UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 ss. 240.14a-11(c) or ss. 240.14a-12
PENN-AMERICA GROUP, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(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):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[ ] 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.:
3) Filing Party:
4) Date Filed:
<PAGE>
[GRAPHIC OMITTED - LOGO]
PENN-AMERICA GROUP, INC.
420 S. York Road
Hatboro, Pennsylvania 19040
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 1997
-------------------------
The Annual Meeting of Shareholders (the "Meeting") of Penn-America Group,
Inc., a Pennsylvania corporation (the "Company"), will be held on May 14, 1997
at 10:00 a.m., local time, at the Company's offices at 420 S. York Road,
Hatboro, Pennsylvania, for the following purposes:
1. To elect nine directors to hold office until the Annual Meeting of
Shareholders in 1998 and until their respective successors are duly
elected and qualified;
2. To approve the amendment to the Corporation's Certificate of
Incorporation to increase authorized Common Stock from 10,000,000
shares to 20,000,000 shares.
3. To transact such other business as may properly come before the
Meeting and any and all adjournments and postponements thereof.
The Board of Directors has fixed the close of business on March 24, 1997 as
the record date for the Meeting. Only shareholders of record at that time are
entitled to notice of and to vote at the Meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
The cost of soliciting proxies will be borne by the Company. Reference is made
to the accompanying Proxy Statement for further information with respect to the
business to be transacted at the Meeting.
All shareholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, you are urged to date,
sign and return the enclosed proxy promptly. Any shareholder attending the
Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
Rosemary Ferrero
Secretary
April 14, 1997
Annual Reports to Shareholders, including financial statements, are being
mailed to shareholders together with these proxy materials, commencing on or
about April 14, 1997.
<PAGE>
[GRAPHIC OMITTED - LOGO]
PENN-AMERICA GROUP, INC.
420 S. York Road
Hatboro, Pennsylvania 19040
-------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 14, 1997
-------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies of the Board of Directors of Penn-America Group, Inc., a Pennsylvania
corporation (the "Company"), for use at the Company's Annual Meeting of
Shareholders (the "Meeting") which is scheduled to be held at 10:00 a.m., local
time, on May 14, 1997, at 420 South York Road, Hatboro, Pennsylvania for the
purposes set forth in the foregoing notice of the Meeting. This Proxy Statement,
the foregoing notice and the enclosed proxy are being sent to shareholders on or
about April 14, 1997.
The Board of Directors knows of no matters which are likely to be brought
before the Meeting, other than the matters specifically referred to in the
notice of the Meeting. If any other matters properly come before the Meeting,
however, the persons named in the enclosed proxy, or their duly constituted
substitutes acting at the Meeting, will be authorized to vote or otherwise act
thereon in accordance with their judgment on such matters. If the enclosed proxy
is properly executed and returned prior to voting at the Meeting, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. In the absence of instructions, executed proxies will be voted "FOR"
the nine nominees of the Board of Directors in the election of directors and the
amendment to the Certificate of Incorporation.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary of the Company in writing, by delivering a duly executed proxy bearing
a later date, or by attending the Meeting and voting in person.
VOTING SECURITIES AND SECURITY OWNERSHIP
Voting Securities
At the close of business on March 24, 1997, the record date fixed for the
determination of shareholders entitled to notice of, and to vote at, the
Meeting, there were issued and outstanding 6,710,638 shares of the Company's
Common Stock, $.01 par value ("Common Stock"). Each shareholder of record at the
close of business on March 24, 1997 is entitled to one vote for each share held.
The presence at the Meeting, in person or by proxy, of shareholders entitled to
cast at least a majority of the votes which all shareholders are entitled to
cast will constitute a quorum for the Meeting. In the event that the Meeting is
adjourned for one or more periods aggregating at least 15 days due to the
absence of a quorum, those shareholders entitled to vote who attend the
adjourned Meeting, although less than a quorum as described in the preceding
sentence, shall constitute a quorum for the purpose of acting upon any matter
set forth in the foregoing notice.
