income tax paid (refunded)	$	(2,592	)	$	2,600		$	(10,649	)
Interest paid	$	11,607		$	8,366		$	2,091

See accompanying notes to the consolidated financial statements.

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PMA CAPITAL CORPORATION 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)		2004			2003			2002
Class A Common Stock	$	171,090		$	171,090		$	171,090
Additional paid-in capital - Class A Common stock		109,331			109,331			109,331
Retained earnings:
Balance at beginning of year		216,115			319,014			382,165
Net income (loss)		1,830			(93,569	)		(48,024	)
Class A Common stock dividends declared		-			(9,870	)		(13,142	)
Reissuance of treasury shares under employee benefit plans		(4,632	)		540			(1,985	)
Balance at end of year		213,313			216,115			319,014
Accumulated other comprehensive income (loss):
Balance at beginning of year		19,622			34,552			5,375
Other comprehensive income (loss), net of tax expense (benefit):
2004 - ($11,620); 2003 - ($8,039); 2002 - $15,710		(21,581	)		(14,930	)		29,177
Balance at end of year		(1,959	)		19,622			34,552
Notes receivable from officers:
Balance at beginning of year		(65	)		(62	)		(158	)
Repayment (interest accrued) of notes receivable from officers		65			(3	)		96
Balance at end of year		-			(65	)		(62	)
Treasury stock - Class A Common:
Balance at beginning of year		(52,426	)		(52,535	)		(55,797	)
Purchase of treasury shares		-			-			(1,726	)
Reissuance of treasury shares under employee benefit plans		6,853			109			4,988
Balance at end of year		(45,573	)		(52,426	)		(52,535	)
Unearned restricted stock compensation:
Balance at beginning of year		-			-			-
Issuance of restricted stock, net of cancellations		(2,185	)		-			-
Amortization of unearned restricted stock compensation		1,434			-			-
Balance at end of year		(751	)		-			-
Total shareholders' equity:
Balance at beginning of year		463,667			581,390			612,006
Net income (loss)		1,830			(93,569	)		(48,024	)
Class A Common stock dividends declared		-			(9,870	)		(13,142	)
Purchase of treasury shares		-			-			(1,726	)
Reissuance of treasury shares under employee benefit plans		2,221			649			3,003
Other comprehensive income (loss)		(21,581	)		(14,930	)		29,177
Repayment (interest accrued) of notes receivable from officers		65			(3	)		96
Issuance of restricted stock, net of cancellations		(2,185	)		-			-
Amortization of unearned restricted stock compensation		1,434			-			-
Balance at end of year	$	445,451		$	463,667		$	581,390

See accompanying notes to the consolidated financial statements.

65

PMA CAPITAL CORPORATION 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)		2004			2003			2002
Net income (loss)	$	1,830		$	(93,569	)	$	(48,024	)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
Holding gains (losses) arising during the period		(13,540	)		7,077			17,355
Less: reclassification adjustment for (gains) losses included in net
income (loss), net of tax expense (benefit): 2004 - $2,273;
2003 - $4,823; 2002 - ($5,630)		(4,220	)		(8,957	)		10,455
Total unrealized gains (losses) on securites		(17,760	)		(1,880	)		27,810
Pension plan liability adjustment, net of tax benefit
2004 - $434; 2003 - $8,406		(806	)		(15,609	)		-
Foreign currency translation gains (losses), net of tax expense (benefit):
2004 - ($1,623); 2003 - $1,378; 2002 - $736		(3,015	)		2,559			1,367
Other comprehensive income (loss), net of tax		(21,581	)		(14,930	)		29,177
Comprehensive loss	$	(19,751	)	$	(108,499	)	$	(18,847	)

See accompanying notes to the consolidated financial statements.

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Notes to Consolidated Financial Statements

Note 1. Business Description

The accompanying consolidated financial statements include the accounts of PMA Capital Corporation and its subsidiaries (collectively referred to as “PMA Capital” or the “Company”). PMA Capital Corporation is an insurance holding company that owns and operates specialty risk management businesses:

The PMA Insurance Group — The PMA Insurance Group writes workers’ compensation, integrated disability and, to a lesser extent, other standard lines of commercial insurance, primarily in the eastern part of the United States. Approximately 87% of The PMA Insurance Group’s business for 2004 was produced through independent agents and brokers.

Run-off Operations — Run-off Operations consists of the results of the Company’s former reinsurance and excess and surplus lines businesses. The Company’s former reinsurance operations offered excess of loss and pro rata property and casualty reinsurance protection mainly through reinsurance brokers. In November 2003, the Company decided to withdraw from the reinsurance business. In May 2002, the Company withdrew from its former excess and surplus lines business.

Note 2. Summary of Significant Accounting Policies

A. Basis of Presentation — The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation. 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. Actual results could differ from those estimates. In addition, certain prior year amounts have been restated to conform to the current year classification. The balance sheet information presented in these financial statements and notes thereto is as of December 31 for each respective year. The statement of operations information is for the year ended December 31 for each respective year.

B. Investments — All fixed maturities are classified as available-for-sale and, accordingly, are carried at fair value. Changes in fair value of fixed maturities, net of income tax effects, are reflected in accumulated other comprehensive income (loss). All short-term, highly liquid investments, which have original maturities of one year or less from acquisition date, are treated as short-term investments and are carried at amortized cost, which approximates fair value.

Realized gains and losses, determined by the first-in, first-out method, are reflected in income in the period in which the sale transaction occurs. For all securities that are in an unrealized loss position for an extended period of time and for all securities whose fair value is significantly below amortized cost, the Company performs an evaluation of the specific events attributable to the market decline of the security. The Company considers the length of time and extent to which the security’s market value has been below cost as well as the general market conditions, industry characteristics and the fundamental operating results of the issuer to determine if the decline is other than temporary. The Company also considers as part of the evaluation its intent and ability to hold the security until its market value has recovered to a level at least equal to the amortized cost. When the Company determines that a security’s unrealized loss is other than temporary, a realized loss is recognized in the period in which the decline in value is determined to be other than temporary. The write-downs are measured based on public market prices and the Company’s expectation of the future realizable value for the security at the time the Company determines the decline in value was other than temporary.

The Company participates in a securities lending program through which securities are lent from the Company’s portfolio for short periods of time to qualifying third parties via a lending agent. Borrowers of these securities must provide collateral equal to a minimum of 102% of the market value including accrued interest of the lent securities. Acceptable collateral may be in the form of either cash or securities. Cash received as collateral is invested in short-term investments, and is recorded as such on the Balance Sheet, along with a corresponding liability included in payable under securities loan agreements. All securities received as collateral are of similar quality to those securities lent by the Company. The Company is not permitted by contract to sell or repledge the securities received as collateral. Additionally, the Company limits securities lending to 40% of statutory admitted assets of its insurance subsidiaries, with a 2% limit on statutory admitted assets to any individual borrower. The Company either receives a fee from the borrower or retains a portion of the income earned on the collateral. Under the terms of the securities lending program, the Company is indemnified against borrower default, with the lending

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agent responsible to the Company for any deficiency between the cost of replacing a security that was not returned and the amount of collateral held by the Company.

C. Premiums — Premiums, including estimates of additional premiums resulting from audits of insureds’ records, and premiums from ceding companies which are typically reported on a delayed basis, are earned principally on a pro rata basis over the terms of the policies. For reinsurance premiums assumed, management must estimate the subject premiums associated with the treaties in order to determine the level of written and earned premiums for a reporting period. Such estimates are based on information from brokers and ceding companies, which can be subject to change as new information becomes available. Any changes occurring or reported to the Company after the policy term are recorded as earned premiums in the period in which the adjustment is made. See Note 4 for additional information. With respect to policies that provide for premium adjustments, such as experience-rated or exposure-based adjustments, such premium adjustments may be made subsequent to the end of the policy’s coverage period and will be recorded as earned premiums in the period in which the adjustment is made. Premiums applicable to the unexpired terms of policies in force are reported as unearned premiums. The estimated premiums receivable on retrospectively rated policies are reported as a component of premiums receivable.

D. Unpaid Losses and Loss Adjustment Expenses — Unpaid losses and loss adjustment expenses (“LAE”), which are stated net of estimated salvage and subrogation, are estimates of losses and LAE on known claims and estimates of losses and LAE incurred but not reported (“IBNR”). IBNR reserves are calculated utilizing various actuarial methods. Unpaid losses on certain workers’ compensation claims are discounted to present value using the Company’s payment experience and mortality and interest assumptions in accordance with statutory accounting practices prescribed by the Pennsylvania Insurance Department. The Company also discounts unpaid losses and LAE for certain other claims at rates permitted by domiciliary regulators or if the timing and amount of such claims are fixed and determinable. The methods of making such estimates and establishing the resulting reserves are continually reviewed and updated and any adjustments resulting there from are reflected in earnings in the period identified. See Note 4 for additional information.

E. 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 insurance pools and associations. The Company’s insurance and reinsurance subsidiaries cede business in order to limit the maximum net loss and limit the accumulation of many smaller losses from a catastrophic event. The insurance and reinsurance subsidiaries remain primarily liable to their clients in the event their reinsurers are unable to meet their financial obligations. Reinsurance receivables include claims paid by the Company and estimates of unpaid losses and LAE that are subject to reimbursement under reinsurance and retrocessional contracts. The method for determining the reinsurance receivable for unpaid losses and LAE involves reviewing actuarial estimates of unpaid losses and LAE to determine the Company’s ability to cede unpaid losses and LAE under its existing reinsurance contracts. This method is continually reviewed and updated and any adjustments resulting there from are reflected in earnings in the period identified. Under certain of the Company’s reinsurance and retrocessional contracts, additional premium and interest may be required if predetermined loss and LAE thresholds are exceeded.

Certain of the Company’s reinsurance contracts are retroactive in nature. Any benefit derived from retroactive reinsurance contracts is deferred and amortized into income over the payout pattern of the underlying claim liabilities unless the contracts call for immediate recovery by the Company from reinsurers as ceded losses are incurred.

Certain of the Company’s assumed and ceded reinsurance contracts are funds held arrangements. In a funds held arrangement, the ceding company retains the premiums instead of paying them to the reinsurer and losses are offset against these funds in an experience account. Because the reinsurer is not in receipt of the funds, the reinsurer will generally earn interest on the experience fund balance at a predetermined credited rate of interest. The Company generally earns an interest rate of between 6% and 8% on its assumed funds held arrangements and generally pays interest at a rate of between 6% and 7% on its ceded funds held arrangements. The interest earned or credited on funds held arrangements is included in net investment income in the Statement of Operations. In addition, interest on funds held arrangements will continue to be earned or credited until the experience account is fully depleted, which can extend many years beyond the expiration of the coverage period.

F. Deferred Acquisition Costs — Costs that directly relate to and vary with the acquisition of new and renewal business are deferred and amortized over the period during which the related premiums are earned. Such direct costs include commissions or brokerage and premium taxes, as well as other policy issuance costs and underwriting expenses. The Company determines whether acquisition costs are recoverable considering future losses and LAE, maintenance costs and

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anticipated investment income. To the extent that acquisition costs are not recoverable, the deficiency is charged to income in the period identified.

G. Derivatives — The derivative component of the Company’s 6.50% Senior Secured Convertible Debt due 2022 (“6.50% Convertible Debt”) is bifurcated and recorded at fair value in long-term debt on the Balance Sheet. Changes in fair value are recorded in net realized investment gains (losses). See Note 6 for additional information.

H. Dividends to Policyholders — The PMA Insurance Group sells certain workers’ compensation insurance policies with dividend payment features. These policyholders share in the underwriting results of their respective policies in the form of dividends declared at the discretion of the Board of Directors of The PMA Insurance Group’s operating companies. Dividends to policyholders are accrued during the period in which the related premiums are earned and are determined based on the terms of the individual policies.

I. Income Taxes — The Company records deferred tax assets and liabilities to the extent of the tax effect of differences between the financial statement carrying values and tax bases of assets and liabilities. A valuation allowance is recorded for deferred tax assets where it appears more likely than not that the Company will not be able to recover the deferred tax asset. See Note 12 for additional information.

J. Stock-Based Compensation — The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s Class A Common stock at grant date or other measurement date over the amount an employee must pay to acquire the Class A Common stock. The following table illustrates the effect on net income (loss) if the fair value based method had been applied:

(in thousands, except per share)		2004			2003			2002
Net income (loss)	$	1,830		$	(93,569	)	$	(48,024	)
Stock-based compensation expense already
included in reported net income (loss), net of tax		820			156			140
Total stock-based compensation expense
determined under fair value based method,
net of tax		(2,112	)		(1,302	)		(1,480	)
Pro forma net income (loss)	$	538		$	(94,715	)	$	(49,364	)
Net income (loss) per share:
Basic - as reported	$	0.06		$	(2.99	)	$	(1.53	)
Basic - pro forma	$	0.02		$	(3.02	)	$	(1.58	)
Diluted - as reported	$	0.06		$	(2.99	)	$	(1.53	)
Diluted - pro forma	$	0.02		$	(3.02	)	$	(1.58	)

K. Other Revenues — Other revenues include service revenues related to unbundled claims, risk management and related services provided by The PMA Insurance Group, which are earned over the term of the related contracts in proportion to the actual services rendered, and other miscellaneous revenues. During 2004, other revenues included a $6.6 million gain on the sale of a partnership interest.

L. Recent Accounting Pronouncements — In December 2003, the Financial Accounting Standards Board (“FASB”) revised Statement of Financial Accounting Standards (“SFAS”) No. 132, “Employers’ Disclosures About Pensions and Other Postretirement Benefits,” to require additional disclosures regarding defined benefit pension plans and other defined benefit postretirement plans. The Company has applied the disclosure provisions of SFAS No. 132, as revised, to its Consolidated Financial Statements.

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In December 2004, the Company adopted Emerging Issues Task Force (“EITF”) Consensus 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share,” which requires the inclusion of the dilutive effect of contingently convertible debt instruments in the computation of diluted income (loss) per share regardless of whether the contingency triggering convertibility has been met. The Company’s earnings per share calculation for the first and second quarters of 2003 did not include the effects of potential conversion because the conditions for convertibility had not yet occurred. Adoption of EITF 04-8 resulted in a reduction in the Company’s first and second quarter 2003 diluted income per share by three and four cents, respectively, but has no effect for full year 2003, because the effect of conversion would have been anti-dilutive. Beginning in the third quarter of 2003, the conversion requirements were met on the Company’s convertible debt. See unaudited “Quarterly Financial Information” for additional information.

In March 2004, the EITF reached a consensus regarding EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.”  The consensus provides guidance for evaluating whether an investment is other-than-temporarily impaired.  The disclosure provisions of EITF 03-1 were effective for year-end 2003, with the recognition and measurement provisions scheduled to be effective for the third quarter of 2004. However, in September 2004, the FASB issued Staff Position EITF 03-1-1, which delays the effective date of the application of the recognition and measurement provisions of EITF 03-1. The delay of the recognition and measurement provisions is expected to be superseded concurrently with the issuance of a FASB Staff Position which will provide additional implementation guidance. The Company will assess whether this guidance will have a material impact on its financial condition or results of operations once the new guidance is released.

In December 2004, the FASB revised SFAS No. 123, “Share-Based Payment” to require the recognition of expenses relating to share-based payment transactions, including employee stock option grants, based on the fair value of the equity instruments issued. The Company is required to adopt the revised SFAS No. 123 in the third quarter of 2005. Effective with the third quarter of 2005, the Company will recognize an expense over the required service period for any stock options granted, modified, cancelled, or repurchased after that date and for the portion of grants for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards. In December 2002, the Company adopted the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation - - Transition and Disclosure,” which required prominent disclosures in financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. See Note 2-J for the effect on net income (loss) if the fair value based method had been applied.

Note 3. Investments

The Company’s investment portfolio is diversified and does not contain any significant concentrations in single issuers other than U.S. Treasury and agency obligations. In addition, the Company does not have a significant concentration of investments in any single industry segment other than finance companies, which comprise 10% of invested assets at December 31, 2004. Included in this industry segment are diverse financial institutions, including the financing subsidiaries of automotive manufacturers.

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The amortized cost and fair value of the Company’s investment portfolio are as follows:

				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
(dollar amounts in thousands)		Cost		Gains		Losses		Value
December 31, 2004
Fixed maturities available for sale:
U.S. Treasury securities and obligations of U.S. Government agencies	$	312,954	$	4,671	$	3,431	$	314,194
States, political subdivisions and foreign government securities		19,026		832		90		19,768
Corporate debt securities		450,396		20,031		2,163		468,264
Mortgage-backed and other asset-backed securities		500,880		7,562		6,582		501,860
Total fixed maturities available for sale		1,283,256		33,096		12,266		1,304,086
Short-term investments		123,746		-		-		123,746
Total investments	$	1,407,002	$	33,096	$	12,266	$	1,427,832
December 31, 2003
Fixed maturities available for sale:
U.S. Treasury securities and obligations of U.S. Government agencies	$	340,483	$	11,975	$	1,253	$	351,205
States, political subdivisions and foreign government securities		20,200		718		95		20,823
Corporate debt securities		764,710		32,833		2,360		795,183
Mortgage-backed and other asset-backed securities		680,697		15,008		8,361		687,344
Total fixed maturities available for sale		1,806,090		60,534		12,069		1,854,555
Short-term investments		157,632		-		-		157,632
Total investments	$	1,963,722	$	60,534	$	12,069	$	2,012,187

As of December 31, 2004, gross unrealized losses on the Company’s investment asset portfolio were $12.3 million. For securities that were in an unrealized loss position at December 31, 2004, the length of time that such securities have been in an unrealized loss position, as measured by their month-end fair values, is as follows:

									Percentage
									Fair Value
	Number of		Fair		Amortized		Unrealized		Amortized to
(dollar amounts in millions)	Securities		Value		Cost		Loss		Cost
Less than 6 months	152	$	138.2	$	139.1	$	(0.9	)	99%
6 to 9 months	71		108.5		110.0		(1.5	)	99%
9 to 12 months	7		8.2		8.4		(0.2	)	98%
More than 12 months	34		44.0		49.4		(5.4	)	89%
Subtotal	264		298.9		306.9		(8.0	)	97%
U.S. Treasury and Agency securities	107		277.3		281.6		(4.3	)	98%
Total	371	$	576.2	$	588.5	$	(12.3	)	98%

The amortized cost and fair value of fixed maturities at December 31, 2004, by contractual maturity, are as follows:

		Amortized		Fair
(dollar amounts in thousands)		Cost		Value
2005	$	93,874	$	93,727
2006-2009		308,918		307,778
2010-2014		215,822		221,056
2015 and thereafter		163,762		179,665
Mortgage-backed and other asset-backed securities		500,880		501,860
	$	1,283,256	$	1,304,086

Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties.

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Net investment income consists of the following:

(dollars amounts in thousands)		2004			2003			2002
Fixed maturities	$	69,540		$	81,090		$	84,957
Short-term investments		1,707			2,684			5,073
Other		749			627			913
Total investment income		71,996			84,401			90,943
Investment expenses		(6,348	)		(5,070	)		(3,173	)
Interest on funds held, net		(8,703	)		(10,408	)		(2,889	)
Net investment income	$	56,945		$	68,923		$	84,881

Net realized investment gains (losses) consist of the following:

(dollar amounts in thousands)		2004			2003			2002
Realized gains	$	20,083		$	18,726		$	18,659
Realized losses		(4,847	)		(4,946	)		(34,744	)
Foreign exchange loss		(4,897	)		-			-
Change in fair value of derivative		(3,846	)		-			-
Total net realized investments gains (losses)	$	6,493		$	13,780		$	(16,085	)

Included in realized losses for 2004, 2003 and 2002 were impairment losses of $334,000, $2.6 million and $23.8 million, respectively. The impairment losses for 2004 were related to an asset-backed security and a security issued by an airline company. The impairment losses for 2003 primarily related to securities issued by airline companies and an asset-backed security. The impairment losses for 2002 primarily related to corporate bonds issued by telecommunications and energy companies, including $14.2 million for WorldCom. The write-downs were measured based on public market prices and the Company’s expectation of the future realizable value for the security at the time when the Company determined the decline in value was other than temporary.

The realized loss on the change in fair value of derivative related to the increase in the fair value of the derivative component of the 6.50% Convertible Debt from the date of issuance/exchange to December 31, 2004. See Note 6 for additional information.

At December 31, 2003, the Company had $6.3 million of collateral related to securities on loan, substantially all of which was cash received and subsequently reinvested in short-term investments.

On December 31, 2004, the Company had securities with a total amortized cost of $47.9 million and fair value of $48.5 million on deposit with various governmental authorities, as required by law. In addition, the Company had securities with a total amortized cost of $27.8 million and fair value of $28.2 million held in trust for the benefit of certain ceding companies on reinsurance balances assumed by the Run-off Operations. Securities with a total amortized cost and fair value of $7.0 million were held in trust to support the Company’s participation in the underwriting capacity of a Lloyd’s of London syndicate. There were also securities with a total amortized cost and fair value of $4.0 million pledged as collateral for letters of credit issued on behalf of the Company. The securities held in trust, on deposit or pledged as collateral are included in fixed maturities and short-term investments on the Balance Sheet.

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Note 4. Unpaid Losses and Loss Adjustment Expenses

Activity in the liability for unpaid losses and LAE is summarized as follows:

(dollar amounts in thousands)		2004			2003			2002
Balance at January 1	$	2,541,318		$	2,449,890		$	2,324,439
Less: reinsurance recoverable on unpaid losses and LAE		1,195,048			1,265,584			1,181,322
Net balance at January 1		1,346,270			1,184,306			1,143,117
Losses and LAE incurred, net:
Current year, net of discount		406,828			768,114			655,395
Prior years		(40,363	)		218,774			159,748
Accretion of prior years' discount		14,091			11,459			8,515
Total losses and LAE incurred, net		380,556			998,347			823,658
Losses and LAE paid, net:
Current year		(122,256	)		(185,850	)		(138,127	)
Prior years		(605,755	)		(650,533	)		(594,342	)
Total losses and LAE paid, net		(728,011	)		(836,383	)		(732,469	)
Reserves transferred		-			-			(50,000	)
Net balance at December 31		998,815			1,346,270			1,184,306
Reinsurance recoverable on unpaid losses and LAE		1,112,783			1,195,048			1,265,584
Balance at December 31	$	2,111,598		$	2,541,318		$	2,449,890

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. Due to the “long-tail” nature of a significant portion of the Company’s business, 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. The Company defines long-tail business as those lines of business in which a majority of coverage involves average loss payment lags of several years beyond the expiration of the policy. The Company’s major long-tail lines include its workers’ compensation and casualty reinsurance business. In addition, because reinsurers rely on their ceding companies to provide them with information regarding incurred losses, reported claims 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 the Company’s unpaid losses and LAE, various actuarial models are used that analyze historical data and consider the impact of current developments and trends, such as trends in claims severity and frequency and claims settlement trends. Also considered are legal developments, regulatory trends, legislative developments, changes in social attitudes and economic conditions.

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The following table summarizes the effect on the Company’s underwriting assets and liabilities of the commutation and novation of certain reinsurance and retrocessional contracts by the Run-off Operations segment occurring in 2004. The commutations and novations did not have a material effect on the Company’s results of operations for 2004.

(dollar amounts in thousands)		2004
Assets:
Reinsurance receivables	$	(63,662	)
Funds held by reinsureds		(31,330	)
Other assets		(70,537	)
Liabilities:
Unpaid losses and loss adjustment expenses	$	(202,667	)
Unearned premiums		(26,596	)
Other liabilities		(70,228	)
Funds held under reinsurance treaties		(82,095	)

The components of the Company’s (favorable) unfavorable development of reserves for losses and LAE for prior accident years, excluding accretion of discount, are as follows:

(dollar amounts in thousands)		2004			2003		2002
The PMA Insurance Group	$	(2,070	)	$	49,685	$	1,082
Run-off Operations		(38,293	)		169,089		158,666
Total net (favorable) unfavorable development	$	(40,363	)	$	218,774	$	159,748

During 2004, the favorable prior year loss development at the Run-off Operations related primarily to reinsurance contracts that were novated or commuted. This favorable prior year loss development was substantially offset by net premiums earned and acquisition expenses.

The PMA Insurance Group recorded favorable prior year loss development of $2.1 million in 2004, primarily reflecting better than expected loss experience from rent-a-captive workers’ compensation business. Dividends to policyholders offset this favorable development. Rent-a-captives are used by customers as an alternative method to manage their loss exposure without establishing and capitalizing their own captive insurance company.

During 2003, The PMA Insurance Group recorded unfavorable prior year loss development of $49.7 million. As part of the year end closing process, in the fourth quarter of 2003, the Company’s actuaries completed a comprehensive year-end actuarial analysis of loss reserves. Based on the actuarial work performed, the Company’s actuaries noticed higher than expected claims severity in workers' compensation business written for accident years 2001 and 2002, primarily from loss-sensitive and participating workers' compensation business. As a result, The PMA Insurance Group increased loss reserves for prior years by $50 million. An independent actuarial firm also conducted a comprehensive review of The PMA Insurance Group’s loss reserves as of December 31, 2003 and concluded that such carried loss reserves were reasonable as of December 31, 2003. Under The PMA Insurance Group's loss-sensitive rating plans, the amount of the insured's premiums is adjusted after the policy period expires based, to a large extent, upon the insured's actual losses incurred during the policy period. Under policies that are subject to dividend plans, the ultimate amount of the dividend that the insured may receive is also based, to a large extent, upon loss experience during the policy period. Accordingly, offsetting the effects of this unfavorable prior year loss development were premium adjustments of $35 million under loss-sensitive plans and reduced policyholder dividends of $8 million, resulting in a net fourth quarter pre-tax charge of $7 million.

During 2003, the Run-off Operations increased its net loss reserves for prior accident years for reinsurance business by $169.1 million, including $150 million during the third quarter. The third quarter 2003 reserve charge related to higher than expected underwriting losses, primarily from casualty business written in accident years 1997 through 2000. Approximately

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75% of the charge was related to general liability business written from 1997 to 2000 with substantially all of the remainder of the charge from the commercial automobile line written during those same years. During the third quarter, the Company’s actuaries conducted their periodic comprehensive reserve review. Based on the actuarial work performed, which included analyzing recent trends in the levels of the reported and paid claims, an updated selection of actuarially determined loss reserve estimates was developed by accident year for each major line of reinsurance business written. The information derived during this review indicated that a large portion of the change in expected loss development was due to increasing loss trends emerging in calendar year 2003 for prior accident years. This increase in 2003 loss trends caused management to determine that the reserve levels, primarily for accident years 1997 to 2000, needed to be increased by $150 million. An independent actuarial firm also conducted a comprehensive review of the Company’s Traditional-Treaty, Specialty-Treaty and Facultative reinsurance loss reserves, and concluded that those carried loss reserves were reasonable at September 30, 2003.

The Company’s analysis was enhanced by an extensive review of specific accounts, comprising about 40% of the carried reserves of the reinsurance business for accident years 1997 to 2000. The Company’s actuaries visited a number of former ceding company clients, which collectively comprised about 25% of the reinsurance business total gross loss and LAE reserves from accident years 1997 to 2000, to discuss reserving and reporting experience with these ceding companies. The Company’s actuaries separately evaluated an additional number of other ceding companies, representing approximately 15% of the reinsurance business total gross loss and LAE reserves from accident years 1997 to 2000, to understand and examine data trends.

During 2002, the Run-off Operations recorded net unfavorable prior year loss development of $159 million ($107 million for reinsurance and $52 million for excess and surplus lines). During 2002, company actuaries conducted reserve reviews to determine the impact of any emerging data on anticipated loss development trends and recorded unpaid losses and LAE reserves. Based on the actuarial work performed, which included analyzing recent trends in the levels of the reported and paid claims, an updated selection of actuarially determined loss reserve estimates was developed by accident year for each major line of business. Management’s selection of the ultimate losses resulting from their reviews indicated that net loss reserves for the excess and surplus lines business for prior accident years, mainly 1999 and 2000, needed to be increased by $52 million. This unfavorable prior year development reflects the impact of higher than expected claim severity and, to a lesser extent, frequency, that emerged in 2002 on casualty lines of business, primarily professional liability policies for the nursing homes class of business; general liability, including policies covering contractors’ liability for construction defects; and commercial automobile, mainly for accident years 1999 and 2000.

During 2002, the Run-off Operations also recorded unfavorable prior year development of $107 million for the reinsurance business. During the fourth quarter, the Company’s actuaries observed a higher than expected increase in the frequency and, to a lesser extent, severity of reported claims by ceding companies. Management’s selection of the ultimate losses indicated that net loss and LAE reserves for prior accident years needed to be increased by $64 million in the fourth quarter of 2002, primarily for excess of loss and pro rata general liability occurrence contracts and, to a lesser extent, excess of loss general liability claims-made contracts, from accident years 1998, 1999 and 2000.

The remaining $43 million of unfavorable prior year development on reinsurance business in 2002 primarily reflects the recording of losses and LAE on additional earned premiums recorded during 2002 as a result of a change in the Company’s estimate of ultimate premiums written from prior years. Because premiums from ceding companies are typically reported on a delayed basis, the Company monitors and updates as appropriate the estimated ultimate premiums written. The Company’s periodic reviews of estimated ultimate premiums written, which compared actual reported premiums and originally estimated premiums based on ceding company estimates, indicated that premiums written in recent years, primarily in the Traditional- and Specialty-Treaty units for 2001 and 2000, were higher than originally estimated. As a result, the Company recorded additional net premiums earned during 2002, including $39.9 million in the second quarter, which were completely offset by losses and LAE and acquisition expenses.

Reserves transferred in 2002 reflect the assumption of losses by an unaffiliated third party. Cash and short-term investments of $50 million were transferred to support the payment of the transferred reserves.

Unpaid losses for the Company’s workers’ compensation claims, net of reinsurance, at December 31, 2004 and 2003 were $448.7 million and $433.8 million, net of discount of $48.2 million and $54.6 million, respectively. The discount rate used was approximately 5% at December 31, 2004 and 2003.

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The Company’s loss reserves were stated net of salvage and subrogation of $30.8 million and $33.2 million at December 31, 2004 and 2003, respectively.

During 2004, the Company’s actuaries conducted their periodic reserve reviews of The PMA Insurance Group and the Run-off Operations. Based on the actuarial work performed, which included analyzing recent trends in the levels of the reported and paid claims, an updated selection of actuarially determined loss reserve estimates was developed by accident year for each major line of business. The information derived during these reviews indicated that general liability and professional liability lines written by the Run-off Operations continued to exhibit volatility. While the conclusion of the reviews indicated that no adjustments to reserves were necessary and that the Company's carried reserves were resonable, continued volatility could require adjustments in future periods.

On December 6, 2004, the New York jury in the trial regarding the insurance coverage for the World Trade Center rendered a verdict that the September 11, 2001 attack on the World Trade Center constituted two occurrences under the policies issued by certain insurers. The Company considers the jury's verdict to be contrary to the terms of the insurance coverage in force and to the intent of the parties involved. Because the litigation is ongoing and the appraisal and valuation process is pending, the ultimate resolution of this issue cannot be determined at this time. The Company estimates that it could be required to incur a charge of up to $5 million pre-tax at the Run-off Operations if it is ultimately determined that the September 11, 2001 attack on the World Trade Center constituted two occurrences under the policies issued by certain of its ceding companies and if as a result of this determination, additional losses are incurred by its ceding companies.

Management believes that its unpaid losses and LAE are fairly stated at December 31, 2004. However, estimating the ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management’s informed estimates, assumptions and judgments using data currently available. As additional experience and data become available regarding claims payment and reporting patterns, legal and legislative developments, judicial theories of liability, the impact of regulatory trends on benefit levels for both medical and indemnity payments, changes in social attitudes 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 December 31, 2004, the related adjustments could have a material adverse effect on the Company’s financial condition, results of operations and liquidity.

At December 31, 2004, 2003 and 2002, gross reserves for asbestos-related losses were $27.9 million, $37.8 million and $42.1 million, respectively ($14.0 million, $17.8 million and $25.8 million, net of reinsurance, respectively). Of the net asbestos reserves, approximately $10.3 million, $14.9 million and $22.9 million related to IBNR losses at December 31, 2004, 2003 and 2002, respectively.

At December 31, 2004, 2003 and 2002, gross reserves for environmental-related losses were $16.1 million, $14.2 million and $18.2 million, respectively ($6.4 million, $8.8 million and $14.3 million, net of reinsurance, respectively). Of the net environmental reserves, approximately $3.0 million, $3.7 million, and $7.9 million related to IBNR losses at December 31, 2004, 2003 and 2002, respectively. All incurred asbestos and environmental losses were for accident years 1986 and prior.

Estimating reserves for asbestos and environmental exposures continues to be difficult because of several factors, including: (i) evolving methodologies for the estimation of the liabilities; (ii) lack of reliable historical claim data; (iii) uncertainties with respect to insurance and reinsurance coverage related to these obligations; (iv) changing judicial interpretations; and (v) changing government standards. Management believes that its reserves for asbestos and environmental claims are appropriately established based upon known facts, existing case law and generally accepted actuarial methodologies. However, due to changing interpretations by courts involving coverage issues, the potential for changes in Federal and state standards for clean-up and liability, as well as issues involving policy provisions, allocation of liability and damages among participating insurers, and proof of coverage, the Company’s ultimate exposure for these claims may vary significantly from the amounts currently recorded, resulting in a potential future adjustment that could be material to the Company’s financial condition, results of operations and liquidity.

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Note 5. Reinsurance

The components of net premiums written and earned, and losses and LAE incurred are as follows:

(dollar amounts in thousands)		2004			2003			2002
Written premiums:
Direct	$	386,260		$	652,795		$	604,984
Assumed		(33,998	)		776,848			781,562
Ceded		(50,652	)		(237,389	)		(281,549	)
Net	$	301,610		$	1,192,254		$	1,104,997
Earned premiums:
Direct	$	461,365		$	638,716		$	599,827
Assumed		136,131			788,025			691,740
Ceded		(78,911	)		(228,576	)		(300,556	)
Net	$	518,585		$	1,198,165		$	991,011
Losses and LAE:
Direct	$	372,059		$	484,889		$	503,867
Assumed		108,308			756,570			543,025
Ceded		(99,811	)		(243,112	)		(223,234	)
Net	$	380,556		$	998,347		$	823,658

In 2004, the Company purchased reinsurance covering potential adverse loss development of the loss and LAE reserves of the Run-off Operations. Under the agreement, the Company ceded $100 million in carried loss and LAE reserves and paid $146.5 million in cash. During 2004, the Company incurred $6.0 million in ceded premiums for this agreement. In addition, the contract requires additional premiums of $2.5 million if it is not commuted by December 2007.At December 31, 2004, the Run-off Operations have $105 million of available coverage under this agreement for future adverse loss development.

Any future cession of losses may require the Company to cede additional premiums of up to $35 million on a pro rata basis, at the following contractually determined levels:

Losses ceded	Additional premiums
$0 - $20 million	No additional premiums
$20 - $50 million	Up to $20 million
$50 - $80 million	Up to $15 million
$80 - $105 million	No additional premiums

The additional premiums have been prepaid and are included in other assets on the Balance Sheet. Because the coverage is retroactive, the Company will not record the benefit of this reinsurance in its Statement of Operations until it receives the related recoveries.

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At December 31, 2004, the Company had reinsurance receivables due from the following unaffiliated reinsurers in excess of 5% of shareholders’ equity:

		Reinsurance
(dollar amounts in thousands)		Receivables		Collateral
The London Reinsurance Group and Affiliates(1)	$	288,777	$	274,717
Swiss Reinsurance America Corporation		140,824		27,087
PXRE Reinsurance Company		128,542		72,509
St. Paul and Affiliates(2)		102,910		79,709
Houston Casualty Company		75,701		-
Imagine Insurance Company Limited		34,212		34,212
Partner Reinsurance Co		30,474		-
Hannover Ruckversicherungs AG		30,065		-

(1) Includes Trabaja Reinsurance Company ($264.1 million) and London Life & General Reinsurance Company ($24.7 million).

(2) Includes United States Fidelity & Guaranty Insurance Company ($68.6 million), Mountain Ridge Insurance Company ($24.6 million) and other affiliated entities ($9.7 million).

The Company performs credit reviews of its reinsurers focusing on, among other things, financial capacity, stability, trends and commitment to the reinsurance business. Reinsurers failing to meet the Company’s standards are excluded from the Company’s reinsurance programs. In addition, the Company requires collateral, typically assets in trust, letters of credit or funds withheld, to support balances due from certain reinsurers, generally those not authorized to transact business in the applicable jurisdictions. At December 31, 2004 and 2003, the Company’s reinsurance receivables of $1,142.6 million and $1,220.3 million were supported by $507.2 million and $644.1 million of collateral. Of the uncollateralized reinsurance receivables as of December 31, 2004, approximately 94% were from reinsurers rated “A-” or better by A.M. Best.

The PMA Insurance Group has recorded reinsurance receivables of $13.9 million at December 31, 2004, related to certain umbrella policies covering years prior to 1977. The reinsurer has disputed the extent of coverage under these policies. The ultimate resolution of this dispute cannot be determined at this time. An unfavorable resolution of the dispute could have a material adverse effect on the Company’s financial condition and results of operations.

The Company's largest reinsurer is Trabaja Reinsurance Company (“Trabaja”). Reinsurance receivables from Trabaja were $264.1 million at December 31, 2004, of which 95% were collateralized.

Trabaja, formerly PMA Insurance Cayman, Ltd. (“PMA Cayman”), is a wholly owned subsidiary of London Life and Casualty Reinsurance Corporation (“London Reinsurance Group”). The Company sold PMA Cayman to London Reinsurance Group for $1.8 million, and transferred approximately $230 million of cash and invested assets as well as loss reserves to the buyer in 1998. Under the terms of the sale of PMA Cayman to London Reinsurance Group in 1998, the Company has agreed to indemnify London Reinsurance Group, up to a maximum of $15 million if the actual claim payments in the aggregate exceed the estimated payments upon which the loss reserves of PMA Cayman were established. If the actual claim payments in the aggregate are less than the estimated payments upon which the loss reserves have been established, then the Company will participate in such favorable loss reserve development.

In January 2002, the Company supplemented its in-force reinsurance programs for The PMA Insurance Group and its former reinsurance business with retroactive reinsurance contracts with Trabaja that provide coverage for adverse loss development on certain lines of business for accident years prior to 2002. These contracts provide coverage of up to $125 million in losses in return for $55 million of funding, which included $50 million of assets and $5 million in ceded premiums. Under the terms of the contracts, losses and LAE of the Run-off Operations ceded to Trabaja for accident years 1996 through 2001 are recoverable as they are incurred by the Company. In 2002, the Run-off Operations recognized a benefit of $25 million for losses ceded to these reinsurance contracts. Any future cession of losses under these contracts may require the Company to cede additional premiums ranging from 40% to 50% of ceded losses depending on the level of such losses.

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Note 6. Debt

The Company’s outstanding debt is as follows:

(dollar amounts in thousands)		2004		2003
Long-term debt:
6.50% Convertible Debt	$	99,140	$	-
Derivative component of 6.50% Convertible Debt		13,086		-
4.25% Convertible Debt		925		86,250
Trust preferred debt		43,816		43,816
8.50% Senior Notes		57,500		57,500
Total long-term debt	$	214,467	$	187,566

In November 2004, the Company exchanged $84.1 million aggregate principal amount of 6.50% Convertible Debt for $84.1 million aggregate principal amount of its outstanding 4.25% Senior Convertible Debt due 2022 (“4.25% Convertible Debt” and together with the 6.50% Convertible Debt, the “Convertible Debt” ). The Company did not receive any proceeds as a result of the exchange offer. The Company recorded a loss on the debt exchange of $6.0 million, which resulted from the initial recording of the 6.50% Convertible Debt at fair value and the write-off of unamortized issuance costs associated with the 4.25% Convertible Debt. In November 2004, the Company received net proceeds of $15.2 million from the issuance of $15 million aggregate principal amount of 6.50% Convertible Debt in a private placement to a limited number of qualified institutional buyers. The Convertible Debt may be converted at any time, at the holder's option, at a current price of $16.368 per share.

On June 30, 2009, holders of the 6.50% Convertible Debt will have the right to require the Company to repurchase for cash any amounts outstanding for 114% of the principal amount of the debt plus accrued and unpaid interest, if any, to the settlement date. In 2006, in the event PMA Capital Corporation receives any extraordinary dividends from its subsidiaries, the Company will be required to use 50% of those dividends to redeem up to $35 million principal amount of the 6.50% Convertible Debt at 110% of the original principal amount. Holders may elect to receive any premium over the principal amount (“Put Premium”) in either cash or Class A common stock, with the number of shares determined based on a value of $8.00 per share.

The 6.50% Convertible Debt is secured equally and ratably with the Company's $57.5 million 8.50% Monthly Income Senior Notes due 2018 (the “8.50% Senior Notes”) by a first lien on 20% of the capital stock of the Company's principal operating subsidiaries. The Company has agreed to make an additional pledge of the remainder of the capital stock of these subsidiaries if the A.M. Best financial strength rating of the Pooled Companies is not A- or higher on December 31, 2005 or is reduced below B++ prior to December 31, 2005. The 6.50% Convertible Debt is convertible at the rate of 61.0948 shares per $1000 principal amount, equivalent to a conversion price of $16.368 per share of Class A common stock.

The Put Premium and conversion features of the 6.50% Convertible Debt constitute a derivative which requires bifurcation. Any change in the fair value of the derivative component of the 6.50% Convertible Debt is recognized in net realized investment gains (losses). The Company had a net realized loss of $3.8 million in 2004 for the increase in the fair value of the derivative component of the 6.50% Convertible Debt from the date of issuance to December 31, 2004.

In 2003, the Company issued $43.8 million of 30-year floating rate subordinated debentures to three wholly owned statutory trust subsidiaries. The Company used all of the $41.2 million of net proceeds to pay down a portion of its then outstanding bank credit facility and for general corporate purposes. The trust preferred debt matures in 2033 and is redeemable, in whole or in part, in 2008 at the stated liquidation amount plus accrued and unpaid interest. The interest rates on the trust preferred debt equal the three-month London InterBank Offered Rate ("LIBOR") plus 4.10%, 4.20% and 4.05% and is payable on a quarterly basis. At December 31, 2004, the weighted average interest rate on the trust preferred securities was 6.51%.

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The Company has the right to defer interest payments on the Trust Preferred securities for up to twenty consecutive quarters but, if so deferred, it may not declare or pay cash dividends or distributions on its Class A common stock. The Company has guaranteed the obligations of these statutory trust subsidiaries with respect to distributions and payments on the trust preferred securities issued by these subsidiaries.

In 2003, the Company issued $57.5 million of 8.50% Senior Notes due June 15, 2018, from which it realized net proceeds of $55.1 million. The Company used the proceeds from the offering to repay the remaining balance outstanding under its prior bank credit facility, to increase the statutory capital and surplus of its insurance subsidiaries, and for general corporate purposes. The Company has the right to call these securities beginning in June 2008.

In October 2002, the Company issued $86.25 million of 4.25% Convertible Debt from which the Company received net proceeds of $83.7 million. The Company used the proceeds from this offering primarily to increase the capital of its insurance and reinsurance subsidiaries. As discussed above, the Company exchanged $84.1 million of this debt in November 2004. The Company also retired $1.2 million of this debt in December 2004 through open market purchases. As of December 31, 2004, $925,000 remained outstanding. This debt is convertible at a conversion price of $16.368 per share, subject to adjustment upon certain events. Further, holders of this debt, at their option, may require the Company to repurchase all or a portion of the debt on September 30, 2006, 2008, 2010, 2012 and 2017, or subject to specified exceptions, upon a change in control. The Company may choose to pay the repurchase price in cash or shares of Class A common stock. The Convertible Debt is redeemable in cash, in whole or in part, at the Company’s option at any time on or after September 30, 2006.

The indenture governing the 6.50% Convertible Debt contains restrictive covenants with respect to limitations on the Company’s ability to incur indebtedness, enter into transactions with affiliates or engage in a merger or sale of all or substantially all of the Company’s assets.

Note 7. Commitments and Contingencies

The Company leases certain office space and office equipment such as computers under noncancelable operating leases. Future minimum net operating lease obligations as of December 31, 2004 are as follows:

(dollar amounts in thousands)		Office space (1)		Office equipment		Total operating leases
2005	$	3,724	$	3,017	$	6,741
2006		3,469		2,171		5,640
2007		3,518		963		4,481
2008		2,992		169		3,161
2009		2,443		13		2,456
2010 and thereafter		4,921		-		4,921
	$	21,067	$	6,333	$	27,400

(1) Net of sublease rentals of $1.5 million in 2005 and 2006, $1.6 million in 2007, 2008 and 2009 and $7.8 million thereafter.

Total rent expense incurred under operating leases was $3.9 million, $4.0 million and $4.1 million for 2004, 2003 and 2002, respectively.

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. As of December 31, 2004 and 2003, the Company had recorded liabilities of $6.6 million and $7.5 million for these assessments, which are included in accounts payable, accrued expenses and other liabilities on the Balance Sheet.

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Prior to December 2004, the Company had an interest in a real estate partnership for which it had provided a guaranty of $7.0 million related to loans on properties of the partnership. In December 2004, the Company sold the partnership and as such, this guaranty terminated at the time of the sale.

Until December 31, 2003, the Company had an executive loan program, through which a financial institution provided personal demand loans to the Company’s officers. The Company had provided collateral and agreed to purchase any loan in default. In November 2003, the financial institution sold the Company’s collateral partially securing the loans of two former officers of the Company in satisfaction of their loans in the aggregate amount of $2.0 million. The Company received $1.7 million in repayment for the loans of one former officer in 2004, and in consideration of the Company forgiving $166,000 of indebtedness, the former officer executed an agreement, which, among other things, includes a release of the Company and its officers, employees and affiliates from any and all claims as of the date of that agreement. The loan of the other former officer in the outstanding principal amount of $185,000 is fully secured and is due on April 30, 2005. The Company is accruing interest on this loan, which is included in other assets on the Balance Sheet, at a rate of 4.5% as of December 31, 2004.

Under the terms of the sale of PMA Cayman in 1998, the Company has agreed to indemnify the buyer, up to a maximum of $15.0 million if the actual claim payments in the aggregate exceed the estimated payments upon which the loss reserves of the former subsidiary were established. If the actual claim payments in the aggregate are less than the estimated payments upon which the loss reserves have been established, the Company will participate in such favorable loss reserve development.

At December 31, 2004, The PMA Insurance Group is guarantor of $2.2 million principal amount on certain premium finance loans made by unaffiliated premium finance companies to insureds.

See Note 4 for information regarding losses related to the September 11, 2001 attack on the World Trade Center and Note 5 for information regarding disputed reinsurance receivables.

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 receivables by amounts that would be material to the Company’s financial condition, results of operations or liquidity.

The Company and certain of its directors and key executive officers are defendants in several purported class actions that were filed in 2003 in the United States District Court for the Eastern District of Pennsylvania by alleged purchasers of the Company’s Class A Common Stock, 4.25% Convertible Debt and 8.50% Senior Notes. On June 28, 2004, the District Court issued an order consolidating the cases under the caption In Re PMA Capital Corporation Securities Litigation (civil action no. 03-6121) and appointing Sheet Metal Workers Local 9 Pension Trust, Alaska Laborers Employers Retirement Fund and Communications Workers of America for Employees’ Pension and Death Benefits as lead plaintiff. On September 20, 2004, the plaintiffs filed an amended and consolidated complaint on behalf of an alleged class of purchasers of the Company's securities between May 5, 1999 and February 11, 2004. The complaint alleges, among other things, that the defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder by making materially false and misleading public statements and material omissions during the class period regarding the Company's underwriting performance, loss reserves and related internal controls. The complaint alleges, among other things, that the defendants violated Sections 11, 12(a) (2) and 15 of the Securities Act by making materially false and misleading statements in registration statements and prospectuses about the Company's financial results, underwriting performance, loss reserves and related internal controls. The complaint seeks unspecified compensatory damages, the right to rescind the purchases of securities in the public offerings, interest, and plaintiffs’ reasonable costs and expenses, including attorneys’ fees and expert fees. The Company intends to vigorously defend against the claims asserted in this consolidated action. The lawsuit is in its earliest stages; therefore, it is not possible at this time to reasonably estimate the impact on the Company. However, the lawsuit may have a material adverse effect on the Company’s financial condition, results of operations and liquidity.

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Note 8. Shareholders’ Equity

Changes in Class A Common stock shares were as follows:

	2004		2003		2002
Treasury stock - Class A Common stock:
Balance at beginning of year	2,883,542		2,889,023		3,050,939
Purchase of treasury shares	-		-		90,185
Reissuance of treasury shares under employee benefit plans	(342,448	)	(5,481	)	(252,101	)
Balance at end of year	2,541,094		2,883,542		2,889,023

In 2004, the Company issued 262,600 shares of restricted Class A common stock to employees under the Company’s 2002 Equity Incentive Plan and 79,326 shares of restricted Class A common stock to its Directors under the 2004 Directors Plan. The restricted stock vests (restrictions lapse) between one and three years. The Company also issued 16,422 shares of Class A Common stock to Directors in 2004 in lieu of a portion of their retainer under the 2004 Directors Plan.

During the vesting period, restricted shares issued are nontransferable and subject to forfeiture, but the shares are entitled to all of the other rights of the outstanding shares. Restricted shares are forfeited if employees terminate employment, or Directors resign from the Board, prior to the lapse of restrictions except upon death or permanent disability. The Company determines the cost of restricted stock awarded, which is recognized as compensation expense over the vesting period, based on the market value of the stock at the time of the award. The Company recorded expenses of $1.3 million during 2004 for restricted stock awards and $112,000 for Class A Common stock issued to Directors in lieu of their retainer. During 2004, 15,900 restricted shares were forfeited.

In 2003, shareholders approved an increase in the authorized shares of the Company’s Class A Common stock, which has a $5 par value, from 40 million shares to 60 million shares.

The Company repurchased 90,185 shares of its Class A Common stock at a cost of $1.7 million in 2002. No shares were repurchased in 2004 or 2003. The Company’s remaining share repurchase authorization at December 31, 2004 is $15.4 million. Decisions regarding share repurchases are subject to prevailing market conditions and an evaluation of the costs and benefits associated with alternative uses of capital.

The Company declared dividends on its Class A Common stock of $0.315 and $0.42 per share in 2003 and 2002, respectively. In November 2003, the Company’s Board of Directors suspended dividends on the Company’s Class A Common stock.

The Company has 2,000,000 shares of undesignated Preferred stock, $0.01 par value per share authorized. There are no shares of Preferred stock issued or outstanding.

In 2000, the Company’s Board of Directors adopted a shareholder rights plan that will expire on May 22, 2010. The rights automatically attached to each share of Class A Common stock. Generally, the rights become exercisable after the acquisition of 15% or more of the Company’s Class A Common stock and permit rights-holders to purchase the Company’s Class A Common stock or that of an acquirer at a substantial discount. The Company may redeem the rights for $0.001 per right at any time prior to an acquisition.

The Company’s domestic insurance subsidiaries’ ability to pay dividends to PMA Capital Corporation is limited by the insurance laws and regulations of the Commonwealth of Pennsylvania. Prior to June 2004, all of PMA Capital’s domestic insurance entities were owned by PMA Capital Insurance Company (“PMACIC”). Only PMACIC, a Pennsylvania domiciled company, could pay dividends directly to PMA Capital Corporation.

In June 2004, the Pennsylvania Insurance Department approved the application for the Pooled Companies, previously subsidiaries of PMACIC, to become direct, wholly owned subsidiaries of PMA Capital Corporation. However, in its Order approving the transfer of the Pooled Companies from PMACIC to PMA Capital Corporation, the Pennsylvania Insurance Department prohibited PMACIC, the Company’s reinsurance subsidiary which is currently in run-off, from any declaration or payment of dividends, return of capital or any other types of distributions in 2004 and 2005 to PMA Capital Corporation.

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In 2006, PMACIC may declare and pay ordinary dividends or returns of capital without the prior approval of the Pennsylvania Insurance Department if, immediately after giving effect to the dividend or returns of capital, PMACIC’s risk-based capital equals or exceeds 225% of Authorized Control Level Capital as defined by the National Association of Insurance Commissioners (“NAIC”). In 2007 and beyond, PMACIC may make dividend payments, as long as such dividends are not considered “extraordinary” under Pennsylvania insurance law.

The Pooled Companies, which are not subject to the Pennsylvania Insurance Department’s Order, paid dividends of $12.1 million to PMA Capital Corporation in 2004. As of December 31, 2004, The Pooled Companies can pay up to $23.5 million in dividends in 2005 without the prior approval of the Pennsylvania Insurance Department.

Dividends received from subsidiaries were $24.0 million and $28.0 million in 2003 and 2002, respectively.

Note 9. Stock Options

The Company currently has stock option plans in place for stock options granted to officers and other key employees for the purchase of the Company’s Class A Common stock, under which 4,800,314 Class A Common shares were reserved for issuance at December 31, 2004. The stock options were granted under terms and conditions determined by the Compensation Committee of the Board of Directors. Stock options granted have a maximum term of ten years, generally vest over periods ranging between one and four years, and are typically granted with an exercise price at least equal to the fair market value of the Class A Common stock on the date the options are granted. Information regarding these option plans is as follows:

	2004					2003					2002
	Weighted								Weighted					Weighted
	Average								Average					Average
	Shares			Price		Shares			Price		Shares			Price
Options outstanding, beginning of year	2,871,619		$	16.07		3,096,494		$	16.93		3,387,154		$	16.45
Options granted	1,350,200			6.34		511,960			9.21		440,500			19.50
Options exercised	-			-		(50,141	)		11.50		(302,465	)		12.66
Options forfeited or expired	(1,464,614	)		14.61		(686,694	)		15.17		(428,695	)		18.78
Options outstanding, end of year(1)	2,757,205		$	12.09		2,871,619		$	16.07		3,096,494		$	16.93
Options exercisable, end of year	1,523,047		$	15.74		1,861,489		$	16.85		2,059,729		$	15.74
Option price range at end of year	$5.78 to $21.50				$ 9.14 to $21.50					$11.50 to $21.50
Option price range for exercised shares	-				$11.50					$10.00 to $17.00
Options available for grant at end of year	2,043,109				2,057,054					305,158

(1) Included in the options outstanding at December 31, 2002 are 260,000 options (“Target Price Options”), with an exercise price of $17.00. Because the stock did not reach the necessary price, the Target Price Options expired as unvested options in 2003.

All options granted in 2004 and 2003 were granted with an exercise price that equaled or exceeded the market value of the Class A Common stock on the grant date (“out-of-the-money”). The weighted average fair value of options granted in 2004 and 2003 was $3.43 per share and $4.91 per share, respectively. Of the total options granted in 2002, 225,000 were granted with an exercise price that was lower than the market value of the Class A Common stock on the grant date, and such options had a weighted average exercise price of $19.50 per share and a weighted average fair value of $14.61 per share. The remaining 215,500 options were granted out-of-the-money, and such options had an exercise price of $19.50 per share and a weighted average fair value of $7.66 per share.

The Company accounts for stock option compensation using the intrinsic value method. Included in the Company’s net income (loss) were pre-tax stock option compensation costs of $(172,000), $239,000 and $215,000 for 2004, 2003 and 2002, respectively. Stock option compensation increased pre-tax income in 2004 due to the impact of the cancellation of unvested stock options.

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The fair value of options at date of grant was estimated using an option-pricing model with the following weighted average assumptions:

	2004		2003		2002
Expected life (years)	5		10		10
Risk-free interest rate	3.1	%	3.4	%	5.1	%
Expected volatility	60.5	%	44.3	%	16.8	%
Expected dividend yield	0.0	%	4.6	%	2.0	%

Stock options outstanding and options exercisable at December 31, 2004 were as follows:

	Options Outstanding				Options Exercisable
		Weighted
		Average		Weighted			Weighted
	Number of	Remaining		Average	Number		Average
	Shares	Life		Exercise Price	of Shares		Exercise Price
$5.78 to $8.00	1,291,100	9.28	$	6.37	304,800	$	7.02
$8.01 to $12.00	149,850	8.41	$	9.14	-	$	-
$12.01 to $16.00	315,800	0.43	$	15.33	315,800	$	15.33
$16.01 to $20.00	803,891	4.01	$	18.27	705,883	$	18.10
$20.01 to $21.50	196,564	5.05	$	21.43	196,564	$	21.43

See Note 2-J and 2-L for additional information.

Note 10. Earnings Per Share

Shares used as the denominator of the basic and diluted earnings per share were computed as follows:

	2004	2003	2002
Denominator:
Basic shares	31,344,858	31,330,183	31,284,848
Dilutive effect of:
Restricted stock	243,977	-	-
Stock options	136,994	-	-
Convertible Debt	3,232	-	-
Total diluted shares	31,729,061	31,330,183	31,284,848

The effect of 1.5 million, 2.9 million and 3.1 million stock options were excluded from the computation of diluted earnings per share for 2004, 2003 and 2002, respectively, because they would have been anti-dilutive.

Diluted shares for 2004, 2003 and 2002 do not assume the conversion of the Company’s Convertible Debt into 6.1 million, 5.3 million and 5.3 million shares of Class A Common stock, respectively, because it would have been anti-dilutive. The dilutive effect of the Convertible Debt for 2004 represents the impact of the Put Premium feature on the 6.50% Convertible Debt. See Note 6 for additional information.

Note 11. Fair Value of Financial Instruments

As of December 31, 2004, the carrying amounts for the Company’s financial instruments approximated their estimated fair value. As of December 31, 2003, the carrying amounts for the Company’s financial instruments approximated their estimated fair value, other than the 4.25% Convertible Debt, which had a fair value of approximately $65 million, compared to a carrying value of $86.3 million, and the 8.50% Senior Notes, which had a fair value of approximately $50 million,

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compared to a carrying value of $57.5 million. The Company measures the fair value of fixed maturities, the Convertible Debt and the Senior Notes based upon quoted market prices or by obtaining quotes from dealers. For other financial instruments, the carrying values approximate their fair values. Certain financial instruments, specifically amounts relating to insurance and reinsurance contracts, are excluded from this disclosure.

Note 12. Income Taxes

The components of the Federal income tax expense (benefit) are:

(dollar amounts in thousands)		2004		2003		2002
Current	$	-	$	-	$	(3,606	)
Deferred		2,115		25,823		(27,527	)
Income tax expense (benefit)	$	2,115	$	25,823	$	(31,133	)

A reconciliation between the total income tax expense (benefit) and the amounts computed at the statutory federal income tax rate of 35% is as follows:

(dollar amounts in thousands)		2004			2003			2002
Federal income tax at the statutory rate	$	1,381		$	(23,711	)	$	(27,705	)
Change in valuation allowance		8,000			49,000			-
Reversal of income tax accruals		(8,120	)		-			(3,000	)
Other		854			534			(428	)
Income tax expense (benefit)	$	2,115		$	25,823		$	(31,133	)

The tax effects of significant temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that represent the net deferred tax asset are as follows:

(dollar amounts in thousands)		2004			2003
Net operating loss and tax credit carryforwards	$	86,891		$	76,854
Discounting of unpaid losses and LAE		41,337			61,619
Unearned premiums		10,949			26,136
Postretirement benefit obligation		9,856			7,712
Allowance for uncollectible accounts		6,666			6,277
Depreciation		3,540			3,264
Other		11,626			9,549
Gross deferred tax assets		170,865			191,411
Valuation allowance		(57,000	)		(49,000	)
Deferred tax assets, net of valuation allowance		113,865			142,411
Deferred acquisition costs		(10,999	)		(29,391	)
Unrealized appreciation of investments		(7,335	)		(16,994	)
Losses of foreign reinsurance affiliates		-			(8,120	)
Capitalized software		(4,204	)		(4,161	)
Foreign exchange translation adjustment		(449	)		(1,973	)
Other		(4,377	)		(4,810	)
Gross deferred tax liabilities		(27,364	)		(65,449	)
Net deferred tax assets	$	86,501		$	76,962

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At December 31, 2004, the Company had a net operating loss ("NOL") carryforward of $221.9 million, which will expire in years 2018 through 2024, and an $8.5 million alternative minimum tax ("AMT") credit carryforward, which does not expire. The NOL carryforward, which produces a gross deferred tax asset of $77.6 million, will be applied to reduce taxable income of the Company.

In 2003, the Company recorded a valuation allowance in the amount of $49 million. In the fourth quarter of 2004, the Company reassessed the valuation allowance previously established against its net deferred tax assets and determined that it needed to be increased by $8 million, considering a number of factors, including the recent losses and revised projections of future earnings at the Run-off Operations. Accordingly, management has estimated at December 31, 2004 that the insurance operations will generate sufficient future taxable income to utilize the net deferred tax asset, net of the $57.0 million valuation allowance, over a period of time not exceeding the expiration of the operating loss carryforwards. The valuation allowance of $57.0 million reserves against $46.3 million of gross deferred tax assets related to the NOL carryforward and all of the projected deferred tax asset related to the AMT credit carryforward because it is more likely than not that this portion of the benefit will not be realized. The Company will continue to periodically assess the realizability of its net deferred tax asset.

The Company's Federal income tax returns are subject to audit by the Internal Revenue Service ("IRS"). No tax years are currently under audit by the IRS. In the fourth quarter of 2004, the Company reversed $8.1 million of certain tax contingency reserves recorded in prior years, due primarily to closed examination years.

In 2002, the Company received refunds from the IRS of $10.6 million, resulting primarily from an AMT net operating loss which was generated in 2001 and carried back to 1998 and 1999.

Note 13. Employee Retirement, Postretirement and Postemployment Benefits

A. Pension and Other Postretirement Benefits:

Pension Benefits —The Company sponsors a qualified non-contributory defined benefit pension plan (the "Qualified Pension Plan") covering substantially all employees. After meeting certain requirements under the Qualified Pension Plan, an employee acquires a vested right to future benefits. The benefits payable under the plan are generally determined on the basis of an employee’s length of employment and salary during employment. The Company’s policy is to fund pension costs in accordance with the Employee Retirement Income Security Act of 1974.

The Company also maintains non-qualified unfunded supplemental defined benefit pension plans (the "Non-qualified Pension Plans") for the benefit of certain key employees. The projected benefit obligation and accumulated benefit obligation for the Non-qualified Pension Plans were $7.6 million and $7.3 million, respectively, as of December 31, 2004.

Other Postretirement Benefits —In addition to providing pension benefits, the Company provides certain health care benefits for retired employees and their spouses. Substantially all of the Company’s employees may become eligible for those benefits if they meet the requirements for early retirement under the Qualified Pension Plan and have a minimum of 10 years employment with the Company. For employees who retired on or subsequent to January 1, 1993, the Company will pay a fixed portion of medical insurance premiums, including Medicare Part B. Retirees will absorb future increases in medical premiums.

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The following tables set forth the amounts recognized in the Company’s financial statements with respect to Pension Benefits and Other Postretirement Benefits:

		Pension Benefits						Other Postretirement Benefits
(dollar amounts in thousands)		2004			2003			2004			2003
Change in benefit obligation:
Benefit obligation at beginning of year	$	77,470		$	66,924		$	9,777		$	8,808
Service cost		3,520			3,202			420			364
Interest cost		4,937			4,629			597			596
Actuarial (gain) loss		2,252			4,927			(41	)		652
Benefits paid		(2,427	)		(2,212	)		(756	)		(643	)
Benefit obligation at end of year	$	85,752		$	77,470		$	9,997		$	9,777
Change in plan assets:
Fair value of plan assets at beginning of year	$	62,401		$	57,118		$	-		$	-
Actual return on plan assets		5,066			7,495			-			-
Benefits paid		(2,427	)		(2,212	)		-			-
Fair value of plan assets at end of year	$	65,040		$	62,401		$	-		$	-
Benefit obligation greater than the fair value of plan assets	$	(20,712	)	$	(15,069	)	$	(9,997	)	$	(9,777	)
Unrecognized actuarial (gain) loss		31,016			29,982			(3,063	)		(3,162	)
Unrecognized prior service (cost) benefit		482			487			(484	)		(603	)
Unrecognized net transition obligation		342			338			-			-
Net amount recognized at end of year	$	11,128		$	15,738		$	(13,544	)	$	(13,542	)
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost	$	17,139		$	21,075		$	-		$	-
Accrued benefit cost		(6,011	)		(5,337	)		(13,544	)		(13,542	)
Additional minimum liability		(26,499	)		(25,288	)		-			-
Intangible asset		1,244			1,273			-			-
Accumulated other comprehensive income, pre-tax		25,255			24,015			-			-
Net amount recognized at end of year	$	11,128		$	15,738		$	(13,544	)	$	(13,542	)

		Pension Benefits									Other Postretirement Benefits
(dollar amounts in thousands)		2004			2003			2002			2004			2003			2002
Components of net periodic benefit cost:
Service cost	$	3,520		$	3,202		$	2,396		$	419		$	364		$	316
Interest cost		4,937			4,629			4,278			597			596			589
Expected return on plan assets		(5,198	)		(5,032	)		(4,333	)		-			-			-
Amortization of transition obligation		(4	)		(5	)		(4	)		-			-			-
Amortization of prior service cost		5			5			5			(119	)		(119	)		(119	)
Recognized actuarial (gain) loss		1,642			1,643			662			(140	)		(91	)		(218	)
Net periodic pension cost	$	4,902		$	4,442		$	3,004		$	757		$	750		$	568
Weighted average assumptions:
Discount rate		6.00	%		6.25	%		6.75	%		6.00	%		6.25	%		6.75	%
Expected return on plan assets		8.50	%		9.00	%		9.00	%		-			-			-
Rate of compensation increase		3.75	%		4.00	%		4.50	%		-			-			-

The Company uses a January 1 measurement date for its Plans. For the measurement of Other Postretirement Benefits, a 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2004. The rate was assumed to decrease gradually to 5% by 2009 and remain at that level thereafter. A one percentage point change in assumed

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health care cost trend rates would have an immaterial impact on the total service and interest cost components of the net periodic benefit cost and the postretirement benefit obligation.

Benefits paid in the table above include only those amounts paid directly from plan assets.

The decline in Qualified Pension Plan asset performance in 2000 to 2002, combined with historically low interest rates (which are the key assumption in estimating plan liabilities) caused the Company to record a $24.0 million increase in its accrued Qualified Pension Plan liability and to take a $15.6 million non-cash charge to equity in the fourth quarter of 2003. In 2004, the Company increased its Qualified Pension Plan liability by an additional $1.2 million and recorded a non-cash charge to equity of $806,000. These charges did not impact earnings or cash flow, and could reverse in future periods if either interest rates increase or market performance and plan asset returns improve.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Qualified Pension Plan were $78.2 million, $73.2 million and $65.0 million, respectively, at December 31, 2004 and $70.5 million, $65.3 million and $62.4 million, respectively, at December 31, 2003.

The asset allocation for the Company’s Qualified Pension Plan at the end of 2004 and 2003, and the target allocation for 2005, by asset category, are as follows:

		Percentage of plan assets
	Target allocation	As of December 31,
Asset Category	2005	2004	2003
Equity Securities	50-70%	69%	66%
Debt Securities	30-50%	31%	34%
Total	100%	100%	100%

The Company’s Qualified Pension Plan assets are managed by outside investment managers and are rebalanced periodically. The Company’s investment strategy with respect to Qualified Pension Plan assets includes guidelines for asset quality standards, asset allocations among investment types and issuers, and other relevant criteria for the portfolio.

Following are expected cash flows for the Company's pension plans:

	Qualified Pension		Non-Qualified
(dollar amounts in thousands)		Benefits		Pension Benefits
Expected Employer Contributions:
2005	$	-	$	-
Expected Benefit Payments:
2005	$	2,583	$	310
2006		2,687		322
2007		2,794		348
2008		2,893		416
2009		3,084		438
2010-2014		20,882		2,820

Qualified Pension Planbenefits will be paid from the pension trust assets which have a fair value of $65.0 million at December 31, 2004. Non-qualified Pension Plan benefits will be paid from the general assets of the Company.

B. Defined Contribution Savings Plan — The Company also maintains a voluntary defined contribution savings plan covering substantially all employees. The Company matches employee contributions up to 5% of compensation. Contributions under such plans expensed in 2004, 2003 and 2002 were $2.6 million, $3.3 million and $3.4 million, respectively.

C. Postemployment Benefits — The Company may provide certain benefits to employees subsequent to their employment, but prior to retirement including severance, long-term and short-term disability payments, and other related benefits. Postemployment benefits attributable to prior service and/or that relate to benefits that vest or accumulate are accrued

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presently if the payments are probable and reasonably estimable. Postemployment benefits that do not meet such criteria are accrued when payments are probable and reasonably estimable. See Note 14 for additional information regarding severance.

Note 14. Run-Off Operations

In November 2003, the Company announced its decision to withdraw from the reinsurance business previously served by the PMA Re operating segment. As a result of this decision, the results of PMA Re are now reported as Run-off Operations. Run-off Operations also includes the results of the Company’s former excess and surplus lines business.

As a result of the decision to exit from and run off the reinsurance business, results for the Run-off Operations for 2003 included a charge of $2.6 million pre-tax, mainly for employee termination benefits. Approximately 80 employees at PMA Re have been terminated in accordance with the Company’s exit plan. Approximately 60 positions, primarily claims and financial, remain. The Company has established an employee retention arrangement for the remaining employees. Under this arrangement, the Run-off Operations recorded expenses of $1.7 million, which include retention bonuses and severance, for 2004, and expects to record expenses of approximately $1.3 million for 2005. Employee termination benefits and retention bonuses of $3.3 million have been paid in accordance with this plan, including $450,000 in 2003. Additionally, in 2004 the Run-off Operations paid a $1 million fee to shorten the term of its Philadelphia office lease from fifteen years to seven and reduce the leased space by approximately 75% effective October 1, 2004.

In May 2002, the Company announced its decision to withdraw from the excess and surplus lines marketplace previously served by the Caliber One operating segment. In January 2003, the Company closed on the sale of the capital stock of Caliber One Indemnity Company. Pursuant to the agreement of sale, the Company has retained all assets and liabilities related to the in-force policies and outstanding claim obligations relating to Caliber One’s business written prior to closing on the sale. As a result of the Company’s decision to exit from and run off this business, its results are reported in Run-off Operations. The sale generated gross proceeds of approximately $31 million and resulted in a pre-tax gain of $2.5 million, which is included in other revenues in the Statement of Operations for 2003.

As a result of the decision to exit from and run off this business, 2002 results for the Run-off Operations include a charge of $43 million pre-tax. Components of the charge include approximately $16 million to write-down assets to their estimated net realizable value, including non-cash charges of approximately $6 million for leasehold improvements and other fixed assets and $1.3 million for goodwill. During 2003, the Company recognized an additional $2.5 million write-down of assets, including approximately $2 million for reinsurance receivables and $500,000 for premiums receivable, reflecting an updated assessment of their estimated net realizable value. The write-down is included in operating expenses in the Statement of Operations for 2003.

In addition, the $43 million pre-tax charge includes expenses associated with the recognition of liabilities of approximately $27 million, including reinsurance costs of approximately $19 million, long-term lease costs of approximately $4 million and involuntary employee termination benefits of approximately $3 million. The charge was included in operating expenses (approximately $24 million) and net premiums earned (approximately $19 million) in the Statement of Operations in 2002. At December 31, 2004, the Company had a remaining balance of approximately $410,000 for net lease costs and approximately $114,000 for severance.

During 2002, approximately 80 Caliber One employees, primarily in the underwriting area, were terminated in accordance with the Company’s exit plan. Approximately 6 positions, primarily claims staff, remain as of December 31, 2004. Involuntary employee termination benefits of $38,000, $730,000 and $1.9 million were paid during 2004, 2003 and 2002, respectively.

Note 15. Business Segments

In November 2003, the Company announced its decision to withdraw from the reinsurance business previously served by the PMA Re operating segment. As a result of this decision, the results of PMA Re are now reported as Run-off Operations. Run-off Operations also includes the results of the Company’s former excess and surplus lines business.

The Company's total revenues, substantially all of which are generated within the U.S., and pre-tax operating income (loss) by principal business segment are presented in the table below.

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Operating income (loss), which is GAAP net income (loss) excluding net realized investment gains and losses, is the financial performance measure used by the Company’s management and Board of Directors to evaluate and assess the results of the Company’s insurance businesses. Accordingly, the Company reports operating income by segment in this footnote as required by SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” The Company’s management and Board of Directors use operating income as the measure of financial performance for the Company’s business segments because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments 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 and losses that do not relate to the operations of the individual segments. Operating income (loss) does not replace net income (loss) as the GAAP measure of our consolidated results of operations.

(dollar amounts in thousands)		2004			2003			2002
Revenues:
The PMA Insurance Group	$	492,335		$	620,432		$	460,573
Run-off Operations		101,722			665,783			631,377
Corporate and Other		7,414			1,252			(728	)
Net realized investment gains (losses)		6,493			13,780			(16,085	)
Total revenues	$	607,964		$	1,301,247		$	1,075,137
Components of net income (loss):
Pre-tax operating income (loss):
The PMA Insurance Group	$	13,166		$	21,541		$	25,346
Run-off Operations		5,509			(80,376	)		(74,204	)
Corporate and Other		(21,223	)		(22,691	)		(14,214	)
Net realized investment gains (losses)		6,493			13,780			(16,085	)
Income (loss) before income taxes		3,945			(67,746	)		(79,157	)
Income tax expense (benefit)		2,115			25,823			(31,133	)
Net income (loss)	$	1,830		$	(93,569	)	$	(48,024	)

Net premiums earned by principal business segment are as follows:

(dollar amounts in thousands)		2004			2003			2002
The PMA Insurance Group:
Workers' compensation and integrated disability	$	389,844		$	477,402		$	333,956
Commercial automobile		30,602			53,541			43,384
Commercial multi-peril		16,973			28,700			25,390
Other		4,924			10,389			7,536
Total premiums earned		442,343			570,032			410,266
Run-off Operations:
Reinsurance:
Traditional - Treaty		23,661			278,971			263,757
Finite Risk and Financial Products		15,501			221,093			207,531
Specialty - Treaty		36,348			83,008			58,348
Facultative		2,450			27,237			18,619
Accident Reinsurance		(873	)		13,940			3,258
Total reinsurance premiums earned		77,087			624,249			551,513
Excess and surplus lines		(20	)		4,672			30,113
Total premiums earned - Run-off Operations		77,067			628,921			581,626
Corporate and Other		(825	)		(788	)		(881	)
Consolidated net premiums earned	$	518,585		$	1,198,165		$	991,011

90

The Company’s amortization and depreciation expense by principal business segment were as follows:

(dollar amounts in thousands)		2004		2003		2002
The PMA Insurance Group	$	7,648	$	7,117	$	3,598
Run-off Operations		12,015		14,035		5,472
Corporate and Other		4		77		129
Total depreciation and amortization expense	$	19,667	$	21,229	$	9,199

The Company's total assets⁽¹⁾ by principal business segment were as follows:

(dollar amounts in thousands)		2004		2003
The PMA Insurance Group	$	1,889,449	$	2,008,509
Run-off Operations		1,300,655		2,128,461
Corporate and Other(2)		63,881		50,988
Total assets	$	3,253,985	$	4,187,958

(1) Equity investments in subsidiaries, which eliminate in consolidation, are excluded from total assets for each segment.

(2) Corporate and Other includes the effects of eliminating transactions between the various insurance segments.

The PMA Insurance Group’s operations are concentrated in ten contiguous states in the eastern part of the U.S. As such, economic trends in individual states may not be independent of one another. Also, The PMA Insurance Group’s products are highly regulated by each of these states. For many of The PMA Insurance Group’s products, the insurance departments of the states in which it conducts business must approve rates and policy forms. In addition, workers’ compensation benefits are determined by statutes and regulations in each of these states. While The PMA Insurance Group considers factors such as rate adequacy, regulatory climate and economic factors in its underwriting process, unfavorable developments in these factors could have an adverse impact on the Company’s financial condition and results of operations. The PMA Insurance Group is the Company’s sole remaining ongoing insurance segment. In 2004, workers’ compensation net premiums written represented 85% of The PMA Insurance Group’s net premiums written. In 2003 and 2002, workers’ compensation net premiums written by The PMA Insurance Group represented 41% and 32%, respectively, of the Company’s net premiums written.

The Company actively manages its exposure to catastrophes through its underwriting process, where the Company generally monitors the accumulation of insurable values in catastrophe-prone regions. The PMA Insurance Group maintains catastrophe reinsurance protection of 95% of $18.0 million excess of $2.0 million.

Although the Company believes that it has adequate reinsurance to protect against the estimated probable maximum gross loss from a catastrophe, an especially severe catastrophe or series of catastrophes, or terrorist event, could exceed the Company’s reinsurance and/or retrocessional protection and may have a material adverse impact on the Company’s financial condition, results of operations and liquidity. In 2004, 2003 and 2002, the Company’s loss and LAE ratios were not significantly impacted by catastrophes.

Note 16. Transactions with Related Parties

In 2003 and 2002, the Company and certain of its subsidiaries provided certain administrative services to the PMA Foundation (the “Foundation”), for which the Company and its subsidiaries received reimbursement. The Foundation, a not-for-profit corporation qualified under Section 501(c)(6) of the Internal Revenue Code, whose purposes include the promotion of the common business interests of its members and the economic prosperity of the Commonwealth of Pennsylvania, owned 5,242,150 shares, or 16.7%, of the Company’s Class A Common stock as of December 31, 2003. As of December 31, 2004, the Foundation owns less than 5% of the Company’s Class A Common Stock. Total reimbursements amounted to $13,000 for both 2003 and 2002. The Foundation also leased its Harrisburg, Pennsylvania headquarters facility from a subsidiary of the Company under an operating lease which required rent payments of $25,000 per month, and reimbursed a subsidiary of the Company for its use of office space. Rent and related reimbursements paid to the Company’s affiliates by the Foundation was $304,000 in both 2003 and 2002. In 2004, the Company sold this building to the Foundation for gross proceeds of $1.6 million, resulting in a gain of $458,000, which is included in other revenues in the Statement of Operations.

91

The Company incurred legal and consulting expenses aggregating approximately $4.4 million, $3.7 million and $3.9 million in 2004, 2003 and 2002, respectively, from firms in which directors of the Company are partners or principals.

At December 31, 2003 and 2002, the Company had notes receivable from officers totaling $65,000 and $62,000, respectively, that are accounted for as a reduction of shareholders’ equity. These loans were repaid in 2004.

Note 17. Statutory Financial Information

These consolidated financial statements vary in certain respects from financial statements prepared using statutory accounting practices that are 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 NAIC publications. Permitted SAP encompasses all accounting practices that are not prescribed. The Codification of Statutory Accounting Principles ("Codification") guidance is the NAIC’s primary guidance on statutory accounting. The principal differences between GAAP and SAP are in the treatment of acquisition expenses, reinsurance, deferred income taxes, fixed assets and investments.

SAP net income (loss) and capital and surplus for PMA Capital’s domestic insurance subsidiaries are as follows:

(dollar amounts in thousands)		2004		2003			2002
SAP net income (loss):
The PMA Insurance Group	$	19,000	$	7,169		$	4,984
PMA Capital Insurance Company		40,803		(84,413	)		(8,039	)
Caliber One Indemnity Company(1)		-		409			(27,874	)
Total	$	59,803	$	(76,835	)	$	(30,929	)
SAP capital and surplus:
The PMA Insurance Group	$	300,034	$	296,777		$	305,533
PMA Capital Insurance Company		224,510		500,617			580,151
Caliber One Indemnity Company(1)		-		-			26,844
Eliminations(2)		-		(296,777	)		(332,377	)
Total	$	524,544	$	500,617		$	580,151

(1)   In January 2003, the Company sold the capital stock of Caliber One Indemnity Company.

(2)   The surplus of The PMA Insurance Group’s domestic insurance subsidiaries (for 2003 and 2002) and Caliber One Indemnity Company (2002 only) are eliminated as they are included in the statutory surplus of PMA Capital Insurance Company, then the parent company of these insurance companies. In June 2004, The PMA Insurance Group was transferred from PMA Capital Insurance Company to PMA Capital Corporation.

The Company’s statutory financial statements are presented on the basis of accounting practices prescribed or permitted by the Pennsylvania Insurance Department (for PMA Capital Insurance Company and The PMA Insurance Group) and the Delaware Insurance Department (for Caliber One Indemnity Company). Pennsylvania and Delaware have adopted Codification as the basis of their statutory accounting practices. However, Pennsylvania has retained the prescribed practice of non-tabular discounting of unpaid losses and LAE for workers’ compensation, which was not permitted under Codification. This prescribed accounting practice increased statutory capital and surplus by $101,000, $435,000 and $13.0 million at December 31, 2004, 2003 and 2002, respectively, over what it would have been had the prescribed practice not been allowed.

92

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

PMA Capital Corporation

We have audited the accompanying balance sheets of PMA Capital Corporation and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, cash flows, shareholders’ equity, and comprehensive income for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements of the Company for the year ended December 31, 2002 were audited by other auditors whose report, dated February 5, 2003, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 2004 and 2003 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, PA

March 16, 2005

93

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

PMA Capital Corporation

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that PMA Capital Corporation and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all

material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2004 of the Company and our report dated March 16, 2005, expressed an unqualified opinion on those financial statements and financial statement schedules.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, PA

March 16, 2005

94

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

of PMA Capital Corporation:

In our opinion, the accompanying consolidated statements of operations, of cash flows, of shareholders’ equity and of comprehensive income (loss) for the year ended December 31, 2002 (appearing on pages 63 through 66 of the 2004 PMA Capital Corporation Annual Report to Shareholders included in this Form 10-K) present fairly, in all material respects, the results of operations and cash flows of PMA Capital Corporation and its subsidiaries for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ Pricewaterhouse Coopers LLP

Philadelphia, PA

February 5, 2003

95

QUARTERLY FINANCIAL INFORMATION (unaudited)
		First			Second			Third				Fourth
(dollar amounts in thousands, except share data)		Quarter			Quarter			Quarter				Quarter
2004
Income Statement Data:
Total revenues	$	237,365		$	140,083		$	125,468			$	105,048
Income (loss) before income taxes		18,793			175			(45	)			(14,978	)
Net income (loss)		12,153			64			(74	)			(10,313	)
Per Share Data:
Net income (loss) (Basic)	$	0.39		$	-		$	-			$	(0.33	)
Net income (loss) (Diluted)		0.35			-			-				(0.33	)
2003
Income Statement Data:
Total revenues	$	303,070		$	312,619		$	316,188			$	369,370
Income (loss) before income taxes		16,599			18,829			(111,192	)			8,018
Net income (loss)		10,702			12,167			(96,406	)	(1)		(20,032	)	(1)
Per Share Data:
Net income (loss) (Basic)	$	0.34		$	0.39		$	(3.08	)	(1)	$	(0.64	)	(1)
Net income (loss) (Diluted)		0.31	(2)		0.35	(2)		(3.08	)	(1)		(0.64	)	(1)

(1)   Includes $24 million, or $0.76 per basic and diluted share, for the third quarter, and $25 million, or $0.80 per basic and diluted share, for the fourth quarter, to record a valuation allowance on our deferred tax asset.

(2)   Includes a reduction of $.03 and $.04 for the first and second quarters of 2003, respectively, from previously filed Forms 10-Q due to the December 2004 adoption of EITF 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings Per Share,” which requires retroactive restatement of all periods presented. See Note 2-L to the Consolidated Financial Statements for additional information.

96

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On April 2, 2003, our Audit Committee appointed Deloitte & Touche LLP as our independent auditors for the year ended December 31, 2003 and dismissed our independent auditors for the year ended December 31, 2002, Pricewaterhouse Coopers LLP. The information required by Item 304 (a) of Regulation S-K regarding our change in and disagreement with our prior independent auditors has been previously reported in a Form 8-K dated April 2, 2003.

Item 9A.Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report on Form 10-K, we, under the supervision and with the participation of our management, including Vincent T. Donnelly, President and Chief Executive Officer, and William E. Hitselberger, Executive Vice President and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be disclosed in our periodic filings with the Securities and Exchange Commission. During the period covered by this report, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Company’s internal control over financial reporting was conducted based upon the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon that evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2004.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

97

PART III

Item 10.Directors and Executive Officers of the Registrant

See “Executive Officers of the Registrant” under Item 4 above. The information under the captions “The Board of Directors and Corporate Governance,” “Nominees For Election,” “Directors Continuing in Office” and “Committees of the Board - Audit Committee” and “Committees of the Board - Nominating and Corporate Governance Committee” in our Proxy Statement for the 2005 Annual Meeting of Shareholders (“Proxy Statement”) is incorporated herein by reference, as is the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

We have had a Business Ethics and Practices Policy in place, which covers all officers and employees, for some time. This policy expresses our commitment to maintaining the highest legal and ethical standards in the conduct of our business. In 2003, we enhanced our Business Ethics and Practices Policy by adopting a Code of Ethics for the Chief Financial Officer and Senior Financial Officers. In addition, in early 2004, our Board of Directors adopted a separate Code of Ethics for Directors. Copies of our ethics policies can be found on our website www.pmacapital.com. Any amendment to or waiver from the provisions of the Code of Ethics for the Chief Financial Officer and Senior Financial Officers will be disclosed on our website www.pmacapital.com.

Item 11.Executive Compensation

The information under the caption “Compensation of Executive Officers” and under the caption “Director Compensation” in the Proxy Statement is incorporated herein by reference.

Item 12.Security Ownership of Certain Beneficial Owners and Management

The information under the caption “Beneficial Ownership of Class A Common Stock” in the Proxy Statement is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information with respect to compensation plans under which our equity securities are authorized for issuance as of December 31, 2004:

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	2,757,205	$12.09	2,043,109(1)
Equity compensation plans not approved by security holders	0	0	0
Total	2,757,205	$12.09	2,043,109

(1) These securities are issuable under our 2002 Equity Incentive Plan, which was approved by shareholders at the 2002 Annual Meeting of Shareholders. The Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, bonus stock or stock in lieu of other obligations, dividend equivalent rights or other stock-based awards and performance awards.

98

Item 13.Certain Relationships and Related Transactions

The information under the caption “Certain Transactions” in the Proxy Statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information under the caption “Ratification of the Appointment of the Independent Auditors” in the Proxy Statement is incorporated herein by reference.

99

PART IV

Item 15.Exhibits and Financial Statement Schedules

FINANCIAL STATEMENTS AND SCHEDULES

		Page
(a) (1)	Index to Consolidated Financial Statements
	Consolidated Balance Sheets at December 31, 2004 and 2003	62
	Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002	63
	Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	64
	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2004, 2003 and 2002	65
	Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2004, 2003 and 2002	66
	Notes to Consolidated Financial Statements	67
	Reports of Independent Registered Public Accountants	93
(a) (2)	The Financial Statement Schedules are listed in the Index to Financial Statement Schedules on page FS-1.

All other schedules specified by Article 7 of Regulation S-X are not required pursuant to the related instructions or are inapplicable and, therefore, have been omitted.

(a) (3) The Exhibits are listed in the Index to Exhibits beginning on page E-1.

100

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PMA CAPITAL CORPORATION
Date: March 16, 2005	By: /s/ William E. Hitselberger
	William E. Hitselberger
	Executive Vice President and
	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 16, 2005.

Signature	Title
/s/ William E. Hitselberger
William E. Hitselberger	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)
/s/ Vincent T. Donnelly
Vincent T. Donnelly	President and Chief Executive Officer and a Director
	(Principal Executive Officer)
Neal C. Schneider*	Non-Executive Chairman of the Board and a Director
Peter S. Burgess*	Director
Joseph H. Foster*	Director
Thomas J. Gallen*	Director
Anne S. Genter*	Director
James C. Hellauer*	Director
Richard Lutenski*	Director
James F. Malone III*	Director
Edward H. Owlett*	Director
Roderic H. Ross*	Director
L. J. Rowell, Jr. *	Director
* By: /s/ William E. Hitselberger
William E. Hitselberger
Attorney-in-Fact

101

PMA Capital Corporation

Index to Financial Statement Schedules

Schedule No.	Description	Page
II	Condensed Financial Information of	FS-2
	Registrant as of December 31, 2004 and
	2003 and for the years ended December 31,
	2004, 2003 and 2002
III	Supplementary Insurance Information for the	FS-5
	years ended December 31, 2004, 2003 and 2002
IV	Reinsurance for the years ended December 31,	FS-6
	2004, 2003 and 2002
V	Valuation and Qualifying Accounts for the	FS-7
	years ended December 31, 2004, 2003 and 2002
VI	Supplemental Information Concerning	FS-8
	Property and Casualty Insurance Operations
	for the years ended December 31, 2004, 2003 and 2002
	Independent Auditors’ Reports on Financial Statement	FS-9
	Schedules

Certain financial statement schedules have been omitted because they are either not applicable or the required financial information is contained in the Company’s 2004 Consolidated Financial Statements and notes thereto.

