<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PMA CAPITAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
PMA CAPITAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF PMA CAPITAL APPEARS HERE]
1735 Market Street, Suite 2800
Philadelphia, PA 19103-7590
---------------------
Notice of 1999 Annual Meeting of Shareholders
To Be Held April 26, 1999
---------------------
Dear PMA Capital Shareholder:
On Monday, April 26, 1999, PMA Capital Corporation will hold its Annual
Meeting of Shareholders at 380 Sentry Parkway, Blue Bell, Pennsylvania 19422-
2328. The Annual Meeting will begin at 9 a.m.
We are holding the Annual Meeting:
1. To elect five directors to serve until 2002 and until their successors
are elected;
2. To vote upon a proposal to approve the 1999 Equity Incentive Plan; and
3. To transact any other business properly presented at the meeting and
any adjournments.
The Board recommends that you vote FOR items 1 and 2.
Only shareholders of record at the close of business on March 22, 1999 are
entitled to vote at the Meeting and any adjournments. A copy of our 1998 Annual
Report to shareholders accompanies this notice.
By Order of the Board of Directors,
Frederick W. Anton III
March 26, 1999 Chairman of the Board
- --------------------------------------------------------------------------------
You are cordially invited to attend the meeting. Whether or not you plan to
attend in person, please mark, date, sign and mail the enclosed proxy. A return
envelope requiring no postage is enclosed for your convenience.
- --------------------------------------------------------------------------------
<PAGE>
PMA CAPITAL CORPORATION
1735 Market Street, Suite 2800
Philadelphia, PA 19103-7590
----------------
Proxy Statement
----------------
GENERAL INFORMATION
You are being sent this Proxy Statement and the enclosed proxy in connection
with the solicitation by the Company's Board of Directors of proxies to be
voted at the Annual Meeting and at any adjournments. The approximate date of
mailing of this Proxy Statement and the enclosed proxy is March 26, 1999.
Effective December 7, 1998, the Company changed its name from Pennsylvania
Manufacturers Corporation to PMA Capital Corporation.
You are being asked to vote on these items:
(1) The election of nominees for directors; and
(2) The approval of the Company's 1999 Equity Incentive Plan.
You may vote your shares either in person or by proxy. To vote by proxy, you
should mark, date, sign and mail the enclosed proxy in the prepaid envelope.
Giving a proxy will not affect your right to vote your shares if you attend the
Annual Meeting and want to vote in person; by voting in person you
automatically revoke your proxy. You also may revoke your proxy at any time
before it is voted by giving the Company's Secretary written notice of your
revocation or by submitting a later-dated proxy. If you return your proxy but
do not mark your voting preference, the individuals named as proxies will vote
your shares FOR each item described in this Proxy Statement.
The Company will pay the cost of soliciting proxies. This solicitation will
be made by mail and may also be made on behalf of the Company by the Company's
officers, directors and employees in person or by telephone or telegram. The
Company will reimburse banks, brokers, nominees, custodians and fiduciaries for
their reasonable out-of-pocket expenses for sending proxies and proxy materials
to beneficial owners.
Only holders of Common Stock and Class A Common Stock of record as of the
close of business on March 22, 1999 will be entitled to vote at the Annual
Meeting. As of the close of business on March 22, 1999, the Company had
13,300,272 outstanding shares of Common Stock and 9,855,991 shares of Class A
Common Stock. Each holder of Common Stock is entitled to cast ten votes for
each share of Common Stock held, and each holder of Class A Common Stock is
entitled to cast one vote for each share of Class A Common Stock held.
Therefore, a total of 142,858,711 votes will be entitled to be cast at the
Annual Meeting.
The holders of Common Stock and Class A Common Stock representing a majority
of the votes entitled to be cast at the Annual Meeting will constitute a
quorum. The holders of Common Stock and Class A Common Stock will vote together
without regard to class on all matters presented at the Annual Meeting. You may
be present in person or by proxy. If you submit a properly executed proxy card,
even if you abstain from voting or withhold your vote, you will be considered
present at the Annual Meeting, and therefore, part of the quorum. Broker non-
votes will also be counted as part of the quorum.
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
Principal Beneficial Owners of Common Stock
The following table shows, as of December 31, 1998, those shareholders (other
than officers and directors of the Company) known to the Company to
beneficially own more than 5% of the outstanding Common Stock or Class A Common
Stock, and the percentage of the total number of votes that these persons are
entitled to cast on matters submitted to the shareholders of the Company. The
share holdings of officers and directors, including those who beneficially own
more than 5% of the Common Stock or Class A Common Stock, are shown in the
table on page 3.
<TABLE>
<CAPTION>
Percent Class A Percent Percent of
Common of Common of Total
Name and Address Stock Class Stock(1) Class Votes(2)
- ---------------- --------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
PMA Foundation................. 4,561,225 33.7% 5,473,450 38.0% 32.1%
1735 Market Street, Suite 2800
Philadelphia, PA 19103-7590
Royce & Associates, Inc.(3).... -- -- 1,123,161 11.4% 0.8%
1414 Avenue of the Americas
New York, NY 10019
</TABLE>
- --------
(1) This column reflects the shares of Class A Common Stock issuable upon
conversion of the shares of Common Stock, each of which is convertible into
one share of Class A Common Stock.
(2) This column sets forth the percentage of votes entitled to be cast by such
persons on matters submitted to shareholders for a vote on the basis of ten
votes per share of Common Stock and one vote per share of Class A Common
Stock. The calculation does not reflect any conversions of current holdings
of Common Stock into Class A Common Stock.
(3) This information was provided by Royce & Associates, Inc.
2
<PAGE>
Beneficial Ownership by Directors and Executive Officers
The following shows, as of February 28, 1999, (i) the shares and percentage
of the Company's Common Stock and Class A Common Stock beneficially owned by
(a) each director and each nominee for director, (b) each executive officer
named in the Summary Compensation Table and (c) all executive officers and
directors of the Company as a group, and (ii) the respective percentage of the
total number of votes that the persons and group will be entitled to cast on
matters submitted to the shareholders of the Company:
<TABLE>
<CAPTION>
Class A
Name of Individual Common Stock Percent Common Stock Percent Percent of
or Identity of Beneficially of Beneficially of Total
Group(1) Owned Class Owned(5) Class Votes(6)
- ------------------ ------------ ------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Frederick W. Anton III(2)(3).............. 145,603 1.1% 568,792(7) 5.5% 1.1%
Paul I. Detwiler, Jr.(2).................. 72,750(8) * 83,175(8) * *
Joseph H. Foster (2)...................... -- * 17,025 * *
Anne S. Genter (2)........................ 500 * 2,700 * *
James F. Malone III(2)(3)................. 845,800 6.3% 1,244,000 11.6% 6.1%
A. John May(2)(3)......................... 257,200(9) 1.9% 317,286(9) 3.1% 1.8%
Louis N. McCarter III(2).................. -- * 28,575(10) * *
John W. Miller, Jr., M.D.(2)(3)........... 109,950 * 604,500 6.0% 1.1%
Edward H. Owlett(2)....................... 738,160(11) 5.5% 946,900(11) 8.9% 5.2%
Louis I. Pollock(2)....................... 308,125(12) 2.3% 367,350(12) 3.6% 2.2%
Roderic H. Ross(2)........................ 3,500 * 6,050 * *
L. J. Rowell, Jr.(2)...................... 1 * 1,001 * *
John W. Smithson(2)(3).................... 193,900(13) 1.4% 643,773(13) 6.2% 1.4%
Stephen G. Tirney......................... 106,375 * 285,029(14) 2.8% *
Vincent T. Donnelly....................... 1,125 * 120,727(15) 1.2% *
Ronald S. Austin.......................... -- * 37,995(16) * *
All executive officers and directors
as a group (17 persons)................... 2,782,989(4)(17) 20.6% 5,373,790(4)(17) 39.3% 20.3%
</TABLE>
- --------
* Less than 1%.
(1) The mailing address of the directors and executive officers owning more
than 5% of a class of the Company's equity securities is: c/o the Company's
Secretary, PMA Capital Corporation, 1735 Market Street, Suite 2800,
Philadelphia, PA 19103-7590.
(2) As of February 28, 1999, PMA Foundation (the "Foundation") owned 4,561,225
shares of Common Stock and 912,225 shares of Class A Common Stock, which
entitles the Foundation to cast approximately 32.1% of the total number of
votes that will be entitled to be cast on matters submitted to the
shareholders of the Company. Other information regarding the Foundation's
stockholdings are set forth in the table on page 2. The Board of Trustees
of the Foundation has sole voting power and investment power with respect
to the shares of Common Stock and Class A Common Stock of the Company held
by the Foundation. These individuals are members of the Board of Trustees
of the Foundation and disclaim beneficial ownership of the Foundation's
shares, which are excluded from the above table.
(3) As of February 28, 1999, Pennsylvania Manufacturers' Association, Northeast
Branch ("NE Branch") owned 70,500 shares of Common Stock and 14,100 shares
of Class A Common Stock, representing less than 1% of each class of stock
and the votes entitled to be cast. The Board of Trustees of NE Branch has
sole voting power and investment power with respect to the shares held by
the NE Branch. These
3
<PAGE>
individuals are members of the Board of Trustees of NE Branch and disclaim
beneficial ownership of NE Branch's shares, which are excluded from the
above table.
(4) As of February 28, 1999, the PMA Capital Corporation Pension Plan (the
"Pension Plan") held 249,000 shares of Common Stock, or 1.8% of the Common
Stock and 1.7% of the votes entitled to be cast, which are excluded from
the above table. These shares are voted in accordance with instructions
from a committee consisting of members of the Company's management, who
disclaim beneficial ownership of the shares.
(5) This column reflects the shares of Class A Common Stock issuable upon
conversion of the shares of Common Stock, each of which is currently
convertible into one share of Class A Common Stock.
(6) This column sets forth the percentage of votes entitled to be cast by such
persons on matters submitted to shareholders for a vote on the basis of
ten votes per share of Common Stock and one vote per share of Class A
Common Stock. The calculation does not reflect any conversions of shares
of Common Stock into Class A Common Stock. The calculation of these
percentages also does not include shares of Class A Common Stock issuable
upon currently exercisable stock options held by such persons under the
Company's equity incentive plans.
(7) Includes options to purchase 280,366 shares of Class A Common Stock that
are currently exercisable or will become exercisable within the next 60
days under the Company's equity incentive plans.