<PAGE>
In the election of directors, the nominees receiving a plurality of the
votes cast at the Meeting shall be elected. Approval of all other matters to be
submitted to the shareholders requires the affirmative vote of a majority of the
votes cast at the Meeting. For purposes of determining the number of votes cast
with respect to any voting matter, only those cast "FOR" or "AGAINST" are
included. Abstentions and broker non-votes are counted only for purposes of
determining whether a quorum is present at the Meeting. Mr. Irvin Saltzman,
Chairman of the Board of Directors and the controlling shareholder of Penn
Independent Corporation ("Penn Independent"), the majority shareholder of the
Company, has indicated that Penn Independent will vote its shares "FOR" the nine
nominees for director listed below and for the amendment to the Certificate of
Incorporation. If the shares of Penn Independent are voted as so indicated, the
election of each of the nine nominees for the Board of Directors and the
approval of the amendment to the Certificate of Incorporation is assured.
Security Ownership of Management and Principal Shareholders
The table below sets forth certain information as of March 10, 1997
regarding the beneficial ownership, as defined in regulations of the Securities
and Exchange Commission, of Common Stock of (i) each person who is known to the
Company to be the beneficial owner of more than 5% of the outstanding shares of
the Company's Common Stock, (ii) each director and nominee for director of the
Company, (iii) the Company's Chief Executive Officer and the executive officers
listed in the Compensation Table on page 9, and (iv) all directors and executive
officers as a group. On March 10, 1997, there were 6,710,638 shares of the
Company's Common Stock outstanding. Unless otherwise specified, the named
beneficial owner has sole voting and investment power. The information in the
table below was furnished by the persons listed.
<TABLE>
<CAPTION>
Amount Beneficially Percent
Name of Beneficial Owner Owned(1)(2) of Class
All share information has been adjusted for 3-for-2 stock split declared January
29, 1997, distributed March 7.
<S> <C> <C>
Penn Independent Corporation........................................... 4,087,500 60.9%
420 S. York Road
Hatboro, PA 19040
Irvin Saltzman......................................................... 4,132,500 (3) 61.6%
420 S. York Road
Hatboro, PA 19040
Jon S. Saltzman........................................................ 54,750 *
Robert A. Lear......................................................... 35,400 *
Rosemary R. Ferrero.................................................... 2,583 *
James E. Heerin, Jr.................................................... 13,650 *
John M. DiBiasi, CPCU.................................................. 26,207 (4) *
Thomas J. Reed......................................................... 16,293 (5) *
M. Moshe Porat......................................................... 22,500 (6) *
Lawrence J. Schoenberg................................................. 68,250 1.0
David P. Cohen......................................................... 20,250 *
Jami Saltzman-Levy..................................................... 900 (7) *
Charles Ellman......................................................... 120,000 (8) 1.8%
Thomas M. Spiro........................................................ 3,000 *
Paul Simon............................................................. 1,500 (9) *
All executive officers and directors
as a group (14 persons)........................................... 4,517,783 67.3%
- -------------
* Less than 1%
</TABLE>
2
<PAGE>
(1) Includes shares of restricted stock awarded to certain officers of the
Company under the Company's 1993 Stock Incentive Plan (as amended and
restated) which have not yet vested, over which such persons maintain
voting power, as follows: 7,200 shares for Mr. Jon Saltzman, 4,800 shares
for Mr. Lear, 1,500 shares for Mr. Heerin, 3,000 shares for Mr. DiBiasi and
1,500 shares for Mr. Reed.
(2) Includes shares subject to exercisable options as follows: 45,000 for Mr.
Irvin Saltzman, 27,000 for Mr. Jon Saltzman, 23,400 for Mr. Lear, 9,900 for
Mr. Heerin, 13,500 for Mr. DiBiasi, 9,900 for Mr. Reed, 15,000 each for M.
Moshe Porat, Mr. Schoenberg, Mr. Cohen and 7,500 for Mr. Ellman.
(3) Of these shares, 4,087,500 are owned of record by Penn Independent. Mr.
Irvin Saltzman, Chairman of the Board of Directors, owns 49.9% of the
outstanding voting securities of Penn Independent and the remaining
securities are owned by or for the benefit of members of his family.
(4) 12,706 of such shares are owned jointly with spouse.
(5) 2,643 of such shares are owned jointly with spouse.
(6) 7,500 of such shares are owned jointly with spouse.
(7) 900 of such shares are owned jointly with spouse.
(8) Excludes 150 shares held by Mr. Ellman's daughter to which Mr. Ellman
disclaims beneficial ownership.