FS-1

PMA Capital Corporation
Schedule II - Registrant Only Financial Statements
Balance Sheets
(Parent Company Only)
	December 31,
(dollar amounts in thousands)		2004			2003
Assets
Cash	$	434		$	500
Short-term investments		286			14,481
Investment in subsidiaries		642,466			659,149
Related party receivables		37,638			6,312
Deferred income taxes, net		29,602			21,989
Other assets		13,379			9,380
Total assets	$	723,805		$	711,811
Liabilities
Long-term debt	$	214,467		$	187,566
Other liabilities		63,887			60,578
Total liabilities		278,354			248,144
Shareholders' Equity
Class A Common stock, $5 par value
(2004 - 60,000,000 shares authorized; 34,217,945 shares issued and 31,676,851 outstanding;
2003 - 60,000,000 shares authorized; 34,217,945 shares issued and 31,334,403 outstanding)		171,090			171,090
Additional paid-in capital		109,331			109,331
Retained earnings		213,313			216,115
Accumulated other comprehensive income (loss)		(1,959	)		19,622
Notes receivable from officers		-			(65	)
Treasury stock, at cost (2004 - 2,541,094 shares; 2003 - 2,883,542 shares)		(45,573	)		(52,426	)
Unearned restricted stock compensation		(751	)		-
Total shareholders' equity		445,451			463,667
Total liabilities and shareholders' equity	$	723,805		$	711,811

These financial statements should be read in conjunction with the Consolidated Financial

Statements and the notes thereto.

FS-2

PMA Capital Corporation

Schedule II - Registrant Only Financial Statements

Statements of Operations

(Parent Company Only)

		Year Ended December 31,
(dollar amounts in thousands)		2004			2003			2002
Revenues:
Net investment income (expense)	$	118		$	(31	)	$	(18	)
Net realized investment loss		(3,846	)		-			-
Other revenues		6,680			30			8
Total revenues		2,952			(1	)		(10	)
Expenses:
General expenses		9,893			14,200			8,819
Interest expense		12,579			10,244			4,090
Loss on debt exchange		5,973			-			-
Total expenses		28,445			24,444			12,909
Loss before income taxes and equity in earnings
(loss) of subsidiaries		(25,493	)		(24,445	)		(12,919	)
Income tax expense (benefit)		(11,094	)		23,676			(32,548	)
Income (loss) before equity in earnings (loss)
of subsidiaries		(14,399	)		(48,121	)		19,629
Equity in earnings (loss) of subsidiaries		16,229			(45,448	)		(67,653	)
Net income (loss)	$	1,830		$	(93,569	)	$	(48,024	)

These financial statements should be read in conjunction with the Consolidated Financial

Statements and the notes thereto.

FS-3

PMA Capital Corporation

Schedule II - Registrant Only Financial Statements

Statements of Cash Flows

(Parent Company Only)

		Year ended December 31,
(dollar amounts in thousands)		2004			2003			2002
Cash Flows From Operating Activities:
Net income (loss)	$	1,830		$	(93,569	)	$	(48,024	)
Adjustments to reconcile net income (loss) to net cash flows provided
by (used in) operating activities:
Equity in (earnings) loss of subsidiaries		(16,229	)		45,448			67,653
Dividends received from subsidiaries		10,998			24,000			28,000
Net tax sharing payments received from subsidiaries		4,851			5,637			11,989
Net realized investment losses		3,846			-			-
Loss on debt exchange		5,973			-			-
Deferred income tax expense (benefit)		(7,143	)		25,138			(16,954	)
Other, net		(8,889	)		3,003			(6,994	)
Net cash flows provided by (used in) operating activities		(4,763	)		9,657			35,670
Cash Flows From Investing Activities:
Net sales (purchases )of short-term investments		14,195			(14,481	)		-
Cash contributions to subsidiaries		-			(500	)		(25,175	)
Proceeds from other assets sold		7,729			-			-
Net cash flows provided by (used in) investing activities		21,924			(14,981	)		(25,175	)
Cash Flows From Financing Activities:
Dividends paid to shareholders		-			(9,870	)		(12,102	)
Issuance of long-term debt		15,825			100,000			151,250
Debt issue costs		(600	)		(3,662	)		(3,009	)
Repayment of debt		(1,185	)		(65,000	)		(62,500	)
Proceeds from exercise of stock options		-			2			2,866
Purchase of treasury stock		-			-			(1,726	)
Net repayments of notes receivable from officers		59			-			96
Change in related party receivables and payables		(31,326	)		(15,646	)		(85,371	)
Net cash flows provided by (used in) financing activities		(17,227	)		5,824			(10,496	)
Net increase (decrease) in cash		(66	)		500			(1	)
Cash - beginning of year		500			-			1
Cash - end of year	$	434		$	500		$	-
Supplementary cash flow information:
Income taxes paid (refunded)	$	(2,592	)	$	2,600		$	(10,649	)
Interest paid	$	11,832		$	8,723		$	2,924

These financial statements should be read in conjunction with the Consolidated Financial

Statements and the notes thereto.

FS-4

PMA Capital Corporation

Schedule III

Supplementary Insurance Information

(dollar amounts in thousands)		Deferred acquisition costs		Unpaid losses and loss adjustment expenses			Unearned premiums		Net premiums earned			Net investment income(1)			Losses and loss adjustment expenses		Acquisition expenses		Operating expenses		Net premiums written
December 31, 2004:
The PMA Insurance Group	$	30,984	$	1,226,781		$	156,484	$	442,343		$	30,984		$	331,181	$	86,078	$	56,911	$	377,795
Run-off Operations		442		919,222			2,005		77,067			24,655			49,375		29,147		17,691		(75,360	)
Corporate and Other (2)		-		(34,405	)		-		(825	)		1,306			-		-		10,310		(825	)
Total	$	31,426	$	2,111,598		$	158,489	$	518,585		$	56,945		$	380,556	$	115,225	$	84,912	$	301,610
December 31, 2003:
The PMA Insurance Group	$	38,635	$	1,259,737		$	227,262	$	570,032		$	32,907		$	442,502	$	90,575	$	65,173	$	603,593
Run-off Operations		45,340		1,315,071			176,446		628,921			34,362			555,845		165,871		24,443		589,449
Corporate and Other (2)		-		(33,490	)		-		(788	)		1,654			-		-		14,056		(788	)
Total	$	83,975	$	2,541,318		$	403,708	$	1,198,165		$	68,923		$	998,347	$	256,446	$	103,672	$	1,192,254
December 31, 2002:
The PMA Insurance Group	$	32,266	$	1,192,069		$	189,799	$	410,266		$	35,613		$	307,734	$	71,874	$	48,032	$	452,276
Run-off Operations		56,956		1,304,746			215,580		581,626			49,751			515,924		145,110		44,547		653,602
Corporate and Other (2)		-		(46,925	)		-		(881	)		(483	)		-		-		10,229		(881	)
Total	$	89,222	$	2,449,890		$	405,379	$	991,011		$	84,881		$	823,658	$	216,984	$	102,808	$	1,104,997

(1) Net investment income is based on each segment's invested assets.

(2) Corporate and Other includes unallocated investment income and expenses, including debt service. Corporate and Other also inludes the effect of elimiationg intercompany transactions.

FS-5

PMA Capital Corporation

Schedule IV

Reinsurance

(dollar amounts in thousands)		Direct amount		Ceded to other companies		Assumed from other companies		Net amount	Percentage of amount assumed to net
Year Ended December 31, 2004:
Property and liability insurance premiums	$	461,365	$	78,911	$	136,131	$	518,585	26%
Year Ended December 31, 2003:
Property and liability insurance premiums	$	638,716	$	228,576	$	788,025	$	1,198,165	66%
Year Ended December 31, 2002:
Property and liability insurance premiums	$	599,827	$	300,556	$	691,740	$	991,011	70%

FS-6

PMA Capital Corporation

Schedule V

Valuation and Qualifying Accounts

(dollar amounts in thousands)
Description		Balance at beginning of period		Charged (credited) to costs and expenses			Deductions - write-offs of uncollectible accounts			Balance at end of period
Year ended December 31, 2004:
Valuation allowance:
Premiums receivable	$	7,972	$	(923	)	$	-		$	7,049
Reinsurance receivable		6,769		2,233			-			9,002
Deferred income taxes, net		49,000		8,000			-			57,000
Year ended December 31, 2003:
Valuation allowance:
Premiums receivable	$	9,528	$	(544	)	$	(1,012	)	$	7,972
Reinsurance receivable		5,483		4,286			(3,000	)		6,769
Deferred income taxes, net		-		49,000			-			49,000
Year ended December 31, 2002:
Valuation allowance:
Premiums receivable	$	12,583	$	245		$	(3,300	)	$	9,528
Reinsurance receivable		4,562		4,371			(3,450	)		5,483
Deferred income taxes, net		-		-			-			-

FS-7

PMA Capital Corporation

Schedule VI

Supplemental Information Concerning Property and Casualty Insurance Operations

														Losses and loss adjustment expenses incurred related to
(dollars in thousands)		Deferred acquisition		Unpaid losses and loss adjustment		Discount on unpaid losses and loss adjustment		Unearned		Net premiums		Net investment		Current		Prior			Acquisition		Paid losses and loss adjustment		Net premiums
Affiliation with registrant		costs		expenses		expenses(1)		premiums		earned		income		year		years (2)			expenses		expenses		written
Consolidated property-casualty
subsidiaries:
December 31, 2004	$	31,426	$	2,111,598	$	60,787	$	158,489	$	518,585	$	56,945	$	406,828	$	(40,363	)	$	115,225	$	728,011	$	301,610
December 31, 2003	$	83,975	$	2,541,318	$	67,012	$	403,708	$	1,198,165	$	68,923	$	768,114	$	218,774		$	256,446	$	836,383	$	1,192,254
December 31, 2002	$	89,222	$	2,449,890	$	97,849	$	405,379	$	991,011	$	84,881	$	655,395	$	159,748		$	216,984	$	732,469	$	1,104,997

(1) - Reserves discounted at approximately 5%.

(2) - Exlcudes accretion of loss reserve discount of $14,091, $11,459 and $8,515 in 2004, 2003 and 2002, respectively.

FS-8

Reportof Independent Registered Public Accounting Firm

Board of Directors and Shareholders

PMA Capital Corporation

We have audited the consolidated financial statements of PMA Capital Corporation and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and for the years then ended, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and have issued our reports thereon dated March 16, 2005; such reports are included elsewhere in this From 10-K. Our audits also included the consolidated financial statement schedules of the Company listed in Item 15. These consolidated financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. The financial statement schedules for the years ended December 31, 2002 were audited by other auditors. Those auditors expressed an opinion, in their report dated February 5, 2003, that such 2002 consolidated financial statement schedules, when considered in relation to the 2002 basic consolidated financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Philadelphia, PA

March 16, 2005

FS-9

Reportof Independent Registered Public Accounting Firm

on

Financial Statement Schedules

To the Board of Directors and Shareholders

of PMA Capital Corporation:

Our audit of the 2002 consolidated financial statements referred to in our report dated February 5, 2003 appearing in the 2004 Annual Report to Shareholders of PMA Capital Corporation (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the 2002 financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these 2002 financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Philadelphia, PA

February 5, 2003

FS-10

INDEX TO EXHIBITS

Exhibit No.		Description of Exhibit	Method of Filing
(3)		Articles of Incorporation and Bylaws:
	3.1	Restated Articles of Incorporation of the Company.	Filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.
	3.2	Amended and Restated Bylaws of the Company.	Filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2003 and incorporated herein by reference.
(4)		Instruments defining the rights of security holders, including indentures*:
	4.1	Rights Agreement, dated as of May 3, 2000, between the Company and The Bank of New York, as Rights Agent.	Filed as Exhibit 1 to the Company's Registration Statement on Form 8-A dated May 5, 2000 and incorporated herein by reference.
	4.2	Senior Indenture, dated as of October 21, 2002, between the Company and State Street Bank and Trust Company, as Trustee.	Filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 16, 2002 and incorporated herein by reference.
	4.3	First Supplemental Indenture, dated as of October 21, 2002, between the Company and State Street Bank and Trust Company (predecessor of U.S. Bank National Association), as Trustee.	Filed as Exhibit 4.2 to the Company's Current Report on Form 8-K dated October 16, 2002 and incorporated herein by reference.
	4.4	Form of 4.25% Convertible Senior Debenture due September 30, 2022.	Filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated October 16, 2002 and incorporated herein by reference.
	4.5	Second Supplemental Indenture, dated as of June 5, 2003, between the Company and U.S. Bank National Association (successor to State Street Bank and Trust Company), as Trustee.	Filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated May 29, 2003 and incorporated herein by reference.
	4.6	Form of 8.50% Monthly Income Senior Note due June 15, 2018.	Filed as Exhibit 4.4 to the Company's Current Report on Form 8-K dated May 29, 2003 and incorporated herein by reference.
	4.7	Indenture, dated as of November 15, 2004, between the Company and U.S. Bank National Association, as Trustee.	Filed herewith.
	4.8	First Supplemental Indenture, dated as of November 15, 2004 between the Company and U.S. Bank National Association, as Trustee.	Filed herewith.
	4.9	Second Supplemental Indenture, dated as of November 15, 2004, between the Company and U.S. Bank National Association, as Trustee.	Filed herewith.

E-1

4.10	Forms of 6.50% Convertible Secured Senior Debentures due September 30, 2022.	Filed herewith (included in Exhibit 4.8 and 4.9).
4.11	Registration Rights Agreement, dated as of November 15, 2004, between the Company and Banc of America Securities, LLC.	Filed herewith.

(10)		Material Contracts:
		Exhibits 10.1 through 10.26 are management contracts or compensatory plans:
	10.1	Description of 2001 stock appreciation rights.	Filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference.
	10.2	PMA Capital Corporation 401(k) Excess Plan (as Amended and Restated effective January 1, 2000).	Filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
	10.3	PMA Capital Corporation Executive Deferred Compensation Plan (as Amended and Restated effective January 1, 2000).	Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
	10.4	PMA Capital Corporation Supplemental Executive Retirement Plan (as Amended and Restated effective January 1, 2000).	Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
	10.5	PMA Capital Corporation Executive Management Pension Plan (as Amended and Restated effective January 1, 2000).	Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
	10.6	Amended and Restated Employment Agreement, dated May 1, 1999, between PMA Capital Corporation and Frederick W. Anton III.	Filed herewith.
	10.7	Employment Agreement by and between the Company and William E. Hitselberger.	Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.

E-2

10.8 Employment Agreement by and between the Company and Robert L. Pratter. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.

10.9	Employment Agreement by and between the Company and Vincent T. Donnelly.	Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.
10.10	Employment Agreement dated May 1, 1995 between the Company and John. W. Smithson.	Filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
10.11	Amended and Restated Deferred Compensation Plan for Non-Employee Directors of the Company.	Filed as Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 and incorporated herein by reference.
10.12	Company's Annual Incentive Plan.	Filed as Annex C to the Company's Definitive Proxy Statement on Schedule 14A dated March 23, 2000 and incorporated herein by reference.
10.13	Company's Amended and Restated 1991 Equity Incentive Plan.	Filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
10.14	Amendment No. 1 to the Amended and Restated 1991 Equity Incentive Plan dated May 5, 1999.	Filed herewith.
10.15	Company's Amended and Restated 1993 Equity Incentive Plan.	Filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
10.16	Amendment No. 1 to the Amended and Restated 1993 Equity Incentive Plan dated May 5, 1999.	Filed herewith.
10.17	Company's Amended and Restated 1994 Equity Incentive Plan.	Filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.

10.18	Amendment No. 1 to the Amended and Restated 1994 Equity Incentive Plan dated May 5, 1999.	Filed herewith.
10.19	Company's 1995 Equity Incentive Plan.	Filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.

E-3

10.20	Amendment No. 1 to the 1995 Equity Incentive Plan dated May 5, 1999.	Filed herewith.
10.21	Company's 1996 Equity Incentive Plan.	Filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference.
10.22	Amendment No. 1 to the 1996 Equity Incentive Plan dated May 5, 1999.	Filed herewith.
10.23	Company's 1999 Equity Incentive Plan.	Filed herewith.
10.24	Company's 2002 Equity Incentive Plan.	Filed as Appendix A to the Company's Proxy Statement on Schedule 14A dated March 22, 2002 and incorporated herein by reference.
10.25	Amendment No. 1 to Company's 2002 Equity Incentive Plan.	Filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2003 and incorporated herein by reference.
10.26	PMA Capital Corporation Directors Stock Compensation Plan, effective May 12, 2004.	Filed as Appendix A of the Company's Proxy Statement on Schedule 14A dated April 9, 2004 and incorporated herein by reference.

10.27	Transfer and Purchase Agreement dated December 2, 2003, between PMACIC and Imagine Insurance Company Limited, a wholly-owned subsidiary of Imagine Group Holdings Limited.	Filed as Exhibit 10.33 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2003 and incorporated herein by reference.
10.28	Office Lease by and between Nine Penn Center Associates, L.P., as Landlord, and Lorjo Corp, as Tenant, covering the premises located at Mellon Bank, 1735 Market St, Philadelphia, dated May 26, 1994.	Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference.
10.29	First Amendment of Office Lease by and between Nine Penn Center Associates, L.P., as Landlord and Lorjo Corp., as Tenant, covering premises located at Mellon Bank Center, 1735 Market Street, Philadelphia, Pennsylvania, made as of October 30, 1996.	Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference.
10.30	Second Amendment of Office Lease by and between Nine Penn Center Associates, L.P., as Landlord and Lorjo Corp., as Tenant, covering premises located at Mellon Bank Center, 1735 Market Street, Philadelphia, Pennsylvania, made as of December 11, 1998.	Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference.

E-4

	10.31	Third Amendment of Office Lease by and between Nine Penn Center Associates, L.P., as Landlord and PMA Capital Insurance Company, as Tenant, covering premises located at Mellon Bank Center, 1735 Market Street, Philadelphia, Pennsylvania, retroactively as of May 16, 2001.	Filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference.
	10.32	Fourth Amendment of Office Lease by and between Nine Penn Center Associates, L.P., as Landlord and PMA Capital Insurance Company, as Tenant, covering premises located at Mellon Bank Center, 1735 Market Street, Philadelphia, Pennsylvania, made and entered into effective as of July 2, 2003.	Filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference.
	10.33	Fifth Amendment of Office Lease by and between Nine Penn Center Associates, L.P., as Landlord, and PMA Capital Insurance Company, as Tenant, covering the premises located at Mellon Bank, 1735 Market Street, Philadelphia, made and entered into effective as of April 30, 2004.	Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 and incorporated herein by reference.
	10.34	Sixth Amendment of Office Lease by and between Nine Penn Center Associates, L.P., as Landlord, and PMA Capital Insurance Company, as Tenant, covering the premises located at Mellon Bank, 1735 Market Street, Philadelphia, made and entered into effective as of June 14, 2004.	Filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 and incorporated herein by reference.
	10.35	Purchase Agreement, dated as of November 10, 2004 between the Company and Banc of America Securities, LLC.	Filed herewith.
(12)		Computation of Ratio of Earnings to Fixed Charges.	Filed herewith.
(21)		Subsidiaries of the Company.	Filed herewith.
(24)		Power of Attorney:
	24.1	Powers of Attorney.	Filed herewith.
	24.2	Certified Resolutions.	Filed herewith.
(31)		Rule 13a-14(a) Certifications:
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	Filed herewith.
	31.2	Certification of CFO pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	Filed herewith.

(32)		Section 1350 Certifications:
	32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
	32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

E-5

(99)		Additional Exhibits:
	99.1	Letter Agreement, dated 12/22/03, between PMA Capital Insurance Company and the Pennsylvania Department of Insurance.	Filed as Exhibit 99 to the Company's Current Report on Form 8-K dated December 22, 2003 and incorporated herein by reference.

* The registrant will furnish to the Commission, upon request, a copy of any of the registrant’s agreements with respect to its long-term debt not otherwise filed with the Commission.

Shareholders may obtain copies of exhibits by writing to the Company at PMA Capital Corporation, 380 Sentry Parkway, Blue Bell, PA. 19422, Attn: Secretary

E-6

EX-4.7

Exhibit 4.7

INDENTURE (PMA CAPITAL CORPORATION)

PMA CAPITAL CORPORATION, Issuer

To

U.S. BANK NATIONAL ASSOCIATION, Trustee

__________________________

INDENTURE

__________________________

Dated as of November 15, 2004

$101,250,000 Aggregate Principal Amount

Secured Senior Securities

Trust Indenture Act Section	Indenture Section
§§ 310(a)(1)	6.8
(a)(2)	6.8
(b)	6.9
(c)	Not Applicable
§§ 311(a)	6.13
(b)	6.13
(c)	Not Applicable
§§ 312(a)	7.1
(b)	7.2
(c)	7.2
§§ 313(a)	7.3
(b)	7.3
(c)	7.3
(d)	7.3
§§ 314(a)	7.4
(b)	1.17
(c)	1.2
(d)	10.9
(e)	1.2
(f)	Not Applicable
§§ 315(a)	6.1
(b)	6.3
(c)	6.1
(d)	6.1
(e)	5.15
§§ 316(a)(1)	5.2, 5.12 and 5.13
(b)	5.8
(c)	1.4
§§ 317(a)(1)	5.3
(a)(2)	5.4
(b)	10.3
§§ 318(a)	1.8

Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture.

	Table of Contents	Page
	ARTICLE 1
	DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1.	Definitions.	1
Section 1.2.	Compliance Certificates and Opinions.	12
Section 1.3.	Form of Documents Delivered to Trustee.	12
Section 1.4.	Acts of Holders.	13
Section 1.5.	Notices, etc. to Trustee and Company.	15
Section 1.6.	Notice to Holders of Securities; Waiver.	15
Section 1.7.	Language of Notices.	16
Section 1.8.	Conflict with Trust Indenture Act.	16
Section 1.9.	Effect of Headings and Table of Contents.	16
Section 1.10.	Successors and Assigns.	16
Section 1.11.	Separability Clause.	17
Section 1.12.	Benefits of Indenture.	17
Section 1.13.	Governing Law.	17
Section 1.14.	Legal Holidays.	17
Section 1.15.	Counterparts.	17
Section 1.16.	Judgment Currency.	18
Section 1.17.	Security Interest Created in Supplemental Indenture; Release of Security Interest.	18
Section 1.18.	Limitation on Individual Liability.	19
Section 1.19.	Submission to Jurisdiction.	19
	ARTICLE 2
	SECURITIES FORMS
Section 2.1.	Forms Generally.	20
Section 2.2.	Form of Trustee’s Certificate of Authentication.	20
Section 2.3.	Securities in Global Form.	21
	ARTICLE 3
	THE SECURITIES
Section 3.1.	Amount Limited; Issuable in Series.	22
Section 3.2.	Currency; Denominations.	25
Section 3.3.	Execution, Authentication, Delivery and Dating.	25
Section 3.4.	Temporary Securities.	27
Section 3.5.	Registration, Transfer and Exchange.	28
Section 3.6.	Mutilated, Destroyed, Lost and Stolen Securities.	31
Section 3.7.	Payment of Interest and Certain Additional Amounts; Rights to Interest and Certain Additional Amounts Preserved.	32
Section 3.8.	Persons Deemed Owners.	34

Table of Contents

(continued)

Section 3.9.	Cancellation.	35
Section 3.10.	Computation of Interest.	35
Section 3.11.	CUSIP and ISIN Numbers.	35
	ARTICLE 4
	SATISFACTION AND DISCHARGE OF INDENTURE
Section 4.1.	Satisfaction and Discharge.	35
Section 4.2.	Defeasance and Covenant Defeasance.	37
Section 4.3.	Application of Trust Money.	41
	ARTICLE 5
	REMEDIES
Section 5.1.	Events of Default.	41
Section 5.2.	Acceleration of Maturity; Rescission and Annulment.	43
Section 5.3.	Collection of Indebtedness and Suits for Enforcement by Trustee.	45
Section 5.4.	Trustee May File Proofs of Claim.	46
Section 5.5.	Trustee May Enforce Claims without Possession of Securities or Coupons.	46
Section 5.6.	Application of Money Collected.	47
Section 5.7.	Limitations on Suits.	47
Section 5.8.	Unconditional Right of Holders to Receive Principal and any Premium, Interest and Additional Amounts.	48
Section 5.9.	Restoration of Rights and Remedies.	48
Section 5.10.	Rights and Remedies Cumulative.	48
Section 5.11.	Delay or Omission Not Waiver.	49
Section 5.12.	Control by Holders of Securities.	49
Section 5.13.	Waiver of Past Defaults.	49
Section 5.14.	Waiver of Usury, Stay or Extension Laws.	49
Section 5.15.	Undertaking for Costs.	50
	ARTICLE 6
	THE TRUSTEE
Section 6.1.	Certain Duties and Responsibilities.	50
Section 6.2.	Certain Rights of Trustee.	51
Section 6.3.	Notice of Defaults.	53
Section 6.4.	Not Responsible for Recitals or Issuance of Securities.	53
Section 6.5.	May Hold Securities.	53
Section 6.6.	Money Held in Trust.	54
Section 6.7.	Compensation and Reimbursement.	54
Section 6.8.	Corporate Trustee Required; Eligibility.	55
Section 6.9.	Resignation and Removal; Appointment of Successor.	55
Section 6.10.	Acceptance of Appointment by Successor.	57
Section 6.11.	Merger, Conversion, Consolidation or Succession to Business.	58
Section 6.12.	Appointment of Authenticating Agent.	58

ii

 

Table of Contents

(continued)

Section 6.13.	Preferential Collection of Claims Against the Company.	60
Section 6.14.	Co-Trustee and Separate Trustees.	60
Section 6.15.	Patriot Act	61
	ARTICLE 7
	HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1.	Company to Furnish Trustee Names and Addresses of Holders.	62
Section 7.2.	Preservation of Information; Communications to Holders.	62
Section 7.3.	Reports by Trustee.	62
Section 7.4.	Reports by Company.	62
	ARTICLE 8
	CONSOLIDATION, AMALGAMATIONS, MERGER AND SALES
Section 8.1.	Company May Consolidate, Etc., Only on Certain Terms.	63
Section 8.2.	Successor Person Substituted for Company.	64
	ARTICLE 9
	SUPPLEMENTAL INDENTURES
Section 9.1.	Supplemental Indentures without Consent of Holders.	65
Section 9.2.	Supplemental Indentures with Consent of Holders.	66
Section 9.3.	Execution of Supplemental Indentures.	68
Section 9.4.	Effect of Supplemental Indentures.	68
Section 9.5.	Reference in Securities to Supplemental Indentures.	68
Section 9.6.	Conformity with Trust Indenture Act.	68
Section 9.7.	Notice of Supplemental Indenture.	68
ARTICLE 10
COVENANTS
Section 10.1.	Payment of Principal, any Premium, Interest and Additional Amounts.	69
Section 10.2.	Maintenance of Office or Agency.	69
Section 10.3.	Money for Securities Payments to Be Held in Trust.	70
Section 10.4.	Additional Amounts.	72
Section 10.5.	Corporate Existence.	74
Section 10.6.	Waiver of Certain Covenants.	74
Section 10.7.	Company Statement as to Compliance; Notice of Certain Defaults.	74
Section 10.8.	Recordation.	75
Section 10.9.	Evidence of Recording of Indenture.	75
	ARTICLE 11
	REDEMPTION OF SECURITIES
Section 11.1.	Applicability of Article.	75
Section 11.2.	Election to Redeem; Notice to Trustee.	76

iii

Table of Contents

(continued)

Section 11.3.	Selection by Trustee of Securities to be Redeemed.	76
Section 11.4.	Notice of Redemption.	76
Section 11.5.	Deposit of Redemption Price.	78
Section 11.6.	Securities Payable on Redemption Date.	78
Section 11.7.	Securities Redeemed in Part.	79
	ARTICLE 12
	SINKING FUNDS
Section 12.1.	Applicability of Article.	79
Section 12.2.	Satisfaction of Sinking Fund Payments with Securities.	80
Section 12.3.	Redemption of Securities for Sinking Fund.	80
	ARTICLE 13
	REPAYMENT AT THE OPTION OF HOLDERS
Section 13.1.	Applicability of Article.	81
	ARTICLE 14
	SECURITIES IN FOREIGN CURRENCIES
Section 14.1.	Applicability of Article.	81
	ARTICLE 15
	MEETINGS OF HOLDERS OF SECURITIES
Section 15.1.	Purposes for Which Meetings May Be Called.	82
Section 15.2.	Call, Notice and Place of Meetings.	82
Section 15.3.	Persons Entitled to Vote at Meetings.	82
Section 15.4.	Quorum; Action.	83
Section 15.5.	Determination of Voting Rights; Conduct and Adjournment of Meetings.	83
Section 15.6.	Counting Votes and Recording Action of Meetings.	84

iv

INDENTURE, dated as of November 15, 2004 (the “Indenture”), between PMA CAPITAL CORPORATION, a company duly organized and existing under the laws of Pennsylvania (hereinafter called the “Company”), having its principal executive office located at 380 Sentry Parkway, Blue Bell, Pennsylvania 19422, and U.S. BANK NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America (hereinafter called the “Trustee”), having its Corporate Trust Office located at 225 Asylum Street, Hartford, CT 06103.

RECITALS

The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its senior securities (hereinafter called the “Securities”), limited to $101,250,000 in aggregate principal amount, to bear such rates of interest, to mature at such time or times, to be issued in one or more series and to have such other provisions as shall be fixed as hereinafter provided.

The Company has duly authorized the execution and delivery of this Indenture. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done.

This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder that are required to be part of this Indenture and, to the extent applicable, shall be governed by such provisions.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the Securities by the Holders (as herein defined) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof and any Coupons (as herein defined) as follows:

ARTICLE 1

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 1.1. Definitions.

Except as otherwise expressly provided in or pursuant to this Indenture or unless the context otherwise requires, for all purposes of this Indenture:

(1)the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;

(2)all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;

(3)all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America and, except as otherwise herein expressly provided, the terms “generally accepted accounting principles” or “GAAP” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America at the date or time of such computation;

(4)the words “herein,” “hereof,” “hereto” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and

(5)the word “or” is always used inclusively (for example, the phrase “A or B” means “A or B or both,” not “either A or B but not both”).

Certain terms used principally in certain Articles hereof are defined in those Articles.

“Act,” when used with respect to any Holders, has the meaning specified in Section 1.4.

“Additional Amounts” means any additional amounts which are required hereby or by any Security, under circumstances specified herein or therein, to be paid by the Company in respect of certain taxes, assessments or other governmental charges imposed on Holders specified therein and which are owing to such Holders.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person, means the power to direct the management and policies of such Person directly or indirectly, whether through the ownership of voting stock, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Attributable Debt”in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP.

“Authenticating Agent” means any Person authorized by the Trustee pursuant to Section 6.12 to act on behalf of the Trustee to authenticate Securities of one or more series.

“Authorized Newspaper” means a newspaper, in an official language of the place of publication or in the English language, customarily published on each day that is a Business Day in the place of publication, whether or not published on days that are Legal Holidays in the place of publication, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any day that is a Business Day in the place of publication.

2

“Authorized Officer” means, when used with respect to the Company, the Chairman of the Board of Directors, the President, the Chief Executive Officer, the Chief Financial Officer, the Treasurer, the Chief Accounting Officer, the General Counsel or the Secretary of the Company.

“Bearer Security” means any Security in the form established pursuant to Section 2.1 which is payable to bearer.

“Board of Directors” means the board of directors of the Company or any committee of that board duly authorized to act generally or in any particular respect for the Company hereunder.

“Board Resolution” means a copy of one or more resolutions, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, delivered to the Trustee.

“Business Day,” with respect to any Place of Payment or other location, means, unless otherwise specified with respect to any Securities pursuant to Section 3.1, any day other than a Saturday, Sunday or other day on which banking institutions in such Place of Payment or other location are authorized or obligated by law, regulation or executive order to close.

“Capital Stock,” means with respect to any Person any and all shares, interests, participations or other equivalents (however designated) of corporate stock or partnership or limited liability company interests and any and all warrants, options and rights with respect thereto (whether or not currently exercisable), including each class of common stock and preferred stock of such person.

“Capitalized Lease Obligation” of any Person means the obligations of such Person to pay rent or other amounts under a lease of property, real or personal, that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles.

“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

“Common Stock” in respect of any Corporation means Capital Stock of any class or classes (however designated) which has no preference as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Corporation, and which is not subject to redemption by such Corporation.

“Company” means the Person named as the “Company” in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Person, and any other obligor upon the Securities.

3

“Company Request” and “Company Order” mean, respectively, a written request or order, as the case may be, signed in the name of the Company by an Authorized Officer, and delivered to the Trustee.

“Conversion Event” means the cessation of use of (i) a Foreign Currency both by the government of the country or the confederation which issued such Foreign Currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community or (ii) any currency unit or composite currency for the purposes for which it was established.

“Corporate Trust Office” means a corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of original execution of this Indenture is located at Goodwin Square, 225 Asylum Street, 23^rd Floor, Hartford, CT 06103.

“Corporation” includes corporations and limited liability companies and, except for purposes of Article 8, associations, companies and business trusts.

“Coupon” means any interest coupon appertaining to a Bearer Security.

“Currency,” with respect to any payment, deposit or other transfer in respect of the principal of or any premium or interest on or any Additional Amounts with respect to any Security, means Dollars or the Foreign Currency, as the case may be, in which such payment, deposit or other transfer is required to be made by or pursuant to the terms hereof or such Security and, with respect to any other payment, deposit or transfer pursuant to or contemplated by the terms hereof or such Security, means Dollars.

“CUSIP number” means the alphanumeric designation assigned to a Security by Standard & Poor’s Ratings Service, CUSIP Service Bureau.

“Defaulted Interest” has the meaning specified in Section 3.7.

“Disqualified Capital Stock” means any Capital Stock of the Company or any Restricted Subsidiary of the Company which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event or with the passage of time, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date or which is exchangeable or convertible into debt securities of the Company or any Restricted Subsidiary of the Company, except to the extent that such exchange or conversion rights cannot be exercised prior to the Maturity Date.

“Dollars” or “$” means a dollar or other equivalent unit of legal tender for payment of public or private debts in the United States of America.

“Event of Default” has the meaning specified in Section 5.1.

“Foreign Currency” means any currency, currency unit or composite currency, including, without limitation, the euro, issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments.

4

“Government Obligations” means securities which are (i) direct obligations of the United States of America or the other government or governments which issued the Foreign Currency in which the principal of or any premium or interest on such Security or any Additional Amounts in respect thereof shall be payable, in each case where the payment or payments thereunder are supported by the full faith and credit of such government or governments or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such other government or governments, in each case where the timely payment or payments thereunder are unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government or governments, and which, in the case of (i) or (ii), are not callable or redeemable at the option of the issuer or issuers thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of or other amount with respect to any such Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of or other amount with respect to the Government Obligation evidenced by such depository receipt.

“Holder,” in the case of any Registered Security, means the Person in whose name such Security is registered in the Security Register and, in the case of any Bearer Security, means the bearer thereof and, in the case of any Coupon, means the bearer thereof.

“Indebtedness” means, without duplication, with respect to any Person,

(a)all obligations of such Person

(1) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof),

(2) evidenced by bonds, new debentures, debentures or similar instruments,

(3) representing the balance deferred and unpaid of the purchase price of any property or services (other than accounts payable or accrued expenses arising in the ordinary course of business),

(4) evidenced by bankers’ acceptances or similar instruments issued or accepted by banks,

(5) for the payment of money relating to a Capitalized Lease Obligation and Attributable Indebtedness of such Person, or

(6) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit;

(b) all net obligations of such Person in respect of Currency Hedge Obligations and Interest Rate Hedging Agreements;

5

(c) all liabilities of others of the kind described in the preceding clauses (a) or (b) that such Person has guaranteed or that are otherwise its legal liability;

(d) in respect of Indebtedness (as otherwise defined in this definition) of another Person secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, the amount of such obligations being deemed to be the lesser of

(1) the full amount of such obligations so secured, and

(2) the fair market value of such asset, as determined in good faith by the Board of Directors of such Person, which determination shall be evidenced by a resolution of such Board;

(e) with respect to such Person, the liquidation preference or any mandatory redemption payment obligations in respect of Disqualified Capital Stock;

(f) the aggregate preference in respect of amounts payable on the issued and outstanding shares of preferred stock of any of the Company’s Restricted Subsidiaries in the event of any voluntary or involuntary liquidation, dissolution or winding up (excluding any such preference attributable to such shares of preferred stock that are owned by such Person or any of its Restricted Subsidiaries; provided, that if such Person is the Company, such exclusion shall be for such preference attributable to such shares of preferred stock that are owned by the Company or any of its Restricted Subsidiaries); and

(g) any and all deferrals, renewals, extensions, refinancings and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a), (b), (c), (d), (e) or (f) or this clause (g), whether or not between or among the same parties.

“Indenture” means this instrument as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and, with respect to any Security, by the terms and provisions of such Security and any Coupon appertaining thereto established pursuant to Section 3.1 (as such terms and provisions may be amended pursuant to the applicable provisions hereof).

“Independent Public Accountants” means accountants or a firm of accountants that, with respect to the Company and any other obligor under the Securities or the Coupons, are independent public accountants within the meaning of the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder, who may be the independent public accountants regularly retained by the Company or who may be other independent public accountants. Such accountants or firm shall be entitled to rely upon any Opinion of Counsel as to the interpretation of any legal matters relating to this Indenture or certificates required to be provided hereunder.

6

“Indexed Security” means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the principal face amount thereof at original issuance.

“Interest,” with respect to any Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after some period of time, payable at the end of such period and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 10.4, includes such Additional Amounts.

“Interest Payment Date,” with respect to any Security, means the Stated Maturity of an installment of interest on such Security.

“Judgment Currency” has the meaning specified in Section 1.16.

“Legal Holidays” has the meaning specified in Section 1.14.

“Lien” means, with respect to any Person, any mortgage, pledge, lien, encumbrance, easement, restriction, covenant, right-of-way, charge or adverse claim affecting title or resulting in an encumbrance against real or personal property of such Person, or a security interest of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option, right of first refusal or other similar agreement to sell, in each case securing obligations of such Person and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).

“Maturity,” with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as provided in or pursuant to this Indenture, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or repurchase, notice of option to elect repayment or otherwise, and includes the Redemption Date.

“New York Banking Day” has the meaning specified in Section 1.16.

“Office” or “Agency,” with respect to any Securities, means an office or agency of the Company maintained or designated in a Place of Payment for such Securities pursuant to Section 10.2 or any other office or agency of the Company maintained or designated for such Securities pursuant to Section 10.2 or, to the extent designated or required by Section 10.2 in lieu of such office or agency, the Corporate Trust Office of the Trustee.

“Officer’s Certificate” means a certificate signed by an Authorized Officer that complies with the requirements of Section 314(e) of the Trust Indenture Act and is delivered to the Trustee.

“Opinion of Counsel” means a written opinion of counsel, who may be an employee of or counsel for the Company or other counsel who shall be reasonably acceptable to the Trustee, that, if required by the Trust Indenture Act, complies with the requirements of Section 314(e) of the Trust Indenture Act.

7

“Original Issue Discount Security” means a Security issued pursuant to this Indenture which provides for declaration of an amount less than the principal face amount thereof to be due and payable upon acceleration pursuant to Section 5.2.

“Outstanding,” when used with respect to any Securities, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except:

(a) any such Security theretofore cancelled by the Trustee or the Security Registrar or delivered to the Trustee or the Security Registrar for cancellation;

(b) any such Security for whose payment at the Maturity thereof money in the necessary amount has been theretofore deposited pursuant hereto (other than pursuant to Section 4.2) with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities and any Coupons appertaining thereto, provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made;

(c) any such Security with respect to which the Company has effected defeasance pursuant to the terms hereof, except to the extent provided in Section 4.2;

(d) any such Security which has been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, unless there shall have been presented to the Trustee proof satisfactory to it that such Security is held by a bona fide purchaser in whose hands such Security is a valid obligation of the Company; and

(e) any such Security converted or exchanged as contemplated by this Indenture into other securities of the Company or securities of another issuer, if the terms of such Security provide for such conversion or exchange pursuant to Section 3.1;

provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders of Securities for quorum purposes, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination and that shall be deemed to be Outstanding for such purposes shall be equal to the amount of the principal thereof that pursuant to the terms of such Original Issue Discount Security would be declared (or shall have been declared to be) due and payable upon a declaration of acceleration thereof pursuant to Section 5.2 at the time of such determination, and (ii) the principal amount of any Indexed Security that may be counted in making such determination and that shall be deemed Outstanding for such purposes shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided in or pursuant to this Indenture, and (iii) the principal amount of a Security denominated in a Foreign Currency shall be the Dollar equivalent, determined on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent on the date of original issuance of such Security of the amount determined as provided in (i) above) of such Security, and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor, shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making any such determination or relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which shall have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee (A) the pledgee’s right so to act with respect to such Securities and (B) that the pledgee is not the Company or any other obligor upon the Securities or any Coupons appertaining thereto or an Affiliate of the Company or such other obligor.

8

“Paying Agent” means any Person authorized by the Company to pay the principal of, or any premium or interest on, or any Additional Amounts with respect to, any Security or any Coupon on behalf of the Company.

“Person” means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization, government or any agency or political subdivision thereof or other entity.

“Place of Payment,” with respect to any Security, means the place or places where the principal of, or any premium or interest on, or any Additional Amounts with respect to such Security are payable as provided in or pursuant to this Indenture or such Security.

“Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same Indebtedness as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a lost, destroyed, mutilated or stolen Security or any Security to which a mutilated, destroyed, lost or stolen Coupon appertains shall be deemed to evidence the same Indebtedness as the lost, destroyed, mutilated or stolen Security or the Security to which a mutilated, destroyed, lost or stolen Coupon appertains.

“Preferred Stock” of any Person means any Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.

“Redemption Date,” with respect to any Security or portion thereof to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture or such Security.

“Redemption Price,” with respect to any Security or portion thereof to be redeemed, means the price at which it is to be redeemed as determined by or pursuant to this Indenture or such Security.

“Registered Security” means any Security established pursuant to Section 2.1 which is registered in a Security Register.

9

“Regular Record Date” for the interest payable on any Registered Security on any Interest Payment Date therefor means the date, if any, specified in or pursuant to this Indenture or such Security as the “Regular Record Date”.

“Required Currency” has the meaning specified in Section 1.16.

“Responsible Officer” means any officer within the corporate trust services division of the Trustee, including vice president, any assistant vice president, any assistant secretary, assistant treasurer, any trust officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

“Security” or “Securities” means any note or notes, bond or bonds, debenture or debentures, or any other evidences of Indebtedness, as the case may be, authenticated and delivered under this Indenture; provided, however, that, if at any time there is more than one Person acting as Trustee under this Indenture, “Securities,” with respect to any such Person, shall mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee.

“Security Register” and “Security Registrar” have the respective meanings specified in Section 3.5.

“Significant Subsidiary” means a Subsidiary of the Company, including its Subsidiaries, which meets any of the following conditions (in each case determined in accordance with generally accepted accounting principles): (i) the Company’s and its other Subsidiaries’ investment in and advances to the Subsidiary exceed 10 percent of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; (ii) the Company’s and its other Subsidiaries’ proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10 percent of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (iii) the Company’s and its other Subsidiaries’ equity interest in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principles of the Subsidiary exceed 10 percent of such income of the Company and its Subsidiaries consolidated for the most recently completed fiscal year. As of the date hereof, the Company’s Significant Subsidiaries consist of PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company.

“Special Record Date” for the payment of any Defaulted Interest on any Registered Security means a date fixed by the Company pursuant to Section 3.7.

“Stated Maturity” means, with respect to any Indebtedness, the date specified in such Indebtedness as the fixed date on which the final payment of such Indebtedness is due and payable, including pursuant to any mandatory redemption (but excluding any provision providing for the repurchase of such Indebtedness at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred).

10

“Subsidiary” means any subsidiary of the Company. A “subsidiary” of any Person means:

(1) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such Person, by one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person,

(2) a partnership in which such Person or a subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if such Person or its subsidiary is entitled to receive more than 20 percent of the assets of such partnership upon its dissolution, or

(3) any other Person (other than a corporation or partnership) which is controlled, directly or indirectly, by such Person or in which such Person, directly or indirectly, at the date of determination thereof, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such Person.

“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended, and any reference herein to the Trust Indenture Act or a particular provision thereof shall mean such Act or provision, as the case may be, as amended or replaced from time to time or as supplemented from time to time by rules or regulations adopted by the Commission under or in furtherance of the purposes of such Act or provision, as the case may be.

“Trustee” means the Person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become such with respect to one or more series of Securities pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, “Trustee” shall mean each such Person and as used with respect to the Securities of any series shall mean the Trustee with respect to the Securities of such series.

“United States,” except as otherwise provided in or pursuant to this Indenture or any Security, means the United States of America (including the states thereof and the District of Columbia), its territories and possessions and other areas subject to its jurisdiction.

“U.S. Depositary” or “Depositary” means, with respect to any Security issuable or issued in the form of one or more global Securities, the Person designated as U.S. Depositary or Depositary by the Company in or pursuant to this Indenture, which Person must be, to the extent required by applicable law or regulation, a clearing agency registered under the Securities Exchange Act of 1934, as amended, and, if so provided with respect to any Security, any successor to such Person. If at any time there is more than one such Person, “U.S. Depositary” or “Depositary” shall mean, with respect to any Securities, the qualifying entity which has been appointed with respect to such Securities.

“Vice President,” when used with respect to the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title “Vice President”.

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“Voting Stock” of any Person means any class or classes of Capital Stock which entitle the holders thereof under ordinary circumstances to elect at least a majority of the Board of Directors of such Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency).

Section 1.2. Compliance Certificates and Opinions.

Except as otherwise expressly provided in this Indenture, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer’s Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents or any of them is specifically required by any provision of this Indenture relating to such particular application or request, the certificate or opinion may be combined with the certificate or opinion described above in this Section 1.2.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

(1)a statement that the Person signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto;

(2)a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3)a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and

(4)a statement as to whether, in the opinion of such Person, such condition or covenant has been complied with.

Section 1.3. Form of Documents Delivered to Trustee.

In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, provided that such officer, after reasonable inquiry, has no reason to believe and does not believe that the Opinion of Counsel with respect to the matters upon which his certificate or opinion is based is erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, provided that such counsel, after reasonable inquiry, has no reason to believe and does not believe that the certificate or opinion or representations with respect to such matters are erroneous.

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Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture or any Security, they may, but need not, be consolidated and form one instrument.

Section 1.4. Acts of Holders.

(1)Any request, demand, authorization, direction, notice, consent, waiver or other action provided by or pursuant to this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. Any request, demand, authorization, direction, notice, consent, waiver or other action provided in or pursuant to this Indenture to be given or taken by Holders of Securities of any series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article 15, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 315 of the Trust Indenture Act) conclusive in favor of the Trustee, the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 15.6.

Without limiting the generality of this Section 1.4, unless otherwise provided in or pursuant to this Indenture, a Holder, including a U.S. Depositary that is a Holder of a global Security, may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture to be made, given or taken by Holders, and a U.S. Depositary that is a Holder of a global Security may provide its proxy or proxies to the beneficial owners of interests in any such global Security through such U.S. Depositary’s standing instructions and customary practices.

The Company shall fix a record date for the purpose of determining the Persons who are beneficial owners of interest in any permanent global Security held by a U.S. Depositary entitled under the procedures of such U.S. Depositary to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture to be made, given or taken by Holders. If such a record date is fixed, the Holders on such record date or their duly appointed proxy or proxies, and only such Persons, shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other Act, whether or not such Holders remain Holders after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other Act shall be valid or effective if made, given or taken more than 90 days after such record date.

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(2)The fact and date of the execution by any Person of any such instrument or writing referred to in this Section 1.4 may be proved in any reasonable manner; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section.

(3)The ownership, principal amount and serial numbers of Registered Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, shall be proved solely and conclusively by the Security Register. Where such execution is by a signer acting in a capacity other than such signer’s individual capacity, such certificate or affidavit shall also constitute sufficient proof of such signer’s authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.

(4)The ownership, principal amount and serial numbers of Bearer Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary reasonably acceptable to the Company, wherever situated, if such certificate shall be deemed by the Company and the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (i) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (ii) such Bearer Security is produced to the Trustee by some other Person, or (iii) such Bearer Security is surrendered in exchange for a Registered Security, or (iv) such Bearer Security is no longer Outstanding. The ownership, principal amount and serial numbers of Bearer Securities held by the Person so executing such instrument or writing and the date of the commencement and the date of the termination of holding the same may also be proved in any other manner which the Company and the Trustee deem sufficient.

(5)If the Company shall solicit from the Holders of any Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may at its option (but is not obligated to), by Board Resolution, fix in advance a record date for the determination of Holders of Registered Securities entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of Registered Securities of record at the close of business on such record date shall be deemed to be Holders for the purpose of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders of Registered Securities shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date.

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(6)Any request, demand, authorization, direction, notice, consent, waiver or other Act by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee, any Security Registrar, any Paying Agent or the Company in reliance thereon, whether or not notation of such Act is made upon such Security.

Section 1.5. Notices, etc. to Trustee and Company.

Any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,

(1)the Trustee by any Holder or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or

(2)the Company by the Trustee or any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to the attention of its Treasurer, with a copy to the attention of its General Counsel, at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.

Section 1.6. Notice to Holders of Securities; Waiver.

Except as otherwise expressly provided in or pursuant to this Indenture, where this Indenture provides for notice to Holders of Securities of any event,

(1)such notice shall be sufficiently given to Holders of Registered Securities if in writing and mailed, first-class postage prepaid, to each Holder of a Registered Security affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice; and

(2)such notice shall be sufficiently given to Holders of Bearer Securities, if any, if published in an Authorized Newspaper in The City of New York and, if such Securities are then listed on any stock exchange outside the United States, in an Authorized Newspaper in such city as the Company shall advise the Trustee that such stock exchange so requires, on a Business Day at least twice, the first such publication to be not earlier than the earliest date and the second such publication not later than the latest date prescribed for the giving of such notice.

In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given or provided. In the case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.

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In case by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearers Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither failure to give notice by publication to Holders of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of any notice mailed to Holders of Registered Securities as provided above.

Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

Section 1.7. Language of Notices.

Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language, except that, if the Company so elects, any published notice may be in an official language of the country of publication.

Section 1.8. Conflict with Trust Indenture Act.

If any provision hereof limits, qualifies or conflicts with any duties under any required provision of the Trust Indenture Act imposed hereon by Section 318(c) thereof, such required provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that can be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be.

Section 1.9. Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 1.10. Successors and Assigns.

All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

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Section 1.11. Separability Clause.

In case any provision in this Indenture, any Security or any Coupon shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 1.12. Benefits of Indenture.

Nothing in this Indenture, any Security or any Coupon, express or implied, shall give to any Person, other than the parties hereto, any Security Registrar, any Paying Agent, any Authenticating Agent and their successors hereunder and the Holders of Securities or Coupons, any benefit or any legal or equitable right, remedy or claim under this Indenture.

Section 1.13. Governing Law.

This Indenture, the Securities and any Coupons shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made or instruments entered into and, in each case, performed wholly in said state.

Section 1.14. Legal Holidays.

Unless otherwise specified in or pursuant to this Indenture or any Securities, in any case where any Interest Payment Date, Stated Maturity or Maturity of any Security, or the last date on which a Holder has the right to convert or exchange Securities of a series that are convertible or exchangeable, shall be a Legal Holiday at any Place of Payment, then (notwithstanding any other provision of this Indenture, any Security or any Coupon other than a provision in any Security or Coupon that specifically states that such provision shall apply in lieu hereof) payment need not be made at such Place of Payment on such date, and such Securities need not be converted or exchanged on such date but such payment may be made, and such Securities may be converted or exchanged, on the next succeeding day that is a Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or at the Stated Maturity or Maturity or on such last day for conversion or exchange, except that, if such Business Day is in the next succeeding calendar year, such payment, conversion or exchange, as the case may be, shall be made on the immediately preceding day that is a Business Day, in each case with the same force and effect as if made on the Interest Payment Date or at the Stated Maturity or Maturity or on such last day for conversion or exchange, provided that no interest shall accrue on the amount payable on such date or at such time for the period from and after such Interest Payment Date, Stated Maturity, Maturity or last day for conversion or exchange, as the case may be, to such next succeeding Business Day.

Section 1.15. Counterparts.

This Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

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Section 1.16. Judgment Currency.

The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, or Additional Amounts on the Securities of any series (the “Required Currency”) into a currency in which a judgment will be rendered (the “Judgment Currency”), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the requisite amount of the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which a final unappealable judgment is given and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with clause (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, “New York Banking Day” means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed.

Section 1.17.Security Interest Created in Supplemental Indenture; Release of Security Interest.

If so provided in a supplemental indenture for any security, the terms of such supplemental indenture shall set forth the terms of any security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect in any jurisdiction where the Company or its Subsidiaries are located, or the property of the Company or its Subsidiaries is or may be located, as applicable, to be granted to the holders of the Securities or to the Trustee or another representative on their behalf. If a security interest is created under a supplemental indenture, the supplemental indenture shall also set forth the terms under which the security interest will be released.

If the security interest is to be released, the Company shall furnish to the Trustee a certificate or opinion of an engineer, appraiser, or other expert as to the fair value of any property or securities to be released from the lien of the supplemental indenture. The certificate or opinion shall state that in the opinion of the person making the same, the proposed release will not impair the security under such indenture in contravention of the provisions thereof, and requiring further that such certificate or opinion shall be made by an independent engineer, appraiser, or other expert, if the fair value of such property or securities and of other property or securities released since the commencement of the then current calendar year, as set forth in the certificates or opinions required by Section 314(d)(1) of the Trust Indenture Act, is 10 per centum or more of the aggregate principal amount of the secured indenture Securities at the time outstanding. However, such a certificate or opinion of an independent engineer, appraiser, or other expert shall not be required in the case of any release of property or securities, if the fair value thereof as set forth in the certificate or opinion is less than $25,000 or less than one per centum of the aggregate principal amount of the secured indenture Securities at the time outstanding.

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Section 1.18. Limitation on Individual Liability.

No recourse under or upon any obligation, covenant or agreement contained in this Indenture or in any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers or directors, as such, of the Company, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, shareholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Security.

Section 1.19. Submission to Jurisdiction.

The Company agrees that any judicial proceedings instituted in relation to any matter arising under this Indenture, the Securities or any Coupons appertaining thereto may be brought in any United States Federal or New York State court sitting in the Borough of Manhattan, The City of New York, New York to the extent that such court has subject matter jurisdiction over the controversy, and, by execution and delivery of this Indenture, the Company hereby irrevocably accepts, generally and unconditionally, the jurisdiction of the aforesaid courts, acknowledges their competence and irrevocably agrees to be bound by any judgment rendered in such proceeding. The Company also irrevocably and unconditionally waives for the benefit of the Trustee and the Holders of the Securities and Coupons any immunity from jurisdiction and any immunity from legal process (whether through service or notice, attachment prior to judgment, attachment in the aid of execution, execution or otherwise) in respect of this Indenture. The Company hereby irrevocably designates and appoints for the benefit of the Trustee and the Holders of the Securities and Coupons for the term of this Indenture CT Corporation System, 111 Eighth Avenue, New York, New York 10011, as its agent to receive on its behalf service of all process (with a copy of all such service of process to be delivered to Robert L. Pratter, Esq., Senior Vice President, General Counsel and Secretary, PMA Capital Corporation, 380 Sentry Parkway, Blue Bell, Pennsylvania 19422) brought against it with respect to any such proceeding in any such court in The City of New York, such service being hereby acknowledged by the Company to be effective and binding service on it in every respect whether or not the Company shall then be doing or shall have at any time done business in New York. Such appointment shall be irrevocable so long as any of the Securities or Coupons or the obligations of the Company hereunder remain outstanding until the appointment of a successor by the Company and such successor’s acceptance of such appointment. Upon such acceptance, the Company shall notify the Trustee of the name and address of such successor. The Company further agrees for the benefit of the Trustee and the Holders of the Securities and the Coupons to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of CT Corporation System in full force and effect so long as any of the Securities or Coupons or the obligations of the Company hereunder shall be outstanding. The Trustee shall not be obligated and shall have no responsibility with respect to any failure by the Company to take any such action. Nothing herein shall affect the right to serve process in any other manner permitted by any law or limit the right of the Trustee or any Holder to institute proceedings against the Company in the courts of any other jurisdiction or jurisdictions.

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ARTICLE 2

SECURITIES FORMS

Section 2.1. Forms Generally.

Each Registered Security, Bearer Security, Coupon and temporary or permanent global Security issued pursuant to this Indenture shall be in the form established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by or pursuant to this Indenture or any indenture supplemental hereto and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Security or Coupon as evidenced by their execution of such Security or Coupon.

Unless otherwise provided in or pursuant to this Indenture or any Securities, the Securities shall be issuable in registered form without Coupons and shall not be issuable upon the exercise of warrants.

Definitive Securities and definitive Coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Securities or Coupons, as evidenced by their execution of such Securities or Coupons.

Section 2.2. Form of Trustee’s Certificate of Authentication.

Subject to Section 6.12, the Trustee’s certificate of authentication shall be in substantially the following form:

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This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

US. BANK NATIONAL ASSOCIATION, as Trustee

By:

Authorized Signatory

Section 2.3. Securities in Global Form.

Unless otherwise provided in or pursuant to this Indenture or any Securities, the Securities shall not be issuable in temporary or permanent global form. If Securities of a series shall be issuable in global form, any such Security may provide that it or any number of such Securities shall represent the aggregate amount of all Outstanding Securities of such series (or such lesser amount as is permitted by the terms thereof) from time to time endorsed thereon and may also provide that the aggregate amount of Outstanding Securities represented thereby may from time to time be increased or reduced to reflect exchanges. Any endorsement of any Security in global form to reflect the amount, or any increase or decrease in the amount, or changes in the rights of Holders, of Outstanding Securities represented thereby shall be made in such manner and by such Person or Persons as shall be specified therein or in the Company Order to be delivered pursuant to Section 3.3 or Section 3.4 with respect thereto. Subject to the provisions of Section 3.3 and, if applicable, Section 3.4, the Trustee shall deliver and redeliver, in each case at the Company’s expense, any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 3.3 or Section 3.4 has been, or simultaneously is, delivered, any instructions by the Company with respect to a Security in global form shall be in writing but need not be accompanied by or contained in an Officer’s Certificate and need not be accompanied by an Opinion of Counsel.

Notwithstanding the provisions of Section 3.7, unless otherwise specified in or pursuant to this Indenture or any Securities, payment of principal of, any premium and interest on, and any Additional Amounts in respect of, any Security in temporary or permanent global form shall be made to the Person or Persons specified therein.

Notwithstanding the provisions of Section 3.8 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company or the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a global Security (i) in the case of a global Security in registered form, the Holder of such global Security in registered form, or (ii) in the case of a global Security in bearer form, the Person or Persons specified pursuant to Section 3.1.

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ARTICLE 3

THE SECURITIES

Section 3.1. Amount Limited; Issuable in Series.

The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is $101,250,000. The Securities may be issued in one or more series.

With respect to any Securities to be authenticated and delivered hereunder, there shall be established in or pursuant to a Board Resolution and set forth in an Officer’s Certificate, or established in one or more indentures supplemental hereto,

(1)the title of such Securities and the series in which such Securities shall be included;

(2)any limit upon the aggregate principal amount of the Securities of such title or the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 3.4, Section 3.5, Section 3.6, Section 9.5 or Section 11.7, upon repayment in part of any Registered Security of such series pursuant to Article 13, upon surrender in part of any Registered Security for conversion into other securities of the Company or exchange for securities of another issuer pursuant to its terms, or pursuant to or as contemplated by the terms of such Securities);

(3)if such Securities are to be issuable as Registered Securities, as Bearer Securities or alternatively as Bearer Securities and Registered Securities, and whether the Bearer Securities are to be issuable with Coupons, without Coupons or both, and any restrictions applicable to the offer, sale or delivery of the Bearer Securities and the terms, if any, upon which Bearer Securities may be exchanged for Registered Securities and vice versa;

(4)if any of such Securities are to be issuable in global form, when any of such Securities are to be issuable in global form and (i) whether such Securities are to be issued in temporary or permanent global form or both, (ii) whether beneficial owners of interests in any such global Security may exchange such interests for Securities of the same series and of like tenor and of any authorized form and denomination, and the circumstances under which any such exchanges may occur, if other than in the manner specified in Section 3.5, and (iii) the name of the Depositary or the U.S. Depositary, as the case may be, with respect to any such global Security;

(5)if any of such Securities are to be issuable as Bearer Securities or in global form, the date as of which any such Bearer Security or global Security shall be dated (if other than the date of original issuance of the first of such Securities to be issued);

(6)if any of such Securities are to be issuable as Bearer Securities, whether interest in respect of any portion of a temporary Bearer Security in global form payable in respect of an Interest Payment Date therefor prior to the exchange, if any, of such temporary Bearer Security for definitive Securities shall be paid to any clearing organization with respect to the portion of such temporary Bearer Security held for its account and, in such event, the terms and conditions (including any certification requirements) upon which any such interest payment received by a clearing organization will be credited to the Persons entitled to interest payable on such Interest Payment Date;

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(7)the date or dates, or the method or methods, if any, by which such date or dates shall be determined, on which the principal of such Securities is payable;

(8)the rate or rates at which such Securities shall bear interest, if any, or the method or methods, if any, by which such rate or rates are to be determined, the date or dates, if any, from which such interest shall accrue or the method or methods, if any, by which such date or dates are to be determined, the Interest Payment Dates, if any, on which such interest shall be payable and the Regular Record Date, if any, for the interest payable on Registered Securities on any Interest Payment Date, whether and under what circumstances Additional Amounts on such Securities or any of them shall be payable, the notice, if any, to Holders regarding the determination of interest on a floating rate Security and the manner of giving such notice, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months;

(9)if in addition to or other than the Borough of Manhattan, The City of New York, the place or places where the principal of, any premium and interest on or any Additional Amounts with respect to such Securities shall be payable, any of such Securities that are Registered Securities may be surrendered for registration of transfer or exchange, any of such Securities may be surrendered for conversion or exchange and notices or demands to or upon the Company in respect of such Securities and this Indenture may be served, the extent to which, or the manner in which, any interest payment or Additional Amounts on a global Security on an Interest Payment Date, will be paid and the manner in which any principal of or premium, if any, on any global Security will be paid;

(10)whether any of such Securities are to be redeemable at the option of the Company and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities may be redeemed, in whole or in part, at the option of the Company;

(11)whether the Company is obligated to redeem or purchase any of such Securities pursuant to any sinking fund or analogous provision or at the option of any Holder thereof and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities shall be redeemed or purchased, in whole or in part, pursuant to such obligation, and any provisions for the remarketing of such Securities so redeemed or purchased;

(12)the denominations in which any of such Securities that are Registered Securities shall be issuable if other than denominations of $1,000 and any integral multiple thereof, and the denominations in which any of such Securities that are Bearer Securities shall be issuable if other than the denomination of $5,000;

(13)whether the Securities of the series will be convertible into cash or shares of Common Stock of the Company (or a combination of both) and/or exchangeable for other securities, whether or not issued by the Company, and, if so, the terms and conditions upon which such Securities will be so convertible or exchangeable, and any deletions from or modifications or additions to this Indenture to permit or to facilitate the issuance of such convertible or exchangeable Securities or the administration thereof;

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(14)if other than the principal amount thereof, the portion of the principal amount of any of such Securities that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the method by which such portion is to be determined;

(15)if other than Dollars, the Foreign Currency in which payment of the principal of, any premium or interest on or any Additional Amounts with respect to any of such Securities shall be payable;

(16)if the principal of, any premium or interest on or any Additional Amounts with respect to any of such Securities are to be payable, at the election of the Company or a Holder thereof or otherwise, in Dollars or in a Foreign Currency other than that in which such Securities are stated to be payable, the date or dates on which, the period or periods within which, and the other terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the Currency in which such Securities are stated to be payable and the Currency in which such Securities or any of them are to be paid pursuant to such election, and any deletions from or modifications of or additions to the terms of this Indenture to provide for or to facilitate the issuance of Securities denominated or payable, at the election of the Company or a Holder thereof or otherwise, in a Foreign Currency;

(17)whether the amount of payments of principal of, any premium or interest on or any Additional Amounts with respect to such Securities may be determined with reference to an index, formula or other method or methods (which index, formula or method or methods may be based, without limitation, on one or more Currencies, commodities, equity securities, equity indices or other indices), and, if so, the terms and conditions upon which and the manner in which such amounts shall be determined and paid or payable;

(18)any deletions from, modifications of or additions to the Events of Default or covenants of the Company with respect to any of such Securities, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein;

(19)whether either or both of Section 4.2(2) relating to defeasance or Section 4.2(3) relating to covenant defeasance shall not be applicable to the Securities of such series, or any covenants in addition to those specified in Section 4.2(3) relating to the Securities of such series which shall be subject to covenant defeasance, and any deletions from, or modifications or additions to, the provisions of Article 4 in respect of the Securities of such series;

(20)whether any of such Securities are to be issuable upon the exercise of warrants, and the time, manner and place for such Securities to be authenticated and delivered;

(21)if any of such Securities are to be issuable in global form and are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and terms of such certificates, documents or conditions;

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(22)if there is more than one Trustee, the identity of the Trustee and, if not the Trustee, the identity of each Security Registrar, Paying Agent or Authenticating Agent with respect to such Securities; and

(23)any other terms of such Securities and any other deletions from or modifications or additions to this Indenture in respect of such Securities.

All Securities of any one series and all Coupons, if any, appertaining to Bearer Securities of such series shall be substantially identical except as to Currency of payments due thereunder, denomination and the rate of interest thereon, or method of determining the rate of interest, if any, Maturity, and the date from which interest, if any, shall accrue and except as may otherwise be provided by the Company in or pursuant to the Board Resolution and set forth in the Officer’s Certificate or in any indenture or indentures supplemental hereto pertaining to such series of Securities. The terms of the Securities of any series may provide, without limitation, that the Securities shall be authenticated and delivered by the Trustee on original issue from time to time upon written order of persons designated in the Officer’s Certificate or supplemental indenture and that such persons are authorized to determine, consistent with such Officer’s Certificate or any applicable supplemental indenture, such terms and conditions of the Securities of such series as are specified in such Officer’s Certificate or supplemental indenture. All Securities of any one series need not be issued at the same time and, unless otherwise so provided, a series may be reopened for issuances of additional Securities of such series or to establish additional terms of such series of Securities.

If any of the terms of the Securities of any series shall be established by action taken by or pursuant to a Board Resolution, the Board Resolution shall be delivered to the Trustee at or prior to the delivery of the Officer’s Certificate setting forth the terms of such series.

Section 3.2. Currency; Denominations.

Unless otherwise provided in or pursuant to this Indenture, the principal of, any premium and interest on and any Additional Amounts with respect to the Securities shall be payable in Dollars. Unless otherwise provided in or pursuant to this Indenture, Registered Securities denominated in Dollars shall be issuable in registered form without Coupons in denominations of $1,000 and any integral multiple thereof, and the Bearer Securities denominated in Dollars shall be issuable in the denomination of $5,000. Securities not denominated in Dollars shall be issuable in such denominations as are established with respect to such Securities in or pursuant to this Indenture.

Section 3.3. Execution, Authentication, Delivery and Dating.

Securities shall be executed on behalf of the Company by an Authorized Officer under its corporate seal reproduced thereon and attested by its Secretary. Coupons shall be executed on behalf of the Company by the Chief Financial Officer or Chief Accounting Officer of the Company. The signature of any of these officers on the Securities or any Coupons appertaining thereto may be manual or facsimile.

Securities and any Coupons appertaining thereto bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities and Coupons or did not hold such offices at the date of original issuance of such Securities or Coupons.

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At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities, together with any Coupons appertaining thereto, executed by the Company, to the Trustee for authentication and, provided that the Board Resolution and Officer’s Certificate or supplemental indenture or indentures with respect to such Securities referred to in Section 3.1 and a Company Order for the authentication and delivery of such Securities have been delivered to the Trustee, the Trustee in accordance with the Company Order and subject to the provisions hereof and of such Securities shall authenticate and deliver such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities and any Coupons appertaining thereto, the Trustee shall be entitled to receive, and (subject to Section 6.1 hereof) shall be fully protected in relying upon,

(1)A copy of the resolution or resolutions of the Board of Directors in or pursuant to which the terms and form of the Securities were established, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect as of the date of such certificate, and if the terms and form of such Securities are established by an Officers’ Certificate pursuant to general authorization of the Board of Directors, such Officers’ Certificate;

(2)an executed supplemental indenture, if any;

(3)an Opinion of Counsel to the effect that:

(a)the form or forms and terms of such Securities and Coupons, if any, have been established in conformity with the provisions of this Indenture;

(b)all conditions precedent to the authentication and delivery of such Securities and Coupons, if any, appertaining thereto, have been complied with and that such Securities and Coupons, when completed by appropriate insertions, executed under the Company’s corporate seal and attested by duly authorized officers of the Company, delivered by duly authorized officers of the Company to the Trustee for authentication pursuant to this Indenture, and authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement thereof may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium, arrangement, fraudulent conveyance, fraudulent transfer or other similar laws relating to or affecting creditors’ rights generally, and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and will entitle the Holders thereof to the benefits of this Indenture; such Opinion of Counsel need express no opinion as to the availability of equitable remedies;

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(c)all laws and requirements in respect of the execution and delivery by the Company of such Securities and Coupons, if any, have been complied with; and

(d)this Indenture has been qualified under the Trust Indenture Act; and

(4)an Officer’s Certificate delivered in accordance with Section 1.2 stating that all conditions precedent to the execution, authentication and delivery of such Securities and Coupons, if any, appertaining thereto, have been complied with and that, to the best knowledge of the Persons executing such certificate, no event which is, or after notice or lapse of time would become, an Event of Default with respect to any of the Securities shall have occurred and be continuing.

If all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Opinion of Counsel and an Officer’s Certificate at the time of issuance of each Security, but such opinion and certificate, with appropriate modifications, shall be delivered at or before the time of issuance of the first Security of such series. After any such first delivery, any separate written request by an Authorized Officer of the Company or any person designated in writing by an Authorized Officer that the Trustee authenticate and deliver Securities of such series for original issue will be deemed to be a certification by the Company that all conditions precedent provided for in this Indenture relating to authentication and delivery of such Securities continue to have been complied with.

The Trustee shall not be required to authenticate or to cause an Authenticating Agent to authenticate any Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee’s own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee or if the Trustee, being advised by counsel, determines that such action may not lawfully be taken.

Each Registered Security shall be dated the date of its authentication. Each Bearer Security and any Bearer Security in global form shall be dated as of the date specified in or pursuant to this Indenture.

No Security or Coupon appertaining thereto shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for in Section 2.2 or Section 6.12 executed by or on behalf of the Trustee or by the Authenticating Agent by the manual signature of one of its authorized officers. Such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Except as permitted by Section 3.5 or Section 3.6, the Trustee shall not authenticate and deliver any Bearer Security unless all Coupons appertaining thereto then matured have been detached and cancelled.

Section 3.4. Temporary Securities.

Pending the preparation of definitive Securities, the Company may execute and deliver to the Trustee and, upon Company Order, the Trustee shall authenticate and deliver, in the manner provided in Section 3.3, temporary Securities in lieu thereof which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form or, if authorized in or pursuant to this Indenture, in bearer form with one or more Coupons or without Coupons and with such appropriate insertions, omissions, substitutions and other variations as the officers of the Company executing such Securities may determine, as conclusively evidenced by their execution of such Securities. Such temporary Securities may be in global form.

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Except in the case of temporary Securities in global form, which shall be exchanged in accordance with the provisions thereof, if temporary Securities are issued, the Company shall cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities of the same series and containing terms and provisions that are identical to those of any temporary Securities, such temporary Securities shall be exchangeable for such definitive Securities upon surrender of such temporary Securities at an Office or Agency for such Securities, without charge to any Holder thereof. Upon surrender for cancellation of any one or more temporary Securities (accompanied by any unmatured Coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations of the same series and containing identical terms and provisions; provided, however, that no definitive Bearer Security, except as provided in or pursuant to this Indenture, shall be delivered in exchange for a temporary Registered Security; and provided, further, that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in or pursuant to this Indenture. Unless otherwise provided in or pursuant to this Indenture with respect to a temporary global Security, until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.

Section 3.5. Registration, Transfer and Exchange.

With respect to the Registered Securities of each series, if any, the Company shall cause to be kept a register (each such register being herein sometimes referred to as the “Security Register”) at an Office or Agency for such series in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of the Registered Securities of such series and of transfers of the Registered Securities of such series. Such Office or Agency shall be the “Security Registrar” for that series of Securities. Unless otherwise specified in or pursuant to this Indenture or the Securities, the Trustee shall be the initial Security Registrar for each series of Securities. The Company shall have the right to remove and replace from time to time the Security Registrar for any series of Securities; provided that no such removal or replacement shall be effective until a successor Security Registrar with respect to such series of Securities shall have been appointed by the Company and shall have accepted such appointment by the Company. In the event that the Trustee shall not be or shall cease to be Security Registrar with respect to a series of Securities, it shall have the right to examine the Security Register for such series at all reasonable times. There shall be only one Security Register for each series of Securities.

Upon surrender for registration of transfer of any Registered Security of any series at any Office or Agency for such series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series denominated as authorized in or pursuant to this Indenture, of a like aggregate principal amount bearing a number not contemporaneously outstanding and containing identical terms and provisions.

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At the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series containing identical terms and provisions, in any authorized denominations, and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any Office or Agency for such series. Whenever any Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled to receive.

If provided in or pursuant to this Indenture, with respect to Securities of any series, at the option of the Holder, Bearer Securities of such series may be exchanged for Registered Securities of such series containing identical terms, denominated as authorized in or pursuant to this Indenture and in the same aggregate principal amount, upon surrender of the Bearer Securities to be exchanged at any Office or Agency for such series, with all unmatured Coupons and all matured Coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured Coupon or Coupons or matured Coupon or Coupons in default, such exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company and the Trustee in an amount equal to the face amount of such missing Coupon or Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Bearer Security shall surrender to any Paying Agent any such missing Coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 10.2, interest represented by Coupons shall be payable only upon presentation and surrender of those Coupons at an Office or Agency for such series located outside the United States.

Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such Office or Agency for such series in exchange for a Registered Security of such series and like tenor after the close of business at such Office or Agency on (i) any Regular Record Date and before the opening of business at such Office or Agency on the next succeeding Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such Office or Agency on the related date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the Coupon relating to such Interest Payment Date or proposed date of payment, as the case may be (or, if such Coupon is so surrendered with such Bearer Security, such Coupon shall be returned to the Person so surrendering the Bearer Security), and interest or Defaulted Interest, as the case may be, shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but shall be payable only to the Holder of such Coupon when due in accordance with the provisions of this Indenture.

If provided in or pursuant to this Indenture with respect to Securities of any series, at the option of the Holder, Registered Securities of such series may be exchanged for Bearer Securities upon such terms and conditions as may be provided in or pursuant to this Indenture with respect to such series.

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Whenever any Securities are surrendered for exchange as contemplated by the immediately preceding four paragraphs, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.

Notwithstanding the foregoing, except as otherwise provided in or pursuant to this Indenture, any global Security shall be exchangeable for definitive Securities only if (i) the Depositary is at any time unwilling, unable or ineligible to continue as Depositary and a successor Depositary is not appointed by the Company within 90 days of the date the Company is so informed in writing, (ii) the Company executes and delivers to the Trustee a Company Order to the effect that such global Security shall be so exchangeable, or (iii) an Event of Default has occurred and is continuing with respect to the Securities of such series. If the beneficial owners of interests in a global Security are entitled to exchange such interests for definitive Securities as the result of an event described in clause (i), (ii) or (iii) of the preceding sentence, then without unnecessary delay but in any event not later than the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Securities of such series in such form and denominations as are required by or pursuant to this Indenture, and of the same series, containing identical terms and in aggregate principal amount equal to the principal amount of such global Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such global Security shall be surrendered from time to time by the U.S. Depositary or such other Depositary as shall be specified in the Company Order with respect thereto, and in accordance with instructions given to the Trustee and the U.S. Depositary or such other Depositary, as the case may be (which instructions shall be in writing), as shall be specified in the Company Order with respect thereto to the Trustee, as the Company’s agent for such purpose, to be exchanged, in whole or in part, for definitive Securities as described above without charge. The Trustee shall authenticate and make available for delivery, in exchange for each portion of such surrendered global Security, a like aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such global Security to be exchanged, which (unless such Securities are not issuable both as Bearer Securities and as Registered Securities, in which case the definitive Securities exchanged for the global Security shall be issuable only in the form in which the Securities are issuable, as provided in or pursuant to this Indenture) shall be in the form of Bearer Securities or Registered Securities, or any combination thereof, as shall be specified by the beneficial owner thereof, but subject to the satisfaction of any certification or other requirements to the issuance of Bearer Securities; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities of the same series to be redeemed and ending on the relevant Redemption Date; and provided, further, that (unless otherwise provided in or pursuant to this Indenture) no Bearer Security delivered in exchange for a portion of a global Security shall be mailed or otherwise delivered to any location in the United States. Promptly following any such exchange in part, such global Security shall be returned by the Trustee to such Depositary or the U.S. Depositary, as the case may be, or such other Depositary or U.S. Depositary referred to above in accordance with the instructions of the Company referred to above. If a Registered Security is issued in exchange for any portion of a global Security after the close of business at the Office or Agency for such Security where such exchange occurs on or after (i) any Regular Record Date for such Security and before the opening of business at such Office or Agency on the next succeeding Interest Payment Date, or (ii) any Special Record Date for such Security and before the opening of business at such Office or Agency on the related proposed date for payment of interest or Defaulted Interest, as the case may be, interest shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but shall be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such global Security shall be payable in accordance with the provisions of this Indenture.

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All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company evidencing the same debt and entitling the Holders thereof to the same benefits under this Indenture as the Securities surrendered upon such registration of transfer or exchange. Every Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar for such Security) be duly endorsed, or be accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Security Registrar for such Security duly executed by the Holder thereof or his attorney duly authorized in writing.

No service charge shall be made for any registration of transfer or exchange, or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge and any other expenses (including fees and expenses of the Trustee) that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, Section 9.5 or Section 11.7 not involving any transfer.

Except as otherwise provided in or pursuant to this Indenture, the Company shall not be required (i) to issue, register the transfer of or exchange any Securities during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of Securities of like tenor and the same series under Section 11.3 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Registered Security selected for redemption in whole or in part, except in the case of any Security to be redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange any Bearer Security selected for redemption except, to the extent provided with respect to such Bearer Security, that such Bearer Security may be exchanged for a Registered Security of like tenor and the same series, provided that such Registered Security shall be immediately surrendered for redemption with written instruction for payment consistent with the provisions of this Indenture or (iv) to issue, register the transfer of or exchange any Security which, in accordance with its terms, has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid.

Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities.

If any mutilated Security or a Security with a mutilated Coupon appertaining to it is surrendered to the Trustee, subject to the provisions of this Section 3.6, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with Coupons appertaining thereto corresponding to the Coupons, if any, appertaining to the surrendered Security.

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If there be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or Coupon, and (ii) such security or indemnity as may be reasonably required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security or Coupon has been acquired by a bona fide purchaser, the Company shall execute and, upon the Company’s request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen Coupon appertains with all appurtenant Coupons not destroyed, lost or stolen, a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with Coupons appertaining thereto corresponding to the Coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen Coupon appertains.

Notwithstanding the foregoing provisions of this Section 3.6, in case any mutilated, destroyed, lost or stolen Security or Coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security or Coupon; provided, however, that payment of principal of, any premium or interest on or any Additional Amounts with respect to any Bearer Securities shall, except as otherwise provided in Section 10.2, be payable only at an Office or Agency for such Securities located outside the United States and, unless otherwise provided in or pursuant to this Indenture, any interest on Bearer Securities and any Additional Amounts with respect to such interest shall be payable only upon presentation and surrender of the Coupons appertaining thereto.

Upon the issuance of any new Security under this Section 3.6, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Trustee) connected therewith.

Every new Security, with any Coupons appertaining thereto issued pursuant to this Section 3.6 in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen Coupon appertains shall constitute a separate obligation of the Company, whether or not the destroyed, lost or stolen Security and Coupons appertaining thereto or the destroyed, lost or stolen Coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of such series and any Coupons, if any, duly issued hereunder.

The provisions of this Section 3.6, as amended or supplemented pursuant to this Indenture with respect to particular Securities or generally, shall be exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons.

Section 3.7. Payment of Interest and Certain Additional Amounts; Rights to Interest and Certain Additional Amounts Preserved.

Unless otherwise provided in or pursuant to this Indenture, any interest on and any Additional Amounts with respect to any Registered Security which shall be payable, and are punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered as of the close of business on the Regular Record Date for such interest.

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Unless otherwise provided in or pursuant to this Indenture, any interest on and any Additional Amounts with respect to any Registered Security which shall be payable, but shall not be punctually paid or duly provided for, on any Interest Payment Date for such Registered Security (herein called “Defaulted Interest”) shall forthwith cease to be payable to the Holder thereof on the relevant Regular Record Date by virtue of having been such Holder; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:

(1)The Company may elect to make payment of any Defaulted Interest to the Person in whose name such Registered Security (or a Predecessor Security thereof) shall be registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed by the Company in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on such Registered Security, the Special Record Date therefor and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when so deposited to be held in trust for the benefit of the Person entitled to such Defaulted Interest as in this Clause provided. The Special Record Date for the payment of such Defaulted Interest shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 12 days after notification to the Trustee of the proposed payment. The Trustee shall, in the name and at the expense of the Company, cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to the Holder of such Registered Security (or a Predecessor Security thereof) at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company cause a similar notice to be published at least once in an Authorized Newspaper of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Person in whose name such Registered Security (or a Predecessor Security thereof) shall be registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2).

(2)The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Security may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee.

Unless otherwise provided in or pursuant to this Indenture or the Securities of any particular series pursuant to the provisions of this Indenture, at the option of the Company, interest on Registered Securities that bear interest may be paid by mailing a check to the address of the Person entitled thereto as such address shall appear in the Security Register or by transfer to an account maintained by the payee with a bank located in the United States.

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Subject to the foregoing provisions of this Section and Section 3.5, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

In the case of any Registered Security of any series that is convertible into shares of other securities of the Company or exchangeable for securities of another issuer, which Registered Security is converted or exchanged after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Registered Security with respect to which the Stated Maturity is prior to such Interest Payment Date), interest with respect to which the Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion or exchange, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Registered Security (or one or more predecessor Registered Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Registered Security which is converted or exchanged, interest with respect to which the Stated Maturity is after the date of conversion or exchange of such Registered Security shall not be payable.

Section 3.8. Persons Deemed Owners.

Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered in the Security Register as the owner of such Registered Security for the purpose of receiving payment of principal of, any premium and (subject to Section 3.5 and Section 3.7) interest on and any Additional Amounts with respect to such Registered Security and for all other purposes whatsoever, whether or not any payment with respect to such Registered Security shall be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary.

The Company, the Trustee and any agent of the Company or the Trustee may treat the bearer of any Bearer Security or the bearer of any Coupon as the absolute owner of such Security or Coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not any payment with respect to such Security or Coupon shall be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary.

No Holder of any beneficial interest in any global Security held on its behalf by a Depositary shall have any rights under this Indenture with respect to such global Security, and such Depositary may be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the owner of such global Security for all purposes whatsoever. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

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Section 3.9. Cancellation.

All Securities and Coupons surrendered for payment, redemption, registration of transfer, exchange or conversion or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Coupons, as well as Securities and Coupons surrendered directly to the Trustee for any such purpose, shall be cancelled promptly by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be cancelled promptly by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by or pursuant to this Indenture. All cancelled Securities and Coupons held by the Trustee shall be disposed of by the Trustee in accordance with its normal operating procedures, unless by a Company Order the Company directs their return to it.

Section 3.10. Computation of Interest.

Except as otherwise provided in or pursuant to this Indenture or in any Security, interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months.

Section 3.11. CUSIP and ISIN Numbers.

The Company in issuing the Securities may use “CUSIP” and “ISIN” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” and “ISIN” numbers in notices of redemption as a convenience to Holders; any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the “CUSIP” or “ISIN” numbers.

ARTICLE 4

SATISFACTION AND DISCHARGE OF INDENTURE

Section 4.1. Satisfaction and Discharge.

Upon the direction of the Company by a Company Order, this Indenture shall cease to be of further effect with respect to any series of Securities specified in such Company Order and any Coupons appertaining thereto, and the Trustee, on receipt of a Company Order, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when

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(1)either

(a)all Securities of such series theretofore authenticated and delivered and all Coupons appertaining thereto (other than (i) Coupons appertaining to Bearer Securities of such series surrendered in exchange for Registered Securities of such series and maturing after such exchange whose surrender is not required or has been waived as provided in Section 3.5, (ii) Securities and Coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6, (iii) Coupons appertaining to Securities of such series called for redemption and maturing after the relevant Redemption Date whose surrender has been waived as provided in Section 11.6, and (iv) Securities and Coupons of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or

(b)all Securities of such series and, in the case of (i) or (ii) below, any Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation

(i) have become due and payable, or

(ii) will become due and payable at their Stated Maturity within one year, or

(iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,

and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose, money in the Currency in which such

Securities are payable in an amount sufficient to pay and discharge the entire indebtedness on such Securities and any Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation, including the principal of, any premium and interest on, and any Additional Amounts with respect to such Securities and any Coupons appertaining thereto, to the date of such deposit (in the case of Securities which have become due and payable) or to the Maturity thereof, as the case may be;

(2)the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Outstanding Securities of such series and any Coupons appertaining thereto; and

(3)the Company has delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with.

In the event there are Securities of two or more series hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of this Indenture only if requested to do so with respect to Securities of such series as to which it is Trustee and if the other conditions thereto are met.

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Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee under Section 6.7 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations of the Company and the Trustee with respect to the Securities of such series under Section 3.5, Section 3.6, Section 4.3, Section 10.2 and Section 10.3, with respect to the payment of Additional Amounts, if any, with respect to such Securities as contemplated by Section 10.4 (but only to the extent that the Additional Amounts payable with respect to such Securities exceed the amount deposited in respect of such Additional Amounts pursuant to Section 4.1(1)(b)), and with respect to any rights to convert or exchange such Securities into other securities of the Company or securities of another issuer shall survive.

Section 4.2. Defeasance and Covenant Defeasance.

(1)Unless, pursuant to Section 3.1, either or both of (i) defeasance of the Securities of or within a series under clause (2) of this Section 4.2 shall not be applicable with respect to the Securities of such series or (ii) covenant defeasance of the Securities of or within a series under clause (3) of this Section 4.2 shall not be applicable with respect to the Securities of such series, then such provisions, together with the other provisions of this Section 4.2 (with such modifications thereto as may be specified pursuant to Section 3.1 with respect to any Securities), shall be applicable to such Securities and any Coupons appertaining thereto, and the Company may at its option by Board Resolution, at any time, with respect to such Securities and any Coupons appertaining thereto, elect to have Section 4.2(2) or Section 4.2(3) be applied to such Outstanding Securities and any Coupons appertaining thereto upon compliance with the conditions set forth below in this Section 4.2.

(2)Upon the Company’s exercise of the above option applicable to this Section 4.2(2) with respect to any Securities of or within a series, the Company shall be deemed to have been discharged from its obligations with respect to such Outstanding Securities and any Coupons appertaining thereto on the date the conditions set forth in clause (4) of this Section 4.2 are satisfied (hereinafter, “defeasance”). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by such Outstanding Securities and any Coupons appertaining thereto, which shall thereafter be deemed to be “Outstanding” only for the purposes of clause (5) of this Section 4.2 and the other Sections of this Indenture referred to in clauses (i) and (ii) below, and to have satisfied all of its other obligations under such Securities and any Coupons appertaining thereto and this Indenture insofar as such Securities and any Coupons appertaining thereto are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of such Outstanding Securities and any Coupons appertaining thereto to receive, solely from the trust fund described in clause (4) of this Section 4.2 and as more fully set forth in such clause, payments in respect of the principal of (and premium, if any) and interest, if any, on, and Additional Amounts, if any, with respect to, such Securities and any Coupons appertaining thereto when such payments are due, and any rights of such Holder to convert such Securities into other securities of the Company or exchange such Securities for securities of another issuer, (ii) the obligations of the Company and the Trustee with respect to such Securities under Section 3.5, Section 3.6, Section 3.7, Section 3.8, Section 10.2 and Section 10.3 and with respect to the payment of Additional Amounts, if any, on such Securities as contemplated by Section 10.4 (but only to the extent that the Additional Amounts payable with respect to such Securities exceed the amount deposited in respect of such Additional Amounts pursuant to Section 4.2(4)(a) below), and with respect to any rights to convert such Securities into other securities of the Company or exchange such Securities for securities of another issuer, (iii) the rights, powers, trusts, duties and immunities of the Trustee under this Indenture and (iv) this Section 4.2. The Company may exercise its option under this Section 4.2(2) notwithstanding the prior exercise of its option under clause (3) of this Section 4.2 with respect to such Securities and any Coupons appertaining thereto.

