<PAGE> 1
PROSPECTUS
200,000 SHARES
PHILADELPHIA CONSOLIDATED HOLDING CORP.
COMMON STOCK, NO PAR VALUE
We may offer from time to time shares of our common stock to some or
all of our non-employee insurance agents, with whom we have written agency
agreements, under The Philadelphia Insurance Companies Stock Purchase Plan for
Preferred Agents (as Amended and Restated, Effective as of August 1, 2000). The
purchase price under the plan for the common stock will be 85% of the market
value of the common stock on the first day of the offering period or the last
day of the offering period, whichever is lower.
For a period of two years after the first day of the offering period in
which a participant purchases shares of common stock under the plan, we have the
right to repurchase those shares if the participant attempts to transfer,
encumber or otherwise dispose of them, or if the plan participant is no longer a
party to any written agency agreement with us other than due to death or
disability. If we exercise this right, the repurchase price will be equal to the
lower of the purchase price that the plan participant paid for the shares or the
market value of the shares at the time of repurchase.
Our common stock is listed on the Nasdaq National Market of the Nasdaq
Stock Market Inc. under the symbol PHLY. On August 9, 2000, the last reported
sale price of the common stock on the Nasdaq National Market was $16.50 per
share.
We will receive all of the proceeds of the sale of the common stock
offered in this prospectus, less expenses which are estimated at $51,000.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is August 10, 2000.
<PAGE> 2
TABLE OF CONTENTS
Page
SUMMARY............................................................... 3
RISK FACTORS.......................................................... 6
THE PLAN ............................................................. 11
FEDERAL INCOME TAX EFFECTS OF PLAN PARTICIPATION...................... 16
USE OF PROCEEDS....................................................... 18
WHERE YOU CAN FIND MORE INFORMATION --
INCORPORATION OF INFORMATION BY REFERENCE.................... 18
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS............................ 19
LEGAL OPINIONS........................................................ 19
EXPERTS ............................................................. 19
2
<PAGE> 3
SUMMARY
INFORMATION ABOUT OUR BUSINESS
Philadelphia Consolidated Holding Corp. was incorporated in
Pennsylvania in 1984 to serve as a holding company for its subsidiaries.
We select and target industries and special areas of demand for
insurance products in which we believe we can grow our business by developing
insurance products that fill coverage needs unique to those industries and
areas. Then, through our subsidiaries, we design, market and sell property and
casualty insurance products that provide coverages and services that are
specific to these industries and special areas of demand but that are not
included in typical property and casualty policies. We use a "mixed" marketing
strategy. This means that we market our insurance products to the insured,
directly or through preferred agents, who are non-employee insurance agents with
whom we have written agency agreements, and also accept business from
independent insurance brokers.
Our production underwriting organization consists of our marketing
staff and markets our products and services. It also reviews applications
against our general guidelines to determine whether the applicants meet the
guidelines before the applications are submitted to the underwriters in our home
office for a more detailed review. Our production underwriting organization
operates from offices located across the United States and includes
telemarketing staffs at our regional offices and our Philadelphia home office.
We offer the following product lines:
COMMERCIAL AUTOMOBILE AND EXCESS LIABILITY. We have provided commercial
automobile products to the leasing and rent-a-car industries for over 35 years.
We offer to the rent-a-car industry coverage for:
- the rent-a-car company's property;
- liability of the renter and the rent-a-car company; and
- physical damage on the rental vehicle.
Additionally, we offer additional coverage at the rental car counter to
rent-a-car customers through arrangements with a number of the largest
rent-a-car companies. This additional coverage protects renters against
liability for bodily injury and property damage over the amount of statutory
coverage provided with the rental vehicle. This coverage also pays claims, up to
the coverage limit, without regard to the renter's personal automobile insurance
coverage.
3
<PAGE> 4
We also offer a full range of liability and physical damage coverages
to rent-a-car companies and their customers. For the renter, we offer both
liability coverage and physical damage coverage on the vehicle. For the leasing
company, we offer additional coverage over the initial layer of automobile and
liability insurance carried by the leasing company. This coverage protects the
leasing company if there is a loss when the initial coverage for which we are
primarily liable is absent or inadequate. We also offer the following products
to leasing companies:
- interim initial and physical damage coverage, which protects
the leasing company before and after the vehicle is delivered
to the renter;
- coverage that guarantees a stated minimum value of the leased
vehicle at the end of the lease; and
- guaranteed asset protection coverage which protects the
leasing company and renter for the difference between the
leased vehicle's actual cash value and the lease or loan net
value in instances where the vehicle is stolen or damaged
beyond repair.