(9) All shares are jointly owned with his spouse.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees for Election
At the Meeting, the shareholders will elect nine directors to hold office
until the Annual Meeting of Shareholders in 1998 and until their respective
successors are duly elected and qualified. Unless contrary instructions are
given, the shares represented by a properly executed proxy will be voted "FOR"
the election of the following nominees: Irvin Saltzman, Jon S. Saltzman, James
E. Heerin, Jr., Robert A. Lear, Jami Saltzman-Levy, M. Moshe Porat, Thomas M.
Spiro, Paul Simon and Charles Ellman. All of the nominees except Thomas M. Spiro
and Paul Simon are presently members of the Board of Directors of the Company.
The Board of Directors believes that the nominees will be able to serve as
directors. If any nominee is unable to serve, the persons named in the enclosed
proxy will vote the shares they represent for the election of such other persons
as the Board of Directors may recommend, unless the Board of Directors reduces
the number of directors.
Set forth below is certain information concerning the nominees for election
as directors:
<TABLE>
<CAPTION>
Director
Name Age Since Position with the Company
<S> <C> <C> <C>
Irvin Saltzman 74 1993 Chairman, Director
Jon S. Saltzman 39 1993 President and Chief
Executive Officer, Director
James E. Heerin, Jr. 60 1993 Director
Robert A. Lear 51 1993 Director
Jami Saltzman-Levy 40 1994 Director
M. Moshe Porat 50 1994 Director
Thomas M. Spiro 41 Nominee for Director
Paul Simon 68 Nominee for Director
Charles Ellman 68 1994 Director
</TABLE>
3
<PAGE>
Mr. Irvin Saltzman is the founder of Penn-America Insurance Company
("Penn-America"), the wholly-owned subsidiary of the Company, and of Penn
Independent, a holding company and majority shareholder of the Company, and for
more than six years was the Chief Executive officer and Chairman of the Board of
both corporations. Mr. Saltzman has been Chairman of the Board of Directors of
the Company since its formation in July 1993. Mr. Saltzman has been active in
the insurance industry since 1947. See "Certain Transactions."
Mr. Jon S. Saltzman has been President and Chief Executive Officer of the
Company since its formation in July 1993. He has been President and Chief
Executive Officer of Penn-America since June, 1993. Mr. Saltzman was President
and Chief Operating Officer of Penn-America from June 1989 until June 1993, and
was Vice President, Marketing of Penn-America from January 1986 until June 1988.
Mr. Saltzman is Mr. Irvin Saltzman's son.
Mr. Heerin has been a Vice President of Penn Independent for more than six
years, and was General Counsel and Secretary of the Company since its formation
in July 1993 until his resignation from those positions in March 1995. Mr.
Heerin served as Vice President, Secretary and General Counsel of Penn-America
from May 1987 to March 1994 and Secretary of Penn-America from May 1993 to March
1994. Prior to joining Penn Independent, Mr. Heerin was Vice President and
Assistant General Counsel of Pitcairn, Inc.
Mr. Lear has been President of Penn Independent since September 1996 and
previously served as Executive and Vice President-Finance and Chief Financial
Officer of Penn Independent for more than seven years. Mr. Lear was Vice
President-Finance and Chief Financial Officer of the Company from its formation
in July 1993 until his resignation from those positions in March 1995. Prior to
joining Penn Independent Corporation, Mr. Lear had over 15 years of public
accounting experience, specializing in the insurance industry. Mr. Lear is a
certified public accountant.
Ms. Saltzman-Levy has been a Vice President-Human Resources of Penn
Independent for more than six years. Ms. Saltzman-Levy is Mr. Irvin Saltzman's
daughter.
Mr. Porat has been the Dean of the School of Business and Management at
Temple University since August 1996 and previously the Joseph E. Boettner
Professor and Chairman of the Risk Management, Insurance and Actuarial Science
Department at the Temple University School of Business and Management for eight
years. Prior to joining Temple University, Mr. Porat was the Deputy General
Manager of IHUD Insurance Agencies Ltd., an international insurance brokerage
firm.
Mr. Spiro is the Managing General Partner of TMS Capital Partners, L.P.