(8) Includes 1,000 shares of Class A Common Stock owned jointly by Mr.
Detwiler and his wife and 9,375 shares of Common Stock and 2,500 shares of
Class A Common Stock owned by one of Mr. Detwiler's children who resides
in his household.
(9) Includes 11,250 shares of Common Stock and 2,650 shares of Class A Common
Stock owned jointly by Mr. May and his wife; and 17,250 shares of Class A
Common Stock held by a partnership of which Mr. May is a general partner.
(10) These shares are owned jointly by Mr. McCarter and his wife.
(11) Includes: (i) 392,200 shares of Common Stock and 9,500 shares of Class A
Common Stock held in certain Owlett family trusts, of which Mr. Owlett
shares voting and dispositive power with Citizens & Northern Bank with
respect to 47,500 of such shares of Common Stock and 9,500 of such shares
of Class A Common Stock; and (ii) 20,660 shares of Common Stock and 7,840
shares of Class A Common Stock held by Mr. Owlett's wife. Mr. Owlett
disclaims beneficial ownership of the shares held by his wife. Also
includes 102,250 shares of Common Stock and 77,150 shares of Class A
Common Stock held in certain trusts for which Mr. Owlett serves as
trustee. Mr. Owlett disclaims beneficial ownership of the shares held in
these trusts.
(12) Includes 100 shares of Class A Common Stock owned jointly by Mr. Pollock
and his wife; 143,750 shares of Common Stock and 27,500 shares of Class A
Common Stock held in a trust for which Mr. Pollock serves as trustee; and
164,375 shares of Common Stock and 31,625 shares of Class A Common Stock
held in a trust for which Mr. Pollock's wife serves as trustee.
(13) Includes 55,000 shares of Common Stock held by Mr. Smithson's wife; an
aggregate of 2,200 shares of Common Stock held by Mr. Smithson's children
who reside in his household; and options to purchase 362,436 shares of
Class A Common Stock that are currently exercisable or will become
exercisable within the next 60 days under the Company's equity incentive
plans.
(14) Includes 500 shares of Class A Common Stock held by Mr. Tirney's wife and
an aggregate of 2,500 shares held by Mr. Tirney's children who reside in
his household, and options to purchase 144,779 shares of Class A Common
Stock that are currently exercisable or will become exercisable within
the next 60 days under the Company's equity incentive plans.
(15) Includes options to purchase 108,279 shares of Class A Common Stock that
are currently exercisable or will become exercisable within the next 60
days under the Company's equity incentive plans.
(16) Includes options to purchase 17,868 shares of Class A Common Stock that
are currently exercisable or will become exercisable within the next 60
days under the Company's equity incentive plans.
(17) Includes options to purchase 979,822 shares of Class A Common Stock that
are currently exercisable or will become exercisable within the next 60
days under the Company's equity incentive plans.
4
<PAGE>
ITEM 1. ELECTION OF DIRECTORS
The Company's Board of Directors consists of 13 members. Each director is
elected for a three-year term and until the director's successor has been duly
elected. The current three-year terms of the Company's directors expire in the
years 1999, 2000 and 2001.
Five directors whose terms expire at the Annual Meeting are to be elected for
terms expiring at the 2002 Annual Meeting. All of the nominees are currently
directors of the Company. If any nominee becomes unavailable for any reason, it
is intended that the proxies will be voted for a substitute nominee selected by
the Board of Directors. The Board of Directors has no reason to believe that
any of the nominees named will be unable to serve if elected. Any vacancy
occurring on the Board of Directors for any reason may be filled by the Board
of Directors for the unexpired term.
Vote Requirement
Cumulative voting rights exist with respect to the election of directors,
which means that you have the right, in person or by proxy, to multiply the
number of votes to which you are entitled by the number of directors of the
class to be elected, and to cast the whole number of such votes for one
candidate or to distribute them among two or more candidates. The five nominees
for directors who receive the highest number of votes cast by the holders of
Common Stock and Class A Common Stock entitled to vote, voting together without
regard to class, will be elected as directors of the Company. Votes withheld
and broker non-votes are not counted toward a nominee's total.
The Board of Directors recommends that the shareholders vote FOR each of the
nominees identified below.
The names of the nominees for directors and the directors who will continue
in office after the Annual Meeting, together with certain information regarding
them, are as follows:
Nominees for Election
---------------------
Nominees for Election for Terms Expiring at the 2002 Annual Meeting
Paul I. Detwiler, Jr., age 65 Director since 1984
Mr. Detwiler is Chairman of the Board of New Enterprise Stone & Lime Co., a
quarrying and construction company, since 1990. He is also a director of
Keystone Financial, Inc.
Anne S. Genter, age 64 Director since 1991
Ms. Genter has served as President of Anne S. Genter Interior Design, an
interior design company, since 1975.
A. John May, age 70 Director since 1977
Mr. May has been an attorney with Duane, Morris & Heckscher LLP, a law firm,
for more than 30 years. He was Chairman of the Board of the Company from 1982
to 1995.
Roderic H. Ross, age 68 Director since 1981
Mr. Ross has served as Chairman of the Board and Chief Executive Officer of
Keystone State Life Insurance Company since 1985. He is also a director of Hunt
Corporation and PNC Bank Corp.
5
<PAGE>
John W. Smithson, age 53 Director since 1987
Mr. Smithson has served as President and Chief Executive Officer of the
Company since May 1997. He served as President and Chief Operating Officer of
the Company from 1995 to May 1997, as Chairman and Chief Executive Officer of
PMA Reinsurance Corporation since 1984, as Chairman and Chief Executive
Officer of The PMA Insurance Group since April 1995 and as Chairman and Chief
Executive Officer of Caliber One Management Company since April 1997. He
started with the Company in 1972.
Directors Continuing In Office
------------------------------
Directors Continuing in Office with Terms Expiring at the 2000 Annual Meeting
Frederick W. Anton III, age 65 Director since 1972
Mr. Anton has served as Chairman of the Board of the Company since 1995. He
has served as Chairman of the Board and Chief Executive Officer from 1995 to
May 1997 and as President and Chief Executive Officer from 1981 to 1995. He
started with the Company in 1962.
Joseph H. Foster, age 70 Director since 1982
Mr. Foster has been a partner of White & Williams, a law firm, since 1958.
James F. Malone III, age 55 Director since 1974
Mr. Malone has been a partner of Malone, Larchuk & Middleman, P.C., a law
firm, since 1997 and from 1980 to 1997 was a partner of Dickie, McCamey &
Chilcote, P.C., a law firm.
L. J. Rowell, Jr., age 66 Director since 1992
Mr. Rowell was Chairman, President and Chief Executive Officer of Provident
Mutual Life Insurance Company from 1991 until his retirement in July 1996.
Directors Continuing in Office with Terms Expiring at the 2001 Annual Meeting
Louis N. McCarter III, age 70 Director since 1975
Mr. McCarter has been President of the McCarter Corp., a manufacturer of
specialized mixing machinery, since 1954.
John W. Miller, Jr., M.D., age 64 Director since 1988
Dr. Miller is a physician and served as President of Ear, Nose and Throat
Associates of Lancaster from 1970 until his retirement in October 1998.
Edward H. Owlett, age 72 Director since 1964
Mr. Owlett has been a partner of Owlett, Lewis & Ginn, P.C., a law firm,
since 1981. Mr. Owlett is also a director of Citizens & Northern Corporation.
Louis I. Pollock, age 69 Director since 1984
Mr. Pollock has served as President and Chief Executive Officer of Morris
Coupling Company, a manufacturer of pipe and tubing, since 1957.
6
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met four times in 1998. The Board of Directors has
Executive and Finance Committees, an Audit Committee, a Nominating Committee, a
Compensation Committee and a Stock Option Committee. During 1998, no director
attended fewer than 75% of the total number of meetings of the Board of
Directors and all committees on which such directors served, except for Mr.
Detwiler and Dr. Miller, who missed several meetings due to a personal illness.
The Executive and Finance Committees met eight times in 1998. Messrs. Anton,
Malone, May, McCarter, Miller, Owlett and Smithson are the members of the
Executive and Finance Committees. The Executive and Finance Committees have the
authority to take all action that may be taken by the full Board of Directors,
consistent with Pennsylvania law, between Board of Directors' meetings.
The Audit Committee of the Company consists of Messrs. Owlett, Pollock and
Rowell. The Audit Committee, which met two times in 1998, reviews audit reports
and management recommendations made by the Company's independent accounting
firm.
The Nominating Committee of the Company consists of Messrs. Malone, May,
Miller and Owlett. The Nominating Committee, which met one time in 1998, is
responsible for nomination of candidates to stand for election to the Board of
Directors at the Annual Meeting and the nomination of candidates to fill
vacancies on the Board of Directors between meetings of shareholders. The
Nominating Committee will consider nominations for directors from shareholders
to the extent such nominations are made in accordance with the Company's
Bylaws. Under the Company's Bylaws, every director is required to be a
shareholder of the Company, and no person may be considered as a candidate, and
no votes may be counted for any person, unless written notice of such person's
nomination or candidacy has been filed with the Secretary of the Company not
less than 60 days prior to the date of the election. However, current directors
whose terms will expire at the upcoming election and nominees selected by the
Board of Directors or the Nominating Committee may be candidates and voted for
without such notice.
The Compensation Committee of the Company consists of Messrs. Miller, Owlett
and Rowell. The Compensation Committee met two times in 1998. The Committee
reviews and recommends compensation plans and approves certain compensation
changes. The Committee reviews and approves the cash compensation of the
Company's executive officers, including the Chief Executive Officer.
The Stock Option Committee of the Company consists of Messrs. Miller and
Rowell. The Stock Option Committee met two times in 1998 to grant options
under, and determine participants in, the Company's equity incentive plans.
DIRECTOR COMPENSATION
In addition to expenses of attendance, which are paid to all directors,
directors of the Company who are not also employees of the Company are paid an
annual retainer of $15,000 for their services and a fee of $1,000 for each
Board of Directors meeting and $1,000 for each committee meeting; provided,
that if a director attends more than one committee meeting in any one day, the
total fee for attendance at such meetings will not exceed $1,000.