COMMERCIAL PACKAGE. We have provided commercial package policies that
combine numerous risk coverages in a single policy to several specialty markets
for more than 10 years. Our customers for these policies include:
- non-profit and social service organizations;
- health and fitness organizations;
- private and specialty training schools;
- condominium/homeowner association facilities;
- home health care operations; and
- day care facilities.
SPECIALTY LINES. We have provided professional liability insurance for
approximately 10 years. We initially offered directors and officers liability
coverage to nonprofit tax exempt organizations. In 1996, we also introduced a
package of coverages in our Executive Safeguard(R) policy offered to public and
private companies. The coverages offered in the Executive Safeguard(R) policy
include:
- directors and officers liability;
- employment practices liability;
4
<PAGE> 5
- liability for employee benefits plan administrators and other
persons who act for others in trust; and
- kidnap ransom.
We currently are focused on broadening the target market for our
professional liability insurance by expanding our production underwriting
organization and introducing new products.
During 1998, we added a variety of coverage enhancements to several of
our policies, including Executive Safeguard(R) and miscellaneous professional
and non-profit directors and officers liability. We also introduced two new
products, accountants and dentists professional liability.
SPECIALTY PROPERTY AND INLAND MARINE LINE. In September 1998, we
introduced a new line of business with our specialty property and inland marine
underwriters. These underwriters specialize in:
- insuring large property risks for a wide range of businesses,
from shopping centers to hotels; and
- underwriting and providing marketing for all classes of inland
marine insurance, concentrating on the larger segments of
inland marine, including builder's risk and contractor's
equipment.
MOBILE HOMEOWNERS AND PREFERRED HOMEOWNERS LINE. In July 1999, we
introduced a line of highly specialized mobile homeowners and preferred
homeowners personal property and casualty insurance policies.
Preferred homeowners are homeowners who meet stricter underwriting
guidelines. We acquired this business line through a merger between one of our
subsidiaries and The Jerger Company, Inc.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at One Bala Plaza, Suite
100, Bala Cynwyd, Pennsylvania, 19004 (telephone number: (610) 617-7900).
5
<PAGE> 6
RISK FACTORS
WE HAVE THE RIGHT TO REPURCHASE SHARES FOR A PURCHASE PRICE THAT MAY BE LESS
THAN THE PURCHASE PRICE THAT THE PLAN PARTICIPANT PAID FOR THE SHARES IF A PLAN
PARTICIPANT ATTEMPTS TO TRANSFER, ENCUMBER OR OTHERWISE DISPOSE OF SHARES OR
CEASES TO BE A PARTY TO A WRITTEN AGENCY AGREEMENT WITH US, OTHER THAN DUE TO
DEATH OR DISABILITY, DURING THE TWO-YEAR RESTRICTED PERIOD.
A plan participant may not sell, transfer, encumber or otherwise
dispose of shares of common stock that the plan participant purchases under the
plan for a period of two years after the first day of the offering period in
which the plan participant purchased the shares. If a plan participant purchases
shares under the plan, the plan participant will bear the economic risk of the
investment in the common stock for the entire two-year restricted period.
If a plan participant attempts to sell, transfer, encumber or otherwise
dispose of shares during the two-year restricted period, (1) the attempted
transfer will be null and void and (2) we will have the right to repurchase the
shares for the lower of the market value of the shares on the date of repurchase
or the actual purchase price that the participant paid for the shares.
In addition, if a plan participant ceases to be a party to a written
agency agreement with us, other than due to death or disability, we have the
right to repurchase any shares that the plan participant holds that are subject
to the two-year restricted period for the lower of the market value of the
shares at the time of repurchase or the actual purchase price that the plan
participant paid for the shares.
If we repurchase a plan participant's shares as described above, the
plan participant will forfeit all rights to the shares. In addition, if the
market value of the shares on the day that we repurchase them is less than the
amount that the plan participant paid for the shares, the plan participant will
receive the lower amount and, as a result, will suffer an economic loss.
IF OUR INSURANCE COMPANY SUBSIDIARIES ARE UNABLE TO PAY DIVIDENDS OR MAKE LOANS
TO US, DUE TO GOVERNMENT REGULATIONS THAT APPLY TO INSURANCE COMPANIES OR FOR
ANY REASON, WE MAY NOT BE ABLE TO CONTINUE OUR NORMAL BUSINESS OPERATIONS.
We are a holding company. Our principal assets currently consist of all
or substantially all of the equity interests of our subsidiaries listed below:
- Philadelphia Indemnity Insurance Company;
- Philadelphia Insurance Company;
- Maguire Insurance Agency, Inc.;
- PCHC Investment Corp., a Delaware investment corporation;
- PCHC Financing I, a Delaware business trust;
6
<PAGE> 7
- Liberty American Insurance Group, Inc., formerly known as The
Jerger Company, Inc., an insurance holding company;
- MHIA Premium Finance Company;
- Mobile Homeowners Insurance Agencies, Inc.;
- Liberty American Insurance Company, formerly known as Mobile
United Property and Casualty Insurance Company, Inc.; and
- Mobile USA Insurance Company.