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(3)Upon the Company’s exercise of the option to have this Section 4.2(3) apply with respect to any Securities of or within a series, (i) the Company, to the extent specified pursuant to Section 3.1(19), shall be released from its obligations under Article 8, Section 10.7(2), any covenants provided pursuant to Sections 3.1(19) (relating to covenants of the Company), 9.1(2) or 9.1(4) for the benefit of the Holders of such Securities and (ii) the occurrence of any event specified in Sections 5.1(4) (with respect to any of Article 8, Section 10.7(2) and any such covenants provided pursuant to Section 3.1(18) (relating to covenants of the Company), 9.1(2) or 9.1(4)) and 5.1(9) shall be deemed not to be or result in an Event of Default, with respect to such Outstanding Securities and any Coupons appertaining thereto on and after the date the conditions set forth in clause (4) of this Section 4.2 are satisfied (hereinafter, “covenant defeasance”), and such Securities and any Coupons appertaining thereto shall thereafter be deemed to be not “Outstanding” for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with any such specified covenant or obligation, but shall continue to be deemed “Outstanding” for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities and any Coupons appertaining thereto, the Company may omit to comply with, and shall have no liability in respect of, any term, condition or limitation set forth in any such specified Sections, whether directly or indirectly, by reason of any reference elsewhere herein to any such specified Sections or by reason of reference in any such specified Sections to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 5.1 (4) but, except as specified above, the remainder of this Indenture and such Securities and Coupons appertaining thereto shall be unaffected thereby.

(4)The following shall be the conditions to application of clause (2) or (3) of this Section 4.2 to any Outstanding Securities of or within a series and any Coupons appertaining thereto:

(a)The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.8 who shall agree to comply with the provisions of this Section 4.2 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities and any Coupons appertaining thereto, (1) an amount in Dollars or in such Foreign Currency in which such Securities and any Coupons appertaining thereto are then specified as payable at Stated Maturity, or (2) Government Obligations applicable to such Securities and Coupons appertaining thereto (determined on the basis of the Currency in which such Securities and Coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest, if any, on such Securities and any Coupons appertaining thereto, money in an amount, or (3) a combination thereof, in any case, in an amount, sufficient, without consideration of any reinvestment of such principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (y) the principal of (and premium, if any) and interest, if any, on such Outstanding Securities and any Coupons appertaining thereto at the Stated Maturity of such principal or installment of principal or premium or interest and (z) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities and any Coupons appertaining thereto on the days on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities and any Coupons appertaining thereto.

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(b)Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound.

(c)No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities and any Coupons appertaining thereto shall have occurred and be continuing on the date of such deposit and, with respect to defeasance only, at any time during the period ending on the 123rd day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period).

(d)In the case of an election under clause (2) of this Section 4.2 with respect to Registered Securities and any Bearer Securities for which the Place of Payment is within the United States, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from the Internal Revenue Service a letter ruling, or there has been published by the Internal Revenue Service a Revenue Ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities and any Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred.

(e)In the case of an election under clause (3) of this Section 4.2 with respect to Registered Securities and any Bearer Securities for which the Place of Payment is within the United States, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities and any Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred.

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(f)The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that, after the 123rd day after the date of deposit, all money and Government Obligations (or other property as may be provided pursuant to Section 3.1) (including the proceeds thereof) deposited or caused to be deposited with the Trustee (or other qualifying trustee) pursuant to this clause (4) to be held in trust will not be subject to any case or proceeding (whether voluntary or involuntary) in respect of the Company under any Federal or State bankruptcy, insolvency, reorganization or other similar law, or any decree or order for relief in respect of the Company issued in connection therewith (it being understood that this condition shall not be deemed satisfied until the expiration of such period).

(g)The Company shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance or covenant defeasance under clause (2) or (3) of this Section 4.2 (as the case may be) have been complied with.

(h)Notwithstanding any other provisions of this Section 4.2(4), such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 3.1.

(i)Such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act.

(j)The Company shall have delivered to the Trustee an Opinion of Counsel stating that such defeasance or covenant defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended, unless such trust shall be registered under such Act.

(k)The Company shall have delivered to the Trustee an Officer’s Certificate to the effect that neither such Outstanding Securities nor any other Outstanding Securities of the same series, if then listed on any securities exchange, will be delisted as a result of such deposit.

(l)In the event of any defeasance pursuant to this Section, any security interest securing the Securities shall be released, and the Trustee shall execute all additional documents, instruments and filings and make all filings necessary or advisable to effect the release.

(5)Unless otherwise specified in or pursuant to this Indenture or any Security, if, after a deposit referred to in Section 4.2(4)(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 3.1 or the terms of such Security to receive payment in a Currency other than that in which the deposit pursuant to Section 4.2(4)(a) has been made in respect of such Security, or (b) a Conversion Event occurs in respect of the Foreign Currency in which the deposit pursuant to Section 4.2(4)(a) has been made, the indebtedness represented by such Security and any Coupons appertaining thereto shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any), and interest, if any, on, and Additional Amounts, if any, with respect to, such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the Currency in which such Security becomes payable as a result of such election or Conversion Event based on (x) in the case of payments made pursuant to clause (a) above, the applicable market exchange rate for such Currency in effect on the second Business Day prior to each payment date, or (y) with respect to a Conversion Event, the applicable market exchange rate for such Foreign Currency in effect (as nearly as feasible) at the time of the Conversion Event.

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The Company shall pay and indemnify the Trustee (or other qualifying trustee, collectively for purposes of this Section 4.2(5) and Section 4.3, the “Trustee”) against any tax, fee or other charge, imposed on or assessed against the Government Obligations deposited pursuant to this Section 4.2 or the principal, premium (if any), or interest or Additional Amounts, if any, received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities and any Coupons appertaining thereto.

Anything in this Section 4.2 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in clause (4) of this Section 4.2 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Section 4.2.

Section 4.3. Application of Trust Money.

Subject to the provisions of the last paragraph of Section 10.3, all money and Government Obligations (or other property as may be provided pursuant to Section 3.1) (including the proceeds thereof) deposited with the Trustee pursuant to Section 4.1 or Section 4.2 in respect of any Outstanding Securities of any series and any Coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and any Coupons appertaining thereto and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities and any Coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium, if any) and interest and Additional Amounts, if any; but such money and Government Obligations need not be segregated from other funds except to the extent required by law.

ARTICLE 5

REMEDIES

Section 5.1. Events of Default.

“Event of Default,” wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body following the expiration of any applicable grace and cure period), unless such event is specifically deleted or modified in or pursuant to the supplemental indenture, Board Resolution or Officer’s Certificate establishing the terms of such Series pursuant to this Indenture:

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(1)default in the payment of any interest on any Security of such series, or any Additional Amounts payable with respect thereto, when such interest becomes or such Additional Amounts become due and payable, and continuance of such default for a period of 30 days; or

(2)default in the payment of the principal of or any premium on any Security of such series, or any Additional Amounts payable with respect thereto, when such principal or premium becomes or such Additional Amounts become due and payable at their Maturity; or

(3)default in the deposit of any sinking fund payment when and as due by the terms of a Security of such series; or

(4)default in the performance, or breach, of any covenant or warranty of the Company in this Indenture or the Securities (other than a covenant or warranty a default in the performance or the breach of which is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Securities other than such series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

(5)default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, if that default:

(a)is caused by a failure to pay principal on such Indebtedness when due prior to expiration of any grace or cure period provided in such mortgage, indenture or instrument (a “Payment Default”); or

(b)results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates to $25,000,000 or more; or

(6)the Company or any Subsidiary of the Company shall fail within 60 days to pay, bond or otherwise discharge any uninsured judgment or court order for the payment of money in excess of $25,000,000, which is not stayed on appeal or is not otherwise being appropriately contested in good faith; or

(7)the entry by a court having competent jurisdiction of:

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(a)a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization (other than a reorganization under a foreign law that does not relate to insolvency), rehabilitation or other similar law and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or

(b)a decree or order adjudging the Company or any Significant Subsidiary to be insolvent, or approving a petition seeking reorganization (other than a reorganization under a foreign law that does not relate to insolvency), rehabilitation, arrangement, adjustment or composition of the Company and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or

(c)a final and non-appealable order appointing a custodian, receiver, liquidator, assignee, rehabilitator, trustee or other similar official of the Company or any Significant Subsidiary or of any substantial part of the property of the Company or any Significant Subsidiary or ordering the winding up or liquidation of the affairs of the Company or any Significant Subsidiary; or

(8)the commencement by the Company or any Significant Subsidiary of a voluntary proceeding under any applicable bankruptcy, insolvency, reorganization (other than a reorganization under a foreign law that does not relate to insolvency), rehabilitation or other similar law or of a voluntary proceeding seeking to be adjudicated insolvent or the consent by the Company or any Significant Subsidiary to the entry of a decree or order for relief in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization, rehabilitation or other similar law or to the commencement of any insolvency proceedings against it or any Significant Subsidiary, or the filing by the Company or any Significant Subsidiary of a petition or answer or consent seeking reorganization, arrangement, adjustment, rehabilitation or composition of the Company or any Significant Subsidiary or relief under any applicable law, or the consent by the Company or any Significant Subsidiary to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, rehabilitator or similar official of the Company or any Significant Subsidiary or any substantial part of the property of the Company or any Significant Subsidiary or the making by the Company or any Significant Subsidiary of an assignment for the benefit of creditors, or the taking of corporate action by the Company or any Significant Subsidiary in furtherance of any such action; or

(9)any other Event of Default provided in or pursuant to this Indenture with respect to Securities of such series.

Section 5.2. Acceleration of Maturity; Rescission and Annulment.

If an Event of Default with respect to Securities of any series at the time Outstanding (other than an Event of Default specified in clause (7) or (8) of Section 5.1) occurs and is continuing, then the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of such series may declare the principal (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) of all the Securities of such series, to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal or such lesser amount shall become immediately due and payable.

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If an Event of Default specified in clause (7) or (8) of Section 5.1 occurs, all unpaid principal of and accrued interest on the Outstanding Securities of that series (or, if the Securities of such series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of such series) shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Security of that series.

At any time after a declaration of acceleration with respect to the Securities of any series (or of all the Securities, as the case may be) has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of not less than a majority in principal amount of the Outstanding Securities of such series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if

(1)the Company has paid or deposited with the Trustee a sum of money sufficient to pay

(a)all overdue installments of any interest on and Additional Amounts with respect to all Securities of such series (or of all the Securities, as the case may be) and any Coupon appertaining thereto,

(b)the principal of and any premium on any Securities of such series (or of all the Securities, as the case may be) which have become due otherwise than by such declaration of acceleration and interest thereon and any Additional Amounts with respect thereto at the rate or rates borne by or provided for in such Securities,

(c)to the extent that payment of such interest or Additional Amounts is lawful, interest upon overdue installments of any interest and Additional Amounts at the rate or rates borne by or provided for in such Securities, and

(d)all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.7; and

(2)all Events of Default with respect to Securities of such series, other than the non-payment of the principal of, any premium and interest on, and any Additional Amounts with respect to Securities of such series which shall have become due solely by such declaration of acceleration, shall have been cured or waived as provided in Section 5.13.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

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Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.

The Company covenants that if

(1)default is made in the payment of any installment of interest on or any Additional Amounts with respect to any Security or any Coupon appertaining thereto when such interest or Additional Amounts shall have become due and payable and such default continues for a period of 30 days, or

(2)default is made in the payment of the principal of or any premium on any Security or any Additional Amounts with respect thereto at their Maturity, or

(3)default is made in the deposit of any sinking fund payment when and as due by the terms of a Security,

the Company shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities and any Coupons appertaining thereto, the whole amount of money then due and payable with respect to such Securities and any Coupons appertaining thereto, with interest upon the overdue principal, any premium and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of interest and Additional Amounts at the rate or rates borne by or provided for in such Securities, and, in addition thereto, such further amount of money as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due to the Trustee under Section 6.7.

If the Company fails to pay the money it is required to pay the Trustee pursuant to the preceding paragraph forthwith upon the demand of the Trustee, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the money so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities and any Coupons appertaining thereto and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities and any Coupons appertaining thereto, wherever situated.

If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any Coupons appertaining thereto by such appropriate judicial and non-judicial proceedings, as the Trustee shall deem must effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture, any agreement creating Liens securing Securities of such series or such Securities or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy, including, without limitation, enforcement of remedies against the security for any Securities available to the trustee as a secured party under the uniform commercial code and other applicable law.

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Section 5.4. Trustee May File Proofs of Claim.

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities of any series or the property of the Company or such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any overdue principal, premium, interest or Additional Amounts) shall be entitled and empowered, by intervention in such proceeding or otherwise,

(1)to file and prove a claim for the whole amount, or, if the Securities of any series or Original Issue Discount Securities such lesser amount as may be provided for in the Securities of any applicable series, of the principal and any premium, interest and Additional Amounts owing and unpaid in respect of the Securities and any Coupons appertaining thereto and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents or counsel) and of the Holders of Securities or any Coupons appertaining thereto allowed in such judicial proceeding, and

(2)to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, rehabilitator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Securities or any Coupons to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities or any Coupons, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 6.7.

Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or any Coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or Coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security or any Coupon in any such proceeding.

Section 5.5. Trustee May Enforce Claims without Possession of Securities or Coupons.

All rights of action and claims under this Indenture or any of the Securities or Coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or Coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery or judgment, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, shall be for the ratable benefit of each and every Holder of the Securities or Coupons in respect of which such judgment has been recovered.

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Section 5.6. Application of Money Collected.

Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, or any premium, interest or Additional Amounts, upon presentation of the Securities or Coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

First: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.7;

Second: To the payment of the amounts then due and unpaid upon the Securities and any Coupons for principal and any premium, interest and Additional Amounts in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities and Coupons for principal and any premium, interest and Additional Amounts, respectively;

Third: The balance, if any, to the Person or Persons entitled thereto.

Section 5.7. Limitations on Suits.

Except as provided in Section 5.8, no Holder of any Security of any series or any Coupons appertaining thereto shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless

(1)such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of such series;

(2)the Holders of not less than 25% in principal amount of the Outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

(3)such Holder or Holders have offered to the Trustee such indemnity as is reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;

(4)the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

(5)no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of such series;

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it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture or any Security to affect, disturb or prejudice the rights of any other such Holders or Holders of Securities of any other series, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders.

Section 5.8. Unconditional Right of Holders to Receive Principal and any Premium, Interest and Additional Amounts.

Notwithstanding any other provision in this Indenture, the Holder of any Security or Coupon shall have the right, which is absolute and unconditional, to receive payment of the principal of, any premium and (subject to Section 3.5 and Section 3.7) interest on, and any Additional Amounts with respect to such Security or payment of such Coupon, as the case may be, on the respective Stated Maturity or Maturities therefor specified in such Security or Coupon (or, in the case of redemption, on the Redemption Date or, in the case of repayment at the option of such Holder if provided in or pursuant to this Indenture, on the date such repayment is due) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder except that no Holder shall have the right to institute any such suit, if and to the extent that the institution or prosecution thereof or the entry of judgment therein would under applicable law result in the surrender, impairment, waiver, or loss of any Liens securing Securities of such Series upon any property or assets subject to the Liens.

Section 5.9. Restoration of Rights and Remedies.

If the Trustee or any Holder of a Security or a Coupon has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and each such Holder shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and each such Holder shall continue as though no such proceeding had been instituted.

Section 5.10. Rights and Remedies Cumulative.

Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to each and every Holder of a Security or a Coupon or conferred upon the Trustee or such Holder under any Instrument securing all or any portion of the Securities is intended to be exclusive of any other right or remedy, and every right and remedy, to the extent permitted by law, shall be cumulative and in addition to every other right and remedy given hereunder or existing under such security instrument or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not, to the extent permitted by law, prevent the concurrent assertion or employment of any other appropriate right or remedy.

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Section 5.11. Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder of any Security or Coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to any Holder of a Security or a Coupon may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by such Holder, as the case may be.

Section 5.12. Control by Holders of Securities.

The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series and any Coupons appertaining thereto, provided that

(1)such direction shall not be in conflict with any rule of law or with this Indenture or with the Securities of such series,

(2)the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and

(3)such direction is not unduly prejudicial to the rights of the other Holders of Securities of such series not joining in such action as determined by a Responsible Officer of the Trustee.

Section 5.13. Waiver of Past Defaults.

The Holders of not less than a majority in principal amount of the Outstanding Securities of any series on behalf of the Holders of all the Securities of such series and any Coupons appertaining thereto may waive any past default hereunder with respect to such series and its consequences, except a default

(1)in the payment of the principal of, any premium or interest on, or any Additional Amounts with respect to, any Security of such series or any Coupons appertaining thereto, or

(2)in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.

Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Section 5.14. Waiver of Usury, Stay or Extension Laws.

The Company covenants that (to the extent that it may lawfully do so) it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company expressly waives (to the extent that it may lawfully do so) all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

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Section 5.15. Undertaking for Costs.

All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.15 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest, if any, on or Additional Amounts, if any, with respect to any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date, and, in the case of repayment, on or after the date for repayment) or for the enforcement of the right, if any, to convert or exchange any Security into Common Stock or other securities in accordance with its terms.

ARTICLE 6

THE TRUSTEE

Section 6.1. Certain Duties and Responsibilities.

(1)If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

(2)Except during the continuance of an Event of Default,

(a)the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(b)in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

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(3)In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

(4)No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that

(a)this Subsection shall not be construed to limit the effect of Subsection (2) of this Section;

(b)the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;

(c)the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series, determined as provided in Sections 1.1, 1.4 and 5.12, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and

(d)no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(5)Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

Section 6.2. Certain Rights of Trustee.

Subject to Section 6.1 hereof:

(1)the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties;

(2)any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or a Company Order (in each case, other than delivery of any Security, together with any Coupons appertaining thereto, to the Trustee for authentication and delivery pursuant to Section 3.3 which shall be sufficiently evidenced as provided therein except in the case of an exchange) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;

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(3)whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence shall be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer’s Certificate;

(4)the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

(5)the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by or pursuant to this Indenture at the request or direction of any of the Holders of Securities of any series or any Coupons appertaining thereto pursuant to this Indenture, unless such Holders shall have offered to the Trustee such security or indemnity as is reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(6)the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document, but the Trustee, in its discretion, may but shall not be obligated to make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine, during business hours and upon reasonable notice, the books, records and premises of the Company, personally or by agent or attorney;

(7)the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(8)the Trustee shall not be liable for any action taken or error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent, acted in bad faith or engaged in willful misconduct;

(9)the Authenticating Agent, Paying Agent, and Security Registrar shall have the same rights, privileges, protections, immunities, benefits, protections and rights to indemnification as the Trustee set forth hereunder;

(10)the Trustee may request that the Company deliver an Officers’ Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded; and

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(11)the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with an Act of the Holders hereunder, and, to the extent not so provided herein, with respect to any act requiring the Trustee to exercise its own discretion, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture or any Securities, unless it shall be proved that, in connection with any such action taken, suffered or omitted or any such act, the Trustee was negligent, acted in bad faith or engaged in willful misconduct.

Section 6.3. Notice of Defaults.

If a default occurs hereunder with respect to the Securities of any series, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided in the Trust Indenture Act, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of or any premium on or interest on or any Additional Amounts with respect to any Security of such series or any Coupon appertaining thereto or in the payment of any sinking fund installment with respect to any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the best interest of the Holders of Securities and Coupons of such series. For the purpose of this Section, the term “default” means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.

Section 6.4. Not Responsible for Recitals or Issuance of Securities.

The recitals contained herein and in the Securities, except the Trustee’s certificate of authentication, and in any Coupons shall be taken as the statements of the Company and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or the Coupons, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth therein. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof.

Section 6.5. May Hold Securities.

The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other Person that may be an agent of the Trustee or the Company, in its individual or any other capacity, may become the owner or pledgee of Securities or Coupons and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise deal with the Company with the same rights it would have if it were not the Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other Person.

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Section 6.6. Money Held in Trust.

Except as provided in Section 4.3 and Section 10.3, money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law and shall be held uninvested. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed to in writing with the Company.

Section 6.7. Compensation and Reimbursement.

The Company agrees:

(1)to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by the Trustee hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(2)except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements or any instrument securing any of the Securities and advances incurred or made by the Trustee in accordance with any provision of this Indenture or arising out of or in connection with the acceptance or administration of the trust or trusts hereunder (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee’s negligence or bad faith; and

(3)to indemnify the Trustee and its agents, officers, directors and employees for, and to hold them harmless against, any loss, damage, claims, liability or expense including taxes (other than taxes based upon, measured or determined by the income of the Trustee), incurred without negligence or bad faith on their part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder, except to the extent that any such loss, damage, claims, liability or expense was due to the Trustee’s negligence or bad faith.

As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities of any series upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of, and premium or interest on or any Additional Amounts with respect to particular Securities or any Coupons appertaining thereto.

To the extent permitted by law, any compensation or expense incurred by the Trustee after a default specified in or pursuant to Section 5.1 is intended to constitute an expense of administration under any then applicable bankruptcy or insolvency law. “Trustee” for purposes of this Section 6.7 shall include any predecessor Trustee but the negligence or bad faith of any Trustee shall not affect the rights of any other Trustee under this Section 6.7.

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The provisions of this Section 6.7 shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee and shall apply with equal force and effect to the Trustee in its capacity as Authenticating Agent, Paying Agent or Security Registrar.

Section 6.8. Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder that is a Corporation organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia, that is eligible under Section 310(a)(1) of the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act and that has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000, and that is subject to supervision or examination by Federal or state authority. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

This Indenture shall always have a Trustee who satisfies the requirements of Section 310(a)(1), (2) and (5) of the Trust Indenture Act. The Trustee shall comply with Section 310(b); provided, however, that there shall be excluded from the operation of Section 310(b)(1) of the Trust Indenture Act any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in Section 310(b)(1) of the Trust Indenture Act are met.

Section 6.9. Resignation and Removal; Appointment of Successor.

(1)No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee pursuant to Section 6.10.

(2)The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series.

(3)The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and the Company.

(4)If at any time:

(a)the Trustee shall fail to comply with the obligations imposed upon it under Section 310(b) of the Trust Indenture Act with respect to Securities of any series after written request therefor by the Company or any Holder of a Security of such series who has been a bona fide Holder of a Security of such series for at least six months, or

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(b)the Trustee shall cease to be eligible under Section 6.8 and shall fail to resign after written request therefor by the Company or any such Holder, or

(c)the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, (i) the Company, by or pursuant to a Board Resolution, may remove the Trustee with respect to all Securities or the Securities of such series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities of such series and the appointment of a successor Trustee or Trustees.

(5)If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of such series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 6.10. If, within one year after such resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.10, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by Section 6.10, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

(6)The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Registered Securities, if any, of such series as their names and addresses appear in the Security Register and, if Securities of such series are issued as Bearer Securities, by publishing notice of such event once in an Authorized Newspaper in each Place of Payment located outside the United States. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.

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(7)In no event shall any retiring Trustee be liable for the acts or omissions of any successor Trustee hereunder.

Section 6.10. Acceptance of Appointment by Successor.

(1)Upon the appointment hereunder of any successor Trustee with respect to all Securities, such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties hereunder of the retiring Trustee; but, on the request of the Company or such successor Trustee, such retiring Trustee, upon payment of its charges, shall execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and, subject to Section 10.3, shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its claim, if any, provided for in Section 6.7.

(2)Upon the appointment hereunder of any successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and such successor Trustee shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, such successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust, that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any notice given to, or received by, or any act or failure to act on the part of any other Trustee hereunder, and, upon the execution and delivery of such supplemental indenture, the resignation or removal of the retiring Trustee shall become effective to the extent provided therein, such retiring Trustee shall have no further responsibility for the exercise of rights and powers or for the performance of the duties and obligations vested in the Trustee under this Indenture with respect to the Securities of that or those series to which the appointment of such successor Trustee relates other than as hereinafter expressly set forth, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or such successor Trustee, such retiring Trustee, upon payment of its charges with respect to the Securities of that or those series to which the appointment of such successor Trustee relates and subject to Section 10.3 shall duly assign, transfer and deliver to such successor Trustee, to the extent contemplated by such supplemental indenture, the property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, subject to its claim, if any, provided for in Section 6.7.

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(3)Upon request of any Person appointed hereunder as a successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (1) or (2) of this Section, as the case may be.

(4)No Person shall accept its appointment hereunder as a successor Trustee unless at the time of such acceptance such successor Person shall be qualified and eligible under this Article.

Section 6.11. Merger, Conversion, Consolidation or Succession to Business.

Any Corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any Corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Corporation acquiring all or substantially all of the corporate trust business of the Trustee shall be the successor of the Trustee hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated but not delivered by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

Section 6.12. Appointment of Authenticating Agent.

The Trustee may appoint one or more Authenticating Agents acceptable to the Company with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of that or those series issued upon original issue, exchange, registration of transfer, partial redemption or partial repayment or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent.

Each Authenticating Agent must be acceptable to the Company and, except as provided in or pursuant to this Indenture, shall at all times be a corporation that would be permitted by the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act, is authorized under applicable law and by its charter to act as an Authenticating Agent and has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in this Section.

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Any Corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any Corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any Corporation succeeding to all or substantially all of the corporate agency or corporate trust business of an Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, provided such Corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall (i) mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Registered Securities, if any, of the series with respect to which such Authenticating Agent shall serve, as their names and addresses appear in the Security Register, and (ii) if Securities of the series are issued as Bearer Securities, publish notice of such appointment at least once in an Authorized Newspaper in the place where such successor

Authenticating Agent has its principal office if such office is located outside the United States. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

The Company agrees to pay each Authenticating Agent from time to time reasonable compensation for its services under this Section. If the Trustee makes such payments, it shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.7.

The provisions of Section 3.8, Section 6.4 and Section 6.5 shall be applicable to each Authenticating Agent.

If an Authenticating Agent is appointed with respect to one or more series of Securities pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee’s certificate of authentication, an alternate certificate of authentication in substantially the following form:

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This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture.

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By:  ______________________________

       as Authenticating Agent

By:_______________________________

      Authorized Signatory

If all of the Securities of any series may not be originally issued at one time, and if the Trustee does not have an office capable of authenticating Securities upon original issuance located in a Place of Payment where the Company wishes to have Securities of such series authenticated upon original issuance, the Trustee, if so requested in writing (which writing need not be accompanied by or contained in an Officer’s Certificate by the Company), shall appoint in accordance with this Section an Authenticating Agent having an office in a Place of Payment designated by the Company with respect to such series of Securities.

Section 6.13. Preferential Collection of Claims Against the Company.

If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). A trustee who has resigned or been removed shall be subject to the Trust Indenture Act Section 311(a) to the extent provided therein.

Section 6.14. Co-Trustee and Separate Trustees.

At any time or times, for the purpose of meeting the legal requirements of any jurisdiction in which any property securing any of the Securities may at the time be located, the Company and the Trustee shall have power to appoint, and, upon the written request of the Trustee or of the Holders of at least thirty percent (30%) in principal amount of the Outstanding Securities, the Company shall for such purpose join with the Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Trustee either to act as co-trustee, jointly with the Trustee, of all or any part of such property, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section 6.14. If the Company does not join in such appointment within fifteen (15) days after the receipt by it of a request so to do, or in case an Event of Default has occurred and is continuing, the Trustee alone shall have power to make such appointment.

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Should any written instrument from the Company be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Company.

Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely:

(1)The Securities shall be authenticated and delivered, and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustee hereunder, shall be exercised solely by the Trustee.

(2)The rights, powers, duties and obligations hereby conferred or imposed upon the Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Trustee or by the Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee.

(3)The Trustee at any time, by an instrument in writing executed by it, with the concurrence of the Company evidenced by a Board Resolution, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case an Event of Default has occurred and is continuing, the Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Company. Upon the written request of the Trustee, the Company shall join with the Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 6.l4.

(4)No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Trustee, or any other such trustee hereunder, and the Trustee shall not be personally liable by reason of any act or omission of any such co-trustee or separate trustee.

Section 6.15. Patriot Act

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. For a non-individual person such as business entity, a charity, a trust or other legal entity the Trustee will ask for documentation to verify its formation and existence as a legal entity. The Trustee may also ask to see financial statements, licenses, identification and authorization documents from individuals claiming authority to represent the entity or other relevant documentation.

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ARTICLE 7

HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY

Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.

In accordance with Section 312(a) of the Trust Indenture Act, the Company shall furnish or cause to be furnished to the Trustee

(1)semi-annually with respect to Securities of each series not later than March 1 and September 1 of the year or upon such other dates as are set forth in or pursuant to the Board Resolution or indenture supplemental hereto authorizing such series, a list, in each case in such form as the Trustee may reasonably require, of the names and addresses of Holders as of the applicable date, and

(2)at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, provided, however, that so long as the Trustee is the Security Registrar no such list shall be required to be furnished.

Section 7.2. Preservation of Information; Communications to Holders.

The Trustee shall comply with the obligations imposed upon it pursuant to Section 312 of the Trust Indenture Act.

Every Holder of Securities or Coupons, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company, the Trustee, any Paying Agent or any Security Registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 312(c) of the Trust Indenture Act, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act.

Section 7.3. Reports by Trustee.

(1)Within 60 days after May 15 of each year commencing with the first May 15 following the first issuance of Securities pursuant to Section 3.1, if required by Section 313(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief report dated as of such September 15 with respect to any of the events specified in said Section 313(a) which may have occurred since the later of the immediately preceding September 15 and the date of this Indenture.

(2)The Trustee shall transmit the reports required by Section 313(a) and 313(b) of the Trust Indenture Act at the times specified therein.

(3)Reports pursuant to this Section shall be transmitted in the manner and to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture Act.

Section 7.4. Reports by Company.

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The Company, pursuant to Section 314(a) of the Trust Indenture Act, shall:

(1)file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;

(2)file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company, with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and

(3)transmit within 30 days after the filing thereof with the Trustee to the Holders of the Securities, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission.

(4)Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates), other than with respect to Section 6.2.

(5)Deliver in timely fashion all certificates, opinions and other items, and otherwise comply with the requirements of Section 314 of the Trust Indenture Act, to the extent applicable.

ARTICLE 8

CONSOLIDATION, AMALGAMATIONS, MERGER AND SALES

Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.

The Company shall not consolidate or amalgamate with or merge into any other Person (whether or not affiliated with the Company), or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any other Person (whether or not affiliated with the Company), and the Company shall not permit any other Person (whether or not affiliated with the Company) to consolidate or amalgamate with or merge into the Company or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to the Company unless:

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(1)in case the Company shall consolidate or amalgamate with or merge into another Person, continue in another jurisdiction or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any Person, the Person formed by such consolidation or amalgamation or into which the Company is merged or the Person which, directly or indirectly, acquires by conveyance or transfer, or which leases, the properties and assets of the Company as an entirety or substantially as an entirety or the Company after a continuation, shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume, by an indenture (or indentures, if at such time there is more than one Trustee) supplemental hereto, executed by the successor Person and delivered to the Trustee the due and punctual payment of the principal of, any premium and interest on and any Additional Amounts with respect to all the Securities and the performance of every obligation in this Indenture and the Outstanding Securities on the part of the Company to be performed or observed and shall provide for conversion or exchange rights in accordance with the provisions of the Securities of any series that are convertible or exchangeable into Common Stock or other securities;

(2)immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary of the Company as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default or event which, after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing;

(3)either the Company or the successor Person shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; and

(4)the Company and the successor Person shall have delivered to the Trustee any additional financing statements or other filings or other evidence that all actions necessary or appropriate to maintain the validity, perfection and priority of every security interest in favor of the Trustee have been made.

Section 8.2. Successor Person Substituted for Company.

Upon any consolidation or amalgamation by the Company with or merger of the Company into any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person in accordance with Section 8.1, the successor Person formed by such consolidation or amalgamation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and thereafter, except in the case of a lease, the predecessor Person shall be released from all obligations and covenants under this Indenture, the Securities and the Coupons arising after the date of transfer.

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ARTICLE 9

SUPPLEMENTAL INDENTURES

Section 9.1. Supplemental Indentures without Consent of Holders.

Without the consent of any Holders of Securities or Coupons, the Company (when authorized by or pursuant to a Board Resolution) and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, for any of the following purposes:

(1)to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or

(2)to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (as shall be specified in such supplemental indenture or indentures) or to surrender any right or power herein conferred upon the Company; or

(3)to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of, any premium or interest on or any Additional Amounts with respect to Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be exchanged for Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form, provided any such action shall not adversely affect the interests of the Holders of Outstanding Securities of any series or any Coupons appertaining thereto in any material respect; or

(4)to establish the form or terms of Securities of any series and any Coupons appertaining thereto as permitted by Section 2.1 and Section 3.1; or

(5)to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.10; or

(6)to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action pursuant to this clause (6) shall not adversely affect the interests of the Holders of Securities of any series then Outstanding or any Coupons appertaining thereto in any material respect; or

(7)to add any additional Events of Default with respect to all or any series of Securities (as shall be specified in such supplemental indenture); or

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(8)to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Article 4, provided that any such action shall not adversely affect the interests of any Holder of an Outstanding Security of such series and any Coupons appertaining thereto or any other Outstanding Security or Coupon in any material respect; or

(9)to secure any one or more series of the Securities; or

(10)to make provisions with respect to conversion or exchange rights of Holders of Securities of any series.

Section 9.2. Supplemental Indentures with Consent of Holders.

With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company (when authorized by or pursuant to a Company’s Board Resolution) and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture or of the Securities of such series; provided, however, that no such supplemental indenture, without the consent of the Holder of each Outstanding Security affected thereby, shall

(1)change the Stated Maturity of the principal of, or any premium or installment of interest on or any Additional Amounts or Redemption Date with respect to, any Security, or reduce the principal amount thereof or the rate (or modify the calculation of such rate) of interest thereon or any Additional Amounts with respect thereto, or any amount payable upon the redemption thereof or otherwise, or change the obligation of the Company to pay Additional Amounts pursuant to Section 10.4 (except as contemplated by Section 8.1(1) and permitted by Section 9.1(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the amount thereof provable in bankruptcy pursuant to Section 5.4, or adversely affect the right of repayment at the option of any Holder as contemplated by Article 13, or change the Place of Payment, Currency in which the principal of, any premium or interest on, or any Additional Amounts with respect to any Security is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of repayment at the option of the Holder, on or after the date for repayment), or

(2)reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 15.4 for quorum or voting, or

(3)modify any of the provisions of this Indenture relating to the subordination of the Securities in respect thereof in a manner adverse to Holders of Securities, or

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(4)modify any of the provisions of this Section, Section 5.13 or Section 10.6, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, or

(5)make any change that adversely affects the right to convert or exchange any Security into or for Common Stock of the Company or other securities (whether or not issued by the Company), cash or property in accordance with its terms, or

(6)reduce the principal amount of, or the rate, or modify the calculation of such rate, or interest on, or any premium payable upon the redemption of, any Security, or

(7)reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the maturity thereof or the amount thereof provable in bankruptcy, or

(8)change the redemption provisions of the new Securities or adversely affect the right of repayment at the option of any holder of the Securities, or

(9)change the place of payment or the coin or currency in which the principal of, any premium or interest on the Securities is payable, or

(10)impair the right to institute suit for the enforcement of any payment on or after the stated maturity of the Securities or, in the case of redemption, on or after the redemption date or, in the case of repayment at the option of any holder, on or after the repayment date, or

(11)reduce the redemption price or purchase price (including change of control purchase price, asset sale purchase price and the price payable upon exercise by a holder of its option to require the Company to repurchase such holder’s Securities) on any Security, or

(12)impair the right to institute suit for the enforcement of any repurchase of, payment on or with respect to, or conversion of any Security, or

(13)except as otherwise permitted or contemplated by provisions concerning corporate reorganizations, adversely affect the repurchase options or the conversion rights of holders of any Securities, or

(14)modify any of the provisions of this Section 9.2, or

(15)except as provided in Section 1.17. or in any Supplemental Indenture, release, modify or impair the security for the Securities.

A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which shall have been included expressly and solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

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Section 9.3. Execution of Supplemental Indentures.

As a condition to executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trust created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and an Officer’s Certificate stating that all conditions precedent to the execution of such supplemental indenture have been fulfilled. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Section 9.4. Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of a Security theretofore or thereafter authenticated and delivered hereunder and of any Coupon appertaining thereto shall be bound thereby.

Section 9.5. Reference in Securities to Supplemental Indentures.

Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.

Section 9.6. Conformity with Trust Indenture Act.

Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.

Section 9.7. Notice of Supplemental Indenture.

Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to Section 9.2, the Company shall transmit to the Holders of Outstanding Securities of any series affected thereby a notice setting forth the substance of such supplemental indenture. The failure to give such notice to all Holders, or any defect therein, shall not affect or impair the validity of an amendment under this Article.

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ARTICLE 10

COVENANTS

Section 10.1. Payment of Principal, any Premium, Interest and Additional Amounts.

The Company covenants and agrees for the benefit of the Holders of the Securities of each series that it will duly and punctually pay the principal of, any premium and interest on and any Additional Amounts with respect to the Securities of such series in accordance with the terms thereof, any Coupons appertaining thereto and this Indenture. Any interest due on any Bearer Security on or before the Maturity thereof, and any Additional Amounts payable with respect to such interest, shall be payable only upon presentation and surrender of the Coupons appertaining thereto for such interest as they severally mature.

Section 10.2. Maintenance of Office or Agency.

The Company shall maintain in each Place of Payment for any series of Securities an Office or Agency where Securities of such series (but not Bearer Securities, except as otherwise provided below, unless such Place of Payment is located outside the United States) may be presented or surrendered for payment, where Securities of such series may be surrendered for registration of transfer or exchange, where Securities of such series that are convertible or exchangeable may be surrendered for conversion or exchange, and where notices and demands to or upon the Company in respect of the Securities of such series relating thereto and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company shall maintain, subject to any laws or regulations applicable thereto, an Office or Agency in a Place of Payment for such series which is located outside the United States where Securities of such series and any Coupons appertaining thereto may be presented and surrendered for payment; provided, however, that if the Securities of such series are listed on The Stock Exchange of the United Kingdom and the Republic of Ireland or the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company shall maintain a Paying Agent in London, Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of such series are listed on such exchange. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such Office or Agency. If at any time the Company shall fail to maintain any such required Office or Agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, except that Bearer Securities of such series and any Coupons appertaining thereto may be presented and surrendered for payment at the place specified for the purpose with respect to such Securities as provided in or pursuant to this Indenture, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

Except as otherwise provided in or pursuant to this Indenture, no payment of principal, premium, interest or Additional Amounts with respect to Bearer Securities shall be made at any Office or Agency in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States; provided, however, if amounts owing with respect to any Bearer Securities shall be payable in Dollars, payment of principal of, any premium or interest on and any Additional Amounts with respect to any such Security may be made at the Corporate Trust Office of the Trustee or any Office or Agency designated by the Company in the Borough of Manhattan, The City of New York, if (but only if) payment of the full amount of such principal, premium, interest or Additional Amounts at all offices outside the United States maintained for such purpose by the Company in accordance with this Indenture is illegal or effectively precluded by exchange controls or other similar restrictions.

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The Company may also from time to time designate one or more other Offices or Agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an Office or Agency in each Place of Payment for Securities of any series for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other Office or Agency. Unless otherwise provided in or pursuant to this Indenture, the Company hereby designates as the Place of Payment for each series of Securities the Borough of Manhattan, The City of New York, and initially appoints the agency of the Trustee at U.S. Bank Trust National Association, 100 Wall Street, 16th floor, New York, New York 10005 as the Office or Agency of the Company in the Borough of Manhattan, The City of New York for such purpose. The Company may subsequently appoint a different Office or Agency in the Borough of Manhattan, The City of New York for the Securities of any series.

Unless otherwise specified with respect to any Securities pursuant to Section 3.1, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long as it is required under any other provision of this Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one exchange rate agent.

Section 10.3. Money for Securities Payments to Be Held in Trust.

If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it shall, on or before each due date of the principal of, any premium or interest on or Additional Amounts with respect to any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) sufficient to pay the principal or any premium, interest or Additional Amounts so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it shall, on or prior to each due date of the principal of, any premium or interest on or any Additional Amounts with respect to any Securities of such series, deposit with any Paying Agent a sum (in the currency or currencies, currency unit or units or composite currency or currencies described in the preceding paragraph) sufficient to pay the principal or any premium, interest or Additional Amounts so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.

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The Company shall cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent shall:

(1)hold all sums held by it for the payment of the principal of, any premium or interest on or any Additional Amounts with respect to Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as provided in or pursuant to this Indenture;

(2)give the Trustee notice of any default by the Company (or any other obligor upon the Securities of such series) in the making of any payment of principal, any premium or interest on or any Additional Amounts with respect to the Securities of such series; and

(3)at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums.

Except as otherwise provided herein or pursuant hereto, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, any premium or interest on or any Additional Amounts with respect to any Security of any series or any Coupon appertaining thereto and remaining unclaimed for two years after such principal or any such premium or interest or any such Additional Amounts shall have become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security or any Coupon appertaining thereto shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment for such series or to be mailed to Holders of Registered Securities of such series, or both, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing nor shall it be later than two years after such principal and any premium or interest or Additional Amounts shall have become due and payable, any unclaimed balance of such money then remaining will be repaid to the Company.

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Section 10.4. Additional Amounts.

All payments of principal of and premium, if any, interest and any other amounts on, or in respect of, the Securities of any series or any Coupon appertaining thereto shall be made without withholding or deduction at source for, or on account of, any present or future taxes, fees, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of a jurisdiction (a “taxing jurisdiction”) or any political subdivision or taxing authority thereof or therein, unless such taxes, fees, duties, assessments or governmental charges are required to be withheld or deducted by (i) the laws (or any regulations or ruling promulgated thereunder) of a taxing jurisdiction or any political subdivision or taxing authority thereof or therein or (ii) an official position regarding the application, administration, interpretation or enforcement of any such laws, regulations or rulings (including, without limitation, a holding by a court of competent jurisdiction or by a taxing authority in a taxing jurisdiction or any political subdivision thereof). If a withholding or deduction at source is required, the Company shall, subject to certain limitations and exceptions set forth below, pay to or on behalf of a Holder or beneficial owner of any such Security or any Coupon appertaining thereto such Additional Amounts as may be necessary so that every net payment of principal, premium, if any, interest or any other amount made to such Holder, after such withholding or deduction, shall not be less than the amount provided for in such Security, any Coupons appertaining thereto and this Indenture to be then due and payable; provided, however, that the Company shall not be required to make payment of such Additional Amounts for or on account of:

(1)any tax, fee, duty, assessment or governmental charge of whatever nature which would not have been imposed but for the fact that such Holder or beneficial owner: (A) was a resident, domiciliary or national of, or engaged in business or maintained a permanent establishment or was physically present in, the relevant taxing jurisdiction or any political subdivision thereof or otherwise had some connection with the relevant taxing jurisdiction other than by reason of the mere ownership of, or receipt of payment under, such Security; (B) presented such Security for payment in the relevant taxing jurisdiction or any political subdivision thereof, unless such Security could not have been presented for payment elsewhere; or (C) presented such Security more than thirty (30) days after the date on which the payment in respect of such Security first became due and payable or provided for, whichever is later, except to the extent that the Holder or beneficial owner would have been entitled to such Additional Amounts if it had presented such Security for payment on any day within such period of thirty (30) days;

(2)any estate, inheritance, gift, sale, transfer, personal property or similar tax, assessment or other governmental charge;

(3)any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of such Security to comply with any reasonable request by the Company addressed to the Holder within 90 days of such request (A) to provide information concerning the nationality, residence or identity of the Holder or such beneficial owner or (B) to make any declaration or other similar claim or satisfy any information or reporting requirement, which, in the case of (A) or (B), is required or imposed by statute, treaty, regulation or administrative practice of the relevant taxing jurisdiction or any political subdivision thereof as a precondition to exemption from all or part of such tax, assessment or other governmental charge; or

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(4)any combination of items (1), (2) and (3);

nor shall Additional Amounts be paid with respect to any payment of the principal of, or premium, if any, interest or any other amounts on, any such Security to any Holder or beneficial owner who is a fiduciary or partnership or other than the sole beneficial owner of such Security to the extent such payment would be required by the laws of the relevant taxing jurisdiction (or any political subdivision or relevant taxing authority thereof or therein) to be included in the income for tax purposes of a beneficiary or partner or settlor with respect to such fiduciary or a member of such partnership or a beneficial owner who would not have been entitled to such Additional Amounts had it been the Holder of the Security.

Whenever in this Indenture there is mentioned, in any context, the payment of the principal of or any premium, interest or any other amounts on, or in respect of, any Security of any series or any Coupon or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided by the terms of such series established hereby or pursuant hereto to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms, and express mention of the payment of Additional Amounts (if applicable) in any provision hereof shall not be construed as excluding the payment of Additional Amounts in those provisions hereof where such express mention is not made.

Except as otherwise provided in or pursuant to this Indenture or the Securities of the applicable series, at least 10 days prior to the first Interest Payment Date with respect to a series of Securities (or if the Securities of such series shall not bear interest prior to Maturity, the first day on which a payment of principal is made), and at least 10 days prior to each date of payment of principal or interest if there has been any change with respect to the matters set forth in the below-mentioned Officer’s Certificate, the Company shall furnish to the Trustee and the principal Paying Agent or Paying Agents, if other than the Trustee, an Officer’s Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of and premium, if any, interest or any other amounts on the Securities of such series shall be made to Holders of Securities of such series or the Coupons appertaining thereto without withholding for or on account of any tax, fee, duty, assessment or other governmental charge described in this Section 10.4. If any such withholding shall be required, then such Officer’s Certificate shall specify by taxing jurisdiction the amount, if any, required to be withheld on such payments to such Holders of Securities or Coupons, and the Company agrees to pay to the Trustee or such Paying Agent the Additional Amounts required by this Section 10.4. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officer’s Certificate furnished pursuant to this Section 10.4. Unless it has received an Officer’s Certificate specifying such Additional Amounts to be payable by the Company, then the Trustee may assume, without inquiry, that no such Additional Amounts are due or owing.

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Section 10.5. Corporate Existence.

Subject to Article 8, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each of its Subsidiaries, and their respective rights (charter and statutory) and franchises; provided, however, that the foregoing shall not obligate the Company or any of its Subsidiaries to preserve any such right or franchise if the Company or any such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of its business or the business of such Subsidiary and that the loss thereof is not disadvantageous in any material respect to any Holder.

Section 10.6. Waiver of Certain Covenants.

Except as otherwise specified as contemplated by Section 3.1 for Securities of such series, the Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 3.1(18) (relating to covenants of the Company), or 10.5 with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series, by Act of such Holders, either shall waive such compliance in such instance or generally shall have waived compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect.

Section 10.7. Company Statement as to Compliance; Notice of Certain Defaults.

(1)The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement (which need not be contained in or accompanied by an Officer’s Certificate) signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company, stating that

(a)a review of the activities of the Company during such year and of its performance under this Indenture has been made under his or her supervision, and

(b)to the best of his or her knowledge, based on such review, (a) the Company has complied with all the conditions and covenants imposed on it under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such condition or covenant, specifying each such default known to him or her and the nature and status thereof, and (b) no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him and the nature and status thereof.

(2)The Company shall deliver to the Trustee, within five days after the occurrence thereof, written notice of any Event of Default or any event which after notice or lapse of time or both would become an Event of Default pursuant to clause (4) of Section 5.1.

(3)The Trustee shall have no duty to monitor the Company’s compliance with the covenants contained in this Article 10 other than as specifically set forth in this Section 10.7.

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Section 10.8. Recordation.

The Company will cause all instruments providing security for any of the Securities, including any deeds of trust, mortgages, security agreements, financing statements and continuation statements, to be recorded, registered and filed, and to be at all times kept recorded, registered and filed, in such manner and in such places as may be required or appropriate to create, perfect, maintain, preserve and protect the rights of the Trustee and the Holders of Outstanding Securities in the property providing such security.

Section 10.9. Evidence of Recording of Indenture.

If the Indenture or any supplemental indentures thereto is to be secured, the Company shall furnish to the Trustee:

(1)promptly after the execution and delivery of the Indenture or any supplemental indentures thereto, an Opinion of Counsel either (a) stating that, in the opinion of such counsel, such action has been taken with respect to the filing, recording of this Indenture, or any supplemental indentures thereto, and with respect to the execution and filing of financing statements or physical delivery of documents or instruments so as to make effective the Liens and security interest intended to be created thereby and/or documents described therein and the first priority thereof, and reciting the details of such action, or (b) stating that, in the opinion of such counsel, no such action is necessary to make such lien or security interest and the first priority thereof effective; and

(2)within three months after the anniversary of the issuance of the first series of the Securities that is secured while any such series is still outstanding, an Opinion of Counsel dated as of such date either (a) stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording, and refilling of this Indenture, any supplemental indentures thereto and any other requisite documents, and with respect to the execution and filing of financing statements and continuation statements or physical delivery of documents or instruments as is necessary to maintain the lien and security interest, and the first priority thereof, created by this Indenture and any supplemental indenture thereto and/or documents described therein, and reciting the details of such action, or (b) stating that, in the opinion of such counsel, no such action is necessary to maintain such lien or security interest and the first priority thereof.

(3)The Company shall otherwise comply with the provisions of §314(b) and, as applicable §§314(c), (d) and (e) of the Trust Indenture Act.

ARTICLE 11

REDEMPTION OF SECURITIES

Section 11.1. Applicability of Article.

Redemption of Securities of any series at the option of the Company as permitted or required by the terms of such Securities shall be made in accordance with the terms of such Securities and (except as otherwise provided herein or pursuant hereto) this Article.

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Section 11.2. Election to Redeem; Notice to Trustee.

The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of (a) less than all of the Securities of any series or (b) all of the Securities of any series, with the same issue date, interest rate or formula, Stated Maturity and other terms, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In any case, failure duly to give notice in any manner provided in this Indenture, or any defect in the notice, to the Holder of any Security of a series designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security of such series.

Section 11.3. Selection by Trustee of Securities to be Redeemed.

If less than all of the Securities of any series with the same issue date, interest rate or formula, Stated Maturity and other terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee from the Outstanding Securities of such series not previously called for redemption, by lot or, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal amount of Registered Securities of such series (but in any event in compliance with the requirements of the principal national securities exchange, if any, on which the securities of such series are listed); provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Registered Security of such series not redeemed to less than the minimum denomination for a Security of such series established herein or pursuant hereto.

The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.

For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal of such Securities which has been or is to be redeemed. Unless otherwise specified in or pursuant to this Indenture or the Securities of any series, if any Security selected for partial redemption is converted into other securities of the Company or exchanged for securities of another issuer in part before termination of the conversion or exchange right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted or exchanged during a selection of Securities to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection.

Section 11.4. Notice of Redemption.

Notice of redemption shall be given to all Holders in the manner provided in Section 1.6, not less than 30 nor more than 60 days prior to the Redemption Date, unless a shorter period is specified in the Securities to be redeemed, to the Holders of Securities to be redeemed. Failure to give notice by mailing in the manner herein provided to the Holder of any Registered Securities designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other Securities or portion thereof.

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Any notice that is mailed to the Holder of any Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holder receives the notice.

All notices of redemption shall state:

(1)the Redemption Date,

(2)the Redemption Price,

(3)if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed,

(4)in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder of such Security will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed,

(5)that, on the Redemption Date, the Redemption Price shall become due and payable upon each such Security or portion thereof to be redeemed, and, if applicable, that interest thereon shall cease to accrue on and after said date,

(6)the place or places where such Securities, together (in the case of Bearer Securities) with all Coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price and any accrued interest and Additional Amounts pertaining thereto,

(7)that the redemption is for a sinking fund, if such is the case,

(8)that, unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all Coupons maturing subsequent to the date fixed for redemption or the amount of any such missing Coupon or Coupons will be deducted from the Redemption Price, unless security or indemnity satisfactory to the Company, the Trustee and any Paying Agent is furnished,

(9)if Bearer Securities of any series are to be redeemed and no Registered Securities of such series are to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities not subject to redemption on the Redemption Date pursuant to Section 3.5 or otherwise, the last date, as determined by the Company, on which such exchanges may be made,

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(10)in the case of Securities of any series that are convertible into Common Stock of the Company or convertible or exchangeable for other securities, the conversion or exchange price or rate, the date or dates on which the right to convert or exchange the principal of the Securities of such series to be redeemed will commence or terminate and the place or places where such Securities may be surrendered for conversion or exchange, and

(11)the CUSIP number or the Euroclear or the Clearstream Luxembourg ISN reference numbers of such Securities, if any (or any other numbers used by a Depositary to identify such Securities).

A notice of redemption published as contemplated by Section 1.6 need not identify particular Registered Securities to be redeemed.

Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company.

Section 11.5. Deposit of Redemption Price.

On or prior to 10:00 A.M., New York City time on any Redemption Date, the Company shall deposit, with respect to the Securities of any series called for redemption pursuant to Section 11.4, with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money in immediately available funds in the applicable Currency sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date, unless otherwise specified pursuant to Section 3.1 or in the Securities of such series) any accrued interest on and Additional Amounts with respect thereto, all such Securities or portions thereof which are to be redeemed on that date.

Section 11.6. Securities Payable on Redemption Date.

Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest and the Coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all Coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with any accrued interest and Additional Amounts to the Redemption Date; provided, however, that, except as otherwise provided in or pursuant to this Indenture or the Bearer Securities of such series, installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only upon presentation and surrender of Coupons for such interest (at an Office or Agency located outside the United States except as otherwise provided in Section 10.2), and provided, further, that, except as otherwise specified in or pursuant to this Indenture or the Registered Securities of such series, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the Regular Record Dates therefor according to their terms and the provisions of Section 3.7.

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If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant Coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing Coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; provided, however, that any interest or Additional Amounts represented by Coupons shall be payable only upon presentation and surrender of those Coupons at an Office or Agency for such Security located outside of the United States except as otherwise provided in Section 10.2.

If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium, until paid, shall bear interest from the Redemption Date at the rate prescribed therefor in the Security.

Section 11.7. Securities Redeemed in Part.

Any Registered Security which is to be redeemed only in part shall be surrendered at any Office or Agency for such Security (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form reasonably satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Registered Security or Securities of the same series, containing identical terms and provisions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Security in global form is so surrendered, the Company shall execute, and the Trustee shall authenticate and deliver to the U.S. Depositary or other Depositary for such Security in global form as shall be specified in the Company Order with respect thereto to the Trustee, without service charge, a new Security in global form in a denomination equal to and in exchange for the unredeemed portion of the principal of the Security in global form so surrendered.

ARTICLE 12

SINKING FUNDS

Section 12.1. Applicability of Article.

The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise permitted or required in or pursuant to this Indenture or any Security of such series issued pursuant to this Indenture.

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The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a “mandatory sinking fund payment,” and any payment in excess of such minimum amount provided for by the terms of Securities of such series is herein referred to as an “optional sinking fund payment”. If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series and this Indenture.

Section 12.2. Satisfaction of Sinking Fund Payments with Securities.

The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any series to be made pursuant to the terms of such Securities (1) deliver Outstanding Securities of such series (other than any of such Securities previously called for redemption or any of such Securities in respect of which cash shall have been released to the Company), together in the case of any Bearer Securities of such series with all unmatured Coupons appertaining thereto, and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such series of Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, provided that such series of Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If, as a result of the delivery or credit of Securities of any series in lieu of cash payments pursuant to this Section 12.2, the principal amount of Securities of such series to be redeemed in order to satisfy the remaining sinking fund payment shall be less than $100,000, the Trustee need not call Securities of such series for redemption, except upon Company Request, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall at the request of the Company from time to time pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that series purchased by the Company having an unpaid principal amount equal to the cash payment requested to be released to the Company.

Section 12.3. Redemption of Securities for Sinking Fund.

Not less than 75 days prior to each sinking fund payment date for any series of Securities, the Company shall deliver to the Trustee an Officer’s Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that series pursuant to Section 12.2, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so credited and not theretofore delivered. If such Officer’s Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 60 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.5, 11.6 and Section 11.7.

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ARTICLE 13

REPAYMENT AT THE OPTION OF HOLDERS

Section 13.1. Applicability of Article.

Securities of any series which are repayable at the option of the Holders thereof before their Stated Maturity shall be repaid in accordance with the terms of the Securities of such series. The repayment of any principal amount of Securities pursuant to such option of the Holder to require repayment of Securities before their Stated Maturity, for purposes of Section 3.9, shall not operate as a payment, redemption or satisfaction of the Indebtedness represented by such Securities unless and until the Company, at its option, shall deliver or surrender the same to the Trustee with a directive that such Securities be cancelled. Notwithstanding anything to the contrary contained in this Section 13.1, in connection with any repayment of Securities, the Company may arrange for the purchase of any Securities by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Holders of such Securities on or before the close of business on the repayment date an amount not less than the repayment price payable by the Company on repayment of such Securities, and the obligation of the Company to pay the repayment price of such Securities shall be satisfied and discharged to the extent such payment is so paid by such purchasers.

ARTICLE 14

SECURITIES IN FOREIGN CURRENCIES

Section 14.1. Applicability of Article.

Whenever this Indenture provides for (i) any action by, or the determination of any of the rights of, Holders of Securities of any series in which not all of such Securities are denominated in the same Currency, or (ii) any distribution to Holders of Securities, in the absence of any provision to the contrary in the form of Security of any particular series or pursuant to this Indenture or the Securities, any amount in respect of any Security denominated in a Currency other than Dollars shall be treated for any such action or distribution as that amount of Dollars that could be obtained for such amount on such reasonable basis of exchange and as of the record date with respect to Registered Securities of such series (if any) for such action, determination of rights or distribution (or, if there shall be no applicable record date, such other date reasonably proximate to the date of such action, determination of rights or distribution) as the Company may specify in a written notice to the Trustee. Such notice from the Company to the Trustee shall specify such record date, shall identify the exchange rate as of such date, and shall calculate the amount payable based on such exchange rate. The Trustee shall be entitled to rely on the information in such notice without having to make independent inquiry.

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ARTICLE 15

MEETINGS OF HOLDERS OF SECURITIES

Section 15.1. Purposes for Which Meetings May Be Called.

A meeting of Holders of Securities of any series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other Act provided by this Indenture to be made, given or taken by Holders of Securities of such series.

Section 15.2. Call, Notice and Place of Meetings.

(1)The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 15.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, or, if Securities of such series have been issued in whole or in part as Bearer Securities, in London or in such place outside the United States as the Trustee shall determine. Notice of every meeting of Holders of Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting.

(2)In case at any time the Company (by or pursuant to a Board Resolution) or the Holders of at least 10% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 15.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of or made the first publication of the notice of such meeting within 21 days after receipt of such request (whichever shall be required pursuant to Section 1.6) or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, or, if Securities of such series are to be issued as Bearer Securities, in London for such meeting and may call such meeting for such purposes by giving notice thereof as provided in clause (1) of this Section.

Section 15.3. Persons Entitled to Vote at Meetings.

To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel and financial and other advisors, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.

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Section 15.4. Quorum; Action.

The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for any meeting of Holders of Securities of such series. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any reconvened meeting, such reconvened meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such reconvened meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 15.2(1), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum.

Except as limited by the proviso to Section 9.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that, except as limited by the proviso to Section 9.2, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other Act which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of such series.

Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the Coupons appertaining thereto, whether or not such Holders were present or represented at the meeting.

Section 15.5. Determination of Voting Rights; Conduct and Adjournment of Meetings.

(1)Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of such series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4 or by having the signature of the person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 1.4 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.4 or other proof.

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(2)The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 15.2(2), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting.

(3)At any meeting, each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of Securities (or face amount in the case of Original Discount Securities) of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy.

(4)Any meeting of Holders of Securities of any series duly called pursuant to Section 15.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting; and the meeting may be held as so adjourned without further notice.

Section 15.6. Counting Votes and Recording Action of Meetings.

The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record, at least in triplicate, of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 15.2 and, if applicable, Section 15.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.

* * * * *

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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.

           PMA CAPITAL CORPORATION

          By: /s/ William E. Hitselberger

          William E. Hitselberger

          Senior Vice President, Chief Financial

          Officer and Treasurer

           U.S. BANK NATIONAL ASSOCIATION,

           as Trustee

          By: /s/ Michael M. Hopkins

          Michael M. Hopkins

          Vice President

STATEOF	)
	)	ss.:
COUNTY OF	)

On the day of , 2004 before me personally came , to me known, who, being by me duly sworn, did depose and say that s/he is the of PMA Capital Corporation, the corporation described in and which executed the foregoing instrument; and that s/he signed his/her name thereto by authority of the Board of Directors of such corporation.

____________________________________

Notary Public

[NOTARIAL SEAL APPEARS HERE]

STATEOF	)
	)	ss.:
COUNTY OF	)

On the day of , 2004 before me personally came , to me known, who, being by me duly sworn, did depose and say that s/he is the of U.S. Bank National Association, the corporation described in and which executed the foregoing instrument; and that s/he signed his/her name thereto by authority of the Board of Directors of such corporation.

____________________________________

Notary Public

[NOTARIAL SEAL APPEARS HERE]

EX-4.8

Exhibit 4.8

PMA CAPITAL CORPORATION

TO

U.S. BANK NATIONAL ASSOCIATION, TRUSTEE

FIRST SUPPLEMENTAL INDENTURE

DATED AS OF NOVEMBER 15, 2004

$84,140,000

6.50% SENIOR SECURED CONVERTIBLE DEBENTURES

DUE SEPTEMBER 30, 2022

TABLE OF CONTENTS¹

		Page
ARTICLE I Definitions		1
Section 1.01	Definitions.	1
Section 1.02	Certain Terms Defined in the Indenture.	10
Section 1.03	Grant of Security Interest in Collateral and Additional Collateral.	14
Section 1.04	Release of Security Interest in Collateral and Additional Collateral.	16
Section 1.05	Authorization of Actions to be Taken by Collateral Agent Under the Collateral Agent Agreement.	18
Section 1.06	Authorization of Receipt of Funds by the Trustee Under the Collateral Agent Agreement.	18
Section 1.07	Authorization of Trustee to Enter into the Collateral Agent Agreement.	18
ARTICLE II 6.50% Senior Secured Convertible Debentures		19
Section 2.01	Establishment.	19
Section 2.02	Terms of the Debentures.	20
Section 2.03	Payment of Interest; Interest Rights Reserved.	27
Section 2.04	Events of Default; Acceleration of Maturity.	27
Section 2.05	Supplemental Indentures with Consent of Holders.	28
Section 2.06	Reserved.	29
Section 2.07	Selection by Trustee of Securities to be Redeemed.	29
Section 2.08	Reserved.	29
Section 2.09	Purchase at the Option of Holders.	29
Section 2.10	Application of the Article of the Indenture Regarding Defeasance and Covenant Defeasance.	39
Section 2.11	Conversions.	39
Section 2.12	Trustee’s Right to Exercise Remedies Against Security.	57
Section 2.13	Trustee to Hold Collateral and Additional Collateral.	57
Section 2.14	Additional Amounts.	58
ARTICLE III ADDITIONAL COVENANTS		58
Section 3.01	Maintenance of Properties.	58
Section 3.02	Payment of Taxes and Other Claims.	58
Section 3.03	Limitation on Liens on Capital Stock of Restricted Subsidiaries.	58
Section 3.04	Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries.	59
Section 3.05	Limitation on Restricted Payments.	59
Section 3.06	Merger, Consolidation and Sale of Assets.	62
Section 3.07	Limitations on Transactions with Affiliates.	64
Section 3.08	Protection of Collateral and the Additional Collateral.	65
Section 3.09	The Company to Remain a Holding Company.	66
Section 3.10	Limitation on Incurrence of Additional Indebtedness.	66
ARTICLE IV MISCELLANEOUS PROVISIONS		68
Section 4.01	Recitals by Company.	68
Section 4.02	Ratification and Incorporation of Original Indenture.	68
Section 4.03	Executed in Counterparts.	68

¹This Table of Contents does not constitute part of the Indenture or have any bearing upon the interpretation of any of its terms and provisions.

i

THIS FIRST SUPPLEMENTAL INDENTURE (the “First Supplemental Indenture”) is made as of the 15th day of November, 2004, by and between PMA CAPITAL CORPORATION, a company duly organized and existing under the laws of the Commonwealth of Pennsylvania (hereinafter called the “Company”), having its principal executive office located at 380 Sentry Parkway, Blue Bell, Pennsylvania 19422, and U.S. BANK NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States (hereinafter called the “Trustee”), having its Corporate Trust Office located at 225 Asylum Street, Hartford, Connecticut 06103.

WITNESSETH:

WHEREAS, the Company has heretofore entered into an Indenture, dated as of November 15, 2004, (the “Original Indenture”), with U.S. Bank National Association;

WHEREAS, the Original Indenture as amended and supplemented by this First Supplemental Indenture, is herein called the “Indenture”;

WHEREAS, under the Original Indenture, a new series of Securities may at any time be established in or pursuant to a resolution of the Board of Directors of the Company and set forth in an Officer’s Certificate in accordance with the provisions of the Original Indenture and the terms of such series may be described by a supplemental indenture executed by the Company and the Trustee;

WHEREAS, the Company desires to (a) add additional Events of Default for the benefit of the Holders of all series of Securities (except as may be provided in a future supplemental indenture to the Indenture (a “Future Supplemental Indenture”)), (b) add additional covenants of the Company, (c) establish the form and terms of a new series of Securities, (d) provide whether certain Articles of the Indenture will apply to all series of Securities, including the Debentures established hereby (except as may be provided in a Future Supplemental Indenture) and (e) otherwise amend and supplement the Original Indenture as set forth herein;

WHEREAS, all conditions necessary to authorize the execution and delivery of this First Supplemental Indenture and to make it a valid and binding obligation of the Company have been done or performed.

NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I

Definitions

Section 1.01Definitions.

The following defined terms used herein shall, unless the context otherwise requires, have the meanings specified below. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Original Indenture.

“ACL RBC” means “authorized control level risk based capital” as then defined and calculated in accordance with the Risk Based Capital (RBC) for Insurers Model Act of the National Association of Insurance Commissioners.

“Acquired Indebtedness” means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with or into the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation.

“Asset Acquisition” means (1) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (2) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business.

“Average Life” means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing: (1) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payment of or redemption or similar payment with respect to such Indebtedness multiplied by the amount of such payment by (2) the sum of all such payments.

“Cash Equivalents” means:

(1)marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof;

(2)commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s;

(3)investments in demand accounts, time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any State thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated “A” (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act);

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(4)repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (3) above;

(5)investment in money market funds which invest at least 95% of their assets in securities of the types described in clauses (1) through (4) above.

“Collateral Agent” means, U.S. Bank National Association, in its capacity as collateral agent under the Collateral Agent Agreement and its permitted successors and assigns.

“Collateral Agent Agreement” means the Collateral Agent Agreement dated as of November 15, 2004 by and among the Company, U.S. Bank National Association, as Collateral Agent, the Trustee for the Debentures, the trustee for the Company’s 8.50% Monthly Income Senior Notes due 2018 and the trustee or other authorized representative for other secured Indebtedness issued in accordance with the terms of the Indenture, as such may be amended from time to time in accordance with the terms of the Indenture and the Collateral Agent Agreement.

“Consolidated Fixed Charges” means, with respect to any Person for any period, the sum, without duplication, of:

(1)Consolidated Interest Expense; plus

(2)the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of such Person, expressed as a decimal.

“Consolidated Interest Expense” means, with respect to any Person for any period, the sum of, without duplication:

(1)the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP (which, for greater clarity, excludes interest on funds held under reinsurance contracts), including without limitation: (a) any amortization of debt discount and amortization or write-off of deferred financing costs; (b) the net costs under Interest Rate Hedging Agreements; (c) all capitalized interest; (d) the interest portion of any deferred payment obligation; and (e) imputed interest with respect of Attributable Debt; and

(2)the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP.

“Consolidated Net Income” means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom:

3

(1)after-tax items classified as extraordinary gains or losses;

(2)solely for purposes of Section 3.05 of this First Supplemental Indenture, the net income of any Person prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person;

(3)the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash (or to the extent immediately converted to cash) dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person;

(4)any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; and

(5)in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person’s assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets.

“Currency Hedge Obligations” means, at any time as to the Company and its Restricted Subsidiaries, the obligations of such Person at such time that were incurred in the ordinary course of business pursuant to any foreign currency exchange agreement, option or futures contract or other similar agreement or arrangement designed to protect against or manage such Person’s or any of its Subsidiaries’ exposure to fluctuations in foreign currency exchange rates.

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

“Disinterested Director” means, with respect to an Affiliate Transaction or series of related Affiliate Transactions, a member of the Board of Directors of the Company who has no financial interest, and whose employer has no financial interest, in such Affiliate Transaction or series of related Affiliate Transactions.

“Distributable Amount” means, with respect to the Company at the last day of any fiscal quarter, (a) the maximum amount of cash that the then Insurance Subsidiaries could have distributed directly to the Company as a dividend, distribution, repayment of intercompany indebtedness or payment of interest thereon as of such date (calculated as if such date were the relevant test date for determining compliance with applicable Insurance Laws) without prior governmental approval (or any required passage of time in nondisapproval states) and which is not prohibited, directly or indirectly, by the terms of any charter or any agreement, instrument, judgment, decree, order, writ, injunction, certificate, statute, rule, law, code, ordinance or government regulation applicable to such Insurance Subsidiaries unless any such restriction has been legally waived, plus (b) the amount of any dividend, distribution, repayment of intercompany indebtedness or payment of interest thereon paid during the four fiscal quarters coming immediately prior to the date of determination by the Insurance Subsidiaries to the Company to the extent that such dividend, distribution, repayment of intercompany indebtedness or payment of interest thereon reduces the amount described in clause (a) that could be distributed at the date of determination; provided that in making any determination of the Distributable Amount to Consolidated Fixed Charges Coverage Ratio, any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any amount which such Restricted Subsidiary could have distributed to such Person as a dividend to such Person that is attributable to the assets which are the subject of the Asset Acquisition or asset sale or other disposition during the four fiscal quarters occurring immediately prior to the date of testing) occurring during the four quarter period immediately prior to the date of such testing, shall be given effect to as if such asset sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) had occurred on the first day of such four quarter period.

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“Distributable Amount to Consolidated Fixed Charge Coverage Ratio” means, at any time, the ratio of the Distributable Amount on the last day of the most recently ended fiscal quarter for which financial statements are available to Consolidated Fixed Charges of the Company during the four full fiscal quarters (the “Four Quarter Period”) ending prior to such time for which financial statements are available. In addition to and without limitation of the foregoing, for purposes of this definition, Consolidated Fixed Charges shall be calculated after giving effect on a pro forma basis for the period of such calculation to:

(1)the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and

(2)any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness attributable to the assets which are the subject of the Asset Acquisition or asset sale or other disposition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness.

5

For purposes of this definition, Transaction Date means the date of the incurrence, repayment, asset sale, disposition or Asset Acquisition, as applicable, giving rise to the need to calculate the Distributable Amount to Consolidated Fixed Charge Coverage Ratio.

Furthermore, in calculating “Consolidated Fixed Charges” for purposes of determining the denominator of this “Distributable Amount to Consolidated Fixed Charge Coverage Ratio”:

(1)interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and

(2)notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Hedging Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.

“Extraordinary Dividends” means any dividends that are defined as Extraordinary Dividends pursuant to Section 991.1405 of the Pennsylvania Insurance Statutes.

“Equity Offering” means any underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company pursuant to a registration statement filed pursuant to the Securities Act or any private placement of Capital Stock (other than Disqualified Capital Stock) of the Company (other than to any Person who, prior to such private placement, was an Affiliate of the Company) which offering or placement is consummated after the Issue Date.

“GAAP” means generally accepted accounting principles as in effect in the United States of America as of the Issue Date.

“Incur” means issue, assume, guarantee or otherwise become liable for.

“Independent Financial Advisor” means a firm (which may be a broker-dealer): (1) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company or any of its Affiliates (other than ownership of less than 5% of any class of publicly traded securities of the Company or any of its Affiliates); and (2) which is otherwise independent of the Company and qualified to perform the task for which it is to be engaged.

“Insurance Law” means any applicable law, statute, rule, regulation, judgment or agreement with any regulatory authority that regulates the provision of insurance or reinsurance.

“Insurance Subsidiary” means any Subsidiary of the Company that is regulated as an insurance company under applicable Insurance Laws or as an equivalent entity under corresponding applicable foreign law or regulation, or otherwise holds itself out as a provider of insurance or reinsurance.

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“Interest Rate Hedging Agreements” means, with respect to the Company and its Restricted Subsidiaries, the obligations of such Persons under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect any such Person or any of its Subsidiaries against fluctuations in interest rates.

“Invested Assets” means, with respect to any Person that is an insurance company that files statutory financial statements with any governmental authority, the amount to be shown on the line item “Cash and Invested Assets” (or any equivalent line item(s) setting forth the type of assets that would be reflected in the line item “Cash and Invested Assets” on the Issue Date) on such insurance company’s balance sheet included in its most recent statutory financial statements filed with such governmental authority.

“Investment” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of any direct or indirect advance, loan (other than advances to customers in the ordinary course of business) or other extension of credit (including by way of guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that endorsements of negotiable instruments and documents in the ordinary course of business shall not be deemed to be an Investment.

For purposes of Section 3.05 of this First Supplemental Indenture:

(1)“Investment” will include the portion (proportionate to the Company’s equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market value of the net assets of such Restricted Subsidiary of the Company at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as Restricted Subsidiary, the Company will be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if positive) equal to (a) the Company’s “Investment” in such Subsidiary at the time of such redesignation less (b) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the fair market value of the net assets (as conclusively determined by the Board of Directors of the Company in good faith) of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and,

(2)any property transferred to or from an Unrestricted Subsidiary will be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors of the Company.

If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Voting Stock of any Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such entity is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value (as conclusively determined by the Board of Directors of the Company in good faith) of the Capital Stock of such Subsidiary not sold or disposed of.

“Issue Date” means the date on which the Debentures are originally issued.

“Maturity Date” means September 30, 2022.

“Net Cash Proceeds” means with respect to any sale of Capital Stock, cash proceeds of such sale net of attorneys’ fees, accountants’ fees, underwriting or placement agents’ fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such sale and net of taxes paid or payable as a result thereof, as and where received.

“Permitted Investments” means:

(1)Investments by the Company or any Restricted Subsidiary in any Person that is or will become immediately after such Investment a Wholly Owned Restricted Subsidiary or that will merge or consolidate into the Company or a Wholly Owned Restricted Subsidiary of the Company;

(2)Investments in the Company by any Restricted Subsidiary; provided that any Indebtedness evidencing such Investment and held by a Restricted Subsidiary that is not a guarantor of the Securities is unsecured and subordinated, pursuant to a written agreement, to the Company’s obligations under the Securities and the Indenture;

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(3)Investments in cash and Cash Equivalents;

(4)loans and advances to employees, directors and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of two million dollars ($2,000,000) at any one time outstanding;

(5)Currency Hedge Obligations and Interest Rate Hedging Agreements entered into in the ordinary course of the Company’s or its Restricted Subsidiaries’ businesses and otherwise in compliance with the Indenture;

(6)Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers or in good faith settlement of delinquent obligations of such trade creditors or customers;

(7)Investments the payment for which is solely Qualified Capital Stock of the Company;

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(8)Investments by any Insurance Subsidiary constituting Invested Assets and made in compliance with Insurance Laws, including Investments determined subsequent to acquisition not to comply with applicable Insurance Laws so long as such noncompliance is cured within 30 days of the chief investment officer of the Company or the applicable Subsidiary becoming aware of such noncompliance; provided that (a) no more than 15% of Invested Assets may be in persons that are Affiliates of the Company and (b) if, as a result of any direct or indirect action by the Company such Person becomes an Affiliate of the Company then any such Investment in such Person pursuant to this clause (8) that was made prior to the date such Person became an Affiliate of the Company shall be deemed to have been made on the date and immediately after such Person became an Affiliate of the Company;

(9)any Investment that replaces, refinances or refunds an Investment existing on the Issue Date, provided that such Investment is in an amount that does not exceed the amount replaced, refinanced or refunded and is made in the same Person as the Investment replaced, refinanced or refunded; and

(10)other Investments not to exceed ten million dollars ($10,000,000) at any one time outstanding.

“Pooled Companies” means (Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company).

“Qualified Capital Stock” means any Capital Stock that is not Disqualified Capital Stock.

“Ratio Test” means the Distributable Amount to Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0.

“Restricted Subsidiary” means any Subsidiary of the Company that at the time of determination is not an Unrestricted Subsidiary.

“Securities” means, for the purpose of this First Supplemental Indenture only, the Debentures.

“Unrestricted Subsidiary” of any Person means:

(1)any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and

(2)any Subsidiary of an Unrestricted Subsidiary.

The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary that is not a Subsidiary of the Subsidiary to be so designated; provided that:

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(1)The Company certifies to the Trustee that such designation complies with Section 3.05 of this First Supplemental Indenture; and

(2)each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries.

For purposes of making the determination of whether any such designation of a Subsidiary as an Unrestricted Subsidiary complies with Section 3.05 of this First Supplemental Indenture, the portion of the fair market value of the net assets of such Subsidiary of the Company at the time that such Subsidiary is designated as an Unrestricted Subsidiary that is represented by the interest of the Company and its Restricted Subsidiaries in such Subsidiary, in each case as determined in good faith by the Board of Directors of the Company, shall be deemed to be an Investment. Such designation will be permitted only if such Investment would be permitted at such time under Section 3.05 of this First Supplemental Indenture. As of the Issue Date, there are no Unrestricted Subsidiaries.

The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary only if:

(1)immediately after giving effect to such designation, the Ratio Test shall be met; and

(2)immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing.

Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by promptly filing with the Trustee a copy of a board resolution of the Company giving effect to such designation and an Officer’s Certificate certifying that such designation complied with the foregoing provisions.

“Wholly Owned Restricted Subsidiary” means a Restricted Subsidiary all of the Capital Stock of which (other than directors’ qualifying shares) is owned, directly or indirectly, by the Company or one or more Subsidiaries of which all the outstanding Voting Stock are owned by the Company or by any of its Wholly Owned Restricted Subsidiaries.

Section 1.02Certain Terms Defined in the Indenture.

(a)Except as may be provided in a Future Supplemental Indenture, for the benefit of the Holders of all Securities, including the Debentures, Section 1.1 of the Original Indenture shall be amended by adding the following new definitions:

“Class A Common Stock” means the Company’s Class A Common Stock, par value $5.00 per share.

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“Exchange Act” means the Securities Exchange Act of 1934, as amended and the rules and regulations of the Securities and Exchange Commission thereunder.

“NYSE” means The New York Stock Exchange, Inc.

“Securities Act” means the Securities Act of 1933, as amended.

“Trading Day” means a day during which trading in securities generally occurs on the NYSE or, if the Class A Common Stock is not listed on the NYSE, on the principal other national or regional securities exchange on which the Class A Common Stock then is listed or, if the Class A Common Stock is not listed on a national or regional securities exchange, on the National Association of Securities Dealers Automated Quotation System or, if the Class A Common Stock is not quoted on the National Association of Securities Dealers Automated Quotation System, on the principal other market on which the Class A Common Stock is then traded.

(b)Except as may be provided in a Future Supplemental Indenture, for the benefit of the Holders of all Securities, including the Debentures, Section 1.1 of the Original Indenture shall be amended by deleting the definition of “Original Issue Discount Security” in its entirety and replacing such definition with the following:

“Original Issue Discount Security” means a Security issued pursuant to this Indenture that is treated as having original issue discount within the meaning of Section 1273 of the Internal Revenue Code of 1986, as amended, and Treasury Regulations Section 1.1273-1(c)(a).

(c)Definitions of the following terms in this First Supplemental Indenture may be found in the Sections of the Indenture indicated (or this First Supplemental Indenture where indicated) as follows:

Term	Defined in Section
“Additional Collateral”	Section 1.03(a) of this First Supplemental Indenture
“Affiliate Transaction”	Section 3.07 of this First Supplemental Indenture
“A.M. Best”	Section 1.03(a) of this First Supplemental Indenture
“Amendment”	Section 16.7
“Applicable Stock”	Section 2.02(g)(ii) of this First Supplemental Indenture

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“Asset Sale”	Section 13.2(b)
“Asset Sale Purchase Date”	Section 13.2(b)
“Asset Sale Purchase Notice”	Section 13.2(d)
“Asset Sale Purchase Price”	Section 13.2(b)
“Cash Amount”	Section 16.13(a)
“Cash Settlement Averaging Period”	Section 16.13(a)
“Cash Settlement Notice Period”	Section 16.13(a)
“cash”	Section 13.3
“Change of Control”	Section 13.2(a)
“Change of Control Purchase Date”	Section 13.2(a)
“Change of Control Purchase Notice”	Section 13.2(d)
“Change of Control Purchase Price”	Section 13.2(a)
“Collateral”	Section 1.03(a) of this First Supplemental Indenture
“Collateral Companies”	Section 1.03(a) of this First Supplemental Indenture
“Conversion Agent”	Section 2.02(c) of this First Supplemental Indenture
“Conversion Obligation”	Section 16.13(a)
“Conversion Price”	Section 2.02(h) of this First Supplemental Indenture
“Conversion Rate”	Section 16.1(b)
“Conversion Retraction Period”	Section 16.13(a)
“Conversion Value”	Section 16.1(b)
“Current Market Price”	Section 16.3(g)

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“Debentures”	Section 2.01(a) of this First Supplemental Indenture
“Depositary”	Section 2.01(a) of this First Supplemental Indenture
“Distributed Assets”	Section 16.3(d)
“Excess Amount”	Section 16.3(e)
“Excess Tender Amount”	Section 16.3(f)
“Ex-Dividend Time”	Section 16.1(d)
“Expiration Time”	Section 16.3(f)
“Fair Market Value”	Section 16.3(g)
“First Supplemental Indenture”	Recitals of this First Supplemental Indenture
“Future Supplemental Indenture”	Recitals of this First Supplemental Indenture
“Indenture”	Recitals of this First Supplemental Indenture
“Measurement Period”	Section 16.1(b)
“Non-Electing Share”	Section 16.4
“Original Indenture”	Recitals of this First Supplemental Indenture
“Paying Agent”	Section 2.02(c) of this First Supplemental Indenture
“Permitted Indebtedness”	Section 3.10 of this First Supplemental Indenture
“Permitted Lien”	Section 3.10 of this First Supplemental Indenture
“Purchase Date”	Section 13.1

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“Purchase Notice”	Section 13.1
“Purchase Price”	Section 13.1
“Record Date”	Section 16.3(g)
“Reference Period”	Section 16.3(d)
“Released Interest”	Section 1.04 of this First Supplemental Indenture
“Sale Price”	Section 16.1(b)
“Spin-Off”	Section 16.3(d)
“Trigger Event”	Section 16.3(d)

Section 1.03Grant of Security Interest in Collateral and Additional Collateral.

(a)The Company does hereby grant to the Trustee, as trustee for the benefit of the Holders of the Debentures, a first priority Lien and security interest, equal and ratable with a Lien and security interest in favor of the trustee for the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 and a Lien and security interest in favor of the Trustee or other authorized representative for any other secured Indebtedness issued in accordance with the terms of the Indenture, in and to 20% of the outstanding Capital Stock of the Company’s Significant Subsidiaries (such companies, collectively, the “Collateral Companies”), and all rights and privileges of the Company with respect thereto, including all dividends, distributions and other payments with respect thereto and in and to all proceeds thereof (the “Collateral”) to have and to hold in trust to secure the payment of principal of and premiums, if any, and interest on, and any other amounts (including all fees, expenses, counsel fees and other amounts, including fees and expenses of the Collateral Agent, due and owing to the Trustee) owing in respect of the Debentures, equally and ratably with the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued in accordance with the terms of the Indenture, without prejudice, preference, priority or distinction, except as expressly provided in the Indenture (and the indenture for the Company’s 8.50% Monthly Income Senior Notes due 2018 and the indenture for any other secured Indebtedness issued in accordance with the terms of the Indenture), and to secure performance by the Company of all the Company’s obligations under the Indenture (equally and ratably with the Company’s obligations with respect to the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued in accordance with the terms of the Indenture), all as provided for in this

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Indenture (and the indenture for the Company’s 8.50% Monthly Income Senior Notes due 2018 and the indenture for any other secured Indebtedness issued in accordance with the terms of the Indenture). Additionally, if the financial strength ratings of the Pooled Companies from A.M. Best Company, Inc. (“A.M. Best”) are not at least “A-” on December 31, 2005, or if the financial strength ratings of the Pooled Companies from A.M. Best are reduced to below “B++” prior to December 31, 2005, the Company does hereby grant to the Trustee, as trustee for the benefit of the Holders of the Debentures, a first priority Lien and security interest, equal and ratable with a Lien and security interest in favor of the trustee for the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 and a Lien or security interest in favor of the trustee or other authorized representative for any other secured Indebtedness issued in accordance with the terms of the Indenture, in and to the remaining outstanding Capital Stock of the Collateral Companies and all rights and privileges of the Company with respect thereto, including all dividends, distributions and other payments with respect thereto and all proceeds thereof, (“Additional Collateral”) to have and to hold in trust to secure the payment of principal of and premiums if any, and interest on, and any other amounts (including all fees, expenses, counsel fees and other amounts, including fees and expenses of the Collateral Agent, due and owing to the Trustee) owing in respect of the Debentures, equally and ratably with the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued in accordance with the terms of the Indenture, without prejudice, preference, priority or distinction, except as expressly provided in the Indenture (and the indenture for the Company’s 8.50% Monthly Income Senior Notes due 2018 and the indenture for any other secured Indebtedness issued in accordance with the terms of the Indenture), and to secure performance by the Company of the Company’s obligations under this Indenture (equally and ratably with the Company’s obligations with respect to the Company’s 8.50% Monthly Income Senior Notes due 2018, any other secured Indebtedness issued in accordance with the terms of the Indenture) with respect to the Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued in accordance with the terms of the Indenture, all as provided for under the Indenture (and the indenture for the Company’s 8.50% Monthly Income Senior Notes due 2018 and the indenture for any other secured Indebtedness issued in accordance with the terms of the Indenture).

The Trustee, as trustee on behalf of the Holders of the Debentures, acknowledges this grant, accepts the trusts hereunder in accordance with the provisions hereof and agrees to perform its duties herein required and agrees that subject to the provisions of the Collateral Agent Agreement, the Trustee holds the Collateral and the Additional Collateral in trust for the benefit of the Holders of the Debentures.

(b)The Company will file, and the Trustee and the Collateral Agent are hereby authorized to file, such financing statements and continuation statements, and perform such acts necessary or desirable to perfect and maintain a first priority security interests in the Collateral and the Additional Collateral granted in Section 1.03(a) of this Indenture. In the case of any Additional Collateral, the Company shall do all such things within 90 days of December 31, 2005 or such earlier date as the financial strength ratings of the Pooled Companies from A.M. Best are reduced to below B++.

(c)Each Holder, by accepting a Debenture, agrees to all of the terms and provisions of the Collateral Agent Agreement (including, without limitation, the provisions providing for foreclosure and release of the Collateral and the Additional Collateral) as the same may be in effect or may be amended from time to time in accordance with the terms thereof and hereof, and authorizes and directs the Trustee, acting through the Collateral Agent, to perform its obligations and exercise its rights under the Collateral Agent Agreement in accordance therewith; provided, however, that if any provisions of the Collateral Agent Agreement limit, qualify or conflict with the duties imposed by the provisions of the Trust Indenture Act, the Trust Indenture Act will control.

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(d)As more fully set forth in, and subject to the provisions of, the Collateral Agent Agreement, the Holders, and the Trustee and the Collateral Agent on behalf of such Holders, will have rights in and to the Collateral and the Additional Collateral that are subject to the rights that have been or may be created in favor of the holders of other Indebtedness and obligations of the Company.