("TMS"), a private investment partnership which he founded in July, 1992. He is
also a Director and President of Spiro Capital Management, Inc. ("SCMI"), a
private investment corporation which he founded in June, 1992, and which is the
successor to Spiro Capital Management ("SCM"), an investment company which he
founded in January, 1991. Both TMS and SCMI employ (and SCM employed) a
research-oriented investment strategy focused primarily on small capitalization
public corporations. From January, 1987 to December 1990, Mr. Spiro was a Senior
Vice President of Gollust, Tierney & Oliver, Inc. ("GTO"), a private corporation
which managed several investment partnerships.
Mr. Simon is a Professor and Director of the Public Policy Institute at
Southern Illinois University. Simon founded the Institute in 1997 shortly after
retiring from the United States Senate after twelve years of service as
Illinois's senior Democratic Senator. His distinguished political career
included 14 years in the Illinois House and Senate and a term as Lieutenant
Governor of the State, the first in the state's history to be elected with a
governor from another party. He built a chain of 13 newspapers in the southern
and central parts of Illinois, which he sold in 1966 to devote full-time to
public service and writing. Simon is the recipient of 44 honorary degrees and
has written 16 books. He is currently a Director of the Chicago Mercantile
Exchange as well as director of a number of foundations.
Mr. Ellman who is now retired, was a Director of Penn-America Insurance
Company from May 1976 until May 1995. Prior to September 1994, Mr. Ellman was
also Vice Chairman and a Director of Penn Independent.
4
<PAGE>
Meetings and Committees of the Board of Directors
The Board of Directors ("Board") held four meetings in 1996. The Board has
established a Compensation and Stock Option Committee, an Audit Committee and a
Nomination Committee.
The Compensation and Stock Option Committee met one time in 1996. Messrs.
Porat, Ellman and Schoenberg are members of this Committee with Mr. Porat as
Chairman. See "Compensation and Stock Option Committee."
The Audit Committee met one time in 1996. Messrs. Cohen, Ellman and
Schoenberg are members of the Committee with Mr. Schoenberg as Chairman. The
functions of the Audit Committee generally include reviewing with the
independent auditors the scope and results of their engagement and reviewing the
adequacy of the Company's system of internal accounting controls.
The Nominating Committee did not meet in 1996. In 1997 the Nominating
Committee met and recommended the nominees for election to the Board of
Directors. Members of the Committee include Messrs. Cohen, Ellman and Porat,
with Mr. Ellman as the Chairman. The Nominating Committee reviews the size and
composition of the Board of Directors and is responsible for recommending
nominees to serve on the Board of Directors. In carrying out its
responsibilities, the Nominating Committee will consider candidates recommended
by other directors, employees and shareholders. Written suggestions for
candidates to serve as directors, if nominated and elected, should be sent to
the President of the Company at 420 S. York Road, Hatboro, PA 19040.
The current Directors attended 95% of the Board and Committee meetings in
the aggregate in 1996.
The Company's bylaws require that written notice of the intent to make a
nomination at a meeting of shareholders must be received by the President of the
Company (a) with respect to an election to be held at an annual meeting, not
less than 60 days nor more than 90 days prior to the anniversary date of the
immediately preceding Annual Meeting of Shareholders, and (b) with respect to an
election to be held at a special meeting or in the case of an annual meeting
that is called for a date that is not within 30 days before or after the
anniversary date of the immediately preceding annual meeting, not later than the
close of business on the tenth day following the day on which notice of the date
of the meeting is given to shareholders. The notice must contain (a) the name
and address of the shareholder who intends to make the nomination(s) and of the
person or persons to be nominated; (b) a representation that the shareholder is
a holder of record of shares of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all arrangements
or understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (d) such other information
regarding each nominee proposed by such shareholder as would have been required
to be included in the proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a director of the Company, if so elected.
5
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation
earned during each of the last three fiscal years by the Company's Chief
Executive Officer and by the four other most highly compensated executive
officers ("named executive officers") during 1996. (All share and stock prices
have been adjusted to reflect a three-for-two stock split in January 1997.)