Philadelphia Indemnity Insurance Company, Philadelphia Insurance
Company, Mobile United Property and Casualty Insurance Company, Inc. and Mobile
USA Insurance Company, Inc. are our insurance company subsidiaries. These
insurance company subsidiaries are companies that we own that are licensed to
issue insurance policies. Maguire Insurance Agency, Inc. is an underwriting
manager and Mobile Homeowners Insurance Agencies, Inc. is an insurance agency
that markets, underwrites and services mobile homeowners and preferred
homeowners insurance policies.
Our primary sources of funds are dividends and payments from our
subsidiaries that we receive under tax allocation agreements. Government
regulations that apply to insurance companies restrict the ability of our
insurance company subsidiaries to pay dividends and make loans to us. The
accumulated profits of these subsidiaries from which dividends may be paid
totaled $82.7 million at December 31, 1999. Of this amount, these insurance
company subsidiaries may pay a total of about $22.2 million of dividends in 2000
without obtaining prior approval from the department of insurance for the state
in which they located. Further, creditors of any of our subsidiaries will have
the right to be paid in full the amounts they are owed if a subsidiary
liquidates its assets or undergoes a reorganization or other similar transaction
before we will have the right to receive any distribution of assets from the
subsidiary, unless we also are recognized as a creditor of the subsidiary. If we
are unable to receive distributions from our subsidiaries, we may not be able to
continue our normal business operations. At June 30, 2000, our subsidiaries had
total liabilities, excluding liabilities owed to us, of approximately $374.8
million.
IF RATING AGENCIES DOWNGRADE THE RATINGS OF OUR INSURANCE COMPANY SUBSIDIARIES,
WE WOULD NOT BE ABLE TO COMPETE AS EFFECTIVELY WITH OUR COMPETITORS AND OUR
ABILITY TO SELL INSURANCE POLICIES MIGHT DECLINE; IN THAT EVENT OUR SALES AND
EARNINGS WOULD BE REDUCED.
A.M. Best Company rates our insurance company subsidiaries "A+"
(Superior). According to A.M. Best Company, companies rated "A+" (Superior)
have, on balance, superior financial strength, operating performance and market
profile, when compared to the standards established by the A.M. Best Company,
and have a very strong ability to meet their ongoing obligations to
policyholders. Our insurance company subsidiaries also possess an "A" claims
paying ability rating by Standard & Poor's. According to Standard & Poor's,
insurers rated "A" offer good financial security for policyholders. We believe
that the ratings assigned by A.M.
7
<PAGE> 8
Best Company and Standard & Poor's are important factors in marketing our
products. If agencies downgrade our ratings in the future, it is likely that:
- we would not be able to compete as effectively with our
competitors; and
- our ability to sell insurance policies might decline.
If that happens, our sales and earnings would decrease.
IF OUR RESERVES FOR LOSSES AND COSTS RELATED TO ADJUSTMENT OF LOSSES ARE NOT
ADEQUATE, GOVERNMENT REGULATORS MAY REQUIRE THAT WE INCREASE OUR RESERVES WHICH
COULD RESULT IN REDUCTIONS IN NET INCOME AND POLICYHOLDER'S SURPLUS, AND A
DOWNGRADING OF RATINGS OF OUR INSURANCE COMPANY SUBSIDIARIES THAT COULD RESULT
IN DECREASED SALES.
We establish reserves for losses and costs related to the adjustment of
losses under the insurance policies we write. We determine the amount of these
reserves based on our best estimate of the losses and costs we will incur on
existing insurance policies. We obtain periodic reviews by an actuary firm and
an annual statement of opinion from that firm on these reserves by independent
actuaries. While we believe that our reserves are adequate, we base these
reserves on assumptions about future events. The following factors may have a
substantial impact on our future loss experience:
- changes in inflation;
- the amounts of claims settlements;
- the manner in which we are required to structure settlement
payments;
- legislative activity; and
- legislative trends.
Actual losses and the costs we incur related to the adjustment of
losses under insurance policies may be different from the amount of reserves we
establish. Government regulators will require that we increase our reserves if
they later determine that we understated our reserves. When we increase
reserves, our net income for the period will decrease by a corresponding amount.
In addition, strengthening reserves could cause a reduction in policyholders'
surplus and a downgrading of the ratings of our insurance company subsidiaries.
This in turn could hurt our ability to sell insurance policies.