(e)As among the Holders, the Collateral and the Additional Collateral shall be held for the equal and ratable benefit of the Holders without preference, priority or distinction of any thereof over any other.

(f)In the event the Trustee acts as Collateral Agent, the Trustee (i) shall not be deemed to have breached its fiduciary duty as Trustee to the Holders as a result of the performance of its duties as Collateral Agent to the extent it acts in compliance with the Collateral Agent Agreement and (ii) shall not be liable to the Holders for any such action or inaction. The rights and interests created under this Indenture shall be subject to the terms of the Collateral Agent Agreement.

(g)The Company will do or cause to be done all such acts and things as may be required by the provisions of the Collateral Agent Agreement to which it is a party, to assure and confirm to the Trustee and the Collateral Agent, the Liens on the Collateral and the Additional Collateral contemplated by the Indenture and the Collateral Agent Agreement to which it is a party, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Debentures secured thereby, as applicable, according to the intent and purposes herein and therein expressed. The Company will take all actions required pursuant to the Indenture and the Collateral Agent Agreement to cause the Liens created pursuant to the Indenture to be valid, enforceable and perfected (except as expressly provided therein) Liens in and on all the Collateral and the Additional Collateral in favor of the Collateral Agent for the benefit of the Trustee and for the equal and ratable benefit of the Holders of the Debentures, the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 and the holders of any additional secured Indebtedness issued in accordance with the terms of the Indenture and the Collateral Agent Agreement. With respect to any proceeds that are cash or Cash Equivalents, the Company shall deposit such proceeds into an account under the control of the Collateral Agent in accordance with the provisions of the Collateral Agent Agreement.

Section 1.04Release of Security Interest in Collateral and Additional Collateral.

(a)Additionally, in the event of a sale or other disposition of Collateral (or Additional Collateral) in compliance with the provisions of Section 3.04 of this First Supplemental Indenture, upon satisfaction of the conditions set forth below, the Liens securing the Debentures, the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued in accordance with the terms of the Indenture will automatically terminate as to the assets sold on the date of their sale and as to the Net Cash Proceeds at the close of business on the Business Day immediately prior to any Asset Sale Purchase Date in accordance with the provisions set forth below.

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The Company shall have the right to obtain automatic release of items of Collateral (and Additional Collateral) (the “Released Interest”) securing the Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 subject to the provisions of Section 3.04 of this First Supplemental Indenture upon compliance with the condition that the Company deliver to the Trustee and the Collateral Agent the following:

(i)a notice from the Company requesting the release of the Released Interests:

(1)Describing the proposed Released Interest and certifying that the purchase price received is at least equal to the fair market value of the Released Interest; and

(2)in the event that any assets other than cash or Cash Equivalents comprise a portion of the consideration received in such Asset Sale, specifically describing such assets;

(ii)an Officers’ Certificate stating that:

(1)(a) the stated fair market value of such Asset Sale of Collateral does not include the sale of assets other than the Released Interest and (b) such Asset Sale complies with the terms and conditions of Section 3.04 of this First Supplemental Indenture with respect to Asset Sales;

(2)all Net Cash Proceeds from the sale of the Released Interest will be applied pursuant to the provisions of Section 13.2(b) of the Indenture;

(3)all conditions precedent in the Indenture relating to the release in question have been complied with; and

(4)no Default or Event of Default has occurred or would occur immediately prior to or immediately after such release;

(iii)evidence satisfactory to the Trustee that any consideration from the Asset Sale has been pledged to secure the Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued in accordance with the terms of the Indenture in a manner that creates a perfected security interest therein of the same priority as the Collateral sold;

(iv)all documentation necessary to evidence the grant to the Trustee (or any collateral agent), on behalf of the Holders of the Debentures and perfection of a security interest in and Lien (of the same priority as the Lien on the assets subject to the Asset Sale) on all consideration other than Net Cash Proceeds received in such Asset Sale, if any, equal and ratable with a security interest in and Lien on such consideration in favor of the trustee for the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 and the trustee for any other secured Indebtedness issued in accordance with the terms of the Indenture; and

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(v)all documentation required by the Trust Indenture Act prior to the release of Collateral and the Additional Collateral by the Trustee.

(b)Any automatic release of items of Collateral (and Additional Collateral) securing the Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued in accordance with the terms of the Indenture made in compliance with the provisions of this Section 1.04 and subject to Section 3.04 of this First Supplemental Indenture shall not be deemed to impair the security under this First Supplemental Indenture in contravention of the provisions hereof.

Section 1.05Authorization of Actions to be Taken by Collateral Agent Under the Collateral Agent Agreement.

The Collateral Agent may (but shall not be obligated to), in its sole discretion and without the consent of the Holders, on behalf of the Trustee and the Holders, take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Collateral Agent Agreement and (b) collect and receive any and all amounts payable in respect of the obligations of the Company hereunder. The Trustee, directly or through the Collateral Agent, shall have the power to institute and to maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral and the Additional Collateral by any acts that may be unlawful or in violation of the Collateral Agent Agreement or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Collateral and the Additional Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other government enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or of the Trustee).

Section 1.06Authorization of Receipt of Funds by the Trustee Under the Collateral Agent Agreement.

The Trustee, directly or through Collateral Agent, is authorized to receive any funds for the benefit of the Holders distributed under the Collateral Agent Agreement, and to make further distributions of such funds to the Holders according to the provisions of this Indenture and the Collateral Agent Agreement.

Section 1.07Authorization of Trustee to Enter into the Collateral Agent Agreement.

The Trustee, hereby agrees that it shall, upon the written request of the Company, enter into the Collateral Agent Agreement appointing a Collateral Agent to hold and enforce rights against the Collateral and Additional Collateral on behalf of the Trustee, the trustee for the Company’s 8.50% Monthly Income Senior Notes due 2018 and the Trustee or authorized representative of any other secured Indebtedness issued in accordance with the terms of the Indenture. The Trustee and the Company may enter into amendments to the Collateral Agent Agreement without the consent of the Holders; provided, however, that the consent of the Holders shall be required for any amendment that would adversely affect the Holders’ rights in the Collateral or Additional Collateral.

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ARTICLE II

6.50% Senior Secured Convertible Debentures

Section 2.01Establishment.

(a)There is hereby established a new series of Securities to be issued under the Indenture, to be designated as the Company’s 6.50% Senior Secured Convertible Debentures due September 30, 2022 (the “Debentures”).

There are to be authenticated and delivered Debentures, limited in aggregate principal amount of $84,140,000, and no further Debentures shall be authenticated and delivered except as provided by Section 2.3, 3.5, 3.6, 9.5 or 11.7 and Article 13 of the Original Indenture. The Debentures shall be issued in definitive fully registered form.

The Debentures shall be issued in the form of one or more global Securities in substantially the form set out in Exhibit A hereto. The Depositary with respect to the Debentures shall be The Depository Trust Company.

The form of the Trustee’s Certificate of Authentication for the Debentures shall be in substantially the form set forth in Section 2.2 of the Original Indenture.

Each Debenture shall be dated the date of authentication thereof.

(b)Denominations. The Debentures may be issued in denominations of $1,000, or any integral multiple thereof.

(c)Global Securities. The Debentures will be issued in the form of one or more global Securities registered in the name of the Depositary or its nominee. Except under the limited circumstances described below, Debentures represented by the global Security will not be exchangeable for, and will not otherwise be issuable as, Debentures in definitive form. The global Securities described above may not be transferred except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or to a successor Depositary or its nominee.

Owners of beneficial interests in such a global Security will not be considered the Holders thereof for any purpose under the Indenture except Section 10.4, and no global Security representing a Debenture shall be exchangeable, except for another global Security of like denomination and tenor to be registered in the name of the Depositary or its nominee or to a successor Depositary or its nominee. The rights of Holders of such global Security shall be exercised only through the Depositary. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its participants, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any global Security.

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A global Security shall be exchangeable for Debentures registered in the names of Persons other than the Depositary or its nominee only as provided by Section 3.5 of the Original Indenture. Any global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Debentures registered in such names as the Depositary shall direct.

(d)Interest Payment Date and Record Date. The Interest Payment Date for the Debentures is March 30 and September 30 of each year, beginning March 30, 2005. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The Regular Record Date with respect to each Interest Payment Date is the close of business on the 15^th calendar day preceding such Interest Payment Date.

(e)Definitive Debentures. Debentures issued in certificated form shall be substantially in the form of Exhibit A attached hereto, but without including the text referred to therein as applying only to global Debentures.

(f)Transfer. No service charge will be made for any registration of transfer or exchange of Debentures, but payment will be required of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith.

Section 2.02Terms of the Debentures.

The following terms relating to the Debentures are hereby established:

(a)Stated Maturity. The entire outstanding principal of the Debentures shall be due and payable, unless accelerated, redeemed or required to be repurchased pursuant to the Indenture, on September 30, 2022.

(b)Interest.

(i)The rate at which the Debentures shall bear interest shall be 6.50% per annum; the date from which interest shall accrue on the Debentures shall be the Issue Date, or the most recent Interest Payment Date to which interest has been paid or provided for. Interest shall be paid in cash. No contingent interest will be paid with respect to the Debentures.

(ii)If the Company elects to redeem, or the Holders elect to require the Company to repurchase, the Debentures on a date that is after the Regular Record Date and prior to the corresponding Interest Payment Date, the Company will pay accrued and unpaid interest, if any, on the Debentures to, but not including, the applicable Redemption Date, Purchase Date or Change of Control Purchase Date, as the case may be, to the holder of record on the Regular Record Date.

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Except as provided below, if any Debentures are surrendered for conversion on any date other than an Interest Payment Date, the Holder of such Debentures will not be entitled to receive any interest, if any, that has accrued on such Debentures since the prior Interest Payment Date. By delivery to the Holder of the number of shares of Class A Common Stock or other consideration issuable upon conversion in accordance with Article 16 of the Indenture (as amended by Section 2.11 of this First Supplemental Indenture), any accrued and unpaid interest on such Debentures will be deemed to have been paid in full.

All Holders agree, by their acceptance of a Debenture, that if a Holder of Debentures converts on a date after a Regular Record Date for an interest payment but prior to the corresponding Interest Payment Date, the Holder of such Debentures (subject to the right of Holders of record on the immediately preceding Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) will receive on that Interest Payment Date accrued and unpaid interest on such Debentures, but, at the time the Holder surrenders such Debentures for conversion, the Holder must pay the Company the interest that has accrued and will be paid on such Interest Payment Date. No such payment need be made with respect to Debentures that will be redeemed by the Company after a Regular Record Date but prior to the corresponding Interest Payment Date.

(iii)If the principal amount of or any portion of such principal amount of, or any interest, if any, on, any Debentures is not paid when due (whether upon acceleration pursuant to Section 5.2 of the Indenture or on the Stated Maturity or on Redemption Date, Purchase Date or Change of Control Purchase Date), then in each such case the overdue amount shall, to the extent permitted by law, bear interest at the applicable interest rate, compounded semi-annually, which interest shall accrue from the date of such overdue amount was originally due to the date of payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand.

(c)Paying Agent and Conversion Agent. The Company shall maintain an office or agency where Debentures may be presented for purchase or payment (“Paying Agent”) and an office or agency where Debentures may be presented for conversion (“Conversion Agent”). The Company may have one or more additional Paying Agents and one or more additional Conversion Agents.

The Company shall enter into an appropriate agency agreement with any Paying Agent or Conversion Agent (other than the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. If the Company fails to maintain a Paying Agent or Conversion Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 6.7 of the Indenture. The Company or any Subsidiary or an Affiliate of any of them may act as Paying Agent or Conversion Agent.

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The Company initially appoints the Trustee as Conversion Agent and Paying Agent in connection with the Debentures. The Trustee shall be entitled to appropriate compensation for acting in such capacities.

(d)Place of Payment.

(i)The Place of Payment for the Debentures and the place or places where the Debentures may be surrendered for registration of transfer, exchange, repurchase, redemption or conversion and where notices may be given to the Company in respect of the Debentures is at the Corporate Trust Office of the Trustee or such other office or agency of the Company as may be designated for such purpose. Payment of principal and interest, if any, on the Debentures will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts (or shares as provided above or a combination of cash and those shares).

(ii)The Company will pay principal on (1) global Debentures to the Depositary in immediately available funds and (2) any definitive Debentures in immediately available funds at the Company’s office or agency in New York City, which initially will be the Place of Payment as provided in Section 10.2 of the Indenture.

(iii)The Company will pay interest, if any, on (1) global Debentures to the Depositary in immediately available funds, (2) any definitive Debentures having an aggregate principal amount of $5,000,000 or less by check mailed to the Holders of such Debentures, and (3) any definitive Debentures having an aggregate principal amount of more than $5,000,000 by wire transfer in immediately available funds if requested by the Holders of such Debentures. At Stated Maturity the Company will pay interest on (1) any definitive Debentures at the Company’s office or agency in New York City, which initially will be the Place of Payment as provided in Section 10.2 of the Indenture and (2) or global Debenture to the Depositary in immediately available funds.

(e)Redemption.

(i)At the Option of the Company. At any time from October 1, 2008, the Company, at its option, may redeem in principal amounts of $1,000 or integral multiples of $1,000 the Debentures for cash as a whole, or from time to time in part, at a Redemption Price of 114% of the principal amount of the Debentures, plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date:

(ii)Mandatory Redemption with Extraordinary Dividends. From January 1, 2006 to and including December 31, 2006, in the event the Company receives any Extraordinary Dividends from any of its subsidiaries, the Company shall redeem the Debentures and any other series of Securities issued under the Indenture having substantially identical terms to the Debentures pro rata in principal amounts of $1,000 or integral multiples of $1,000 with 50% of the amount of such dividends for cash at a Redemption Price of 110% of the principal amount of the Debentures plus accrued unpaid interest, if any, to the Redemption Date. The aggregate principal amount of the Debentures plus any other series of Securities issued under the Indenture having substantially identical terms to the Debentures to be redeemed pursuant to this Section 2.02(e)(ii) shall not exceed $35,000,000.

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(iii)Additional Terms of Redemption. For redemptions pursuant to clause (i) above, the Company shall notify the Trustee and the Holders of any redemption at least 30 but not more than 60 days prior to any redemption by mail. For redemptions pursuant to clause (ii) above, the Company shall notify the Trustee and the Holders by mail no later than five (5) days after the receipt by it of an Extraordinary Dividend from any Subsidiary (and at least 20 Business Days, but no more than 45 Business Days prior to the Redemption Date), which notice shall specify the amount of the Extraordinary Dividend and the Redemption Date. All notices of redemptions will contain information concerning the premium, if any, payable with respect to the applicable redemption. No less than one (1) Business Day prior to the Redemption Date specified in the Company’s notice, the Holders shall provide the Company with notice of their election to receive any premium payable with respect to the applicable redemption in the Applicable Stock. Such notice will contain the information set forth in Section 13.1(1)(A), (B) and (C) of the Original Indenture (as amended by Section 2.09 of this First Supplemental Indenture). Any Holder who fails to provide a notice of election to receive the applicable premium in shares of the Company’s Class A Common Stock shall be deemed to have elected to receive cash in respect of any applicable premium for all Debentures subject to the redemption in which a premium is payable. The Company shall provide the Trustee with copies of the Holders’ notices of election immediately upon receipt.

Debentures or portions thereof to be redeemed as of a Redemption Date will be convertible by the Holders of such Debentures until the close of business on the second Business Day prior to the Redemption Date.

If the Company does not redeem all of the Debentures, the Trustee shall select the Debentures to be redeemed in principal amounts of $1,000 or integral multiples thereof, by lot or on a pro rata basis. If any Debentures are to be redeemed in part only, the Company shall issue a Security or Debenture with a principal amount equal to the unredeemed principal portion thereof. If a portion of a Holder’s Securities or Debentures is selected for partial redemption and the Holder converts a portion of its Securities or Debentures the converted portion shall be deemed to be taken from the portion selected for redemption.

(f)Repurchase.

(i)Upon a Change of Control, the Debentures shall be purchased by the Company, at the option of the Holder thereof, at a price equal to the price (which, in this context shall be the “Change of Control Purchase Price”) set forth below and in Section 7 of the Debentures and in accordance with the provisions of this Indenture, including, without limitation, Article 13 (as amended by Section 2.09 of this First Supplemental Indenture):

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Purchase Date	Purchase Price as % of Principal
From the date of issuance to and including September 30, 2005	101%
From October 1, 2005 to and including September 30, 2006	103%
From October 1, 2006 to and including September 30, 2007	106%
From October 1, 2007 to and including September 30, 2008	110%
From October 1, 2008 to and including June 30, 2009	114%
From July 1, 2009 to and including September 30, 2022	101%

(ii)Upon an Asset Sale, the Debentures shall be repurchased by the Company, at the option of the Holder thereof, at a price equal to the price (which, in this context shall be the “Asset Sale Purchase Price”) set forth below and in accordance with the provisions of the Indenture, including, without limitation, Article 13 (as amended by Section 2.09 of this First Supplemental Indenture).

Purchase Date	Purchase Price as % of Principal
From the date of issuance to and including September 30, 2005	101 %
From October 1, 2005 to and including September 30, 2006	103 %
From October 1, 2006 to and including September 30, 2007	106 %
From October 1, 2007 to and including September 30, 2008	110 %
From October 1, 2008 to and including June 30, 2009	114 %
From July 1, 2009 to and including September 30, 2022	100 %

(iii)On June 30, 2009 the Debentures shall be repurchased by the Company, at the option of the Holders, at the Repurchase Price of 114% of the principal amount of the Debentures to be repurchased, plus accrued and unpaid interest, if any, to the Purchase Date and in accordance with the provisions of the Indenture including, without limitation, Article 13 (as amended by Section 2.09 of this First Supplemental Indenture) .

(g)Premium Payable in Stock at Option of the Holder.

(i)In connection with any premium (the portion of the consideration payable in excess of principal amount) payable to a Holder of the Debentures in connection with redemptions pursuant to Section 2.02(e)(i) and (ii) of this First Supplemental Indenture and repurchases pursuant to Section 2.02(f) of this First Supplemental Indenture which, in each case, results from an event or action occurring on or prior to June 30, 2009, each Holder will have the option to elect to receive such premium in cash or in shares of Applicable Stock (defined below). For the purposes of calculating the number of shares issuable to any Holder of the Debentures who elects to exercise such option, the shares of Applicable Stock will be valued at $8.00 per share as adjusted pursuant to Section 16.3 of the Indenture

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(as amended by Section 2.11 of this First Supplemental Indenture) as if such $8.00 were the Conversion Price. In lieu of issuing any fractional shares of the Applicable Stock, the Company shall pay the remainder of the premium in cash as if the cash value of a full share were $8.00. In the event any premium is payable to a Holder in Applicable Stock, the Company shall, to the extent applicable, comply with the tender offer rules and all other applicable laws in accordance with Section 13.7 of the Indenture (as amended by 2.09 of this First Supplemental Indenture).

(ii)The Company shall designate, in the notice delivered pursuant to Sections 2.02(e)(iii) and 2.02(f) of this First Supplemental Indenture and Sections 13.1 and 13.2 of the Indenture (as amended by Section 2.09 of this First Supplemental Indenture), the number of shares of Applicable Stock (defined below) payable for any applicable premium; provided that the Company will pay cash for fractional interests as set forth below.

“Applicable Stock” means (i) the Class A Common Stock and (ii) in the event of a merger, consolidation or other similar transaction involving the Company that is otherwise permitted hereunder in which the Company is not the surviving corporation, the common stock, ordinary shares or American Depositary Shares of such surviving corporation or its direct or indirect parent corporation.

(iii)On each Redemption Date, Change of Control Purchase Date, Asset Sale Purchase Date or Purchase Date, in each case, resulting from an event or action occurring on or prior to June 30, 2009, any applicable premium shall be paid, at the option of the Holder, in shares of Applicable Stock equal to the quotient obtained by dividing (i) the aggregate amount of the premium that a Holder has elected to be paid in shares of Applicable Stock by (ii) $8.00 as adjusted pursuant to Section 16.3 of the Indenture (as amended by Section 2.11 of this First Supplemental Indenture) as if such $8.00 value were the Conversion Price.

The Company will not issue fractional shares of Applicable Stock in payment of any premium. Instead, the Company will pay cash equal to $8.00 times such fraction for all fractional shares.

The Company’s issuance of shares of Applicable Stock shall be conditioned upon:

(i)the registration of such shares of Applicable Stock under the Securities Act and the Exchange Act, in each case, if required;

(ii)such shares of Applicable Stock being first listed on a national securities exchange or such shares of Applicable Stock being first quoted in an inter-dealer quotation system of any registered United States national securities association;

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(iii)any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and

(iv)the receipt by the Trustee of an Officer’s Certificate and an Opinion of Counsel each stating that (A) the terms of the issuance of the shares of Applicable Stock are in conformity with this Indenture and (B) the shares of Applicable Stock to be issued by the Company in payment of the applicable premium in respect of Debentures have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of the applicable premiums, in respect of the Debentures, will be validly issued, fully paid and non-assessable and, to the best of such counsel’s knowledge, free from preemptive rights, and, in the case of such Officer’s Certificate, setting forth the number of Applicable Stock to be issued and stating that all applicable conditions have been satisfied and, in the case of such Opinion of Counsel, stating that the conditions in clauses (i) through (iii) above have been satisfied.

The Company hereby covenants to satisfy the foregoing conditions.

Upon determination of the actual number of shares of Applicable Stock to be issued, the Company shall disseminate a press release through Dow Jones & Company, Inc. or Bloomberg Business News containing this information or publish the information through such other public medium as the Company may use at that time.

(i)All shares of Class A Common Stock delivered in respect of any applicable premium shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable, and shall be free from preemptive rights and free of any Lien or adverse claim.

(ii)If a Holder is paid in shares of Applicable Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of Applicable Stock. However, the Holder shall pay any such tax which is due because the Holder requests the Applicable Stock to be issued in a name other than the Holder’s name. The Paying Agent may refuse to deliver the certificates representing the shares of Applicable Stock being issued in a name other than the Holder’s name until the Paying Agent receives a sum sufficient to pay any tax which will be due because the shares of Applicable Stock are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any income tax withholding required by law or regulations.

(h)Conversion. The Debentures shall be convertible at any time prior to the Stated Maturity from and after the date of issuance in accordance with the provisions of the Indenture, including, without limitation, Article 16 (as amended by Section 2.11 of this First Supplemental Indenture).

“Conversion Price” means initially $16.368, subject to adjustment as set forth in Article 16 of the Indenture (as amended by Section 2.11 of this First Supplemental Indenture).

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Section 2.03Payment of Interest; Interest Rights Reserved.

Except as may be provided in a Future Supplemental Indenture, for the sole benefit of the Holders of the Debentures, Section 3.7 of the Original Indenture shall be amended by replacing the final paragraph of Section 3.7 of the Original Indenture with the following paragraph:

In the event Securities of any series or a portion thereof is surrendered for conversion or exchange during a period after the Regular Record Date immediately preceding any Interest Payment Date and on or prior to such Interest Payment Date (unless such Securities or portion thereof which is being surrendered for conversion or exchange has been called for redemption on a Redemption Date within such period), the Company will pay on such Interest Payment Date or payment date, as the case may be, interest due and payable on such Interest Payment Date or payment date, as the case may be, notwithstanding such conversion or exchange, and the Company will pay such interest (whether or not punctually paid or duly provided for) to the Person in whose name such Securities (or one or more Predecessor Securities) are registered at the close of business on such Regular Record Date; provided, however, that such payment of interest shall be subject to the payment to the Company by the Holder of such Securities or portion thereof surrendered for conversion or exchange (such payment to accompany such surrender) of an amount equal to the amount of such interest, in accordance with Section 16.9 hereof. Except as otherwise provided in the immediately preceding sentence, in the case of any Security which is converted, interest due and payable after the date of conversion of such Security shall not be payable.

Section 2.04Events of Default; Acceleration of Maturity.

(a)Except as may be provided by a Future Supplemental Indenture, for the benefit of the Holders of all Securities, including the Debentures, Section 5.1 of the Original Indenture shall be amended by deleting Subsections (1) and (2) thereof in their entirety and replacing such Subsections with new Subsections (1) and (2) and adding new Subsections (9), (10), (11), (12) and (13) to Section 5.1 thereof, and changing Subsection (9) of Section 5.1 thereof to Subsection (14), as follows:

(1)default in the payment of any interest upon, or any Additional Amount payable in respect of, any Security of that series or of any coupon appertaining thereto, when such interest or coupon or Additional Amount becomes due and payable, and continuance of such default for a period of 30 days; or

(2)default in the payment (including any premiums payable in stock) of the principal of (or premium, if any, on), or Redemption Price, Purchase Price, Asset Sale Purchase Price or Change of Control Purchase Price of, any Security of that series when it becomes due and payable at its Maturity, at the Redemption Date, at the Purchase Date, Asset Sale Purchase Date or at the Change of Control Purchase Date, as applicable; or

(9)failure to convert any Security of that series into shares of the Company’s Class A Common Stock or cash as provided herein upon exercise of a Holder’s conversion right, unless such failure is cured within five days after written notice of default is given to the Company by the Trustee or to the Company and the Trustee by the holder of such Security; or

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(10)a breach of a covenant set forth in Sections 3.04, 3.06 or 3.08 of this First Supplemental Indenture.

(11)the Liens created by the Indenture and the Collateral Agent Agreement shall at any time not constitute valid and perfected Liens on the Collateral and the Additional Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Collateral Agent, free and clear of all other Liens (other than Permitted Liens), or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of this Indenture and the Collateral Agent Agreement shall for whatever reason be terminated or cease to be in full force and effect;

(12)failure of the Company to make, when due, any transfer, delivery, pledge, assignment or grant of Collateral or the Additional Collateral required to be made by it;

(13)the delivery by the trustee for the Company’s 8.50% Monthly Income Senior Notes due 2018 and/or authorized representative of any other secured Indebtedness issued pursuant to the terms of the Indenture to the Collateral Agent of a notice requiring that the Collateral Agent commence proceedings to realize on the Collateral or the Additional Collateral.

(b)Except as may be provided by a Future Supplemental Indenture, for the benefit of all Holders of the Securities, including the Debentures, the first and second paragraphs of Section 5.2 are amended by deleting the phrase “specified in clause (7) or (8)” and replacing it with the phrase “specified in clause (7), (8), or (13).”

Section 2.05Supplemental Indentures with Consent of Holders.

Except as may be provided by a Future Supplemental Indenture, for the benefit of the Holders of all Securities, including the Debentures, Section 9.2 of the Original Indenture shall be amended by deleting Subsection (1) thereof in its entirety and replacing such Subsection with a new Subsection (1) and adding new Subsections (16) and (17) to Section 9.2 as follows:

(1)change the Stated Maturity of the principal of, or any premium or installment of interest, on or any Additional Amounts or Redemption Date with respect to, any Security, or reduce the principal amount thereof or the rate (or modify the calculation of such rate) of interest, thereon or any Additional Amounts with respect thereto, or any amount payable upon the redemption thereof or otherwise, or change the obligation of the Company to pay Additional Amounts pursuant to Section 10.4 (except as contemplated by Section 8.1(1) and permitted by Section 9.1(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the amount thereof provable in bankruptcy pursuant to Section 5.4, or adversely affect the right of repayment at the option of any Holder as contemplated by Article 13, or change the Place of Payment, Currency in which the principal of, any premium or interest, on, or any Additional Amounts with respect to any Security is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of repayment at the option of the Holder, on or after the Asset Sale Purchase Date, the Change of Control Purchase Date or Purchase Date, as applicable), or

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(16)adversely affect the existence, nature, extent or priority of the Lien of the Holders of the Debentures or the holders of the 8.50% Monthly Income Senior Notes due 2018 or the holders of other secured Indebtedness secured by the Collateral (or Additional Collateral) on the Collateral (or Additional Collateral) as provided in Section 1.03 of this First Supplemental Indenture; or

(17)modify any of the provisions of this section 9.2.

Section 2.06Reserved.

Section 2.07Selection by Trustee of Securities to be Redeemed.

Except as may be provided by a Future Supplemental Indenture, for the sole benefit of the Holders of the Debentures, Section 11.3 of the Original Indenture shall be amended by adding a new sentence at the end thereof as follows:

“If the Trustee selects a portion of a Holder’s Securities of any series for partial redemption and the Holder converts a portion of the same Securities, the converted portion will be deemed to be from the portion selected for redemption.”

Section 2.08Reserved.

Section 2.09Purchase at the Option of Holders.

For the sole benefit of the Holders of the Debentures, Article 13 of the Original Indenture shall be replaced in its entirety with the following:

ARTICLE 13

PURCHASE AT THE OPTION OF HOLDERS

SECTION 13.1. Purchase of Debentures by the Company at Option of the Holder.

(a)General. Debentures shall be purchased by the Company at the option of the Holder as set forth in Section 2.02(f)(iii) of this First Supplemental Indenture (in this context, the “Purchase Date”), at a purchase price equal to the price payable as set forth in such Section 2.02(f)(iii) (which, in this context shall be the “Purchase Price”), subject to the provisions of Section 3.04 of the First Supplemental Indenture. Purchases of Debentures hereunder shall be made, at the option of the Holder thereof, upon:

(1)delivery to the Paying Agent by the Holder of a written notice of purchase (a “Purchase Notice”) during the period beginning at any time from the opening of business on the date that is 20 Business Days prior to the relevant Purchase Date until the close of business on the third Business Day prior to such Purchase Date stating:

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(A) the certificate number of the Debenture which the Holder will deliver to be purchased or the appropriate Depositary procedures if Debentures in certificated form have not been issued,

(B) the portion of the principal amount of the Debenture which the Holder will deliver to be purchased, which portion must be in principal amounts of $1,000 or an integral multiple of $1,000,

(C) whether the Holder elects to receive any premium payable with respect to such purchase in cash or shares of Applicable Stock,

(D) that such Debenture shall be purchased by the Company as of the Purchase Date pursuant to the terms and conditions specified in this Indenture, and

(2)delivery of such Debenture to the Paying Agent at any time after delivery of the Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 13.1 only if the Debenture so delivered to the Paying Agent shall conform in all material respects to the description thereof in the related Purchase Notice.

In the event a Holder is making an election to receive any applicable premium in Applicable Stock, notice of such election may be delivered to the Paying Agent on a date that is no less than one (1) Business Day prior to the Purchase Date pursuant to 2.02(g).

If a Holder, in such Holder’s Purchase Notice and in any written notice of withdrawal delivered by such Holder pursuant to the terms of Section 13.4, fails to indicate such Holder’s choice with respect to the election set forth in clause (C) of this Section 13.1(a)(1), and does not provide a subsequent notice of its election to receive the premium in Applicable Stock to the Company and the Paying Agent no later than one (1) Business Day before the Purchase Date, such Holder shall be deemed to have elected to receive cash in respect of any applicable premium for all Debentures subject to such Purchase Notice.

(b)No later than 30 Business Days prior to the Purchase Date, the Company shall mail a written notice by first class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include a form of Purchase Notice to be completed by the Holder and shall briefly state, as applicable:

(1)that the Company has the obligation to purchase the Debentures at the option of the Holders;

(2)the date by which the Purchase Notice pursuant to this Section 13.1 must be delivered to the Paying Agent in order for a Holder to exercise the repurchase rights;

(3)the Purchase Date;

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(4)the Purchase Price;

(5)the name and address of the Paying Agent and the Conversion Agent;

(6)the Conversion Rate and any adjustments thereto;

(7)that the Debentures as to which a Purchase Notice has been given may be converted if they are otherwise convertible pursuant to Article 16 hereof only if the Purchase Notice has been withdrawn in accordance with the terms of this Indenture;

(8)that the Debentures must be surrendered to the Paying Agent to collect payment;

(9)that the Purchase Price for any Debenture as to which a Notice has been duly given and not withdrawn will be paid promptly following the later of the Purchase Date and the time of surrender of such Debenture as described in (9);

(10)the procedures the Holder must follow to exercise rights under this Section 13.1;

(11)the conversion rights of the Debentures;

(12)the procedures for withdrawing a Purchase Notice;

(13)the number of shares of Applicable Stock payable for any applicable premium;

(14)that, unless the Company defaults in making payment of such Purchase Price, interest, if any, on Debentures surrendered for purchase to the Company will cease to accrue on and after the Purchase Date and the Debentures will cease to be convertible; and

(15)the CUSIP number(s) of the Debentures.

If a Debenture is only to be purchased in part, the Company shall purchase from the Holder thereof, pursuant to this Section 13.1, such portion of a Debenture, if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Debenture also apply to the purchase of such portion of such Debenture.

Any purchase by the Company contemplated pursuant to the provisions of this Section 13.1 shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Purchase Date and the time of delivery of the Debenture.

Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice contemplated by this Section 13.1 shall have the right to withdraw such Purchase Notice at any time prior to the close of business on the third Business Day prior to the Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 13.4.

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The Paying Agent shall promptly notify the Company in writing of the receipt by it of any Purchase Notice or written notice of withdrawal thereof.

SECTION 13.2. Purchase of Debentures at Option of the Holder upon Change of Control or Upon the Sale of Certain Assets.

(a)If a Change of Control occurs, the Debentures not previously purchased by the Company shall be purchased by the Company, at the option of the Holder thereof, during the periods and at a purchase price equal to the price payable at such time as set forth in Section 2.02(f)(i) of this First Supplemental Indenture plus accrued and unpaid interest, if any (which, in this context shall be the “Change of Control Purchase Price”), as of the date that is 30 days after the date of a notice of Change of Control delivered by the Company (the “Change of Control Purchase Date”), subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 13.2(d).

A “Change of Control” will be deemed to have occurred at such time after the Debentures are originally issued when any of the following events shall occur:

(i)the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly through a purchase, merger or other acquisition transaction or series of purchase, merger or other acquisition transactions, of shares of the Capital Stock of the Company entitling that person to exercise 50% or more of the total voting power of all shares of the Capital Stock of the Company entitled to vote generally in elections of directors, other than any acquisition by any of the Company’s Subsidiaries or any of its employee benefit plans; or

(ii)during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved pursuant to a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or

(iii)the Company consolidates or merges with or into any other person, any merger of another person into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the Company’s properties and assets to another person, other than:

(A)any transaction: (1) that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of the Company’s Capital Stock; and (2) pursuant to which holders of the Company’s Capital Stock immediately prior to the transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of Capital Stock entitled to vote generally in elections of directors of the continuing or surviving Person immediately after giving effect to such issuance; and (B) any merger, share exchange, transfer of assets or similar transaction solely for the purpose of changing the Company’s jurisdiction of incorporation and resulting in a reclassification, conversion or exchange of outstanding shares of Class A Common Stock, if at all, solely into shares of common stock, ordinary shares or American Depositary Shares of the surviving Person or a direct or indirect parent of the surviving corporation.

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For the purposes of this Section 13.2, (x) whether a person is a “beneficial owner” shall be determined in accordance with Rule 13d-3 under the Exchange Act and (y) the term “person” includes any syndicate or group that would be deemed to be a “person” under Section 13(d)(3) of the Exchange Act.

(b)If an Asset Sale occurs, the Debentures not previously purchased by the Company shall be purchased by the Company, at the option of the Holder thereof, during the periods and at a purchase price equal to the price payable at such time as set forth in Section 2.02(f)(ii) of this First Supplemental Indenture plus accrued and unpaid interest, if any, (which, in this context shall be the “Asset Sale Purchase Price”) to be paid, on a pro rata basis together with any other secured Indebtedness issued pursuant to the Indenture, from Net Cash Proceeds as of the date that is specified in a notice of Asset Sale delivered by the Company (the “Asset Sale Purchase Date”) pursuant to Subsection (c)(3) below, subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 13.2(d). If the aggregate purchase price of the Securities tendered (as described below) exceeds such Net Cash Proceeds, the Trustee shall select the Securities to be purchased on a pro rata basis but in denominations of $1,000 principal amount or multiples thereof.

An “Asset Sale” will be deemed to have occurred, if, at any time after the Debentures are originally issued, a sale permitted under Section 3.04 of the First Supplemental Indenture has been completed.

(c)No later than 30 days after the occurrence of a Change of Control or five (5) days after the occurrence of an Asset Sale, the Company shall mail a written notice of the Change of Control or Asset Sale by first class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include a form of Change of Control Purchase Notice or Asset Sale Purchase Notice to be completed by the Holder and shall briefly state, as applicable:

(1)the events causing a Change of Control or Asset Sale and the date of such Change of Control or Asset Sale;

(2)the date by which the Change of Control or Asset Sale Purchase Notice pursuant to this Section 13.2 must be delivered to the Paying Agent in order for a Holder to exercise the repurchase rights;

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(3)the Change of Control Purchase Date (which shall be 30 days from the Change of Control Notice Date) or Asset Sale Purchase Date (which shall be 20 Business Days from the Asset Sale Notice Date);

(4)the Change of Control or Asset Sale Purchase Price;

(5)the name and address of the Paying Agent and the Conversion Agent;

(6)the Conversion Rate and any adjustments thereto;

(7)that the Debentures as to which a Change of Control or Asset Sale Purchase Notice has been given may be converted if they are otherwise convertible pursuant to Article 16 hereof only if the Change of Control or Asset Sale Purchase Notice has been withdrawn in accordance with the terms of this Indenture;

(8)that the Debentures must be surrendered to the Paying Agent to collect payment;

(9)that the Change of Control or Asset Sale Purchase Price for any Debenture as to which a Change of Control or Asset Sale Purchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Change of Control or Asset Sale Purchase Date and the time of surrender of such Debenture as described in (9);

(10)the procedures the Holder must follow to exercise rights under this Section 13.2;

(11)the conversion rights of the Debentures;

(12)the procedures for withdrawing a Change of Control or Asset Sale Purchase Notice;

(13)the number of shares of Applicable Stock payable for any applicable premium;

(14)that, unless the Company defaults in making payment of such Change of Control or Asset Sale Purchase Price, interest, if any, on Debentures surrendered for purchase to the Company will cease to accrue on and after the Change of Control or Asset Sale Purchase Date and the Debentures will cease to be convertible; and

(15)the CUSIP number(s) of the Debentures.

(d)A Holder may exercise its rights specified in Section 13.2(a) and (b) upon delivery of a written notice of purchase (a “Change of Control Purchase Notice” or an “Asset Sale Purchase Notice”) to the Paying Agent no later than the close of business on the third Business Day immediately preceding the Change of Control or Asset Sale Purchase Date stating:

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(1)the certificate number of the Debenture which the Holder will deliver to be purchased or the appropriate depositary procedures if Certificated Debentures have not been issued;

(2)the portion of the principal amount of the Debenture which the Holder will deliver to be purchased, which portion must be $1,000 or an integral multiple of $1,000;

(3)that such Debenture shall be purchased pursuant to the terms and conditions specified in Section 7 of the Debentures and in this Indenture; and

(4)whether the Holder elects to receive any premium payable with respect to such purchase in cash or in shares of Applicable Stock.

In the event a Holder is making an election to receive any applicable premium in Applicable Stock, notice of such election may be delivered to the Paying Agent on a date that is no less than one (1) Business Day prior to the Change of Control Purchase Date or Asset Sale Purchase Date, as applicable, pursuant to 2.02 (g).

The delivery of such Debenture to the Paying Agent with the Change of Control or Asset Sale Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Change of Control or Asset Sale Purchase Price therefore; provided, however, that such Change of Control or Asset Sale Purchase Price shall be so paid pursuant to this Section 13.2 and Section 13.3 only if the Debenture so delivered to the Paying Agent shall conform in all material respects to the description thereof set forth in the related Change of Control or Asset Sale Purchase Notice.

If a Holder, in such Holder’s Change of Control or Asset Sale Purchase Notice and in any written notice of withdrawal delivered by such Holder pursuant to the terms of Section 13.4, fails to indicate such Holder’s choice with respect to the election set forth in Section 13.2(d)(4) and does not provide a subsequent notice of its election to receive the premium in Applicable Stock to the Company and the Paying Agent no later than one (1) Business Day before the Change of Control Purchase Date or Asset Sale Purchase Date, such Holder shall be deemed to have elected to receive cash in respect of the entire Change of Control or Asset Sale Purchase Price for all Debentures subject to such Change of Control or Asset Sale Purchase Notice in the circumstances set forth in such Section 13.2(c)(4).

If a Debenture is only to be purchased in part, the Company shall purchase from the Holder thereof, pursuant to this Section 13.2 and Section 13.3, such portion of a Debenture if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Debenture also apply to the purchase of such portion of such Debenture.

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Any purchase by the Company contemplated pursuant to the provisions of this Section 13.2 and Section 13.3 shall be consummated by the delivery of the consideration to be received by the Holder on the Change of Control or Asset Sale Purchase Date.

Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Change of Control or Asset Sale Purchase Notice contemplated by this Section 13.2(c) shall have the right to withdraw such Change of Control or Asset Sale Purchase Notice at any time prior to the close of business on the last Business Day immediately preceding the Change of Control or Asset Sale Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 13.4.

The Paying Agent shall promptly notify the Company in writing of the receipt by it of any Change of Control or Asset Sale Purchase Notice or written withdrawal thereof.

SECTION 13.3. Payment of Purchase Price, Asset Sale Purchase Price and Change of Control Purchase Price.

The Company shall pay the Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, of Debentures in respect of which a Purchase Notice pursuant to Section 13.1(a) or Change of Control or Asset Sale Purchase Notice pursuant to Section 13.2(c), as the case may be, has been given in U.S. legal tender (“cash”) equal to the aggregate Purchase Price or Change of Control Purchase Price, or Asset Sale Purchase Price or, with respect to any premium, if the Holder so elects, in Applicable Stock.

SECTION 13.4. Effect of Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice.

Upon receipt by the Paying Agent of the Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice specified in Section 13.1(b) or Section 13.2(d), as applicable, the Holder of the Debenture in respect of which such Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice, as the case may be, was given shall (unless such Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice, as the case may be, is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, with respect to such Debenture. Such Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price shall be paid to such Holder, subject to receipt of funds and/or securities by the Paying Agent, promptly following the later of (x) the Purchase Date or the Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, with respect to such Debenture (provided the conditions in Section 13.1 or Section 13.2(d), as applicable, have been satisfied) and (y) the time of delivery of such Debenture to the Paying Agent by the Holder thereof in the manner required by Section 13.1 or Section 13.2(d), as applicable. Debentures in respect of which a Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice has been given by the Holder thereof may not be converted pursuant to Article 16 hereof on or after the date of the delivery of such Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice unless such Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice has first been validly withdrawn as specified in the following two paragraphs.

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A Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice, as the case may be, at any time prior to the close of business on the Business Day prior to the Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, specifying:

(1)the certificate number, if any, of the Debenture in respect of which such notice of withdrawal is being submitted,

(2)the principal amount of the Debenture with respect to which such notice of withdrawal is being submitted, and

(3)the principal amount, if any, of such Debenture which remains subject to the original Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice, as the case may be, and which has been or will be delivered for purchase by the Company.

A written notice of withdrawal of a Purchase Notice shall contain the information set forth above.

A written notice of withdrawal of a Change of Control or Asset Sale Purchase Notice may contain the information set forth above or may be in the form of (i) a conditional withdrawal contained in a Change of Control Purchase Notice or Asset Sale Purchase Notice pursuant to the terms of Section 13.2 or (ii) a withdrawal containing the information set forth in Section 13.2 and the preceding Section and contained in a written notice of withdrawal delivered to the Paying Agent as set forth in the preceding paragraph.

SECTION 13.5. Deposit of Redemption Price, Purchase Price, Change of Control Purchase Price or Asset Sale Purchase Price.

(a)Prior to 10:00 am (local time in The City of New York) on a Redemption Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 10.3 hereof) an amount of cash (in immediately available funds) or, with respect to any premium payable on any such date, shares of Applicable Stock sufficient to pay such premium to the Holders entitled thereto who have elected to receive such premium in Applicable Stock sufficient as evidenced in writing by a certified public accountant to pay the aggregate Redemption Price (and any applicable premium) of all the Debentures or portion thereof which are to be redeemed or purchased, as the case may be, as of the Redemption Date.

(b)Prior to 10:00 a.m. (local time in The City of New York) on the Business Day following a Purchase Date or the Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 10.3 hereof) an amount of cash (in immediately available funds) or, with respect to any premium payable on any such date, shares of Applicable Stock sufficient to pay such premium to the Holders entitled thereto who have elected to receive such premium in Applicable Stock sufficient as evidenced in writing by a certified public accountant to pay the aggregate Purchase Price, Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, (and any applicable premium) of all the Debentures or portions thereof which are to be purchased as of the Purchase Date, Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be.

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(c)If the Company has deposited the Redemption Price, Purchase Price, Change of Control Purchase Price or Asset Sale Purchase Price in accordance with Section 13.5(a) or (b), as applicable, on the Redemption Date, Purchase Date, Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, such Debenture will cease to be Outstanding and the right of the Holder in respect thereof shall terminate (other than the right to receive the Redemption Price, the Purchase Price, the Change of Control Purchase Price or the Asset Sale Purchase Price, as the case may be, and any accrued and unpaid interest, as aforesaid).

SECTION 13.6. Debentures Purchased in Part.

Any Debenture in certified form which is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder’s attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Debenture, without service charge, a new Debenture or Debentures, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Debenture so surrendered which is not purchased.

SECTION 13.7. Covenant to Comply With Securities Laws Upon Purchase of Debentures.

When complying with the provisions of Section 2.02(g) of this First Supplemental Indenture or Sections 13.1 or 13.2 hereof (provided that such offer or purchase constitutes an “issuer tender offer” for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), and subject to any exemptions available under applicable law, the Company shall (i) comply with Rule 13e- 4 and Rule 14e-1 (or any successor provision) under the Exchange Act, (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 2.02(g) of this First Supplemental Indenture or Sections 13.1 and 13.2 hereof to be exercised in the time and in the manner specified in Section 2.02(g) of this First Supplemental Indenture or Sections 13.1 and 13.2 hereof.

SECTION 13.8. Repayment to the Company.

The Trustee and the Paying Agent shall return to the Company any cash or shares of Applicable Stock that remain unclaimed as provided in Section 12 of the Debentures, together with interest or dividends, if any, thereon (subject to the provisions of Section 6.6), held by them for the payment of the Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be; provided, however, that to the extent that the aggregate amount of cash or shares of Applicable Stock deposited by the Company

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pursuant to Section 13.5 exceeds the aggregate Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, of the Debentures or portions thereof which the Company is obligated to purchase as of the Purchase Date or Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, then, unless otherwise agreed in writing with the Company, promptly after the Business Day following the Purchase Date or Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon (subject to the provisions of Section 6.6 hereof).

Section 2.10Application of the Article of the Indenture Regarding Defeasance and Covenant Defeasance.

Section 4.2 of the Original Indenture concerning defeasance and covenant defeasance of the Securities shall not apply to the Debentures.

Section 2.11Conversions.

Except as may be provided by a Future Supplemental Indenture, for the sole benefit of the Holders of the Debentures, a new Article 16 shall be added to the Original Indenture as follows:

ARTICLE 16

CONVERSIONS

SECTION 16.1. Conversion Privilege.

(a) Subject to and upon compliance with the provisions of this Article 16, a Holder of a Debenture shall have the right, at such Holder’s option, at any time to convert all or any portion (if the portion to be converted is $1,000 or an integral multiple of $1,000) of such Debenture into shares of Class A Common Stock at the Conversion Rate in effect on the date of conversion.

(b) The “Sale Price” of the shares of the Company’s Class A Common Stock on any date means the closing per share sale price (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date as reported on the NYSE or, if the shares of the Company’s Class A Common Stock are not listed on the NYSE, as reported on a national securities exchange, or if not reported on a national securities exchange, as reported by the Nasdaq system. In the absence of such quotations, the Company’s Board of Directors shall be entitled to determine the sales price on the basis of such quotations as it considers appropriate in good faith.

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The Conversion Rate, at any time, shall equal (A) $1,000 divided by (B) the Conversion Price at such time, rounded to four (4) decimal places (rounded up if the fifth decimal place thereof is five (5) or more and otherwise rounded down).

SECTION 16.2. Conversion Procedure; Conversion Price; Fractional Shares.

(a) Each Debenture shall be convertible at the office of the Conversion Agent into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Class A Common Stock. The Debenture will be converted into shares Class A Common Stock at the Conversion Price therefor. No payment or adjustment shall be made in respect of dividends on the Class A Common Stock or accrued interest on a converted Debenture, except as described in Section 16.9 hereof. The Company shall not issue any fraction of a share of Class A Common Stock in connection with any conversion of Debentures, but instead shall, subject to Section 16.2(b) hereof, make a cash payment (calculated to the nearest cent) equal to such fraction multiplied by the Sale Price of the Class A Common Stock on the last Trading Day prior to the date of conversion. Notwithstanding the foregoing, a Debenture in respect of which a Holder has delivered a Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice exercising such Holder’s option to require the Company to repurchase such Debenture may be converted only if such notice of exercise is withdrawn in accordance with the Section 13.4 hereof.

(b) Before any Holder of a Debenture shall be entitled to convert the same into Class A Common Stock, such Holder shall, in the case of Debentures issued in global form, comply with the procedures of the Depositary in effect at that time, and in the case of definitive Debentures, surrender such Debentures, duly endorsed to the Company or in blank, at the office of the Conversion Agent, and shall give written notice to the Company at said office or place that such Holder elects to convert the same and shall state in writing therein the principal amount of Debenture to be converted and the name or names (with addresses) in which such Holder wishes the certificate or certificates for Class A Common Stock to be issued.

Before any such conversion, a Holder also shall pay all funds required, if any, relating to interest on the Debentures, as provided in Section 16.9, and all taxes or duties, if any, as provided in Section 16.8.

If more than one Debenture shall be surrendered for conversion at one time by the same Holder, the number of full shares of Class A Common Stock which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of the Debenture (or specified portions thereof to the extent permitted thereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue and deliver at said office or place to such Holder of a Debenture, or to such Holder’s nominee or nominees, certificates for the number of full shares of Class A Common Stock to which such Holder shall be entitled as aforesaid, together, subject to the next to last sentence of Section (a) above, with cash in lieu of any fraction of a share to which such Holder would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Class A Common Stock while the stock transfer books for such stock or the security register are duly closed for any purpose, but certificates for shares of Class A Common Stock shall be issued and delivered as soon as practicable after the opening of such books or security register.

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(c) A Debenture shall be deemed to have been converted as of the close of business on the date of the surrender of such Debenture for conversion as provided above, and the person or persons entitled to receive the Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such Class A Common Stock as of the close of business on such date.

(d) In case any Debenture shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Debenture so surrendered, without charge to such Holder (subject to the provisions of Section 16.8 hereof), a new Debenture or Debentures in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Debentures.

SECTION 16.3. Adjustment of Conversion Price for Class A Common Stock.

The Conversion Price shall be adjusted from time to time as follows:

(a) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, pay a dividend or make a distribution in shares of Class A Common Stock to all holders of its outstanding shares of Class A Common Stock, then the Conversion Price in effect at the opening of business on the date next following the Record Date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction:

(1) the numerator of which shall be the number of shares of Class A Common Stock outstanding at the close of business on the Record Date fixed for such determination; and

(2) the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution.

Such reduction shall become effective immediately after the opening of business on the day following the Record Date fixed for such determination. If any dividend or distribution of the type described in this Section 16.3(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared.

(b) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, subdivide its outstanding shares of Class A Common Stock into a greater number of shares of Class A Common Stock, then the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case the Company shall, at any time or from time to time while any of the Debentures are outstanding, combine its outstanding shares of Class A Common Stock into a smaller number of shares of Class A Common Stock, then the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased.

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Such reduction or increase, as the case may be, shall become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

(c) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, issue rights or warrants (other than any rights or warrants referred to in Section 16.3(d)), or securities convertible into or exchangeable or exercisable for Class A Common Stock, to all holders of its shares of Class A Common Stock entitling them to subscribe for or purchase shares of Class A Common Stock (or securities convertible into or exchangeable or exercisable for shares of Class A Common Stock), at a price per share (or having a conversion price per share) less than the Sale Price on the Business Day immediately preceding the date of the announcement of such issuance (treating the conversion price per share of the securities convertible into Class A Common Stock as equal to (x) the sum of (i) the price for a unit of the security convertible into Class A Common Stock and (ii) any additional consideration initially payable upon the conversion of such security into Class A Common Stock divided by (y) the number of shares of Class A Common Stock initially underlying such convertible security), then the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such date of announcement by a fraction:

(1) the numerator of which shall be the number of shares of Class A Common Stock outstanding on the close of business on the date of announcement, plus the number of shares or securities which the aggregate offering price of the total number of shares or securities so offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) would purchase at such Sale Price of the Class A Common Stock; and

(2) the denominator of which shall be the number of shares of Class A Common Stock outstanding at the close of business on the date of announcement, plus the total number of additional shares of Class A Common Stock so offered for subscription or purchase (or into which the convertible securities so offered are convertible).

Such adjustment shall become effective immediately after the opening of business on the day following the date of announcement of such issuance. To the extent that shares of Class A Common Stock (or securities convertible into shares of Class A Common Stock) are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Class A Common Stock (or securities convertible into shares of Class A Common Stock) actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if the date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Class A Common Stock at less than such Sale Price, and in determining the aggregate offering price of such shares of Class A Common Stock, there shall be taken into account any consideration received for such rights or warrants and the value of such consideration if other than cash, to be determined in good faith by the Board of Directors of the Company.

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(d) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, by dividend or otherwise, distribute to all holders of its shares of Class A Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation and the Class A Common Stock is not changed or exchanged), shares of its Capital Stock (other than any dividends or distributions to which Section 16.3(a) applies), evidences of its Indebtedness or other assets, including securities, but excluding (i) any rights or warrants referred to in Section 16.3(c), (ii) dividends or distributions of stock referred to in Section 16.3(a), (iii) dividends and distributions of stock, securities or other property or assets (including cash) in connection with the reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 16.4 applies and (iv) dividends and distributions paid exclusively in cash referred to in Section 16.3(e) (such capital stock, evidence of its indebtedness, other assets or securities being distributed hereinafter in this Section 16.3(d) called the “Distributed Assets”), then, in each such case, subject to the other provisions of this Section 16.3(d), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date with respect to such distribution by a fraction:

(1) the numerator of which shall be the Current Market Price of the Class A Common Stock, less the Fair Market Value on such date of the portion of the distributed assets so distributed applicable to one share of Class A Common Stock (determined on the basis of the number of shares of Class A Common Stock outstanding on the Record Date) (determined as provided in Section 16.3(g)) on such date; and

(2) the denominator of which shall be such Current Market Price.

Such reduction shall become effective immediately prior to the opening of business on the day following the Record Date for such distribution. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared.

If the Board of Directors determines the Fair Market Value of any distribution for purposes of this Section 16.3(d) by reference to the actual or when issued trading market for any distributed assets comprising all or part of such distribution, it must in doing so consider the prices in such market over the period of the four consecutive fiscal quarters ending with the last full fiscal quarter for which financial information is available immediately preceding any date upon which any determination is to be made pursuant to the terms of either Indenture or the related Securities (the “Reference Period”) used in computing the Current Market Price pursuant to Section 16.3(g) to the extent possible, unless the Board of Directors determines in good faith that determining the Fair Market Value during the Reference Period would not be in the best interest of the Holders.

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In the event any such distribution consists of shares of capital stock of, or similar equity interests in, one or more of the Company’s Subsidiaries (a “Spin-Off”), the Fair Market Value of the securities to be distributed shall equal the average of the closing sale prices of such securities on the principal securities market on which such securities are traded for the five consecutive Trading Days commencing on and including the sixth Trading Day of those securities after the effectiveness of the Spin-Off, and the Current Market Price shall be measured for the same period. In the event, however, that an underwritten initial public offering of the securities in the Spin-Off occurs simultaneously with the Spin-Off, Fair Market Value of the securities distributed in the Spin-Off shall mean the initial public offering price of such securities and the Current Market Price shall mean the Sale Price for the Class A Common Stock on the same Trading Day.

Rights or warrants distributed by the Company to all holders of its shares of Class A Common Stock entitling them to subscribe for or purchase shares of the Company’s Capital Stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (“Trigger Event”), (i) are deemed to be transferred with such shares of Class A Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of shares of Class A Common Stock shall be deemed not to have been distributed for purposes of this Section 16.3(d) (and no adjustment to the Conversion Price under this Section 16.3(d) will be required) until the occurrence of the earliest Trigger Event. If such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different distributed assets, evidences of indebtedness or other assets, or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and record date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Price under this Section 16.3(d):

(1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of shares of Class A Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of shares of Class A Common Stock as of the date of such redemption or repurchase; and

(2) in the case of such rights or warrants which shall have expired or been terminated without exercise, the Conversion Price shall be readjusted as if such rights and warrants had never been issued.

For purposes of this Section 16.3(d) and Sections 16.3(a), 16.3(b) and 16.3(c), any dividend or distribution to which this Section 16.3(d) is applicable that also includes (i) shares of Class A Common Stock, (ii) a subdivision or combination of shares of Class A Common Stock to which Section 16.3(b) applies or (iii) rights or warrants to subscribe for or purchase shares of Class A Common Stock or securities convertible into or exercisable or exchangeable for Class A Common Stock to which Section 16.3(c) applies (or any combination thereof), shall be deemed instead to be:

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(1) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants, other than such shares of Class A Common Stock, such subdivision or combination or such rights or warrants or securities convertible into or exercisable or exchangeable for Class A Common Stock to which Sections 16.3(a), 16.3(b) and 16.3(c) apply, respectively (and any Conversion Price reduction required by this Section 16.3(d) with respect to such dividend or distribution shall then be made), immediately followed by

(2) a dividend or distribution of such shares of Class A Common Stock, such subdivision or combination or such rights or warrants or securities convertible into or exercisable or exchangeable for Class A Common Stock (and any further Conversion Price reduction required by Sections 16.3(a), 16.3(b) and 16.3(c) with respect to such dividend or distribution shall then be made), except:

(A) the Record Date of such dividend or distribution shall be substituted as (i) “the date fixed for the determination of stockholders entitled to receive such dividend or other distribution,” “Record Date fixed for such determinations” and “Record Date” within the meaning of Section 16.3(a), (ii) “the day upon which such subdivision becomes effective” and “the day upon which such combination becomes effective” within the meaning of Section 16.3(b), and (iii) as “the date fixed for the determination of stockholders entitled to receive such rights or warrants,” “the Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants” and such “Record Date” within the meaning of Section 16.3(c); and

(B) any shares of Class A Common Stock included in such dividend or distribution shall not be deemed “outstanding at the close of business on the date fixed for such determination” within the meaning of Section 16.3(a) and any reduction or increase in the number of shares of Class A Common Stock resulting from such subdivision or combination shall be disregarded in connection with such dividend or distribution.

In the event of any distribution referred to in this Section 16.3(d) in which (1) the Fair Market Value (as determined in good faith by the Board of Directors) of such distribution applicable to one share of Class A Common Stock (determined as provided above) equals or exceeds the average of the Sale Prices of the Class A Common Stock over the ten consecutive Trading Day period ending on the Record Date for such distribution or (2) the average of the Sale Prices of the Class A Common Stock over the ten consecutive Trading Day period ending on the Record Date for such distribution exceeds the Fair Market Value of such distribution by less than $1.00, then, in each such case, in lieu of an adjustment to the Conversion Price, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Debenture, in addition to shares of Class A Common Stock, the kind and amount of such distribution such Holder would have received had such Holder converted such Debenture immediately prior to the Record Date for determining the shareholders entitled to receive the distribution.

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In the event of any distribution referred to in Section 16.3(c) or 16.3(d), where, in the case of a distribution described in Section 16.3(d), the Fair Market Value of such distribution per share of Class A Common Stock (as determined in good faith by the Board of Directors) exceeds 10% of the Sale Price of a share of Class A Common Stock on the Business Day immediately preceding the declaration date for such distribution, then, if such distribution would also trigger a conversion right under Section 16.1(b) or the Debentures are otherwise convertible pursuant to this Article 16, the Company will be required to give notice to the Holders of Debentures at least 20 days prior to the Ex-Dividend Time for the distribution and, upon the giving of notice, the Debentures may be surrendered for conversion at any time thereafter, until the close of business on the Business Day prior to the Ex-Dividend Time or the Company announces that such distribution will not take place. No adjustment to the Conversion Price or the ability of a Holder of a Debenture to convert will be made if the Holder will otherwise participate in such distribution without conversion.

(e) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, by dividend or otherwise, distribute to all holders of its shares of Class A Common Stock, cash (excluding any cash that is distributed upon a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 16.4 applies or as part of a distribution referred to in Section 16.3(d)), in an aggregate amount that, combined together with:

(1) the aggregate amount of any other such distributions to all holders of shares of Class A Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 16.3(e) has been made; and

(2) the aggregate amount of any cash, plus the Fair Market Value, as of the expiration of such tender offer, of any other consideration paid in respect of any tender offer by the Company or any of its Subsidiaries for all or any portion of the shares of Class A Common Stock concluded within the 12 months preceding the date of such distribution, and in respect of which no adjustment pursuant to Section 16.3(f) has been made;

exceeds 10% of the product of the Sale Price of the Class A Common Stock on the Record Date with respect to such distribution, times the number of shares of Class A Common Stock outstanding on such date (such excess over 10%, the “Excess Amount”), then, and in each case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business of such Record Date by a fraction:

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(1) the numerator of which shall be equal to the Current Market Price on the Record Date, less an amount equal to the quotient of (x) the Excess Amount and (y) the number of shares of Class A Common Stock outstanding on the Record Date; and

(2) the denominator of which shall be equal to the Current Market Price on such date.

However, in the event that the then Fair Market Value (as so determined) of the portion of cash and other securities, if any, so distributed applicable to one share of Class A Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Debenture (or any portion thereof) the amount of cash in the Excess Amount such Holder would have received had such Holder converted such Debenture (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared.

(f) In case a tender offer made by the Company or any of its Subsidiaries for all or any portion of the shares of Class A Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of shares tendered) of an aggregate consideration having a Fair Market Value (as determined in good faith by the Board of Directors) that combined together with:

(1) the aggregate amount of the cash, plus the fair market value, as of the expiration of such tender offer, of any other consideration payable in respect of any other tender offers, by the Company or any of its Subsidiaries for all or any portion of the shares of Class A Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 16.3(f) has been made; and

(2) the aggregate amount of any distributions to all holders of shares of Class A Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 16.3(e) has been made;

exceeds 10% of the product of the Sale Price of the Class A Common Stock as of the last time (the “Expiration Time”) tenders could have been made pursuant to such tender offer (as it may be amended), times the number of shares of Class A Common Stock outstanding (including any tendered shares) on the Expiration Time (such excess, the “Excess Tender Amount”), then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date of the Expiration Time by a fraction:

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(1) the numerator of which shall be the (x) the product of (i) the number of shares of Class A Common Stock outstanding (including any tendered shares) at the Expiration Time and (ii) the Current Market Price of the Class A Common Stock at the Expiration Time, less (y) the Excess Tender Amount; and

(2) the denominator shall be the product of the number of shares of Class A Common Stock outstanding (including any tendered shares) at the Expiration Time and the Current Market Price of the Class A Common Stock at the Expiration Time.

Such reduction (if any) shall become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all or a portion of such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such (or such portion of the) tender offer had not been made. If the application of this Section 16.3(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 16.3(f).

Pursuant to rights issued under any of the Company’s rights plans, if holders of the Debentures exercising the right of conversion attaching after the date the rights separate from the underlying Class A Common Stock are not entitled to receive the rights that would otherwise be attributable to the shares of Class A Common Stock received upon conversion, the Conversion Price will be adjusted as though the rights were being distributed to holders of Class A Common Stock on the date of such separation. If such an adjustment is made and the rights are later redeemed, invalidated or terminated, then a corresponding reversing adjustment will be made to the conversion price on an equitable basis.

(g) For purposes of this Article 16, the following terms shall have the meanings indicated:

“Current Market Price” on any date means the average of the daily Sale Prices per share of Class A Common Stock for the ten consecutive Trading Days immediately prior to such date; provided, however, that if:

(1) the “ex” date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 16.3(a), (b), (c), (d), (e), or (f) occurs during such ten consecutive Trading Days, the Sale Price for each Trading Day prior to the “ex” date for such other event shall be adjusted by dividing such Sale Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event;

(2) the “ex” date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 16.3(a), (b), (c), (d), (e), or (f) occurs on or after the “ex” date for the issuance or distribution requiring such computation and prior to the day in question, the Sale Price for each Trading Day on and after the “ex” date for such other event shall be adjusted by dividing such Sale Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event; and

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(3) the “ex” date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Sale Price for each Trading Day on or after such “ex” date shall be adjusted by adding thereto the amount of any cash and the Fair Market Value (as determined in good faith by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 16.3(d), (e) or (f)) of the evidences of Indebtedness, shares of capital stock or assets being distributed applicable to one share of Class A Common Stock as of the close of business on the day before such “ex” date.

For purposes of any computation under Section 16.3(f), if the “ex” date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 16.3(a), (b), (c), (d), (e) or (f) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Sale Price for each Trading Day on and after the “ex” date for such other event shall be adjusted by dividing such Sale Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term “ex” date, when used:

(1) with respect to any issuance or distribution, means the first date on which the shares of Class A Common Stock trade regular way on the relevant exchange or in the relevant market from which the Sale Price was obtained without the right to receive such issuance or distribution;

(2) with respect to any subdivision or combination of shares of Class A Common Stock, means the first date on which the shares of Class A Common Stock trade regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective; and

(3) with respect to any tender or exchange offer, means the first date on which the shares of Class A Common Stock trade regular way on such exchange or in such market after the Expiration Time of such offer.

Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 16.3, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 16.3 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

“Fair Market Value” shall mean the amount which a willing buyer would pay a willing seller in an arm’s length transaction (as determined in good faith by the Board of Directors, whose good faith determination shall be conclusive).

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“Record Date” shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of shares of Class A Common Stock have the right to receive any cash, securities or other property or in which the shares of Class A Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).

(h) The Company shall be entitled to make such additional reductions in the Conversion Price, in addition to those required by Sections 16.3(a), (b), (c), (d), (e) and (f), as shall be necessary in order that any dividend or distribution of Class A Common Stock, any subdivision, reclassification or combination of shares of Class A Common Stock or any issuance of rights or warrants referred to above shall not be taxable to the holders of Class A Common Stock for United States Federal income tax purposes.

(i) To the extent permitted by applicable law, the Company may, from time to time, reduce the Conversion Price by any amount for any period of time, if such period is at least 20 days, the Board of Directors determines that the reduction in the Conversion Price is in the best interest of the Company, and the reduction is irrevocable during the period. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the Trustee and each Holder at the address of such Holder as it appears in the register of the Debentures maintained by the Registrar, at least 15 days prior to the date the reduced Conversion Price takes effect, a notice of the reduction stating the reduced Conversion Price and the period during which it will be in effect.

(j) In any case in which this Section 16.3 shall require that any adjustment be made effective as of or retroactively immediately following a Record Date, the Company may elect to defer (but only for five Trading Days following the filing of the statement referred to in Section 16.5) issuing to the Holder of any Debentures converted after such Record Date the shares of Class A Common Stock issuable upon such conversion over and above the shares of Class A Common Stock issuable upon such conversion on the basis of the Conversion Price prior to adjustment; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s right to receive such additional shares upon the occurrence of the event requiring such adjustment.

(k) All calculations under this Section 16.3 shall be made to the nearest cent or one-hundredth of a share, with one-half cent and 0.005 of a share, respectively, being rounded upward. Notwithstanding any other provision of this Section 16.3, the Company shall not be required to make any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of such price. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% in such price. Any adjustments under this Section 16.3 shall be made successively whenever an event requiring such an adjustment occurs.

(l) In the event that at any time, as a result of an adjustment made pursuant to this Section 16.3, the Holder of any Debentures thereafter surrendered for conversion shall become entitled to receive any shares of stock of the Class A Company other than shares of Class A Common Stock into which the Debentures originally were convertible, the Conversion Price of such other shares so receivable upon conversion of any such Debenture shall be subject to adjustment from time to time in a manner and on terms as nearly

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equivalent as practicable to the provisions with respect to Class A Common Stock contained in subparagraphs (a) through (1) of this Section 16.3, and the provision of Sections 16.1, 16.2 and 16.4 through 16.9 with respect to the Class A Common Stock shall apply on like or similar terms to any such other shares and the good faith determination of the Board of Directors as to any such adjustment shall be conclusive.

(m) No adjustment shall be made pursuant to this Section 16.3(i) if the effect thereof would be to reduce the Conversion Price below the par value (if any) of the Class A Common Stock or (ii) if the Holders of the Debentures may participate in the transaction that would otherwise give rise to an adjustment pursuant to this Section 16.3.

SECTION 16.4. Consolidation or Merger of the Company.

If any of the following events occurs, namely:

(1) any reclassification or change of the outstanding Class A Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination);

(2) any merger, consolidation, statutory share exchange or combination of the Company with another corporation as a result of which holders of Class A Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Class A Common Stock; or

(3) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Class A Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Class A Common Stock;

the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture, if such supplemental indenture is then required to so comply) providing that such Debentures shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) which such Holder would have been entitled to receive upon such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance had such Debentures been converted into Class A Common Stock immediately prior to such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance assuming such holder of Class A Common Stock did not exercise its rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance (provided, that if the kind or amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance is not

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the same for each share of Class A Common Stock in respect of which such rights of election shall not have been exercised (“Non-Electing Share”), then for the purposes of this Section 16.4, the kind and amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance for each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 16. If, in the case of any such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of Class A Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Debentures as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including to the extent practicable the provisions providing for the repurchase rights set forth in Article 13 hereof.

The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder, in accordance with Section 1.6 of this Indenture, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture.

The above provisions of this Section 16.4 shall similarly apply to successive reclassifications, changes, mergers, consolidations, statutory share exchanges, combinations, sales and conveyances.

If this Section 16.4 applies to any event or occurrence, Section 16.3 shall not apply.

SECTION 16.5. Notice of Adjustment.

Whenever an adjustment in the Conversion Price with respect to the Debentures is required:

(1) the Company shall forthwith place on file with the Trustee and any Conversion Agent for such securities a certificate of the Treasurer of the Company, stating the adjusted Conversion Price determined as provided herein and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment; and

(2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be given by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company, to each Holder in the manner provided in Section 1.6 of this Indenture. Any notice so given shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice.

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SECTION 16.6. Notice in Certain Events.

In case:

(1) of a consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or conveyance to another Person or entity or group of Persons or entities acting in concert as a partnership, limited partnership, syndicate or other group (within the meaning of Rule 13d-3 under the Exchange Act) of all or substantially all of the property and assets of the Company; or

(2) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or

(3) of any action triggering an adjustment of the Conversion Price referred to in clauses (x) or (y) below;

then, in each case, the Company shall cause to be filed with the Trustee and the Conversion Agent, and shall cause to be given, to the Holders of the Debentures in the manner provided in Section 1.6 of this Indenture, at least 15 days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of any distribution or grant of rights or warrants or other securities triggering an adjustment to the Conversion Price pursuant to this Article 16, or, if a record is not to be taken, the date as of which the holders of record of Class A Common Stock entitled to such distribution, rights or warrants or other securities are to be determined, or (y) the date on which any reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up triggering an adjustment to the Conversion Price pursuant to this Article 16 is expected to become effective, and the date as of which it is expected that holders of Class A Common Stock of record shall be entitled to exchange their Class A Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger sale, conveyance, dissolution, liquidation or winding up.

Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in clause (1), (2) or (3) of this Section 16.6.

SECTION 16.7. Company To Reserve Stock: Registration; Listing.

(a) The Company shall, in accordance with the laws of the Commonwealth of Pennsylvania, at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Class A Common Stock for the purpose of effecting the conversion of the Debentures, such number of its duly authorized shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all Debentures then Outstanding into such Class A Common Stock at any time (assuming that, at the time of the computation of such number of shares or securities, all such Debentures would be held by a single Holder); provided, however, that nothing contained herein shall preclude the Company from satisfying its obligations in respect of the conversion of the Debentures by delivery of purchased shares of Class A Common Stock which are then held in the treasury of the Company. The Company covenants that all shares of Class A Common Stock which may be issued upon conversion of Debentures will upon issue be fully paid and nonassessable and free from all liens and charges and, except as provided in Section 16.8, taxes with respect to the issue thereof.

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(b)If any shares of Class A Common Stock which would be issuable upon conversion of Debentures hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will use its commercially reasonable efforts to cause such shares or securities to be duly registered or approved, as the case may be. The Company further covenants that so long as the Class A Common Stock shall be listed on the Nasdaq National Market System, the Company will use its commercially reasonable efforts, if permitted by the rules of such exchange, to list and keep listed all Class A Common Stock issuable upon conversion of the Debentures, and the Company will use its commercially reasonable efforts to list the shares of Class A Common Stock required to be delivered upon conversion of the Debentures prior to such delivery upon any other national securities exchange upon which the outstanding Class A Common Stock is listed at the time of such delivery.

SECTION 16.8. Taxes on Conversion.

The issue of stock certificates on conversion of Debentures shall be made without charge to the converting Holder for any documentary, stamp or similar issue or transfer taxes in respect of the issue thereof, and the Company shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of shares of Class A Common Stock on conversion of Debentures pursuant hereto. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Class A Common Stock or the portion, if any, of the Debentures which are not so converted in a name other than that in which the Debentures so converted were registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid.

The Company agrees, and each Holder is deemed to agree, that delivery to such Holder of the full number of Class A Common Stock into which each Debenture is convertible, together with any cash payment of such Holder’s fractional shares or otherwise in accordance with Section 16.13, will be treated as a contingent payment (in an amount equal to the sum of the then Fair Market Value of such Class A Common Stock and such cash payment, if any) on the Debentures for purposes of the Contingent Payment Debt Regulations governing contingent payment debt obligations.

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SECTION 16.9. Conversion After Record Date.

Except as provided below, if any Debentures are surrendered for conversion on any day other than an Interest Payment Date, the Holder of such Debentures shall not be entitled to receive any interest that has accrued on such Debentures since the prior Interest Payment Date. By delivery to the Holder of the number of shares of Class A Common Stock or other consideration issuable upon conversion in accordance with this Article 16, any accrued and unpaid interest on such Debentures will be deemed to have been paid in full.

If any Debentures are surrendered for conversion subsequent to the Record Date preceding an Interest Payment Date but prior to such Interest Payment Date, the Holder of such Debentures at the close of business on such Record Date shall receive the interest payable on such Debenture on such Interest Payment Date notwithstanding the conversion thereof. Debentures surrendered for conversion during the period from the close of business on any Record Date preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Debentures which have been called for redemption on a Redemption Date within such period) be accompanied by payment by Holders, for the account of the Company, in New York Clearing House funds or other funds of an amount equal to the interest payable on such Interest Payment Date on the Debentures being surrendered for conversion. Except as provided in this Section 16.9, no adjustments in respect of payments of interest on Debentures surrendered for conversion or any dividends or distributions or interest on the Class A Common Stock issued upon conversion shall be made upon the conversion of any Debentures.

SECTION 16.10. Company Determination Final.

Any determination that the Company or the Board of Directors must make pursuant to this Article 16 shall be conclusive if made in good faith and in accordance with the provisions of this Article, absent manifest error, and set forth in a Board Resolution.

SECTION 16.11. Responsibility of Trustee for Conversion Provisions.

The Trustee has no duty to determine when an adjustment under this Article 16 should be made, how it should be made or what it should be. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Debentures. The Trustee shall not be responsible for any failure of the Company to comply with this Article 16. Each Conversion Agent other than the Company shall have the same protection under this Section 16.11 as the Trustee.

The rights, privileges, protections, immunities and benefits given to the Trustee under the Indenture including, without limitation, its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each Paying Agent or Conversion Agent acting hereunder.

SECTION 16.12. Unconditional Right of Holders to Convert.

Notwithstanding any other provision in this Indenture, the Holder of any Debenture shall have the right, which is absolute and unconditional, to convert its Debenture in accordance with this Article 16 and to bring an action for the enforcement of any such right to convert, and such rights shall not be impaired or affected without the consent of such Holder.

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SECTION 16.13. Cash Conversion Option.

(a) If a Holder elects to convert all or any portion of a Debenture into shares of Class A Common Stock as set forth in Section 16.1, the Company may choose to satisfy all or any portion of its conversion obligation (the “Conversion Obligation”) in cash. Upon such election, the Company will notify such Holder through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as a percentage of the Conversion Obligation or as a fixed dollar amount) at any time on or before the date that is two Business Days following receipt of written notice of conversion as specified in Section 16.2 (such period, the “Cash Settlement Notice Period”). If the Company elects to pay cash for any portion of the shares otherwise issuable to the Holder, the Holder may retract the conversion notice at any time during the two Business Day period beginning on the day after the final day of the Cash Settlement Notice Period (a “Conversion Retraction Period”); no such retraction may be made (and a conversion notice shall be irrevocable) if the Company does not elect to deliver cash in lieu of shares (other than cash in lieu of fractional shares). If the conversion notice has not been retracted, then settlement (in cash and/or shares) will occur on the Business Day following the final day of the 20 Trading Day period beginning on the day after the final day of the Conversion Retraction Period (the “Cash Settlement Averaging Period”). Settlement amounts will be computed as follows:

(i)if the Company elects to satisfy the entire Conversion Obligation in shares of Class A Common Stock, the Company will deliver to such Holder a number of shares equal to (1) the aggregate original principal amount at maturity of the Debentures to be converted divided by 1,000, multiplied by (2) the Conversion Rate;

(ii) if the Company elects to satisfy the entire Conversion Obligation in cash, the Company will deliver to such Holder cash in an amount equal to the product of:

(1) a number equal to (x) the aggregate original principal amount at maturity of Debentures to be converted divided by 1,000, multiplied by (y) the Conversion Rate, and

(2) the average Sale Price of the Class A Common Stock during the Cash Settlement Averaging Period; and

(iii) if the Company elects to satisfy a fixed portion (other than 100%) of the Conversion Obligation in cash, the Company will deliver to such Holder such cash amount (“Cash Amount”) and a number of shares equal to the excess, if any, of the number of shares calculated as set forth in clause (i) above over the number of shares equal to the sum, for each day of the Cash Settlement Averaging Period, of (x) the pro rated portion of the Cash Amount for such day divided by (y) the Sale Price of the Class A Common Stock on such day.

Notwithstanding the foregoing, a Debenture in respect of which a Holder has delivered a Purchase Notice or Change of Control Purchase Notice exercising such Holder’s option to require the Company to repurchase such Debenture may be converted as described in this Section 16.13 (a) only if such notice of exercise is withdrawn in accordance with the Section 13.4 hereof.

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(b) If a Holder elects to convert all or any portion of a Debenture into shares of Class A Common Stock after the Company has exercised its right to redeem all or any portion of the Debentures pursuant to Section 5 of the Debentures or within 20 days of the Stated Maturity, the Company may choose to satisfy all or any portion of the Conversion Obligation in cash provided the Company notifies such Holder through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as a percentage of the Conversion Obligation or as a fixed dollar amount) at any time on or before the date that is 20 days prior to Stated Maturity or Redemption Date. Settlement amounts will be computed in the same manner as set forth in (a) above except that the “Cash Settlement Averaging Period” shall be the 20 Trading Day period beginning on the day after the Stated Maturity or Redemption Date, as the case may be. Settlement (in cash and/or shares) will occur on the Business Day following the final day of such Cash Settlement Averaging Period.

Section 2.12Trustee’s Right to Exercise Remedies Against Security.

Notwithstanding anything to the contrary in this First Supplemental Indenture, upon an Event of Default under their respective indentures, the Trustee under this First Supplemental Indenture, the trustee under the indenture governing the 8.50% Monthly Income Senior Notes due 2018 and the trustee or other authorized representative of any other secured Indebtedness issued pursuant to the terms of the Indenture each have the right to exercise remedies against the Collateral and Additional Collateral for the benefit of the holders of, respectively, these Debentures and the 8.50% Monthly Income Senior Notes due 2018 and such other secured Indebtedness. Any recoveries shall be for the equal and ratable benefit of such holders.

Section 2.13Trustee to Hold Collateral and Additional Collateral.

The Trustee or the Collateral Agent shall hold any and all Collateral and any Additional Collateral for the purpose of perfecting the security interest of the Holders of the Debentures, the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 and the holders of any other secured Indebtedness issued pursuant to the terms of the Indenture. The Trustee hereby acknowledges, and any Collateral Agent shall similarly acknowledge in any Collateral Agent Agreement, that, to the extent it is holding the Collateral or any Additional Collateral, it is holding the Collateral and any Additional Collateral for the equal and ratable benefit of the Holders of the Debentures, the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 and the holders of any other secured Indebtedness issued pursuant to the terms of the Indenture, that the security interest of each of such series of Securities is subject to the security interest of the other such series of Securities and acknowledges that the Trustee shall act in accordance with the provisions of Section 2.12 of this First Supplemental Indenture and that each trustee shall have the right to exercise remedies against the Collateral and any Additional Collateral.

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Section 2.14Additional Amounts.

Notwithstanding the provisions of Sections 5.8 and 10.4 of the Original Indenture, or any other provision thereof, the Company shall not be obligated to pay, and a Holder shall have no right to receive, any Additional Amounts with respect to the Debentures.

ARTICLE III

ADDITIONAL COVENANTS

In addition to the covenants and agreements contained in the Original Indenture, the Company covenants and agrees for the benefit of the Holders of the Debentures (all of which covenants and agreements, other than the covenants contained in Sections 3.01, 3.02, 3.04, 3.06 and 3.08, will terminate on July 1, 2009 unless a Default or Event of Default shall have occurred and be continuing) as follows:

Section 3.01Maintenance of Properties.

The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order, normal wear and tear excepted, and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the reasonable judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the reasonable judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary of the Company and not disadvantageous in any material respect to the Holders.

Section 3.02Payment of Taxes and Other Claims.

The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary of the Company or upon the income, profits or property of the Company or any Subsidiary of the Company, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of the Company or any Subsidiary of the Company; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings.

Section 3.03Limitation on Liens on Capital Stock of Restricted Subsidiaries.

The Company will not, and it will not permit any Restricted Subsidiary of the Company to, at any time directly or indirectly create, assume, incur or permit to exist any Indebtedness secured by a Lien on the Capital Stock of any Restricted Subsidiary without making effective provision whereby the Debentures, the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued pursuant to the terms of the Indenture shall be secured by a first Lien on such Capital Stock, which is senior and prior to such Lien securing such other Indebtedness so long as such other Indebtedness shall be secured.

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Section 3.04Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries.

The Company will not issue, sell, lease, transfer or otherwise dispose of any Capital Stock of any Restricted Subsidiary, except to a Wholly Owned Restricted Subsidiary of the Company, nor will it permit any Restricted Subsidiary to issue (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) any Capital Stock (other than directors’ qualifying shares) of a Restricted Subsidiary if, after giving effect to any such transaction, such Subsidiary would not continue to be a Wholly Owned Restricted Subsidiary. Notwithstanding the foregoing, (i) the Company may merge or consolidate any Wholly Owned Restricted Subsidiary into or with another Wholly Owned Restricted Subsidiary and (ii) the Company may, subject to the provisions of Section 3.06 of this First Supplemental Indenture, sell, lease, transfer or otherwise dispose of the entire Capital Stock of a Restricted Subsidiary at one time for cash consideration for at least fair market value consideration, as determined by the Board of Directors pursuant to a Board Resolution adopted in good faith and supported by an opinion as to fairness from a financial point of view by an Independent Financial Advisor of recognized standing, so long as (1) the Net Cash Proceeds received by the Company (or its Restricted Subsidiaries, as the case may be) from such issue, sale, lease, transfer or other disposition are applied in accordance with Section 13.2(b) and (2) the Debentures, the Company’s 8.50% Monthly Income Senior Notes due 2018 and any other secured Indebtedness issued pursuant to the terms of the Indenture shall thereafter be secured by a first Lien on any Collateral or Additional Collateral, which is senior and prior to any Lien on such Collateral or Additional Collateral securing any other Indebtedness of the Company or any Restricted Subsidiary.

Additionally, the Company covenants to do or cause to be done all things necessary to perfect the first priority security interests in such portion of any additional Capital Stock that may be issued in accordance with this Section in order to maintain the Trustee’s Lien on the appropriate percentage of each Subsidiary’s Capital Stock in accordance with Sections 1.03 and 3.08 of this Indenture. To the extent that the assets which are the subject of any Asset Sale constitute Collateral, all proceeds thereof shall, to the extent permitted by law, be subject to a perfected Lien in favor of the Collateral Agent, and all proceeds constituting cash and Cash Equivalents received from such an Asset Sale shall be deposited in the account under the control of the Collateral Agent established by the Collateral Agent Agreement.

Section 3.05Limitation on Restricted Payments.

The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly:

(a)declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company’s Capital Stock to holders of such Capital Stock (other than to the Company or a Restricted Subsidiary);

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(b)purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Restricted Subsidiary or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than any Indebtedness convertible into Capital Stock of the Company, excluding any such shares of Capital Stock, warrants, rights or options owned by the Company or any Restricted Subsidiary); or

(c)redeem, defease, repurchase, retire or otherwise acquire or retire for value prior to any scheduled maturity repayment or sinking fund payment, Indebtedness of the Company which is subordinate in right of payment to the Debentures; and

(d)make any Investment (other than Permitted Investments);

(each of the foregoing actions set forth in clauses (a), (b),(c) and (d) being referred to as a “Restricted Payment”), if at the time of such Restricted Payment or immediately after giving effect thereto and to the incurrence of any Indebtedness incurred to finance such Restricted Payment,

(i)a Default or an Event of Default shall have occurred and be continuing; or

(ii)(x) the Ratio Test is not met; (y) the ratio of policyholders’ surplus to ACL RBC for each of the Insurance Subsidiaries for the last reported fiscal quarter is less than 250%; or (z) the ratio of combined policyholders surplus of all of the Insurance Subsidiaries to consolidated long-term Indebtedness of the Company is less than 2.0 to 1.0; or

(iii)the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum of:

(1)50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the “Reference Date”) (treating such period as a single accounting period); plus

(2)100% of the aggregate Net Cash Proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security that is convertible into, or exchangeable for, Qualified Capital Stock); plus

(3)without duplication of any amounts included in clause (iii)(1) above, 100% of the aggregate Net Cash Proceeds of any equity contribution received by the Company from a holder of the Company s Capital Stock (excluding, in the case of clauses (iii)(2) and (3), any Net Cash Proceeds from an Equity Offering to the extent used to redeem or purchase the Debentures in compliance with the provisions set forth in Sections 13.1 and 13.2of the Indenture); plus

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(4)100% of the proceeds of any Indebtedness of the Company or any Restricted Subsidiary incurred after the Issue Date that has been converted into or exchanged for Qualified Capital Stock of the Company; plus

(5)without duplication, the sum of:

a.the aggregate amount returned in cash to the Company on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments and not included in clause (iii)(1) above;

b.the Net Cash Proceeds received by the Company from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company); and

c.upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary;

provided, however, that the sum of clauses (a), (b) and (c) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date.

Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit (provided that with respect to clause (b) or (e) below no Default or Event of Default shall have occurred and be continuing):

(a)the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration;

(b)the redemption, repurchase or retirement or other acquisition of any shares of Capital Stock of the Company or any Restricted Subsidiary, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of Net Cash Proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company;

(c)any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Company which is subordinate in right of payment to the Debentures (“Repurchased Subordinated Indebtedness”) made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness, provided, however, that:

(i)such Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Repurchased Subordinated Indebtedness;

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(ii)such Indebtedness has an Average Life at the time it is Incurred that is equal to or greater than the Average Life of the Repurchased Subordinated Indebtedness; and

(iii)such Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance cost) under the Repurchased Subordinated Indebtedness;

(d)the deemed repurchase of Capital Stock of the Company or any Restricted Subsidiary upon the exercise of stock options;

(e)pro rata dividends or other distributions made by a Restricted Subsidiary to minority holders of equity interests in such Restricted Subsidiary; and

(f)other Restricted Payments in an aggregate amount not to exceed ten million dollars ($10,000,000) since the Issue Date.

In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the first paragraph of this Section 3.05, amounts expended pursuant to clauses (a), (b)(ii) and (f) shall be included in such calculation.

Under GAAP, Consolidated Net Income is not reduced by unrealized losses or increased by unrealized gains.

Section 3.06Merger, Consolidation and Sale of Assets.