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation Awards
Number of
Name and Other Annual Restricted Securities All Other
Principal Bonus Compensation Stock Underlying Compensation
Position Year Salary($) ($) (3) ($) Award(s)($) Options(#) ($) (4)
<S> <C> <C> <C> <C> <C> <C> <C>
Irvin Saltzman(2) 1996 64,000 0 0 0 0 831
Chairman 1995 176,000 0 0 0 0 1,508
1994 164,623 0 0 0 0 1,502
Jon S. Saltzman 1996 230,000 80,500 0 0 0 1,800
President, Chief 1995 208,846 84,125 0 0 0 1,752
Executive Officer 1994 173,962 27,500 0 0 0 1,346
John M DiBiasi 1996 156,000 45,000 0 0 0 2,375
Executive Vice 1995 148,308 40,000 0 0 0 2,135
President, 1994 122,539 14,300 0 0 0 1,635
Penn-America
Rosemary Ferrero 1996 126,000 30,000 0 0 0 1,950
Vice President, 1995 122,539 20,000 0 0 0 900
Chief Financial 1994 75,923 7,150 0 0 0 0
Officer
Thomas J. Reed 1996 116,000 27,500 0 0 0 1,931
Sr. Vice President, 1995 112,154 28,800 0 0 0 1,394
Penn-America 1994 102,154 11,000 0 0 0 1,072
<FN>
(1) Excludes certain perquisites and other amounts, which, for any executive
officer did not exceed, in the aggregate, the lesser of $50,000 or 10% of
the total annual salary and bonus for such executive officer.
(2) Mr. Irvin Saltzman divides his time between Penn Independent and each of
its subsidiaries, including the Company and Penn-America. Mr. Saltzman's
compensation is paid directly by Penn Independent, with each subsidiary
paying for the portion of his salary and benefits attributable to the time
spent for each such subsidiary. The compensation set forth in this table is
the amount paid to Penn Independent for Mr. Saltzman's services rendered on
behalf of the Company and Penn America.
(3) Messrs. DiBiasi and Reed and Ms. Ferrero received part of their 1996 bonus
in cash and the balance in 2,093, 1,395 and 1,280 shares, respectively, of
the Company's stock, valued at the average of the bid and ask price on
December 31, 1996.
(4) Represents employer contributions to the Company's 401(k) Savings Plan.
</FN>
</TABLE>
Option/SAR Grants
No individual grants of stock options were made during fiscal 1996 to the
Company's Chief Executive Officer or the named executive officers. The Company
does not currently have (and has not previously had) any plan pursuant to which
any stock appreciation rights ("SARs") may be granted.
6
<PAGE>
Aggregated Option/SAR Exercises and Fiscal Year-End Options/SAR Value Table
The following table sets forth information relating to options exercised
during 1996 by the Company's Chief Executive Officer and the named executive
officers, and the number and value of options held on December 31, 1996 by such
individuals. The Company does not currently have (and has not previously had)
any plan pursuant to which any stock appreciation rights ("SARs") may be
granted.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1996
and Option Values at December 31, 1996
(adjusted for 3-for-2 stock split declared as of January 29, 1997)
Number of Securities
Underlying
Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired Dec. 31, 1996 (#) Dec. 31, 1996($)(2)
on Value
Name Exercise (#)(1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Irvin Saltzman 0 0 45,000 30,000 213,750 142,500
Jon S. Saltzman 0 0 27,000 18,000 128,250 85,500
John M. DiBiasi 0 0 13,500 9,000 64,125 42,750
Rosemary R. Ferrero 0 0 0 0 0 0
Thomas J. Reed 0 0 9,900 6,600 47,025 31,350
<FN>
(1) No Stock Options were exercised during fiscal 1996 by the named executive
officers.
(2) Total value of unexercised options is based upon the difference between the
last sales price of the Company's Common Stock on the NASDAQ Stock
(National) Market as of December 31, 1996 and the exercise price of the
options, multiplied by the number of option shares. (All shares and stock
prices reflect retroactive three-for-two stock split declared in January
1997.)
</FN>
</TABLE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee (the "Committee") consists of
Messrs. Porat, Ellman and Schoenberg, none of whom is an employee of the
Company. The Compensation Committee is charged generally with the review and
development of compensation practices regarding Penn America Group, Inc. and its
employees, including executive officers. The Compensation Committee bases its
compensation recommendations upon information derived from multiple sources
including Penn America personnel, outside compensation consultants, industry
surveys and recommendations of management. The Committee believes that
consideration of these diverse sources of information helps to create a balanced
and appropriate compensation program.