IF WE ARE NOT ABLE TO MAINTAIN ADEQUATE REINSURANCE TO INSURE AGAINST A PORTION
OF OUR RISK, WE WILL HAVE TO BEAR MORE RISK AND COULD EXPERIENCE LOSSES.
We purchase reinsurance coverage to insure against a portion of our
risk on policies we write directly. Reinsurance does not affect our direct
liability to our policyholders on the
8
<PAGE> 9
insurance policies we write. Instead, it provides us with coverage for a portion
of our obligations to pay the claims of our policyholders. If a reinsurer
becomes insolvent or is unable to make payments under the terms of its
reinsurance agreement with us, we will bear the losses covered by that
reinsurance agreement. Depending on the amount of risk that we are unable to
reinsure and the amount of claims we receive related to that risk, we could
experience losses.
YEAR 2000 READINESS DISCLOSURE; DUE TO YEAR 2000 ISSUES, THERE IS A RISK OF
INCREASED CLAIMS ON POLICIES WE WRITE THAT COULD RESULT IN LOSSES.
Many computer programs written before the year 2000 used only two
digits, instead of four, to identify a year in the date field. These programs
were designed and developed without considering the impact of the change in the
century. If not corrected, many computer applications could fail or create
incorrect results on or after the Year 2000. The Year 2000 issue affects
computer and information technology systems, as well as non-information
technology systems that include embedded technology, such as micro-processors
and micro-controllers or micro-chips, that have date sensitive programs that may
not properly recognize the year 2000 or beyond.
We issue professional liability coverage, including directors and
officers liability, and commercial insurance policies that provide coverage for
numerous risks. Our policy holders may claim that these policies cover losses
suffered by them as a result of Year 2000 issues. We write our professional
liability policies on a "claims made and reported" basis. Approximately 50% of
these policies that we sold since early 1997 specifically exclude from coverage
liability for Year 2000 problems. Almost all of our new or renewing professional
liability policies that provide coverage effective January 1, 1999 specifically
exclude coverage for Year 2000 liability. On occasion, for qualifying accounts,
our underwriters may remove the exclusion after they receive and review a
satisfactory additional application that provides information about the
applicant's Year 2000 risks, and other underwriting information. We believe that
we should not be held liable for claims arising from the Year 2000 issue under
our comprehensive general liability policies. However, we cannot determine
whether or to what extent courts may find liability for those claims. We could
experience losses if insureds are successful in bringing large Year 2000
coverage claims against us. Additionally, we could incur significant expense to
contest Year 2000 issue coverage claims, even if we prevail in our position.
CLAIMS RELATED TO CATASTROPHIC EVENTS COULD RESULT IN CATASTROPHE LOSSES THAT
COULD RESULT IN LOSSES.
It is possible that a catastrophic event could greatly increase claims
under the insurance policies we write. This, in turn, could result in losses for
one or more of our insurance company subsidiaries. Catastrophes may result from
a variety of events or conditions, including hurricanes, windstorms,
earthquakes, hail and other severe weather conditions.
We generally try to reduce our exposure to catastrophe losses through
underwriting and the purchase of catastrophe reinsurance. But, reinsurance may
not be sufficient to cover our actual losses. And, a number of states from time
to time have passed legislation that has had the effect of limiting the ability
of insurers to manage risk, such as legislation prohibiting an insurer from
withdrawing from catastrophe-prone areas. If we are unable to maintain adequate
9
<PAGE> 10
reinsurance or to withdraw from areas where we experience or expect significant
catastrophe-related claims, we could experience significant losses.
10
<PAGE> 11
THE PLAN
The following is a summary of the terms and conditions of the
Philadelphia Insurance Companies Stock Purchase Plan for Preferred Agents (as
Amended and Restated, Effective as of August 1, 2000).
PURPOSE
We established the plan in order to provide our preferred agents, as
defined below, with an opportunity to acquire our common stock at a discounted
purchase price. This is intended to encourage our preferred agents to own our
common stock and to align their interests with those of our other shareholders.
PLAN ADMINISTRATION
The Board of Directors of Philadelphia Consolidated Holding Corp., or
any committee designated by the Board of Directors at its discretion, will
administer the plan. For purposes of this prospectus, "Committee" means the
committee designated to administer the plan by the Board of Directors, or the
Board of Directors itself in its capacity as administrator of the plan. The
Committee may hire an agent to perform custodial and record-keeping functions
for the plan, such as holding record title to shares of common stock purchased
by plan participants, maintaining an individual investment account for each
participant and providing annual status reports to participants about their
investment accounts.
The Committee has the authority to interpret the plan, to issue rules
for administering the plan and to make all other determinations necessary or
appropriate for the administration of the plan, including the manner in which
participants must complete subscription agreements in order to participate in
the plan and limitations on numbers of shares of common stock available for
purchase in any offering period.