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following information is furnished for the chief executive officer
("CEO") of the Company and the four most highly compensated executive officers
of the Company and its principal subsidiaries other than the CEO at the end of
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
--------------------------------------- ------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary($) Bonus($) Compensation($)(1) Options(#) Compensation($)
------------------ ---- --------- -------- -------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
John W. Smithson........ 1998 $700,000 $550,000 $ 4,991 140,000 $ 69,792(2)
President and Chief 1997 692,115 382,000 8,848 40,000 62,998
Executive Officer 1996 675,440 350,000 9,672 75,000 73,137
Frederick W. Anton III.. 1998 $700,000 -- $ 6,543 -- $ 83,570(3)
Chairman of the Board 1997 700,000 -- 18,084 -- 79,800
1996 700,311 -- 5,048 75,000 101,838
Stephen G. Tirney....... 1998 $388,077 $310,000 $ 3,706 100,000 $ 24,951(4)
President and Chief 1997 362,428 150,000 3,413 19,500 24,512
Operating Officer of 1996 315,544 -- 5,655 25,000 38,417
PMA Reinsurance
Corporation
Vincent T. Donnelly(5).. 1998 $350,000 $200,000 $ -- 100,000 $ 23,279(5)
President and Chief 1997 329,511 125,000 1,719 19,500 22,682
Operating Officer of
The PMA Insurance
Group
Ronald S. Austin(6)..... 1998 $336,812 $180,000 $77,595 100,000 $ 27,942(6)
President and Chief 1997 219,358 200,000 6,228 19,500 10,626
Operating Officer of
Caliber One Management
Company
</TABLE>
- --------
(1) Amounts represent tax payment reimbursements for certain benefits. In
addition, for Mr. Austin, this column includes the payment of $48,356 in
certain relocation expenses and $23,018 for the payment of associated
taxes.
(2) This amount includes Company contributions to its non-qualified defined
contribution plan of $27,000, Company matching contributions to its 401(k)
plan of $8,000 and $34,792 of life insurance premiums paid by the Company.
(3) The amount includes Company contributions to its non-qualified defined
contribution plan of $27,000, Company matching contributions to its 401(k)
plan of $8,000 and $48,570 of life insurance premiums paid by the Company.
(4) This amount represents Company contributions to its non-qualified defined
contribution plan of $11,000, Company matching contributions to its 401(k)
plan of $8,000 and $5,951 of life insurance premiums paid by the Company.
8
<PAGE>
(5) Mr. Donnelly was appointed President and Chief Operating Officer of The PMA
Insurance Group in February 1997. This amount includes Company
contributions to its non-qualified defined contribution plan of $9,500,
Company matching contributions to its 401(k) plan of $8,000 and $5,779 of
life insurance premiums paid by the Company.
(6) Mr. Austin was appointed President and Chief Operating Officer of Caliber
One Management Company, the Company's specialty insurance operation, in
April 1997. This amount includes Company contributions to its non-qualified
defined contribution plan of $8,250, Company matching contributions to its
401(k) plan of $8,000 and $11,692 of life insurance premiums paid by the
Company.
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to options to
purchase shares of Class A Common Stock granted to the persons named in the
Summary Compensation Table during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Price Expiration Grant Date
Name Granted(#) Fiscal Year ($/Share) Date Present Value($)(5)
- ---- ---------- ------------ -------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
John W. Smithson........ 100,000(1) 12.1% $17.00 2/4/03 $333,000
40,000(2) 4.8% 17.00 2/4/08 236,200
Frederick W. Anton III.. -- -- -- -- --
Stephen G. Tirney....... 80,000(1) 9.7% 17.00 2/4/03 266,400
20,000(3) 2.4% 17.00 2/4/08 118,100
Vincent T. Donnelly..... 80,000(1) 9.7% 17.00 2/4/03 266,400
20,000(3) 2.4% 17.00 2/4/08 118,100
Ronald S. Austin........ 80,000(1) 9.7% 17.00 2/4/03 266,400
20,000(4) 2.4% 17.00 2/4/08 118,100
</TABLE>
- --------
(1) This grant represents 1998 Target Price Options that become exercisable
based on target stock prices of Class A Common Stock. Fifty percent of the
1998 Target Price Options vest on the date within five years from the date
of grant on which the Class A Common Stock has traded at a market price of
$28.00 per share for 20 trading days in a 30 consecutive day trading
period. The other fifty percent of these options vest when the Class A
Common Stock has traded at a market price of $32.00 per share for 20
trading days in a consecutive 30 trading day period. If the Class A Common
Stock does not reach these market prices during the five-year term, the
options will expire.
(2) These options become exercisable for 34,118 shares on 5/1/98 and 5,882
shares on 1/2/02.
(3) These options become exercisable for 5,000 shares on 5/1/98, 5,000 shares
on 2/4/99, 4,118 shares on 2/4/00 and 5,882 shares on 1/2/02.
(4) These options become exercisable for 5,000 shares on 5/1/98, 3,118 shares
on 2/4/99, 1,000 shares on 2/4/00, 5,000 shares on 2/4/01 and 5,882 shares
on 1/2/02.
(5) Based on a binomial option pricing model adapted for use in valuing
executive stock options. Calculations of grant date present values for all
options assumes an option life of 10 years, except for the 1998 Target
Price Options described in (1) above for which a 5-year option life was
assumed, a dividend yield of 1.9%, a price volatility of Class A Common
Stock of 26% and an annualized risk-free interest rate of 5.4%. The
calculation of the 1998 Target Price Options also reflects growth
assumptions used to determine how the price of the Class A Common Stock
will change prior to the expiration of the 1998 Target Price Options. The
approach used in developing the foregoing assumptions is consistent with
the requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."
9
<PAGE>
(note cont'd)
The actual value, if any, an executive may realize will depend on the
excess of the stock price on the date the option is exercised over the
exercise price, so there is no assurance the value realized by an executive
will be at or near the value estimated by the binomial option pricing
model. The Company believes that no model accurately predicts the future
price of the Class A Common Stock or places an accurate present value on
stock options.
Aggregated Option Exercises in the Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information with respect to options to
purchase shares of Class A Common Stock exercised by the persons named in the
Summary Compensation Table during the fiscal year ended December 31, 1998 and
options held by such persons at December 31, 1998.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying In-the-Money
Unexercised Options at Options at
Shares Fiscal Year-End Fiscal Year-End(2)
Acquired on Value ------------------------------- -------------------------------
Name Exercise(#) Realized($)(1) Exercisable(#) Unexercisable(#) Exercisable($) Unexercisable($)
- ---- ----------- ---------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John W. Smithson........ -- -- 356,636 123,364 $1,852,431 $277,569
Frederick W. Anton III.. 40,756 $361,096 274,516 11,650 1,460,823 26,301
Stephen G. Tirney....... 8,000 64,000 129,440 121,560 809,240 273,510
Vincent T. Donnelly..... 4,000 40,000 92,940 121,560 480,065 273,510
Ronald S. Austin........ -- -- 14,750 104,750 33,188 235,688
</TABLE>
- --------
(1) Represents the difference between the aggregate exercise price and the
aggregate market value as of the date of exercise.
(2) Represents the difference between the aggregate exercise price and the
aggregate market value as of December 31, 1998.
Pension Plans
Under the PMA Capital Corporation Pension Plan ("Pension Plan") and the PMA
Capital Corporation Supplemental Executive Retirement Plan ("PMA SERP"),
participants are entitled to benefits pursuant to the formula set forth under
such plans. The benefits payable under the Pension Plan will be limited by
Section 415 and Section 401(a)(17) of the Internal Revenue Code of 1986, as
amended (the "Code"). The remainder of the benefit will be paid under the PMA
SERP without regard to such limits. The benefit is based upon the accrued
pension benefit for the participant at December 31, 1992 plus annual accruals
beginning January 1, 1993 equal to the sum of (i) 1.5% of the participant's
compensation for each year of benefit service after December 31, 1992, up to a
maximum of 25 years, plus (ii) 0.3% of the participant's compensation in
excess of covered compensation for each year of benefit service after December
31, 1992, up to a maximum of 25 years. For purposes of the above formula,
compensation consists of wages and commissions (including employer
contributions made pursuant to a salary reduction agreement which are not
includible in the participant's gross income under Code Sections 125 and
402(e)(3)) but excluding any reimbursed expenses, overtime, bonuses, severance
payments, payments for consulting services or in connection with a non-
competition covenant, or other supplementary payments. Covered compensation
consists of the average (without indexing) of the participant's taxable wage
base in effect for each calendar year during the 35-year period ending on the
last day of the calendar year in which the participant attains Social Security
retirement age. A maximum of 25 years of service is
10
<PAGE>
considered in calculating the annual benefit payable upon normal retirement at
normal retirement age. In no event, however, will a participant's benefit under
the Pension Plan be less than such participant's accrued benefit under the
Pension Plan on December 31, 1992.
The executive officers named in the Summary Compensation Table had the
following years of service as of December 31, 1998: (i) Mr. Smithson, 27 years;
(ii) Mr. Anton, 36 years; (iii) Mr. Tirney, 23 years; (iv) Mr. Donnelly, 7
years; and (v) Mr. Austin, 2 years. Based upon the above formula and years of
service, the estimated annual benefit payable upon normal retirement at age 65
for each executive officer named in the Summary Compensation Table would be as
follows: (i) Mr. Smithson, $116,800; (ii) Mr. Anton, $168,000; (iii)
Mr. Tirney, $57,900; (iv) Mr. Donnelly, $29,700; and (v) Mr. Austin, $12,300.
The amounts for Mr. Anton do not include other retirement payments that would
be provided pursuant to his employment agreement described below.
Employment Agreements
Frederick W. Anton III has an employment agreement with the Company for a
term that commenced April 1, 1995 and currently ends March 31, 2002, and is
subject to automatic extension for an additional period of one year for each
year Mr. Anton is elected as Chairman of the Board of the Company commencing
with the 1999 organizational meeting of the Board of Directors of the Company.
The employment agreement provides for a salary of not less than $700,000, which
may be increased but not decreased by the Company at any time or from time to
time. Mr. Anton is also entitled to receive such bonus compensation as he may
be awarded from time to time. Mr. Anton has agreed during the term of the
employment agreement not to engage or have a material financial interest in any
business that competes with the business of the Company as then conducted. In
the event of Mr. Anton's death during the term of the agreement, Mr. Anton's
survivors are entitled to an annual payment of 60% of Mr. Anton's annual salary
on the date of his death for a period of 10 years. If Mr. Anton retires at any
time, Mr. Anton would be entitled to receive monthly payments equal to 5% of
his annual salary on the date of his retirement and continuing throughout his
lifetime. If, during his retirement and prior to his death, the total payments
made during retirement are less than 60% of his annual salary at retirement
multiplied by 15, the difference is to be paid to his survivors within one year
of the date of his death. Under the agreement, the Company is required to
maintain a split-dollar life insurance policy in the face amount of $1,000,000
on the life of Mr. Anton.