The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, continue in another jurisdiction, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company’s assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless:

(a)either:

(i)the Company shall be the surviving or continuing corporation; or

(ii)the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and its Restricted Subsidiaries substantially as an entirety (the “Surviving Entity”):

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(x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; provided that if the Person is a partnership or limited liability company, a corporation wholly owned by such Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia that does not and will not have any material assets or operations, shall promptly thereafter become a co-issuer of the Debentures pursuant to a supplemental indenture; and

(y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Debentures and the performance of every covenant of the Debentures and, the Indenture on the part of the Company to be performed or observed;

(b)immediately after giving effect to such transaction and the assumption contemplated by clause (a)(ii)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall meet the Ratio Test;

(c)immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (a)(ii)(y) above (including, without limitation, giving effect to any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and

(d)the Company or the Surviving Entity shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied.

Notwithstanding clause (b) of the immediately preceding paragraph, any Restricted Subsidiary may consolidate or combine with, merge into or transfer all or part of its properties and assets to the Company or another Wholly Owned Restricted Subsidiary.

For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company.

Upon any consolidation, combination or merger or any transfer (other than a lease) of all or substantially all of the assets of the Company in accordance with the foregoing in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company hereunder and the Debentures.

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Section 3.07Limitations on Transactions with Affiliates.

(a)The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each, an “Affiliate Transaction”), other than (x) Affiliate Transactions permitted under clause (c) of this covenant and (y) Affiliate Transactions on terms that are on the whole no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm’s-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary.

(b)All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of five million dollars ($5,000,000) shall be approved by the Board of Directors (and by a majority of the Disinterested Directors) of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than fifteen million dollars ($15,000,000), the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee.

(c)The restrictions set forth in paragraphs (a) and (b) of this Section 3.07 shall not apply to:

(i)reasonable fees, compensation benefits and incentives paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company’s Board of Directors or senior management;

(ii)transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, so long as such transactions are not otherwise prohibited by the Indenture;

(iii)any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) or in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement;

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(iv)Restricted Payments permitted by Section 3.05 of this First Supplemental Indenture;

(v)customary stockholders and registration rights agreements among the Company or any Restricted Subsidiary and the stockholders thereof; and

(vi)ordinary course insurance or reinsurance contracts or other agreements with respect to the provision of services (a) requiring approval of any governmental or regulatory insurance agency that are so approved by such agency (and on the terms so approved), or (b) requiring the passage of time to have occurred without disapproval of any governmental or regulatory insurance agency for which the required time has passed (and on the terms presented to such agency).

Section 3.08Protection of Collateral and the Additional Collateral.

The Company will from time to time execute and deliver all such supplements and amendments hereto and all such filings, financing statements, continuation statements, instruments of further assurance and other instruments, and will take such other action necessary or advisable to:

(a)maintain and preserve the Lien and security interest (and the priority thereof) granted to the Trustee in the Collateral and the Additional Collateral pursuant to this Indenture or carry out more effectively the purposes hereof;

(b)perfect, publish notice of or protect the validity of any grant of security made or to be made by this Indenture;

(c)enforce the Lien granted to the Trustee in any of the Collateral or the Additional Collateral;

(d)preserve and defend title to the Collateral or the Additional Collateral and the rights of the Trustee, the Collateral Agent and the Holders of the Debentures in the Collateral and the Additional Collateral against the claims of all Persons and parties; and

(e)pay any and all taxes levied or assessed up on all or any part of the Collateral or the Additional Collateral.

The Company hereby authorizes the Trustee to file and designates the Trustee its agent and attorney-in-fact to execute and file any financing statement, continuation statement or other instrument required by the Trustee pursuant to this Section 3.08 of the Indenture.

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Section 3.09The Company to Remain a Holding Company.

During the time any Debentures are Outstanding under this Indenture, the Company shall conduct no activities other than as a holding company.

Section 3.10Limitation on Incurrence of Additional Indebtedness.

The Company shall not create, incur, assume, guarantee, acquire or become liable for (collectively, “incur”) any Indebtedness (other than Permitted Indebtedness), unless the Ratio Test is met on a pro forma basis for such incurrence or the ratio of consolidated debt to total capitalization of the Company as of the end of the last reported fiscal quarter of the Company, on a pro forma basis giving effect to such incurrence, is less than 35%.

“Permitted Indebtedness” means, without duplication, each of the following:

(1)Indebtedness issued under the Indenture in an aggregate principal amount not to exceed $101,250,000;

(2)other Indebtedness outstanding on the date of issuance of the Debentures;

(3)interest swap obligations; provided, however, that the notional principal amount of such interest swap obligation does not, at the time of the incurrence thereof, exceed the principal amount of the Indebtedness to which such interest swap obligation relates;

(4)Indebtedness under currency agreements; provided that in the case of currency agreements which relate to Indebtedness, such currency agreements do not increase the Indebtedness of the Company outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;

(5)Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company or the holder of a Lien permitted under this Indenture (a “Permitted Lien”), in each case subject to no Lien other than a Permitted Lien; provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company’s obligations under this Indenture and the new debentures and (b) if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Company or the holder of a Permitted Lien owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (5) by the Company;

(6)Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within two business days of incurrence;

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(7)Indebtedness in respect of performance bonds, bankers’ acceptances, workers’ compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations, letters of credit issued to secure claim obligations, and bank overdrafts (and letters of credit in respect thereof) in the ordinary course of business;

(8)Indebtedness represented by Capital Lease Obligations and purchase money indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed $15,000,000 at any one time outstanding (which may not be secured by Liens on the Collateral or the Additional Collateral);

(9)Refinancing Indebtedness (defined below);

(10)Indebtedness consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets; and

(11)Indebtedness of the Company to the extent the proceeds are used to pay interest on the Debentures substantially concurrently with the incurrence thereof.

For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (11) above, the Company may, in its sole discretion, classify (or later reclassify) such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for purposes of this covenant.

“Refinancing Indebtedness” means any refinancing of indebtedness incurred in accordance with this covenant, in each case that does not:

(1)result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by such Person in connection with such refinancing); or

(2)create Indebtedness with: (a) an Average Life that is less than the Average Life of the Indebtedness being refinanced; or (b) a final maturity earlier than the final maturity of the Indebtedness being refinanced; provided that if such Indebtedness being refinanced is subordinated or junior to the new debentures, then such Refinancing Indebtedness shall be subordinated or junior to the new debentures at least to the same extent and in the same manner as the Indebtedness being refinanced.

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ARTICLE IV

MISCELLANEOUS PROVISIONS

Section 4.01Recitals by Company.

The recitals in this First Supplemental Indenture are made by the Company only and not by the Trustee, and all of the provisions contained in the Original Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of the Debentures and of this First Supplemental Indenture as fully and with like effect as if set forth herein in full.

Section 4.02Ratification and Incorporation of Original Indenture.

As supplemented hereby, the Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this First Supplemental Indenture shall be read, taken and construed as one and the same instrument.

Section 4.03Executed in Counterparts.

This First Supplemental Indenture may be simultaneously executed in several counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written.

PMA CAPITAL CORPORATION

By: /s/ William E. Hitselberger

William E. Hitselberger

Senior Vice President, Chief Financial Officer and Treasurer

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By: /s/ Michael M. Hopkins

Michael M. Hopkins

Vice President

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EXHIBIT A

THIS DEBENTURE Form of 6.50% Senior Secured Convertible Debenture due September 30, 2022

[The following legends apply only if the Debenture is a global Security:

IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS DEBENTURE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A DEBENTURE REGISTERED, AND NO TRANSFER OF THIS DEBENTURE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND SUCH CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

FOR PURPOSES OF SECTION 1273 AND 1275 OF THE INTERNAL REVENUE CODE, THIS DEBENTURE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. THE ISSUE DATE IS NOVEMBER 15, 2004 AND THE YIELD TO MATURITY FOR PURPOSES OF ACCRUING ORIGINAL ISSUE DISCOUNT IS 6.50% PER ANNUM.

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PMA CAPITAL CORPORATION

6.50% Senior Secured Convertible Debenture due September 30, 2022

No. 1	CUSIP: 693419AA1
Issue Date: November 15, 2004	Principal Amount: $ ______

PMA CAPITAL CORPORATION, a Pennsylvania corporation, promises to pay to ________ or registered assigns, the principal amount of Dollars ($) on September 30, 2022.

Interest Payment Dates: March 30 and September 30, commencing March 30, 2005.

Record Dates: March 15 and September 15.

Reference is hereby made to the further provisions of this Debenture set forth on the reverse side of this Debenture, which further provisions shall for all purposes have the same effect as if set forth at this place.

IN WITNESS WHEREOF, PMA Capital Corporation has caused this instrument to be duly executed under its corporate seal.

Dated: ___________________	PMA CAPITAL CORPORATION
	By:	__________________________________________
		Name:
		Title:

Attest: ________________________

Name:

Title:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within mentioned Indenture.  

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:
	Authorized Signatory

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[FORM OF REVERSE OF GLOBAL SECURITY]

6.50% Senior Secured Convertible Debenture due September 30, 2022

This Debenture is one of a duly authorized issue of 6.50% Senior Secured Convertible Debentures due September 30, 2022 (the “Debentures”) of PMA Capital Corporation, a Pennsylvania corporation (including any successor corporation under the Indenture hereinafter referred to, the “Company”) issued under an Indenture, dated as of November 15, 2004 (the “Original Indenture”), as supplemented by the First Supplemental Indenture, dated as of November 15, 2004 (the “First Supplemental Indenture”, and together with the Original Indenture, the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitation of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Debentures issued thereunder and of the terms upon which said Debentures are, and are to be, authenticated and delivered. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Debenture and the terms of the Indenture, the terms of the Indenture shall control. Capitalized terms used but not defined herein have the meanings assigned to them in the Indenture unless otherwise indicated.

1.Interest.

General. The Company promises to pay interest on the principal amount of the Debentures at the interest rate specified herein from the date of issuance until repayment in full at September 30, 2022, conversion, redemption or purchase. The Company will pay interest on this Debenture semi-annually in arrears on March 30 and September 30 of each year (each, an “Interest Payment Date”), commencing March 30, 2005. The Company will pay interest in cash.

(a)The Debentures shall bear interest from the Issue Date until the principal amount thereof is paid or made available for payment, or until such date on which the Debentures are converted, redeemed or purchased as provided herein at a rate of 6.50% per annum.

(b)Interest on the Debentures shall be computed on the basis of a 360-day year of twelve 30-day months and, for such periods of less than a month, the actual number of days elapsed over a 30-day month. Holders are not entitled to receive contingent interest.

(c)If this Debenture is redeemed or the Holder elects to require the Company to purchase this Debenture pursuant to Section 7 of this Debenture, on a date that is after the Regular Record Date and on or prior to the corresponding Interest Payment Date, interest, if any, accrued and unpaid hereon to but not including the applicable Redemption Date, Purchase Date or Change of Control Purchase Date as the case may be will be paid to the Holder of record on the Regular Record Day.

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Interest on Debentures converted after a Regular Record Date but prior to the corresponding Interest Payment Date will be paid to the Holder of the Debentures on the record date but, all Holders agree, by their acceptance of a Debenture that upon conversion, the Holder must pay the Company the interest, which has accrued and will be paid on such Interest Payment Date. No such payment need be made with respect to Debentures which will be redeemed after a Regular Record Date but prior to the corresponding Interest Payment Date.

If the principal amount hereof or any portion of such principal amount or any interest, if any, on any Debenture is not paid when due (whether upon acceleration pursuant to Section 5.2 of the Indenture or on the Stated Maturity or on the Redemption Date, Purchase Date, Change of Control Purchase Date or Asset Sale Purchase Date), then in each such case the overdue amount shall, to the extent permitted by law, bear interest at the applicable interest rate, compounded semi-annually, which interest shall accrue from the date such overdue amount was originally due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand.

2.Method of Payment.

Except as provided below, interest will be paid (i) on a global Debenture to the Depositary in immediately available funds, (ii) on any definitive Debentures having an aggregate principal amount of $5,000,000 or less, by check mailed to the Holders of such Debentures; and (iii) on any definitive Debentures having an aggregate principal amount of more than $5,000,000, by wire transfer in immediately available funds at the election of the Holders of such Debentures.

At Stated Maturity the Company will pay interest on (i) definitive Debentures at the Company’s office or agency in New York City, which initially will be the Place of Payment as provided in Section 10.2 of the Indenture and (ii) on global Debentures to the Depositary in immediately available funds.

Principal (i) on definitive Debentures will be payable, upon Stated Maturity or when due, in immediately available funds at the office or agency of the Company in New York City, which, initially will be the Place of Payment as provided in Section 10.2 of the Indenture and (ii) on global Debentures to the Depositary in immediately available funds.

Subject to the terms and conditions of the Indenture, the Place of Payment for the Debentures and the place or places where the Debentures may be surrendered for registration of transfer, exchange, repurchase, redemption or conversion and where notices may be given to the Company in respect of the Debentures is at the Corporate Trust Office of the Trustee or such other office or agency of the Company as may be designated for such purpose. Payment of principal and interest on the Debentures will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

3.Paying Agent, Conversion Agent and Security Registrar.

Initially, the Trustee will act as Paying Agent, Conversion Agent and Security Registrar with respect to the Debentures. The Company may appoint and change any Paying Agent, Conversion Agent or Security Registrar without notice, other than notice to the Trustee. The Company may have one or more additional paying agents and one or more additional conversion agents. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent or Security Registrar.

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4.Indenture and Security for the Debentures.

The Debentures are issued under the Indenture. The Company is limited in the amount of indebtedness it can issue under the Indenture to $101,250,000. The Debentures are general obligations of the Company limited to $84,140,000 aggregate principal amount. The First Supplemental Indenture limits Liens on the Capital Stock of Restricted Subsidiaries (as defined therein) and limits the amount of Indebtedness that the Company can issue. The Debentures, along with certain other securities of the Company, are secured by certain shares of the Capital Stock of certain of the Company’s operating Subsidiaries, as set forth in the Indenture. The security will be automatically released under certain circumstances set forth in the Indenture. The Collateral and any Additional Collateral will be held by a Collateral Agent under the terms of a Collateral Agent Agreement.

5.Redemption.

(a)At the Option of the Company. At any time from October 1, 2008, the Company, at its option, may redeem in principal amounts of $1,000 or integral multiples of $1,000 the Debentures for cash as a whole, or from time to time in part, at a Redemption Price of 114% of the principal amount of the Debentures, plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date.

(b)Mandatory Redemption with Extraordinary Dividends. From January 1, 2006 to December 31, 2006, in the event the Company receives any Extraordinary Dividends from any of its subsidiaries, the Company shall redeem the Debentures and certain other securities issued under the Original Indenture pro rata in principal amounts of $1,000 or integral multiples of $1,000 with 50% of the amount of such dividends for cash at a Redemption Price of 110% of the principal amount of the Debentures plus accrued and unpaid interest, if any, to the Redemption Date. The aggregate principal amount of Debentures plus any other securities issued under the Indenture to be redeemed in this instance shall not exceed $35,000,000.

Debentures or portions thereof to be redeemed as of a Redemption Date will be convertible by the Holders of such Debentures until the close of business on the second Business Day prior to the Redemption Date.

6.Premium Payable in Stock at Option of Holder.

Subject to the terms of the Indenture, in connection with any premium payable to a holder of the Debentures in connection with redemptions pursuant to Section 5 above and repurchases pursuant to Section 7 below, which, in each case, are as a result of an event or action which occurs on or prior to June 30, 2009, each holder will have the option to elect to receive such premium in shares of Applicable Stock. For the purposes of calculating the number of shares issuable to any Holder of the Debentures who elects to exercise such option, the shares of Applicable Stock will be valued at $8.00 per share subject to adjustment as set forth in the Indenture. The Company shall notify the Trustee and the Holders of any premium in accordance with the terms of the Indenture.

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7.(a)Repurchase By the Company at the Option of the Holder.

Subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase, at the option of the Holder, all or any portion of the Debentures held by such Holder on June 30, 2009 in integral multiples of $1,000 at a Purchase Price of 114% of the principal amount of the Debentures to be repurchased, plus accrued and unpaid interest, if any, on such Debentures on the Purchase Date. To exercise such right, a Holder shall deliver to the Company a Purchase Notice containing the information set forth in the Indenture, at any time from the opening of business on the date that is 20 Business Days prior to such Purchase Date until the close of business on the third Business Day prior to such Purchase Date, and shall deliver the Debentures to the Paying Agent as set forth in the Indenture.

(b)Purchase of Debentures at Option of the Holder upon Change of Control.

Subject to the terms and conditions of the Indenture, the Company shall become obligated to purchase, at the option of the Holder, all or any portion of the Debentures held by such Holder within 30 days after delivery of the Change of Control Purchase Notice for a Change of Control Purchase Price equal to the price payable as set forth below plus accrued and unpaid interest, if any, of such Debenture on the Change of Control Purchase Date. The Change of Control Purchase Price shall be paid in cash.

Purchase Date	Purchase Price as % of Principal
From the date of issuance to and including September 30, 2005	101%
From October 1, 2005 to and including September 30, 2006	103%
From October 1, 2006 to and including September 30, 2007	106%
From October 1, 2007 to and including September 30, 2008	110%
From October 1, 2008 to and including June 30, 2009	114%
From July 1, 2009 to and including September 30, 2022	101%

(c)Purchase of Debentures at Option of Holder Upon an Asset Sale.

Subject to the terms and the conditions of the Indenture, the Company shall become obligated to purchase out of the Net Cash Proceeds (as defined in the Indenture) of such sale, at the option of the Holder, all or any portion of the Debentures held by such Holder within 20 Business Days after delivery of the Asset Sale Purchase Notice for an Asset Sale Purchase Price equal to the Redemption Price payable as set forth below plus accrued and unpaid interest, if any, of such Debentures on the Asset Sale Purchase Date. The Asset Sale Purchase Price shall be paid in cash.

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Purchase Date	Purchase Price as % of Principal
From the date of issuance to and including September 30, 2005	101 %
From October 1, 2005 to and including September 30, 2006	103 %
From October 1, 2006 to and including September 30, 2007	106 %
From October 1, 2007 to and including September 30, 2008	110 %
From October 1, 2008 to and including June 30, 2009	114 %
From July 1, 2009 to and including September 30, 2022	100 %

(d)Certain Procedures.

Holders have the right to withdraw any Purchase Notice or Change of Control or Asset Sale Purchase Notice, as the case may be, by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture.

If cash, or Applicable Stock with respect to any applicable premium, sufficient to pay the Purchase Price or Change of Control or Asset Sale Purchase Price, as the case may be, of all Debentures or portions thereof to be purchased as of the Purchase Date or the Change of Control or Asset Sale Purchase Date, as the case may be, is deposited with the Paying Agent, on the Business Day following the Purchase Date or the Change of Control or Asset Sale Purchase Date, interest will cease to accrue on such Debentures (or portions thereof) immediately after such Purchase Date or Change of Control or Asset Sale Purchase Date, and the Holder thereof shall have no other rights as such other than the right to receive the Purchase Price or Change of Control or Asset Sale Purchase Price upon surrender of such Debenture.

8.Notice of Redemption, Change of Control Purchase or Asset Sale Purchase.

The Company shall notify the Trustee and the Holders by mail of any redemption under clause 5(a) above at least 30 but not more than 60 days prior to any redemption and under clause 5(b) above no later than five (5) days after the receipt of an Extraordinary Dividend and at least 20 Business Days but no more than 45 Business Days prior to any redemption, which notice will specify the amount of the Extraordinary Dividend and the Redemption Date. Notice of a Change of Control or of an Asset Sale pursuant to Section 7 of this Debenture will be mailed no later than 30 days after the occurrence of a Change of Control or five (5) days after the occurrence of an Asset Sale, as applicable, to the Trustee and the Holders, each notice will contain certain information required by the Indenture. If money sufficient to pay the Redemption, Change of Control or Asset Sale Purchase Price of all Debentures (or portions thereof) to be redeemed on the Redemption Date, Change of Control Purchase Date or Asset Sale Purchase Date is deposited with the Paying Agent prior to or on the Redemption Date, or in the case of a Change of Control Purchase Date or Asset Sale Purchase Date immediately after such Change of Control Purchase Date or Asset Sale Purchase Date, interest ceases to accrue on such Debentures or portions thereof. Debentures in denominations larger than $1,000 of principal amount may be redeemed in part but only in integral multiples of $1,000 of principal amount.

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9.Conversion.

Subject to and in compliance with the provisions of the Indenture, a Holder is entitled, at such Holder’s option, to convert the Holder’s Debenture (or any portion of the principal amount thereof that is $1,000 or an integral multiple $1,000), into fully paid and nonassessable shares of Class A Common Stock at the Conversion Rate in effect at the time of conversion.

The Company will notify Holders of any event triggering the right to convert the Debentures as specified above in accordance with the Indenture.

A Debenture in respect of which a Holder has delivered a Purchase Notice or Change of Control Purchase Notice, as the case may be, exercising the option of such Holder to require the Company to purchase such Debenture may be converted only if such Purchase Notice or Change of Control Purchase Notice, as the case may be, is withdrawn in accordance with the terms of the Indenture.

The initial Conversion Price is $16.368 subject to adjustment in certain events described in the Indenture.

The Conversion Rate, at any time, shall equal (A) $1,000 divided by (B) the Conversion Price at such time, rounded to four (4) decimal places (rounded up if the fifth decimal place thereof is five (5) or more and otherwise rounded down).

To surrender a Debenture for conversion, a Holder must (1) complete and manually sign the conversion notice below (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent, (2) surrender the Debenture to the Conversion Agent, (3) furnish appropriate endorsements and transfer documents and (4) pay any transfer or similar tax, if required pursuant to the Indenture.

No fractional shares of Class A Common Stock shall be issued upon conversion of any Debenture. Instead of any fractional share of Class A Common Stock that would otherwise be issued upon conversion of such Debenture, the Company shall pay a cash adjustment as provided in the Indenture.

No payment or adjustment will be made for dividends on the shares of Class A Common Stock, except as provided in the Indenture.

On conversion of a Debenture, accrued interest with respect to the converted Debenture shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Class A Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the Debenture being converted pursuant to the terms hereof.

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Upon conversion, the Company may choose to deliver, in lieu of Class A Common Stock, cash or a combination of cash and Class A Common Stock in accordance with the Indenture.

If the Company (i) is a party to a consolidation, merger or statutory share exchange (ii) reclassifies the Class A Common Stock or (iii) conveys, transfers or leases its properties and assets substantially as an entirety to any Person, the right to convert a Debenture into shares of Class A Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or such other Person, in each case in accordance with the Indenture.

10.Denominations; Transfer; Exchange.

The Debentures are in fully registered form, without coupons, in denominations of $1,000 principal amount and integral multiples of $1,000. A Holder may transfer or exchange Debentures in accordance with the Indenture. The Security Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law as permitted by the Indenture. The Security Registrar need not transfer or exchange any Debentures selected for redemption (except, in the case of a Debenture to be redeemed in part, the portion of the Debenture not to be redeemed) or any Debentures in respect of which a Purchase Notice or Change of Control Purchase Notice has been given and not withdrawn (except, in the case of a Debenture to be purchased in part, the portion of the Debenture not to be purchased) or any Debentures for a period of 15 days before the mailing of a notice of redemption of Debentures to be redeemed.

11.Persons Deemed Owners.

The registered Holder of this Debenture may be treated as the owner of this Debenture for all purposes.

12.Unclaimed Money or Debentures.

The Trustee, the Paying Agent and the Conversion Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Debentures that remains unclaimed for two years, subject to applicable unclaimed property law. After return to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

13.Amendment; Waiver.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the securities of the Debentures. Such amendment may be effected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Debentures affected thereby. The Indenture also contains provisions permitting the Holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding, on behalf of the Holders of all outstanding Debentures, to waive compliance by the Company with certain provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders of not less than a majority in aggregate principal amount of the outstanding Debentures to waive on behalf of all of the Holders of Debentures certain past defaults under the Indenture and their consequences. Any such consent or waiver shall be conclusive and binding upon the Holders of the Debentures and upon all future Holders of the Debentures and of any Debenture issued upon the registration of transfer hereof or in exchange for this Debenture or in lieu hereof, whether or not notation of such consent or waiver is made upon this Debenture.

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No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture (or in the case of redemption, to receive the Redemption Price and accrued interest on the Redemption Date, or in the case of a repurchase, to receive the Purchase Price and accrued interest on the Purchase Date, or in the case of a Change of Control or Asset Sale, to receive the Change of Control or Asset Sale Purchase Price and accrued interest on the Change of Control or Asset Sale Purchase Date) at the time, place, and rate, and in the coin or currency, herein prescribed.

14.Defaults and Remedies.

If any Event of Default with respect to Debentures shall occur and be continuing, the principal of all the Debentures may be declared due and payable in the manner and with the effect provided in the Indenture.

15.Trustee Dealings with the Company.

Subject to certain limitations imposed by the Trust Indenture Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Debentures and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.

16.Calculations in Respect of Debentures.

The Company or its agents will be responsible for making all calculations called for under the Debentures, including, but not limited to, determination of the Market Price, the market price of the Class A Common Stock, the Current Market Price and the amounts of interest, if any, on the Debentures. Any calculations made in good faith and without manifest error will be final and binding on Holders of the Debentures. The Company or its agents will be required to deliver to the Trustee a schedule of its calculations and the Trustee will be entitled to conclusively rely upon the accuracy of such calculations without independent verification.

17.No Recourse Against Others.

No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Debenture, or for any claim based thereon, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that the Indenture and the obligations issued therein are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers or directors, as such, of the Company, or any of them, because of the creation of the indebtedness hereby authorized; and that any and all such personal liability, and any and all such rights and claims, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Security.

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18.Authentication.

This Debenture shall not be valid until an authorized signatory of the Trustee manually signs the Trustee’s Certificate of Authentication on the other side of this Debenture.

19.Abbreviations.

Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).

20.GOVERNING LAW.

THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS DEBENTURE.

The Company will furnish to any Holder upon written request and without charge a copy of the Indenture which has in it the text of this Debenture. Requests may be made to:

PMA Capital Corporation

380 Sentry Parkway

Blue Bell, Pennsylvania 19422

Attention: Investor Relations Department

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ASSIGNMENT FORM	CONVERSION NOTICE
To assign this Debenture, fill in the form below:	To convert this Debenture into Class A Common Stock of the Company, check the box [ ]
I or we assign and transfer this Debenture to
	To convert only part of this Debenture, state the principal amount to be converted (which must be $1,000 or an integral multiple of $1,000):
(Insert assignee’s soc. sec. or tax ID no.)
____________________________________	If you want the stock certificate made out in another person’s name fill in the form below:
____________________________________
(Print or type assignee’s name, address and zip code)	(Insert the other person’s soc. sec. or tax ID no.)
and irrevocably appoint
__________________________ agent to transfer this Debenture on the books of the Company. The agent may substitute another to act for him.
	(Print or type other person’s name, address and zip code)

Date: ________		Your Signature: _____________________
(Sign exactly as your name appears on the other side of this Debenture)
Signature Guaranteed
Participant in a Recognized Signature Guarantee Medallion Program
By:	____________________________________
	Authorized Signatory

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EX-4.9

Exhibit 4.9

PMA CAPITAL CORPORATION

TO

U.S. BANK NATIONAL ASSOCIATION, TRUSTEE

SECOND SUPPLEMENTAL INDENTURE

DATED AS OF NOVEMBER 15, 2004

$15,000,000

6.50% SENIOR SECURED CONVERTIBLE DEBENTURES

DUE SEPTEMBER 30, 2022

TABLE OF CONTENTS1
		Page
ARTICLE I Definitions		2
Section 1.01	Definitions.	2
Section 1.02	Certain Terms Defined in the Indenture.	11
Section 1.03	Grant of Security Interest in Collateral and Additional Collateral.	14
Section 1.04	Release of Security Interest in Collateral and Additional Collateral.	17
Section 1.05	Authorization of Actions to be Taken by Collateral Agent Under the Collateral Agent Agreement.	18
Section 1.06	Authorization of Receipt of Funds by the Trustee Under the Collateral Agent Agreement.	19
Section 1.07	Authorization of Trustee to Enter into the Collateral Agent Agreement	19
ARTICLE II 6.50% Senior Secured Convertible Debentures		19
Section 2.01	Establishment.	19
Section 2.02	Terms of the Debentures.	20
Section 2.03	Payment of Interest; Interest Rights Reserved.	32
Section 2.04	Events of Default; Acceleration of Maturity.	33
Section 2.05	Supplemental Indentures with Consent of Holders.	34
Section 2.06	Reserved.	34
Section 2.07	Selection by Trustee of Securities to be Redeemed.	34
Section 2.08	Reserved.	35
Section 2.09	Purchase at the Option of Holders.	35
Section 2.10	Application of the Article of the Indenture Regarding Defeasance
	and Covenant Defeasance.	44
Section 2.11	Conversions.	44
Section 2.12	Trustee’s Right to Exercise Remedies Against Security.	62
Section 2.13	Trustee to Hold Collateral and Additional Collateral.	62
Section 2.14	Additional Amounts.	63
ARTICLE III ADDITIONAL COVENANTS		63
Section 3.01	Maintenance of Properties.	63
Section 3.02	Payment of Taxes and Other Claims.	63
Section 3.03	Limitation on Liens on Capital Stock of Restricted Subsidiaries.	64
Section 3.04	Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries.	64
Section 3.05	Limitation on Restricted Payments.	65
Section 3.06	Merger, Consolidation and Sale of Assets.	67
Section 3.07	Limitations on Transactions with Affiliates.	69
Section 3.08	Protection of Collateral and the Additional Collateral.	70
Section 3.09	The Company to Remain a Holding Company.	71
Section 3.10	Limitation on Incurrence of Additional Indebtedness.	71
ARTICLE IV MISCELLANEOUS PROVISIONS		73
Section 4.01	Recitals by Company.	73
Section 4.02	Ratification and Incorporation of Original Indenture.	73
Section 4.03	Executed in Counterparts.	73

¹This Table of Contents does not constitute part of the Indenture or have any bearing upon the interpretation of any of its terms and provisions.

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THIS SECOND SUPPLEMENTAL INDENTURE (the “Second Supplemental Indenture”) is made as of the 15th day of November, 2004, by and between PMA CAPITAL CORPORATION, a company duly organized and existing under the laws of the Commonwealth of Pennsylvania (hereinafter called the “Company”), having its principal executive office located at 380 Sentry Parkway, Blue Bell, Pennsylvania 19422, and U.S. BANK NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States (hereinafter called the “Trustee”), having its Corporate Trust Office located at 225 Asylum Street, Hartford, Connecticut 06103.

WITNESSETH:

WHEREAS, the Company has heretofore entered into an Indenture, dated as of November 15, 2004, (the “Original Indenture”), with U.S. Bank National Association and the First Supplemental Indenture, dated as of November 15, 2004 (the “First Supplemental Indenture”) pursuant to which the Company’s publicly issued debentures in the aggregate principal amount of $84,140,000 with terms identical to the Debentures to be issued hereby were issued (the “Publicly Issued Debentures”);

WHEREAS, the Original Indenture as amended and supplemented by the First Supplemental Indenture and this Second Supplemental Indenture, is herein called the “Indenture”;

WHEREAS, under the Original Indenture, a new series of Securities may at any time be established in or pursuant to a resolution of the Board of Directors of the Company and set forth in an Officer’s Certificate in accordance with the provisions of the Original Indenture and the terms of such series may be described by a supplemental indenture executed by the Company and the Trustee;

WHEREAS, the Company desires to (a) add additional Events of Default for the benefit of the Holders of all series of Securities (except as may be provided in a future supplemental indenture to the Indenture (a “Future Supplemental Indenture”)), (b) add additional covenants of the Company, (c) establish the form and terms of a new series of Securities, (d) provide whether certain Articles of the Indenture will apply to all series of Securities, including the Debentures established hereby (except as may be provided in a Future Supplemental Indenture) and (e) otherwise amend and supplement the Original Indenture as set forth herein;

WHEREAS, all conditions necessary to authorize the execution and delivery of this Second Supplemental Indenture and to make it a valid and binding obligation of the Company have been done or performed.

NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I

Definitions

Section 1.01Definitions.

The following defined terms used herein shall, unless the context otherwise requires, have the meanings specified below. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Original Indenture.

“ACL RBC” means “authorized control level risk based capital” as then defined and calculated in accordance with the Risk Based Capital (RBC) for Insurers Model Act of the National Association of Insurance Commissioners.

“Acquired Indebtedness” means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with or into the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation.

“Asset Acquisition” means (1) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (2) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business.

“Average Life” means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing: (1) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payment of or redemption or similar payment with respect to such Indebtedness multiplied by the amount of such payment by (2) the sum of all such payments.

“Cash Equivalents” means:

(1)marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof;

(2)commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s;

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(3)investments in demand accounts, time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any State thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $50,000,000 (or the foreign currency equivalent thereof) and has outstanding debt which is rated “A” (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act);

(4)repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (3) above;

(5)investment in money market funds which invest at least 95% of their assets in securities of the types described in clauses (1) through (4) above.

“Collateral Agent” means, U.S. Bank National Association, in its capacity as collateral agent under the Collateral Agent Agreement and its permitted successors and assigns.

“Collateral Agent Agreement” means the Collateral Agent Agreement dated as of November 15, 2004 by and among the Company, U.S. Bank National Association, as Collateral Agent, the Trustee for the Debentures, the trustee for the Publicly Issued Debentures and the trustee for the Company’s 8.50% Monthly Income Senior Notes due 2018, as such may be amended from time to time in accordance with the terms of the Indenture and the Collateral Agent Agreement.

“Consolidated Fixed Charges” means, with respect to any Person for any period, the sum, without duplication, of:

(1)Consolidated Interest Expense; plus

(2)the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local income tax rate of such Person, expressed as a decimal.

“Consolidated Interest Expense” means, with respect to any Person for any period, the sum of, without duplication:

(1)the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP (which, for greater clarity, excludes interest on funds held under reinsurance contracts), including without limitation: (a) any amortization of debt discount and amortization or write-off of deferred financing costs; (b) the net costs under Interest Rate Hedging Agreements; (c) all capitalized interest; (d) the interest portion of any deferred payment obligation; and (e) imputed interest with respect of Attributable Debt; and

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(2)the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP.

“Consolidated Net Income” means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom:

(1)after-tax items classified as extraordinary gains or losses;

(2)solely for purposes of Section 3.05 of this Second Supplemental Indenture, the net income of any Person prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person;

(3)the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash (or to the extent immediately converted to cash) dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person;

(4)any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date; and

(5)in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person’s assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets.

“Currency Hedge Obligations” means, at any time as to the Company and its Restricted Subsidiaries, the obligations of such Person at such time that were incurred in the ordinary course of business pursuant to any foreign currency exchange agreement, option or futures contract or other similar agreement or arrangement designed to protect against or manage such Person’s or any of its Subsidiaries’ exposure to fluctuations in foreign currency exchange rates.

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

“Disinterested Director” means, with respect to an Affiliate Transaction or series of related Affiliate Transactions, a member of the Board of Directors of the Company who has no financial interest, and whose employer has no financial interest, in such Affiliate Transaction or series of related Affiliate Transactions.

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“Distributable Amount” means, with respect to the Company at the last day of any fiscal quarter, (a) the maximum amount of cash that the then Insurance Subsidiaries could have distributed directly to the Company as a dividend, distribution, repayment of intercompany indebtedness or payment of interest thereon as of such date (calculated as if such date were the relevant test date for determining compliance with applicable Insurance Laws) without prior governmental approval (or any required passage of time in nondisapproval states) and which is not prohibited, directly or indirectly, by the terms of any charter or any agreement, instrument, judgment, decree, order, writ, injunction, certificate, statute, rule, law, code, ordinance or government regulation applicable to such Insurance Subsidiaries unless any such restriction has been legally waived, plus (b) the amount of any dividend, distribution, repayment of intercompany indebtedness or payment of interest thereon paid during the four fiscal quarters coming immediately prior to the date of determination by the Insurance Subsidiaries to the Company to the extent that such dividend, distribution, repayment of intercompany indebtedness or payment of interest thereon reduces the amount described in clause (a) that could be distributed at the date of determination; provided that in making any determination of the Distributable Amount to Consolidated Fixed Charges Coverage Ratio, any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any amount which such Restricted Subsidiary could have distributed to such Person as a dividend to such Person that is attributable to the assets which are the subject of the Asset Acquisition or asset sale or other disposition during the four fiscal quarters occurring immediately prior to the date of testing) occurring during the four quarter period immediately prior to the date of such testing, shall be given effect to as if such asset sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) had occurred on the first day of such four quarter period.

“Distributable Amount to Consolidated Fixed Charge Coverage Ratio” means, at any time, the ratio of the Distributable Amount on the last day of the most recently ended fiscal quarter for which financial statements are available to Consolidated Fixed Charges of the Company during the four full fiscal quarters (the “Four Quarter Period”) ending prior to such time for which financial statements are available. In addition to and without limitation of the foregoing, for purposes of this definition, Consolidated Fixed Charges shall be calculated after giving effect on a pro forma basis for the period of such calculation to:

(1)the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and

(2)any asset sales or other dispositions or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness attributable to the assets which are the subject of the Asset Acquisition or asset sale or other

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disposition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such asset sale or other disposition or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness.

For purposes of this definition, Transaction Date means the date of the incurrence, repayment, asset sale, disposition or Asset Acquisition, as applicable, giving rise to the need to calculate the Distributable Amount to Consolidated Fixed Charge Coverage Ratio.

Furthermore, in calculating “Consolidated Fixed Charges” for purposes of determining the denominator of this “Distributable Amount to Consolidated Fixed Charge Coverage Ratio”:

(1)interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and

(2)notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Hedging Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements.

“Extraordinary Dividends” means any dividends that are defined as Extraordinary Dividends pursuant to Section 991.1405 of the Pennsylvania Insurance Statutes.

“Equity Offering” means any underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company pursuant to a registration statement filed pursuant to the Securities Act or any private placement of Capital Stock (other than Disqualified Capital Stock) of the Company (other than to any Person who, prior to such private placement, was an Affiliate of the Company) which offering or placement is consummated after the Issue Date.

“GAAP” means generally accepted accounting principles as in effect in the United States of America as of the Issue Date.

“Incur” means issue, assume, guarantee or otherwise become liable for.

“Independent Financial Advisor” means a firm (which may be a broker-dealer): (1) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company or any of its Affiliates (other than ownership of less than 5% of any class of publicly traded securities of the Company or any of its Affiliates); and (2) which is otherwise independent of the Company and qualified to perform the task for which it is to be engaged.

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“Insurance Law” means any applicable law, statute, rule, regulation, judgment or agreement with any regulatory authority that regulates the provision of insurance or reinsurance.

“Insurance Subsidiary” means any Subsidiary of the Company that is regulated as an insurance company under applicable Insurance Laws or as an equivalent entity under corresponding applicable foreign law or regulation, or otherwise holds itself out as a provider of insurance or reinsurance.

“Interest Rate Hedging Agreements” means, with respect to the Company and its Restricted Subsidiaries, the obligations of such Persons under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect any such Person or any of its Subsidiaries against fluctuations in interest rates.

“Invested Assets” means, with respect to any Person that is an insurance company that files statutory financial statements with any governmental authority, the amount to be shown on the line item “Cash and Invested Assets” (or any equivalent line item(s) setting forth the type of assets that would be reflected in the line item “Cash and Invested Assets” on the Issue Date) on such insurance company’s balance sheet included in its most recent statutory financial statements filed with such governmental authority.

“Investment” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of any direct or indirect advance, loan (other than advances to customers in the ordinary course of business) or other extension of credit (including by way of guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that endorsements of negotiable instruments and documents in the ordinary course of business shall not be deemed to be an Investment.

For purposes of Section 3.05 of this Second Supplemental Indenture:

(1)“Investment” will include the portion (proportionate to the Company’s equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market value of the net assets of such Restricted Subsidiary of the Company at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as Restricted Subsidiary, the Company will be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if positive) equal to (a) the Company’s “Investment” in such Subsidiary at the time of such redesignation less (b) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the fair market value of the net assets (as conclusively determined by the Board of Directors of the Company in good faith) of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and,

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(2)any property transferred to or from an Unrestricted Subsidiary will be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors of the Company.

If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Voting Stock of any Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such entity is no longer a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value (as conclusively determined by the Board of Directors of the Company in good faith) of the Capital Stock of such Subsidiary not sold or disposed of.

“Issue Date” means the date on which the Debentures are originally issued.

“Maturity Date” means September 30, 2022.

“Net Cash Proceeds” means with respect to any sale of Capital Stock, cash proceeds of such sale net of attorneys’ fees, accountants’ fees, underwriting or placement agents’ fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such sale and net of taxes paid or payable as a result thereof, as and where received.

“Permitted Investments” means:

(1)Investments by the Company or any Restricted Subsidiary in any Person that is or will become immediately after such Investment a Wholly Owned Restricted Subsidiary or that will merge or consolidate into the Company or a Wholly Owned Restricted Subsidiary of the Company;

(2)Investments in the Company by any Restricted Subsidiary; provided that any Indebtedness evidencing such Investment and held by a Restricted Subsidiary that is not a guarantor of the Securities is unsecured and subordinated, pursuant to a written agreement, to the Company’s obligations under the Securities and the Indenture;

(3)Investments in cash and Cash Equivalents;

(4)loans and advances to employees, directors and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of two million dollars ($2,000,000) at any one time outstanding;

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(5)Currency Hedge Obligations and Interest Rate Hedging Agreements entered into in the ordinary course of the Company’s or its Restricted Subsidiaries’ businesses and otherwise in compliance with the Indenture;

(6)Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers or in good faith settlement of delinquent obligations of such trade creditors or customers;

(7)Investments the payment for which is solely Qualified Capital Stock of the Company;

(8)Investments by any Insurance Subsidiary constituting Invested Assets and made in compliance with Insurance Laws, including Investments determined subsequent to acquisition not to comply with applicable Insurance Laws so long as such noncompliance is cured within 30 days of the chief investment officer of the Company or the applicable Subsidiary becoming aware of such noncompliance; provided that (a) no more than 15% of Invested Assets may be in persons that are Affiliates of the Company and (b) if, as a result of any direct or indirect action by the Company such Person becomes an Affiliate of the Company then any such Investment in such Person pursuant to this clause (8) that was made prior to the date such Person became an Affiliate of the Company shall be deemed to have been made on the date and immediately after such Person became an Affiliate of the Company;

(9)any Investment that replaces, refinances or refunds an Investment existing on the Issue Date, provided that such Investment is in an amount that does not exceed the amount replaced, refinanced or refunded and is made in the same Person as the Investment replaced, refinanced or refunded; and

(10)other Investments not to exceed ten million dollars ($10,000,000) at any one time outstanding.

“Pooled Companies” means (Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company).

“QIB” means a “Qualified Institutional Buyer” as defined in Rule 144A under the Securities Act.

“Qualified Capital Stock” means any Capital Stock that is not Disqualified Capital Stock.

“Ratio Test” means the Distributable Amount to Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0.

“Restricted Subsidiary” means any Subsidiary of the Company that at the time of determination is not an Unrestricted Subsidiary.

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“Securities” means, for the purpose of this Second Supplemental Indenture only, the Debentures.

“Unrestricted Subsidiary” of any Person means:

(1) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and

(2) any Subsidiary of an Unrestricted Subsidiary.

The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary that is not a Subsidiary of the Subsidiary to be so designated; provided that:

(1) The Company certifies to the Trustee that such designation complies with Section 3.05 of this Second Supplemental Indenture; and

(2) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries.

For purposes of making the determination of whether any such designation of a Subsidiary as an Unrestricted Subsidiary complies with Section 3.05 of this Second Supplemental Indenture, the portion of the fair market value of the net assets of such Subsidiary of the Company at the time that such Subsidiary is designated as an Unrestricted Subsidiary that is represented by the interest of the Company and its Restricted Subsidiaries in such Subsidiary, in each case as determined in good faith by the Board of Directors of the Company, shall be deemed to be an Investment. Such designation will be permitted only if such Investment would be permitted at such time under Section 3.05 of this Second Supplemental Indenture. As of the Issue Date, there are no Unrestricted Subsidiaries.

The Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary only if:

(1) immediately after giving effect to such designation, the Ratio Test shall be met; and

(2) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing.

Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by promptly filing with the Trustee a copy of a board resolution of the Company giving effect to such designation and an Officer’s Certificate certifying that such designation complied with the foregoing provisions.

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“Wholly Owned Restricted Subsidiary” means a Restricted Subsidiary all of the Capital Stock of which (other than directors’ qualifying shares) is owned, directly or indirectly, by the Company or one or more Subsidiaries of which all the outstanding Voting Stock are owned by the Company or by any of its Wholly Owned Restricted Subsidiaries.

Section 1.02Certain Terms Defined in the Indenture.

(a)Except as may be provided in a Future Supplemental Indenture, for the benefit of the Holders of all Securities, including the Debentures, Section 1.1 of the Original Indenture shall be amended by adding the following new definitions:

“Class A Common Stock” means the Company’s Class A Common Stock, par value $5.00 per share.

“Exchange Act” means the Securities Exchange Act of 1934, as amended and the rules and regulations of the Securities and Exchange Commission thereunder.

“NYSE” means The New York Stock Exchange, Inc.

“Securities Act” means the Securities Act of 1933, as amended.

“Trading Day” means a day during which trading in securities generally occurs on the NYSE or, if the Class A Common Stock is not listed on the NYSE, on the principal other national or regional securities exchange on which the Class A Common Stock then is listed or, if the Class A Common Stock is not listed on a national or regional securities exchange, on the National Association of Securities Dealers Automated Quotation System or, if the Class A Common Stock is not quoted on the National Association of Securities Dealers Automated Quotation System, on the principal other market on which the Class A Common Stock is then traded.

(b)Except as may be provided in a Future Supplemental Indenture, for the benefit of the Holders of all Securities, including the Debentures, Section 1.1 of the Original Indenture shall be amended by deleting the definition of “Original Issue Discount Security” in its entirety and replacing such definition with the following:

“Original Issue Discount Security” means a Security issued pursuant to this Indenture that is treated as having original issue discount within the meaning of Section 1273 of the Internal Revenue Code of 1986, as amended, and Treasury Regulations Section 1.1273-1(c)(a).

(c)Definitions of the following terms in this Second Supplemental Indenture may be found in the Sections of the Indenture indicated (or this Second Supplemental Indenture where indicated) as follows:

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Term	Defined in Section
“Additional Collateral”	Section 1.03(a) of this Second Supplemental Indenture
“Affiliate Transaction”	Section 3.07 of this Second Supplemental Indenture
“A.M. Best”	Section 1.03(a) of this Second Supplemental Indenture
“Amendment”	Section 16.7
“Applicable Stock”	Section 2.02(g)(ii) of this Second Supplemental Indenture
“Asset Sale”	Section 13.2(b)
“Asset Sale Purchase Date”	Section 13.2(b)
“Asset Sale Purchase Notice”	Section 13.2(d)
“Asset Sale Purchase Price”	Section 13.2(b)
“Cash Amount”	Section 16.13(a)
“Cash Settlement Averaging Period”	Section 16.13(a)
“Cash Settlement Notice Period”	Section 16.13(a)
“cash”	Section 13.3
“Change of Control”	Section 13.2(a)
“Change of Control Purchase Date”	Section 13.2(a)
“Change of Control Purchase Notice”	Section 13.2(d)
“Change of Control Purchase Price”	Section 13.2(a)
“Collateral”	Section 1.03(a) of this Second Supplemental Indenture
“Collateral Companies”	Section 1.03(a) of this Second Supplemental Indenture

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“Conversion Agent”	Section 2.02(c) of this Second Supplemental Indenture
“Conversion Obligation”	Section 16.13(a)
“Conversion Price”	Section 2.02(h) of this Second Supplemental Indenture
“Conversion Rate”	Section 16.1(b)
“Conversion Retraction Period”	Section 16.13(a)
“Conversion Value”	Section 16.1(b)
“Current Market Price”	Section 16.3(g)
“Debentures”	Section 2.01(a) of this Second Supplemental Indenture
“Depositary”	Section 2.01(a) of this Second Supplemental Indenture
“Distributed Assets”	Section 16.3(d)
“Excess Amount”	Section 16.3(e)
“Excess Tender Amount”	Section 16.3(f)
“Ex-Dividend Time”	Section 16.1(d)
“Expiration Time”	Section 16.3(f)
“Fair Market Value”	Section 16.3(g)
“First Supplemental Indenture”	Recitals of this Second Supplemental Indenture
“Future Supplemental Indenture”	Recitals of this Second Supplemental Indenture
“Indenture”	Recitals of this Second Supplemental Indenture
“Measurement Period”	Section 16.1(b)

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“Non-Electing Share”	Section 16.4
“Original Indenture”	Recitals of this Second Supplemental Indenture
“Paying Agent”	Section 2.02(c) of this Second Supplemental Indenture
“Permitted Indebtedness”	Section 3.10 of this Second Supplemental Indenture
“Permitted Lien”	Section 3.10 of this Second Supplemental Indenture
“Purchase Date”	Section 13.1
“Purchase Notice”	Section 13.1
“Purchase Price”	Section 13.1
“Record Date”	Section 16.3(g)
“Reference Period”	Section 16.3(d)
“Released Interest”	Section 1.04 of this Second Supplemental Indenture
“Restricted Securities”	Section 2.02(i) of this Second Supplemental Indenture
“Sale Price”	Section 16.1(b)
“Spin-Off”	Section 16.3(d)
“transfer”	Section 2.02(i) of this Second Supplemental Indenture
“Trigger Event”	Section 16.3(d)

Section 1.03Grant of Security Interest in Collateral and Additional Collateral.

(a)The Company does hereby grant to the Trustee, as trustee for the benefit of the Holders of the Debentures, a first priority Lien and security interest, equal and ratable with a Lien and security interest in favor of the trustee for the holders of the Company’s Publicly Issued Debentures and the trustee for the Company’s 8.50% Monthly Income Senior Notes due 2018, in and to 20% of the outstanding Capital Stock of the Company’s Significant Subsidiaries (such companies, collectively, the “Collateral Companies”), and all rights and privileges of the Company with respect thereto, including all dividends, distributions and other payments with respect thereto and in and to all proceeds thereof (the

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“Collateral”) to have and to hold in trust to secure the payment of principal of and premiums, if any, and interest on, and any other amounts (including all fees, expenses, counsel fees and other amounts, including fees and expenses of the Collateral Agent, due and owing to the Trustee) owing in respect of the Debentures equally and ratably, with the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018, without prejudice, preference, priority or distinction, except as expressly provided in the Indenture (and the indenture for the Company’s Publicly Issued Debentures and the indenture for the Company’s 8.50% Monthly Income Senior Notes due 2018), and to secure performance by the Company of all the Company’s obligations under the Indenture (equally and ratably with the Company’s obligations with respect to the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018), all as provided for in this Indenture (and the indenture for the Company’s Publicly Issued Debentures and the indenture for the Company’s 8.50% Monthly Income Senior Notes due 2018). Additionally, if the financial strength ratings of the Pooled Companies from A.M. Best Company, Inc. (“A.M. Best”) are not at least “A-” on December 31, 2005, or if the financial strength ratings of the Pooled Companies from A.M. Best are reduced to below “B++” prior to December 31, 2005, the Company does hereby grant to the Trustee, as trustee for the benefit of the Holders of the Debentures, a first priority Lien and security interest equal and ratable with a Lien and security interest in favor of the trustee for the holders of the Company’s Publicly Issued Debentures and the trustee for the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018, in and to the remaining outstanding Capital Stock of the Collateral Companies and all rights and privileges of the Company with respect thereto, including all dividends, distributions and other payments with respect thereto and all proceeds thereof, (“Additional Collateral”) to have and to hold in trust to secure the payment of principal of and premiums if any, and interest on, and any other amounts (including all fees, expenses, counsel fees and other amounts, including fees and expenses of the Collateral Agent, due and owing to the Trustee) owing in respect of the Debentures, equally and ratably with the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018, without prejudice, preference, priority or distinction, except as expressly provided in the Indenture (and the indenture for the Company’s Publicly Issued Debentures and the indenture for the Company’s 8.50% Monthly Income Senior Notes due 2018), and to secure performance by the Company of the Company’s obligations under this Indenture (equally and ratably with the Company’s obligations with respect to the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018) with respect to the Debentures and the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018, all as provided for under the Indenture (and the indenture for the Company’s Publicly Issued Debentures and the indenture for the Company’s 8.50% Monthly Income Senior Notes due 2018).

The Trustee, as trustee on behalf of the Holders of the Debentures, acknowledges this grant, accepts the trusts hereunder in accordance with the provisions hereof and agrees to perform its duties herein required and agrees that subject to the provisions of the Collateral Agent Agreement, the Trustee holds the Collateral and the Additional Collateral in trust for the benefit of the Holders of the Debentures.

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(b)The Company will file, and the Trustee and the Collateral Agent are hereby authorized to file, such financing statements and continuation statements, and perform such acts necessary or desirable to perfect and maintain a first priority security interests in the Collateral and the Additional Collateral granted in Section 1.03(a) of this Indenture. In the case of any Additional Collateral, the Company shall do all such things within 90 days of December 31, 2005 or such earlier date as the financial strength ratings of the Pooled Companies from A.M. Best are reduced to below B++.

(c)Each Holder, by accepting a Debenture, agrees to all of the terms and provisions of the Collateral Agent Agreement (including, without limitation, the provisions providing for foreclosure and release of the Collateral and the Additional Collateral) as the same may be in effect or may be amended from time to time in accordance with the terms thereof and hereof, and authorizes and directs the Trustee, acting through the Collateral Agent, to perform its obligations and exercise its rights under the Collateral Agent Agreement in accordance therewith; provided, however, that if any provisions of the Collateral Agent Agreement limit, qualify or conflict with the duties imposed by the provisions of the Trust Indenture Act, the Trust Indenture Act will control.

(d)As more fully set forth in, and subject to the provisions of, the Collateral Agent Agreement, the Holders, and the Trustee and the Collateral Agent on behalf of such Holders, will have rights in and to the Collateral and the Additional Collateral that are subject to the rights that have been or may be created in favor of the holders of other Indebtedness and obligations of the Company.

(e)As among the Holders, the Collateral and the Additional Collateral shall be held for the equal and ratable benefit of the Holders without preference, priority or distinction of any thereof over any other.

(f)In the event the Trustee acts as Collateral Agent, the Trustee (i) shall not be deemed to have breached its fiduciary duty as Trustee to the Holders as a result of the performance of its duties as Collateral Agent to the extent it acts in compliance with the Collateral Agent Agreement and (ii) shall not be liable to the Holders for any such action or inaction. The rights and interests created under this Indenture shall be subject to the terms of the Collateral Agent Agreement.

(g)The Company will do or cause to be done all such acts and things as may be required by the provisions of the Collateral Agent Agreement to which it is a party, to assure and confirm to the Trustee and the Collateral Agent, the Liens on the Collateral and the Additional Collateral contemplated by the Indenture and the Collateral Agent Agreement to which it is a party, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Debentures secured thereby, as applicable, according to the intent and purposes herein and therein expressed. The Company will take all actions required pursuant to the Indenture and the Collateral Agent Agreement to cause the Liens created pursuant to the Indenture to be valid, enforceable and perfected (except as expressly provided therein) Liens in and on all the Collateral and the Additional Collateral in favor of the Collateral Agent for the benefit of the Trustee and for the equal and ratable benefit of the Holders of the Debentures, the holders of the Company’s Publicly Issued Debentures and the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 in accordance with the terms of the Indenture and the Collateral Agent Agreement. With respect to any proceeds that are cash or Cash Equivalents, the Company shall deposit such proceeds into an account under the control of the Collateral Agent in accordance with the provisions of the Collateral Agent Agreement.

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Section 1.04Release of Security Interest in Collateral and Additional Collateral.

(a)Additionally, in the event of a sale or other disposition of Collateral (or Additional Collateral) in compliance with the provisions of Section 3.04 of this Second Supplemental Indenture, upon satisfaction of the conditions set forth below, the Liens securing the Debentures, the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 will automatically terminate as to the assets sold on the date of their sale and as to the Net Cash Proceeds at the close of business on the Business Day immediately prior to any Asset Sale Purchase Date in accordance with the provisions set forth below.

The Company shall have the right to obtain automatic release of items of Collateral (and Additional Collateral) (the “Released Interest”) securing the Debentures, the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 subject to the provisions of Section 3.04 of this Second Supplemental Indenture upon compliance with the condition that the Company deliver to the Trustee and the Collateral Agent the following:

(i)a notice from the Company requesting the release of the Released Interests:

(1)Describing the proposed Released Interest and certifying that the purchase price received is at least equal to the fair market value of the Released Interest; and

(2)in the event that any assets other than cash or Cash Equivalents comprise a portion of the consideration received in such Asset Sale, specifically describing such assets;

(ii)an Officers’ Certificate stating that:

(1)(a) the stated fair market value of such Asset Sale of Collateral does not include the sale of assets other than the Released Interest and (b) such Asset Sale complies with the terms and conditions of Section 3.04 of this Second Supplemental Indenture with respect to Asset Sales;

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(2)all Net Cash Proceeds from the sale of the Released Interest will be applied pursuant to the provisions of Section 13.2(b) of the Indenture;

(3)all conditions precedent in the Indenture relating to the release in question have been complied with; and

(4)no Default or Event of Default has occurred or would occur immediately prior to or immediately after such release;

(iii)evidence satisfactory to the Trustee that any consideration from the Asset Sale has been pledged to secure the Debentures, the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 in a manner that creates a perfected security interest therein of the same priority as the Collateral sold;

(iv)all documentation necessary to evidence the grant to the Trustee (or any collateral agent), on behalf of the Holders of the Debentures and perfection of a security interest in and Lien (of the same priority as the Lien on the assets subject to the Asset Sale) on all consideration other than Net Cash Proceeds received in such Asset Sale, if any, equal and ratable with a security interest in and Lien on such consideration in favor of the trustee for the holders of the Company’s Publicly Issued Debentures and the trustee for the Company’s 8.50% Monthly Income Senior Notes due 2018; and

(v)all documentation required by the Trust Indenture Act prior to the release of Collateral and the Additional Collateral by the Trustee.

(b)Any automatic release of items of Collateral (and Additional Collateral) securing the Debentures, the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 made in compliance with the provisions of this Section 1.04 and subject to Section 3.04 of this Second Supplemental Indenture shall not be deemed to impair the security under this Second Supplemental Indenture in contravention of the provisions hereof.

Section 1.05Authorization of Actions to be Taken by Collateral Agent Under the Collateral Agent Agreement.

The Collateral Agent may (but shall not be obligated to), in its sole discretion and without the consent of the Holders, on behalf of the Trustee and the Holders, take all actions it deems necessary or appropriate in order to (a) enforce any of the terms of the Collateral Agent Agreement and (b) collect and receive any and all amounts payable in respect of the obligations of the Company hereunder. The Trustee, directly or through the Collateral Agent, shall have the power to institute and to maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral and the Additional Collateral by any acts that may be unlawful or in violation of the Collateral Agent Agreement or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Collateral

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and the Additional Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other government enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or of the Trustee).

Section 1.06Authorization of Receipt of Funds by the Trustee Under the Collateral Agent Agreement.

The Trustee, directly or through Collateral Agent, is authorized to receive any funds for the benefit of the Holders distributed under the Collateral Agent Agreement, and to make further distributions of such funds to the Holders according to the provisions of this Indenture and the Collateral Agent Agreement.

Section 1.07Authorization of Trustee to Enter into the Collateral Agent Agreement.

The Trustee, hereby agrees that it shall, upon the written request of the Company, enter into the Collateral Agent Agreement appointing a Collateral Agent to hold and enforce rights against the Collateral and Additional Collateral on behalf of the Trustee, the trustee for the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018. The Trustee and the Company may enter into amendments to the Collateral Agent Agreement without the consent of the Holders; provided, however, that the consent of the Holders shall be required for any amendment that would adversely affect the Holders’ rights in the Collateral or Additional Collateral.

ARTICLE II

6.50% Senior Secured Convertible Debentures

Section 2.01Establishment.

(a)There is hereby established a new series of Securities to be issued under the Indenture, to be designated as the Company’s 6.50% Senior Secured Convertible Debentures due September 30, 2022 (the “Debentures”).

There are to be authenticated and delivered Debentures, limited in aggregate principal amount of $15,000,000, and no further Debentures shall be authenticated and delivered except as provided by Section 2.3, 3.5, 3.6, 9.5 or 11.7 and Article 13 of the Original Indenture. The Debentures shall be issued in definitive fully registered form.

The Debentures shall be issued in the form of one or more global Securities in substantially the form set out in Exhibit A hereto. The Depositary with respect to the Debentures shall be The Depository Trust Company.

The form of the Trustee’s Certificate of Authentication for the Debentures shall be in substantially the form set forth in Section 2.2 of the Original Indenture.

Each Debenture shall be dated the date of authentication thereof.

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(b)Denominations. The Debentures may be issued in denominations of $1,000, or any integral multiple thereof.

(c)Global Securities. The Debentures will be issued in the form of one or more global Securities registered in the name of the Depositary or its nominee. Except under the limited circumstances described below, Debentures represented by the global Security will not be exchangeable for, and will not otherwise be issuable as, Debentures in definitive form. The global Securities described above may not be transferred except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or to a successor Depositary or its nominee.

Owners of beneficial interests in such a global Security will not be considered the Holders thereof for any purpose under the Indenture except Section 10.4, and no global Security representing a Debenture shall be exchangeable, except for another global Security of like denomination and tenor to be registered in the name of the Depositary or its nominee or to a successor Depositary or its nominee. The rights of Holders of such global Security shall be exercised only through the Depositary. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its participants, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any global Security.

A global Security shall be exchangeable for Debentures registered in the names of Persons other than the Depositary or its nominee only as provided by Section 3.5 of the Original Indenture. Any global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Debentures registered in such names as the Depositary shall direct.

(d)Interest Payment Date and Record Date. The Interest Payment Date for the Debentures is March 30 and September 30 of each year, beginning March 30, 2005. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The Regular Record Date with respect to each Interest Payment Date is the close of business on the 15^th calendar day preceding such Interest Payment Date.

(e)Definitive Debentures. Debentures issued in certificated form shall be substantially in the form of Exhibit A attached hereto, but without including the text referred to therein as applying only to global Debentures.

(f)Transfer. No service charge will be made for any registration of transfer or exchange of Debentures, but payment will be required of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith.

Section 2.02Terms of the Debentures.

The following terms relating to the Debentures are hereby established:

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(a)Stated Maturity. The entire outstanding principal of the Debentures shall be due and payable, unless accelerated, redeemed or required to be repurchased pursuant to the Indenture, on September 30, 2022.

(b)Interest.

(i)The rate at which the Debentures shall bear interest shall be 6.50% per annum; the date from which interest shall accrue on the Debentures shall be the Issue Date, or the most recent Interest Payment Date to which interest has been paid or provided for. Interest shall be paid in cash. No contingent interest will be paid with respect to the Debentures.

(ii)If the Company elects to redeem, or the Holders elect to require the Company to repurchase, the Debentures on a date that is after the Regular Record Date and prior to the corresponding Interest Payment Date, the Company will pay accrued and unpaid interest, if any, on the Debentures to, but not including, the applicable Redemption Date, Purchase Date or Change of Control Purchase Date, as the case may be, to the holder of record on the Regular Record Date.

Except as provided below, if any Debentures are surrendered for conversion on any date other than an Interest Payment Date, the Holder of such Debentures will not be entitled to receive any interest, if any, that has accrued on such Debentures since the prior Interest Payment Date. By delivery to the Holder of the number of shares of Class A Common Stock or other consideration issuable upon conversion in accordance with Article 16 of the Indenture (as amended by Section 2.11 of this Second Supplemental Indenture), any accrued and unpaid interest on such Debentures will be deemed to have been paid in full.

All Holders agree, by their acceptance of a Debenture, that if a Holder of Debentures converts on a date after a Regular Record Date for an interest payment but prior to the corresponding Interest Payment Date, the Holder of such Debentures (subject to the right of Holders of record on the immediately preceding Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date) will receive on that Interest Payment Date accrued and unpaid interest on such Debentures, but, at the time the Holder surrenders such Debentures for conversion, the Holder must pay the Company the interest that has accrued and will be paid on such Interest Payment Date. No such payment need be made with respect to Debentures that will be redeemed by the Company after a Regular Record Date but prior to the corresponding Interest Payment Date.

(iii)If the principal amount of or any portion of such principal amount of, or any interest, if any, on, any Debentures is not paid when due (whether upon acceleration pursuant to Section 5.2 of the Indenture or on the Stated Maturity or on Redemption Date, Purchase Date or Change of Control Purchase Date), then in each such case the overdue amount shall, to the extent permitted by law, bear interest at the applicable interest rate, compounded semi-annually, which interest shall accrue from the date of such overdue amount was originally due to the date of payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand.

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(c)Paying Agent and Conversion Agent. The Company shall maintain an office or agency where Debentures may be presented for purchase or payment (“Paying Agent”) and an office or agency where Debentures may be presented for conversion (“Conversion Agent”). The Company may have one or more additional Paying Agents and one or more additional Conversion Agents.

The Company shall enter into an appropriate agency agreement with any Paying Agent or Conversion Agent (other than the Trustee). The agreement shall implement the provisions of this Indenture that relate to such agent. If the Company fails to maintain a Paying Agent or Conversion Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 6.7 of the Indenture. The Company or any Subsidiary or an Affiliate of any of them may act as Paying Agent or Conversion Agent.

The Company initially appoints the Trustee as Conversion Agent and Paying Agent in connection with the Debentures. The Trustee shall be entitled to appropriate compensation for acting in such capacities.

(d)Place of Payment.

(i)The Place of Payment for the Debentures and the place or places where the Debentures may be surrendered for registration of transfer, exchange, repurchase, redemption or conversion and where notices may be given to the Company in respect of the Debentures is at the Corporate Trust Office of the Trustee or such other office or agency of the Company as may be designated for such purpose. Payment of principal and interest, if any, on the Debentures will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts (or shares as provided above or a combination of cash and those shares).

(ii)The Company will pay principal on (1) global Debentures to the Depositary in immediately available funds and (2) any definitive Debentures in immediately available funds at the Company’s office or agency in New York City, which initially will be the Place of Payment as provided in Section 10.2 of the Indenture.

(iii)The Company will pay interest, if any, on (1) global Debentures to the Depositary in immediately available funds, (2) any definitive Debentures having an aggregate principal amount of $5,000,000 or less by check mailed to the Holders of such Debentures, and (3) any definitive Debentures having an aggregate principal amount of more than $5,000,000 by wire transfer in immediately available funds if requested by the Holders of such Debentures. At Stated Maturity the Company will pay interest on (1) any definitive Debentures at the Company’s office or agency in New York City, which initially will be the Place of Payment as provided in Section 10.2 of the Indenture and (2) or global Debenture to the Depositary in immediately available funds.

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(e)Redemption.

(i)At the Option of the Company. At any time from October 1, 2008, the Company, at its option, may redeem in principal amounts of $1,000 or integral multiples of $1,000 the Debentures for cash as a whole, or from time to time in part, at a Redemption Price of 114% of the principal amount of the Debentures, plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date:

(ii)Mandatory Redemption with Extraordinary Dividends. From January 1, 2006 to and including December 31, 2006, in the event the Company receives any Extraordinary Dividends from any of its subsidiaries, the Company shall redeem the Debentures and the Publicly Issued Debentures, pro rata in principal amounts of $1,000 or integral multiples of $1,000 with 50% of the amount of such dividends for cash at a Redemption Price of 110% of the principal amount of the Debentures plus accrued unpaid interest, if any, to the Redemption Date. The aggregate principal amount of the Debentures plus the Publicly Issued Debentures to be redeemed pursuant to this Section 2.02(e)(ii) shall not exceed $35,000,000.

(iii)Additional Terms of Redemption. For redemptions pursuant to clause (i) above, the Company shall notify the Trustee and the Holders of any redemption at least 30 but not more than 60 days prior to any redemption by mail. For redemptions pursuant to clause (ii) above, the Company shall notify the Trustee and the Holders by mail no later than five (5) days after the receipt by it of an Extraordinary Dividend from any Subsidiary (and at least 20 Business Days, but no more than 45 Business Days prior to the Redemption Date), which notice shall specify the amount of the Extraordinary Dividend and the Redemption Date. All notices of redemptions will contain information concerning the premium, if any, payable with respect to the applicable redemption. No less than one (1) Business Day prior to the Redemption Date specified in the Company’s notice, the Holders shall provide the Company with notice of their election to receive any premium payable with respect to the applicable redemption in the Applicable Stock. Such notice will contain the information set forth in Section 13.1(1)(A), (B) and (C) of the Original Indenture (as amended by Section 2.09 of this Second Supplemental Indenture). Any Holder who fails to provide a notice of election to receive the applicable premium in shares of the Company’s Class A Common Stock shall be deemed to have elected to receive cash in respect of any applicable premium for all Debentures subject to the redemption in which a premium is payable. The Company shall provide the Trustee with copies of the Holders’ notices of election immediately upon receipt.

Debentures or portions thereof to be redeemed as of a Redemption Date will be convertible by the Holders of such Debentures until the close of business on the second Business Day prior to the Redemption Date.

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If the Company does not redeem all of the Debentures, the Trustee shall select the Debentures to be redeemed in principal amounts of $1,000 or integral multiples thereof, by lot or on a pro rata basis. If any Debentures are to be redeemed in part only, the Company shall issue a Security or Debenture with a principal amount equal to the unredeemed principal portion thereof. If a portion of a Holder’s Securities or Debentures is selected for partial redemption and the Holder converts a portion of its Securities or Debentures the converted portion shall be deemed to be taken from the portion selected for redemption.

(f)Repurchase.

(i)Upon a Change of Control, the Debentures shall be purchased by the Company, at the option of the Holder thereof, at a price equal to the price (which, in this context shall be the “Change of Control Purchase Price”) set forth below and in Section 7 of the Debentures and in accordance with the provisions of this Indenture, including, without limitation, Article 13 (as amended by Section 2.09 of this Second Supplemental Indenture):

Purchase Date	Purchase Price as % of Principal
From the date of issuance to and including September 30, 2005	101%
From October 1, 2005 to and including September 30, 2006	103%
From October 1, 2006 to and including September 30, 2007	106%
From October 1, 2007 to and including September 30, 2008	110%
From October 1, 2008 to and including June 30, 2009	114%
From July 1, 2009 to and including September 30, 2022	101%

(ii)Upon an Asset Sale, the Debentures shall be repurchased by the Company, at the option of the Holder thereof, at a price equal to the price (which, in this context shall be the “Asset Sale Purchase Price”) set forth below and in accordance with the provisions of the Indenture, including, without limitation, Article 13 (as amended by Section 2.09 of this Second Supplemental Indenture).

Purchase Date	Purchase Price as % of Principal
From the date of issuance to and including September 30, 2005	101 %
From October 1, 2005 to and including September 30, 2006	103 %
From October 1, 2006 to and including September 30, 2007	106 %
From October 1, 2007 to and including September 30, 2008	110 %
From October 1, 2008 to and including June 30, 2009	114 %
From July 1, 2009 to and including September 30, 2022	100 %

(iii)On June 30, 2009 the Debentures shall be repurchased by the Company, at the option of the Holders, at the Repurchase Price of 114% of the principal amount of the Debentures to be repurchased, plus accrued and unpaid interest, if any, to the Purchase Date and in accordance with the provisions of the Indenture including, without limitation, Article 13 (as amended by Section 2.09 of this Second Supplemental Indenture) .

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(g)Premium Payable in Stock at Option of the Holder.

(i)In connection with any premium (the portion of the consideration payable in excess of principal amount) payable to a Holder of the Debentures in connection with redemptions pursuant to Section 2.02(e)(i) and (ii) of this Second Supplemental Indenture and repurchases pursuant to Section 2.02(f) of this Second Supplemental Indenture which, in each case, results from an event or action occurring on or prior to June 30, 2009, each Holder will have the option to elect to receive such premium in cash or in shares of Applicable Stock (defined below). For the purposes of calculating the number of shares issuable to any Holder of the Debentures who elects to exercise such option, the shares of Applicable Stock will be valued at $8.00 per share as adjusted pursuant to Section 16.3 of the Indenture (as amended by Section 2.11 of this Second Supplemental Indenture) as if such $8.00 were the Conversion Price. In lieu of issuing any fractional shares of the Applicable Stock, the Company shall pay the remainder of the premium in cash as if the cash value of a full share were $8.00. In the event any premium is payable to a Holder in Applicable Stock, the Company shall, to the extent applicable, comply with the tender offer rules and all other applicable laws in accordance with Section 13.7 of the Indenture (as amended by 2.09 of this Second Supplemental Indenture).

(ii)The Company shall designate, in the notice delivered pursuant to Sections 2.02(e)(iii) and 2.02(f) of this Second Supplemental Indenture and Sections 13.1 and 13.2 of the Indenture (as amended by Section 2.09 of this Second Supplemental Indenture), the number of shares of Applicable Stock (defined below) payable for any applicable premium; provided that the Company will pay cash for fractional interests as set forth below.

“Applicable Stock” means (i) the Class A Common Stock and (ii) in the event of a merger, consolidation or other similar transaction involving the Company that is otherwise permitted hereunder in which the Company is not the surviving corporation, the common stock, ordinary shares or American Depositary Shares of such surviving corporation or its direct or indirect parent corporation.

(iii)On each Redemption Date, Change of Control Purchase Date, Asset Sale Purchase Date or Purchase Date, in each case, resulting from an event or action occurring on or prior to June 30, 2009, any applicable premium shall be paid, at the option of the Holder, in shares of Applicable Stock equal to the quotient obtained by dividing (i) the aggregate amount of the premium that a Holder has elected to be paid in shares of Applicable Stock by (ii) $8.00 as adjusted pursuant to Section 16.3 of the Indenture (as amended by Section 2.11 of this Second Supplemental Indenture) as if such $8.00 value were the Conversion Price.

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The Company will not issue fractional shares of Applicable Stock in payment of any premium. Instead, the Company will pay cash equal to $8.00 times such fraction for all fractional shares.

The Company’s issuance of shares of Applicable Stock shall be conditioned upon:

(i)the registration of such shares of Applicable Stock under the Securities Act and the Exchange Act, in each case, if required;

(ii)such shares of Applicable Stock being first listed on a national securities exchange or such shares of Applicable Stock being first quoted in an inter-dealer quotation system of any registered United States national securities association;

(iii)any necessary qualification or registration under applicable state securities laws or the availability of an exemption from such qualification and registration; and

(iv)the receipt by the Trustee of an Officer’s Certificate and an Opinion of Counsel each stating that (A) the terms of the issuance of the shares of Applicable Stock are in conformity with this Indenture and (B) the shares of Applicable Stock to be issued by the Company in payment of the applicable premium in respect of Debentures have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of the applicable premiums, in respect of the Debentures, will be validly issued, fully paid and non-assessable and, to the best of such counsel’s knowledge, free from preemptive rights, and, in the case of such Officer’s Certificate, setting forth the number of Applicable Stock to be issued and stating that all applicable conditions have been satisfied and, in the case of such Opinion of Counsel, stating that the conditions in clauses (i) through (iii) above have been satisfied.

The Company hereby covenants to satisfy the foregoing conditions.

Upon determination of the actual number of shares of Applicable Stock to be issued, the Company shall disseminate a press release through Dow Jones & Company, Inc. or Bloomberg Business News containing this information or publish the information through such other public medium as the Company may use at that time.

(i)All shares of Class A Common Stock delivered in respect of any applicable premium shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable, and shall be free from preemptive rights and free of any Lien or adverse claim.

(ii)If a Holder is paid in shares of Applicable Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on such issue of Applicable Stock. However, the Holder shall pay any such tax which is due because the Holder requests the Applicable Stock to be issued in a name other than the Holder’s name. The Paying Agent may refuse to deliver the certificates

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representing the shares of Applicable Stock being issued in a name other than the Holder’s name until the Paying Agent receives a sum sufficient to pay any tax which will be due because the shares of Applicable Stock are to be issued in a name other than the Holder’s name. Nothing herein shall preclude any income tax withholding required by law or regulations.

(h)Conversion. The Debentures shall be convertible at any time prior to the Stated Maturity from and after the date of issuance in accordance with the provisions of the Indenture, including, without limitation, Article 16 (as amended by Section 2.11 of this Second Supplemental Indenture).

“Conversion Price” means initially $16.368, subject to adjustment as set forth in Article 16 of the Indenture (as amended by Section 2.11 of this Second Supplemental Indenture).

(i)Restrictions on Transfer.

(i)Every Debenture that bears or is required under this Section 2.02(i)(i) to bear the legend set forth in this Section (together with any Common Stock issued upon conversion of the Debentures and required to bear the legend set forth in Subsection (ii) below, collectively, the “Restricted Securities”) shall be subject to the restrictions on transfer set forth in this Subsection (i) (including those set forth in the legend below) unless such restrictions on transfer shall be waived by written consent of the Company, and the holder of each such Restricted Security, by such holder’s acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in Section 2.02(i)(i) and (ii), the term “transfer” encompasses any sale, pledge, loan, transfer or other disposition whatsoever of any Restricted Security or any interest therein.

(1)Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any certificate evidencing any Debenture (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.02(i)(ii), if applicable) shall bear a legend in substantially the following form, unless any Debenture has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or pursuant to Rule 144 under the Securities Act or any similar provision then in force, or unless otherwise agreed by the Company in writing, with written notice thereof to the Trustee:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, (1) REPRESENTS THAT IT IS A

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“QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”)); (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THIS SECURITY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), ONLY (A) TO PMA CAPITAL CORPORATION (THE “ISSUER”), (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER), (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, IN COMPLIANCE WITH RULE 144A TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS SECURITY PURSUANT TO CLAUSE 2(B) ABOVE OR UPON ANY TRANSFER OF THIS SECURITY UNDER RULE 144 UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION).

(2)Debentures resold to persons who are not QIBs will be issued in definitive registered form and may not be represented by the global Debenture. Any transfer of a beneficial interest in the global Debenture which cannot be effected through book-entry settlement must be effected by the delivery to the transferee (or its nominee) of a definitive Debenture or Debentures registered in the name of the transferee (or its nominee) on the books maintained by the Trustee in accordance with the transfer restrictions set forth herein. With respect to any such transfer, the Trustee or the custodian, at the direction of the

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Trustee, will cause, in accordance with the standing instructions and procedures existing between the Depositary and the custodian, the aggregate principal amount of the global Debenture to be reduced by the principal amount of the beneficial interest in the global Debenture being transferred and, following such reduction, the Company will execute and the Trustee will authenticate and deliver to the transferee (or such transferee's nominee, as the case may be), a Debenture or Debentures in the appropriate aggregate principal amount in the name of such transferee (or its nominee) and bearing such restrictive legends as may be required by this Second Supplemental Indenture.

(3) So long as the Debentures are eligible for book-entry settlement, unless otherwise required by law, upon any transfer of a definitive Debenture to a QIB in accordance with Rule 144A under the Securities Act and upon receipt of the definitive Debenture or Debentures being so transferred, together with a certification from the transferor that the transferee is a QIB (or other evidence satisfactory to the Company and the Trustee), the Trustee shall make or direct the custodian to make, an endorsement on the global Debenture to reflect an increase in the aggregate principal amount of the Debentures represented by the global Debenture by the principal amount of the Debenture being transferred to the QIB, the Trustee shall cancel such definitive Debenture or Debentures and cause, or direct the custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the custodian, the aggregate principal amount of Debentures represented by the global Debenture to be increased accordingly; provided, that, no definitive Debenture, or portion thereof, in respect of which the Company or an Affiliate of the Company held any beneficial interest shall be included in the global Debenture until such definitive Debenture is freely tradable in accordance with Rule 144(k) under the Securities Act; provided, further, that, the Trustee shall authenticate and deliver Debentures in definitive form upon any transfer of a beneficial interest in the global Debenture to the Company or any Affiliate of the Company.

(4) Any global Debenture may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Supplemental Indenture as may be required by the custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Debentures to be tradeable on The Portal Market or as may be required for the Debentures to be tradeable on any other market developed for trading of securities pursuant to Rule 144A under the Securities Act or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Debentures may be listed or traded or designated for issuance or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Debentures are subject.

(5)Any Debenture (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms or as to conditions for the removal of the foregoing legend may have been satisfied may, upon surrender of such Debenture for exchange to the Debenture registrar in accordance with the provisions of this Section, be exchanged for a new Debenture or Debentures, of like tenor and

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aggregate principal amount, which shall not bear the restrictive legend required by this Section. If the Restricted Security surrendered for exchange is represented by a global Debenture bearing the legend set forth in this Section 2.02(i)(i), the principal amount of the legended global Debenture shall be reduced by the appropriate principal amount and the principal amount of a global Debenture without the legend set forth in this Section 2.02(i)(i) shall be increased by an equal principal amount. If a global Debenture without the legend set forth in this Section 2.02(i)(i) has not been executed, authenticated and delivered, the Company shall execute and the Trustee shall authenticate and deliver an unlegended global Debenture to the Depositary.

(ii)Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of any Debenture shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or pursuant to Rule 144 under the Securities Act or any similar provision then in force, or such Common Stock has been issued upon conversion of Debentures that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act or pursuant to Rule 144 under the Securities Act or any similar provision then in force, or unless otherwise agreed by the Company in writing with written notice thereof to the transfer agent:

THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS COMMON STOCK, BY ITS ACCEPTANCE HEREOF, (1) REPRESENTS THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”)); (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH COMMON STOCK, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF COMMON STOCK UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), ONLY (A) TO PMA CAPITAL CORPORATION (THE “ISSUER”), (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE

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UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER), (C) FOR SO LONG AS THE COMMON STOCK IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, IN COMPLIANCE WITH RULE 144A TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS COMMON STOCK IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS COMMON STOCK PURSUANT TO CLAUSE 2(B) ABOVE OR UPON ANY TRANSFER OF THIS SECURITY UNDER RULE 144 UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION).

Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like aggregate number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.02(i)(ii).

(iii)Any Debenture or Common Stock issued upon the conversion or exchange of a Debenture that, prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Debentures or Common Stock, as the case may be, no longer being “restricted securities” (as defined under Rule 144 under the Securities Act); or provided, that, such restriction shall not apply if appropriate measures are taken that such Debentures or Common Stock are sold in such a manner that such other Debentures and Common Stock that constitute “restricted securities” (as defined under Rule 144 under the Securities Act) are not commingled with Debentures or Common Stock being sold.

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The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Supplemental Indenture or under applicable law with respect to any transfer of any interest in any Debenture (including any transfers between or among Agent Members or beneficial holders of interests in any global Debenture) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

(j)Rule 144A Information Requirement. Within the period prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), the Company covenants and agrees that it shall, during any period in which it is not subject to Section 13 or 15(d) under the Exchange Act, make available to any holder or beneficial holder of Debentures or any Common Stock issued upon conversion thereof which continue to be Restricted Securities in connection with any sale thereof and any prospective purchaser of Debentures or such Common Stock designated by such holder or beneficial holder, the information required pursuant to Rule 144A(d)(4) under the Securities Act upon the request of any holder or beneficial holder of the Debentures or such Common Stock and it will take such further action as any holder or beneficial holder of such Debentures or such Common Stock may reasonably request, all to the extent required from time to time to enable such holder or beneficial holder to sell its Debentures or Common Stock without registration under the Securities Act within the limitation of the exemption provided by Rule 144A, as such Rule may be amended from time to time. Upon the request of any holder or any beneficial holder of the Debentures or such Common Stock, the Company will deliver to such holder a written statement as to whether it has complied with such requirements.

Section 2.03Payment of Interest; Interest Rights Reserved.

Except as may be provided in a Future Supplemental Indenture, for the sole benefit of the Holders of the Debentures, Section 3.7 of the Original Indenture shall be amended by replacing the final paragraph of Section 3.7 of the Original Indenture with the following paragraph:

In the event Securities of any series or a portion thereof is surrendered for conversion or exchange during a period after the Regular Record Date immediately preceding any Interest Payment Date and on or prior to such Interest Payment Date (unless such Securities or portion thereof which is being surrendered for conversion or exchange has been called for redemption on a Redemption Date within such period), the Company will pay on such Interest Payment Date or payment date, as the case may be, interest due and payable on such Interest Payment Date or payment date, as the case may be, notwithstanding such conversion or exchange, and the Company will pay such interest (whether or not punctually paid or duly provided for) to the Person in whose name such Securities (or one or more Predecessor Securities) are registered at the close of business on such Regular Record Date; provided, however, that such payment of interest shall be subject to the payment to the Company by the Holder of such Securities or portion thereof surrendered for conversion or exchange (such payment to accompany such surrender) of an amount equal to the amount of such interest, in accordance with Section 16.9 hereof. Except as otherwise provided in the immediately preceding sentence, in the case of any Security which is converted, interest due and payable after the date of conversion of such Security shall not be payable.

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Section 2.04Events of Default; Acceleration of Maturity.

(a)Except as may be provided by a Future Supplemental Indenture, for the benefit of the Holders of all Securities, including the Debentures, Section 5.1 of the Original Indenture shall be amended by deleting Subsections (1) and (2) thereof in their entirety and replacing such Subsections with new Subsections (1) and (2) and adding new Subsections (9), (10), (11), (12) and (13) to Section 5.1 thereof, and changing Subsection (9) of Section 5.1 thereof to Subsection (14), as follows:

(1) default in the payment of any interest upon, or any Additional Amount payable in respect of, any Security of that series or of any coupon appertaining thereto, when such interest or coupon or Additional Amount becomes due and payable, and continuance of such default for a period of 30 days; or

(2) default in the payment (including any premiums payable in stock) of the principal of (or premium, if any, on), or Redemption Price, Purchase Price, Asset Sale Purchase Price or Change of Control Purchase Price of, any Security of that series when it becomes due and payable at its Maturity, at the Redemption Date, at the Purchase Date, Asset Sale Purchase Date or at the Change of Control Purchase Date, as applicable; or

(9) failure to convert any Security of that series into shares of the Company’s Class A Common Stock or cash as provided herein upon exercise of a Holder’s conversion right, unless such failure is cured within five days after written notice of default is given to the Company by the Trustee or to the Company and the Trustee by the holder of such Security; or

(10) a breach of a covenant set forth in Sections 3.04, 3.06 or 3.08 of this Second Supplemental Indenture.

(11) the Liens created by the Indenture and the Collateral Agent Agreement shall at any time not constitute valid and perfected Liens on the Collateral and the Additional Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Collateral Agent, free and clear of all other Liens (other than Permitted Liens), or, except for expiration in accordance with its terms or amendment, modification, waiver, termination or release in accordance with the terms of this Indenture and the Collateral Agent Agreement shall for whatever reason be terminated or cease to be in full force and effect;

(12) failure of the Company to make, when due, any transfer, delivery, pledge, assignment or grant of Collateral or the Additional Collateral required to be made by it;

(13) the delivery by the trustee for the Company’s 8.50% Monthly Income Senior Notes due 2018 and/or authorized representative of any other secured Indebtedness issued pursuant to the terms of the Indenture to the Collateral Agent of a notice requiring that the Collateral Agent commence proceedings to realize on the Collateral or the Additional Collateral.

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(b)Except as may be provided by a Future Supplemental Indenture, for the benefit of all Holders of the Securities, including the Debentures, the first and second paragraphs of Section 5.2 are amended by deleting the phrase “specified in clause (7) or (8)” and replacing it with the phrase “specified in clause (7), (8), or (13).”

Section 2.05Supplemental Indentures with Consent of Holders.

Except as may be provided by a Future Supplemental Indenture, for the benefit of the Holders of all Securities, including the Debentures, Section 9.2 of the Original Indenture shall be amended by deleting Subsection (1) thereof in its entirety and replacing such Subsection with a new Subsection (1) and adding new Subsections (16) and (17) to Section 9.2 as follows:

(1) change the Stated Maturity of the principal of, or any premium or installment of interest, on or any Additional Amounts or Redemption Date with respect to, any Security, or reduce the principal amount thereof or the rate (or modify the calculation of such rate) of interest, thereon or any Additional Amounts with respect thereto, or any amount payable upon the redemption thereof or otherwise, or change the obligation of the Company to pay Additional Amounts pursuant to Section 10.4 (except as contemplated by Section 8.1(1) and permitted by Section 9.1(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the amount thereof provable in bankruptcy pursuant to Section 5.4, or adversely affect the right of repayment at the option of any Holder as contemplated by Article 13, or change the Place of Payment, Currency in which the principal of, any premium or interest, on, or any Additional Amounts with respect to any Security is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of repayment at the option of the Holder, on or after the Asset Sale Purchase Date, the Change of Control Purchase Date or Purchase Date, as applicable), or

(16) adversely affect the existence, nature, extent or priority of the Lien of the Holders of the Debentures or the holders of the 8.50% Monthly Income Senior Notes due 2018 or the holders of other secured Indebtedness secured by the Collateral (or Additional Collateral) on the Collateral (or Additional Collateral) as provided in Section 1.03 of this Second Supplemental Indenture; or

(17) modify any of the provisions of this section 9.2.