For additional information about the plan and/or its administration,
participants may write or telephone:
Craig P. Keller
Senior Vice President, Secretary, Treasurer
and Chief Financial Officer
Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, PA 19004
(610) 617-7900
SECURITIES TO BE OFFERED
We will offer our common stock to eligible preferred agents under the
plan. A maximum of 200,000 shares of common stock is available for purchase
under the plan. We will adjust this maximum number proportionately if a stock
split or subdivision or stock dividend occurs.
11
<PAGE> 12
PREFERRED AGENTS WHO MAY PARTICIPATE IN THE PLAN
A preferred agent will be eligible to participate in the plan during an
offering period provided the preferred agent is designated by the Committee as
an eligible participant for that offering period. The Committee has sole
discretion to decide whether a preferred agent is eligible to participate in an
offering period. However, a preferred agent will not be eligible to participate
in the plan if the preferred agent is serving, or has been elected to serve, as
(1) a member of the Board of Directors, (2) Chairman or Vice Chairman of the
Board of Directors, (3) President, Vice President, Secretary or Treasurer of
Philadelphia Consolidated, or (4) in any other position, regardless of title,
that obligates the individual to file reports under Section 16(a) of the
Exchange Act.
A "preferred agent" is an individual or entity that is both:
- party to a written agency agreement with us and
- designated as a "preferred agent" by the President of
Philadelphia Consolidated.
PURCHASE OF COMMON STOCK UNDER THE PLAN
ELECTION TO PARTICIPATE IN THE PLAN. The Committee may establish one or
more offering periods under the plan at any time and for any length of time the
Committee determines is appropriate. The Committee will provide eligible
preferred agents with notice of the dates of the offering period, the enrollment
period for the offering period and any other terms or conditions that must be
met in order for an eligible preferred agent to participate in the plan for that
offering period. We will deliver the notice to each eligible preferred agent as
soon as practicable on or after the first day of the offering period. Any
eligible preferred agent may elect to participate in the plan and purchase
common stock during an offering period by filing with the Committee during the
enrollment period a subscription agreement that specifies either the number of
shares of common stock or the dollar amount of common stock that the preferred
agent wishes to purchase for that offering period. While we intend to provide
each eligible preferred agent with the notice described above in this paragraph,
we have no obligation or liability to any otherwise eligible preferred agent who
does not receive a notice for any offering period including any obligation to
allow that preferred agent to participate in the offering for that offering
period.
PURCHASE OF SHARES. Except as described below in "Revocation of
Election to Participate in the plan," each participant who has properly
submitted a subscription agreement for an offering period will be deemed to have
purchased on the last business day of the offering period the number of shares
of common stock specified in the participant's subscription agreement. The
Committee will hold the shares in a special investment account for the
participant until the two-year restricted period described below has passed. If
we pay cash dividends on our common stock, we will distribute to each
participant the cash dividends that are paid on the shares held in the
participant's investment account. We will hold in the investment account any
distributions that are in the nature of a stock split or distribution of stock
until the shares to which the stock split or distribution relate are themselves
distributed to the participant according to the plan. Shares delivered to
participants under the plan will be shares that currently are held in treasury
or are authorized but unissued.
12
<PAGE> 13
PURCHASE PRICE OF COMMON STOCK PURCHASED UNDER THE PLAN. The purchase
price of shares of common stock purchased under the plan for any offering period
will be an amount that is equal to the lower of 85% of the Market Value, as
defined below, of the shares (1) on the first day of the offering period and (2)
on the last day of the offering period.
"Market Value" on any date means the last reported sale price of the
shares reported on the Nasdaq National Market, or the closing price of the
shares on such other stock exchange as the common stock may be listed, on the
date in question as reported in The Wall Street Journal. If there is no closing
price reported, then the "Market Value" will mean the average between the
closing bid and asked prices for shares on the date in question as reported. If
there are no sales reports or bid or asked quotations, as the case may be, for
the date in question, the closest earlier date on which there were sales reports
or bid or asked quotations will be used. If the Committee determines, in its
discretion, that the valuation as described above in this paragraph does not
accurately reflect the value of the shares or if the shares are not then
publicly traded, the Committee will determine the Market Value of a share.
PAYMENT OF PURCHASE PRICE. Each participant purchasing shares of common
stock under the plan will elect in the participant's subscription agreement to
pay for the shares to be purchased under the subscription agreement either by:
- paying in cash on or before the last day of the offering
period; or
- having amounts specified by the participant withheld from
commissions or other compensation that would otherwise have
been paid to the participant during the offering period.
There is no provision in the plan for changing the manner in which payments for
common stock are to be made.