John W. Smithson has an employment agreement with the Company for a term that
commenced April 1, 1995 and currently expires March 31, 2001, and is subject to
automatic extension for an additional period of one year for each year Mr.
Smithson is re-elected President of the Company at each annual organizational
meeting of the Board of Directors of the Company. The employment agreement
provides for a salary of not less than $670,000 per year, which may be
increased but not decreased at the discretion of the Company at any time or
from time to time. Mr. Smithson is also entitled to receive such bonus
compensation as he may be awarded from time to time. Mr. Smithson has agreed
during the term of the employment agreement not to engage in or have a material
financial interest in any business that competes with the Company as then
conducted. In the event of Mr. Smithson's death during the term of the
agreement, Mr. Smithson's survivors are entitled to 180 consecutive monthly
payments of an amount equal to 25% of Mr. Smithson's monthly salary as of the
date of his death, reduced by the amount of any similar payments for disability
paid to
11
<PAGE>
Mr. Smithson during his lifetime in the event Mr. Smithson becomes disabled
during the employment term. Under the agreement, the Company is required to
maintain a split-dollar life insurance policy in the face amount of $1,000,000
on the life of Mr. Smithson.
Compensation Committee Interlocks and Insider Participation
The following directors constitute the current members of the Compensation
Committee of the Board of Directors: John W. Miller, Jr., Edward H. Owlett and
L. J. Rowell, Jr. Mr. Owlett is a member of a law firm that furnished legal
representation to the Company and its subsidiaries during 1998. In the opinion
of the Company's management, the amounts paid to his firm represented
reasonable charges for the services rendered and were as fair as the charges
would have been had such services been furnished by law firms unaffiliated with
him.
12
<PAGE>
The following Report of the Compensation Committee and the Performance Graph
on page 17 have been prepared solely for purposes of this Proxy Statement.
Neither the report nor the graph shall be incorporated, in whole or in part, in
any other Company filing under the Securities Act of 1933 (the "Securities
Act") and the Securities Exchange Act of 1934 (the "Exchange Act").
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES ON THE COMPENSATION OF
EXECUTIVE OFFICERS OF THE COMPANY FOR THE YEAR ENDED DECEMBER 31, 1998
The Compensation and Stock Option Committees of the Board of Directors make
decisions regarding the aggregate compensation of the Company's executive
officers in the form of base salaries, cash bonuses and stock option awards.
The members of the Compensation Committee for the year ended December 31, 1998
were John W. Miller, Jr., Edward H. Owlett and L. J. Rowell, Jr., none of whom
are officers or employees of the Company or its subsidiaries. Messrs. Miller
and Rowell also are the members of the Stock Option Committee.
In 1998, the Chairman of the Board received a salary in accordance with his
employment agreement with the Company described above in "Compensation of
Executive Officers -- Employment Agreements," and no other incentive
compensation. In this report, we have discussed the Company's compensation
policies and compensation paid to the Company's other executive officers.
The Committees have implemented compensation policies which are intended to
support the Company's overall objective of enhancing value for our
shareholders. In addition, the Company's compensation policies are designed to
align executive compensation with the Company's long-term business objectives
and performance and to enable the Company to attract, retain and motivate
executive officers whose leadership and contributions are critical to the
Company's long-term success. In furtherance of these objectives, the Company's
compensation program for executive officers includes the following elements:
. Pay base salaries to executive officers which are reasonably competitive
with base salaries paid by similarly sized United States insurance and
reinsurance companies ("Peer Companies") for comparable executive
positions.
. Reward the Company's executive officers through incentive cash bonuses
based on pre-established, objective performance criteria related to the
financial results of the Company and the business segment under each
executive officer's direct management, and also taking into account the
executive officer's individual leadership, strategic management and
contribution to the Company's success.
. Provide additional long-term incentive to executive officers and align
their interests with the shareholders' interests through the granting of
stock-based compensation.
. Compensate the Company's executive officers on an equitable basis taking
into consideration each individual's degree of responsibility and
contribution to the achievement of the Company's overall objectives.
13
<PAGE>
In 1998, the Company had three components for the compensation paid to its
executive officers: base salary, an annual incentive cash bonus and stock
options. The Committees considered and determined each element separately and
collectively to ensure that the executive officers were appropriately
compensated consistent with our basic compensation principles. In making these
decisions, the Committees reviewed survey data of the compensation paid by
other insurers and reinsurers generally and the Peer Companies for comparable
executive positions. The Committees target each executive's aggregate
compensation to the mean of the aggregate compensation paid by the Peer
Companies for comparable executive positions.
We have discussed in the following section the three elements of compensation
for each of the executive officers in fiscal 1998, other than the President and
Chief Executive Officer, who is discussed subsequently in the body of this
report.
Base Salary
In 1998, the President and Chief Executive Officer of the Company recommended
to the Compensation Committee a base salary for the executive officers, other
than himself. In determining base salary, the Compensation Committee considered
each executive officer's value to the Company, his experience in the industry
and performance with the Company. The Compensation Committee also considered
the base salary levels in effect for comparable executive positions with the
Peer Companies.
Cash Bonus
For the year ended December 31, 1998, the Compensation Committee had set
various pre-established, objective performance-based goals for the payment of
incentive cash bonuses to each of the executive officers. After the end of the
1998 fiscal year, the Compensation Committee evaluated each executive officer's
performance and also reviewed the total cash compensation paid by the Peer
Companies for comparable executive positions. The Compensation Committee
determined that each of the executive officers had met their overall
performance goals, and that incentive cash compensation in excess of the
targeted cash bonuses should be paid to the executive officers in recognition
of their achievements during fiscal year 1998. The total cash compensation for
the Company's executives for fiscal year 1998 did not exceed the mean cash
compensation paid by the Peer Companies for comparable executive positions.
Stock Options
The Stock Option Committee administers the Company's previously approved
stock option plans. The Committee believes that the executive officers should
have the opportunity to own Class A Common Stock of the Company to align their
interests with the Company's shareholders. Stock options provide this
opportunity and also add an additional long-term incentive to executive
officers and other key employees to further the Company's growth, development
and financial success. The Stock Option Committee has a policy of considering
annual grants under the stock option plans to executive officers.
In 1998, the Stock Option Committee granted options under the stock option
plans to key employees of the Company to purchase 406,500 shares of Class A
Common Stock, of which 80,000
14
<PAGE>
options were granted to executive officers. In making these grants, the Stock
Option Committee considered the number of options remaining available for grant
under the stock option plans, the aggregate amount of options previously
granted and the amount of options previously granted to each of the executive
officers. All of the options granted in 1998 to the executive officers were at
an exercise price that was greater than the fair market value of the Class A
Common Stock on the date of grant. Options granted in 1998 vest over a four-
year period.
In addition to the above options, in 1998 the Stock Option Committee
recommended that the Board of Directors grant additional options (the "1998
Target Price Options") to each of the executive officers to purchase shares of
Class A Common Stock. The 1998 Target Price Options are designed to provide a
special incentive to each of the executive officers to enhance long-term
shareholder value based exclusively on an increase in the fair market value of
the Company's Class A Common Stock over a five-year term. Fifty percent of the
1998 Target Price Options vest on the date within five years from the date of
grant on which the Class A Common Stock has traded at a market price of $28.00
per share for twenty trading days in a thirty consecutive day trading period.
The other fifty percent of these options vest when the Class A Common Stock has
traded at a market price of $32.00 per share for twenty trading days in a
consecutive thirty trading day period. If the Class A Common Stock does not
reach these market prices during the five-year term, the options will expire.
Each of the executive officers was granted 1998 Target Price Options to
purchase 80,000 shares of Class A Common Stock, an aggregate of 320,000 shares
of Class A Common Stock, at an exercise price that was greater than the fair
market value of the Class A Common Stock on the date of grant.
Compensation of the President and Chief Executive Officer
Mr. Smithson has an employment contract with the Company which currently
expires March 31, 2001, and is subject to automatic one-year extensions if Mr.
Smithson is re-elected President of the Company at each annual organizational
meeting of the Board of Directors. The contract requires the Company to pay Mr.
Smithson a salary of not less than $670,000 per year. In evaluating
Mr. Smithson's base salary for fiscal year 1998, the Committee considered a
variety of factors, including the Company's performance since Mr. Smithson
became President and Chief Executive Officer, his long-term contributions to
the Company, his strategic leadership, his stature in the insurance industry
and his ongoing value to the Company and its shareholders. The Committee also
reviewed the base salary that the Peer Companies pay to their chief executive
officers, and the percentage relationship between base salary, and short and
long-term incentive compensation. Based upon all of these factors, the
Committee concluded to continue Mr. Smithson's base salary at $700,000 per year
for fiscal year 1998 and to allocate an increased portion of his aggregate
compensation to incentive compensation as discussed below.
For the year ended December 31, 1998, Mr. Smithson received an incentive cash
bonus of $550,000 in recognition of his achieving the pre-established objective
performance goals that the Compensation Committee had set for him, including
the targeted increases in operating income before taxes and interest expense,
net income and earnings per diluted share. The Compensation Committee also
considered Mr. Smithson's leadership of the Company, the continuing development
of the Company's reinsurance business, the continuing improvement in the
Property and Casualty Group's performance, the successful founding of Caliber
One Indemnity Company and
15
<PAGE>
Mr. Smithson's strategic vision and commitment to the Company. The aggregate
cash compensation paid to Mr. Smithson for fiscal year 1998 did not exceed the
mean amount paid to chief executive officers by the Peer Companies.
The Stock Option Committee also approved the award to Mr. Smithson of options
to purchase 40,000 shares of Class A Common Stock pursuant to the Company's
stock option plans at an exercise price that was greater than the fair market
value of the Class A Common Stock on the date of grant. In addition,
Mr. Smithson received an award of 1998 Target Price Options to purchase 100,000
shares of Class A Common Stock at an exercise price above the fair market value
of Class A Common Stock on the date of grant. The vesting schedule and other
terms of all options granted to Mr. Smithson were the same as described above
for the other executive officers. These option awards were intended to
strengthen the relationship between Mr. Smithson's future compensation
opportunity and the creation of additional shareholder value.