Section 2.06Reserved.

Section 2.07Selection by Trustee of Securities to be Redeemed.

Except as may be provided by a Future Supplemental Indenture, for the sole benefit of the Holders of the Debentures, Section 11.3 of the Original Indenture shall be amended by adding a new sentence at the end thereof as follows:

“If the Trustee selects a portion of a Holder’s Securities of any series for partial redemption and the Holder converts a portion of the same Securities, the converted portion will be deemed to be from the portion selected for redemption.”

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Section 2.08Reserved.

Section 2.09Purchase at the Option of Holders.

For the sole benefit of the Holders of the Debentures, Article 13 of the Original Indenture shall be replaced in its entirety with the following:

ARTICLE 13

PURCHASE AT THE OPTION OF HOLDERS

SECTION 13.1. Purchase of Debentures by the Company at Option of the Holder.

(a) General. Debentures shall be purchased by the Company at the option of the Holder as set forth in Section 2.02(f)(iii) of this Second Supplemental Indenture (in this context, the “Purchase Date”), at a purchase price equal to the price payable as set forth in such Section 2.02(f)(iii) (which, in this context shall be the “Purchase Price”), subject to the provisions of Section 3.04 of the Second Supplemental Indenture. Purchases of Debentures hereunder shall be made, at the option of the Holder thereof, upon:

(1)delivery to the Paying Agent by the Holder of a written notice of purchase (a “Purchase Notice”) during the period beginning at any time from the opening of business on the date that is 20 Business Days prior to the relevant Purchase Date until the close of business on the third Business Day prior to such Purchase Date stating:

(A) the certificate number of the Debenture which the Holder will deliver to be purchased or the appropriate Depositary procedures if Debentures in certificated form have not been issued,

(B) the portion of the principal amount of the Debenture which the Holder will deliver to be purchased, which portion must be in principal amounts of $1,000 or an integral multiple of $1,000,

(C) whether the Holder elects to receive any premium payable with respect to such purchase in cash or shares of Applicable Stock,

(D) that such Debenture shall be purchased by the Company as of the Purchase Date pursuant to the terms and conditions specified in this Indenture, and

(2)delivery of such Debenture to the Paying Agent at any time after delivery of the Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent, such delivery being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 13.1 only if the Debenture so delivered to the Paying Agent shall conform in all material respects to the description thereof in the related Purchase Notice.

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In the event a Holder is making an election to receive any applicable premium in Applicable Stock, notice of such election may be delivered to the Paying Agent on a date that is no less than one (1) Business Day prior to the Purchase Date pursuant to 2.02(g).

If a Holder, in such Holder’s Purchase Notice and in any written notice of withdrawal delivered by such Holder pursuant to the terms of Section 13.4, fails to indicate such Holder’s choice with respect to the election set forth in clause (C) of this Section 13.1(a)(1), and does not provide a subsequent notice of its election to receive the premium in Applicable Stock to the Company and the Paying Agent no later than one (1) Business Day before the Purchase Date, such Holder shall be deemed to have elected to receive cash in respect of any applicable premium for all Debentures subject to such Purchase Notice.

(b) No later than 30 Business Days prior to the Purchase Date, the Company shall mail a written notice by first class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include a form of Purchase Notice to be completed by the Holder and shall briefly state, as applicable:

(1)that the Company has the obligation to purchase the Debentures at the option of the Holders;

(2)the date by which the Purchase Notice pursuant to this Section 13.1 must be delivered to the Paying Agent in order for a Holder to exercise the repurchase rights;

(3)the Purchase Date;

(4)the Purchase Price;

(5)the name and address of the Paying Agent and the Conversion Agent;

(6)the Conversion Rate and any adjustments thereto;

(7)that the Debentures as to which a Purchase Notice has been given may be converted if they are otherwise convertible pursuant to Article 16 hereof only if the Purchase Notice has been withdrawn in accordance with the terms of this Indenture;

(8)that the Debentures must be surrendered to the Paying Agent to collect payment;

(9)that the Purchase Price for any Debenture as to which a Notice has been duly given and not withdrawn will be paid promptly following the later of the Purchase Date and the time of surrender of such Debenture as described in (9);

(10)the procedures the Holder must follow to exercise rights under this Section 13.1;

(11)the conversion rights of the Debentures;

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(12)the procedures for withdrawing a Purchase Notice;

(13)the number of shares of Applicable Stock payable for any applicable premium;

(14)that, unless the Company defaults in making payment of such Purchase Price, interest, if any, on Debentures surrendered for purchase to the Company will cease to accrue on and after the Purchase Date and the Debentures will cease to be convertible; and

(15)the CUSIP number(s) of the Debentures.

If a Debenture is only to be purchased in part, the Company shall purchase from the Holder thereof, pursuant to this Section 13.1, such portion of a Debenture, if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Debenture also apply to the purchase of such portion of such Debenture.

Any purchase by the Company contemplated pursuant to the provisions of this Section 13.1 shall be consummated by the delivery of the consideration to be received by the Holder promptly following the later of the Purchase Date and the time of delivery of the Debenture.

Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice contemplated by this Section 13.1 shall have the right to withdraw such Purchase Notice at any time prior to the close of business on the third Business Day prior to the Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 13.4.

The Paying Agent shall promptly notify the Company in writing of the receipt by it of any Purchase Notice or written notice of withdrawal thereof.

SECTION 13.2. Purchase of Debentures at Option of the Holder upon Change of Control or Upon the Sale of Certain Assets.

(a) If a Change of Control occurs, the Debentures not previously purchased by the Company shall be purchased by the Company, at the option of the Holder thereof, during the periods and at a purchase price equal to the price payable at such time as set forth in Section 2.02(f)(i) of this Second Supplemental Indenture plus accrued and unpaid interest, if any (which, in this context shall be the “Change of Control Purchase Price”), as of the date that is 30 days after the date of a notice of Change of Control delivered by the Company (the “Change of Control Purchase Date”), subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 13.2(d).

A “Change of Control” will be deemed to have occurred at such time after the Debentures are originally issued when any of the following events shall occur:

(i) the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly through a purchase, merger or other acquisition transaction or series of purchase, merger or other acquisition transactions, of shares of the Capital Stock of the Company entitling that person to exercise 50% or more of the total voting power of all shares of the Capital Stock of the Company entitled to vote generally in elections of directors, other than any acquisition by any of the Company’s Subsidiaries or any of its employee benefit plans; or

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(ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved pursuant to a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or

(iii) the Company consolidates or merges with or into any other person, any merger of another person into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the Company’s properties and assets to another person, other than:

(A) any transaction: (1) that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of the Company’s Capital Stock; and (2) pursuant to which holders of the Company’s Capital Stock immediately prior to the transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of Capital Stock entitled to vote generally in elections of directors of the continuing or surviving Person immediately after giving effect to such issuance; and (B) any merger, share exchange, transfer of assets or similar transaction solely for the purpose of changing the Company’s jurisdiction of incorporation and resulting in a reclassification, conversion or exchange of outstanding shares of Class A Common Stock, if at all, solely into shares of common stock, ordinary shares or American Depositary Shares of the surviving Person or a direct or indirect parent of the surviving corporation.

For the purposes of this Section 13.2, (x) whether a person is a “beneficial owner” shall be determined in accordance with Rule 13d-3 under the Exchange Act and (y) the term “person” includes any syndicate or group that would be deemed to be a “person” under Section 13(d)(3) of the Exchange Act.

(b) If an Asset Sale occurs, the Debentures not previously purchased by the Company shall be purchased by the Company, at the option of the Holder thereof, during the periods and at a purchase price equal to the price payable at such time as set forth in Section 2.02(f)(ii) of this Second Supplemental Indenture plus accrued and unpaid interest, if any, (which, in this context shall be the “Asset Sale Purchase Price”) to be paid, on a pro rata basis together with the Publicly Issued Debentures from Net Cash Proceeds as of the date that is specified in a notice of Asset Sale delivered by the Company (the “Asset Sale Purchase Date”) pursuant to Subsection (c)(3) below, subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 13.2(d).  If the aggregate purchase price of the Securities tendered (as described below) exceeds such Net Cash Proceeds, the Trustee shall select the Securities to be purchased on a pro rata basis but in denominations of $1,000 principal amount or multiples thereof.

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An “Asset Sale” will be deemed to have occurred, if, at any time after the Debentures are originally issued, a sale permitted under Section 3.04 of the First Supplemental Indenture has been completed.

(c) No later than 30 days after the occurrence of a Change of Control or five (5) days after the occurrence of an Asset Sale, the Company shall mail a written notice of the Change of Control or Asset Sale by first class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include a form of Change of Control Purchase Notice or Asset Sale Purchase Notice to be completed by the Holder and shall briefly state, as applicable:

(1)the events causing a Change of Control or Asset Sale and the date of such Change of Control or Asset Sale;

(2)the date by which the Change of Control or Asset Sale Purchase Notice pursuant to this Section 13.2 must be delivered to the Paying Agent in order for a Holder to exercise the repurchase rights;

(3)the Change of Control Purchase Date (which shall be 30 days from the Change of Control Notice Date) or Asset Sale Purchase Date (which shall be 20 Business Days from the Asset Sale Notice Date);

(4)the Change of Control or Asset Sale Purchase Price;

(5)the name and address of the Paying Agent and the Conversion Agent;

(6)the Conversion Rate and any adjustments thereto;

(7)that the Debentures as to which a Change of Control or Asset Sale Purchase Notice has been given may be converted if they are otherwise convertible pursuant to Article 16 hereof only if the Change of Control or Asset Sale Purchase Notice has been withdrawn in accordance with the terms of this Indenture;

(8)that the Debentures must be surrendered to the Paying Agent to collect payment;

(9)that the Change of Control or Asset Sale Purchase Price for any Debenture as to which a Change of Control or Asset Sale Purchase Notice has been duly given and not withdrawn will be paid promptly following the later of the Change of Control or Asset Sale Purchase Date and the time of surrender of such Debenture as described in (9);

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(10)the procedures the Holder must follow to exercise rights under this Section 13.2;

(11)the conversion rights of the Debentures;

(12)the procedures for withdrawing a Change of Control or Asset Sale Purchase Notice;

(13)the number of shares of Applicable Stock payable for any applicable premium;

(14)that, unless the Company defaults in making payment of such Change of Control or Asset Sale Purchase Price, interest, if any, on Debentures surrendered for purchase to the Company will cease to accrue on and after the Change of Control or Asset Sale Purchase Date and the Debentures will cease to be convertible; and

(15)the CUSIP number(s) of the Debentures.

(d) A Holder may exercise its rights specified in Section 13.2(a) and (b) upon delivery of a written notice of purchase (a “Change of Control Purchase Notice” or an “Asset Sale Purchase Notice”) to the Paying Agent no later than the close of business on the third Business Day immediately preceding the Change of Control or Asset Sale Purchase Date stating:

(1)the certificate number of the Debenture which the Holder will deliver to be purchased or the appropriate depositary procedures if Certificated Debentures have not been issued;

(2)the portion of the principal amount of the Debenture which the Holder will deliver to be purchased, which portion must be $1,000 or an integral multiple of $1,000;

(3)that such Debenture shall be purchased pursuant to the terms and conditions specified in Section 7 of the Debentures and in this Indenture; and

(4)whether the Holder elects to receive any premium payable with respect to such purchase in cash or in shares of Applicable Stock.

In the event a Holder is making an election to receive any applicable premium in Applicable Stock, notice of such election may be delivered to the Paying Agent on a date that is no less than one (1) Business Day prior to the Change of Control Purchase Date or Asset Sale Purchase Date, as applicable, pursuant to 2.02 (g).

The delivery of such Debenture to the Paying Agent with the Change of Control or Asset Sale Purchase Notice (together with all necessary endorsements) at the offices of the Paying Agent shall be a condition to the receipt by the Holder of the Change of Control or Asset Sale Purchase Price therefore; provided, however, that such Change of Control or Asset Sale Purchase Price shall be so paid pursuant to this Section 13.2 and Section 13.3 only if the Debenture so delivered to the Paying Agent shall conform in all material respects to the description thereof set forth in the related Change of Control or Asset Sale Purchase Notice.

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If a Holder, in such Holder’s Change of Control or Asset Sale Purchase Notice and in any written notice of withdrawal delivered by such Holder pursuant to the terms of Section 13.4, fails to indicate such Holder’s choice with respect to the election set forth in Section 13.2(d)(4) and does not provide a subsequent notice of its election to receive the premium in Applicable Stock to the Company and the Paying Agent no later than one (1) Business Day before the Change of Control Purchase Date or Asset Sale Purchase Date such Holder shall be deemed to have elected to receive cash in respect of the entire Change of Control or Asset Sale Purchase Price for all Debentures subject to such Change of Control or Asset Sale Purchase Notice in the circumstances set forth in such Section 13.2(c)(4).

If a Debenture is only to be purchased in part, the Company shall purchase from the Holder thereof, pursuant to this Section 13.2 and Section 13.3, such portion of a Debenture if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the purchase of all of a Debenture also apply to the purchase of such portion of such Debenture.

Any purchase by the Company contemplated pursuant to the provisions of this Section 13.2 and Section 13.3 shall be consummated by the delivery of the consideration to be received by the Holder on the Change of Control or Asset Sale Purchase Date.

Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Change of Control or Asset Sale Purchase Notice contemplated by this Section 13.2(c) shall have the right to withdraw such Change of Control or Asset Sale Purchase Notice at any time prior to the close of business on the last Business Day immediately preceding the Change of Control or Asset Sale Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 13.4.

The Paying Agent shall promptly notify the Company in writing of the receipt by it of any Change of Control or Asset Sale Purchase Notice or written withdrawal thereof.

SECTION 13.3. Payment of Purchase Price, Asset Sale Purchase Price and Change of Control Purchase Price.

The Company shall pay the Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, of Debentures in respect of which a Purchase Notice pursuant to Section 13.1(a) or Change of Control or Asset Sale Purchase Notice pursuant to Section 13.2(c), as the case may be, has been given in U.S. legal tender (“cash”) equal to the aggregate Purchase Price or Change of Control Purchase Price, or Asset Sale Purchase Price or, with respect to any premium, if the Holder so elects, in Applicable Stock.

SECTION 13.4. Effect of Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice.

Upon receipt by the Paying Agent of the Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice specified in Section 13.1(b) or Section 13.2(d), as applicable, the Holder of the Debenture in respect of which such Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice, as the case may be, was given shall (unless such Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice, as the case may be, is withdrawn as specified in the following two

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paragraphs) thereafter be entitled to receive solely the Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, with respect to such Debenture. Such Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price shall be paid to such Holder, subject to receipt of funds and/or securities by the Paying Agent, promptly following the later of (x) the Purchase Date or the Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, with respect to such Debenture (provided the conditions in Section 13.1 or Section 13.2(d), as applicable, have been satisfied) and (y) the time of delivery of such Debenture to the Paying Agent by the Holder thereof in the manner required by Section 13.1 or Section 13.2(d), as applicable. Debentures in respect of which a Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice has been given by the Holder thereof may not be converted pursuant to Article 16 hereof on or after the date of the delivery of such Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice unless such Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice has first been validly withdrawn as specified in the following two paragraphs.

A Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice, as the case may be, at any time prior to the close of business on the Business Day prior to the Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, specifying:

(1)the certificate number, if any, of the Debenture in respect of which such notice of withdrawal is being submitted,

(2)the principal amount of the Debenture with respect to which such notice of withdrawal is being submitted, and

(3)the principal amount, if any, of such Debenture which remains subject to the original Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice, as the case may be, and which has been or will be delivered for purchase by the Company.

A written notice of withdrawal of a Purchase Notice shall contain the information set forth above.

A written notice of withdrawal of a Change of Control or Asset Sale Purchase Notice may contain the information set forth above or may be in the form of (i) a conditional withdrawal contained in a Change of Control Purchase Notice or Asset Sale Purchase Notice pursuant to the terms of Section 13.2 or (ii) a withdrawal containing the information set forth in Section 13.2 and the preceding Section and contained in a written notice of withdrawal delivered to the Paying Agent as set forth in the preceding paragraph.

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SECTION 13.5. Deposit of Redemption Price, Purchase Price, Change of Control Purchase Price or Asset Sale Purchase Price.

(a) Prior to 10:00 am (local time in The City of New York) on a Redemption Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 10.3 hereof) an amount of cash (in immediately available funds) or, with respect to any premium payable on any such date, shares of Applicable Stock sufficient to pay such premium to the Holders entitled thereto who have elected to receive such premium in Applicable Stock sufficient as evidenced in writing by a certified public accountant to pay the aggregate Redemption Price (and any applicable premium) of all the Debentures or portion thereof which are to be redeemed or purchased, as the case may be, as of the Redemption Date.

(b) Prior to 10:00 a.m. (local time in The City of New York) on the Business Day following a Purchase Date or the Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 10.3 hereof) an amount of cash (in immediately available funds) or, with respect to any premium payable on any such date, shares of Applicable Stock sufficient to pay such premium to the Holders entitled thereto who have elected to receive such premium in Applicable Stock sufficient as evidenced in writing by a certified public accountant to pay the aggregate Purchase Price, Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, (and any applicable premium) of all the Debentures or portions thereof which are to be purchased as of the Purchase Date, Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be.

(c)If the Company has deposited the Redemption Price, Purchase Price, Change of Control Purchase Price or Asset Sale Purchase Price in accordance with Section 13.5(a) or (b), as applicable, on the Redemption Date, Purchase Date, Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, such Debenture will cease to be Outstanding and the right of the Holder in respect thereof shall terminate (other than the right to receive the Redemption Price, the Purchase Price, the Change of Control Purchase Price or the Asset Sale Purchase Price, as the case may be, and any accrued and unpaid interest, as aforesaid).

SECTION 13.6. Debentures Purchased in Part.

Any Debenture in certified form which is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder’s attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Debenture, without service charge, a new Debenture or Debentures, of any authorized denomination as requested by such Holder in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Debenture so surrendered which is not purchased.

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SECTION 13.7. Covenant to Comply With Securities Laws Upon Purchase of Debentures.

When complying with the provisions of Section 2.02(g) of this Second Supplemental Indenture or Sections 13.1 or 13.2 hereof (provided that such offer or purchase constitutes an “issuer tender offer” for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), and subject to any exemptions available under applicable law, the Company shall (i) comply with Rule 13e- 4 and Rule 14e-1 (or any successor provision) under the Exchange Act, (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with all Federal and state securities laws so as to permit the rights and obligations under Section 2.02(g) of this Second Supplemental Indenture or Sections 13.1 and 13.2 hereof to be exercised in the time and in the manner specified in Section 2.02(g) of this Second Supplemental Indenture or Sections 13.1 and 13.2 hereof.

SECTION 13.8. Repayment to the Company.

The Trustee and the Paying Agent shall return to the Company any cash or shares of Applicable Stock that remain unclaimed as provided in Section 12 of the Debentures, together with interest or dividends, if any, thereon (subject to the provisions of Section 6.6), held by them for the payment of the Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be; provided, however, that to the extent that the aggregate amount of cash or shares of Applicable Stock deposited by the Company pursuant to Section 13.5 exceeds the aggregate Purchase Price or Change of Control Purchase Price or Asset Sale Purchase Price, as the case may be, of the Debentures or portions thereof which the Company is obligated to purchase as of the Purchase Date or Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, then, unless otherwise agreed in writing with the Company, promptly after the Business Day following the Purchase Date or Change of Control Purchase Date or Asset Sale Purchase Date, as the case may be, the Trustee shall return any such excess to the Company together with interest or dividends, if any, thereon (subject to the provisions of Section 6.6 hereof).

Section 2.10Application of the Article of the Indenture Regarding Defeasance and Covenant Defeasance.

Section 4.2 of the Original Indenture concerning defeasance and covenant defeasance of the Securities shall not apply to the Debentures.

Section 2.11Conversions.

Except as may be provided by a Future Supplemental Indenture, for the sole benefit of the Holders of the Debentures, a new Article 16 shall be added to the Original Indenture as follows:

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ARTICLE 16

CONVERSIONS

SECTION 16.1. Conversion Privilege.

(a) Subject to and upon compliance with the provisions of this Article 16, a Holder of a Debenture shall have the right, at such Holder’s option, at any time to convert all or any portion (if the portion to be converted is $1,000 or an integral multiple of $1,000) of such Debenture into shares of Class A Common Stock at the Conversion Rate in effect on the date of conversion.

(b) The “Sale Price” of the shares of the Company’s Class A Common Stock on any date means the closing per share sale price (or, if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date as reported on the NYSE or, if the shares of the Company’s Class A Common Stock are not listed on the NYSE, as reported on a national securities exchange, or if not reported on a national securities exchange, as reported by the Nasdaq system. In the absence of such quotations, the Company’s Board of Directors shall be entitled to determine the sales price on the basis of such quotations as it considers appropriate in good faith.

The Conversion Rate, at any time, shall equal (A) $1,000 divided by (B) the Conversion Price at such time, rounded to four (4) decimal places (rounded up if the fifth decimal place thereof is five (5) or more and otherwise rounded down).

SECTION 16.2. Conversion Procedure; Conversion Price; Fractional Shares.

(a) Each Debenture shall be convertible at the office of the Conversion Agent into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Class A Common Stock. The Debenture will be converted into shares Class A Common Stock at the Conversion Price therefor. No payment or adjustment shall be made in respect of dividends on the Class A Common Stock or accrued interest on a converted Debenture, except as described in Section 16.9 hereof. The Company shall not issue any fraction of a share of Class A Common Stock in connection with any conversion of Debentures, but instead shall, subject to Section 16.2(b) hereof, make a cash payment (calculated to the nearest cent) equal to such fraction multiplied by the Sale Price of the Class A Common Stock on the last Trading Day prior to the date of conversion. Notwithstanding the foregoing, a Debenture in respect of which a Holder has delivered a Purchase Notice or Change of Control Purchase Notice or Asset Sale Purchase Notice exercising such Holder’s option to require the Company to repurchase such Debenture may be converted only if such notice of exercise is withdrawn in accordance with the Section 13.4 hereof.

(b) Before any Holder of a Debenture shall be entitled to convert the same into Class A Common Stock, such Holder shall, in the case of Debentures issued in global form, comply with the procedures of the Depositary in effect at that time, and in the case of definitive Debentures, surrender such Debentures, duly endorsed to the Company or in blank, at the office of the Conversion Agent, and shall give written notice to the Company at said office or place that such Holder elects to convert the same and shall state in writing therein the principal amount of Debenture to be converted and the name or names (with addresses) in which such Holder wishes the certificate or certificates for Class A Common Stock to be issued.

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Before any such conversion, a Holder also shall pay all funds required, if any, relating to interest on the Debentures, as provided in Section 16.9, and all taxes or duties, if any, as provided in Section 16.8.

If more than one Debenture shall be surrendered for conversion at one time by the same Holder, the number of full shares of Class A Common Stock which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of the Debenture (or specified portions thereof to the extent permitted thereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue and deliver at said office or place to such Holder of a Debenture, or to such Holder’s nominee or nominees, certificates for the number of full shares of Class A Common Stock to which such Holder shall be entitled as aforesaid, together, subject to the next to last sentence of Section (a) above, with cash in lieu of any fraction of a share to which such Holder would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Class A Common Stock while the stock transfer books for such stock or the security register are duly closed for any purpose, but certificates for shares of Class A Common Stock shall be issued and delivered as soon as practicable after the opening of such books or security register.

(c) A Debenture shall be deemed to have been converted as of the close of business on the date of the surrender of such Debenture for conversion as provided above, and the person or persons entitled to receive the Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such Class A Common Stock as of the close of business on such date.

(d) In case any Debenture shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Debenture so surrendered, without charge to such Holder (subject to the provisions of Section 16.8 hereof), a new Debenture or Debentures in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Debentures.

SECTION 16.3. Adjustment of Conversion Price for Class A Common Stock.

The Conversion Price shall be adjusted from time to time as follows:

(a) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, pay a dividend or make a distribution in shares of Class A Common Stock to all holders of its outstanding shares of Class A Common Stock, then the Conversion Price in effect at the opening of business on the date next following the Record Date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction:

(1) the numerator of which shall be the number of shares of Class A Common Stock outstanding at the close of business on the Record Date fixed for such determination; and

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(2) the denominator of which shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution.

Such reduction shall become effective immediately after the opening of business on the day following the Record Date fixed for such determination. If any dividend or distribution of the type described in this Section 16.3(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared.

(b) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, subdivide its outstanding shares of Class A Common Stock into a greater number of shares of Class A Common Stock, then the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case the Company shall, at any time or from time to time while any of the Debentures are outstanding, combine its outstanding shares of Class A Common Stock into a smaller number of shares of Class A Common Stock, then the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased.

Such reduction or increase, as the case may be, shall become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

(c) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, issue rights or warrants (other than any rights or warrants referred to in Section 16.3(d)), or securities convertible into or exchangeable or exercisable for Class A Common Stock, to all holders of its shares of Class A Common Stock entitling them to subscribe for or purchase shares of Class A Common Stock (or securities convertible into or exchangeable or exercisable for shares of Class A Common Stock), at a price per share (or having a conversion price per share) less than the Sale Price on the Business Day immediately preceding the date of the announcement of such issuance (treating the conversion price per share of the securities convertible into Class A Common Stock as equal to (x) the sum of (i) the price for a unit of the security convertible into Class A Common Stock and (ii) any additional consideration initially payable upon the conversion of such security into Class A Common Stock divided by (y) the number of shares of Class A Common Stock initially underlying such convertible security), then the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such date of announcement by a fraction:

(1) the numerator of which shall be the number of shares of Class A Common Stock outstanding on the close of business on the date of announcement, plus the number of shares or securities which the aggregate offering price of the total number of shares or securities so offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) would purchase at such Sale Price of the Class A Common Stock; and

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(2) the denominator of which shall be the number of shares of Class A Common Stock outstanding at the close of business on the date of announcement, plus the total number of additional shares of Class A Common Stock so offered for subscription or purchase (or into which the convertible securities so offered are convertible).

Such adjustment shall become effective immediately after the opening of business on the day following the date of announcement of such issuance. To the extent that shares of Class A Common Stock (or securities convertible into shares of Class A Common Stock) are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Class A Common Stock (or securities convertible into shares of Class A Common Stock) actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if the date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Class A Common Stock at less than such Sale Price, and in determining the aggregate offering price of such shares of Class A Common Stock, there shall be taken into account any consideration received for such rights or warrants and the value of such consideration if other than cash, to be determined in good faith by the Board of Directors of the Company.

(d) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, by dividend or otherwise, distribute to all holders of its shares of Class A Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation and the Class A Common Stock is not changed or exchanged), shares of its Capital Stock (other than any dividends or distributions to which Section 16.3(a) applies), evidences of its Indebtedness or other assets, including securities, but excluding (i) any rights or warrants referred to in Section 16.3(c), (ii) dividends or distributions of stock referred to in Section 16.3(a), (iii) dividends and distributions of stock, securities or other property or assets (including cash) in connection with the reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 16.4 applies and (iv) dividends and distributions paid exclusively in cash referred to in Section 16.3(e) (such capital stock, evidence of its indebtedness, other assets or securities being distributed hereinafter in this Section 16.3(d) called the “Distributed Assets”), then, in each such case, subject to the other provisions of this Section 16.3(d), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date with respect to such distribution by a fraction:

(1) the numerator of which shall be the Current Market Price of the Class A Common Stock, less the Fair Market Value on such date of the portion of the distributed assets so distributed applicable to one share of Class A Common Stock (determined on the basis of the number of shares of Class A Common Stock outstanding on the Record Date) (determined as provided in Section 16.3(g)) on such date; and

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(2) the denominator of which shall be such Current Market Price.

Such reduction shall become effective immediately prior to the opening of business on the day following the Record Date for such distribution. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared.

If the Board of Directors determines the Fair Market Value of any distribution for purposes of this Section 16.3(d) by reference to the actual or when issued trading market for any distributed assets comprising all or part of such distribution, it must in doing so consider the prices in such market over the period of the four consecutive fiscal quarters ending with the last full fiscal quarter for which financial information is available immediately preceding any date upon which any determination is to be made pursuant to the terms of either Indenture or the related Securities (the “Reference Period”) used in computing the Current Market Price pursuant to Section 16.3(g) to the extent possible, unless the Board of Directors determines in good faith that determining the Fair Market Value during the Reference Period would not be in the best interest of the Holders.

In the event any such distribution consists of shares of capital stock of, or similar equity interests in, one or more of the Company’s Subsidiaries (a “Spin-Off”), the Fair Market Value of the securities to be distributed shall equal the average of the closing sale prices of such securities on the principal securities market on which such securities are traded for the five consecutive Trading Days commencing on and including the sixth Trading Day of those securities after the effectiveness of the Spin-Off, and the Current Market Price shall be measured for the same period. In the event, however, that an underwritten initial public offering of the securities in the Spin-Off occurs simultaneously with the Spin-Off, Fair Market Value of the securities distributed in the Spin-Off shall mean the initial public offering price of such securities and the Current Market Price shall mean the Sale Price for the Class A Common Stock on the same Trading Day.

Rights or warrants distributed by the Company to all holders of its shares of Class A Common Stock entitling them to subscribe for or purchase shares of the Company’s Capital Stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (“Trigger Event”), (i) are deemed to be transferred with such shares of Class A Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of shares of Class A Common Stock shall be deemed not to have been distributed for purposes of this Section 16.3(d) (and no adjustment to the Conversion Price under this Section 16.3(d) will be required) until the occurrence of the earliest Trigger Event. If such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different distributed assets, evidences of indebtedness or other assets, or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and record date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Price under this Section 16.3(d):

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(1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of shares of Class A Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of shares of Class A Common Stock as of the date of such redemption or repurchase; and

(2) in the case of such rights or warrants which shall have expired or been terminated without exercise, the Conversion Price shall be readjusted as if such rights and warrants had never been issued.

For purposes of this Section 16.3(d) and Sections 16.3(a), 16.3(b) and 16.3(c), any dividend or distribution to which this Section 16.3(d) is applicable that also includes (i) shares of Class A Common Stock, (ii) a subdivision or combination of shares of Class A Common Stock to which Section 16.3(b) applies or (iii) rights or warrants to subscribe for or purchase shares of Class A Common Stock or securities convertible into or exercisable or exchangeable for Class A Common Stock to which Section 16.3(c) applies (or any combination thereof), shall be deemed instead to be:

(1) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants, other than such shares of Class A Common Stock, such subdivision or combination or such rights or warrants or securities convertible into or exercisable or exchangeable for Class A Common Stock to which Sections 16.3(a), 16.3(b) and 16.3(c) apply, respectively (and any Conversion Price reduction required by this Section 16.3(d) with respect to such dividend or distribution shall then be made), immediately followed by

(2) a dividend or distribution of such shares of Class A Common Stock, such subdivision or combination or such rights or warrants or securities convertible into or exercisable or exchangeable for Class A Common Stock (and any further Conversion Price reduction required by Sections 16.3(a), 16.3(b) and 16.3(c) with respect to such dividend or distribution shall then be made), except:

(A) the Record Date of such dividend or distribution shall be substituted as (i) “the date fixed for the determination of stockholders entitled to receive such dividend or other distribution,” “Record Date fixed for such determinations” and “Record Date” within the meaning of Section 16.3(a), (ii) “the day upon which such subdivision becomes effective” and “the day upon which such combination becomes effective” within the meaning of Section 16.3(b), and (iii) as “the date fixed for the determination of stockholders entitled to receive such rights or warrants,” “the Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants” and such “Record Date” within the meaning of Section 16.3(c); and

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(B) any shares of Class A Common Stock included in such dividend or distribution shall not be deemed “outstanding at the close of business on the date fixed for such determination” within the meaning of Section 16.3(a) and any reduction or increase in the number of shares of Class A Common Stock resulting from such subdivision or combination shall be disregarded in connection with such dividend or distribution.

In the event of any distribution referred to in this Section 16.3(d) in which (1) the Fair Market Value (as determined in good faith by the Board of Directors) of such distribution applicable to one share of Class A Common Stock (determined as provided above) equals or exceeds the average of the Sale Prices of the Class A Common Stock over the ten consecutive Trading Day period ending on the Record Date for such distribution or (2) the average of the Sale Prices of the Class A Common Stock over the ten consecutive Trading Day period ending on the Record Date for such distribution exceeds the Fair Market Value of such distribution by less than $1.00, then, in each such case, in lieu of an adjustment to the Conversion Price, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Debenture, in addition to shares of Class A Common Stock, the kind and amount of such distribution such Holder would have received had such Holder converted such Debenture immediately prior to the Record Date for determining the shareholders entitled to receive the distribution.

In the event of any distribution referred to in Section 16.3(c) or 16.3(d), where, in the case of a distribution described in Section 16.3(d), the Fair Market Value of such distribution per share of Class A Common Stock (as determined in good faith by the Board of Directors) exceeds 10% of the Sale Price of a share of Class A Common Stock on the Business Day immediately preceding the declaration date for such distribution, then, if such distribution would also trigger a conversion right under Section 16.1(b) or the Debentures are otherwise convertible pursuant to this Article 16, the Company will be required to give notice to the Holders of Debentures at least 20 days prior to the Ex-Dividend Time for the distribution and, upon the giving of notice, the Debentures may be surrendered for conversion at any time thereafter, until the close of business on the Business Day prior to the Ex-Dividend Time or the Company announces that such distribution will not take place. No adjustment to the Conversion Price or the ability of a Holder of a Debenture to convert will be made if the Holder will otherwise participate in such distribution without conversion.

(e) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, by dividend or otherwise, distribute to all holders of its shares of Class A Common Stock, cash (excluding any cash that is distributed upon a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 16.4 applies or as part of a distribution referred to in Section 16.3(d)), in an aggregate amount that, combined together with:

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(1) the aggregate amount of any other such distributions to all holders of shares of Class A Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 16.3(e) has been made; and

(2) the aggregate amount of any cash, plus the Fair Market Value, as of the expiration of such tender offer, of any other consideration paid in respect of any tender offer by the Company or any of its Subsidiaries for all or any portion of the shares of Class A Common Stock concluded within the 12 months preceding the date of such distribution, and in respect of which no adjustment pursuant to Section 16.3(f) has been made;

exceeds 10% of the product of the Sale Price of the Class A Common Stock on the Record Date with respect to such distribution, times the number of shares of Class A Common Stock outstanding on such date (such excess over 10%, the “Excess Amount”), then, and in each case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business of such Record Date by a fraction:

(1) the numerator of which shall be equal to the Current Market Price on the Record Date, less an amount equal to the quotient of (x) the Excess Amount and (y) the number of shares of Class A Common Stock outstanding on the Record Date; and

(2) the denominator of which shall be equal to the Current Market Price on such date.

However, in the event that the then Fair Market Value (as so determined) of the portion of cash and other securities, if any, so distributed applicable to one share of Class A Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Debenture (or any portion thereof) the amount of cash in the Excess Amount such Holder would have received had such Holder converted such Debenture (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared.

(f) In case a tender offer made by the Company or any of its Subsidiaries for all or any portion of the shares of Class A Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of shares tendered) of an aggregate consideration having a Fair Market Value (as determined in good faith by the Board of Directors) that combined together with:

(1) the aggregate amount of the cash, plus the fair market value, as of the expiration of such tender offer, of any other consideration payable in respect of any other tender offers, by the Company or any of its Subsidiaries for all or any portion of the shares of Class A Common Stock expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 16.3(f) has been made; and

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(2) the aggregate amount of any distributions to all holders of shares of Class A Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 16.3(e) has been made;

exceeds 10% of the product of the Sale Price of the Class A Common Stock as of the last time (the “Expiration Time”) tenders could have been made pursuant to such tender offer (as it may be amended), times the number of shares of Class A Common Stock outstanding (including any tendered shares) on the Expiration Time (such excess, the “Excess Tender Amount”), then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date of the Expiration Time by a fraction:

(1) the numerator of which shall be the (x) the product of (i) the number of shares of Class A Common Stock outstanding (including any tendered shares) at the Expiration Time and (ii) the Current Market Price of the Class A Common Stock at the Expiration Time, less (y) the Excess Tender Amount; and

(2) the denominator shall be the product of the number of shares of Class A Common Stock outstanding (including any tendered shares) at the Expiration Time and the Current Market Price of the Class A Common Stock at the Expiration Time.

Such reduction (if any) shall become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all or a portion of such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such (or such portion of the) tender offer had not been made. If the application of this Section 16.3(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 16.3(f).

Pursuant to rights issued under any of the Company’s rights plans, if holders of the Debentures exercising the right of conversion attaching after the date the rights separate from the underlying Class A Common Stock are not entitled to receive the rights that would otherwise be attributable to the shares of Class A Common Stock received upon conversion, the Conversion Price will be adjusted as though the rights were being distributed to holders of Class A Common Stock on the date of such separation. If such an adjustment is made and the rights are later redeemed, invalidated or terminated, then a corresponding reversing adjustment will be made to the conversion price on an equitable basis.

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(g) For purposes of this Article 16, the following terms shall have the meanings indicated:

“Current Market Price” on any date means the average of the daily Sale Prices per share of Class A Common Stock for the ten consecutive Trading Days immediately prior to such date; provided, however, that if:

(1) the “ex” date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 16.3(a), (b), (c), (d), (e), or (f) occurs during such ten consecutive Trading Days, the Sale Price for each Trading Day prior to the “ex” date for such other event shall be adjusted by dividing such Sale Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event;

(2) the “ex” date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 16.3(a), (b), (c), (d), (e), or (f) occurs on or after the “ex” date for the issuance or distribution requiring such computation and prior to the day in question, the Sale Price for each Trading Day on and after the “ex” date for such other event shall be adjusted by dividing such Sale Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event; and

(3) the “ex” date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Sale Price for each Trading Day on or after such “ex” date shall be adjusted by adding thereto the amount of any cash and the Fair Market Value (as determined in good faith by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 16.3(d), (e) or (f)) of the evidences of Indebtedness, shares of capital stock or assets being distributed applicable to one share of Class A Common Stock as of the close of business on the day before such “ex” date.

For purposes of any computation under Section 16.3(f), if the “ex” date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 16.3(a), (b), (c), (d), (e) or (f) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Sale Price for each Trading Day on and after the “ex” date for such other event shall be adjusted by dividing such Sale Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term “ex” date, when used:

(1) with respect to any issuance or distribution, means the first date on which the shares of Class A Common Stock trade regular way on the relevant exchange or in the relevant market from which the Sale Price was obtained without the right to receive such issuance or distribution;

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(2) with respect to any subdivision or combination of shares of Class A Common Stock, means the first date on which the shares of Class A Common Stock trade regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective; and

(3) with respect to any tender or exchange offer, means the first date on which the shares of Class A Common Stock trade regular way on such exchange or in such market after the Expiration Time of such offer.

Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 16.3, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 16.3 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

“Fair Market Value” shall mean the amount which a willing buyer would pay a willing seller in an arm’s length transaction (as determined in good faith by the Board of Directors, whose good faith determination shall be conclusive).

“Record Date” shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of shares of Class A Common Stock have the right to receive any cash, securities or other property or in which the shares of Class A Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise).

(h) The Company shall be entitled to make such additional reductions in the Conversion Price, in addition to those required by Sections 16.3(a), (b), (c), (d), (e) and (f), as shall be necessary in order that any dividend or distribution of Class A Common Stock, any subdivision, reclassification or combination of shares of Class A Common Stock or any issuance of rights or warrants referred to above shall not be taxable to the holders of Class A Common Stock for United States Federal income tax purposes.

(i) To the extent permitted by applicable law, the Company may, from time to time, reduce the Conversion Price by any amount for any period of time, if such period is at least 20 days, the Board of Directors determines that the reduction in the Conversion Price is in the best interest of the Company, and the reduction is irrevocable during the period. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the Trustee and each Holder at the address of such Holder as it appears in the register of the Debentures maintained by the Registrar, at least 15 days prior to the date the reduced Conversion Price takes effect, a notice of the reduction stating the reduced Conversion Price and the period during which it will be in effect.

(j) In any case in which this Section 16.3 shall require that any adjustment be made effective as of or retroactively immediately following a Record Date, the Company may elect to defer (but only for five Trading Days following the filing of the statement referred to in Section 16.5) issuing to the Holder of any Debentures converted after such Record Date the shares of Class A Common Stock issuable upon such conversion over and above the shares of Class A Common Stock issuable upon such conversion on the basis of the Conversion Price prior to adjustment; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s right to receive such additional shares upon the occurrence of the event requiring such adjustment.

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(k) All calculations under this Section 16.3 shall be made to the nearest cent or one-hundredth of a share, with one-half cent and 0.005 of a share, respectively, being rounded upward. Notwithstanding any other provision of this Section 16.3, the Company shall not be required to make any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of such price. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% in such price. Any adjustments under this Section 16.3 shall be made successively whenever an event requiring such an adjustment occurs.

(l) In the event that at any time, as a result of an adjustment made pursuant to this Section 16.3, the Holder of any Debentures thereafter surrendered for conversion shall become entitled to receive any shares of stock of the Class A Company other than shares of Class A Common Stock into which the Debentures originally were convertible, the Conversion Price of such other shares so receivable upon conversion of any such Debenture shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Class A Common Stock contained in subparagraphs (a) through (1) of this Section 16.3, and the provision of Sections 16.1, 16.2 and 16.4 through 16.9 with respect to the Class A Common Stock shall apply on like or similar terms to any such other shares and the good faith determination of the Board of Directors as to any such adjustment shall be conclusive.

(m) No adjustment shall be made pursuant to this Section 16.3(i) if the effect thereof would be to reduce the Conversion Price below the par value (if any) of the Class A Common Stock or (ii) if the Holders of the Debentures may participate in the transaction that would otherwise give rise to an adjustment pursuant to this Section 16.3.

SECTION 16.4. Consolidation or Merger of the Company.

If any of the following events occurs, namely:

(1) any reclassification or change of the outstanding Class A Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination);

(2) any merger, consolidation, statutory share exchange or combination of the Company with another corporation as a result of which holders of Class A Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Class A Common Stock; or

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(3) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Class A Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Class A Common Stock;

the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture, if such supplemental indenture is then required to so comply) providing that such Debentures shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) which such Holder would have been entitled to receive upon such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance had such Debentures been converted into Class A Common Stock immediately prior to such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance assuming such holder of Class A Common Stock did not exercise its rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance (provided, that if the kind or amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance is not the same for each share of Class A Common Stock in respect of which such rights of election shall not have been exercised (“Non-Electing Share”), then for the purposes of this Section 16.4, the kind and amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance for each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 16. If, in the case of any such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of Class A Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Debentures as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including to the extent practicable the provisions providing for the repurchase rights set forth in Article 13 hereof.

The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder, in accordance with Section 1.6 of this Indenture, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture.

The above provisions of this Section 16.4 shall similarly apply to successive reclassifications, changes, mergers, consolidations, statutory share exchanges, combinations, sales and conveyances.

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If this Section 16.4 applies to any event or occurrence, Section 16.3 shall not apply.

SECTION 16.5. Notice of Adjustment.

Whenever an adjustment in the Conversion Price with respect to the Debentures is required:

(1) the Company shall forthwith place on file with the Trustee and any Conversion Agent for such securities a certificate of the Treasurer of the Company, stating the adjusted Conversion Price determined as provided herein and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment; and

(2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be given by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company, to each Holder in the manner provided in Section 1.6 of this Indenture. Any notice so given shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice.

SECTION 16.6. Notice in Certain Events.

In case:

(1) of a consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or conveyance to another Person or entity or group of Persons or entities acting in concert as a partnership, limited partnership, syndicate or other group (within the meaning of Rule 13d-3 under the Exchange Act) of all or substantially all of the property and assets of the Company; or

(2) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or

(3) of any action triggering an adjustment of the Conversion Price referred to in clauses (x) or (y) below;

then, in each case, the Company shall cause to be filed with the Trustee and the Conversion Agent, and shall cause to be given, to the Holders of the Debentures in the manner provided in Section 1.6 of this Indenture, at least 15 days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of any distribution or grant of rights or warrants or other securities triggering an adjustment to the Conversion Price pursuant to this Article 16, or, if a record is not to be taken, the date as of which the holders of record of Class A Common Stock entitled to such distribution, rights or warrants or other securities are to be determined, or (y) the date on which any reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up triggering an adjustment to the Conversion Price pursuant to this Article 16 is expected to become effective, and the date as of which it is expected that holders of Class A Common Stock of record shall be entitled to exchange their Class A Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger sale, conveyance, dissolution, liquidation or winding up.

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Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in clause (1), (2) or (3) of this Section 16.6.

SECTION 16.7. Company To Reserve Stock: Registration; Listing.

(a) The Company shall, in accordance with the laws of the Commonwealth of Pennsylvania, at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares of Class A Common Stock for the purpose of effecting the conversion of the Debentures, such number of its duly authorized shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all Debentures then Outstanding into such Class A Common Stock at any time (assuming that, at the time of the computation of such number of shares or securities, all such Debentures would be held by a single Holder); provided, however, that nothing contained herein shall preclude the Company from satisfying its obligations in respect of the conversion of the Debentures by delivery of purchased shares of Class A Common Stock which are then held in the treasury of the Company. The Company covenants that all shares of Class A Common Stock which may be issued upon conversion of Debentures will upon issue be fully paid and nonassessable and free from all liens and charges and, except as provided in Section 16.8, taxes with respect to the issue thereof.

(b) If any shares of Class A Common Stock which would be issuable upon conversion of Debentures hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will use its commercially reasonable efforts to cause such shares or securities to be duly registered or approved, as the case may be. The Company further covenants that so long as the Class A Common Stock shall be listed on the Nasdaq National Market System, the Company will use its commercially reasonable efforts, if permitted by the rules of such exchange, to list and keep listed all Class A Common Stock issuable upon conversion of the Debentures, and the Company will use its commercially reasonable efforts to list the shares of Class A Common Stock required to be delivered upon conversion of the Debentures prior to such delivery upon any other national securities exchange upon which the outstanding Class A Common Stock is listed at the time of such delivery.

SECTION 16.8. Taxes on Conversion.

The issue of stock certificates on conversion of Debentures shall be made without charge to the converting Holder for any documentary, stamp or similar issue or transfer taxes in respect of the issue thereof, and the Company shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of shares of Class A Common Stock on conversion of Debentures pursuant hereto. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Class A Common Stock or the portion, if any, of the Debentures which are not so converted in a name other than that in which the Debentures so converted were registered, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid.

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The Company agrees, and each Holder is deemed to agree, that delivery to such Holder of the full number of Class A Common Stock into which each Debenture is convertible, together with any cash payment of such Holder’s fractional shares or otherwise in accordance with Section 16.13, will be treated as a contingent payment (in an amount equal to the sum of the then Fair Market Value of such Class A Common Stock and such cash payment, if any) on the Debentures for purposes of the Contingent Payment Debt Regulations governing contingent payment debt obligations.

SECTION 16.9. Conversion After Record Date.

Except as provided below, if any Debentures are surrendered for conversion on any day other than an Interest Payment Date, the Holder of such Debentures shall not be entitled to receive any interest that has accrued on such Debentures since the prior Interest Payment Date. By delivery to the Holder of the number of shares of Class A Common Stock or other consideration issuable upon conversion in accordance with this Article 16, any accrued and unpaid interest on such Debentures will be deemed to have been paid in full.

If any Debentures are surrendered for conversion subsequent to the Record Date preceding an Interest Payment Date but prior to such Interest Payment Date, the Holder of such Debentures at the close of business on such Record Date shall receive the interest payable on such Debenture on such Interest Payment Date notwithstanding the conversion thereof. Debentures surrendered for conversion during the period from the close of business on any Record Date preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Debentures which have been called for redemption on a Redemption Date within such period) be accompanied by payment by Holders, for the account of the Company, in New York Clearing House funds or other funds of an amount equal to the interest payable on such Interest Payment Date on the Debentures being surrendered for conversion. Except as provided in this Section 16.9, no adjustments in respect of payments of interest on Debentures surrendered for conversion or any dividends or distributions or interest on the Class A Common Stock issued upon conversion shall be made upon the conversion of any Debentures.

SECTION 16.10. Company Determination Final.

Any determination that the Company or the Board of Directors must make pursuant to this Article 16 shall be conclusive if made in good faith and in accordance with the provisions of this Article, absent manifest error, and set forth in a Board Resolution.

SECTION 16.11. Responsibility of Trustee for Conversion Provisions.

The Trustee has no duty to determine when an adjustment under this Article 16 should be made, how it should be made or what it should be. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Debentures. The Trustee shall not be responsible for any failure of the Company to comply with this Article 16. Each Conversion Agent other than the Company shall have the same protection under this Section 16.11 as the Trustee.

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The rights, privileges, protections, immunities and benefits given to the Trustee under the Indenture including, without limitation, its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each Paying Agent or Conversion Agent acting hereunder.

SECTION 16.12. Unconditional Right of Holders to Convert.

Notwithstanding any other provision in this Indenture, the Holder of any Debenture shall have the right, which is absolute and unconditional, to convert its Debenture in accordance with this Article 16 and to bring an action for the enforcement of any such right to convert, and such rights shall not be impaired or affected without the consent of such Holder.

SECTION 16.13. Cash Conversion Option.

(a) If a Holder elects to convert all or any portion of a Debenture into shares of Class A Common Stock as set forth in Section 16.1, the Company may choose to satisfy all or any portion of its conversion obligation (the “Conversion Obligation”) in cash. Upon such election, the Company will notify such Holder through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as a percentage of the Conversion Obligation or as a fixed dollar amount) at any time on or before the date that is two Business Days following receipt of written notice of conversion as specified in Section 16.2 (such period, the “Cash Settlement Notice Period”). If the Company elects to pay cash for any portion of the shares otherwise issuable to the Holder, the Holder may retract the conversion notice at any time during the two Business Day period beginning on the day after the final day of the Cash Settlement Notice Period (a “Conversion Retraction Period”); no such retraction may be made (and a conversion notice shall be irrevocable) if the Company does not elect to deliver cash in lieu of shares (other than cash in lieu of fractional shares). If the conversion notice has not been retracted, then settlement (in cash and/or shares) will occur on the Business Day following the final day of the 20 Trading Day period beginning on the day after the final day of the Conversion Retraction Period (the “Cash Settlement Averaging Period”). Settlement amounts will be computed as follows:

(i)if the Company elects to satisfy the entire Conversion Obligation in shares of Class A Common Stock, the Company will deliver to such Holder a number of shares equal to (1) the aggregate original principal amount at maturity of the Debentures to be converted divided by 1,000, multiplied by (2) the Conversion Rate;

(ii) if the Company elects to satisfy the entire Conversion Obligation in cash, the Company will deliver to such Holder cash in an amount equal to the product of:

(1) a number equal to (x) the aggregate original principal amount at maturity of Debentures to be converted divided by 1,000, multiplied by (y) the Conversion Rate, and

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(2) the average Sale Price of the Class A Common Stock during the Cash Settlement Averaging Period; and

(iii) if the Company elects to satisfy a fixed portion (other than 100%) of the Conversion Obligation in cash, the Company will deliver to such Holder such cash amount (“Cash Amount”) and a number of shares equal to the excess, if any, of the number of shares calculated as set forth in clause (i) above over the number of shares equal to the sum, for each day of the Cash Settlement Averaging Period, of (x) the pro rated portion of the Cash Amount for such day divided by (y) the Sale Price of the Class A Common Stock on such day.

Notwithstanding the foregoing, a Debenture in respect of which a Holder has delivered a Purchase Notice or Change of Control Purchase Notice exercising such Holder’s option to require the Company to repurchase such Debenture may be converted as described in this Section 16.13 (a) only if such notice of exercise is withdrawn in accordance with the Section 13.4 hereof.

(b) If a Holder elects to convert all or any portion of a Debenture into shares of Class A Common Stock after the Company has exercised its right to redeem all or any portion of the Debentures pursuant to Section 5 of the Debentures or within 20 days of the Stated Maturity, the Company may choose to satisfy all or any portion of the Conversion Obligation in cash provided the Company notifies such Holder through the Trustee of the dollar amount to be satisfied in cash (which must be expressed either as a percentage of the Conversion Obligation or as a fixed dollar amount) at any time on or before the date that is 20 days prior to Stated Maturity or Redemption Date. Settlement amounts will be computed in the same manner as set forth in (a) above except that the “Cash Settlement Averaging Period” shall be the 20 Trading Day period beginning on the day after the Stated Maturity or Redemption Date, as the case may be. Settlement (in cash and/or shares) will occur on the Business Day following the final day of such Cash Settlement Averaging Period.

Section 2.12Trustee’s Right to Exercise Remedies Against Security.

Notwithstanding anything to the contrary in this Second Supplemental Indenture, upon an Event of Default under their respective indentures, the Trustee under this Second Supplemental Indenture, the trustee under the indenture governing the Company’s Publicly Issued Debentures and the trustee under the indenture governing the Company’s 8.50% Monthly Income Senior Notes due 2018 each have the right to exercise remedies against the Collateral and Additional Collateral for the benefit of the holders of, respectively, these Debentures, the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018. Any recoveries shall be for the equal and ratable benefit of such holders.

Section 2.13Trustee to Hold Collateral and Additional Collateral.

The Trustee or the Collateral Agent shall hold any and all Collateral and any Additional Collateral for the purpose of perfecting the security interest of the Holders of the Debentures, the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 and the holders of the Company’s Publicly Issued Debentures. The Trustee hereby acknowledges, and any Collateral Agent shall similarly acknowledge in any Collateral Agent Agreement, that, to the extent it is holding the Collateral or any Additional Collateral, it is

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holding the Collateral and any Additional Collateral for the equal and ratable benefit of the Holders of the Debentures, the holders of the Company’s 8.50% Monthly Income Senior Notes due 2018 and the holders of the Company’s Publicly Issued Debentures, that the security interest of each of such series of Securities is subject to the security interest of the other such series of Securities and acknowledges that the Trustee shall act in accordance with the provisions of Section 2.12 of this Second Supplemental Indenture and that each trustee shall have the right to exercise remedies against the Collateral and any Additional Collateral.

Section 2.14Additional Amounts.

Notwithstanding the provisions of Sections 5.8 and 10.4 of the Original Indenture, or any other provision thereof, the Company shall not be obligated to pay, and a Holder shall have no right to receive, any Additional Amounts with respect to the Debentures.

ARTICLE III

ADDITIONAL COVENANTS

In addition to the covenants and agreements contained in the Original Indenture, the Company covenants and agrees for the benefit of the Holders of the Debentures (all of which covenants and agreements, other than the covenants contained in Sections 3.01, 3.02, 3.04, 3.06 and 3.08, will terminate on July 1, 2009 unless a Default or Event of Default shall have occurred and be continuing) as follows:

Section 3.01Maintenance of Properties.

The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order, normal wear and tear excepted, and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the reasonable judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the reasonable judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary of the Company and not disadvantageous in any material respect to the Holders.

Section 3.02Payment of Taxes and Other Claims.

The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary of the Company or upon the income, profits or property of the Company or any Subsidiary of the Company, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the property of the Company or any Subsidiary of the Company; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings.

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Section 3.03Limitation on Liens on Capital Stock of Restricted Subsidiaries.

The Company will not, and it will not permit any Restricted Subsidiary of the Company to, at any time directly or indirectly create, assume, incur or permit to exist any Indebtedness secured by a Lien on the Capital Stock of any Restricted Subsidiary without making effective provision whereby the Debentures, the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 shall be secured by a first Lien on such Capital Stock, which is senior and prior to such Lien securing such other Indebtedness so long as such other Indebtedness shall be secured.

Section 3.04Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries.

The Company will not issue, sell, lease, transfer or otherwise dispose of any Capital Stock of any Restricted Subsidiary, except to a Wholly Owned Restricted Subsidiary of the Company, nor will it permit any Restricted Subsidiary to issue (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) any Capital Stock (other than directors’ qualifying shares) of a Restricted Subsidiary if, after giving effect to any such transaction, such Subsidiary would not continue to be a Wholly Owned Restricted Subsidiary. Notwithstanding the foregoing, (i) the Company may merge or consolidate any Wholly Owned Restricted Subsidiary into or with another Wholly Owned Restricted Subsidiary and (ii) the Company may, subject to the provisions of Section 3.06 of this Second Supplemental Indenture, sell, lease, transfer or otherwise dispose of the entire Capital Stock of a Restricted Subsidiary at one time for cash consideration for at least fair market value consideration, as determined by the Board of Directors pursuant to a Board Resolution adopted in good faith and supported by an opinion as to fairness from a financial point of view by an Independent Financial Advisor of recognized standing, so long as (1) the Net Cash Proceeds received by the Company (or its Restricted Subsidiaries, as the case may be) from such issue, sale, lease, transfer or other disposition are applied in accordance with Section 13.2(b) and (2) the Debentures, the Company’s Publicly Issued Debentures and the Company’s 8.50% Monthly Income Senior Notes due 2018 shall thereafter be secured by a first Lien on any Collateral or Additional Collateral, which is senior and prior to any Lien on such Collateral or Additional Collateral securing any other Indebtedness of the Company or any Restricted Subsidiary.

Additionally, the Company covenants to do or cause to be done all things necessary to perfect the first priority security interests in such portion of any additional Capital Stock that may be issued in accordance with this Section in order to maintain the Trustee’s Lien on the appropriate percentage of each Subsidiary’s Capital Stock in accordance with Sections 1.03 and 3.08 of this Indenture. To the extent that the assets which are the subject of any Asset Sale constitute Collateral, all proceeds thereof shall, to the extent permitted by law, be subject to a perfected Lien in favor of the Collateral Agent, and all proceeds constituting cash and Cash Equivalents received from such an Asset Sale shall be deposited in the account under the control of the Collateral Agent established by the Collateral Agent Agreement.

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Section 3.05Limitation on Restricted Payments.

The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly:

(a)declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company’s Capital Stock to holders of such Capital Stock (other than to the Company or a Restricted Subsidiary);

(b)purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Restricted Subsidiary or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than any Indebtedness convertible into Capital Stock of the Company, excluding any such shares of Capital Stock, warrants, rights or options owned by the Company or any Restricted Subsidiary); or

(c)redeem, defease, repurchase, retire or otherwise acquire or retire for value prior to any scheduled maturity repayment or sinking fund payment, Indebtedness of the Company which is subordinate in right of payment to the Debentures; and

(d)make any Investment (other than Permitted Investments);

(each of the foregoing actions set forth in clauses (a), (b),(c) and (d) being referred to as a “Restricted Payment”), if at the time of such Restricted Payment or immediately after giving effect thereto and to the incurrence of any Indebtedness incurred to finance such Restricted Payment,

(i)a Default or an Event of Default shall have occurred and be continuing; or

(ii)(x) the Ratio Test is not met; (y) the ratio of policyholders’ surplus to ACL RBC for each of the Insurance Subsidiaries for the last reported fiscal quarter is less than 250%; or (z) the ratio of combined policyholders surplus of all of the Insurance Subsidiaries to consolidated long-term Indebtedness of the Company is less than 2.0 to 1.0; or

(iii)the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined in good faith by the Board of Directors of the Company) shall exceed the sum of:

(1)50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the “Reference Date”) (treating such period as a single accounting period); plus

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(2)100% of the aggregate Net Cash Proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security that is convertible into, or exchangeable for, Qualified Capital Stock); plus

(3)without duplication of any amounts included in clause (iii)(1) above, 100% of the aggregate Net Cash Proceeds of any equity contribution received by the Company from a holder of the Company s Capital Stock (excluding, in the case of clauses (iii)(2) and (3), any Net Cash Proceeds from an Equity Offering to the extent used to redeem or purchase the Debentures in compliance with the provisions set forth in Sections 13.1 and 13.2of the Indenture); plus

(4)100% of the proceeds of any Indebtedness of the Company or any Restricted Subsidiary incurred after the Issue Date that has been converted into or exchanged for Qualified Capital Stock of the Company; plus

(5)without duplication, the sum of:

a.the aggregate amount returned in cash to the Company on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments and not included in clause (iii)(1) above;

b.the Net Cash Proceeds received by the Company from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company); and

c.upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary;

provided, however, that the sum of clauses (a), (b) and (c) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date.

Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit (provided that with respect to clause (b) or (e) below no Default or Event of Default shall have occurred and be continuing):

(a)the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration;

(b)the redemption, repurchase or retirement or other acquisition of any shares of Capital Stock of the Company or any Restricted Subsidiary, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of Net Cash Proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company;

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(c)any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Company which is subordinate in right of payment to the Debentures (“Repurchased Subordinated Indebtedness”) made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness, provided, however, that:

(i)such Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Repurchased Subordinated Indebtedness;

(ii)such Indebtedness has an Average Life at the time it is Incurred that is equal to or greater than the Average Life of the Repurchased Subordinated Indebtedness; and

(iii)such Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance cost) under the Repurchased Subordinated Indebtedness;

(d)the deemed repurchase of Capital Stock of the Company or any Restricted Subsidiary upon the exercise of stock options;

(e)pro rata dividends or other distributions made by a Restricted Subsidiary to minority holders of equity interests in such Restricted Subsidiary; and

(f)other Restricted Payments in an aggregate amount not to exceed ten million dollars ($10,000,000) since the Issue Date.

In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the first paragraph of this Section 3.05, amounts expended pursuant to clauses (a), (b)(ii) and (f) shall be included in such calculation.

Under GAAP, Consolidated Net Income is not reduced by unrealized losses or increased by unrealized gains.

Section 3.06Merger, Consolidation and Sale of Assets.

The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, continue in another jurisdiction, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company’s assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless:

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(i)the Company shall be the surviving or continuing corporation; or

(ii)the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and its Restricted Subsidiaries substantially as an entirety (the “Surviving Entity”):

(x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; provided that if the Person is a partnership or limited liability company, a corporation wholly owned by such Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia that does not and will not have any material assets or operations, shall promptly thereafter become a co-issuer of the Debentures pursuant to a supplemental indenture; and

(y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Debentures and the performance of every covenant of the Debentures and, the Indenture on the part of the Company to be performed or observed;

(b)immediately after giving effect to such transaction and the assumption contemplated by clause (a)(ii)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall meet the Ratio Test;

(c)immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (a)(ii)(y) above (including, without limitation, giving effect to any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and

(d)the Company or the Surviving Entity shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied.

Notwithstanding clause (b) of the immediately preceding paragraph, any Restricted Subsidiary may consolidate or combine with, merge into or transfer all or part of its properties and assets to the Company or another Wholly Owned Restricted Subsidiary.

For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company.

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Upon any consolidation, combination or merger or any transfer (other than a lease) of all or substantially all of the assets of the Company in accordance with the foregoing in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company hereunder and the Debentures.

Section 3.07Limitations on Transactions with Affiliates.

(a)The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each, an “Affiliate Transaction”), other than (x) Affiliate Transactions permitted under clause (c) of this covenant and (y) Affiliate Transactions on terms that are on the whole no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm’s-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary.

(b)All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of five million dollars ($5,000,000) shall be approved by the Board of Directors (and by a majority of the Disinterested Directors) of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than fifteen million dollars ($15,000,000), the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee.

(c)The restrictions set forth in paragraphs (a) and (b) of this Section 3.07 shall not apply to:

(i)reasonable fees, compensation benefits and incentives paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company’s Board of Directors or senior management;

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(ii)transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, so long as such transactions are not otherwise prohibited by the Indenture;

(iii)any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) or in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement;

(iv)Restricted Payments permitted by Section 3.05 of this Second Supplemental Indenture;

(v)customary stockholders and registration rights agreements among the Company or any Restricted Subsidiary and the stockholders thereof; and

(vi)ordinary course insurance or reinsurance contracts or other agreements with respect to the provision of services (a) requiring approval of any governmental or regulatory insurance agency that are so approved by such agency (and on the terms so approved), or (b) requiring the passage of time to have occurred without disapproval of any governmental or regulatory insurance agency for which the required time has passed (and on the terms presented to such agency).

Section 3.08Protection of Collateral and the Additional Collateral.

The Company will from time to time execute and deliver all such supplements and amendments hereto and all such filings, financing statements, continuation statements, instruments of further assurance and other instruments, and will take such other action necessary or advisable to:

(a)maintain and preserve the Lien and security interest (and the priority thereof) granted to the Trustee in the Collateral and the Additional Collateral pursuant to this Indenture or carry out more effectively the purposes hereof;

(b)perfect, publish notice of or protect the validity of any grant of security made or to be made by this Indenture;

(c)enforce the Lien granted to the Trustee in any of the Collateral or the Additional Collateral;

(d)preserve and defend title to the Collateral or the Additional Collateral and the rights of the Trustee, the Collateral Agent and the Holders of the Debentures in the Collateral and the Additional Collateral against the claims of all Persons and parties; and

(e)pay any and all taxes levied or assessed up on all or any part of the Collateral or the Additional Collateral.

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The Company hereby authorizes the Trustee to file and designates the Trustee its agent and attorney-in-fact to execute and file any financing statement, continuation statement or other instrument required by the Trustee pursuant to this Section 3.08 of the Indenture.

Section 3.09The Company to Remain a Holding Company.

During the time any Debentures are Outstanding under this Indenture, the Company shall conduct no activities other than as a holding company.

Section 3.10Limitation on Incurrence of Additional Indebtedness.

The Company shall not create, incur, assume, guarantee, acquire or become liable for (collectively, “incur”) any Indebtedness (other than Permitted Indebtedness), unless the Ratio Test is met on a pro forma basis for such incurrence or the ratio of consolidated debt to total capitalization of the Company as of the end of the last reported fiscal quarter of the Company, on a pro forma basis giving effect to such incurrence, is less than 35%.

“Permitted Indebtedness” means, without duplication, each of the following:

(1)Indebtedness issued under the Indenture in an aggregate principal amount not to exceed $101,250,000;

(2)other Indebtedness outstanding on the date of issuance of the Debentures;

(3)interest swap obligations; provided, however, that the notional principal amount of such interest swap obligation does not, at the time of the incurrence thereof, exceed the principal amount of the Indebtedness to which such interest swap obligation relates;

(4)Indebtedness under currency agreements; provided that in the case of currency agreements which relate to Indebtedness, such currency agreements do not increase the Indebtedness of the Company outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;

(5)Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company or the holder of a Lien permitted under this Indenture (a “Permitted Lien”), in each case subject to no Lien other than a Permitted Lien; provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company’s obligations under this Indenture and the new debentures and (b) if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Company or the holder of a Permitted Lien owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness under this clause (5) by the Company;

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(6)Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within two business days of incurrence;

(7)Indebtedness in respect of performance bonds, bankers’ acceptances, workers’ compensation claims, surety or appeal bonds, payment obligations in connection with self-insurance or similar obligations, letters of credit issued to secure claim obligations, and bank overdrafts (and letters of credit in respect thereof) in the ordinary course of business;

(8)Indebtedness represented by Capital Lease Obligations and purchase money indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed $15,000,000 at any one time outstanding (which may not be secured by Liens on the Collateral or the Additional Collateral);

(9)Refinancing Indebtedness (defined below);

(10)Indebtedness consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets; and

(11)Indebtedness of the Company to the extent the proceeds are used to pay interest on the Debentures substantially concurrently with the incurrence thereof.

For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (11) above, the Company may, in its sole discretion, classify (or later reclassify) such item of Indebtedness in any manner that complies with this covenant. Accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Capital Stock in the form of additional shares of the same class of Disqualified Capital Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for purposes of this covenant.

“Refinancing Indebtedness” means any refinancing of indebtedness incurred in accordance with this covenant, in each case that does not:

(1)result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by such Person in connection with such refinancing); or

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(2)create Indebtedness with: (a) an Average Life that is less than the Average Life of the Indebtedness being refinanced; or (b) a final maturity earlier than the final maturity of the Indebtedness being refinanced; provided that if such Indebtedness being refinanced is subordinated or junior to the new debentures, then such Refinancing Indebtedness shall be subordinated or junior to the new debentures at least to the same extent and in the same manner as the Indebtedness being refinanced.

ARTICLE IV

MISCELLANEOUS PROVISIONS

Section 4.01Recitals by Company.

The recitals in this Second Supplemental Indenture are made by the Company only and not by the Trustee, and all of the provisions contained in the Original Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of the Debentures and of this Second Supplemental Indenture as fully and with like effect as if set forth herein in full.

Section 4.02Ratification and Incorporation of Original Indenture.

As supplemented hereby, the Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this Second Supplemental Indenture shall be read, taken and construed as one and the same instrument.

Section 4.03Executed in Counterparts.

This Second Supplemental Indenture may be simultaneously executed in several counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the day and year first above written.

PMA CAPITAL CORPORATION

By: /s/ William E. Hitselberger

William E. Hitselberger

Senior Vice President, Chief Financial Officer and Treasurer

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By: /s/ Michael M. Hopkins

Michael M. Hopkins

Vice President

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EXHIBIT A

THIS DEBENTURE Form of 6.50% Senior Secured Convertible Debenture due September 30, 2022

[The following legends apply only if the Debenture is a global Security:

IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS DEBENTURE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A DEBENTURE REGISTERED, AND NO TRANSFER OF THIS DEBENTURE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND SUCH CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

FOR PURPOSES OF SECTION 1273 AND 1275 OF THE INTERNAL REVENUE CODE, THIS DEBENTURE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. THE ISSUE DATE IS NOVEMBER 15, 2004 AND THE YIELD TO MATURITY FOR PURPOSES OF ACCRUING ORIGINAL ISSUE DISCOUNT IS 6.50% PER ANNUM.

[Include only for Debentures that are Restricted Securities]

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")); (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY OR ANY COMMON

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STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THIS SECURITY UNDER RULE 144(k) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), ONLY (A) TO PMA CAPITAL CORPORATION (THE "ISSUER"), (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER), (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, IN COMPLIANCE WITH RULE 144A TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS SECURITY PURSUANT TO CLAUSE 2(B) ABOVE OR UPON ANY TRANSFER OF THIS SECURITY UNDER RULE 144 UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION).

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PMA CAPITAL CORPORATION

6.50% Senior Secured Convertible Debenture due September 30, 2022

No. 1	CUSIP: 693419 AE3
Issue Date: November 15, 2004	Principal Amount: $ ______

PMA CAPITAL CORPORATION, a Pennsylvania corporation, promises to pay to _____________ or registered assigns, the principal amount of Dollars ($) on September 30, 2022.

Interest Payment Dates: March 30 and September 30, commencing March 30, 2005.

Record Dates: March 15 and September 15.

Reference is hereby made to the further provisions of this Debenture set forth on the reverse side of this Debenture, which further provisions shall for all purposes have the same effect as if set forth at this place.

IN WITNESS WHEREOF, PMA Capital Corporation has caused this instrument to be duly executed under its corporate seal.

Dated: ______________________	PMA CAPITAL CORPORATION
	By:
		Name:
		Title:

Attest:

Name:

Title:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within mentioned Indenture.  

U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:
	Authorized Signatory

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[FORM OF REVERSE OF GLOBAL SECURITY]

6.50% Senior Secured Convertible Debenture due September 30, 2022

This Debenture is one of a duly authorized issue of 6.50% Senior Secured Convertible Debentures due September 30, 2022 (the “Debentures”) of PMA Capital Corporation, a Pennsylvania corporation (including any successor corporation under the Indenture hereinafter referred to, the “Company”) issued under an Indenture, dated as of November 15, 2004 (the “Original Indenture”), as supplemented by the Second Supplemental Indenture, dated as of November 15, 2004 (the “Second Supplemental Indenture”, and together with the Original Indenture, the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitation of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Debentures issued thereunder and of the terms upon which said Debentures are, and are to be, authenticated and delivered. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Debenture and the terms of the Indenture, the terms of the Indenture shall control. Capitalized terms used but not defined herein have the meanings assigned to them in the Indenture unless otherwise indicated.

The Debenture is subject to certain restrictions on its transfer as more fully described in the Second Supplemental Indenture. The Holders of the Debentures also have certain registration rights pursuant to the Registration Rights Agreement between the Company and Banc of America Securities LLC as Initial Purchaser, dated as of November 15, 2004.

1.Interest.

General. The Company promises to pay interest on the principal amount of the Debentures at the interest rate specified herein from the date of issuance until repayment in full at September 30, 2022, conversion, redemption or purchase. The Company will pay interest on this Debenture semi-annually in arrears on March 30 and September 30 of each year (each, an “Interest Payment Date”), commencing March 30, 2005. The Company will pay interest in cash.

(a)The Debentures shall bear interest from the Issue Date until the principal amount thereof is paid or made available for payment, or until such date on which the Debentures are converted, redeemed or purchased as provided herein at a rate of 6.50% per annum.

(b)Interest on the Debentures shall be computed on the basis of a 360-day year of twelve 30-day months and, for such periods of less than a month, the actual number of days elapsed over a 30-day month. Holders are not entitled to receive contingent interest.

(c)If this Debenture is redeemed or the Holder elects to require the Company to purchase this Debenture pursuant to Section 7 of this Debenture, on a date that is after the Regular Record Date and on or prior to the corresponding Interest Payment Date, interest, if any, accrued and unpaid hereon to but not including the applicable Redemption Date, Purchase Date or Change of Control Purchase Date as the case may be will be paid to the Holder of record on the Regular Record Day.

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Interest on Debentures converted after a Regular Record Date but prior to the corresponding Interest Payment Date will be paid to the Holder of the Debentures on the record date but, all Holders agree, by their acceptance of a Debenture that upon conversion, the Holder must pay the Company the interest, which has accrued and will be paid on such Interest Payment Date. No such payment need be made with respect to Debentures which will be redeemed after a Regular Record Date but prior to the corresponding Interest Payment Date.

If the principal amount hereof or any portion of such principal amount or any interest, if any, on any Debenture is not paid when due (whether upon acceleration pursuant to Section 5.2 of the Indenture or on the Stated Maturity or on the Redemption Date, Purchase Date, Change of Control Purchase Date or Asset Sale Purchase Date), then in each such case the overdue amount shall, to the extent permitted by law, bear interest at the applicable interest rate, compounded semi-annually, which interest shall accrue from the date such overdue amount was originally due to the date payment of such amount, including interest thereon, has been made or duly provided for. All such interest shall be payable on demand.

2.Method of Payment.

Except as provided below, interest will be paid (i) on a global Debenture to the Depositary in immediately available funds, (ii) on any definitive Debentures having an aggregate principal amount of $5,000,000 or less, by check mailed to the Holders of such Debentures; and (iii) on any definitive Debentures having an aggregate principal amount of more than $5,000,000, by wire transfer in immediately available funds at the election of the Holders of such Debentures.

At Stated Maturity the Company will pay interest on (i) definitive Debentures at the Company’s office or agency in New York City, which initially will be the Place of Payment as provided in Section 10.2 of the Indenture and (ii) on global Debentures to the Depositary in immediately available funds.

Principal (i) on definitive Debentures will be payable, upon Stated Maturity or when due, in immediately available funds at the office or agency of the Company in New York City, which, initially will be the Place of Payment as provided in Section 10.2 of the Indenture and (ii) on global Debentures to the Depositary in immediately available funds.

Subject to the terms and conditions of the Indenture, the Place of Payment for the Debentures and the place or places where the Debentures may be surrendered for registration of transfer, exchange, repurchase, redemption or conversion and where notices may be given to the Company in respect of the Debentures is at the Corporate Trust Office of the Trustee or such other office or agency of the Company as may be designated for such purpose. Payment of principal and interest on the Debentures will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

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3.Paying Agent, Conversion Agent and Security Registrar.

Initially, the Trustee will act as Paying Agent, Conversion Agent and Security Registrar with respect to the Debentures. The Company may appoint and change any Paying Agent, Conversion Agent or Security Registrar without notice, other than notice to the Trustee. The Company may have one or more additional paying agents and one or more additional conversion agents. The Company or any of its Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion Agent or Security Registrar.

4.Indenture and Security for the Debentures.

The Debentures are issued under the Indenture. The Company is limited in the amount of indebtedness it can issue under the Indenture to $101,250,000. The Debentures are general obligations of the Company limited to $15,000,000 aggregate principal amount. The Second Supplemental Indenture limits Liens on the Capital Stock of Restricted Subsidiaries (as defined therein) and limits the amount of Indebtedness that the Company can issue. The Debentures, along with certain other securities of the Company, are secured by certain shares of the Capital Stock of certain of the Company’s operating Subsidiaries, as set forth in the Indenture. The security will be automatically released under certain circumstances set forth in the Indenture. The Collateral and any Additional Collateral will be held by a Collateral Agent under the terms of a Collateral Agent Agreement.

5.Redemption.

(a)At the Option of the Company. At any time from October 1, 2008, the Company, at its option, may redeem in principal amounts of $1,000 or integral multiples of $1,000 the Debentures for cash as a whole, or from time to time in part, at a Redemption Price of 114% of the principal amount of the Debentures, plus accrued and unpaid interest, if any, to, but excluding, the Redemption Date.

(b)Mandatory Redemption with Extraordinary Dividends. From January 1, 2006 to December 31, 2006, in the event the Company receives any Extraordinary Dividends from any of its subsidiaries, the Company shall redeem the Debentures and certain other securities issued under the Original Indenture pro rata in principal amounts of $1,000 or integral multiples of $1,000 with 50% of the amount of such dividends for cash at a Redemption Price of 110% of the principal amount of the Debentures plus accrued and unpaid interest, if any, to the Redemption Date. The aggregate principal amount of Debentures plus any other securities issued under the Indenture to be redeemed in this instance shall not exceed $35,000,000.

Debentures or portions thereof to be redeemed as of a Redemption Date will be convertible by the Holders of such Debentures until the close of business on the second Business Day prior to the Redemption Date.

6.Premium Payable in Stock at Option of Holder.

Subject to the terms of the Indenture, in connection with any premium payable to a holder of the Debentures in connection with redemptions pursuant to Section 5 above and repurchases pursuant to Section 7 below, which, in each case, are as a result of an event or action which occurs on or prior to June 30, 2009, each holder will have the option to elect to receive such premium in shares of Applicable Stock. For the purposes of calculating the number of shares issuable to any Holder of the Debentures who elects to exercise such option, the shares of Applicable Stock will be valued at $8.00 per share subject to adjustment as set forth in the Indenture. The Company shall notify the Trustee and the Holders of any premium in accordance with the terms of the Indenture.

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7.(a)Repurchase By the Company at the Option of the Holder.

Subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase, at the option of the Holder, all or any portion of the Debentures held by such Holder on June 30, 2009 in integral multiples of $1,000 at a Purchase Price of 114% of the principal amount of the Debentures to be repurchased, plus accrued and unpaid interest, if any, on such Debentures on the Purchase Date. To exercise such right, a Holder shall deliver to the Company a Purchase Notice containing the information set forth in the Indenture, at any time from the opening of business on the date that is 20 Business Days prior to such Purchase Date until the close of business on the third Business Day prior to such Purchase Date, and shall deliver the Debentures to the Paying Agent as set forth in the Indenture.

(b)Purchase of Debentures at Option of the Holder upon Change of Control.

Subject to the terms and conditions of the Indenture, the Company shall become obligated to purchase, at the option of the Holder, all or any portion of the Debentures held by such Holder within 30 days after delivery of the Change of Control Purchase Notice for a Change of Control Purchase Price equal to the price payable as set forth below plus accrued and unpaid interest, if any, of such Debenture on the Change of Control Purchase Date. The Change of Control Purchase Price shall be paid in cash.

Purchase Date	Purchase Price as % of Principal
From the date of issuance to and including September 30, 2005	101%
From October 1, 2005 to and including September 30, 2006	103%
From October 1, 2006 to and including September 30, 2007	106%
From October 1, 2007 to and including September 30, 2008	110%
From October 1, 2008 to and including June 30, 2009	114%
From July 1, 2009 to and including September 30, 2022	101%

(c)Purchase of Debentures at Option of Holder Upon an Asset Sale.

Subject to the terms and the conditions of the Indenture, the Company shall become obligated to purchase out of the Net Cash Proceeds (as defined in the Indenture) of such sale, at the option of the Holder, all or any portion of the Debentures held by such Holder within 20 Business Days after delivery of the Asset Sale Purchase Notice for an Asset Sale Purchase Price equal to the Redemption Price payable as set forth below plus accrued and unpaid interest, if any, of such Debentures on the Asset Sale Purchase Date. The Asset Sale Purchase Price shall be paid in cash.

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Purchase Date	Purchase Price as % of Principal
From the date of issuance to and including September 30, 2005	101 %
From October 1, 2005 to and including September 30, 2006	103 %
From October 1, 2006 to and including September 30, 2007	106 %
From October 1, 2007 to and including September 30, 2008	110 %
From October 1, 2008 to and including June 30, 2009	114 %
From July 1, 2009 to and including September 30, 2022	100 %

(d)Certain Procedures.

Holders have the right to withdraw any Purchase Notice or Change of Control or Asset Sale Purchase Notice, as the case may be, by delivering to the Paying Agent a written notice of withdrawal in accordance with the provisions of the Indenture.

If cash, or Applicable Stock with respect to any applicable premium, sufficient to pay the Purchase Price or Change of Control or Asset Sale Purchase Price, as the case may be, of all Debentures or portions thereof to be purchased as of the Purchase Date or the Change of Control or Asset Sale Purchase Date, as the case may be, is deposited with the Paying Agent, on the Business Day following the Purchase Date or the Change of Control or Asset Sale Purchase Date, interest will cease to accrue on such Debentures (or portions thereof) immediately after such Purchase Date or Change of Control or Asset Sale Purchase Date, and the Holder thereof shall have no other rights as such other than the right to receive the Purchase Price or Change of Control or Asset Sale Purchase Price upon surrender of such Debenture.

8.Notice of Redemption, Change of Control Purchase or Asset Sale Purchase.

The Company shall notify the Trustee and the Holders by mail of any redemption under clause 5(a) above at least 30 but not more than 60 days prior to any redemption and under clause 5(b) above no later than five (5) days after the receipt of an Extraordinary Dividend and at least 20 Business Days but no more than 45 Business Days prior to any redemption, which notice will specify the amount of the Extraordinary Dividend and the Redemption Date. Notice of a Change of Control or of an Asset Sale pursuant to Section 7 of this Debenture will be mailed no later than 30 days after the occurrence of a Change of Control or five (5) days after the occurrence of an Asset Sale, as applicable, to the Trustee and the Holders, each notice will contain certain information required by the Indenture. If money sufficient to pay the Redemption, Change of Control or Asset Sale Purchase Price of all Debentures (or portions thereof) to be redeemed on the Redemption Date, Change of Control Purchase Date or Asset Sale Purchase Date is deposited with the Paying Agent prior to or on the Redemption Date, or in the case of a Change of Control Purchase Date or Asset Sale Purchase Date immediately after such Change of Control Purchase Date or Asset Sale Purchase Date, interest ceases to accrue on such Debentures or portions thereof. Debentures in denominations larger than $1,000 of principal amount may be redeemed in part but only in integral multiples of $1,000 of principal amount.

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9.Conversion.

Subject to and in compliance with the provisions of the Indenture, a Holder is entitled, at such Holder’s option, to convert the Holder’s Debenture (or any portion of the principal amount thereof that is $1,000 or an integral multiple $1,000), into fully paid and nonassessable shares of Class A Common Stock at the Conversion Rate in effect at the time of conversion.

The Company will notify Holders of any event triggering the right to convert the Debentures as specified above in accordance with the Indenture.

A Debenture in respect of which a Holder has delivered a Purchase Notice or Change of Control Purchase Notice, as the case may be, exercising the option of such Holder to require the Company to purchase such Debenture may be converted only if such Purchase Notice or Change of Control Purchase Notice, as the case may be, is withdrawn in accordance with the terms of the Indenture.

The initial Conversion Price is $16.368 subject to adjustment in certain events described in the Indenture.

The Conversion Rate, at any time, shall equal (A) $1,000 divided by (B) the Conversion Price at such time, rounded to four (4) decimal places (rounded up if the fifth decimal place thereof is five (5) or more and otherwise rounded down).

To surrender a Debenture for conversion, a Holder must (1) complete and manually sign the conversion notice below (or complete and manually sign a facsimile of such notice) and deliver such notice to the Conversion Agent, (2) surrender the Debenture to the Conversion Agent, (3) furnish appropriate endorsements and transfer documents and (4) pay any transfer or similar tax, if required pursuant to the Indenture.

No fractional shares of Class A Common Stock shall be issued upon conversion of any Debenture. Instead of any fractional share of Class A Common Stock that would otherwise be issued upon conversion of such Debenture, the Company shall pay a cash adjustment as provided in the Indenture.

No payment or adjustment will be made for dividends on the shares of Class A Common Stock, except as provided in the Indenture.

On conversion of a Debenture, accrued interest with respect to the converted Debenture shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through the delivery of the Class A Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the Debenture being converted pursuant to the terms hereof.

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Upon conversion, the Company may choose to deliver, in lieu of Class A Common Stock, cash or a combination of cash and Class A Common Stock in accordance with the Indenture.

If the Company (i) is a party to a consolidation, merger or statutory share exchange (ii) reclassifies the Class A Common Stock or (iii) conveys, transfers or leases its properties and assets substantially as an entirety to any Person, the right to convert a Debenture into shares of Class A Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or such other Person, in each case in accordance with the Indenture.

10.Denominations; Transfer; Exchange.

The Debentures are in fully registered form, without coupons, in denominations of $1,000 principal amount and integral multiples of $1,000. A Holder may transfer or exchange Debentures in accordance with the Indenture. The Security Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law as permitted by the Indenture. The Security Registrar need not transfer or exchange any Debentures selected for redemption (except, in the case of a Debenture to be redeemed in part, the portion of the Debenture not to be redeemed) or any Debentures in respect of which a Purchase Notice or Change of Control Purchase Notice has been given and not withdrawn (except, in the case of a Debenture to be purchased in part, the portion of the Debenture not to be purchased) or any Debentures for a period of 15 days before the mailing of a notice of redemption of Debentures to be redeemed.

11.Persons Deemed Owners.

The registered Holder of this Debenture may be treated as the owner of this Debenture for all purposes.

12.Unclaimed Money or Debentures.

The Trustee, the Paying Agent and the Conversion Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Debentures that remains unclaimed for two years, subject to applicable unclaimed property law. After return to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.

13.Amendment; Waiver.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the securities of the Debentures. Such amendment may be effected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Debentures affected thereby. The Indenture also contains provisions permitting the Holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding, on behalf of the Holders of all outstanding Debentures, to waive compliance by the Company with certain provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders of not less than a majority in aggregate principal amount of the outstanding Debentures to waive on behalf of all of the Holders of Debentures certain past defaults under the Indenture and their consequences. Any such consent or waiver shall be conclusive and binding upon the Holders of the Debentures and upon all future Holders of the Debentures and of any Debenture issued upon the registration of transfer hereof or in exchange for this Debenture or in lieu hereof, whether or not notation of such consent or waiver is made upon this Debenture.

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No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture (or in the case of redemption, to receive the Redemption Price and accrued interest on the Redemption Date, or in the case of a repurchase, to receive the Purchase Price and accrued interest on the Purchase Date, or in the case of a Change of Control or Asset Sale, to receive the Change of Control or Asset Sale Purchase Price and accrued interest on the Change of Control or Asset Sale Purchase Date) at the time, place, and rate, and in the coin or currency, herein prescribed.

14.Defaults and Remedies.

If any Event of Default with respect to Debentures shall occur and be continuing, the principal of all the Debentures may be declared due and payable in the manner and with the effect provided in the Indenture.

15.Trustee Dealings with the Company.

Subject to certain limitations imposed by the Trust Indenture Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Debentures and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee.

16.Calculations in Respect of Debentures.

The Company or its agents will be responsible for making all calculations called for under the Debentures, including, but not limited to, determination of the Market Price, the market price of the Class A Common Stock, the Current Market Price and the amounts of interest, if any, on the Debentures. Any calculations made in good faith and without manifest error will be final and binding on Holders of the Debentures. The Company or its agents will be required to deliver to the Trustee a schedule of its calculations and the Trustee will be entitled to conclusively rely upon the accuracy of such calculations without independent verification.

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17.No Recourse Against Others.

No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Debenture, or for any claim based thereon, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that the Indenture and the obligations issued therein are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers or directors, as such, of the Company, or any of them, because of the creation of the indebtedness hereby authorized; and that any and all such personal liability, and any and all such rights and claims, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Security.

18.Authentication.

This Debenture shall not be valid until an authorized signatory of the Trustee manually signs the Trustee’s Certificate of Authentication on the other side of this Debenture.

19.Abbreviations.

Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).

20.GOVERNING LAW.

THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS DEBENTURE.