CASH ACCOUNTS. We will maintain any cash contributed by a participant
for the purpose of making purchases of shares of common stock under the plan,
whether through direct payment by the participant or through withholding from
commissions or other amounts otherwise payable to the participant, in a
non-interest bearing account for the participant until the funds are used to
purchase shares. We will maintain records of the cash that each participant
contributes (a participant's "Cash Account"). We have no obligation to hold
these funds in a separate account for a participant, and we will not pay
interest on any amounts in a participant's Cash Account. If a participant
revokes the participant's election to participate in the plan for an offering
period, we will pay to the participant any amounts accumulated in the
participant's Cash Account for that offering period, without interest, as soon
as practicable after the date of revocation. If the amount accumulated in a
participant's Cash Account for an offering period is more than the amount
required to purchase the number of shares for which the participant has
subscribed, we will pay to the participant the excess in the participant's Cash
Account over the amount used to purchase the common stock on the last day of the
offering period, without interest, as soon as practicable following the last day
of the offering period. Other than as described above, the plan does not provide
a way for a participant to withdraw contributions that have been made under the
plan.
13
<PAGE> 14
PARTICIPANT CONTRIBUTIONS. Participants do not contribute to the plan
except as they may elect in their subscription agreements. See "Payment of
Purchase Price" above.
PURCHASE LIMITATIONS. No participant may purchase under the plan during
any three consecutive calendar years shares of common stock having an aggregate
value of more than $100,000. For purposes of this limitation, the value of
shares of common stock purchased under the plan will be equal to their Market
Value on the first day of the offering period in which they are purchased.
REPORTS TO PARTICIPANTS. The Committee will prepare and deliver to
participants annually reports on the status of participants' investment
accounts.
REVOKING ELECTION TO PARTICIPATE IN THE PLAN
A participant may revoke the participant's participation in the plan
for any offering period at any time up to and including the last day of the
offering period by providing us with written notice of the revocation. The
participant must provide this notice in accordance with any revocation notice
provisions that are then established by the Committee. In addition, if a
participant fails to pay the purchase price of shares of common stock for which
the participant has subscribed in full on or before the last day of the offering
period, the participant will be deemed to have revoked the participant's
participation for that offering period and will have no further rights to
purchase shares for that offering period. If a participant revokes the
participant's participation for an offering period, any cash that has been
accumulated in a Cash Account for the participant for that offering period will
be refunded to the participant, without interest, as soon as practicable
following our receipt of notice of revocation.
TRANSFER RESTRICTIONS ON SHARES OF COMMON STOCK PURCHASED UNDER THE PLAN
A participant may not transfer shares of common stock that the
participant purchases under the plan for a restricted period of two years,
measured from the first day of the offering period in which the participant
purchases the shares. If a participant attempts to sell, transfer, make subject
to any lien, or otherwise dispose of shares before the end of this restricted
period, the attempted transfer, lien or other disposition will be null and void
and we will have the right, but not the obligation, to repurchase the shares for
the lower of the Market Value of the shares at the time of repurchase or the
actual purchase price that the participant paid for the shares. The participant
will forfeit all rights to those shares upon receipt of payment from us of the
repurchase price.
If a participant ceases to be a party to any written agency agreement
with us for any reason other than due to death or disability, the participant
will be entitled to the participant's shares of common stock that have been held
beyond the two-year restricted period. We have the right, but not the
obligation, within 90 days after we receive notice that a participant has ceased
to be a party to any written agency agreement with us, to repurchase from the
participant any shares for which the restricted period has not passed for the
lower of the Market Value of the shares at the time of repurchase or the actual
purchase price that the participant paid for the shares.
14
<PAGE> 15
VOTING OF SHARES HELD IN INVESTMENT ACCOUNT
The Agent or, if there is no Agent, the Committee will vote all of a
participant's shares that are held in an investment account in accordance with
the participant's instructions.
OFFERING AND PLAN ADMINISTRATION EXPENSES
Philadelphia Consolidated will pay all of the expenses associated with
the offering of shares of common stock under the plan and the administration of
the plan.
TRANSFER OF STOCK CERTIFICATES
We will distribute to each participant certificates for the shares of
common stock that the participant purchased under the plan once the shares are
no longer subject to the two-year restricted period, if the participant has paid
the purchase price of the shares in full.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may amend the plan as it deems appropriate, from
time to time, and may terminate the plan at any time, at its discretion.
15
<PAGE> 16
FEDERAL INCOME TAX EFFECTS OF PLAN PARTICIPATION
The following discussion summarizes, as of the date of this prospectus, general
principles of federal income tax law applicable to the plan and the shares of
common stock acquired under the plan. Participants should consult their own tax
advisors concerning the tax consequences of participation in the plan and the
disposition of shares acquired under the plan, since federal tax laws are
subject to change, individual tax situations differ and the effect of state and
local taxation may be material.