Compliance with Internal Revenue Code Section 162(m)
All of the compensation paid by the Company to its Chief Executive Officer
and other executive officers qualified for a tax deduction by the Company for
fiscal year 1998. Beginning in fiscal year 2000, the Company will become
subject to the provisions of Section 162(m) of the Internal Revenue Code which
generally disallows a tax deduction to public companies for compensation over
$1 million paid to a company's chief executive officer and the four most highly
compensated executive officers other than the chief executive officer. However,
the statute exempts qualifying performance-based compensation from the
deduction limit if certain requirements are met. The Company intends to comply
with all of the Section 162(m) requirements when they become applicable to it.
The Compensation Committee
John W. Miller, Jr.
Edward H. Owlett
L. J. Rowell, Jr.
The Stock Option Committee
John W. Miller, Jr.
L. J. Rowell, Jr.
16
<PAGE>
COMPARISON OF TOTAL RETURN ON THE COMPANY'S
CLASS A COMMON STOCK WITH CERTAIN INDICES
The following graph provides an indicator of cumulative total shareholder
return on the Company's Class A Common Stock for each fiscal quarter since July
31, 1997 compared with the cumulative total return of the Standard & Poors' 500
Stock Index (the "S&P 500"), the Standard & Poors' Property/Casualty Insurance
Index (the "S&P P/C") and the Standard & Poors' SmallCap Property/Casualty
Insurance Index ("S&P Small P/C") for the same period, and assumes that with
respect to the Company's Class A Common Stock, the S&P 500, the S&P P/C and the
S&P Small P/C, $100 was invested on July 31, 1997 and all dividends were
reinvested.
<TABLE>
<CAPTION>
7/31/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
S&P 500.............. $100.00 $99.57 $102.43 $116.70 $120.56 $108.59 $131.70
S&P P/C.............. 100.00 100.60 108.71 112.92 114.10 96.62 101.14
S&P Small P/C........ 100.00 112.59 114.62 128.33 134.20 111.96 113.20
PMA Capital.......... 100.00 109.01 108.79 117.49 150.71 128.37 129.37
</TABLE>
- --------
* The Company's registration of its Class A Common Stock under the Exchange
Act became effective in August 1997, and the Class A Common Stock commenced
trading on the NASDAQ National Market System effective on February 5, 1998.
Prior to that date, the Company's cumulative returns were based upon over-
the-counter bid quotations, which reflect interdealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
17
<PAGE>
CERTAIN TRANSACTIONS
The Company's largest shareholder is the Foundation, which is a not-for-
profit corporation qualified under Section 501(c)(6) of the Internal Revenue
Code and whose purposes include the promotion of the common business interests
of its members and the economic prosperity of the Commonwealth of Pennsylvania.
As of February 28, 1999, the Foundation owned 4,561,225 shares of Common Stock
and 912,225 shares of Class A Common Stock, which entitles the Foundation to
cast 32.1% of the total number of votes available to be cast in matters brought
before the Company's shareholders. All of the members of the Company's Board of
Directors currently serve as the members of the Foundation's Board of Trustees.
Also, Frederick W. Anton III, Chairman of the Company, serves as President and
Chief Executive Officer of the Foundation. The Company and certain of its
subsidiaries provide certain administrative services to the Foundation for
which the Company and its affiliates receive reimbursement. Total
reimbursements in 1998 amounted to $14,000. The Foundation also leases its
Harrisburg, Pennsylvania headquarters facility from a subsidiary of the Company
under a monthly operating lease presently requiring rent payments of $25,000
per month and reimburses a subsidiary of the Company for its use of office
space in the Blue Bell, Pennsylvania facility. Rent and related reimbursements
paid in 1998 to the Company's affiliates by the Foundation amounted to
$262,000.
James F. Malone III, A. John May, Edward H. Owlett and Joseph H. Foster, who
are directors of the Company, are or have been members of law firms that
furnished legal representation to the Company and its subsidiaries during 1998.
In the opinion of the Company's management, the amounts paid to such firms
represented reasonable charges for the services rendered and were as fair as
the charges would have been had such services been furnished by law firms
unaffiliated with any of the directors. No fees paid to the directors' law
firms exceeded five percent of their law firms' gross revenues, except for $1.1
million in legal fees paid to Mr. Malone's law firm.
The Company has provided demand loans to executive officers of the Company
and its subsidiaries, for the purpose of providing such executive officers with
funds to purchase Common Stock or Class A Common Stock. The loans are
collateralized by the Common Stock or the Class A Common Stock purchased by the
executive officer. As of December 31, 1998, Francis W. McDonnell, the Company's
Chief Financial Officer, had $153,088 outstanding under the program at an
interest rate of 6% per annum, which amount was also the largest amount
outstanding during 1998. Mr. McDonnell paid off this loan in February 1999.
The Company has arranged an executive loan program (the "Financial Support
Program") with financial institutions, whereby such institutions will provide
prime rate personal loans to officers of the Company and its subsidiaries
collateralized by Common Stock and Class A Common Stock generally at a maximum
50% loan to value ratio. The Company has agreed to purchase any loan made under
the Financial Support Program (including accrued interest and related expenses)
from the financial institution in the event that the borrower defaults on such
loan, while employed by the Company. The following table sets forth certain
information with respect to indebtedness of executive officers of the Company
during 1998 under the Financial Support Program:
18
<PAGE>
<TABLE>
<CAPTION>
Largest Amount Balance at
Executive Officer Outstanding During Period End of Period
----------------- ------------------------- -------------
<S> <C> <C>
John W. Smithson................... $1,319,535 $676,912
Stephen G. Tirney.................. 407,000 407,000
Vincent T. Donnelly................ 9,900 9,900
Francis W. McDonnell............... 353,000 353,000
</TABLE>
Subsidiaries of the Company, in the ordinary course of their business, have
had and intend to continue to have insurance transactions with directors and
officers of the Company and the various businesses with which directors and
officers of the Company are associated. Such insurance is written in accordance
with rates and terms authorized for use in the applicable jurisdictions.
ITEM 2. PROPOSAL TO APPROVE THE 1999
EQUITY INCENTIVE PLAN
Purpose of the 1999 Equity Incentive Plan
The 1999 Equity Incentive Plan (the "1999 Plan") was adopted by the Board of
Directors on February 3, 1999, subject to shareholder approval of the 1999
Plan. The objective of the 1999 Plan is to enhance the ability of the Company
and its subsidiaries to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
such personnel and to promote the success of the Company.
Summary Description of the 1999 Plan
The following summary of the terms of the 1999 Plan is qualified in its
entirety by the text of the 1999 Plan, which is attached as Annex A to this
Proxy Statement.
Terms of the 1999 Plan
Options granted under the 1999 Plan may be options that are intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Code or options that are not intended to so
qualify ("Nonqualified Options"). The 1999 Plan authorizes the grant of options
for a maximum of 850,000 shares of the Company's Class A Common Stock. Options
may be granted under the 1999 Plan to officers and key employees of the Company
and any subsidiary corporation. On March 16, 1999, the closing price for a
share of the Company's Class A Common Stock, as reported on Nasdaq, was
$19.875.
The 1999 Plan is administered by a Committee of the Board of Directors (the
"Committee") whose members satisfy the requirements of Rule 16b-3 under the
Exchange Act and Section 162(m) of the Code. Currently, this committee is the
Stock Option Committee. The Committee has full and final authority, subject to
the terms of the 1999 Plan, to interpret the provisions of the 1999 Plan and to
decide all questions of fact arising in its application; to determine the
employees to whom awards shall be made and the number of shares, exercise price
and other terms of each such award; to determine the time when awards shall be
granted; and to make all other determinations necessary and advisable for the
administration of the 1999 Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all holders of
options granted under the 1999 Plan.
19
<PAGE>
The exercise price of each option granted under the 1999 Plan may not be less
than 100%, with respect to an Incentive Stock Option, and 85%, with respect to
a Nonqualified Option, of the fair market value of the Company's Class A Common
Stock on the date of grant. The exercise price of the shares with respect to
which an option is exercised shall be payable in full with the notice of
exercise in cash, Class A Common Stock at fair market value at the time of
exercise, or a combination thereof, as the Committee may determine from time to
time and subject to such terms and conditions as may be prescribed by the
Committee for such purpose.
In the case of an Incentive Stock Option, each option agreement shall contain
such other terms, conditions and provisions as the Committee determines
necessary or desirable in order to qualify such option as a tax-favored option
within the meaning of Section 422 of the Code or any amendment or substitute
thereto and regulation thereunder.
In the event that an optionee ceases to be an employee of the Company or any
subsidiary, for any reason other than death, retirement or disability, the
optionee has the right to exercise the option during its term within a period
of three months after such termination. If termination results from the death,
retirement or disability of an optionee, an option exercisable at the time of
such termination may be exercised by him or his successor within a period of
one year after the date of termination, although if an Incentive Stock Option
is not exercised within the three-month period after the date the optionee
ceases to be an employee, the option shall no longer qualify as an Incentive
Stock Option and shall become a Nonqualified Option. No option may be
exercisable after ten years from the date of grant thereof. Incentive Stock
Options are not assignable other than by will or by the laws of descent and
distribution and are exercisable, during the lifetime of the participant, only
by the participant. Nonqualified Options are also not generally assignable, but
the Committee may modify this limitation for certain Nonqualified Options to
permit transfers by a participant to the participant's family members.
The Committee may terminate or amend the 1999 Plan at any time, except that
without shareholder approval the Committee may not (i) materially increase the
maximum number of shares that may be issued under the 1999 Plan, (ii)
materially increase the benefits accruing to participants under the 1999 Plan
or (iii) materially modify the requirements as to eligibility for participation
in the 1999 Plan. The termination or any modification or amendment of the 1999
Plan will not, without the consent of a participant, affect his rights under an
option previously granted.
Federal Income Tax Consequences
Based on the advice of counsel, the Company believes that the normal
operation of the 1999 Plan should generally have, under the Code and its
regulations, all as in effect on the date of this Proxy Statement, the
principal Federal income tax consequences described below. The tax treatment
described below does not take into account any changes in the Code or its
regulations, which may occur after the date of this Proxy Statement. The
following discussion is only a summary; it is not intended to be all inclusive
or to constitute tax advice, and, among other things, does not cover possible
state or local tax consequences.