The Company will furnish to any Holder upon written request and without charge a copy of the Indenture which has in it the text of this Debenture. Requests may be made to:

PMA Capital Corporation

380 Sentry Parkway

Blue Bell, Pennsylvania 19422

Attention: Investor Relations Department

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ASSIGNMENT FORM	CONVERSION NOTICE
To assign this Debenture, fill in the form below:	To convert this Debenture into Class A Common Stock of the Company, check the box [ ]
I or we assign and transfer this Debenture to
	To convert only part of this Debenture, state the principal amount to be converted (which must be $1,000 or an integral multiple of $1,000):
(Insert assignee’s soc. sec. or tax ID no.)
	If you want the stock certificate made out in another person’s name fill in the form below:
(Print or type assignee’s name, address and zip code)	(Insert the other person’s soc. sec. or tax ID no.)
and irrevocably appoint
__________________________ agent to transfer this Debenture on the books of the Company. The agent may substitute another to act for him.
	(Print or type other person’s name, address and zip code)

Date: _________________________		Your Signature:	__________________________
(Sign exactly as your name appears on the other side of this Debenture)
Signature Guaranteed
Participant in a Recognized Signature Guarantee Medallion Program
By: __________________________________
	Authorized Signatory

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EX-4.11

Exhibit 4-11

EXECUTION COPY

BANC OF AMERICA SECURITIES LLC

$15,000,000 AGGREGATE PRINCIPAL AMOUNT

PMA Capital Corporation

6.50% SENIOR SECURED CONVERTIBLE DEBENTURES

DUE 2022

Registration Rights Agreement

dated as of November 15, 2004

REGISTRATION RIGHTS AGREEMENT, dated as of November 15, 2004, between PMA Capital Corporation, a Pennsylvania corporation (together with any successor entity, herein referred to as the “Company”) and Banc of America Securities LLC, in its capacity as initial purchaser (the “Initial Purchaser”) under the Purchase Agreement (as defined below).

Pursuant to the Purchase Agreement, dated November 10, 2004 (the “Purchase Agreement”), between the Company and the Initial Purchaser, the Initial Purchaser has agreed to purchase from the Company $15,000,000 in aggregate principal amount of the Company’s 6.50% Senior Secured Convertible Debentures due September 30, 2022 (the “Notes”). The Notes will be convertible, on the terms, and subject to the conditions, set forth in the Indenture (as defined herein), into fully paid, nonassessable shares of Class A common stock, par value $5.00 per share, of the Company together with the rights evidenced by such Common Stock to the extent provided in the Rights Agreement dated as of May 3, 2000 between the Company and The Bank of New York, as rights agent (collectively, the “Common Stock”). To induce the Initial Purchaser to purchase the Notes, the Company has agreed to provide the registration rights set forth in this Agreement pursuant to Section 5(h) of the Purchase Agreement.

The parties hereby agree as follows:

1. Definitions. Capitalized terms used in this Agreement without definition shall have their respective meanings set forth in the Purchase Agreement.As used in this Agreement, the following capitalized terms shall have the following meanings:

“Additional Amounts”: As defined in Section 3(a) hereof.

“Additional Amounts Payment Date”: Each March 30 and September 30.

“Affiliate” of any specified person means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agreement”: This Registration Rights Agreement.

“Amendment Effectiveness Deadline Date” has the meaning set forth in Section 2(e) hereof.

“Blue Sky Application”: As defined in Section 6(a)(i) hereof.

“Business Day”: The definition of “Business Day” in the Indenture.

“Commission”: Securities and Exchange Commission.

“Common Stock”: As defined in the preamble hereto.

“Company”: As defined in the preamble hereto.

“Effectiveness Period”: As defined in Section 2(a)(iii) hereof.

“Effectiveness Target Date”: As defined in Section 2(a)(ii) hereof.

“Exchange Act”: Securities Exchange Act of 1934, as amended.

“Holder”: A Person who owns, beneficially or otherwise, Transfer Restricted Securities.

“Indemnified Holder”: As defined in Section 6(a) hereof.

“Indenture”: The Indenture, dated as of November 15, 2004 among the Company and U.S. Bank National Association, as trustee (the “Trustee”), pursuant to which the Notes are to be issued, as such Indenture is amended, modified or supplemented from time to time in accordance with the terms thereof.

“Initial Purchaser”: As defined in the preamble hereto.

“Majority of Holders”: Holders holding over 50% of the aggregate principal amount of Notes outstanding; provided that, for the purpose of this definition, a holder of shares of Common Stock which constitute Transfer Restricted Securities and issued upon conversion, redemption or repurchase of the Notes shall be deemed to hold an aggregate principal amount of Notes (in addition to the principal amount of Notes held by such holder) equal to the product of (x) the number of such shares of Common Stock held by such holder and (y) the conversion price in effect at the time of such conversion, redemption or repurchase as determined in accordance with the Indenture.

“NASD”: National Association of Securities Dealers, Inc.

“Notes”: As defined in the preamble hereto.

“Notice and Questionnaire”: A written notice executed by the respective Holder and delivered to the Company containing substantially the information called for by the Selling Securityholder Notice and Questionnaire attached as Annex A to the Offering Memorandum of the Company, dated November 10, 2004 relating to the Notes.

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“Notice Holder”: On any date, a Holder that has delivered a Notice and Questionnaire to the Company on or prior to such date.

“Person”: An individual, partnership, corporation, company, unincorporated organization, trust, joint venture or a government or agency or political subdivision thereof.

“Purchase Agreement”: As defined in the preamble hereto.

“Prospectus”: The prospectus included in a Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all documents incorporated by reference into such prospectus.

“Record Holder”: With respect to any Additional Amounts Payment Date, each Person who is a Holder on the 15^th day preceding the relevant Additional Amounts Payment Date. In the case of a Holder of shares of Common Stock issued upon conversion of the Notes, “Record Holder” shall mean each Person who is a Holder of shares of Common Stock which constitute Transfer Restricted Securities on the 15^th day preceding the relevant Additional Amounts Payment Date.

“Registration Default”: As defined in Section 3(a) hereof.

“Requisite Information”: As defined in Section 4(d) hereof.

“Securities Act”: Securities Act of 1933, as amended.

“Shelf Filing Deadline”: As defined in Section 2(a)(i) hereof.

“Shelf Registration Statement”: As defined in Section 2(a)(i) hereof.

“Special Counsel”: means Katten Muchin Zavis Rosenman or one such other successor counsel as shall be specified by the Majority of Holders, but which may, with the written consent of the Initial Purchaser (which shall not be unreasonably withheld), be another nationally recognized law firm experienced in securities law matters designated by the Company.

“Subsequent Shelf Registration Statement” has the meaning set forth in Section 2(c) hereof.

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“Suspension Notice”: As defined in Section 4(c) hereof.

“Suspension Period”: As defined in Section 4(b)(i) hereof.

“TIA”: Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder, in each case, as in effect on the date the Indenture is qualified under the TIA.

“Transfer Restricted Securities”: Each Note and each share of Common Stock issued upon conversion of Notes until the earlier of:

(i)the date on which the offer and sale of such Note or such share of Common Stock issued upon conversion has been effectively registered under the Securities Act and such Note or such share of Common Stock have been disposed of in accordance with the Shelf Registration Statement;

(ii)the date on which such Note or such share of Common Stock issued upon conversion is transferred in compliance with Rule 144 under the Securities Act or may be sold or transferred by a person who is not an affiliate of the Company pursuant to Rule 144 under the Securities Act (or any other similar provision then in force) without any volume or manner of sale restrictions thereunder; or

(iii)the date on which such Note or such share of Common Stock issued upon conversion ceases to be outstanding (whether as a result of redemption, repurchase and cancellation, conversion or otherwise).

“Underwritten Registration”: A registration in which Notes of the Company are sold to an underwriter for reoffering to the public.

Unless the context otherwise requires, the singular includes the plural, and words in the plural include the singular.

2. Shelf Registration.

(a)The Company shall:

(i)not later than 90 days after the date hereof (the “Shelf Filing Deadline”), cause to be filed a registration statement pursuant to Rule 415 under the Securities Act (the “Shelf Registration Statement”), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities held by Holders that have provided the information required pursuant to the terms of Section 2(b) hereof;

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(ii)use reasonable efforts to cause the Shelf Registration Statement to be declared effective by the Commission not later than 180 days after the date hereof (the “Effectiveness Target Date”); and

(iii)use reasonable efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 4(b) hereof to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities entitled, subject to Section 2(b), to the benefit of this Agreement and (B) conforms with the requirements of this Agreement and the Securities Act and the rules and regulations of the Commission promulgated thereunder as announced from time to time, for a period (the “Effectiveness Period”) until the earliest of:

(1)two years following the last date of original issuance of any of the Notes;

(2)the date when the Holders of Transfer Restricted Securities are able to sell all such Transfer Restricted Securities immediately without restriction pursuant to the volume limitation provisions of Rule 144 under the Securities Act; or

(3)the date when all of the Transfer Restricted Securities have been sold either pursuant to the Shelf Registration Statement or pursuant to Rule 144 under the Securities Act or any similar provision then in force.

(b)At the time the Shelf Registration Statement is declared effective, each Holder that became a Notice Holder on or prior to the date fifteen (15) Business Days prior to such time of effectiveness shall be named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Transfer Restricted Securities in accordance with applicable law. None of the Company’s securityholders (other than the Holders of Transfer Restricted Securities) shall have the right to include any of the Company’s securities in the Shelf Registration Statement.

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(c)If the Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Transfer Restricted Securities registered thereunder shall have been resold pursuant thereto or shall have otherwise ceased to be Transfer Restricted Securities), the Company shall use reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within ten (10) Business Days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement covering all of the securities that as of the date of such filing are Transfer Restricted Securities (a “Subsequent Shelf Registration Statement”). If a Subsequent Shelf Registration Statement is filed, the Company shall use reasonable efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is practicable after such filing and to keep such Registration Statement (or subsequent Shelf Registration Statement) continuously effective until the end of the Effectiveness Period.

(d)The Company shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement, if required by the Securities Act or as reasonably requested by the Initial Purchaser or by the Trustee on behalf of the Holders of the Transfer Restricted Securities covered by such Shelf Registration Statement.

(e)Each Holder agrees that if such Holder wishes to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(e) and Section 4(b). Each Holder wishing to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement and related Prospectus agrees to deliver a Notice and Questionnaire to the Company at least three (3) Business Days prior to any intended distribution of Transfer Restricted Securities under the Shelf Registration Statement. From and after the date the Shelf Registration Statement is declared effective the Company shall, as promptly as practicable after the date a Notice and Questionnaire is delivered, and in any event upon the later of (x) fifteen (15) Business Days after such date (but no earlier than fifteen (15) Business Days after effectiveness) or (y) fifteen (15) Business Days after the expiration of any Suspension Period in effect when the Notice and Questionnaire is delivered or put into effect within fifteen (15) Business Days of such delivery date or, if the Company is required to file with the Commission a new Shelf Registration Statement, within thirty (30) calendar days after the date a Notice and Questionnaire is delivered:

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(i)if required by applicable law, file with the Commission a post-effective amendment to the Shelf Registration Statement or an additional Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Transfer Restricted Securities in accordance with applicable law and, if the Company shall file a post-effective amendment to the Shelf Registration Statement or such additional Shelf Registration Statement, as the case may be, use reasonable efforts to cause such post-effective amendment or such additional Shelf Registration Statement, as the case may be, to be declared effective under the Securities Act as promptly as is practicable, but in any event by the date (the “Amendment Effectiveness Deadline Date”) that is sixty (60) days after the date such post effective amendment or such additional Shelf Registration Statement is required by this clause to be filed;

(ii)upon its request, provide such Holder copies of any documents filed pursuant to Section 2(e)(i); and

(iii)notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(e)(i);

provided that if such Notice and Questionnaire is delivered during a Suspension Period, the Company shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Suspension Period in accordance with Section 4(b). Notwithstanding anything contained herein to the contrary, (i) the Company shall not be under any obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Registration Statement or related Prospectus and (ii) the Amendment Effectiveness Deadline Date shall be extended by up to fifteen (15) Business Days from the expiration of a Suspension Period (and the Company shall not incur any obligation to pay Additional Amounts during such extension) if such Suspension Period shall be in effect on the Amendment Effectiveness Deadline Date.

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3. Additional Amounts.

(a)If:

(i)the Shelf Registration Statement is not filed with the Commission prior to or on the Shelf Filing Deadline;

(ii)the Shelf Registration Statement has not been declared effective by the Commission prior to or on the Effectiveness Target Date;

(iii)the Company has failed to perform its obligations set forth in Section 2(e) within the time period required therein;

(iv)any post-effective amendment to a Shelf Registration Statement or additional Shelf Registration Statement filed pursuant to Section 2(e)(i) has not become effective under the Securities Act on or prior to the Amendment Effectiveness Deadline Date;

(v)except as provided in Section 4(b)(i) hereof, the Shelf Registration Statement is filed and declared effective but, during the Effectiveness Period, shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded within ten (10) Business Days by a post-effective amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such failure and, in the case of a post-effective amendment, is itself immediately declared effective; provided that the fact that a Shelf Registration Statement is not usable by a particular Holder at any given time solely as a result of the failure of such Holder to provide Requisite Information with respect to it shall not be relevant for purposes of this clause unless such Holder shall have provided such information to the Company and the Company shall have failed to file an appropriate Prospectus supplement or post-effective amendment to the shelf Registration Statement; or

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(vi)(A) prior to or on the 45th day, as the case may be, of any Suspension Period, such suspension has not been terminated or (B) Suspension Periods exceed an aggregate of 120 days in any 360 day period,

(each such event referred to in foregoing clauses (i) through (vi), a “Registration Default”), the Company hereby agrees to pay interest (“Additional Amounts”) with respect to the Transfer Restricted Securities as provided herein from and including the day following the Registration Default to but excluding the earlier of (1) the day on which the Registration Default has been cured and (2) the date the Shelf Registration Statement is no longer required to be kept effective as set out below:

(A)in respect of the Notes, the Company agrees to pay interest to each Holder, accruing at a rate (x) with respect to the first 90-day period during which a Registration Default shall have occurred and be continuing, equal to 0.25% per annum of the aggregate principal amount of the Notes held by such Holder, and (y) with respect to the period commencing on the 91st day following the day the Registration Default shall have occurred and be continuing, equal to 0.50% per annum of the aggregate principal amount of the Notes held by such Holder; provided that in no event shall Additional Amounts accrue at a rate per year exceeding 0.50% of the aggregate principal amount of the Notes held by such Holder; and

(B)in respect of Notes submitted for conversion into Common Stock during a Registration Default only, the Company agrees to pay accrued and unpaid Additional Amounts to the holders of such Notes calculated in accordance with paragraph (A) up to and including the Conversion Date (as defined in the Indenture) and to issue, or cause to be issued, additional shares to each Holder that has submitted for conversion some or all of its Notes into Common Stock equal to 3% of the applicable Conversion Rate (as defined in the Indenture) for each $1,000 principal amount of Notes (except to the extent the Company elects to deliver cash upon conversion in accordance with the terms of the Indenture); and

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(C)in respect of Common Stock, each Holder of such Common Stock will not be entitled to any Additional Amounts.

Notwithstanding the provisions in this Section 3(a), if any Additional Amounts are payable as a result of the Company’s failure to add the name of a Holder as an additional selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Transfer Restricted Securities in accordance with applicable law and if such failure shall have not resulted in a Registration Default with respect to the other Holders, only such Holder shall be entitled to receive such Additional Amounts.

(b)All Additional Amounts accrued in accordance with paragraph (A) above shall be paid in arrears to Record Holders by the Company on each Additional Amounts Payment Date. All Additional Amounts and additional shares of Common Stock payable in accordance with paragraph (B) above shall be paid and delivered on the settlement date relating to the applicable Conversion Date. Upon the cure of all Registration Defaults relating to any particular Note or share of Common Stock, the accrual of Additional Amounts with respect to such Note or share of Common Stock will cease.

All obligations of the Company set forth in this Section 3 that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Transfer Restricted Security shall have been satisfied in full.

The Additional Amounts set forth above shall be the exclusive monetary remedy available to the Holders of Transfer Restricted Securities for each Registration Default.

4. Registration Procedures.

(a)In connection with the Shelf Registration Statement, the Company shall comply with all the provisions of Section 4(b) hereof and shall use reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities, and pursuant thereto, shall as expeditiously as possible but no later than the Shelf Filing Deadline prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Securities Act.

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(b)In connection with the Shelf Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities, the Company shall:

(i)Subject to any notice by the Company in accordance with this Section 4(b) of the existence of any fact or event of the kind described in Section 4(b)(iii)(D), use reasonable efforts to keep the Shelf Registration Statement continuously effective during the Effectiveness Period; upon the occurrence of any event that would cause the Shelf Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the Effectiveness Period, the Company shall file promptly an appropriate amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use reasonable efforts to cause such amendment to be declared effective and the Shelf Registration Statement and the related Prospectus to become usable for their intended purposes as soon as practicable thereafter. Notwithstanding the foregoing, the Company may suspend the effectiveness of the Shelf Registration Statement by written notice to the Holders for a period not to exceed an aggregate of 45 days in any 90-day period (each such period, a “Suspension Period”) if:

(x) an event occurs and is continuing as a result of which the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein would, in the Company’s judgment, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and

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(y) the Company determines in good faith that the disclosure of such event at such time would be seriously detrimental to the Company and its subsidiaries;

provided that, the Suspension Periods shall not exceed an aggregate of 120 days in any 360-day period. The Company shall not be required to specify in the written notice to the Holders the nature of the event giving rise to the Suspension Period. Each Holder agrees, by acquisition of a Transfer Restricted Security, to hold any communication by the Company in response to a notice of proposed sale in confidence. No Additional Amounts shall be payable or accrue during any Suspension Period permitted under this Section 4(b)(i).

(ii)Prepare and file with the Commission such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective during the Effectiveness Period; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all Notes or shares of Common Stock covered by the Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in the Shelf Registration Statement or supplement to the Prospectus.

(iii)Advise the selling Holders, the Initial Purchaser and the Special Counsel promptly and, if requested by any of them, to confirm such advice in writing, except as provided in clause (D) below:

(A)when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective,

(B)of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto if in the Company’s reasonable judgment such request could cause a failure for the Company to cause the Shelf Registration Statement to be declared effective under the Securities Act by the Effectiveness Target Date,

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(C)of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, or

(D)of the existence of any fact or the happening of any event, during the Effectiveness Period, that makes any statement of a material fact made in the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Shelf Registration Statement or the Prospectus in order to make the statements therein not misleading.

If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time and will provide to each Holder who is named in the Shelf Registration Statement prompt notice of the withdrawal of any such order.

(iv)Make available at the offices where normally kept during reasonable business hours for inspection by a representative of the selling Holders, designated in writing by a Majority of Holders whose Transfer Restricted Securities are included in the Shelf Registration Statement, and any attorney or accountant retained by such selling Holders, all financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act, and cause the Company’s respective officers, directors, managers and employees to supply all information reasonably requested by any such representative or representatives of the selling Holders, attorney or accountant in connection therewith, in each case as customary for comparable due diligence examinations; provided, however, that the Company shall not have any obligation to deliver information to any selling Holder or representative pursuant to this Section 4(b)(iv) unless such selling Holder or representative shall have executed and delivered a confidentiality agreement in a form acceptable to the Company relating to such information.

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(v)If requested by any selling Holders, promptly incorporate in the Shelf Registration Statement or Prospectus within the applicable time period set forth in Section 2(e), pursuant to a supplement or post-effective amendment if necessary, such information concerning such selling Holders as such selling Holders may reasonably request to have included therein, including, without limitation, information relating to the “Plan of Distribution” of the Transfer Restricted Securities.

(vi)Furnish to each selling Holder, the Initial Purchaser and the Special Counsel upon their request, without charge, at least one copy of the Shelf Registration Statement, as first filed with the Commission, and of each amendment thereto (and any documents incorporated by reference therein or exhibits thereto (or exhibits incorporated in such exhibits by reference) as such Person may reasonably request).

(vii)Deliver to each selling Holder, the Initial Purchaser and the Special Counsel without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons reasonably may request; subject to any notice by the Company in accordance with this Section 4(b) of the existence of any fact or event of the kind described in Section 4(b)(iii)(D), the Company hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto.

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(viii)Before any public offering of Transfer Restricted Securities, cooperate with the selling Holders and Special Counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions in the United States as the selling Holders may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that the Company shall not be required (A) to register or qualify as a foreign corporation or a dealer of securities where it is not now so qualified or to take any action that would subject it to the service of process in any jurisdiction where it is not now so subject or (B) to subject itself to general or unlimited service of process or to taxation in any such jurisdiction if they are not now so subject.

(ix)Cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends (unless required by applicable securities laws); and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders may request at least two Business Days before any sale of Transfer Restricted Securities.

(x)Use reasonable efforts to cause the Transfer Restricted Securities covered by the Shelf Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities.

(xi)Subject to Section 4(b)(i) hereof, if any fact or event contemplated by Section 4(b)(iii)(D) hereof shall exist or have occurred, use reasonable efforts to prepare a supplement or post-effective amendment to the Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading.

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(xii)Obtain CUSIP numbers for all Transfer Restricted Securities not later than the effective date of the Shelf Registration Statement and provide the Trustee under the Indenture with certificates for the Notes that are in a form eligible for deposit with The Depository Trust Company.

(xiii)Cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter that is required to be retained in accordance with the rules and regulations of the NASD.

(xiv)Otherwise use reasonable efforts to comply with all applicable rules and regulations of the Commission and all reporting requirements under the rules and regulations of the Exchange Act.

(xv)Cause the Indenture to be qualified under the TIA not later than the effective date of the Shelf Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the holders of Notes to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use reasonable efforts to cause the Trustee thereunder to execute all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner.

(xvi)Cause all Common Stock covered by the Shelf Registration Statement to be listed or quoted, as the case may be, on each securities exchange or automated quotation system on which Common Stock is then listed or quoted.

(xvii)Provide to each Holder and the Initial Purchaser upon written request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act after the effective date of the Shelf Registration Statement, unless such document is available through the Commission’s EDGAR system.

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(c)Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice (a “Suspension Notice”) from the Company of the existence of any fact of the kind described in Section 4(b)(iii)(D) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement until:

(i)such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 4(b)(xi) hereof; or

(ii)such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus unless such filings are made pursuant to the requirements of Section 13 and Section 15 of the Exchange Act and such filings are available through the Commission’s EDGAR system.

If so directed by the Company, each Holder will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice of suspension.

(d)Each Holder agrees, by acquisition of a Transfer Restricted Security, that no Holder shall be entitled to sell any of such Transfer Restricted Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with a completed Notice and Questionnaire as required pursuant to Section 2(e) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. Each Notice Holder agrees promptly to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably request in writing (“Requisite Information”). Any sale of any Transfer Restricted Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder to its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made not misleading.

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5. Registration Expenses.

All expenses incident to the Company’s performance of or compliance with this Agreement shall be borne by the Company regardless of whether a Shelf Registration Statement becomes effective, including, without limitation:

(i)all registration and filing fees and expenses (including filings made with the NASD);

(ii)all fees and expenses of compliance with federal securities and state Blue Sky or securities laws;

(iii)all expenses of printing (including printing of Prospectuses and certificates for the Common Stock to be issued upon conversion of the Notes) and the Company’s expenses for messenger and delivery services and telephone;

(iv)all fees and disbursements of counsel to the Company;

(v)all application and filing fees in connection with listing (or authorizing for quotation) the Common Stock on a national securities exchange or automated quotation system pursuant to the requirements hereof;

(vi)all fees and disbursements of independent certified public accountants of the Company; and

(vii)the reasonable fees and disbursements of the Special Counsel.

The Company shall bear its internal expenses (including, without limitation, all salaries and expenses of their officers and employees performing legal, accounting or other duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company.

6. Indemnification And Contribution.

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(a)The Company agrees to indemnify and hold harmless each Holder of Transfer Restricted Securities covered by the Shelf Registration Statement (including in such capacity, the Initial Purchaser), its directors, officers, and employees and each person, if any, who controls any such Holder within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Holder”), against any loss, claim, damage, liability or expense, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to resales of the Transfer Restricted Securities), to which such Indemnified Holder may become subject, insofar as any such loss, claim, damage, liability or action arises out of, or is based upon:

(i)any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement as originally filed or in any amendment thereof, in any Prospectus, or in any amendment or supplement thereto, or

(ii)the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading,

and agrees to reimburse each Indemnified Holder promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Holder in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder (or its related Indemnified Holder) specifically for use therein. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have.

(b)Each Holder, severally and not jointly, agrees to indemnify and hold harmless the Company, its respective directors, officers and employees and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement set forth in this Section shall be in addition to any liabilities which any such Holder may otherwise have. In no event shall any Holder, its directors, officers or any person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Shelf Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

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(c)Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent it has been materially prejudiced by such failure and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Holders shall have the right to employ a single counsel to represent jointly the Holders and their officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Holders against the Company under this Section 6 if the Holders seeking indemnification shall have been advised by legal counsel that there may be one or more legal defenses available to such Holders and their respective officers, employees and controlling persons that are different from or additional to those available to the Company, and in that event, the fees and expenses of such separate counsel shall be paid by the Company. No indemnifying party shall:

20

(i)without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld) settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or

(ii)be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss of liability by reason of such settlement or judgment.

(d)The indemnifying party under this Section shall not be liable for any settlement of any proceeding effected without its written consent, which shall not be withheld unreasonably, but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 6(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent (x) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

21

(e)If the indemnification provided for in this Section 6 shall for any reason be unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b) in respect of any loss, claim, damage or liability (or action in respect thereof) referred to therein, each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability (or action in respect thereof):

(i)in such proportion as is appropriate to reflect the relative benefits received by the Company from the offering and sale of the Transfer Restricted Securities on the one hand and a Holder with respect to the sale by such Holder of the Transfer Restricted Securities on the other, or

(ii)if the allocation provided by Section (6)(e)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in Section 6(e)(i) but also the relative fault of the Company on the one hand and the Holders on the other in connection with the statements or omissions or alleged statements or alleged omissions that resulted in such loss, claim, damage or liability (or action in respect thereof), as well as any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Notes purchased under the Purchase Agreement (before deducting expenses) received by the Company, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Transfer Restricted Securities on the other. The relative fault of the parties shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Holders on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder agree that it would not be just and equitable if the amount of contribution pursuant to this Section 6(e) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (e).

22

The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 6 shall be deemed to include, for purposes of this Section 6, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim.

Notwithstanding the provisions of this Section 6, no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Transfer Restricted Securities purchased by it were resold exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations to contribute as provided in this Section 6(e) are several and not joint.

(f)The provisions of this Section 6 shall remain in full force and effect, regardless of any investigation made by or on behalf of any Holder, the Company or any of the officers, directors or controlling persons referred to in Section 6 hereof, and will survive the sale by a Holder of Transfer Restricted Securities.

7. Rule 144A and Rule 144. The Company agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144.

8. No Participation In Underwritten Registrations. No Holder may participate in any Underwritten Registration hereunder.

23

9. Miscellaneous.

(a)Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 2 hereof may result in material irreparable injury to the Initial Purchaser or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely, and that, in the event of any such failure, the Initial Purchaser or any Holder may obtain such relief as may be required to specifically enforce the Company’s obligations under Section 2 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

(b)Actions Affecting Transfer Restricted Securities. The Company shall not, directly or indirectly, take any action with respect to the Transfer Restricted Securities as a class that would adversely affect the ability of the Holders of Transfer Restricted Securities to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement.

(c)No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. In addition, the Company shall not grant to any of its securityholders (other than the Holders of Transfer Restricted Securities in such capacity) the right to include any of its securities in the Shelf Registration Statement provided for in this Agreement other than the Transfer Restricted Securities.

(d)Amendments and Waivers. This Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless the Company has obtained the written consent of a Majority of Holders; provided, however, that with respect to any matter that directly or indirectly adversely affects the rights of the Initial Purchaser hereunder, the Company shall obtain the written consent of the Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to depart from the provisions hereof, with respect to a matter, which relates exclusively to the rights of Holders whose securities are being sold pursuant to a Shelf Registration Statement and does not directly or indirectly adversely affect the rights of other Holders, may be given by the Majority of Holders, determined on the basis of Notes being sold rather than registered under such Shelf Registration Statement.

24

(e)Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first class mail (registered or certified, return receipt requested), telex, facsimile transmission, or air courier guaranteeing overnight delivery:

(i)if to a Holder, at the address set forth on the records of the registrar under the Indenture or the transfer agent of the Common Stock, as the case may be; and

(ii)if to the Company, initially at its address set forth in the Purchase Agreement.

All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; at the time acknowledged by a return receipt, if sent by electronic mail; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery.

Any party hereto may change the address for receipt of communications by giving written notice to the others.

(f)Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities. The Company hereby agrees to extend the benefit of this Agreement to any Holder and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto.

(g)Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

(h)Notes Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Company or its Affiliates (other than subsequent Holders if such subsequent Holders are deemed to be Affiliates solely by reason of their holding of such Notes) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

25

(i)Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(j)Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of New York.

(k)Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law.

(l)Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

[SIGNATURE PAGE FOLLOWS]

26

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

PMA CAPTAL CORPORATION

By /s/ William Hitselberger

Name: William Hitselberger

Title: Executive Vice President and

Chief Financial Officer

BANC OF AMERICA SECURITIES LLC

By /s/ Derek Dillon

Name: Derek Dillon

Title: Managing Director

EX-10.6

                                                                    Exhibit 10.6

                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT


         THIS  AGREEMENT,  made as of the first day of May, 1999, by and between
PMA CAPITAL CORPORATION, a Pennsylvania corporation, (hereinafter the "Company")
and FREDERICK W. ANTON, III, of Philadelphia, Pennsylvania (hereinafter "Anton")
to set forth the terms and  conditions  upon which the Company shall continue to
employ Anton.

                                R E C I T A L S
                                - - - - - - - -

         A. The Company and Anton have previously entered into the Employment
Agreement made as of the first day of April, 1995;

         B.  At its  May  5,  1999  Board  of  Directors  meeting,  the  Company
re-elected Anton to the position of Chairman of the Board, which pursuant to the
terms of the April 1, 1995 Employment Agreement extended Anton's Employment Term
to April 1, 2004;

         C. The Company and Anton mutually desire to amend and restate the terms
of the  Employment  Agreement  in order to continue the  principal  terms of the
April 1, 1995 Employment  Agreement,  to eliminate the contractual death benefit
provisions of the Employment Agreement and in lieu thereof to provide a new life
insurance policy for the benefit of Anton as described herein, and to revise the
terms  of the  life  insurance  policies  issued  on  Anton's  life by  Manulife
Financial Life Insurance and Pacific Life Insurance Company;

                             STATEMENT OF AGREEMENT

         NOW, THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency  of which is hereby  acknowledged,  the  Company  and Anton agree as
follows:



                                     - 1 -


         1.       The Employment Term.

         During the period  beginning  May 1, 1999 and  ending  April 30,  2004,
(hereinafter  "Employment  Term") the Company shall continue to employ Anton and
Anton agrees to be so employed. If at the annual  organizational  meeting of the
Board of Directors of the Company held in 2000 and in any subsequent year, Anton
is elected as Chairman of the Board of the Company, the Employment Term shall be
automatically  extended  for a further  period of one year  without the need for
further action by the Board of Directors or the execution of a formal  amendment
to this Agreement.

         2.       Duties During the Employment Term.

         Anton shall at all time  throughout the Employment Term devote his full
time and his best  efforts to the  business of the Company and its  subsidiaries
and affiliates.

         3.       Salary During the Employment Term.

         During the Employment  Term, the Company shall pay Anton on a bi-weekly
basis a salary of not less than $700,000 per year.  Anton's annual salary may be
increased but not decreased by the Company at any time and from time to time.

         4.       Inability to Perform.

         If for any reason during the Employment  Term,  Anton shall at any time
or from time to time be unable to perform the services  required of him pursuant
to paragraph 2 hereof,  he shall  nevertheless be entitled to receive the salary
payments  and other  benefits  provided by this  Agreement  until the end of the
Employment  Term  or  until  the  date of his  death,  whichever  first  occurs;
provided,  however,  that if in such circumstance  Anton is living at the end of
the  Employment  Term, he shall be considered to have then retired  whereupon he
shall become entitled to the retirement benefit set forth in Paragraph 8 for his
lifetime;  and provided,  further,  that nothing in this Paragraph  shall impair
Anton's rights during his lifetime to receive the life

                                     - 2 -


insurance benefits set forth in Paragraph 10. Any question as to Anton's ability
to  continue  to perform  services  hereunder  upon which the  Company and Anton
cannot agree shall be determined by a qualified  independent  physician selected
by Anton (or, if Anton is unable to make such selection, such selection shall be
made by any adult member of his immediate  family or his legal  representative),
and approved by the Company, said approval not to be unreasonably  withheld. The
determination  of such  physician  made in writing to the  Company  and to Anton
shall be final and conclusive for all purposes of this Agreement.

      5.       Expenses.

      The  Company  shall  pay the  ordinary  and  necessary  business  expenses
incurred by Anton in connection  with the performance of his duties on behalf of
the Company.

      6.       Restrictive Covenant.

      Anton  shall  not  during  or  after  the  Employment  Term,  directly  or
indirectly,  either as principal,  agent, stockbroker, or in any other capacity,
engage in or have a material  financial  interest in any business which competes
with the business of the Company or its affiliates as then being conducted.

      7.       Death.

      Anton's  employment  shall  immediately  terminate  upon his death and the
Company  shall be  relieved  of all  obligations  to pay  Anton,  his  heirs and
personal  representatives any salary other than any portion of his annual salary
which has been accrued and unpaid to such date.

      8.       Retirement.

      Anton may elect to retire from full time  employment by the Company at any
time,  and the  Employment  Term  shall  thereupon  terminate  on the  date  his
retirement becomes effective. Beginning on the date of his retirement and

                                     - 3 -


continuing  throughout Anton's lifetime,  the Company shall pay to Anton in each
month a retirement  benefit  equal to five percent (5%) of his annual  salary on
the date of his  retirement.  It is the  intention of the Company and Anton that
this  retirement  arrangement  be unfunded  for tax purposes and for purposes of
Title I of the Employee Retirement Income Security Act of 1974, as amended,  and
that the benefit be paid out of the general assets of the Company.  However,  in
order to provide  for the payment of the  benefit to Anton,  the  Company  shall
establish, no later than the date of Anton's retirement,  an irrevocable grantor
trust (the  "Trust")  within the  meaning  of subpart E, part I,  subchapter  J,
chapter 1,  subtitle A of the  Internal  Revenue Code of 1986,  as amended.  The
trustee of the Trust  shall be an  independent  third party such as a bank trust
department or other party with corporate trustee powers under Pennsylvania state
law (the  "Trustee").  The Company shall make  contributions  to the Trust in an
amount,  determined on a sound actuarial basis, which shall be sufficient to pay
Anton his retirement benefits as they become due. Such contributions may consist
of cash, annuity contract,  insurance  policies or other property  acceptable to
the Trustee.  Notwithstanding  the  foregoing,  Trust assets shall be treated as
assets of the Company and shall remain  subject to the general  creditors of the
Company. Moreover, Anton shall have no property interest whatsoever in any asset
of the Trust or of the  Company.  Anton shall have only the rights of a general,
unsecured  creditor  against the Company with respect to the retirement  benefit
under this  paragraph  8. The  establishment  of the Trust  shall not in any way
terminate the obligation of the Company to make the retirement payments required
to be made pursuant to this Paragraph 8.

      9.       Employee Benefit Plans.

      No  provision  of this  Agreement  shall in any way abrogate or impair any
rights or  privileges of Anton as an employee of the Company under any qualified
or unqualified retirement,  pension, profit sharing,  disability life insurance,
hospitalization or other employee plan or plans which are now in effect or which
may hereafter be adopted the Company.  Any payments made by the Company pursuant
to Paragraph 4 hereof or any retirement payments made pursuant to

                                     - 4 -


Paragraph 8 of this  Agreement  shall be in addition to, and not in lieu of, all
benefits which Anton is or will entitled to receive under the Company's  Pension
Plan and any  supplementary  retirement  plan as well as any other  qualified or
unqualified  benefit  plan or plans  which  presently  are or  hereafter  become
available to the Company's employees.

      10.      Provisions for Life Insurance.

               10.1    Manulife Financial Life Insurance.

               Pursuant to prior  Employment  Agreements  between  Anton and the
Company dated May 1, 1991 and April 1, 1995,  the Company and the trustee of the
Irrevocable  Deed of Trust of Frederick W. Anton,  III,  dated December 18, 1991
(the "1991 Trust")  previously  secured from The  Manufacturer's  Life Insurance
Company (U.S.A.) a life insurance  policy on the life of Anton,  which presently
is subject to a split-dollar agreement with the Company.

               The  Company and the  Trustee of the 1991 Trust  hereby  agree to
replace  the  existing  insurance  policy  with a new  Manulife  Financial  Life
Insurance  Policy  ("Manulife  Policy")  on the  life of Anton  providing  death
benefit of at least one million dollars  ($1,000,000)  payable to the 1991 Trust
in the event of Anton's death. The Manulife Policy will be subject to a separate
Amended and Restated  Split-Dollar  Insurance Agreement which the Company hereby
agrees to enter  into with  Anton and the 1991  Trust and which in all  material
respects  is  similar to the form of  agreement  attached  hereto as  Appendix A
("Manulife Split-Dollar Agreement").

               During the  Employment  Term and at all times  thereafter  during
Anton's lifetime, the Company shall:

                   (1) satisfy its obligations  under the Manulife  Split-Dollar
               Agreement for all benefits granted to Anton thereunder, including
               advancing  its share of the annual  premiums to the issuer of the
               Manulife Policy; and

                   (2) pay to Anton a bonus to cover  the  owner's  share of the
               annual  premiums as set forth below.  Such bonus payment shall be
               made at least  thirty (30) days before the annual  premium is due
               for the Manulife Policy. The bonus



                                      - 5 -


               shall be in an amount equal to that portion of the premium  which
               equals the  economic  benefit of the  insurance  protection  then
               provided to the owner of the  Manulife  Policy  under such policy
               and the Manulife Split-Dollar Agreement on the life of Anton. The
               economic benefit  referred to in the preceding  sentence shall be
               the lesser of (i) the P.S. 58 cost for the  insurance  protection
               referred to therein (as determined  under tables published by the
               Internal  Revenue  Service ) and modified as appropriate  (or, if
               applicable,  as specifically  prescribed by the Internal  Revenue
               Service) to reflect that such insurance protection is on the life
               of Anton and that the death benefit under the Manulife  Policy is
               payable  upon the  death  of  Anton,  and (ii) if such  insurance
               protection is available from the issuer of the Manulife Policy as
               term  insurance,  the premium for such  insurance  protection  as
               determined  by  reference  to  such  issuer's  current  published
               premium  rate  for  one-year  term  life   insurance   protection
               available to all standard risks.

                  10.2     John Hancock Life Insurance.

                  The  Company  and  a  trustee  to  be  named  by  Anton  or  a
third-party  to be  selected  by Anton (the  "Owner")  agree to secure from John
Hancock  Mutual Life Insurance  Company & Affiliated  Companies a life insurance
policy on the life of Anton ("John Hancock  Policy").  The John Hancock  Policy,
which will provide an initial death benefit of approximately two million




                                     - 6 -



dollars ($2,000,000) payable to the Owner in the event of Anton's death, will be
subject to a separate Split-Dollar  Agreement which the Company hereby agrees to
enter  into with  Anton and the Owner  and  which in all  material  respects  is
similar to the form of agreement  attached  hereto as Appendix B ("John  Hancock
Split-Dollar Agreement").

                  During the Employment Term and at all times thereafter  during
Anton's  lifetime,  the Company  shall  satisfy its  obligations  under the John
Hancock  Split-Dollar  Agreement for all benefits  granted to Anton  thereunder,
including, but not limited to, advancing its share of the annual premiums to the
issuer of the John Hancock Policy. The Owner shall be solely responsible for the
payment of the Owner's share of the annual premiums pursuant to the John Hancock
Split-Dollar Agreement.

                  10.3     Pacific Life Insurance.

                  The trustee of the  Irrevocable  Deed of Trust of Frederick W.
Anton,  III,  dated October 25, 1995,  (the "1995 Trust")  previously  secured a
Pacific Mutual Life Insurance policy (policy  #1A2304155-0) on the life of Anton
the premiums for which are being funded by the Company.  The Company,  Anton and
the 1995 Trust agree to replace this policy with a new life insurance  policy on
the life of Anton secured from Pacific Life  Insurance  Company  ("Pacific  Life
Policy").  The  Pacific  Life  Policy,  which  will  provide a death  benefit of
approximately one million  five-hundred-thousand dollars ($1,500,000) payable to
the 1995  Trust in the event of  Anton's  death,  will be  subject to a separate
Split-Dollar  Insurance  Agreement which the Company hereby agrees to enter into
with Anton and the 1995 Trust and which in all  material  respects is similar to
the form of agreement  attached hereto as Appendix C ("Pacific Life Split-Dollar
Agreement").

               During the  Employment  Term and at all times  thereafter  during
Anton's lifetime, the Company shall:


                                     - 7 -


                   (1)  satisfy   its   obligations   under  the  Pacific   Life
               Split-Dollar   Agreement  for  all  benefits   granted  to  Anton
               thereunder,  including advancing its share of the annual premiums
               to the issuer of the Pacific Life Policy; and

                   (2) pay to Anton a bonus to cover  the  owner's  share of the
               annual  premiums as set forth below.  Such bonus payment shall be
               paid at least  thirty (30) days before the annual  premium is due
               for the  Pacific  Life  Policy.  The bonus  shall be in an amount
               equal to that  portion of the premium  which  equals the economic
               benefit of the insurance protection then provided to the owner of
               the Pacific  Life Policy  under such policy and the Pacific  Life
               Split-Dollar Agreement on the life of Anton. The economic benefit
               referred to in the preceding  sentence shall be the lesser of (i)
               the P.S. 58 cost for the insurance protection referred to therein
               (as  determined  under tables  published by the Internal  Revenue
               Service ) and  modified as  appropriate  (or, if  applicable,  as
               specifically  prescribed  by the  Internal  Revenue  Service)  to
               reflect that such  insurance  protection  is on the life of Anton
               and that the death  benefit  under  the  Pacific  Life  Policy is
               payable  upon the  death  of  Anton,  and (ii) if such  insurance
               protection  is  available  from the  issuer of the  Pacific  Life
               Policy  as  term  insurance,   the  premium  for  such  insurance
               protection as  determined  by reference to such issuer's  current
               published   premium  rate  for  one-year   term  life   insurance
               protection available to all standard risks.

         11.      Contested Benefits.

         If, for any reason, the Company shall fail to make any payment required
to be made pursuant to this Agreement,  and Anton shall be required to bring one
or more actions at law or in equity  against the Company,  and/or its successors
and assigns, to enforce his rights under this Agreement, Anton shall be entitled
to recover from the Company his reasonable attorney's fees and expenses incurred
in  connection  with such action or actions in which a final order is entered in
Anton's favor.

                                     - 8 -

         12.      No Third Party Rights.

         This  Agreement may be amended from time to time hereafter by the joint
agreement of the Company and Anton  without the consent or approval of any other
person or entity.  Such amendment or amendments may, among other things,  change
the persons to whom monies are to be paid or the amount to be paid to any person
or the time for the making of any  payment  except that no change may be made in
respect of the insurance plans set forth in Paragraph 10 hereof.  This Agreement
shall not  create in any  person  who is not a party a vested  right to  receive
monies unless the terms of this Agreement  shall remain in full force and effect
at the time when a determination  is required to be made concerning a payment or
payments hereunder to a person who is not a party.

         13.      Successors and Assigns of the Company.

         This  Agreement  shall inure to the benefit of and be binding  upon the
Company,  its  successors  and  assigns,  and shall  supersede  and  replace the
Employment Agreement between the Company and Anton dated as of April 1, 1993, as
amended  by an  Amendment  and  Supplement  dated as of April 1,  1994,  and the
Employment Agreement between the Company and Anton dated as of April 1, 1995.

         IN WITNESS WHEREOF,  the Company and Anton have executed this Agreement
as of the date and year first above written.


ATTEST:

         /s/ Robert L. Pratter     By: /s/ John W. Smithson
         ---------------------         -----------------------------
         SECRETARY                     PRESIDENT



                                       /s/ Frederick W. Anton, III
                                       -----------------------------
                                       FREDERICK W. ANTON, III



                                     - 9 -

                                  APPENDIX "A"

                            1999 AMENDED AND RESTATED
                        SPLIT-DOLLAR INSURANCE AGREEMENT



         This 1999 AMENDED AND RESTATED  SPLIT-DOLLAR  INSURANCE  AGREEMENT (the
"Agreement")  made  as of the __th day of May, 1999  by and  among  PMA  Capital
Corporation (formerly Pennsylvania  Manufacturers  Corporation) (the "Company"),
Frederick W. Anton,  III, an employee of the Company (the  "Employee"),  and the
Irrevocable  Deed of Trust of Frederick W. Anton,  III,  dated December 18, 1991
(the "Owner").


                                R E C I T A L S
                                - - - - - - - -

         WHEREAS,  the Employee has rendered  loyal and valuable  service to the
Company; and

         WHEREAS,  the Owner presently owns Manufacturers Life Insurance Company
Policy  Number  5835767-4  which  insures  the  life of  Employee  and  which is
presently subject to a split-dollar life insurance  agreement dated December 20,
1991 (the "Existing Policy"); and

         WHEREAS,  in the Employment  Agreement  dated as of May 1, 1999 between
the Company and the Employee (the "Employment Agreement"), the Company agreed to
provide life insurance protection for the Employee by advancing a portion of the
annual  premiums for such protection  pursuant to a split-dollar  life insurance
arrangement on the terms and conditions contained herein; and

         WHEREAS,  the Owner,  the Employee and the Company have agreed that the
Owner will  exchange  the  Existing  Policy for a new policy of insurance on the
life of the Employee in  accordance  with  Section 1035 of the Internal  Revenue
Code of 1986, as amended; and

         WHEREAS,  the Owner has applied for the new policy insuring the life of
the Employee listed on Schedule A attached to this Agreement (the "Policy") and,
upon its issuance, will possess all incidents of ownership in and to the Policy;
and

         WHEREAS,  the  purpose of this  Agreement  is to amend and  restate the
Split-Dollar Agreement dated December 20, 1991 such that it is applicable to the
Policy and that all the terms of the  split-dollar  agreement among the Company,
the  Employee  and the Owner as of this date with  respect to the Policy are set
forth in this Agreement; and

         WHEREAS,  the parties  desire to enter into this  amended and  restated
split-dollar  agreement  with  respect to the Policy to provide that the Company
will advance a portion of the annual premiums due on the Policy on the terms and
conditions  hereinafter set forth, the Owner will collaterally assign the Policy
to the Company to secure the repayment of the amounts


                                     - 10 -


advanced,  and the Company will have a security  interest in the aggregate  cash
surrender value of the Policy and in the proceeds thereof;

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

        1. Policy.  The parties  have taken the actions  necessary  to cause the
insurance  company  identified on Schedule A (the "Insurer") to issue the Policy
to the Owner,  and shall take any further  action that may be necessary to cause
the Policy to conform to the  provisions  of this  Agreement.  The parties agree
that the Policy shall be subject to the terms and  conditions of this  Agreement
and of the collateral assignment filed with the Insurer relating to the Policy.

        2. Ownership  Rights.  Except as otherwise  provided  herein,  the Owner
shall  be the  sole  and  absolute  owner of the  Policy  and may  exercise  all
ownership rights granted to the Owner thereunder.

        3. Payment of Annual Premiums.

                  3.1 The Owner  shall pay each  annual  premium  for the Policy
(the  "Premium")  on or before its due date or within the grace period  provided
therefor under the Policy (the "Premium Due Date") as follows:

                           3.1.1 At least ten (10) days  before the  Premium Due
Date, the Owner shall pay the portion of the Premium that would be includable in
the gross  income of the insured for federal  income tax purposes if not paid by
the Insured (the  "Taxable  Portion")  and shall send evidence of its payment to
the Company.

                           3.1.2  Upon  receipt  of  the  Owner's   evidence  of
payment,  the Company promptly shall advance to the Owner the remaining  portion
of the Premium (the "Remaining  Portion"),  or in its discretion the Company may
pay its advance directly to the Insurer.

                           3.1.3 The  obligation  of the  Company to advance the
Remaining  Portion of the Premium under Section  3.1.2 is  conditioned  upon the
Owner's payment of the Taxable Portion of the Premium under Section 3.1.1.

                  3.2 The obligation of the Company to make the annual  payments
provided in Section 3.1 hereof shall be governed by the Employment Agreement.

        4. Proof of  Payment of  Advances.  The  Company  shall,  upon  request,
promptly  furnish the Owner  evidence  of timely  payment of each  advance  paid
directly to the Insurer under Section 3.1.2.

        5.  Collateral  Assignment  of Policies.  To secure the repayment to the
Company of the amounts it advances to the Owner under Section  3.1.2,  the Owner
has,  contemporaneously   herewith,  assigned  the  Policy  to  the  Company  as
collateral,  under the instrument which in all material  respects is the same as
the form attached hereto as Addendum 1. The collateral


                                     - 11 -


assignment  of the  Policy to the  Company  hereunder  shall not be  terminated,
altered or amended by the Owner,  without  the  express  written  consent of the
Company.  The parties  hereto  agree to take all action  necessary  to cause the
collateral  assignment to conform to the  provisions of this  Agreement.  In the
event of any inconsistency  between the terms of this Agreement and the terms of
the collateral assignment, the terms of this Agreement shall control.

        6.  Limitation  on  Policy  Disposition.  During  the  period  that  the
collateral  assignment  of the Policy is in effect,  the Owner  shall not borrow
from,  pledge,  transfer or assign the Policy and shall not sell,  surrender  or
cancel the Policy, change the beneficiary designation provision or terminate the
dividend  election  without the express  written  consent of the Company,  which
consent shall not be unreasonably withheld.

        7. Policy Proceeds.

                  7.1 Upon the death of the Employee,  the Company and the Owner
shall  promptly take all action  necessary to obtain the death benefit  provided
under the Policy.

                  7.2 The Company shall have the unqualified  right to receive a
portion of the Policy's death benefit equal to the total of the amount which the
Company  advanced to the Existing  Policy and the  aggregate of the amounts that
the Company advanced with respect to the Policy under Section 3.1.2. The balance
of the death  benefit,  if any,  shall be paid  directly to the  beneficiary  or
beneficiaries  designated by the Owner,  in the manner and the amount or amounts
provided in the  beneficiary  designation  provision of the Policy.  In no event
shall the amount  payable to the Company  hereunder  with  respect to the Policy
exceed the amount of the  Policy's  death  benefit.  The parties  agree that the
beneficiary  designation provision of the Policy shall conform to the provisions
hereof.

        8. Termination.

                  8.1 This Agreement shall terminate,  without notice,  upon the
surrender of the Policy by the Owner with the written  consent of the Company as
provided in Section 6.

                  8.2  In  addition,  either  the  Owner  or  the  Employee  may
terminate  this  Agreement by written  notice to the other parties hereto at any
time  that the cash  surrender  value of the  Policy at least  equals  the total
amount that the Company has advanced  with  respect to the Policy under  Section
3.1.2.  Such termination  shall be effective as of the date of such notice.  The
Company may not terminate this Agreement.

        9. Release of Policy Collateral.

                  9.1 For sixty (60) days after the date of  termination of this
Agreement,  the Owner  shall have the  option of  obtaining  the  release of the
collateral  assignment of the Policy to the Company. To obtain such release, the
Owner  shall  pay or  cause to be paid to the  Company  an  amount  equal to the
Policy's then cash surrender  value.  Upon receipt of that payment,  the Company
promptly shall release the collateral assignment of the Policy.


                                     - 12 -


                  9.2 If the Owner  fails to exercise  such  option  within such
sixty (60) day period with respect to the Policy,  then the Owner shall transfer
the Policy to the Company.  Thereafter,  neither the Owner,  the  Employee,  nor
their respective heirs, assigns or beneficiaries shall have any further interest
in and to the Policy, either under the terms thereof or under this Agreement.

       10. Insurer.  The Insurer shall be fully  discharged from its obligations
under the Policy by payment of the Policy death  benefit to the  beneficiary  or
beneficiaries  named in the Policy,  subject to the terms and  conditions of the
Policy.  In no event shall the Insurer be considered a party to this  Agreement,
or any modification or amendment hereof. No provision of this Agreement,  nor of
any  modification  or  amendment  hereof,  shall  in  any  way be  construed  as
enlarging,  changing,  varying, or in any other way affecting the obligations of
the  Insurer  as  expressly  provided  in  the  Policy,  except  insofar  as the
provisions  hereof  are made a part of the Policy by the  collateral  assignment
executed by the Owner and filed with the Insurer in connection herewith.

       11. Amendment.  This  Agreement may not be amended,  altered or modified,
except by a written instrument signed by the parties hereto, or their respective
successors or assigns,  and may not be otherwise  terminated  except as provided
herein.

       12. Succession.  This Agreement  shall be binding upon and shall inure to
the benefit of the Company and its successors and assigns, and the Employee, the
Owner and their respective successors, assigns, heirs, executors, administrators
and beneficiaries.

       13. Notices.  Any notice,  consent or demand  required or permitted to be
given under the provisions of this Agreement  shall be in writing,  and shall be
signed by the party giving or making the same. If such notice, consent or demand
is mailed to a party hereto,  it shall be sent by United States  certified mail,
postage  prepaid,  addressed to such party's last known  address as shown on the
records of the  Company.  The date of such  mailing  shall be deemed the date of
notice, consent or demand.

       14.  Captions.  The  captions of the  Sections  herein are  inserted as a
matter of convenience of reference only and in no way define,  limit or describe
the scope of this Agreement or any provisions hereof.

       15.  Governing  Law.  This  Agreement,  and  the  rights  of the  parties
hereunder,  shall be governed by and construed in  accordance  with the internal
laws  of  the  Commonwealth  of  Pennsylvania  and  shall  be  enforced  in  the
Commonwealth of Pennsylvania.

       16. Trust Agreement. Recognizing that the Owner is a trustee and that the
Policy is held in trust,  the  parties  agree  that the terms of this  Agreement
shall  control  in the event of any  inconsistencies  between  the terms of this
Agreement and the terms of the trust agreement.



                                     - 13 -

         IN  WITNESS  WHEREOF,   the  Company  has  caused  this  amendment  and
restatement of the Split-Dollar  Agreement to be executed by its duly authorized
officer and the Employee  and the Owner have  hereunto set their hands and seals
on the dates set forth below.


Attest:                          PMA CAPITAL CORPORATION


_____________________            By:  _______________________________





                                 _______________________________
                                 FREDERICK W. ANTON, III


                                 IRREVOCABLE DEED OF TRUST
                                 OF FREDERICK W. ANTON, III,
                                 DATED DECEMBER 18, 1991



                                 By:  _______________________________
                                      Frank G. Cooper, Trustee












                                     - 14 -



                                   Schedule A

         The following life insurance policy is subject to this 1999 Amended and
Restated Split-Dollar Life Insurance Agreement:

                                                             Approximate
         Insurer                                         Initial Face Amount
         -------                                         -------------------
The Manufacturer's Life Insurance Company                   $1,690,000









                                     - 15 -



                                  APPENDIX "B"

                                1999 JOHN HANCOCK
                        SPLIT-DOLLAR INSURANCE AGREEMENT



         This SPLIT-DOLLAR  INSURANCE AGREEMENT (the "Agreement") made as of the
__th day of May, 1999 by and  among PMA  Capital  Corporation  (the  "Company"),
Frederick W. Anton,  III, an employee of the Company (the  "Employee"),  and the
Irrevocable  Deed of Trust of Frederick W. Anton,  III,  dated May 11, 1999 (the
"Owner").


                                R E C I T A L S
                                - - - - - - - -

         WHEREAS,  the Employee has rendered  loyal and valuable  service to the
Company; and

         WHEREAS,  in the Employment  Agreement  dated as of May 1, 1999 between
the Company and the Employee (the "Employment Agreement"), the Company agreed to
provide life insurance protection for the Employee by advancing a portion of the
annual  premiums for such protection  pursuant to a split-dollar  life insurance
arrangement on the terms and conditions contained herein; and

         WHEREAS,  the Owner has applied for the policy insuring the life of the
Employee  listed on Schedule A attached to this  Agreement  (the  "Policy") and,
upon its issuance, will possess all incidents of ownership in and to the Policy;
and

         WHEREAS,  the parties desire to enter into this split-dollar  agreement
with respect to the Policy to provide that the Company will advance a portion of
the annual  premiums due on the Policy on the terms and  conditions  hereinafter
set forth,  the Owner  will  collaterally  assign  the Policy to the  Company to
secure the  repayment  of the  amounts  advanced,  and the  Company  will have a
security interest in the aggregate cash surrender value of the Policy and in the
proceeds thereof;

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

        1. Policy.  The parties  have taken the actions  necessary  to cause the
insurance  company  identified on Schedule A (the "Insurer") to issue the Policy
to the Owner,  and shall take any further  action that may be necessary to cause
the Policy to conform to the  provisions  of this  Agreement.  The parties agree
that the Policy shall be subject to the terms and  conditions of this  Agreement
and of the collateral assignment filed with the Insurer relating to the Policy.

        2. Ownership  Rights.  Except as otherwise  provided  herein,  the Owner
shall  be the  sole  and  absolute  owner of the  Policy  and may  exercise  all
ownership rights granted to the Owner thereunder.


                                     - 16 -

        3. Payment of Annual Premiums.

                  3.1 The Owner  shall pay each  annual  premium  for the Policy
(the  "Premium")  on or before its due date or within the grace period  provided
therefor under the Policy (the "Premium Due Date") as follows:

                           3.1.1 At least ten (10) days  before the  Premium Due
Date, the Owner shall pay the portion of the Premium that would be includable in
the gross  income of the insured for federal  income tax purposes if not paid by
the Insured (the  "Taxable  Portion")  and shall send evidence of its payment to
the Company.

                           3.1.2  Upon  receipt  of  the  Owner's   evidence  of
payment,  the Company promptly shall advance to the Owner the remaining  portion
of the Premium (the "Remaining  Portion"),  or in its discretion the Company may
pay its advance directly to the Insurer.

                           3.1.3 The  obligation  of the  Company to advance the
Remaining  Portion of the Premium under Section  3.1.2 is  conditioned  upon the
Owner's payment of the Taxable Portion of the Premium under Section 3.1.1.

                  3.2 The obligation of the Company to make the annual  payments
provided in Section 3.1 hereof shall be governed by the Employment Agreement.

        4. Proof of  Payment of  Advances.  The  Company  shall,  upon  request,
promptly  furnish the Owner  evidence  of timely  payment of each  advance  paid
directly to the Insurer under Section 3.1.2.

        5.  Collateral  Assignment  of Policies.  To secure the repayment to the
Company of the amounts it advances to the Owner under Section  3.1.2,  the Owner
has,  contemporaneously   herewith,  assigned  the  Policy  to  the  Company  as
collateral,  under the instrument which in all material  respects is the same as
the form attached hereto as Addendum 1. The collateral  assignment of the Policy
to the  Company  hereunder  shall not be  terminated,  altered or amended by the
Owner,  without the express written  consent of the Company.  The parties hereto
agree to take all action necessary to cause the collateral assignment to conform
to the provisions of this Agreement.  In the event of any inconsistency  between
the terms of this  Agreement  and the terms of the  collateral  assignment,  the
terms of this Agreement shall control.

        6.  Limitation  on  Policy  Disposition.  During  the  period  that  the
collateral  assignment  of the Policy is in effect,  the Owner  shall not borrow
from,  pledge,  transfer or assign the Policy and shall not sell,  surrender  or
cancel the Policy, change the beneficiary designation provision or terminate the
dividend  election  without the express  written  consent of the Company,  which
consent shall not be unreasonably withheld.


                                     - 17 -


        7. Policy Proceeds.

                  7.1 Upon the death of the Employee,  the Company and the Owner
shall  promptly take all action  necessary to obtain the death benefit  provided
under the Policy.

                  7.2 The Company shall have the unqualified  right to receive a
portion of the Policy's death benefit equal to the total amount that it advanced
with  respect  to the  Policy  under  Section  3.1.2.  The  balance of the death
benefit,  if any,  shall be paid directly to the  beneficiary  or  beneficiaries
designated by the Owner, in the manner and the amount or amounts provided in the
beneficiary  designation  provision of the Policy.  In no event shall the amount
payable to the Company hereunder with respect to the Policy exceed the amount of
the Policy's death benefit.  The parties agree that the beneficiary  designation
provision of the Policy shall conform to the provisions hereof.

        8. Termination.

                  8.1 This Agreement shall terminate,  without notice,  upon the
surrender of the Policy by the Owner with the written  consent of the Company as
provided in Section 6.

                  8.2  In  addition,  either  the  Owner  or  the  Employee  may
terminate  this  Agreement by written  notice to the other parties hereto at any
time  that the cash  surrender  value of the  Policy at least  equals  the total
amount that the Company has advanced  with  respect to the Policy under  Section
3.1.2.  Such termination  shall be effective as of the date of such notice.  The
Company may not terminate this Agreement.

        9. Release of Policy Collateral.

                  9.1 For sixty (60) days after the date of  termination of this
Agreement,  the Owner  shall have the  option of  obtaining  the  release of the
collateral  assignment of the Policy to the Company. To obtain such release, the
Owner  shall  pay or  cause to be paid to the  Company  an  amount  equal to the
Policy's then cash surrender  value.  Upon receipt of that payment,  the Company
promptly shall release the collateral assignment of the Policy.

                  9.2 If the Owner  fails to exercise  such  option  within such
sixty (60) day period with respect to the Policy,  then the Owner shall transfer
the Policy to the Company.  Thereafter,  neither the Owner,  the  Employee,  nor
their respective heirs, assigns or beneficiaries shall have any further interest
in and to the Policy, either under the terms thereof or under this Agreement.

       10. Insurer.  The Insurer shall be fully  discharged from its obligations
under the Policy by payment of the Policy death  benefit to the  beneficiary  or
beneficiaries  named in the Policy,  subject to the terms and  conditions of the
Policy.  In no event shall the Insurer be considered a party to this  Agreement,
or any modification or amendment hereof. No provision of this Agreement,  nor of
any  modification  or  amendment  hereof,  shall  in  any  way be  construed  as
enlarging,  changing,  varying, or in any other way affecting the obligations of
the  Insurer  as  expressly  provided  in  the  Policy,  except  insofar  as the
provisions  hereof  are made a part of the Policy by the  collateral  assignment
executed by the Owner and filed with the Insurer in connection herewith.

                                     - 18 -


       11. Amendment.  This  Agreement may not be amended,  altered or modified,
except by a written instrument signed by the parties hereto, or their respective
successors or assigns,  and may not be otherwise  terminated  except as provided
herein.

       12. Succession.  This Agreement  shall be binding upon and shall inure to
the benefit of the Company and its successors and assigns, and the Employee, the
Owner and their respective successors, assigns, heirs, executors, administrators
and beneficiaries.

       13. Notices.  Any notice,  consent or demand  required or permitted to be
given under the provisions of this Agreement  shall be in writing,  and shall be
signed by the party giving or making the same. If such notice, consent or demand
is mailed to a party hereto,  it shall be sent by United States  certified mail,
postage  prepaid,  addressed to such party's last known  address as shown on the
records of the  Company.  The date of such  mailing  shall be deemed the date of
notice, consent or demand.

       14.  Captions.  The  captions of the  Sections  herein are  inserted as a
matter of convenience of reference only and in no way define,  limit or describe
the scope of this Agreement or any provisions hereof.

       15.  Governing  Law.  This  Agreement,  and  the  rights  of the  parties
hereunder,  shall be governed by and construed in  accordance  with the internal
laws  of  the  Commonwealth  of  Pennsylvania  and  shall  be  enforced  in  the
Commonwealth of Pennsylvania.

       16. Trust Agreement. Recognizing that the Owner is a trustee and that the
Policy is held in trust,  the  parties  agree  that the terms of this  Agreement
shall  control  in the event of any  inconsistencies  between  the terms of this
Agreement and the terms of the trust agreement.




                                     - 19 -

         IN WITNESS  WHEREOF,  the  Company  has  caused  this  Agreement  to be
executed  by its duly  authorized  officer and the  Employee  and the Owner have
hereunto set their hands and seals on the dates set forth below.


Attest:                      PMA CAPITAL CORPORATION


_____________________        By: _________________________




                             __________________________________
                             FREDERICK W. ANTON, III


                             IRREVOCABLE DEED OF TRUST
                             OF FREDERICK W. ANTON, III,
                             DATED MAY 11, 1999



                             By: _________________________
                             Frank G. Cooper, Trustee









                                     - 20 -

                                   Schedule A

         The  following  life  insurance  policy  is  subject  to this 1999 John
Hancock Split-Dollar Life Insurance Agreement:

                                                               Approximate
         Insurer                                          Initial Face Amount
         -------                                          -------------------
John Hancock Mutual Life Insurance Company                    $2,144,457













                                     - 21 -

                                  APPENDIX "C"

                                1999 PACIFIC LIFE
                        SPLIT-DOLLAR INSURANCE AGREEMENT

         This SPLIT-DOLLAR  INSURANCE AGREEMENT (the "Agreement") made as of the
__th day of May, 1999 by and  among PMA  Capital  Corporation  (the  "Company"),
Frederick W. Anton,  III, an employee of the Company (the  "Employee"),  and the
Irrevocable  Deed of Trust of Frederick W. Anton,  III,  dated  October 25, 1995
(the "Owner").


                                R E C I T A L S
                                - - - - - - - -

         WHEREAS,  the Employee has rendered  loyal and valuable  service to the
Company; and

         WHEREAS,  the Owner  presently  owns a policy which insures the life of
the  Employee  and  which  is  not  subject  to a  split-dollar  life  insurance
arrangement (the "Existing Policy"); and

         WHEREAS,  in the  Employment  Agreement  dated as of May 1,  1999  (the
"Employment Agreement"), the Company agreed to provide life insurance protection
for the  Employee  by  advancing  a  portion  of the  annual  premiums  for such
protection  pursuant to a split-dollar  life insurance  arrangement on the terms
and conditions contained herein; and

         WHEREAS,  the Owner, the Company, and the Employee have agreed that the
Owner will  exchange  the  Existing  Policy for a new policy of insurance on the
life of the Employee in  accordance  with  Section 1035 of the Internal  Revenue
Code of 1986, as amended; and

         WHEREAS,  the Owner has applied for the new policy listed on Schedule A
attached to this Agreement  (the "Policy") and, upon its issuance,  will possess
all incidents of ownership in and to the Policy; and

         WHEREAS,  the parties desire to enter into this split-dollar  agreement
with respect to the Policy to provide that the Company will advance a portion of
the annual  premiums due on the Policy on the terms and  conditions  hereinafter
set forth,  the Owner  will  collaterally  assign  the Policy to the  Company to
secure the  repayment  of the  amounts  advanced,  and the  Company  will have a
security interest in the aggregate cash surrender value of the Policy and in the
proceeds thereof;

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

        1. Policy.  The parties  have taken the actions  necessary  to cause the
insurance  company  identified on Schedule A (the "Insurer") to issue the Policy
to the Owner,  and shall take any further  action that may be necessary to cause
the Policy to conform to the  provisions  of this


                                     - 22 -

Agreement.  The parties  agree that the Policy shall be subject to the terms and
conditions of this  Agreement and of the  collateral  assignment  filed with the
Insurer relating to the Policy.

        2. Ownership  Rights.  Except as otherwise  provided  herein,  the Owner
shall  be the  sole  and  absolute  owner of the  Policy  and may  exercise  all
ownership rights granted to the Owner thereunder.

        3. Payment of Annual Premiums.

                  3.1 The Owner  shall pay each  annual  premium  for the Policy
(the  "Premium")  on or before its due date or within the grace period  provided
therefor under the Policy (the "Premium Due Date") as follows:

                           3.1.1 At least ten (10) days  before the  Premium Due
Date, the Owner shall pay the portion of the Premium that would be includable in
the gross  income of the insured for federal  income tax purposes if not paid by
the Insured (the  "Taxable  Portion")  and shall send evidence of its payment to
the Company.

                           3.1.2  Upon  receipt  of  the  Owner's   evidence  of
payment,  the Company promptly shall advance to the Owner the remaining  portion
of the Premium (the "Remaining  Portion"),  or in its discretion the Company may
pay its advance directly to the Insurer.

                           3.1.3 The  obligation  of the  Company to advance the
Remaining  Portion of the Premium under Section  3.1.2 is  conditioned  upon the
Owner's payment of the Taxable Portion of the Premium under Section 3.1.1.

                  3.2 The obligation of the Company to make the annual  payments
provided in Section 3.1 hereof shall be governed by the Employment Agreement.

        4. Proof of  Payment of  Advances.  The  Company  shall,  upon  request,
promptly  furnish the Owner  evidence  of timely  payment of each  advance  paid
directly to the Insurer under Section 3.1.2.

        5.  Collateral  Assignment  of Policies.  To secure the repayment to the
Company of the amounts it advances to the Owner under Section  3.1.2,  the Owner
has,  contemporaneously   herewith,  assigned  the  Policy  to  the  Company  as
collateral,  under the instrument which in all material  respects is the same as
the form attached hereto as Addendum 1. The collateral  assignment of the Policy
to the  Company  hereunder  shall not be  terminated,  altered or amended by the
Owner,  without the express written  consent of the Company.  The parties hereto
agree to take all action necessary to cause the collateral assignment to conform
to the provisions of this Agreement.  In the event of any inconsistency  between
the terms of this  Agreement  and the terms of the  collateral  assignment,  the
terms of this Agreement shall control.

        6.  Limitation  on  Policy  Disposition.  During  the  period  that  the
collateral  assignment  of the Policy is in effect,  the Owner  shall not borrow
from,  pledge,  transfer or assign the Policy and shall not sell,  surrender  or
cancel the Policy, change the beneficiary designation provision or


                                     - 23 -


terminate  the  dividend  election  without the express  written  consent of the
Company, which consent shall not be unreasonably withheld.

        7. Policy Proceeds.

                  7.1 Upon the death of the Employee,  the Company and the Owner
shall  promptly take all action  necessary to obtain the death benefit  provided
under the Policy.

                  7.2 The Company shall have the unqualified  right to receive a
portion  of the  Policy's  death  benefit  equal to the  total  amounts  that it
advanced with respect to the Policy under Section 3.1.2,  but such amounts shall
not  include  any amount  that was  transferred  by the Owner from the  Existing
Policy to the Policy.  The balance of the death  benefit,  if any, shall be paid
directly to the  beneficiary or  beneficiaries  designated by the Owner,  in the
manner  and the  amount  or  amounts  provided  in the  beneficiary  designation
provision  of the Policy.  In no event  shall the amount  payable to the Company
hereunder  with respect to the Policy  exceed the amount of the  Policy's  death
benefit.  The parties agree that the  beneficiary  designation  provision of the
Policy shall conform to the provisions hereof.

        8. Termination.

                  8.1 This Agreement shall terminate,  without notice,  upon the
surrender of the Policy by the Owner with the written  consent of the Company as
provided in Section 6.

                  8.2  In  addition,  either  the  Owner  or  the  Employee  may
terminate  this  Agreement by written  notice to the other parties hereto at any
time  that the cash  surrender  value of the  Policy at least  equals  the total
amount that the Company has advanced  with  respect to the Policy under  Section
3.1.2.  Such termination  shall be effective as of the date of such notice.  The
Company may not terminate this Agreement.

        9. Release of Policy Collateral.

                  9.1 For sixty (60) days after the date of  termination of this
Agreement,  the Owner  shall have the  option of  obtaining  the  release of the
collateral  assignment of the Policy to the Company. To obtain such release, the
Owner shall pay or cause to be paid to the Company an amount  equal to the total
amount that the Company has advanced  with  respect to the Policy under  Section
3.1.2 together with any cash surrender value attributable  thereto. Upon receipt
of that payment, the Company promptly shall release the collateral assignment of
the Policy.

                  9.2 If the Owner  fails to exercise  such  option  within such
sixty (60) day period with respect to the Policy,  then the Owner shall transfer
the Policy to the Company.  Thereafter,  neither the Owner,  the  Employee,  nor
their respective heirs, assigns or beneficiaries shall have any further interest
in and to the Policy, either under the terms thereof or under this Agreement.

       10. Insurer.  The Insurer shall be fully  discharged from its obligations
under the Policy by payment of the Policy death  benefit to the  beneficiary  or
beneficiaries  named in the Policy, subject to the terms and conditions of the


                                     - 24 -


Policy.  In no event shall the Insurer be considered a party to this  Agreement,
or any modification or amendment hereof. No provision of this Agreement,  nor of
any  modification  or  amendment  hereof,  shall  in  any  way be  construed  as
enlarging,  changing,  varying, or in any other way affecting the obligations of
the  Insurer  as  expressly  provided  in  the  Policy,  except  insofar  as the
provisions  hereof  are made a part of the Policy by the  collateral  assignment
executed by the Owner and filed with the Insurer in connection herewith.

       11. Amendment.  This  Agreement may not be amended,  altered or modified,
except by a written instrument signed by the parties hereto, or their respective
successors or assigns,  and may not be otherwise  terminated  except as provided
herein.

       12. Succession.  This Agreement  shall be binding upon and shall inure to
the benefit of the Company and its successors and assigns, and the Employee, the
Owner and their respective successors, assigns, heirs, executors, administrators
and beneficiaries.

       13. Notices.  Any notice,  consent or demand  required or permitted to be
given under the provisions of this Agreement  shall be in writing,  and shall be
signed by the party giving or making the same. If such notice, consent or demand
is mailed to a party hereto,  it shall be sent by United States  certified mail,
postage  prepaid,  addressed to such party's last known  address as shown on the
records of the  Company.  The date of such  mailing  shall be deemed the date of
notice, consent or demand.

       14.  Captions.  The  captions of the  Sections  herein are  inserted as a
matter of convenience of reference only and in no way define,  limit or describe
the scope of this Agreement or any provisions hereof.

       15.  Governing  Law.  This  Agreement,  and  the  rights  of the  parties
hereunder,  shall be governed by and construed in  accordance  with the internal
laws  of  the  Commonwealth  of  Pennsylvania  and  shall  be  enforced  in  the
Commonwealth of Pennsylvania.

       16. Trust Agreement. Recognizing that the Owner is a trustee and that the
Policy is held in trust,  the  parties  agree  that the terms of this  Agreement
shall  control  in the event of any  inconsistencies  between  the terms of this
Agreement and the terms of the trust agreement.





                                     - 25 -


         IN WITNESS  WHEREOF,  the  Company  has  caused  this  Agreement  to be
executed  by its duly  authorized  officer and the  Employee  and the Owner have
hereunto set their hands and seals on the dates set forth below.


Attest:                      PMA CAPITAL CORPORATION


_____________________        By: _________________________




                             __________________________________
                             FREDERICK W. ANTON, III


                             IRREVOCABLE DEED OF TRUST
                             OF FREDERICK W. ANTON, III,
                             DATED OCTOBER 25, 1995



                             By: _________________________
                             Frank G. Cooper, Trustee




















                                     - 26 -



                                   Schedule A

         The  following  life  insurance  policy is subject to this 1999 Pacific
Life Split-Dollar Life Insurance Agreement:


                                                      Approximate
         Insurer                                 Initial Face Amount
         -------                                 -------------------

Pacific Life Insurance Co.                            $1,567,748
















                                     - 27 -

EX-10.14

                                                                   Exhibit 10.14


                                 Amendment No. 1
                                     to the
                 Amended and Restated 1991 Equity Incentive Plan


         1. Section 13 of the 1991 Equity  Incentive Plan (the "Plan") is hereby
amended in its entirety to read as follows:

                  13.      Withholding.

                     Whenever  the  Company  proposes or is required to issue or
                  transfer  shares of Class A Stock under the Plan,  the Company
                  shall have the right to require the  recipient to remit to the
                  Company an amount sufficient to satisfy any federal,  state or
                  local  withholding tax  requirements  prior to the delivery of
                  any  certificate  for  such  shares.  If  and  to  the  extent
                  authorized  by the  Committee,  in its  sole  discretion,  the
                  Committee  may require an optionee or permit an  optionee,  by
                  means of a form of election to be prescribed by the Committee,
                  to have  shares  of  Class  A Stock  that  are  acquired  upon
                  exercise  of an Option  withheld  by the  Company or to tender
                  other  shares  of  Class A Stock or  other  securities  of the
                  Company  owned by the  optionee  to the Company at the time of
                  exercise  of an  Option to pay the  amount  of tax that  would
                  otherwise  be required by law to be withheld by the Company as
                  a result of any  exercise  of an  Option.  Any  securities  so
                  withheld or tendered will be valued by the Committee as of the
                  date of exercise.

         2. Section 14 of the Plan is hereby  amended in its entirety to read as
follows:

                  14.      Non-Assignability.

                     (a)  Incentive  Stock  Options.   No  Option  which  is  an
                  Incentive  Stock Option shall be assignable or transferable by
                  the optionee  otherwise than by will or by the laws of descent
                  and distribution and during the lifetime of the optionee, such
                  Incentive  Stock  Option  shall  be  exercisable  only  by the
                  optionee or by his guardian or legal representative.

                     (b)  Nonqualified  Stock  Options.  No  Option  which  is a
                  Nonqualified  Stock Option shall be assignable or transferable
                  by the  optionee  except by will or by the laws of descent and
                  distribution  or by such  other  means  as the  Committee  may
                  approve,  unless such means would be  prohibited by Rule 16b-3
                  under the Exchange  Act.  During the life of the optionee such
                  Nonqualified  Stock Option shall be  exercisable  only by such
                  person or by such person's  guardian or legal  representative.
                  Notwithstanding  the  restrictions  set  forth  above  in this
                  Section  14(b),  the Committee or its designee  shall have the
                  authority, in its sole discretion, to grant (or to sanction by
                  way of  amendment  of an existing  grant)  Nonqualified  Stock
                  Options that may be  transferred  by the  optionee  during his
                  lifetime to any "family  member" of the optionee,  which shall
                  include a child, stepchild,  grandchild,  parent,  stepparent,
                  grandparent,  spouse, former spouse, siblings,  niece, nephew,
                  mother-in-law,   father-in-law,  son-in-law,  daughter-in-law,



                  brother-in-law    or   sister-in-law,    including    adoptive
                  relationships,  any person  sharing the  optionee's  household
                  (other  than a tenant  or  employee),  a trust in which  these
                  persons  have  more  than 50% of the  beneficial  interest,  a
                  foundation in which these  persons (or the  optionee)  control
                  the management of assets,  and any other entity in which these
                  persons  (or the  optionee)  own more  than 50% of the  voting
                  interests. No Nonqualified Stock Option may be transferred for
                  value.  The following  transfers are not prohibited  transfers
                  for value: (i) a transfer under a domestic  relations order in
                  settlement of marital property rights;  and (ii) a transfer to
                  an entity in which more than 50% of the voting  interests  are
                  owned by family  members (or the  optionee) in exchange for an
                  interest in that entity.  In the case of a grant,  the written
                  documentation  containing  the  terms and  conditions  of such
                  Nonqualified Stock Option shall state that it is transferable,
                  and in the case of an  amendment  to an existing  grant,  such
                  amendment  shall be in writing.  A  Nonqualified  Stock Option
                  transferred as  contemplated  in this Section 14(b) may not be
                  subsequently   transferred  by  the  transferee   (except  for
                  transfers back to the original optionee) except by will or the
                  laws of descent  and  distribution  and shall  continue  to be
                  governed  by and subject to the terms and  limitations  of the
                  Plan and the relevant  grant.  However,  the  Committee or its
                  designee, in its sole discretion at the time that the transfer
                  is  approved,  may  alter the  terms  and  limitations  of the
                  relevant  grant  and  establish  such  additional   terms  and
                  conditions as it shall deem appropriate.



Date of Adoption by the Board of  Directors - December 14, 1991
Date of Approval of  Shareholders - May 4, 1992
Date of Amendment and Restatement by Stock Option Committee - April 12, 1995
Date of Amendment No. 1 by Stock Option  Committee -- May 5, 1999

EX-10.16

                                                                   Exhibit 10.16

                                 Amendment No. 1
                                     to the
                 Amended and Restated 1993 Equity Incentive Plan


         1. Section 13 of the 1993 Equity  Incentive Plan (the "Plan") is hereby
amended in its entirety to read as follows:

                  13.      Withholding.

                     Whenever  the  Company  proposes or is required to issue or
                  transfer  shares of Class A Stock under the Plan,  the Company
                  shall have the right to require the  recipient to remit to the
                  Company an amount sufficient to satisfy any federal,  state or
                  local  withholding tax  requirements  prior to the delivery of
                  any  certificate  for  such  shares.  If  and  to  the  extent
                  authorized  by the  Committee,  in its  sole  discretion,  the
                  Committee  may require an optionee or permit an  optionee,  by
                  means of a form of election to be prescribed by the Committee,
                  to have  shares  of  Class  A Stock  that  are  acquired  upon
                  exercise  of an Option  withheld  by the  Company or to tender
                  other  shares  of  Class A Stock or  other  securities  of the
                  Company  owned by the  optionee  to the Company at the time of
                  exercise  of an  Option to pay the  amount  of tax that  would
                  otherwise  be required by law to be withheld by the Company as
                  a result of any  exercise  of an  Option.  Any  securities  so
                  withheld or tendered will be valued by the Committee as of the
                  date of exercise.

         2. Section 14 of the Plan is hereby  amended in its entirety to read as
follows:

                  14.      Non-Assignability.

                     (a)  Incentive  Stock  Options.   No  Option  which  is  an
                  Incentive  Stock Option shall be assignable or transferable by
                  the optionee  otherwise than by will or by the laws of descent
                  and distribution and during the lifetime of the optionee, such
                  Incentive  Stock  Option  shall  be  exercisable  only  by the
                  optionee or by his guardian or legal representative.

                     (b)  Nonqualified  Stock  Options.  No  Option  which  is a
                  Nonqualified  Stock Option shall be assignable or transferable
                  by the  optionee  except by will or by the laws of descent and
                  distribution  or by such  other  means  as the  Committee  may
                  approve,  unless such means would be  prohibited by Rule 16b-3
                  under the Exchange  Act.  During the life of the optionee such
                  Nonqualified  Stock Option shall be  exercisable  only by such
                  person or by such person's  guardian or legal  representative.
                  Notwithstanding  the  restrictions  set  forth  above  in this
                  Section  14(b),  the Committee or its designee  shall have the
                  authority, in its sole discretion, to grant (or to sanction by
                  way of  amendment  of an existing  grant)  Nonqualified  Stock
                  Options that may be  transferred  by the  optionee  during his
                  lifetime to any "family  member" of the optionee,  which shall
                  include a child, stepchild,  grandchild,  parent,  stepparent,
                  grandparent,  spouse, former spouse, siblings,  niece, nephew,
                  mother-in-law,   father-in-law,  son-in-law,  daughter-in-law,



                  brother-in-law    or   sister-in-law,    including    adoptive
                  relationships,  any person  sharing the  optionee's  household
                  (other  than a tenant  or  employee),  a trust in which  these
                  persons  have  more  than 50% of the  beneficial  interest,  a
                  foundation in which these  persons (or the  optionee)  control
                  the management of assets,  and any other entity in which these
                  persons  (or the  optionee)  own more  than 50% of the  voting
                  interests. No Nonqualified Stock Option may be transferred for
                  value.  The following  transfers are not prohibited  transfers
                  for value: (i) a transfer under a domestic  relations order in
                  settlement of marital property rights;  and (ii) a transfer to
                  an entity in which more than 50% of the voting  interests  are
                  owned by family  members (or the  optionee) in exchange for an
                  interest in that entity.  In the case of a grant,  the written
                  documentation  containing  the  terms and  conditions  of such
                  Nonqualified Stock Option shall state that it is transferable,
                  and in the case of an  amendment  to an existing  grant,  such
                  amendment  shall be in writing.  A  Nonqualified  Stock Option
                  transferred as  contemplated  in this Section 14(b) may not be
                  subsequently   transferred  by  the  transferee   (except  for
                  transfers back to the original optionee) except by will or the
                  laws of descent  and  distribution  and shall  continue  to be
                  governed  by and subject to the terms and  limitations  of the
                  Plan and the relevant  grant.  However,  the  Committee or its
                  designee, in its sole discretion at the time that the transfer
                  is  approved,  may  alter the  terms  and  limitations  of the
                  relevant  grant  and  establish  such  additional   terms  and
                  conditions as it shall deem appropriate.



Date of Adoption by the Board of Directors - February 23, 1993
Date of Approval of Shareholders - April 26, 1993
Date of Amendment and Restatement by Stock Option Committee - April 12, 1995
Date of Amendment No. 1 by Stock Option Committee -- May 5, 1999

EX-10.18

                                                                   Exhibit 10.18

                                 Amendment No. 1
                                     to the
                 Amended and Restated 1994 Equity Incentive Plan


         1. Section 13 of the 1994 Equity  Incentive Plan (the "Plan") is hereby
amended in its entirety to read as follows:

                  13.      Withholding.

                     Whenever  the  Company  proposes or is required to issue or
                  transfer  shares of Class A Stock under the Plan,  the Company
                  shall have the right to require the  recipient to remit to the
                  Company an amount sufficient to satisfy any federal,  state or
                  local  withholding tax  requirements  prior to the delivery of
                  any  certificate  for  such  shares.  If  and  to  the  extent
                  authorized  by the  Committee,  in its  sole  discretion,  the
                  Committee  may require an optionee or permit an  optionee,  by
                  means of a form of election to be prescribed by the Committee,
                  to have  shares  of  Class  A Stock  that  are  acquired  upon
                  exercise  of an Option  withheld  by the  Company or to tender
                  other  shares  of  Class A Stock or  other  securities  of the
                  Company  owned by the  optionee  to the Company at the time of
                  exercise  of an  Option to pay the  amount  of tax that  would
                  otherwise  be required by law to be withheld by the Company as
                  a result of any  exercise  of an  Option.  Any  securities  so
                  withheld or tendered will be valued by the Committee as of the
                  date of exercise.

         2. Section 14 of the Plan is hereby  amended in its entirety to read as
follows:

                  14.      Non-Assignability.

                     (a)  Incentive  Stock  Options.   No  Option  which  is  an
                  Incentive  Stock Option shall be assignable or transferable by
                  the optionee  otherwise than by will or by the laws of descent
                  and distribution and during the lifetime of the optionee, such
                  Incentive  Stock  Option  shall  be  exercisable  only  by the
                  optionee or by his guardian or legal representative.

                     (b)  Nonqualified  Stock  Options.  No  Option  which  is a
                  Nonqualified  Stock Option shall be assignable or transferable
                  by the  optionee  except by will or by the laws of descent and
                  distribution  or by such  other  means  as the  Committee  may
                  approve,  unless such means would be  prohibited by Rule 16b-3
                  under the Exchange  Act.  During the life of the optionee such
                  Nonqualified  Stock Option shall be  exercisable  only by such
                  person or by such person's  guardian or legal  representative.
                  Notwithstanding  the  restrictions  set  forth  above  in this
                  Section  14(b),  the Committee or its designee  shall have the
                  authority, in its sole discretion, to grant (or to sanction by
                  way of  amendment  of an existing  grant)  Nonqualified  Stock
                  Options that may be  transferred  by the  optionee  during his
                  lifetime to any "family  member" of the optionee,  which shall
                  include a child, stepchild,  grandchild,  parent,  stepparent,
                  grandparent,  spouse, former spouse, siblings,  niece, nephew,
                  mother-in-law,   father-in-law,  son-in-law,  daughter-in-law,



                  brother-in-law    or   sister-in-law,    including    adoptive
                  relationships,  any person  sharing the  optionee's  household
                  (other  than a tenant  or  employee),  a trust in which  these
                  persons  have  more  than 50% of the  beneficial  interest,  a
                  foundation in which these  persons (or the  optionee)  control
                  the management of assets,  and any other entity in which these
                  persons  (or the  optionee)  own more  than 50% of the  voting
                  interests. No Nonqualified Stock Option may be transferred for
                  value.  The following  transfers are not prohibited  transfers
                  for value: (i) a transfer under a domestic  relations order in
                  settlement of marital property rights;  and (ii) a transfer to
                  an entity in which more than 50% of the voting  interests  are
                  owned by family  members (or the  optionee) in exchange for an
                  interest in that entity.  In the case of a grant,  the written
                  documentation  containing  the  terms and  conditions  of such
                  Nonqualified Stock Option shall state that it is transferable,
                  and in the case of an  amendment  to an existing  grant,  such
                  amendment  shall be in writing.  A  Nonqualified  Stock Option
                  transferred as  contemplated  in this Section 14(b) may not be
                  subsequently   transferred  by  the  transferee   (except  for
                  transfers back to the original optionee) except by will or the
                  laws of descent  and  distribution  and shall  continue  to be
                  governed  by and subject to the terms and  limitations  of the
                  Plan and the relevant  grant.  However,  the  Committee or its
                  designee, in its sole discretion at the time that the transfer
                  is  approved,  may  alter the  terms  and  limitations  of the
                  relevant  grant  and  establish  such  additional   terms  and
                  conditions as it shall deem appropriate.