GENERAL. The plan is not intended to qualify as a "stock purchase plan"
under the applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code") nor are contributions by participants in the plan tax deductible.
As a consequence, any preferred agent who participates in the plan will be
subject to tax on the amount of the participant's income that is used to
purchase shares under the plan (even if the income is withheld by Philadelphia
Consolidated) as ordinary compensation income, and will be subject to additional
amounts of ordinary compensation income attributable to the purchase of shares
under the plan at a discount. In general, whenever property is purchased by an
individual at a discount in connection with arrangements related to compensation
for services provided by that individual, the excess of the market value over
the purchase price of the property is treated as taxable compensation income
(that is taxed as additional ordinary income, and not as a capital gain). This
additional compensation income will generally be recognized at the time of the
purchase or at the time the property purchased ceases to be subject to a
substantial risk of forfeiture, whichever is later.
Because the shares of common stock purchased under the plan are subject
to a restricted period, and are subject to repurchase at the lower of the
purchase price or then market value if a participant ceases to be a party to any
written agency agreement with us during the restricted period, the shares should
be viewed for federal income tax purposes as being subject to a substantial risk
of forfeiture. As a consequence, a participant will recognize as additional
compensation income the excess of the market value of the shares purchased as of
the date the restricted period ends over the amount paid for the shares. For
example, if a participant purchases $1,000 worth of shares under the plan during
an offering period that began on July 1, 2000, and continues to be a party to a
written agency agreement with us through July 1, 2002, the following tax
treatment would generally apply. If the participant paid $850 through
withholding from the participant's commissions during 2000, the participant's
income for 2000 will include the $850, even though this amount was never paid to
the participant in cash. No additional income would be recognized in 2000,
absent a special "83(b) election" (described below), as a result of the
purchase. If the market value of the shares purchased rises to $1,500 as of July
1, 2002, the participant will recognize additional compensation income for the
taxable year 2002 equal to $650 (that is, the $1,500 market value of the shares
reduced by the $850 paid for them).
On a subsequent sale of the shares, the participant will be treated for
federal income tax purposes as though the participant had purchased the shares
for their market value (i.e., $1,500) on July 1, 2002. This will determine the
amount of gain or loss recognized on the sale, and will also establish the
beginning of the holding period applicable for purposes of determining the
maximum federal capital gains rate with respect to the gain realized on a sale
of the shares.
16
<PAGE> 17
ELECTION UNDER SECTION 83(b) OF THE CODE. A participant may make an
election under Section 83(b) of the Code (an "83(b) Election") which will cause
the participant to recognize immediately as of the date the purchase of shares
occurs an additional amount of ordinary income equal to the excess of the market
value of the shares as of that date over the price paid for them. If this
election is made, the market value of the shares purchased is determined by
disregarding the restrictions in the plan that otherwise cause the shares to be
subject to a substantial risk of forfeiture. In addition, if the shares are
repurchased, the participant will only be able to claim a loss if the repurchase
is at a price below the price actually paid (that is, if the repurchase price is
based on a market value for the shares that has dropped below the original
discounted purchase price). If the repurchase is at the original purchase price,
the participant will not be allowed any tax loss, even though income will have
been recognized as a result of the 83(b) Election.
In order to make an 83(b) Election, a participant must file the
election no later than 30 days after the date the shares were purchased (that
is, the last day of the offering period), by filing a written statement with the
IRS office where the participant files the participant's returns, and a copy
with Philadelphia Consolidated. A copy of the filing must also be included in
the participant's tax return for the year of the purchase. The statement must
contain: the name, address and taxpayer identification number of the taxpayer, a
description of the shares purchased, the date of the purchase and the taxable
year for which the election is made, the nature of the restrictions on the
shares, the market value of the shares at the time of purchase, the purchase
price paid for the shares and a statement indicating that copies of the election
have been furnished to other persons as required. The statement must be signed
and must indicate that it is made under Section 83(b) of the Code. PARTICIPANTS
SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT THE ADVISABILITY OF AND PROCEDURE
INVOLVED IN MAKING AN 83(b) ELECTION.