An optionee will not recognize taxable income and the Company will be
entitled to a deduction upon the grant of an option. In the case of
Nonqualified Options, an optionee will generally
20
<PAGE>
recognize ordinary income upon exercise of an option in an amount equal to the
excess of the fair market value of the stock acquired on the date of exercise
over the aggregate price paid pursuant to the option for such stock (the
"exercise price"), and the Company will generally be entitled to a deduction to
the extent of the ordinary income recognized by the optionee in accordance with
the rules of Section 83 of the Code (and Code Section 162(m) to the extent
applicable). An optionee exercising a Nonqualified Option is subject to Federal
income tax withholding on the income recognized as a result of the exercise of
the Nonqualified Option. Such income will include any income attributable to
any shares issuable upon exercise that are surrendered, if permitted under the
applicable stock option agreement, in order to satisfy the Federal income tax
withholding requirements.
Except as provided below, the basis of the shares received by the optionee
upon the exercise of a Nonqualified Option will be the fair market value of the
shares on the date of exercise. The optionee's holding period will begin on the
day after the date on which the optionee recognizes income with respect to the
transfer of such shares, i.e., generally the day after the exercise date. When
the optionee disposes of such shares, the optionee will recognize capital gain
or loss equal to the difference between (i) the selling price of the shares and
(ii) optionee's basis in such shares under the Code rules which govern stock
dispositions. Any net capital gain (i.e., the excess of the net long-term
capital gains for the taxable year over net short-term capital losses for such
taxable year) will be taxed at a capital gains rate that depends on how long
the shares were held, and the optionee's tax bracket. Any net capital loss can
only be used to offset up to $3,000 per year of ordinary income (reduced to
$1,500 in the case of a married individual filing separately) or carried
forward to a subsequent year.
The use of shares to pay the exercise price of a Nonqualified Option, if
permitted under the applicable stock option agreement, will be treated as a
like-kind exchange under the Code. The optionee will therefore recognize no
gain or loss with respect to the surrendered shares, and will have the same
basis and holding period with respect to the newly acquired shares (up to the
number of shares surrendered) as with respect to the surrendered shares. To the
extent the number of shares received exceeds the number surrendered, the fair
market value of such excess shares on the date of exercise, reduced by any cash
paid by the optionee upon such exercise, will be includible in the gross income
of the optionee. The optionee's basis in such excess shares will equal the fair
market value of such shares on the date of exercise, and the optionee's holding
period with respect to such excess shares will begin on the day following the
date of exercise.
The optionee will not recognize taxable income and the Company will not be
entitled to a deduction upon the exercise of an Incentive Stock Option,
provided the optionee was an employee of the Company or of certain related
corporations as described in Code Section 422(a)(2) during the entire period
from the date of grant of the Incentive Stock Option until three months before
the date of exercise (increased to 12 months if employment ceased due to total
and permanent disability). The employment requirement is waived in the event of
the optionee's death. (Of course, in all of these situations, the Incentive
Stock Option itself may provide a shorter exercise period after employment
ceases than the allowable period under the Code).
If the optionee does not dispose of the shares issued to him upon the
exercise of an Incentive Stock Option within one year of such issuance or
within two years from the date of the grant of such
21
<PAGE>
option, whichever is later, any gain or loss realized by the optionee on a
later sale or exchange of such shares generally will be a long-term capital
gain or long-term capital loss. Any net capital gain (i.e., the excess of the
net long-term capital gains for the taxable year over net short-term capital
losses for such taxable year) will be taxed at a capital gains rate that
depends on how long the shares were held, and the optionee's tax bracket. Any
net capital loss can only be used to offset up to $3,000 per year of ordinary
income (reduced to $1,500 in the case of a married individual filing
separately) or carried forward to a subsequent year.
If the optionee sells the shares within two years from the date of grant of
the Incentive Stock Option or within one year after the transfer of the shares
to the optionee, the sale will be deemed to be a disqualifying disposition. In
that event, the optionee will recognize ordinary income (and the Company will
recognize a corresponding deduction) for the year in which the disqualifying
disposition occurs equal to the amount, if any, by which the lesser of (i) the
amount realized for such sale or (ii) the fair market value of such shares on
the date of exercise of such option exceeded the amount the optionee paid for
such shares. In the case of disqualifying dispositions resulting from certain
transactions, such as gift or related party transactions, the determination of
the ordinary income the optionee realizes will be the fair market value of the
shares on the date of exercise, minus the exercise price. The basis of the
shares with respect to which a disqualifying disposition occurs will be
increased by the amount included in the optionee's ordinary income.
Disqualifying dispositions of shares may also, depending upon the sales price,
result in capital gain or loss under the Code rules which govern other stock
dispositions. The tax treatment of such capital gain or loss is summarized
above.
Except as provided below, the use of shares already owned by the optionee to
pay the exercise price of an Incentive Stock Option will be treated as a like-
kind exchange under the Code. The optionee will therefore recognize no gain or
loss with respect to the surrendered shares, and will have the same basis and
holding period with respect to the newly acquired shares (up to the number of
shares surrendered) as with respect to the surrendered shares. To the extent
that the number of shares received exceeds the number surrendered, the
optionee's basis in such excess shares will equal the amount of cash paid by
the optionee upon the exercise of the Incentive Stock Option (if any), and the
optionee's holding period with respect to such excess shares will begin on the
date such shares are transferred to the optionee. However, if payment of the
exercise price of an Incentive Stock Option is made with shares acquired upon
exercise of an Incentive Stock Option before the shares used for payment have
been held for the two-year or one-year period described herein, use of such
shares as payment will be treated as a disqualifying disposition of the shares
used for payment subject to the rules described herein.
Under current law, any gain realized by an optionee, other than long-term
capital gain, is taxable at a maximum federal income tax rate of 39.6%. Under
current law, long-term capital gain is taxed at a maximum federal income tax
rate of 20%.
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1999 Plan Benefits
Subject to shareholder approval of the 1999 Plan, the Stock Option Committee
of the Board of Directors has granted the following stock options under the
1999 Plan at a per share exercise price of $19.50 per share.
NEW PLAN BENEFITS
1999 PLAN
<TABLE>
<CAPTION>
Amount of Securities
Name Underlying Options
---- --------------------
<S> <C>
John W. Smithson................... 55,000
Frederick W. Anton III............. --
Stephen G. Tirney.................. 20,000
Vincent T. Donnelly................ 20,000
Ronald S. Austin................... 20,000
All Executive Officers as a
Group............................. 135,000
All Employees as a Group
other than Executive Officers..... 290,000
</TABLE>
Vote Requirement
Approval of the 1999 Plan will require the affirmative vote of the majority
of the votes cast on the proposal at the Annual Meeting by the holders of
outstanding shares of the Company's Common Stock and Class A Common Stock,
voting together without regard to class. Abstentions and broker non-votes are
not considered votes cast and will not have any effect on the vote to approve
the 1999 Plan.
The Board of Directors recommends that the shareholders vote FOR the approval
of the 1999 Plan.
ITEM 3. OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration at the Annual Meeting other than the matters described in this
Proxy Statement, but if other matters are presented, it is the intention of the
persons named in the accompanying proxy to vote on those matters in accordance
with their judgment.
SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE
Section 16 of the Exchange Act requires that the officers and directors of
the Company, as well as persons who own more than 10% of a class of equity
securities of the Company, file reports of their ownership of such securities,
as well as monthly statements of changes in such ownership, with the Company
and the Securities and Exchange Commission. Based upon written representations
received by the Company from its officers and directors and the reports filed
with the Company during 1998, the Company believes that all such filings
required during 1998 were made on a timely basis, except that Messrs. Anton,
Miller and Smithson each inadvertently filed one late report relating to a
conversion of shares of Common Stock into Class A Common Stock.
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<PAGE>
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP has been selected as the Company's independent
accountants for the Company with respect to the year ending December 31, 1999.
Representatives of PricewaterhouseCoopers LLP will attend the Annual Meeting.
They will be given an opportunity to make a statement and will be available to
respond to appropriate questions.
ANNUAL REPORT
A copy of the Company's 1998 Annual Report to Shareholders is being mailed to
the Company's shareholders with this Proxy Statement.
SHAREHOLDER PROPOSALS
Any shareholder who, in accordance with and subject to the provisions of the
proxy rules of the Securities and Exchange Commission, wishes to submit a
proposal for inclusion in the Company's proxy statement for its 2000 Annual
Meeting of Shareholders must deliver such proposal in writing to the Company's
Secretary at the Company's principal executive offices at 1735 Market Street,
Suite 2800, Philadelphia, Pennsylvania 19103-7590 no later than November 29,
1999.
If a shareholder who intends to present a proposal at the 2000 Annual Meeting
of Shareholders does not notify the Company of the proposal on or before
February 10, 2000, then management proxies will use their discretionary voting
authority to vote on the proposal when the proposal is raised at the 2000
Annual Meeting, even though there is no discussion of the proposal in the
related proxy statement.
By Order of the Board of Directors,
March 26, 1999
Frederick W. Anton III
Chairman of the Board
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<PAGE>
ANNEX A
PMA CAPITAL CORPORATION
1999 EQUITY INCENTIVE PLAN
1. Purpose.
The purpose of the PMA Capital Corporation 1999 Equity Incentive Plan (the
"Plan") is to enhance the ability of PMA Capital Corporation (the "Company")
and any subsidiaries to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to
such personnel and to promote the success of the Company. To accomplish these
purposes, the Plan provides a means whereby employees of the Company and its
subsidiaries may receive stock options to purchase the Company's Class A Common
Stock ("Options").
2. Administration.
(a) Composition of the Committee. The Plan shall be administered by a
Committee of the Board of Directors (the "Committee"). The number of members of
the Committee and their qualifications shall at all times satisfy the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") and Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Board of Directors shall have the authority from time
to time to remove all members of the Committee and thereafter directly
administer the Plan.
(b) Authority of the Committee. The Committee shall have full and final
authority, in its sole discretion, to interpret the provisions of the Plan and
to decide all questions of fact arising in its application; to determine the
employees to whom awards shall be made and the amount, size and terms of each
such award; to determine the time when awards shall be granted; and to make all
other determinations necessary or advisable for the administration of the Plan.