Date of Adoption by the Board of Directors - January 25, 1994
Date of Approval of Shareholders - April 25, 1994
Date of Amendment and Restatement by Stock Option Committee - April 12, 1995
Date of Amendment No. 1 by Stock Option Committee -- May 5, 1999

EX-10.20

                                                                   Exhibit 10.20

                                 Amendment No. 1
                                     to the
                           1995 Equity Incentive Plan


         1. Section 13 of the 1995 Equity  Incentive Plan (the "Plan") is hereby
amended in its entirety to read as follows:

                  13.      Withholding.

                     Whenever  the  Company  proposes or is required to issue or
                  transfer  shares of Class A Stock under the Plan,  the Company
                  shall have the right to require the  recipient to remit to the
                  Company an amount sufficient to satisfy any federal,  state or
                  local  withholding tax  requirements  prior to the delivery of
                  any  certificate  for  such  shares.  If  and  to  the  extent
                  authorized  by the  Committee,  in its  sole  discretion,  the
                  Committee  may require an optionee or permit an  optionee,  by
                  means of a form of election to be prescribed by the Committee,
                  to have  shares  of  Class  A Stock  that  are  acquired  upon
                  exercise  of an Option  withheld  by the  Company or to tender
                  other  shares  of  Class A Stock or  other  securities  of the
                  Company  owned by the  optionee  to the Company at the time of
                  exercise  of an  Option to pay the  amount  of tax that  would
                  otherwise  be required by law to be withheld by the Company as
                  a result of any  exercise  of an  Option.  Any  securities  so
                  withheld or tendered will be valued by the Committee as of the
                  date of exercise.

         2. Section 14 of the Plan is hereby  amended in its entirety to read as
follows:

                  14.      Non-Assignability.

                     (a)  Incentive  Stock  Options.   No  Option  which  is  an
                  Incentive  Stock Option shall be assignable or transferable by
                  the optionee  otherwise than by will or by the laws of descent
                  and distribution and during the lifetime of the optionee, such
                  Incentive  Stock  Option  shall  be  exercisable  only  by the
                  optionee or by his guardian or legal representative.

                     (b)  Nonqualified  Stock  Options.  No  Option  which  is a
                  Nonqualified  Stock Option shall be assignable or transferable
                  by the  optionee  except by will or by the laws of descent and
                  distribution  or by such  other  means  as the  Committee  may
                  approve,  unless such means would be  prohibited by Rule 16b-3
                  under the Exchange  Act.  During the life of the optionee such
                  Nonqualified  Stock Option shall be  exercisable  only by such
                  person or by such person's  guardian or legal  representative.
                  Notwithstanding  the  restrictions  set  forth  above  in this
                  Section  14(b),  the Committee or its designee  shall have the
                  authority, in its sole discretion, to grant (or to sanction by
                  way of  amendment  of an existing  grant)  Nonqualified  Stock
                  Options that may be  transferred  by the  optionee  during his
                  lifetime to any "family  member" of the optionee,  which shall
                  include a child, stepchild,  grandchild,  parent,  stepparent,
                  grandparent,  spouse, former spouse, siblings,  niece, nephew,
                  mother-in-law,   father-in-law,  son-in-law,  daughter-in-law,



                  brother-in-law    or   sister-in-law,    including    adoptive
                  relationships,  any person  sharing the  optionee's  household
                  (other  than a tenant  or  employee),  a trust in which  these
                  persons  have  more  than 50% of the  beneficial  interest,  a
                  foundation in which these  persons (or the  optionee)  control
                  the management of assets,  and any other entity in which these
                  persons  (or the  optionee)  own more  than 50% of the  voting
                  interests. No Nonqualified Stock Option may be transferred for
                  value.  The following  transfers are not prohibited  transfers
                  for value: (i) a transfer under a domestic  relations order in
                  settlement of marital property rights;  and (ii) a transfer to
                  an entity in which more than 50% of the voting  interests  are
                  owned by family  members (or the  optionee) in exchange for an
                  interest in that entity.  In the case of a grant,  the written
                  documentation  containing  the  terms and  conditions  of such
                  Nonqualified Stock Option shall state that it is transferable,
                  and in the case of an  amendment  to an existing  grant,  such
                  amendment  shall be in writing.  A  Nonqualified  Stock Option
                  transferred as  contemplated  in this Section 14(b) may not be
                  subsequently   transferred  by  the  transferee   (except  for
                  transfers back to the original optionee) except by will or the
                  laws of descent  and  distribution  and shall  continue  to be
                  governed  by and subject to the terms and  limitations  of the
                  Plan and the relevant  grant.  However,  the  Committee or its
                  designee, in its sole discretion at the time that the transfer
                  is  approved,  may  alter the  terms  and  limitations  of the
                  relevant  grant  and  establish  such  additional   terms  and
                  conditions as it shall deem appropriate.



Date of Adoption by the Board of Directors - February 28, 1995
Date of Approval of Shareholders - April 24, 1995
Date of Amendment by Stock Option Committee - May 5, 1999

EX-10.22

                                                                   Exhibit 10.22

                                 Amendment No. 1
                                     to the
                           1996 Equity Incentive Plan


         1. Section 13 of the 1996 Equity  Incentive Plan (the "Plan") is hereby
amended in its entirety to read as follows:

                  13.      Withholding.

                     Whenever  the  Company  proposes or is required to issue or
                  transfer  shares of Class A Stock under the Plan,  the Company
                  shall have the right to require the  recipient to remit to the
                  Company an amount sufficient to satisfy any federal,  state or
                  local  withholding tax  requirements  prior to the delivery of
                  any  certificate  for  such  shares.  If  and  to  the  extent
                  authorized  by the  Committee,  in its  sole  discretion,  the
                  Committee  may require an optionee or permit an  optionee,  by
                  means of a form of election to be prescribed by the Committee,
                  to have  shares  of  Class  A Stock  that  are  acquired  upon
                  exercise  of an Option  withheld  by the  Company or to tender
                  other  shares  of  Class A Stock or  other  securities  of the
                  Company  owned by the  optionee  to the Company at the time of
                  exercise  of an  Option to pay the  amount  of tax that  would
                  otherwise  be required by law to be withheld by the Company as
                  a result of any  exercise  of an  Option.  Any  securities  so
                  withheld or tendered will be valued by the Committee as of the
                  date of exercise.

         2. Section 14 of the Plan is hereby  amended in its entirety to read as
follows:

                  14.      Non-Assignability.

                     (a)  Incentive  Stock  Options.   No  Option  which  is  an
                  Incentive  Stock Option shall be assignable or transferable by
                  the optionee  otherwise than by will or by the laws of descent
                  and distribution and during the lifetime of the optionee, such
                  Incentive  Stock  Option  shall  be  exercisable  only  by the
                  optionee or by his guardian or legal representative.

                     (b)  Nonqualified  Stock  Options.  No  Option  which  is a
                  Nonqualified  Stock Option shall be assignable or transferable
                  by the  optionee  except by will or by the laws of descent and
                  distribution  or by such  other  means  as the  Committee  may
                  approve,  unless such means would be  prohibited by Rule 16b-3
                  under the Exchange  Act.  During the life of the optionee such
                  Nonqualified  Stock Option shall be  exercisable  only by such
                  person or by such person's  guardian or legal  representative.
                  Notwithstanding  the  restrictions  set  forth  above  in this
                  Section  14(b),  the Committee or its designee  shall have the
                  authority, in its sole discretion, to grant (or to sanction by
                  way of  amendment  of an existing  grant)  Nonqualified  Stock
                  Options that may be  transferred  by the  optionee  during his
                  lifetime to any "family  member" of the optionee,  which shall
                  include a child, stepchild,  grandchild,  parent,  stepparent,
                  grandparent,  spouse, former spouse, siblings,  niece, nephew,
                  mother-in-law,   father-in-law,  son-in-law,  daughter-in-law,



                  brother-in-law    or   sister-in-law,    including    adoptive
                  relationships,  any person  sharing the  optionee's  household
                  (other  than a tenant  or  employee),  a trust in which  these
                  persons  have  more  than 50% of the  beneficial  interest,  a
                  foundation in which these  persons (or the  optionee)  control
                  the management of assets,  and any other entity in which these
                  persons  (or the  optionee)  own more  than 50% of the  voting
                  interests. No Nonqualified Stock Option may be transferred for
                  value.  The following  transfers are not prohibited  transfers
                  for value: (i) a transfer under a domestic  relations order in
                  settlement of marital property rights;  and (ii) a transfer to
                  an entity in which more than 50% of the voting  interests  are
                  owned by family  members (or the  optionee) in exchange for an
                  interest in that entity.  In the case of a grant,  the written
                  documentation  containing  the  terms and  conditions  of such
                  Nonqualified Stock Option shall state that it is transferable,
                  and in the case of an  amendment  to an existing  grant,  such
                  amendment  shall be in writing.  A  Nonqualified  Stock Option
                  transferred as  contemplated  in this Section 14(b) may not be
                  subsequently   transferred  by  the  transferee   (except  for
                  transfers back to the original optionee) except by will or the
                  laws of descent  and  distribution  and shall  continue  to be
                  governed  by and subject to the terms and  limitations  of the
                  Plan and the relevant  grant.  However,  the  Committee or its
                  designee, in its sole discretion at the time that the transfer
                  is  approved,  may  alter the  terms  and  limitations  of the
                  relevant  grant  and  establish  such  additional   terms  and
                  conditions as it shall deem appropriate.




Date of Adoption by the Board of Directors - February 27, 1996
Date of Approval of Shareholders - April 22, 1996
Date of Amendment by Stock Option Committee - May 5, 1999

EX-10.23

                                                                   Exhibit 10.23

                            PMA CAPITAL CORPORATION

                           1999 EQUITY INCENTIVE PLAN

1. Purpose.

     The purpose of the PMA Capital Corporation 1999 Equity Incentive Plan (the
"Plan") is to enhance the ability of PMA Capital Corporation (the "Company") and
any subsidiaries to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to such
personnel and to promote the success of the Company. To accomplish these
purposes, the Plan provides a means whereby employees of the Company and its
subsidiaries may receive stock options to purchase the Company's Class A Common
Stock ("Options").

2. Administration.

     (a) Composition of the Committee. The Plan shall be administered by a
Committee of the Board of Directors (the "Committee"). The number of members of
the Committee and their qualifications shall at all times satisfy the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") and Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Board of Directors shall have the authority from time
to time to remove all members of the Committee and thereafter directly
administer the Plan.

     (b) Authority of the Committee. The Committee shall have full and final
authority, in its sole discretion, to interpret the provisions of the Plan and
to decide all questions of fact arising in its application; to determine the
employees to whom awards shall be made and the amount, size and terms of each
such award; to determine the time when awards shall be granted; and to make all
other determinations necessary or advisable for the administration of the Plan.
All decisions, determinations and interpretations of the Committee shall be
final and binding on all optionees and all other holders of Options granted
under the Plan. No power or authority delegated by the Committee to a designee
hereunder may be exercised to affect the terms and conditions of an award made
to anyone subject to the requirements of Section 16(b) of the Exchange Act or
with respect to matters which have been reserved to the Board of Directors under
Pennsylvania law.

     (c) Authority of the Board of Directors. Notwithstanding anything to the
contrary set forth in the Plan, all authority granted hereunder to the Committee
may be exercised at any time and from time to time by the Board of Directors at
its election. All decisions, determinations and interpretations of the Board of
Directors shall be final and binding on all optionees and all other holders of
Options granted under the Plan.

3. Stock Subject to the Plan.

     Subject to Section 16 hereof, the shares that may be issued under the Plan
shall not exceed in the aggregate 850,000 shares of Class A Common Stock of the
Company (the "Class A Stock"). Such shares may be authorized and unissued shares
or shares issued and subsequently reacquired by the Company. Except as otherwise
provided herein, any shares subject to an Option that for any reason expires or
is terminated unexercised as to such shares shall again be available under the
Plan. In addition, any Class A Stock that is used by an optionee as full or
partial payment to the Company for the purchase of Class A Stock acquired upon
exercise of a stock option granted under the Plan, and any shares withheld by
the Company to satisfy an optionee's tax withholding obligations shall be
available for further awards under the Plan.

4. Eligibility To Receive Options.

     Persons eligible to receive stock options under the Plan shall be limited
to those officers and other employees of the Company and any subsidiary (as
defined in Section 425 of the Code or any amendment or

                                      1



substitute thereto), who may also be directors, who are in positions in which
their decisions, actions and counsel significantly impact upon the profitability
and success of the Company and/or a subsidiary. Directors of the Company who are
not also officers or employees of the Company or any subsidiary shall not be
eligible to participate in the Plan.

5. Types of Options.

     Grants may be made at any time and from time to time by the Committee in
the form of stock options to purchase shares of Class A Stock. Options granted
hereunder may be Options that are intended to qualify as incentive stock options
within the meaning of Section 422 of the Code or any amendment or substitute
thereto ("Incentive Stock Options") or Options that are not intended to so
qualify ("Nonqualified Stock Options").

6. Stock Options.

     Options for the purchase of Class A Stock shall be evidenced by written
agreements in such form not inconsistent with the Plan as the Committee shall
approve from time to time. The Options granted hereunder may be evidenced by a
single agreement or by multiple agreements, as determined by the Committee in
its sole discretion. Each Option agreement shall contain in substance the
following terms and conditions:

     (a) Type of Option. Each Option agreement shall identify the Options
represented thereby as Incentive Stock Options or Nonqualified Stock Options, as
the case may be.

     (b) Option Price. Each Option agreement shall set forth the purchase price
of the Class A Stock purchasable upon the exercise of the Option evidenced
thereby. Subject to the limitation set forth in Section 6(d)(ii), the purchase
price of the Class A Stock subject to an Incentive Stock Option shall be not
less than 100% of the Fair Market Value of such stock on the date the Option is
granted, as determined by the Committee, but in no event less than the par value
of such stock. The purchase price of the Class A Stock subject to a Nonqualified
Stock Option shall be not less than 85% of the Fair Market Value of such stock
on the date the Option is granted, as determined by the Committee. Fair Market
Value on any date shall mean for the purpose of this Plan the average of the
high and low prices of the Class A Stock, as reported in The Wall Street Journal
(or if not so reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotation ("Nasdaq") System), or if the Class A
Stock is not reported by Nasdaq, the Fair Market Value shall be as determined by
the Committee pursuant to Section 422 of the Code.

     (c) Exercise Term. Each Option agreement shall state the period or periods
of time within which the Option may be exercised, in whole or in part, which
shall be such a period or periods of time as may be determined by the Committee,
provided that no Option shall be exercisable after ten years from the date of
grant thereof. The Committee or its designee shall have the power to permit an
acceleration of previously established exercise terms, subject to the
requirements set forth herein, upon such circumstances and subject to such terms
and conditions as the Committee or its designee deems appropriate.

  (d) Incentive Stock Options. In the case of an Incentive Stock Option, each
Option agreement shall contain such other terms, conditions and provisions as
the Committee determines necessary or desirable in order to qualify such Option
as a tax-favored Option (within the meaning of Section 422 of the Code or any
amendment or substitute thereto or regulation thereunder) including without
limitation, each of the following, except that any of these provisions may be
omitted or modified if it is no longer required in order to have an Option
qualify as a tax-favored Option within the meaning of Section 422 of the Code
or any substitute therefor:

    (i) The aggregate Fair Market Value (determined as of the date the Option
  is granted) of the Class A Stock with respect to which Incentive Stock
  Options are first exercisable by any employee during any calendar year
  (under all plans of the Company) shall not exceed $100,000.


                                      2


    (ii) No Incentive Stock Options shall be granted to any employee if at
  the time the Option is granted such employee owns stock possessing more
  than ten percent of the total combined voting power of all classes of stock
  of the Company or its parent or its subsidiaries unless at the time such
  Option is granted the Option price is at least 110% of the Fair Market
  Value of the stock subject to the Option and, by its terms, the Option is
  not exercisable after the expiration of five years from the date of grant.

    (iii) No Incentive Stock Options shall be exercisable more than three
  months (or one year, in the case of an employee who dies or becomes
  disabled within the meaning of Section 22(e)(3) of the Code or any
  substitute therefor) after termination of employment.

  (e) Substitution of Options. Options may be granted under the Plan from time
to time in substitution for stock options held by employees of other
corporations who are about to become, and who do concurrently with the grant of
such options become, employees of the Company or a subsidiary as a result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary, or the acquisition by the Company or a subsidiary of the assets of
the employing corporation, or the acquisition by the Company or a subsidiary of
stock of the subsidiary. The terms and conditions of the substitute options so
granted may vary from the terms and conditions set forth in this Section 6 to
such extent as the Committee at the time of grant may deem appropriate to
conform, in whole or in part, to the provisions of the stock options in
substitution for which they are granted.

7. Date of Grant.

  The date on which an Option shall be deemed to have been granted under the
Plan shall be the date of the Committee's authorization of the Option or such
later date as may be determined by the Committee at the time the Option is
authorized. Notice of the determination shall be given to each individual to
whom an Option is so granted within a reasonable time after the date of such
grant.

8. Exercise and Payment for Shares.

  Options may be exercised in whole or in part, from time to time, by giving
written notice of exercise to the Chief Financial Officer of the Company,
specifying the number of shares to be purchased. The purchase price of the
shares with respect to which an Option is exercised shall be payable in full
with the notice of exercise in cash, Class A Stock at Fair Market Value at the
time of exercise, or a combination thereof, as the Committee may determine from
time to time and subject to such terms and conditions as may be prescribed by
the Committee for such purpose.

9. Rights upon Termination of Employment.

  In the event that an optionee ceases to be an employee of the Company or any
subsidiary for any reason other than death, retirement or disability (within
the meaning of Section 22(e)(3) of the Code or any substitute therefor), the
optionee shall have the right to exercise the Option during its term within a
period of three months after such termination to the extent that the Option was
exercisable at the time of termination, or within such other period, and
subject to such terms and conditions, as may be specified by the Committee or
its designee. In the event that an optionee dies, retires or becomes disabled
(within the meaning of Section 22(e)(3) of the Code or any substitute therefor)
prior to the expiration of his Option and without having fully exercised his
Option, the optionee or his successor shall have the right to exercise the
Option during its term within a period of one year after termination of
employment due to death, retirement or disability to the extent that the Option
was exercisable at the time of termination, or within such other period, and
subject to such terms and conditions, as may be specified by the Committee or
its designee. As used in this Section 9, "retirement" means a termination of
employment by reason of an optionee's retirement at or after his earliest
permissible retirement date pursuant to and in accordance with his employer's
regular retirement plan or personnel practices. Notwithstanding the provisions
of Section 6(d)(iii) hereof, an Incentive Stock Option may be exercised more
than three months after termination of employment due to retirement, as
provided in this

                                      3


Section 9, but in that event, the Option shall lose its status as an Incentive
Stock Option and shall be treated as a Nonqualified Stock Option.

10. General Restrictions.

  Each Option granted under the Plan shall be subject to the requirement that
if at any time the Committee shall determine that (i) the listing, registration
or qualification of the shares of Class A Stock subject or related thereto upon
any securities exchange or under any state or federal law, or (ii) the consent
or approval of any government regulatory body, or (iii) an agreement by the
recipient of an Option with respect to the disposition of shares of Class A
Stock is necessary or desirable as a condition of or in connection with the
granting of such Option or the issuance or purchase of shares of Class A Stock
thereunder, such Option shall not be consummated in whole or in part unless
such listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.

11. Rights of a Shareholder.

  The recipient of any Option under the Plan, unless otherwise provided by the
Plan, shall have no rights as a shareholder unless and until a certificate for
shares of Class A Stock is issued and delivered to him.

12. Right to Terminate Employment.

  Nothing contained in the Plan or in any agreement entered into pursuant to
the Plan shall confer upon any optionee the right to continue in the employment
of the Company or any subsidiary or affect any right that the Company or any
subsidiary may have to terminate the employment of such optionee.

13. Withholding.

  Whenever the Company proposes or is required to issue or transfer shares of
Class A Stock under the Plan, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state or local withholding tax requirements prior to the delivery of any
certificate for such shares. If and to the extent authorized by the Committee,
in its sole discretion, the Committee may require an optionee or permit an
optionee, by means of a form of election to be prescribed by the Committee, to
have shares of Class A Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Class A Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be subject to the disapproval of the Committee at any
time. Any securities so withheld or tendered will be valued by the Committee as
of the date of exercise.

14. Non-Assignability.

  (a) Incentive Stock Options. No Option which is an Incentive Stock Option
shall be assignable or transferable by the optionee otherwise than by will or
by the laws of descent and distribution and during the lifetime of the
optionee, such Incentive Stock Option shall be exercisable only by the optionee
or by his guardian or legal representative.

  (b) Nonqualified Stock Options. No Option which is a Nonqualified Stock
Option shall be assignable or transferable by the optionee except by will or by
the laws of descent and distribution or by such other means as the Committee
may approve, unless such means would be prohibited by Rule 16b-3 under the
Exchange Act. During the life of the optionee such Nonqualified Stock Option
shall be exercisable only by such person or by such person's guardian or legal
representative. Notwithstanding the restrictions set forth above in this
Section 14(b), the Committee or its designee shall have the authority, in its
sole discretion, to grant (or to sanction by way of amendment of an existing
grant) Nonqualified Stock Options that may be transferred by the optionee

                                      4


during his lifetime to any "family member" of the optionee, which shall include
a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, siblings, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including adoptive
relationships, any person sharing the optionee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the optionee)
control the management of assets, and any other entity in which these persons
(or the optionee) own more than 50% of the voting interests. No Nonqualified
Stock Option may be transferred for value. The following transfers are not
prohibited transfers for value: (i) a transfer under a domestic relations order
in settlement of marital property rights; and (ii) a transfer to an entity in
which more than 50% of the voting interests are owned by family members (or the
optionee) in exchange for an interest in that entity. In the case of a grant,
the written documentation containing the terms and conditions of such
Nonqualified Stock Option shall state that it is transferable, and in the case
of an amendment to an existing grant, such amendment shall be in writing. A
Nonqualified Stock Option transferred as contemplated in this Section 14(b) may
not be subsequently transferred by the transferee without further Committee
approval (except for transfers back to the original optionee) except by will or
the laws of descent and distribution and shall continue to be governed by and
subject to the terms and limitations of the Plan and the relevant grant.
However, the Committee or its designee, in its sole discretion at the time that
the transfer is approved, may alter the terms and limitations of the relevant
grant and establish such additional terms and conditions as it shall deem
appropriate.

15. Non-Uniform Determinations.

  The Committee's determinations under the Plan (including without limitation
determinations of the persons to receive Options, the form, amount and timing
of such grants, the terms and provisions of Options, and the agreements
evidencing same) need not be uniform and may be made selectively among persons
who receive, or are eligible to receive, grants of Options under the Plan
whether or not such persons are similarly situated.

16. Adjustments.

  (a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Class A Stock covered by
each outstanding Option and the number of shares of Class A Stock that have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation,
expiration or exercise of an Option, as well as the price per share of Class A
Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Class A
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Class A Stock, or any other increase or
decrease in the number of issued shares of Class A Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Class A Stock subject to an Option.

  (b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, all outstanding Options will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Committee. The Committee may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Committee and give each Option holder the right to exercise his Option as
to all or any part of the shares of Class A Stock covered by the Option,
including shares as to which the Option would not otherwise be exercisable.

  (c) Sale or Merger. In the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or into
another corporation, the Committee, in the exercise of its sole discretion, may
take such action as it deems desirable, including, but, not limited to: (i)
causing an Option

                                      5


to be assumed or an equivalent option to be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, (ii)
providing that each Option holder shall have the right to exercise his Option
as to all of the shares of Class A Stock covered by the Option, including
shares as to which the Option would not otherwise be exercisable, or
(iii) declare that an Option shall terminate at a date fixed by the Committee
provided that the Option holder is given notice and opportunity prior to such
date to exercise that portion of his Option that is currently exercisable.

17. Amendment.

  The Committee may terminate or amend the Plan at any time, except that
without shareholder approval the Committee may not (i) materially increase the
maximum number of shares that may be issued under the Plan (other than
increases pursuant to Section 16 hereof), (ii) materially increase the benefits
accruing to participants under the Plan or (iii) materially modify the
requirements as to eligibility for participation in the Plan. The termination
or any modification or amendment of the Plan shall not, without the consent of
a participant, affect his rights under an Option previously granted.

18. Conditions upon Issuance of Shares.

  (a) Compliance with Securities Laws. Shares of the Company's Class A Stock
shall not be issued pursuant to the exercise of an Option unless the exercise
of such Option and the issuance and delivery of such shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Class A Stock of the Company may then be listed, and
shall be further subject to the approval of counsel for the Company with
respect to such compliance.

  (b) Investment Representations. As a condition to the exercise of an Option,
the Company may require the person exercising such Option to represent and
warrant at the time of any such exercise that the shares of Class A Stock are
being purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the Company, such
representation is required by any of the aforementioned relevant provisions of
law.

19. Reservation of Shares.

  The Company, during the term of the Plan, will at all times reserve and keep
available such number of shares as shall be sufficient to satisfy the
requirements of the Plan. Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such shares as to which such requisite authority shall not
have been obtained.

20. Effect on Other Plans.

  Participation in the Plan shall not affect an employee's eligibility to
participate in any other benefit or incentive plan of the Company or any
subsidiary. Any Options granted pursuant to the Plan shall not be used in
determining the benefits provided under any other plan of the Company or any
subsidiary unless specifically provided.

21. Duration of the Plan.

  The Plan shall remain in effect until all Options granted under the Plan have
been satisfied by the issuance of shares, but no Option shall be granted more
than ten years after the earlier of the date the Plan is adopted by the
Company's Board of Directors or is approved by the Company's shareholders.


                                      6


22. Forfeiture for Dishonesty.

  Notwithstanding anything to the contrary in the Plan, if the Committee finds,
by a majority vote, after full consideration of the facts presented on behalf
of both the Company and any optionee, that the optionee has been engaged in
fraud, embezzlement, theft, commission of a felony or dishonest conduct in the
course of his employment or retention by the Company or any subsidiary that
damaged the Company or any subsidiary or that the optionee has disclosed trade
secrets of the Company or any subsidiary, the optionee shall forfeit all
unexercised Options and all exercised Options with respect to which the Company
has not yet delivered the certificates. The decision of the Committee in
interpreting and applying the provisions of this Section 22 shall be final. No
decision of the Committee, however, shall affect the finality of the discharge
or termination of such optionee by the Company or any subsidiary in any manner.

23. No Prohibition on Corporate Action.

  No provision of the Plan shall be construed to prevent the Company or any
officer or director thereof from taking any corporate action deemed by the
Company or such officer or director to be appropriate or in the Company's best
interest, whether or not such action could have an adverse effect on the Plan
or any Options granted hereunder, and no optionee or optionee's estate,
personal representative or beneficiary shall have any claim against the Company
or any officer or director thereof as a result of the taking of such action.

24. Maximum Number Per Participant.

  Notwithstanding anything contained herein to the contrary, the aggregate
number of shares of Class A Stock subject to options that may be granted during
any calendar year to any individual shall be limited to 150,000 shares of Class
A Stock. For purposes of this limitation, if an option is canceled, such
canceled option shall continue to be counted during the calendar year of
cancellation against the maximum shares for which options may be granted to an
individual.

25. Indemnification.

  With respect to the administration of the Plan, the Company shall indemnify
each present and future member of the Committee and the Board of Directors
against, and each member of the Committee and the Board of Directors shall be
entitled without further action on his part to indemnity from the Company for
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and the Board of Directors, whether or not he continues to be such member at
the time of incurring such expenses; provided, however, that such indemnity
shall not include any expenses incurred by any such member of the Committee and
the Board of Directors (i) in respect of matters as to which he shall be
finally adjudged in any such action, suit or proceeding to have been guilty of
gross negligence or willful misconduct in the performance of his duty as such
member of the Committee or the Board of Directors; or (ii) in respect of any
matter in which any settlement is effected for an amount in excess of the
amount approved by the Company on the advice of its legal counsel; and provided
further that no right of indemnification under the provisions set forth herein
shall be available to or enforceable by any such member of the Committee and
the Board of Directors unless, within 60 days after institution of any such
action, suit or proceeding, he shall have offered the Company in writing the
opportunity to handle and defend same at its own expense. The foregoing right
of indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee and the Board of Directors
and shall be in addition to all other rights to which such member may be
entitled as a matter of law, contract or otherwise.

26. Miscellaneous Provisions.

  (a) Compliance with Plan Provisions. No optionee or other person shall have
any right with respect to the Plan, the Class A Stock reserved for issuance
under the Plan or any Option until a written Option

                                      7


agreement shall have been executed by the Company and the optionee and all the
terms, conditions and provisions of the Plan and the Option applicable to such
optionee (and each person claiming under or through him) have been met.

  (b) Approval of Counsel. In the discretion of the Committee, no shares of
Class A Stock, other securities or property of the Company, or other forms of
payment shall be issued hereunder with respect to any Option unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.

  (c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the
Exchange Act shall apply to Options granted under the Plan, it is the intent of
the Company that the Plan comply in all respects with the requirements of Rule
16b-3, that any ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention and that if the Plan shall not so
comply, whether on the date of adoption or by reason of any later amendment to
or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to
be automatically amended so as to bring them into full compliance with such
rule.

  (d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets under the Plan.

  (e) Effects of Acceptance of Option. By accepting any Option or other benefit
under the Plan, each optionee and each person claiming under or through him
shall be conclusively deemed to have indicated his acceptance and ratification
of, and consent to, any action taken under the Plan by the Company, the Board
of Directors and/or the Committee or its delegates.

  (f) Construction. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.

27. Shareholder Approval.

  The exercise of any Option granted under the Plan shall be subject to the
approval of the Plan by the affirmative vote of a majority of the votes cast by
the shareholders voting on the proposal at a duly held meeting of the
shareholders of the Company.

                                      8

EX-10.35

Exhibit 10.35

EXECUTION COPY

BANC OF AMERICA SECURITIES LLC

$15,000,000 AGGREGATE PRINCIPAL AMOUNT

PMA Capital Corporation

6.50% SENIOR SECURED CONVERTIBLE DEBENTURES

DUE 2022

Purchase Agreement

dated November 10, 2004

Table of Contents

Section 1.	Representations and Warranties of the Company	2
Section 2.	Purchase, Sale and Delivery of the Securities	10
Section 3.	Additional Covenants of the Company	11
Section 4.	Payment of Expenses	14
Section 5.	Conditions of the Obligations of the Initial Purchaser	14
Section 6.	Representations, Warranties and Agreements of Initial Purchaser	17
Section 7.	Indemnification	17
Section 8.	Contribution	20
Section 9.	Termination of this Agreement	21
Section 10.	Representations and Indemnities to Survive Delivery	21
Section 11.	Notices	21
Section 12.	Successors	22
Section 13.	Partial Unenforceability	22
Section 14.	Governing Law Provisions	22
Section 15.	General Provisions	22

Purchase Agreement

November 10, 2004

BANC OF AMERICA SECURITIES LLC

9 West 57^th Street

New York, New York 10019

Ladies and Gentlemen:

PMA Capital Corporation, a company duly organized and existing under the laws of the Commonwealth of Pennsylvania (the “Company”), proposes to issue and sell to Banc of America Securities LLC (the “Initial Purchaser”) $15,000,000 aggregate principal amount of its 6.50% Senior Secured Convertible Debentures due September 30, 2022 (the “Securities”).

The Securities will be convertible into fully paid, non-assessable shares of Class A Common Stock, par value $5.00 per share, of the Company (the “Common Stock”) to the extent provided in the Rights Agreement, dated as of May 3, 2000 (the “Rights Agreement”), between the Company and The Bank of New York as rights agent. The Securities will be convertible initially at a conversion rate of 61.0948 shares per $1,000 principal amount of the Securities, on the terms, and subject to the conditions, set forth in the Indenture (as defined below). As used herein, “Conversion Shares” means the shares of Common Stock into which the Securities are convertible. The Securities will be issued pursuant to an indenture, to be dated as of the Closing Date (as defined in Section 2) (the “Indenture”), among the Company and U.S. Bank National Association, a national banking association, as (the “Trustee”).

The Securities will be offered and sold to the Initial Purchaser without being registered under the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission (the “Commission”) thereunder (the “Securities Act”), in reliance upon an exemption therefrom.

Holders of the Securities (including the Initial Purchaser and its direct and indirect transferees) will be entitled to the benefits of a Registration Rights Agreement, to be dated as of the Closing Date (the “Registration Rights Agreement”), among the Company and the Initial Purchaser, pursuant to which the Company will agree to file with the Commission a shelf registration statement pursuant to Rule 415 under the Securities Act (the “Registration Statement”) covering the resale of the Securities and the Conversion Shares, and to use commercially reasonable efforts to cause the Registration Statement to be declared effective.

The Company understands that the Initial Purchaser proposes to make an offering of the Securities on the terms and in the manner set forth herein and in the Offering Memorandum (as defined below) and agrees that the Initial Purchaser may resell, subject to the conditions set forth herein, all or a portion of the Securities to purchasers at any time after the date of this Agreement. The Securities are to be offered and sold to or through the Initial Purchaser without being registered with the Commission under the Securities Act in reliance upon exemptions therefrom. The terms of the Securities and the Indenture will require that

investors that acquire Securities expressly agree that Securities (and any Conversion Shares) may only be resold or otherwise transferred, after the date hereof, if such Securities (or Conversion Shares) are registered for sale under the Securities Act or if an exemption from the registration requirements of the Securities Act is available (including the exemption afforded by Rule 144A (“Rule 144A”) thereunder).

The Company has prepared an offering memorandum dated the date hereof setting forth information concerning the Company, the Securities, the Registration Rights Agreement and the Common Stock in form and substance reasonably satisfactory to the Initial Purchaser. As used in this Agreement, “Offering Memorandum” means, collectively, the Preliminary Offering Memorandum dated November 10, 2004 (the “Preliminary Offering Memorandum”) and the offering memorandum dated the date hereof (the “Final Offering Memorandum”), each as amended or supplemented by the Company. As used herein, each of the terms “Offering Memorandum”, “Preliminary Offering Memorandum” and “Final Offering Memorandum” shall include in each case the documents incorporated or deemed to be incorporated by reference therein.

The Company hereby confirms its agreements with the Initial Purchaser as follows:

Section 1. Representations and Warranties of the Company

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The Company hereby represents, warrants and covenants to the Initial Purchaser as follows:

(a)  Each of the Preliminary Offering Memorandum and the Final Offering Memorandum, as of its respective date, did not, and on the Closing Date, the Final Offering Memorandum will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty as to information contained in or omitted from the Preliminary Offering Memorandum or the Final Offering Memorandum in reliance upon and in conformity with written information furnished to the Company by the Initial Purchaser specifically for use therein as set forth on Schedule B hereto.

(b) Each of the Preliminary Offering Memorandum and the Final Offering Memorandum, as of its respective date, contains all of the information that, if requested by a prospective purchaser of the Securities, would be required to be provided to such prospective purchaser pursuant to Rule 144A(d)(4) under the Securities Act.

(c) Assuming the accuracy of the representations and warranties of the Initial Purchaser contained in Section 2 and its compliance with the agreements set forth therein, the issuance and sale of the Securities to the Initial Purchaser, the offer, resale and delivery of the Securities by the Initial Purchaser and the conversion of the Securities into Conversion Shares, in each case in the manner contemplated by this Agreement, the Indenture and the Offering Memorandum, do not require registration under the Securities Act and the Indenture does not need to be qualified under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).

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(d) Except as otherwise disclosed in the Offering Memorandum, subsequent to the date as of which information is given therein: (A) there has been no Material Adverse Change (as defined below); (B) the Company and its subsidiaries, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business; (C) there has been no dividend or distribution of any kind declared, paid or made by the Company or any of its subsidiaries on any class of capital stock or partnership or membership interest (as applicable) or repurchase or redemption by the Company or any of its subsidiaries of any class of capital stock or partnership interest (as applicable); and (D) there has been no material change in the capital stock, partnership interests, short-term debt or long-term debt of the Company and its subsidiaries, considered as one entity, except in each case described in, or as described in any document incorporated by reference in, the Offering Documents.

(e) The Company has been duly organized and is validly existing under the laws of the Commonwealth of Pennsylvania. The Company has power (corporate and other) and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum, and to enter into and perform all its obligations under this Agreement, the Indenture, the Registration Rights Agreement and the Securities (collectively, the “Transaction Documents”). The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings, business, operations or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, taken as a whole (any such change a “Material Adverse Change”).

(f) Each subsidiary of the Company has been duly incorporated or formed and is validly existing as a corporation, limited liability company or limited partnership (as applicable) in good standing under the laws of the jurisdiction of its incorporation or formation and has power (corporate, partnership or other) and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum and to enter into and perform all of its obligations under the Transaction Documents. Each subsidiary of the Company is duly qualified as a foreign entity to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. All of the issued and outstanding capital stock, or all of the partnership interests (whether general or limited partnership or limited liability company interests), as applicable, of each of the subsidiaries of the Company has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance or claim, except as created pursuant to the Indenture. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Schedule A hereto.

(g)  This Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company enforceable against the Company in accordance with its

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terms, except as rights to indemnification and contribution hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles.

(h)  The Registration Rights Agreement has been duly authorized by the Company and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as rights to indemnification and contribution thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles.

(i)  The Indenture has been duly authorized by the Company and, assuming due authorization, execution and delivery thereof by the Trustee, when duly executed and delivered by the Company, will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting enforcement of the rights and remedies of creditors or by general principles of equity.

(j)  The Securities have been duly authorized by the Company and, when executed, authenticated, issued and delivered in accordance with the terms of the Indenture will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles, and will be entitled to the benefits of the Indenture.

(k)  The Conversion Shares issuable upon conversion of the Securities have been duly authorized and reserved and, when issued upon conversion of the Securities in accordance with the terms of the Securities, will be validly issued, fully paid and non-assessable, and the issuance of such Conversion Shares will not be subject to any preemptive or similar rights.

(l)  Each of the Transaction Documents conforms or will conform in all material respects to the respective statements relating thereto contained in the Offering Memorandum.

(m)  Neither the Company nor any of its respective subsidiaries is in violation of its charter or by-laws, limited partnership or operating agreement or similar organizational documents, as applicable, or is in default (or, with the giving of notice or lapse of time, would be in default) (“Default”) under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them is or may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject (each such foregoing documents being referred to as an “Existing Instrument”), except for such Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. The execution by the Company, and its delivery and performance of the Transaction Documents: (i) will not result in any violation of the provisions of the charter or by-laws or other governing documents of the Company or any of its subsidiaries; (ii) will not constitute a breach of, or Default or a Debt Repayment Triggering Event (as defined below) under, or, except pursuant to the Indenture, result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such breaches, Defaults, liens, charges or encumbrances as would not, individually or

4

in the aggregate, result in a Material Adverse Change; and (iii) will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any of its subsidiaries. As used herein, a “Debt Repayment Triggering Event” means any event or condition which gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.

(n)  Any document incorporated by reference in the Offering Memorandum, or any information filed with the Commission, or from which information is so incorporated by reference when filed or becoming effective, as the case may be, complied, continues to comply and will comply in all material respects with the requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as applicable, and the rules and regulations promulgated thereunder.

(o)  Deloitte & Touche LLP and PricewaterhouseCoopers LLP are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public Accountants (“AICPA”) and its interpretations and rulings thereunder. The historical financial statements (including the related notes) incorporated by reference in the Offering Memorandum comply in all material respects with the requirements applicable to a registration statement on Form S-3 under the Securities Act; such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby and fairly present the financial position of the entities purported to be covered thereby at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated; and the financial information contained in the Offering Memorandum under the heading “Selected Consolidated Financial Information” fully present the information purported to be shown thereby. The other historical financial and statistical information and data included in the Offering Memorandum are, in all material respects, fairly presented. The Company’s ratios of earnings to fixed charges contained in the Offering Memorandum under the heading “Ratio of Earnings to Fixed Charges” have been calculated in compliance with Item 503(d) of Regulation S-K under the Securities Act.

(p)  The Company had an authorized and outstanding capitalization as set forth in, or as described in any document incorporated by reference in, the Offering Memorandum. All of the shares of issued and outstanding capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any common stock or interests of the Company’s subsidiaries and equity interests in any firm, partnership, joint venture or other entities, other than those accurately described in, or described in documents incorporated by reference in, the Offering Memorandum. The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, in the Offering Memorandum accurately and fairly presents and summarizes such plans, arrangements, options and rights.

(q)  No action has been taken and no statute, rule, regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Securities or suspends the sale of the Securities in any jurisdiction; no injunction, restraining order or order of any nature by any federal or state court of competent jurisdiction has been

5

issued with respect to the Company or any of its subsidiaries which would prevent or suspend the issuance or sale of the Securities or the use of the Preliminary Offering Memorandum or the Final Offering Memorandum in any jurisdiction; no action, suit or proceeding is pending against or, to the best knowledge of the Company, threatened against or affecting the Company before any court or arbitrator or any governmental agency, body or official, domestic or foreign, which could restrain or prohibit the issuance of the Securities; and the Company has complied with any and all requests by any securities authority in any jurisdiction for additional information to be included in the Preliminary Offering Memorandum and the Final Offering Memorandum.

(r)  Except as disclosed in the Offering Memorandum, no consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company’s execution, delivery and performance of the Transaction Documents, except such as have been obtained or made by the Company and are in full force and effect under the Securities Act.

(s)  The Company is subject to and is reporting in accordance with the requirements of Section 13 or Section 15(d) of the Exchange Act. The Company has filed and, prior to the Closing Date, will file, all documents (including exhibits) required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act (the “Company Filed Documents”) within the time periods required to be filed by the Exchange Act and the rules and regulations promulgated thereunder. The information provided by the Company pursuant to these provisions and incorporated by reference in the Offering Memorandum and subsequently superseded by another document incorporated by reference did not, at the date thereof, and will not, as the case may be, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(t)  Except as described in the Offering Memorandum, there are no legal or governmental actions, suits or proceedings pending against the Company or its subsidiaries or, to the best of the Company’s knowledge, threatened against or affecting the Company or any of its subsidiaries, which have as the subject thereof any property owned or leased by, the Company or any of its subsidiaries, where in any such case there is a reasonable possibility that such action, suit or proceeding might be determined adversely to the Company or such subsidiary, and any such action, suit or proceeding, if so determined adversely, would reasonably be expected to result in a Material Adverse Change or adversely affect the consummation of the transactions contemplated by this Agreement and by the Transaction Documents. No material labor dispute with the employees of the Company or any of its subsidiaries exists or, to the best of the Company’s knowledge, is threatened or imminent.

(u)  The Company and its subsidiaries own, possess or can acquire sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals, trade secrets and other similar rights (collectively, “Intellectual Property Rights”) reasonably necessary to conduct their businesses as now conducted; and the expected expiration of any of such Intellectual Property Rights would not result in a Material Adverse Change. Neither the Company nor any of its subsidiaries has received any notice of infringement or conflict with asserted Intellectual Property Rights of others, which infringement or conflict, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Change.

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(v)  The Company and each of its subsidiaries possesses such valid and current certificates, authorizations, permits or licenses issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, except such certificates, authorizations, permits or licenses, which the failure to obtain, singularly or in the aggregate, would not result in a Material Adverse Change; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization, permit or license which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could result in a Material Adverse Change.

(w)  The Company and each of its subsidiaries has good and marketable title to all the properties and assets reflected as owned in the financial statements described in the Offering Memorandum, in each case free and clear of any security interests, mortgages, liens, encumbrances, equities, claims and other defects, except as described in, or as described in any document incorporated by reference in, the Offering Memorandum or such as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or such subsidiary. The real property, improvements, equipment and personal property held under lease by the Company or any of its subsidiaries are held under valid and enforceable leases, with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such real property, improvements, equipment or personal property by the Company or such subsidiary.

(x)  (i) The Indenture and the documents, instruments and agreements required to be executed and delivered by the Company in connection therewith, will create in favor of the Trustee for the equal and ratable benefit of the holders of the Securities, the Company’s other 6.50% Senior Secured Convertible Debentures due September 30, 2022 to be issued under the Indenture and the Company’s $57,500,000 principal amount of 8.50% Monthly Income Senior Notes due 2018, a valid, enforceable first priority Lien on 20% of the Capital Stock of PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company required to be pledged to the Trustee pursuant to the terms of the Indenture, and except for the actions to be taken pursuant to the Indenture, no other or additional filings, registrations, recordings or actions are or shall be necessary or appropriate in order to perfect or maintain the perfection and priority of such Lien and security interest.

(ii) No authorization, consent or approval, or declaration or filing with any governmental authority is required for the grant by the Company of the Lien and security interest in a portion of the Capital Stock of PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company in favor of the Trustee pursuant to the terms of the Indenture.

(iii) There are no contractual, statutory or regulatory restrictions, prohibitions or limitations on the Company’s ability to grant to the Trustee, a Lien upon a portion of the Capital Stock of PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company pursuant to the Indenture.

(iv) All certificates or instruments representing or evidencing any Capital Stock of PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company or other Collateral to be delivered to the Trustee pursuant to the Indenture shall be in form suitable for transfer by delivery.

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(v) No other Liens, security agreements, financing statements or other public notice with respect to all or any part of the Capital Stock of PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company is on file or of record in any government or public office and the Company has not filed or consented to filing of any such statement or notice.

(y)  The Company and its subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes required to be paid by any of them and, if due and payable, any related or similar assessment, fine or penalty levied against any of them except as may be being contested in good faith and by appropriate proceedings. The Company and its subsidiaries have made adequate charges, accruals and reserves in the applicable financial statements described in the Offering Memorandum in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or any of its subsidiaries has not been finally determined.

(z)  Except as would not, individually or in the aggregate, result in a Material Adverse Change and except as described in the Offering Memorandum, neither the Company nor any of its Subsidiaries is in violation of any law, administrative regulation or administrative or court decree applicable to the Company or any of its subsidiaries.

(aa)   The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the “Investment Company Act”). The Company is not, and will not be, an “investment company” within the meaning of the Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act.

(bb) Each of the Company and its subsidiaries is insured by recognized, financially sound institutions with policies in such amounts and with such deductibles and covering such risks as are generally deemed adequate and customary for their businesses including, but not limited to, policies covering real and personal property owned or leased by the Company and its subsidiaries against theft, damage, destruction, acts of vandalism, floods and earthquakes. The Company has no reason to believe that: (i) it or any of its subsidiaries will not be able to renew its existing insurance coverage as and when such policies expire; or (ii) it or any of its subsidiaries will not be able to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change. Neither of the Company nor any of its subsidiaries has been denied any insurance coverage which it has sought or for which it has applied.

(cc) The Company and its subsidiaries maintain a system of accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

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(dd) Except as would not, individually or in the aggregate, result in a Material Adverse Change: neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws. The Company is not aware of any pending investigation which might lead to such a claim.

(ee) Neither the Company nor any of its subsidiaries, nor, to the best of their knowledge, any employee or agent of any of them or any subsidiary has violated or is in violation of the Foreign Corrupt Practices Act.

(ff) The Company has established and maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 under the Exchange Act), which (i) are designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the Exchange Act are being prepared, and (ii) are effective in all material respects to perform the functions for which they were established. Based on the evaluation of the Company’s disclosure controls and procedures described above, the Company is not aware of (a) any significant deficiency in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data or any material weaknesses in internal controls or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls. Since the most recent evaluation of the Company’s disclosure controls and procedures described above, there have been no significant changes in internal controls or other factors that could significantly affect internal controls.

(gg) None of the Company or any of its affiliates or any other person acting on its or their behalf (other than the Initial Purchaser, as to which no representation is made) has engaged, in connection with the offering of the Securities or the Conversion Shares, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act.

(hh) Except as described in the Offering Memorandum or as may be imposed by applicable law, no subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company, except as described in the Offering Memorandum.

(ii) Neither the consummation of the transactions contemplated herein nor the sale, issuance, execution or delivery of the Securities will violate Regulation T, U or X of the Federal Reserve Board.

(jj) Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or the Initial Purchaser for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Securities.

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(kk) Neither the Company nor any of its affiliates has, directly or through any agent (other than the Initial Purchaser, as to which no representation is made), sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as such term is defined in the Securities Act), which is or will be integrated with the sale of the Securities or the Conversion Shares in a manner that would require registration of the Securities or the Conversion Shares under the Securities Act. 

(ll) There are no securities of the Company of the same class (as defined in Rule 144A(d) under the Securities Act) as the Securities registered under the Exchange Act or listed on a national securities exchange or quoted in a U.S. automated interdealer quotation system.

(mm)  No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Preliminary Offering Memorandum or the Final Offering Memorandum has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

(nn) The Company is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act of 2002 that are effective as of the date of this Agreement.

Any certificate signed by an officer of the Company and delivered to the Initial Purchaser or to counsel for the Initial Purchaser shall be deemed to be a representation and warranty by the Company to the Initial Purchaser as to the matters set forth therein.

Section 2. Purchase, Sale and Delivery of the Securities

.

(a) The Securities. The Company agrees to issue and sell to the Initial Purchaser the Securities upon the terms herein set forth. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Initial Purchaser agrees to purchase from the Company the entire principal amount of Securities at a purchase price of 101.50% of the aggregate principal amount thereof.

(b) The Closing Date. Delivery of the Securities to be purchased by the Initial Purchaser and payment therefor shall be made at the offices of Katten Muchin Zavis Rosenman, 575 Madison Avenue, New York, New York, 10022 (or such other place as may be agreed to by the Company and the Initial Purchaser) at 9:00 a.m. New York time, on November 15, 2004 or such other time and date not later than 9:00 a.m. New York time, on November 29, 2004 as the Initial Purchaser shall designate by notice to the Company (the time and date of such closing are called the “Closing Date”).

(c) Payment for the Securities. Payment for the Securities shall be made on the Closing Date by wire transfer of immediately available funds to the order of the Company.

(d) Delivery of the Securities. The Company shall deliver, or cause to be delivered, to the Initial Purchaser the Securities on the Closing Date, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The Securities shall be registered in such names and denominations as the Initial Purchaser shall have requested at least two full business days prior to the Closing Date and shall be made available for inspection on the business day preceding the Closing Date at a location in New York City as the

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Initial Purchaser may designate. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Initial Purchaser.

Section 3. Additional Covenants of the Company

The Company further covenants and agrees with the Initial Purchaser as follows:

(a) The Initial Purchaser’s Review of Proposed Amendments and Supplements. During such period beginning on the date hereof and ending on the date which is the earlier of nine months after the date hereof or the completion of the resale of the Securities by the Initial Purchaser (as notified by the Initial Purchaser to the Company), prior to amending or supplementing the Offering Memorandum, the Company shall furnish to the Initial Purchaser for review a copy of each such proposed amendment or supplement (other than the Company’s periodic and current reports under the Exchange Act), and the Company shall not print or distribute such proposed amendment or supplement (other than the Company’s periodic and current reports under the Exchange Act) to which the Initial Purchaser reasonably objects.

(b) Amendments and Supplements to the Offering Memorandum and Other Securities Act Matters. If, at any time prior to the earlier of nine months after the date hereof or the completion of the resale of the Securities by the Initial Purchaser (as notified by the Initial Purchaser to the Company), any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Offering Memorandum in order that the Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading, or if in the opinion of the Initial Purchaser or counsel for the Initial Purchaser it is otherwise necessary to amend or supplement the Offering Memorandum to comply with law, the Company shall promptly notify the Initial Purchaser and prepare, subject to Section 3(a) hereof, such amendment or supplement as may be necessary to correct such untrue statement or omission.

(c) Copies of Offering Memorandum. The Company agrees to furnish the Initial Purchaser, without charge, until the earlier of nine months after the date hereof or the completion of the resale of the Securities by the Initial Purchaser (as notified by the Initial Purchaser to the Company) as many copies of the Offering Memorandum and any amendments and supplements thereto as the Initial Purchaser may reasonably request.

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(d) Blue Sky Compliance.  The Company shall cooperate with the Initial Purchaser and counsel for the Initial Purchaser, as the Initial Purchaser may reasonably request from time to time, to qualify or register the Securities for sale under (or obtain exemptions from the application of) the state securities or blue sky laws or Canadian provincial securities laws or other foreign laws of those jurisdictions designated by the Initial Purchaser, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as required for the distribution of the Securities. The Company shall not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. The Company will advise the Initial Purchaser promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Securities for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the earliest possible moment.

(e) Rule 144A Information. For so long as any of the Securities are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Company shall provide to any holder of the Securities or to any prospective purchaser of the Securities designated by any holder, upon request of such holder or prospective purchaser, information required to be provided by Rule 144A(d)(4) of the Securities Act if, at the time of such request, the Company is not subject to the reporting requirements under Section 13 or 15(d) of the Exchange Act.

(f) Legends. Each of the Securities will bear, to the extent applicable, the legend contained in “Transfer Restrictions” in the Offering Memorandum for the time period and upon the other terms stated therein.

(g) No General Solicitation. Except following the effectiveness of the Registration Statement (as defined in the Registration Rights Agreement), the Company will not, and will cause its subsidiaries not to, solicit any offer to buy or offer to sell the Securities by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act.

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(h) No Integration. The Company will not, and will cause its subsidiaries not to, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any “security” (as defined in the Securities Act) in a transaction that could be integrated with the sale of the Securities in a manner that would require the registration of the Securities under the Securities Act.

(i) Rule 144 Tolling. During the period of two years after the Closing Date, the Company will not, and will not permit any of its “affiliates” (as defined in Rule 144 under the Securities Act) to, resell any of the Securities which constitute “restricted securities” under Rule 144 under the Securities Act that have been reacquired by any of them.

(j) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Securities sold by it in the manner described under the caption “Use of Proceeds” in the Offering Memorandum.

(k) Transfer Agent. The Company shall engage and maintain, at its expense, a registrar and transfer agent for the Common Stock.

(l) Agreement Not to Offer or Sell Additional Securities. During the period commencing on the date hereof and ending on the 90th day following the date of the Final Offering Memorandum, the Company will not, without the prior written consent of the Initial Purchaser (which consent may be withheld at the sole discretion of the Initial Purchaser), directly or indirectly, sell, offer, contract or grant any option to sell, pledge, transfer or establish an open “put equivalent position” within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce the offering of, or file any registration statement under the Securities Act in respect of, any shares of Common Stock, options or warrants to acquire shares of the Common Stock or securities exchangeable or exercisable for or convertible into shares of Common Stock (other than as contemplated by this Agreement with respect to the Securities); provided, however, that (i) the Company may issue and sell the Securities under this Agreement, (ii) the Company may issue the Conversion Shares upon conversion of the Securities, (iii) the Company may issue shares of its Common Stock upon conversion of its $86,250,000 principal amount of 6.50% Senior Convertible Debentures due September 30, 2022 and (iv) the Company may issue shares of its Common Stock or options to purchase its Common Stock, or Common Stock upon exercise of options, pursuant to any stock option, stock bonus or other stock plan or arrangement described in the Final Offering Memorandum or any document incorporated by reference in the Final Offering Memorandum, but only if the holders of such shares, options, or shares issued upon exercise of such options, to the extent they are listed on Schedule C, agree in writing not to sell, offer, dispose of or otherwise transfer any such shares or options during their lock-up period without the prior written consent of the Initial Purchaser (which consent may be withheld at the sole discretion of the Initial Purchaser).

(m)  Investment Limitation. The Company shall not invest or otherwise use the proceeds received by the Company from its sale of the Securities in such a manner as would require the Company or any of its subsidiaries to register as an investment company under the Investment Company Act.

(n) No Manipulation of Price. The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company.

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(o) Inclusion Conversion Shares. The Company will use its best efforts to have the Conversion Shares approved by Nasdaq for inclusion prior to the effectiveness of the Registration Statement.

Section 4. Payment of Expenses.

The Company agrees to pay all costs, fees and expenses incurred in connection with the performance of its obligations and the performance of the Initial Purchaser’s obligations hereunder and in connection with the transactions contemplated hereby, including without limitation (i) all expenses incident to the issuance and delivery of the Securities (including all printing and engraving costs), (ii) all fees and expenses of the Trustee under the Indenture, (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Securities to the Initial Purchaser, (iv) all fees and expenses of the Company’s counsel, independent public or certified public accountants and other advisors, (v) all costs and expenses incurred in connection with the preparation, printing, shipping and distribution of the Offering Memorandum, all amendments and supplements thereto and this Agreement, (vi) all filing fees, reasonable attorneys’ fees and expenses incurred by the Company or the Initial Purchaser in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Securities for offer and sale under the state securities or blue sky laws, and, if requested by the Initial Purchaser, preparing and printing a “Blue Sky Survey” or memorandum, and any supplements thereto, advising the Initial Purchaser of such qualifications, registrations and exemptions, (vii)  the expenses of the Company and the Initial Purchaser in connection with the marketing and offering of the Securities, (viii) the fees and expenses associated with including the Conversion Shares on Nasdaq and (ix) all expenses and fees in connection with admitting the Securities for trading in the PORTAL Market. The Company will also reimburse the Initial Purchaser for all out-of-pocket expenses reasonably incurred by the Initial Purchaser in connection with the proposed purchase and the offering and sale of the Securities, including the reasonable fees and expenses of Katten Muchin Zavis Rosenman.

Section 5. Conditions of the Obligations of the Initial Purchaser.

The obligations of the Initial Purchaser to purchase and pay for the Securities as provided herein on the Closing Date shall be subject to the accuracy of the representations and warranties on the part of the Company set forth in Section 1 hereof as of the date hereof and as of the Closing Date as though then made, to the timely performance by the Company of its covenants and other obligations hereunder, and to each of the following additional conditions:

(a) Accountants’ Comfort Letter. . On the date hereof, the Initial Purchaser shall have received from each of Deloitte & Touche LLP and PricewaterhouseCoopers LLP, independent public or certified public accountants for the Company, a letter dated the date hereof addressed to the Initial Purchaser, in form and substance satisfactory to the Initial Purchaser, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to Initial Purchaser, delivered according to Statement of Auditing Standards No. 72 (or any successor bulletin), with respect to the audited and unaudited financial statements and certain financial information contained in the Offering Memorandum.

(b) No Material Adverse Change or Rating Agency Change. For the period from and after the date of this Agreement and prior to the Closing Date:

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(i) in the judgment of the Initial Purchaser there shall not have occurred any Material Adverse Change which in the judgment of the Initial Purchaser would make it impractical or inadvisable to proceed with the completion of the offering or the sale of and payment for the Securities; and

(ii) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any securities of the Company or any of its subsidiaries by any “nationally recognized statistical rating organization” as such term is defined for purposes of Rule 436(g)(2) under the Securities Act.

(c) Opinion of Counsel for the Company. . On the Closing Date the Initial Purchaser shall have received the favorable opinion of Ballard Spahr Andrews & Ingersoll, LLP, counsel for the Company, dated as of the Closing Date, the form of which is attached as Exhibit A.

(d) Opinion of General Counsel of the Company

. On the Closing Date the Initial Purchaser shall have received the favorable opinion of Robert L. Pratter, Esq., as General Counsel of the Company, dated as of the Closing Date, the form of which is attached as Exhibit B.

(e) Opinion of Counsel for the Initial Purchaser. On the Closing Date the Initial Purchaser shall have received the favorable opinion of Katten Muchin Zavis Rosenman, counsel for the Initial Purchaser, dated as of the Closing Date, in form and substance satisfactory to the Initial Purchaser.

(f) Officers’ Certificate. On the Closing Date the Initial Purchaser shall have received a written certificate executed by the Chairman of the Board, Chief Executive Officer or President of the Company and the Chief Financial Officer or Chief Accounting Officer of the Company, on behalf of the Company, dated as of the Closing Date, to the effect set forth in subsection (b)(ii) of this Section 5, and further to the effect that:

(i) for the period from and after the date of this Agreement and prior to the Closing Date, there has not occurred any Material Adverse Change;

(ii) the representations, warranties and covenants of the Company set forth in Section 1 of this Agreement are true and correct in all material respects (except for those conditions as to materiality, which should be true and correct in all respects) with the same force and effect as though expressly made on and as of the Closing Date; and

(iii) the Company has, in all material respects, complied with all the agreements hereunder and satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date.

(g) Bring-down Comfort Letter. On the Closing Date the Initial Purchaser shall have received from each of Deloitte & Touche LLP and PricewaterhouseCoopers LLP, independent public or certified public accountants for the Company, a letter dated such date, in form and substance satisfactory to the Initial Purchaser, to the effect that they reaffirm the statements made in the letter furnished by them pursuant to subsection (a) of this Section 5, except that the specified date referred to therein for the carrying out of procedures shall be no more than three business days prior to the Closing Date.

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(h) Registration Rights Agreement. The Company and the Initial Purchaser shall have executed and delivered the Registration Rights Agreement (in form and substance satisfactory to the Initial Purchaser), and the Registration Rights Agreement shall be in full force and effect.

(i) Lock-Up Agreement from Chairman of the Board and Executive Officers of the Company. On or prior to the date hereof, the Company shall have furnished to the Initial Purchaser an agreement in the form of Exhibit C hereto from each of its Chairman of the Board and executive officers listed on Schedule C, and such agreement shall be in full force and effect on the Closing Date. 

(j) PORTAL Designation. The Securities shall have been designated PORTAL-eligible securities in accordance with the rules and regulations of the NASD.

(k) Additional Documents. On or before the Closing Date, the Initial Purchaser and counsel for the Initial Purchaser shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Securities as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained.

If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Initial Purchaser by notice to the Company at any time on or prior to the Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 4, Section 7, and Section 8 shall at all times be effective and shall survive such termination.

Section 6. Representations, Warranties and Agreements of Initial Purchaser.

The Initial Purchaser represents and warrants that it is a “qualified institutional buyer,” as defined in Rule 144A of the Securities Act, or an accredited investor within the meaning of Rule 501(a)(1) under the Securities Act. The Initial Purchaser agrees with the Company that:

(a) The Securities and the Conversion Shares have not been and will not be registered under the Securities Act in connection with the initial offering of the Securities.

(b) The Initial Purchaser is purchasing the Securities pursuant to a private sale exemption from registration under the Securities Act.

(c) The Securities have not been and will not be offered or sold by the Initial Purchaser or its affiliates acting on its behalf except in accordance with Rule 144A.

(d) The Initial Purchaser will not offer or sell the Securities in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising in the United States.

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(e) The Initial Purchaser has not offered or sold, and will not offer or sell, any Securities except to persons whom it reasonably believes to be “qualified institutional buyers,” as defined in Rule 144A.

Section 7. Indemnification.

(a) Indemnification of the Initial Purchaser. The Company agrees to indemnify and hold harmless the Initial Purchaser, its officers and employees, and each person, if any, who controls the Initial Purchaser within the meaning of the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense, as incurred, to which the Initial Purchaser or such controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact, in the light of the circumstances under which they were made, in each case, necessary to make the statements therein not misleading; and to reimburse the Initial Purchaser and each such controlling person for any and all expenses (including the reasonable fees and disbursements of counsel chosen by the Initial Purchaser) as such expenses are reasonably incurred by the Initial Purchaser or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Initial Purchaser expressly for use in the Offering Memorandum (or any amendment or supplement thereto). The indemnity agreement set forth in this Section 7(a) shall be in addition to any liabilities that the Company may otherwise have.

(b) Indemnification of the Company, its Directors and Officers. The Initial Purchaser agrees to indemnify and hold harmless the Company, each of its directors, each of its officers and each person, if any, who controls such Company within the meaning of the Securities Act or the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to which the Company, or any director, officer or controlling person may become subject, under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Initial Purchaser), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue or alleged untrue statement of a material fact contained in the Offering Memorandum (or any amendment or supplement thereto), or arises out of or is based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Offering Memorandum (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company by the Initial Purchaser expressly for use therein; and to reimburse the Company, or any director, officer or controlling person for any and all expenses (including the reasonable fees and disbursements of counsel chosen by the Company) or any director, officer or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The Company hereby acknowledges

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that the only information that the Initial Purchaser has furnished to the Company expressly for use in the Offering Memorandum (or any amendment or supplement thereto) are the statements set forth in Schedule B; and the Initial Purchaser confirms that such statements are correct. The indemnity agreement set forth in this Section 7(b) shall be in addition to any liabilities that the Initial Purchaser may otherwise have.

(c) Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof may be made against an indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof; provided that (i) the omission so to notify the indemnifying party will not relieve any indemnifying party from any liability which it may have hereunder except to the extent it has been materially prejudiced by such failure and (ii) the omission to so notify such indemnifying party will not relieve it from any liability which it may have to such indemnified person otherwise than on account of this indemnity agreement. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party’s election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnified party shall have authorized in writing the employment of counsel for such indemnified person; and except that if clause (i) or (iii) is applicable, such liability shall be only in respect of the counsel referred to in such clause (i) or (iii).

(d) Settlements. The indemnifying party under this Section 8 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there is a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 7(c) hereof, the indemnifying party agrees that it

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shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent (x) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

Section 8. Contribution.

If the indemnification provided for in Section 7 is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein in such proportion as is appropriate to reflect not only the relative benefits received by the Company, on the one hand, and the Initial Purchaser on the other hand, but also the relative fault of the Company, on the one hand, and the Initial Purchaser, on the other hand, in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Initial Purchaser, on the other hand, in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, and the total discount received by the Initial Purchaser bear to the aggregate initial offering price of the Securities. The relative fault of the Company, on the one hand, and the Initial Purchaser, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact or any such inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company, on the one hand, or the Initial Purchaser, on the other hand, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 7(c), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 7(c) with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 8; provided, however, that no additional notice shall be required with respect to any action for which notice has been given under Section 7(c) for purposes of indemnification.

The Company and the Initial Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 8.

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Notwithstanding the provisions of this Section 8, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it and distributed to investors were offered to investors exceeds the amount of any damages which the Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each officer and employee of an Initial Purchaser and each person, if any, who controls an Initial Purchaser within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Initial Purchaser, and each director and officer of the Company, and each person, if any, who controls the Company within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Company.

Section 9. Termination of this Agreement.

On or prior to the Closing Date this Agreement may be terminated by the Initial Purchaser by notice given to the Company if at any time (i) trading or quotation in any of the Company’s securities shall have been suspended or limited by the Commission or by Nasdaq, or trading in securities generally on either the Nasdaq Stock Market or the New York Stock exchange shall have been suspended or limited, or minimum or maximum prices shall have been generally established on any of such stock exchanges by the Commission or the NASD; (ii) a general banking moratorium shall have been declared by any federal, New York or Pennsylvania authority; (iii) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in United States’ or international political, financial or economic conditions, as in the judgment of the Initial Purchaser is material and adverse and makes it impracticable to market the Securities in the manner and on the terms described in the Offering Memorandum or to enforce contracts for the sale of securities; (iv) in the judgment of the Initial Purchaser there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the judgment of the Initial Purchaser may, singly or in the aggregate, interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured. Any termination pursuant to this Section 9 shall be without liability on the part of (a) the Company to the Initial Purchaser, except that the Company shall be obligated to reimburse the expenses of the Initial Purchaser pursuant to Section 4 hereof, (b) the Initial Purchaser to the Company, or (c) of any party hereto to any other party except that the provisions of Section 7 and Section 8 shall at all times be effective and shall survive such termination.

Section 10. Representations and Indemnities to Survive Delivery.

The respective indemnities, contribution, agreements, representations, warranties and other statements of the Company, of its officers and of the Initial Purchaser set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation, or statement as to the result hereof, made by or on behalf of the Initial Purchaser or the Company or any of its or their partners, officers or directors or any controlling person, as the case may be, (ii) acceptance of the Securities and payment for them hereunder and (iii) any termination of this Agreement.

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Section 11. Notices.

All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows:

If to the Initial Purchaser:

Banc of America Securities LLC

Banc of America Corporate Center

9 West 57^th Street

New York, New York 10019

Facsimile: (212) 847-5124

Attention: Eric Hambleton, Esq.

If to the Company:

PMA Capital Corporation

1735 Market Street, Suite 2800

Philadelphia, Pennsylvania 19103

Facsimile: (215) 665-5061

Attention: William E. Hitselberger

Any party hereto may change the address for receipt of communications by giving written notice to the others.

Section 12. Successors

This Agreement will inure to the benefit of and be binding upon the parties hereto and to the benefit of the employees, officers and directors and controlling persons referred to in Section 7 and Section 8, and in each case their respective successors, and no other person will have any right or obligation hereunder. The term “successors” shall not include any purchaser of the Securities as such from the Initial Purchaser merely by reason of such purchase.

Section 13. Partial Unenforceability

The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.

Section 14. Governing Law Provisions

This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

Section 15. General Provisions

This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements,

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understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto. The Table of Contents and the Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement.

[SIGNATURE PAGE FOLLOWS]

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If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms.

Very truly yours,

PMA CAPITAL CORPORATION

By:__/s/ William Hitselberger______________

Name: William Hitselberger

Title: Executive Vice President and Chief Financial Officer

S-1

The foregoing Purchase Agreement is hereby confirmed and accepted by the Initial Purchaser as of the date first above written.

BANC OF AMERICA SECURITIES LLC

By:__/s/ Derek Dillon__________

Name: Derek Dillon

Title: Managing Director

S-2

SCHEDULE A

Subsidiaries

PMA Capital Insurance Company (Pennsylvania)

Pennsylvania Manufacturers' Association Insurance Company (Pennsylvania)

Pennsylvania Manufacturers Indemnity Company (Pennsylvania)

Manufacturers Alliance Insurance Company (Pennsylvania)

PMA Holdings Ltd. (Bermuda)

Pennsylvania Manufacturers' International Insurance Ltd. (Bermuda)

Mid-Atlantic States Investment Company (Delaware)

PMA Holdings, Cayman Ltd. (Cayman)

High Mountain Reinsurance, Ltd. (Cayman)

PMA Insurance SPC, Cayman (Cayman)

PMA Re Management Company (Pennsylvania)

PMA Management Corp. (Pennsylvania)

PMA Services Incorporated (Pennsylvania)

Lorjo Corp. (Pennsylvania)

Walprop, LLC (Pennsylvania)

PMA Re Corporate Capital Limited 2 (United Kingdom)

Caliber One Management Company, Inc. (Delaware)

925 Chestnut, Inc. (Pennsylvania)

DP Corp. (Pennsylvania)

Pennsylvania Manufacturers’ Association Finance Co. (Delaware)

PMA One Benefits, Inc. (Pennsylvania)

Newtown Settlement Insurance Company (Cayman), Ltd. (Cayman)

Yardley Settlement Insurance Company (Cayman), Ltd. (Cayman)

SCHEDULE B

Statements Provided by Initial Purchaser

The third paragraph under the heading “Plan of Distribution” of the Offering Memorandum, concerning the terms of the offering by the Initial Purchaser.

The first two sentences and sixth sentence of the twelfth paragraph under the heading “Plan of Distribution” of the Offering Memorandum, concerning the stabilizing transactions by the Initial Purchaser.

The thirteenth paragraph under the heading “Plan of Distribution” of the Offering Memorandum, concerning electronic distribution of the Offering Memorandum by the Initial Purchaser.

SCHEDULE C

Persons subject to “Lock-Up” Agreements pursuant to Section 5(i)

1.	Neal C. Schneider
2.	Vincent T. Donnelly
3.	William E. Hitselberger
4.	Robert L. Pratter

EXHIBIT A

FORM OF OPINION OF COUNSEL FOR THE COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(c) OF THE PURCHASE AGREEMENT

References to the Offering Memorandum in this Exhibit A include any supplements thereto at the Closing Date.

(i) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the Commonwealth of Pennsylvania, with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum.

(ii) Each of the Purchase Agreement, the Registration Rights Agreement and the Indenture has been duly authorized, executed and delivered by the Company.

(iii) The Company’s execution, delivery and performance of this Agreement, the Registration Rights Agreement, the Indenture and the issuance of the Securities and the consummation of the transactions contemplated by any of the foregoing and by the Offering Memorandum: (i) have been duly authorized by all necessary corporate action and will not result in any violation of the provisions of the Articles of Incorporation or by-laws of the Company or any of the governing instruments of its subsidiaries; (ii) will not constitute a breach of or constitute a default under any agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any such subsidiary is bound or to which any of their properties are subject that is filed or referenced as an exhibit to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2003, or to any report on Form 10-Q or Form 8-K filed since December 31, 2003; and (iii) to the best of such counsel's knowledge, will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any of its subsidiaries or any of their respective properties.

(iv) The Purchase Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

(v) The Registration Rights Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

(vi) The Indenture constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

(vii) The Securities have been duly authorized and issued by the Company and, assuming due authentication thereof by the Trustee and upon payment and delivery in accordance with the Purchase Agreement, will constitute valid and binding obligations of the Company, as issuer, entitled to the benefits of the Indenture and enforceable against the Company, as issuer, in accordance with their terms.

(viii) (A) The shares of Common Stock initially issuable upon conversion of the Securities have been duly authorized and reserved and, when issued upon conversion of the Securities in accordance with the terms of the Securities, will be validly issued, fully paid and non-assessable and (B) the rights (the “Rights”) evidenced by such Common Stock to the extent provided in the Rights Agreement, dated as of May 3, 2000 (the “Rights Agreement”), between

A-1

the Company and The Bank of New York, as rights agent, have been duly authorized and when and if issued upon conversion of the Securities in accordance with the terms of the Indenture and the Rights Agreement will have been validly issued.

(ix) The issuance of the shares of Common Stock upon conversion of the Securities is not subject to any preemptive rights under the Articles of Incorporation, as amended, of the Company or under Pennsylvania law.

(x) Each Transaction Document conforms in all material respects to the description thereof contained in the Final Memorandum.

(xi) The statements in the Final Memorandum under the headings “Description of the New Debentures” and “Material United States Federal Income Tax and Estate Tax Considerations,” insofar as such statements purport to describe or summarize the legal matters and documents therein, fairly present in all material respects such legal matters and documents.

(xii) The Indenture complies as to form in all material respects with the requirements of the Trust Indenture Act, and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder.

(xiii) The Company is not an “investment company” within the meaning of the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder.

(xiv) Neither the consummation of the transactions contemplated by the Purchase Agreement nor the sale, issuance, execution or delivery of the Securities will violate Regulation T, U or X of the Federal Reserve Board.

(xv) To our knowledge, no consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company’s execution, delivery and performance of the Transaction Documents, except such as have been obtained or made by the Company or under applicable state securities or blue sky laws or required by the Pennsylvania Insurance Department under Pennsylvania law.

(xvi) No registration of the Securities or the shares of Common Stock of the Company and accompanying Rights into which the Securities are convertible (the “Conversion Shares”) under the Securities Act of 1933 (the “Securities Act”), or qualification of the Indenture under the Trust Indenture Act, is required in connection with the issuance and sale of the Securities by the Company, the offer, resale and delivery of the Securities by the Initial Purchaser as contemplated by the Purchase Agreement and the conversion of the Securities into the Conversion Shares, in each case in the manner contemplated by the Purchase Agreement, the Indenture and the Final Memorandum.

(xvii) The provisions of the Indenture are effective to create an enforceable security interest (as such term is defined in the UCC) in favor of the Trustee in the capital stock of PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company pledged to the Trustee under the Indenture provided that execution on that Security interest by the Trustee is subject to the approval of the Pennsylvania Insurance Commission.

A-2

(xviii) Except for filings which are necessary to perfect the security interest granted under the Indenture and any other filings, authorizations, deliveries or approvals as are specifically provided for in the Indenture, no authorizations or approvals of, and no filings with, any governmental or regulatory authority or agency of the United States, the Commonwealth of Pennsylvania or the State of New York are necessary for the creation or perfection of the security interest in favor of the Trustee on the capital stock of PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company.

In the course of the preparation by the Company of the Final Offering Memorandum, such counsel shall also state that (A) they have participated in various discussions and meetings with officers, directors and employees of the Company, representatives of Deloitte & Touche LLP, the independent auditors of the Company, and the Initial Purchaser and counsel for the Initial Purchaser concerning the information included in or incorporated by reference into the Final Offering Memorandum, the documents incorporated by reference into the Final Offering Memorandum (the “Exchange Act Documents”) having previously been prepared and filed by the Company without such counsel’s participation; (B) the limitations inherent in the role of outside counsel are such that such counsel cannot and has not independently verified, and are not passing upon, and do not assume responsibility for, the accuracy, completeness or fairness of the information contained in the Final Offering Memorandum except to the extent set forth in paragraph (viii) above or the Exchange Act Documents; and (C) based upon such counsel’s examination of the Final Offering Memorandum and such counsel’s participation, inquiries and investigations set forth above, however, no facts have come to such counsel’s attention that cause such counsel to believe that the Final Offering Memorandum, as of the date thereof or as of the Closing Date, included or includes any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that such counsel expresses no belief with respect to the financial statements and other information of an accounting, financial or statistical nature included in or incorporated by reference into the Final Memorandum.

In rendering such opinion, such counsel may rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials which are furnished to the Initial Purchaser.

A-3

EXHIBIT B

FORM OF OPINION OF COUNSEL FOR THE COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(d) OF THE PURCHASE AGREEMENT

References to the Offering Memorandum in this Exhibit B include any supplements thereto on the Closing Date.

(i) Each subsidiary of the Company has been duly incorporated or otherwise established as a legal entity and is in good standing (to the extent such concept applies) under the laws of the jurisdiction of its incorporation or establishment, with power and authority (corporate and other) to own its properties and to conduct its business as described in the Offering Memorandum. The Company and each of its subsidiaries (A) has all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, and has the requisite corporate or limited liability company power and authority necessary, as applicable, to own or hold its properties and to conduct the its respective businesses in which it is engaged (except where the failure to so qualify or have such power or authority would not, singularly or in the aggregate, be reasonably expected to result in have a Material Adverse Change) and (B) to the best of my knowledge, neither the Company nor such subsidiary has not received any notice of proceedings relating to revocation or modification of, or non-compliance with, any such license, authorization, consent or approval which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would be reasonably likely to result in a Material Adverse Change.

(ii) Each document filed pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”), and incorporated by reference in the Final Memorandum, complied when filed in all material respects as to form with the Exchange Act and the rules and regulations of the Commission thereunder.

(iii) The Company has an authorized capital stock as set forth in the Final Memorandum, and to the best of my knowledge all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and nonassessable. All of the issued shares of capital stock or membership interests of each PMA Capital Insurance Company, Pennsylvania Manufacturers’ Association Insurance Company, Pennsylvania Manufacturers Indemnity Company and Manufacturers Alliance Insurance Company have been duly and validly authorized and issued and are fully paid and non-assessable.

(iv) Except as described in the Offering Memorandum, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate result in a Material Adverse Change, or would materially and adversely affect the ability of the Company to perform its obligations under the Transaction Documents, or which are otherwise material in the context of the offering and sale of the Securities; and to such counsel's knowledge, no such actions, suits or proceedings are threatened or, contemplated.

(v) The Company is not (A) in violation of its charter or by-laws or other organizational document, as applicable, (B) to the best of my knowledge, in default in any

B-1

material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or conditions contained in any Material Contract or (C) to the best of my knowledge, in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject.

(vi) To the best of my knowledge, the issuance of the shares of Common Stock upon conversion of the Securities is not subject to any preemptive or similar rights of any securityholder of the Company.

(vii) To the best of my knowledge, no consent, approval, authorization or other order of, or registration or filing with, the Pennsylvania Insurance Department, is required for the Company’s execution, delivery and performance of the Transaction Documents.

B-2

EXHIBIT C

November 10, 2004

Banc of America Securities LLC

9 West 57^th Street

New York, New York 10019

RE: PMA Capital Corporation (the “Company”)

Ladies & Gentlemen:

The undersigned is an owner of record or beneficially of certain shares of Common Stock of the Company (“Common Stock”) or securities convertible into or exchangeable or exercisable for Common Stock. The Company proposes to carry out a private placement of Senior Secured Convertible Debentures (the “Offering”) for which you are the Initial Purchaser. The undersigned recognizes that the Offering will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital for its operations. The undersigned acknowledges that you are relying on the representations and agreements of the undersigned contained in this letter in carrying out the Offering and in entering into purchase arrangements with the Company and subsidiary guarantors of the Notes with respect to the Offering.

In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not, (and will cause any spouse or immediate family member of the spouse or the undersigned living in the undersigned’s household not to), without the prior written consent of Banc of America Securities LLC (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or otherwise dispose of any shares of Common Stock, any options or warrants to acquire shares of Common Stock, or securities exchangeable or exercisable for or convertible into shares of Common Stock (other than pursuant to the exercise or exchange thereof for shares of common stock) currently or hereafter owned either of record or beneficially (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the undersigned (or such spouse or family member), or publicly announce an intention to do any of the foregoing, for a period commencing on the date hereof and continuing through the close of trading on the date 60 days after the date of the Offering Memorandum. Notwithstanding the foregoing, nothing herein shall prevent or prohibit (a) bona fide gifts by the undersigned or (b) transfers by the undersigned to his or her family members or related trusts for the benefit of his or her family members, provided that in the case of each (a) and (b), the transferee agrees in writing to the terms of this letter. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock held by the undersigned except in compliance with the foregoing restrictions.

With respect to the Offering only, the undersigned waives any registration rights relating to registration under the Securities Act of any Common Stock owned either of record or beneficially by the undersigned, including any rights to receive notice of the Offering.

[SIGNATURE PAGE FOLLOWS]

C-1

This agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned.

Printed Name of Holder

By:    Signature

Printed Name of Person Signing

(and indicate capacity of person signing if

signing as trustee, or on behalf

of an entity)

C-2

EX-12

EXHIBIT 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts In Thousands)
		2004		2003			2002			2001			2000
EARNINGS
Pre-tax income (loss)	$	3,945	$	(67,746	)	$	(79,157	)	$	(4,416	)	$	123
Fixed charges		13,638		11,205			4,611			7,832			13,024
Total	$	17,583	$	(56,541	)	$	(74,546	)	$	3,416		$	13,147
FIXED CHARGES
Interest expense and amortization of
debt discount and premium on all
indebtedness	$	12,354	$	9,887		$	3,257		$	6,541		$	11,889
Interest portion of rental expense		1,284		1,318			1,354			1,291			1,135
Total fixed charges	$	13,638	$	11,205		$	4,611		$	7,832		$	13,024
Ratio of earnings to fixed
charges		1.3x		(A	)		(A	)		(A	)		1.0x

(A)   Earnings were insufficient to cover fixed charges by $67.7 million, $79.2 million and $4.4 million in 2003, 2002 and 2001, respectively.

EX-21

EXHIBIT 21

PMA Capital Corporation
Significant Subsidiaries of Registrant
As of December 31, 2004

PMA Capital Corporation (Pennsylvania)
     Pennsylvania Manufacturers' Association Insurance Company (Pennsylvania)
     Pennsylvania Manufacturers Indemnity Company (Pennsylvania)
     Manufacturers Alliance Insurance Company (Pennsylvania)
     PMA Capital Insurance Company (Pennsylvania)
          PMA Holdings Ltd. (Bermuda)
               Pennsylvania Manufacturers' International Insurance Ltd. (Bermuda)
     Mid-Atlantic States Investment Company (Delaware)
          PMA Holdings, Cayman Ltd. (Cayman)
          High Mountain Reinsurance, Ltd. (Cayman)
          PMA Insurance SPC, Cayman (Cayman)
     PMA Re Management Company (Pennsylvania)
     PMA Management Corp. (Pennsylvania)

EX-24.1

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director and officer of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Vincent T. Donnelly

Vincent T. Donnelly

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto;

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Neal C. Schneider

Neal C. Schneider

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Peter S. Burgess

Peter S. Burgess

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Joseph H. Foster

Joseph H. Foster

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Thomas J. Gallen

Thomas J. Gallen

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Anne S. Genter

Anne S. Genter

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/James C. Hellauer

James C. Hellauer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director and officer of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto;

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Richard Lutenski

Richard Lutenski

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/James F. Malone III

James F. Malone III

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Edward H. Owlett

Edward H. Owlett

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/Roderic H. Ross

Roderic H. Ross

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, a director of PMA Capital Corporation, a Pennsylvania corporation (“PMA”), hereby makes, designates, constitutes and appoints Robert L. Pratter, William E. Hitselberger and Joseph W. La Barge, and each of them (with full power to act without the other), as the undersigned’s true and lawful attorneys-in-fact and agents, with full power and authority to act in any and all capacities for and in the name, place and stead of the undersigned:

(A) in connection with the filing with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, of:

(i) PMA’s Annual Report on Form 10-K for the year ended December 31, 2004 and all amendments thereto; and

(ii) any and all other registration statements pertaining to employee benefit plans of PMA or its subsidiaries, including, without limitation, amendments to PMA’s registration statements on Form S-8 (Registration Numbers 333-115426, 333-86796, 333-73240, 333-77111, 333-68855 and 333-45949); and

(B) in connection with the preparation, delivery and filing of any and all registrations, amendments, qualifications or notifications under the applicable securities laws of any and all states and other jurisdictions with respect to securities of PMA, of whatever class or series, offered, sold, issued, distributed, placed or resold by PMA, any of its subsidiaries, or any other person or entity.

Such attorneys-in-fact and agents, or any of them, are also hereby granted full power and authority, on behalf of and in the name, place and stead of the undersigned, to execute and deliver all such registration statements, reports, registrations, amendments, qualifications and notifications to execute and deliver any and all such other documents, and to take further action as they, or any of them, deem appropriate. The powers and authorities granted herein to such attorneys-in-fact and agents, and each of them, also include the full right, power and authority to effect necessary or appropriate substitutions or revocations. The undersigned hereby ratifies, confirms, and adopts, as his own act and deed, all action lawfully taken by such attorneys-in-fact and agents, or any of them, or by their respective substitutes, pursuant to the powers and authorities herein granted. This Power of Attorney expires by its terms and shall be of no further force and effect on May 15, 2006.

IN WITNESS WHEREOF, the undersigned has executed this document as of the 9th day of February 2005.

/s/L. J. Rowell, Jr.

L. J. Rowell, Jr.

EX-24.2

Exhibit 24.2

CERTIFIED RESOLUTIONS

Certified to be a true and correct copy of the resolutions adopted by the Board of Directors of PMA Capital Corporation at a meeting held on February 9, 2005, a quorum being present, and such resolutions are still in full force and effect as of this date of certification, not having been amended, modified or rescinded since the date of their adoption.

RESOLVED, that the Officers of the Company, and each of them, are hereby authorized to sign the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and any amendments thereto, (the "Form 10-K") in the name and on behalf of the Company and as attorneys for each of its Directors and Officers.

RESOLVED, that each Officer and Director of the Company who may be required to execute (whether on behalf of the Company or as an Officer or Director thereof) the Form 10-K, is hereby authorized to execute and deliver a power of attorney appointing such person or persons named therein as true and lawful attorneys and agents to execute in the name, place and stead (in any such capacity) of any such Officer or Director the Form 10-K and to file any such power of attorney together with the Form 10-K with the Securities and Exchange Commission.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Company, this 16th day of March, 2005.

/s/ Joseph W. La Barge

Joseph W. La Barge

Assistant Secretary

(SEAL)

EX-31.1

EXHIBIT 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Vincent T. Donnelly, President and Chief Executive Officer of PMA Capital Corporation, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2004 of PMA Capital Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:	March 16, 2005	/s/ Vincent T. Donnelly
		Vincent T. Donnelly
		President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, William E. Hitselberger, Executive Vice President and Chief Financial Officer of PMA Capital Corporation, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2004 of PMA Capital Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: March 16, 2005	/s/ William E. Hitselberger
	William E. Hitselberger
	Executive Vice President and
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Vincent T. Donnelly, President and Chief Executive Officer of PMA Capital Corporation, do hereby certify, to the best of my knowledge, that, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, the information contained in the Annual Report of PMA Capital Corporation on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of PMA Capital Corporation. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Vincent T. Donnelly

Vincent T. Donnelly

President and Chief Executive Officer

March 16, 2005

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, William E. Hitselberger, Executive Vice President and Chief Financial Officer of PMA Capital Corporation, do hereby certify, to the best of my knowledge, that, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, the information contained in the Annual Report of PMA Capital Corporation on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of PMA Capital Corporation. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ William E. Hitselberger 

William E. Hitselberger

Executive Vice President and Chief Financial Officer

March 16, 2005