The effect of an 83(b) Election may be illustrated as follows: Assume,
as above, that a participant purchases $1,000 worth of shares under the plan
with respect to an offering period that commenced on July 1, 1999. Assume that
the offering period ended on December 31, 2000 (the purchase date) and the
participant files an 83(b) Election within thirty days following the purchase
date. Assume also that the shares were worth $1,000 as of July 1, 2000 (fixing
the purchase price at $850), but rose in value to $1,100 as of December 31,
2000. The $850 which the participant paid for the shares through withholding
from his commissions between July 1 and December 31, 2000 will still be included
in the participant's income for 2000 even though this amount was never paid to
the participant in cash. In addition, as a consequence of electing to include
the bargain purchase amount in income for 2000, the participant's taxable income
will be increased by $250 (the excess of the $1,100 market value of the shares
purchased, over the $850 purchase price paid). If the participant continues to
be a party to a written agency agreement with us until July 1, 2002 and then
sells the shares for $1,500 on July 2, 2002, the participant will recognize a
capital gain of $400 (the excess of the $1,500 realized on the sale over the
$1,100 basis in the shares). This will be treated as a sale of property held
from December 31, 2000 through July 2, 2002, and would be treated as a long-term
capital gain in determining the maximum applicable federal tax rate. If,
however, the participant ceases to be a preferred agent before July 1, 2002 and
Philadelphia Consolidated repurchases the shares for $850 (the original purchase
price), the participant will not be permitted to recognize a loss as no loss is
permitted to be recognized under applicable tax rules for such a forfeiture.
17
<PAGE> 18
USE OF PROCEEDS
We will use the net proceeds of the offering for general corporate
purposes unless we state otherwise in a supplement to this prospectus.
WHERE YOU CAN FIND MORE INFORMATION --
INCORPORATION OF INFORMATION BY REFERENCE
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the following public reference rooms maintained by the SEC at:
Judiciary Plaza 7 World Trade Center
450 Fifth Street, N.W. 13th Floor
Washington, D.C. 20549 New York, New York 10048
You may obtain information on the operation of the SEC's public
reference rooms by calling the SEC at 1-800-SEC-0330. Our SEC filings also are
available to the public from the SEC's website at http://www.sec.gov.
We have filed a registration statement on Form S-3 with the SEC to
register the shares offered by this prospectus. This prospectus is part of the
registration statement. However, this prospectus does not contain all the
information that you can find in the registration statement or the exhibits to
the registration statement. You should refer to the registration statement and
to the exhibits filed with the registration statement for additional information
about us, our consolidated subsidiaries and the shares.
The SEC allows us to "incorporate by reference" the information we file
with them. This means that we may disclose information to you by referring you
to other documents we have filed with the SEC. The information that we
incorporate by reference is considered to be part of this prospectus. In
addition, information that we file with the SEC after the date of this
prospectus will automatically update and supersede the information in this
prospectus.
We incorporate by reference in this prospectus all the documents listed
below and any filings we make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus and before all the
shares of common stock offered by this prospectus have been sold or
de-registered:
- the annual report on Form 10-K for the fiscal year ended
December 31, 1999;
- the quarterly reports on Form 10-Q for the fiscal quarters
ended March 31, 2000 and June 30, 2000;
- the current report on Form 8-K filed with the SEC on March 17,
2000; and
- the description of our common stock, no par value, that is
contained in Philadelphia Consolidated Holding Corp.'s
registration statement on Form 8-A/A,
18
<PAGE> 19
dated September 13, 1993, including any amendments or reports
filed for the purpose of updating the description of the
shares.
You may send a written request or call us to obtain without charge a
copy of the documents incorporated by reference in this prospectus. We will not
send exhibits to these documents unless we specifically incorporated the
exhibits by reference in this prospectus. Make your request by calling or
writing to:
Craig P. Keller
Senior Vice President, Secretary, Treasurer
and Chief Financial Officer
Philadelphia Consolidated Holding Corp.
One Bala Plaza, Suite 100
Bala Cynwyd, PA 19004
(610) 617-7900
You should rely only on the information that we have provided or
incorporated by reference in this prospectus. We have not authorized anyone else
to provide you with different information. You should assume that the
information in this prospectus, as well as information we previously filed with
the SEC and incorporated by reference, is accurate only as of the date on the
front cover of this prospectus. Our business, financial condition, results of
operations and prospects may have changed since then.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statements. These statements can be identified by the use of forward-looking
phrases such as "will likely result," "may," "are expected to," "is
anticipated," "estimate," "projected," "intends to," or other similar words.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those projected. We have
described some of these risks under "Risk Factors" in this prospectus. We have
included in this prospectus and in our other filings with the SEC additional
risks that may affect our future performance. You should keep in mind these risk
factors and other cautionary statements in this prospectus when considering
forward-looking statements.
LEGAL OPINIONS
Wolf, Block, Schorr and Solis-Cohen LLP will pass on the validity of
the shares of common stock offered in this prospectus.
EXPERTS
We have incorporated by reference in this prospectus the consolidated
financial statements of Philadelphia Consolidated Holding Corp. and its
subsidiaries as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999 in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
19