All decisions, determinations and interpretations of the Committee shall be
final and binding on all optionees and all other holders of Options granted
under the Plan. No power or authority delegated by the Committee to a designee
hereunder may be exercised to affect the terms and conditions of an award made
to anyone subject to the requirements of Section 16(b) of the Exchange Act or
with respect to matters which have been reserved to the Board of Directors
under Pennsylvania law.
(c) Authority of the Board of Directors. Notwithstanding anything to the
contrary set forth in the Plan, all authority granted hereunder to the
Committee may be exercised at any time and from time to time by the Board of
Directors at its election. All decisions, determinations and interpretations of
the Board of Directors shall be final and binding on all optionees and all
other holders of Options granted under the Plan.
3. Stock Subject to the Plan.
Subject to Section 16 hereof, the shares that may be issued under the Plan
shall not exceed in the aggregate 850,000 shares of Class A Common Stock of the
Company (the "Class A Stock"). Such shares may be authorized and unissued
shares or shares issued and subsequently reacquired by the Company. Except as
otherwise provided herein, any shares subject to an Option that for any reason
expires or is terminated unexercised as to such shares shall again be available
under the Plan. In addition, any Class A Stock that is used by an optionee as
full or partial payment to the Company for the purchase of Class A Stock
acquired upon exercise of a stock option granted under the Plan, and any shares
withheld by the Company to satisfy an optionee's tax withholding obligations
shall be available for further awards under the Plan.
4. Eligibility To Receive Options.
Persons eligible to receive stock options under the Plan shall be limited to
those officers and other employees of the Company and any subsidiary (as
defined in Section 425 of the Code or any amendment or
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substitute thereto), who may also be directors, who are in positions in which
their decisions, actions and counsel significantly impact upon the
profitability and success of the Company and/or a subsidiary. Directors of the
Company who are not also officers or employees of the Company or any subsidiary
shall not be eligible to participate in the Plan.
5. Types of Options.
Grants may be made at any time and from time to time by the Committee in the
form of stock options to purchase shares of Class A Stock. Options granted
hereunder may be Options that are intended to qualify as incentive stock
options within the meaning of Section 422 of the Code or any amendment or
substitute thereto ("Incentive Stock Options") or Options that are not intended
to so qualify ("Nonqualified Stock Options").
6. Stock Options.
Options for the purchase of Class A Stock shall be evidenced by written
agreements in such form not inconsistent with the Plan as the Committee shall
approve from time to time. The Options granted hereunder may be evidenced by a
single agreement or by multiple agreements, as determined by the Committee in
its sole discretion. Each Option agreement shall contain in substance the
following terms and conditions:
(a) Type of Option. Each Option agreement shall identify the Options
represented thereby as Incentive Stock Options or Nonqualified Stock Options,
as the case may be.
(b) Option Price. Each Option agreement shall set forth the purchase price of
the Class A Stock purchasable upon the exercise of the Option evidenced
thereby. Subject to the limitation set forth in Section 6(d)(ii), the purchase
price of the Class A Stock subject to an Incentive Stock Option shall be not
less than 100% of the Fair Market Value of such stock on the date the Option is
granted, as determined by the Committee, but in no event less than the par
value of such stock. The purchase price of the Class A Stock subject to a
Nonqualified Stock Option shall be not less than 85% of the Fair Market Value
of such stock on the date the Option is granted, as determined by the
Committee. Fair Market Value on any date shall mean for the purpose of this
Plan the average of the high and low prices of the Class A Stock, as reported
in The Wall Street Journal (or if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
System), or if the Class A Stock is not reported by Nasdaq, the Fair Market
Value shall be as determined by the Committee pursuant to Section 422 of the
Code.
(c) Exercise Term. Each Option agreement shall state the period or periods of
time within which the Option may be exercised, in whole or in part, which shall
be such a period or periods of time as may be determined by the Committee,
provided that no Option shall be exercisable after ten years from the date of
grant thereof. The Committee or its designee shall have the power to permit an
acceleration of previously established exercise terms, subject to the
requirements set forth herein, upon such circumstances and subject to such
terms and conditions as the Committee or its designee deems appropriate.
(d) Incentive Stock Options. In the case of an Incentive Stock Option, each
Option agreement shall contain such other terms, conditions and provisions as
the Committee determines necessary or desirable in order to qualify such Option
as a tax-favored Option (within the meaning of Section 422 of the Code or any
amendment or substitute thereto or regulation thereunder) including without
limitation, each of the following, except that any of these provisions may be
omitted or modified if it is no longer required in order to have an Option
qualify as a tax-favored Option within the meaning of Section 422 of the Code
or any substitute therefor:
(i) The aggregate Fair Market Value (determined as of the date the Option
is granted) of the Class A Stock with respect to which Incentive Stock
Options are first exercisable by any employee during any calendar year
(under all plans of the Company) shall not exceed $100,000.
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(ii) No Incentive Stock Options shall be granted to any employee if at
the time the Option is granted such employee owns stock possessing more
than ten percent of the total combined voting power of all classes of stock
of the Company or its parent or its subsidiaries unless at the time such
Option is granted the Option price is at least 110% of the Fair Market
Value of the stock subject to the Option and, by its terms, the Option is
not exercisable after the expiration of five years from the date of grant.
(iii) No Incentive Stock Options shall be exercisable more than three
months (or one year, in the case of an employee who dies or becomes
disabled within the meaning of Section 22(e)(3) of the Code or any
substitute therefor) after termination of employment.
(e) Substitution of Options. Options may be granted under the Plan from time
to time in substitution for stock options held by employees of other
corporations who are about to become, and who do concurrently with the grant of
such options become, employees of the Company or a subsidiary as a result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary, or the acquisition by the Company or a subsidiary of the assets of
the employing corporation, or the acquisition by the Company or a subsidiary of
stock of the subsidiary. The terms and conditions of the substitute options so
granted may vary from the terms and conditions set forth in this Section 6 to
such extent as the Committee at the time of grant may deem appropriate to
conform, in whole or in part, to the provisions of the stock options in
substitution for which they are granted.
7. Date of Grant.
The date on which an Option shall be deemed to have been granted under the
Plan shall be the date of the Committee's authorization of the Option or such
later date as may be determined by the Committee at the time the Option is
authorized. Notice of the determination shall be given to each individual to
whom an Option is so granted within a reasonable time after the date of such
grant.
8. Exercise and Payment for Shares.
Options may be exercised in whole or in part, from time to time, by giving
written notice of exercise to the Chief Financial Officer of the Company,
specifying the number of shares to be purchased. The purchase price of the
shares with respect to which an Option is exercised shall be payable in full
with the notice of exercise in cash, Class A Stock at Fair Market Value at the
time of exercise, or a combination thereof, as the Committee may determine from
time to time and subject to such terms and conditions as may be prescribed by
the Committee for such purpose.
9. Rights upon Termination of Employment.
In the event that an optionee ceases to be an employee of the Company or any
subsidiary for any reason other than death, retirement or disability (within
the meaning of Section 22(e)(3) of the Code or any substitute therefor), the
optionee shall have the right to exercise the Option during its term within a
period of three months after such termination to the extent that the Option was
exercisable at the time of termination, or within such other period, and
subject to such terms and conditions, as may be specified by the Committee or
its designee. In the event that an optionee dies, retires or becomes disabled
(within the meaning of Section 22(e)(3) of the Code or any substitute therefor)
prior to the expiration of his Option and without having fully exercised his
Option, the optionee or his successor shall have the right to exercise the
Option during its term within a period of one year after termination of
employment due to death, retirement or disability to the extent that the Option
was exercisable at the time of termination, or within such other period, and
subject to such terms and conditions, as may be specified by the Committee or
its designee. As used in this Section 9, "retirement" means a termination of
employment by reason of an optionee's retirement at or after his earliest
permissible retirement date pursuant to and in accordance with his employer's
regular retirement plan or personnel practices. Notwithstanding the provisions
of Section 6(d)(iii) hereof, an Incentive Stock Option may be exercised more
than three months after termination of employment due to retirement, as
provided in this
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Section 9, but in that event, the Option shall lose its status as an Incentive
Stock Option and shall be treated as a Nonqualified Stock Option.
10. General Restrictions.
Each Option granted under the Plan shall be subject to the requirement that
if at any time the Committee shall determine that (i) the listing, registration
or qualification of the shares of Class A Stock subject or related thereto upon
any securities exchange or under any state or federal law, or (ii) the consent
or approval of any government regulatory body, or (iii) an agreement by the
recipient of an Option with respect to the disposition of shares of Class A
Stock is necessary or desirable as a condition of or in connection with the
granting of such Option or the issuance or purchase of shares of Class A Stock
thereunder, such Option shall not be consummated in whole or in part unless
such listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
11. Rights of a Shareholder.
The recipient of any Option under the Plan, unless otherwise provided by the
Plan, shall have no rights as a shareholder unless and until a certificate for
shares of Class A Stock is issued and delivered to him.
12. Right to Terminate Employment.
Nothing contained in the Plan or in any agreement entered into pursuant to
the Plan shall confer upon any optionee the right to continue in the employment
of the Company or any subsidiary or affect any right that the Company or any
subsidiary may have to terminate the employment of such optionee.
13. Withholding.
Whenever the Company proposes or is required to issue or transfer shares of
Class A Stock under the Plan, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any federal,
state or local withholding tax requirements prior to the delivery of any
certificate for such shares. If and to the extent authorized by the Committee,
in its sole discretion, the Committee may require an optionee or permit an
optionee, by means of a form of election to be prescribed by the Committee, to
have shares of Class A Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Class A Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be subject to the disapproval of the Committee at any
time. Any securities so withheld or tendered will be valued by the Committee as
of the date of exercise.
14. Non-Assignability.
(a) Incentive Stock Options. No Option which is an Incentive Stock Option
shall be assignable or transferable by the optionee otherwise than by will or
by the laws of descent and distribution and during the lifetime of the
optionee, such Incentive Stock Option shall be exercisable only by the optionee
or by his guardian or legal representative.
