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
 

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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

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Purchase Agreement
 

November 10, 2004

BANC OF AMERICA SECURITIES LLC
9 West 57th 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
 

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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
 
.
 
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
 

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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
 

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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 57th 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

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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

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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)

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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.

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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

 

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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
 

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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.
 

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(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.
 

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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
 

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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

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EXHIBIT C
 
November 10, 2004
 
Banc of America Securities LLC
9 West 57th 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]
 

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This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
 

 

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Printed Name of Holder
 

 
By:

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   Signature
 

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Printed Name of Person Signing
 
(and indicate capacity of person signing if
signing as trustee, or on behalf
of an entity)
 

 
C-2
 

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