(b) Nonqualified Stock Options. No Option which is a Nonqualified Stock
Option shall be assignable or transferable by the optionee except by will or by
the laws of descent and distribution or by such other means as the Committee
may approve, unless such means would be prohibited by Rule 16b-3 under the
Exchange Act. During the life of the optionee such Nonqualified Stock Option
shall be exercisable only by such person or by such person's guardian or legal
representative. Notwithstanding the restrictions set forth above in this
Section 14(b), the Committee or its designee shall have the authority, in its
sole discretion, to grant (or to sanction by way of amendment of an existing
grant) Nonqualified Stock Options that may be transferred by the optionee
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during his lifetime to any "family member" of the optionee, which shall include
a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, siblings, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including adoptive
relationships, any person sharing the optionee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the optionee)
control the management of assets, and any other entity in which these persons
(or the optionee) own more than 50% of the voting interests. No Nonqualified
Stock Option may be transferred for value. The following transfers are not
prohibited transfers for value: (i) a transfer under a domestic relations order
in settlement of marital property rights; and (ii) a transfer to an entity in
which more than 50% of the voting interests are owned by family members (or the
optionee) in exchange for an interest in that entity. In the case of a grant,
the written documentation containing the terms and conditions of such
Nonqualified Stock Option shall state that it is transferable, and in the case
of an amendment to an existing grant, such amendment shall be in writing. A
Nonqualified Stock Option transferred as contemplated in this Section 14(b) may
not be subsequently transferred by the transferee without further Committee
approval (except for transfers back to the original optionee) except by will or
the laws of descent and distribution and shall continue to be governed by and
subject to the terms and limitations of the Plan and the relevant grant.
However, the Committee or its designee, in its sole discretion at the time that
the transfer is approved, may alter the terms and limitations of the relevant
grant and establish such additional terms and conditions as it shall deem
appropriate.
15. Non-Uniform Determinations.
The Committee's determinations under the Plan (including without limitation
determinations of the persons to receive Options, the form, amount and timing
of such grants, the terms and provisions of Options, and the agreements
evidencing same) need not be uniform and may be made selectively among persons
who receive, or are eligible to receive, grants of Options under the Plan
whether or not such persons are similarly situated.
16. Adjustments.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Class A Stock covered by
each outstanding Option and the number of shares of Class A Stock that have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation,
expiration or exercise of an Option, as well as the price per share of Class A
Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Class A
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Class A Stock, or any other increase or
decrease in the number of issued shares of Class A Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Class A Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, all outstanding Options will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Committee. The Committee may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a date fixed by
the Committee and give each Option holder the right to exercise his Option as
to all or any part of the shares of Class A Stock covered by the Option,
including shares as to which the Option would not otherwise be exercisable.
(c) Sale or Merger. In the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or into
another corporation, the Committee, in the exercise of its sole discretion, may
take such action as it deems desirable, including, but, not limited to: (i)
causing an Option
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to be assumed or an equivalent option to be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, (ii)
providing that each Option holder shall have the right to exercise his Option
as to all of the shares of Class A Stock covered by the Option, including
shares as to which the Option would not otherwise be exercisable, or
(iii) declare that an Option shall terminate at a date fixed by the Committee
provided that the Option holder is given notice and opportunity prior to such
date to exercise that portion of his Option that is currently exercisable.
17. Amendment.
The Committee may terminate or amend the Plan at any time, except that
without shareholder approval the Committee may not (i) materially increase the
maximum number of shares that may be issued under the Plan (other than
increases pursuant to Section 16 hereof), (ii) materially increase the benefits
accruing to participants under the Plan or (iii) materially modify the
requirements as to eligibility for participation in the Plan. The termination
or any modification or amendment of the Plan shall not, without the consent of
a participant, affect his rights under an Option previously granted.
18. Conditions upon Issuance of Shares.
(a) Compliance with Securities Laws. Shares of the Company's Class A Stock
shall not be issued pursuant to the exercise of an Option unless the exercise
of such Option and the issuance and delivery of such shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Class A Stock of the Company may then be listed, and
shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an Option,
the Company may require the person exercising such Option to represent and
warrant at the time of any such exercise that the shares of Class A Stock are
being purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the Company, such
representation is required by any of the aforementioned relevant provisions of
law.
19. Reservation of Shares.
The Company, during the term of the Plan, will at all times reserve and keep
available such number of shares as shall be sufficient to satisfy the
requirements of the Plan. Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such shares as to which such requisite authority shall not
have been obtained.
20. Effect on Other Plans.
Participation in the Plan shall not affect an employee's eligibility to
participate in any other benefit or incentive plan of the Company or any
subsidiary. Any Options granted pursuant to the Plan shall not be used in
determining the benefits provided under any other plan of the Company or any
subsidiary unless specifically provided.
21. Duration of the Plan.
The Plan shall remain in effect until all Options granted under the Plan have
been satisfied by the issuance of shares, but no Option shall be granted more
than ten years after the earlier of the date the Plan is adopted by the
Company's Board of Directors or is approved by the Company's shareholders.
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22. Forfeiture for Dishonesty.
Notwithstanding anything to the contrary in the Plan, if the Committee finds,
by a majority vote, after full consideration of the facts presented on behalf
of both the Company and any optionee, that the optionee has been engaged in
fraud, embezzlement, theft, commission of a felony or dishonest conduct in the
course of his employment or retention by the Company or any subsidiary that
damaged the Company or any subsidiary or that the optionee has disclosed trade
secrets of the Company or any subsidiary, the optionee shall forfeit all
unexercised Options and all exercised Options with respect to which the Company
has not yet delivered the certificates. The decision of the Committee in
interpreting and applying the provisions of this Section 22 shall be final. No
decision of the Committee, however, shall affect the finality of the discharge
or termination of such optionee by the Company or any subsidiary in any manner.
23. No Prohibition on Corporate Action.
No provision of the Plan shall be construed to prevent the Company or any
officer or director thereof from taking any corporate action deemed by the
Company or such officer or director to be appropriate or in the Company's best
interest, whether or not such action could have an adverse effect on the Plan
or any Options granted hereunder, and no optionee or optionee's estate,
personal representative or beneficiary shall have any claim against the Company
or any officer or director thereof as a result of the taking of such action.
24. Maximum Number Per Participant.
Notwithstanding anything contained herein to the contrary, the aggregate
number of shares of Class A Stock subject to options that may be granted during
any calendar year to any individual shall be limited to 150,000 shares of Class
A Stock. For purposes of this limitation, if an option is canceled, such
canceled option shall continue to be counted during the calendar year of
cancellation against the maximum shares for which options may be granted to an
individual.
25. Indemnification.
With respect to the administration of the Plan, the Company shall indemnify
each present and future member of the Committee and the Board of Directors
against, and each member of the Committee and the Board of Directors shall be
entitled without further action on his part to indemnity from the Company for
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and the Board of Directors, whether or not he continues to be such member at
the time of incurring such expenses; provided, however, that such indemnity
shall not include any expenses incurred by any such member of the Committee and
the Board of Directors (i) in respect of matters as to which he shall be
finally adjudged in any such action, suit or proceeding to have been guilty of
gross negligence or willful misconduct in the performance of his duty as such
member of the Committee or the Board of Directors; or (ii) in respect of any
matter in which any settlement is effected for an amount in excess of the
amount approved by the Company on the advice of its legal counsel; and provided
further that no right of indemnification under the provisions set forth herein
shall be available to or enforceable by any such member of the Committee and
the Board of Directors unless, within 60 days after institution of any such
action, suit or proceeding, he shall have offered the Company in writing the
opportunity to handle and defend same at its own expense. The foregoing right
of indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee and the Board of Directors
and shall be in addition to all other rights to which such member may be
entitled as a matter of law, contract or otherwise.
26. Miscellaneous Provisions.
(a) Compliance with Plan Provisions. No optionee or other person shall have
any right with respect to the Plan, the Class A Stock reserved for issuance
under the Plan or any Option until a written Option
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agreement shall have been executed by the Company and the optionee and all the
terms, conditions and provisions of the Plan and the Option applicable to such
optionee (and each person claiming under or through him) have been met.
(b) Approval of Counsel. In the discretion of the Committee, no shares of
Class A Stock, other securities or property of the Company, or other forms of
payment shall be issued hereunder with respect to any Option unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.
(c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the
Exchange Act shall apply to Options granted under the Plan, it is the intent of
the Company that the Plan comply in all respects with the requirements of Rule
16b-3, that any ambiguities or inconsistencies in construction of the Plan be
interpreted to give effect to such intention and that if the Plan shall not so
comply, whether on the date of adoption or by reason of any later amendment to
or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to
be automatically amended so as to bring them into full compliance with such
rule.
(d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets under the Plan.
(e) Effects of Acceptance of Option. By accepting any Option or other benefit
under the Plan, each optionee and each person claiming under or through him
shall be conclusively deemed to have indicated his acceptance and ratification
of, and consent to, any action taken under the Plan by the Company, the Board
of Directors and/or the Committee or its delegates.
(f) Construction. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
27. Shareholder Approval.
The exercise of any Option granted under the Plan shall be subject to the
approval of the Plan by the affirmative vote of a majority of the votes cast by
the shareholders voting on the proposal at a duly held meeting of the
shareholders of the Company.
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PMA CAPITAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 26, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints Frederick W. Anton III,
Edward H. Owlett and A. John May, and each or any of them, proxies of the
undersigned, with full power of substitution, to vote all of the shares of
Common Stock and Class A Common Stock of PMA Capital Corporation (the "Company")
that the undersigned may be entitled to vote at the Annual Meeting of
Shareholders of the Company to be held at 380 Sentry Parkway, Blue Bell,
Pennsylvania on Monday, April 26, 1999, at 9 a.m., local time, and at any
adjournment thereof.
This proxy when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR the nominees for director set forth in item 1 and FOR the proposal in
item 2.
(Continued, and to be marked, dated and signed on other side)
PMA CAPITAL CORPORATION
P.O. BOX 11258
NEW YORK, N.Y. 10203-0258
<PAGE>
The Board of Directors recommends a vote FOR items 1 and 2.
Item 1 ELECTION OF DIRECTORS
FOR all nominees listed below
WITHHOLD authority to vote for all nominees listed below
*EXCEPTIONS
Nominees: Paul I. Detwiler, Jr., Anne S. Genter, A. John May, Roderick H. Ross,
John W. Smithson
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions______________________________________________________________
Item 2 Approval of the PMA Capital Corporation 1999 Equity Incentive Plan.
FOR AGAINST ABSTAIN
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting and any adjournments thereof.
Change of Address and or Comments Mark Here
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
Dated:____________,1999
______________________________
Signature
______________________________
Signature
Votes must be indicated (x) in Black or Blue ink.
(Please sign, date and return this proxy in the enclosed postage prepaid
envelope.)