The Committee has established an overall compensation program to attract,
retain and motivate executive officers and to enhance their incentive to perform
at the highest level and contribute significantly to the Company's success. In
establishing executive compensation, the Compensation Committee considers
various factors including the personal performance of the executive officer, the
attainment of certain financial goals and the need to attract, retain and
motivate superior management.
In determining appropriate compensation levels for its executive officers,
the Committee conducted a review of compensation data of companies in a peer
group deemed appropriate by the Committee. Peer group companies for purposes of
establishing compensation levels were not necessarily the same companies as
those included in the performance graph utilized to evaluate the performance of
the Company's stock.
In line with advice received from outside compensation consultants, the
Committee generally sets its competitive salaries for executive officer
positions in the range between the median level and the 75th percentile of those
companies it surveys.
7
<PAGE>
Compensation for the Company's executive officers consists of up to three
separate components; salary, bonus and stock options and restricted stock
awards. The base salaries of executive officers are initially determined by
evaluating the responsibilities of the position held and the experience and
performance of the individual, with reference to the competitive marketplace for
executive talent.
The Company's Key Employee Incentive Compensation Plan is designed to
provide incentives to key employees to excel in their performance individually
and collectively to the benefit of stockholders and employees. The plan is
designed to be simple and predictable yet to provide significant monetary
incentives to key employees. The principal performance criteria are pre-tax
underwriting earnings (which excludes investment results) ("Underwriting
Earnings") compared against the Annual Business Plan and industry performance,
and specifically the earnings per share measurement as compared with previous
year performance. The plan is designed to pay bonuses at a level of 15% to 55%
of annual salary when the target goals are achieved and an additional amount if
targets are exceeded by 125% or more. A portion of the bonus pool is awarded at
the discretion of the CEO. Any incentive bonuses will be paid to all
participants 50% in cash and 50% in stock, except that in 1996 and 1995, the
bonus paid to the CEO was paid entirely in cash. The overall compensation
payable under the Key Employee Incentive Compensation Plan may not exceed 10% of
Underwriting Earnings without prior approval of the Compensation Committee of
the Board.
Under the Company's 1993 Stock Incentive Plan, as amended and restated,
stock options and restricted shares may be granted to executive officers and
other key employees of the Company. The size of any annual stock option or
restricted share award is based primarily on an individual's performance and the
individual's responsibilities and position with the Company, as well as on the
individual's present outstanding vested and unvested options. Options are
designed to align the interests of executive officers with those of the
Company's shareholders. The Company's 1993 Stock Incentive Plan was designed to
provide incentive for the enhancement of shareholder value, as the full benefit
of stock option grants will not be realized unless there is appreciation in per
share values. In this regard, options have been and will be granted with
exercise prices equal to the fair market value of the Company's Common Stock on
the date of grant and will generally become exercisable in equal installments
over a period of five years.
Mr. Jon Saltzman's compensation was determined by the Committee in light of
the factors set forth above. His total compensation, composed of base salary and
bonus, was compared with compensation packages within the industry. Any award
under the Key Employee Incentive Compensation Plan will be made pursuant to that
plan and the normal considerations of the Committee. In determining Mr.
Saltzman's base salary in 1996, the Committee evaluated his personal and company
performance on both a qualitative and quantitative level.
The Internal Revenue Code provides that publicly-held corporations may not
deduct, for federal income tax purposes, non-performance based compensation for
its chief executive officer and certain other executive officers to the extent
that such compensation exceeds $1,000,000 for the executive. The Committee
intends to take such actions as are appropriate to qualify compensation paid to
executives for deductibility under the Internal Revenue Code. In this regard,
base salary and bonus levels are expected to remain well below the $1,000,000
limitation in the foreseeable future. Options granted under the Company's 1993
Stock Incentive Plan are designed to constitute performance-based compensation,
which would not be included in calculating compensation for purposes of the
$1,000,000 limitation.
Compensation and Stock Option Committee
M. Moshe Porat
Charles Ellman
Lawrence J. Schoenberg
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during fiscal 1996 were Messrs.
Porat, Ellman and Schoenberg, all non-employee directors of the Company. No
member of the Compensation Committee has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
8
<PAGE>
Compensation of Directors
The Company pays to each of its non-employee directors $1,000 for each
meeting of the Board of Directors attended and $1,000 for each meeting of any
committee of the Board of Directors attended (even if such meeting is held in
conjunction with a meeting of the Board of Directors); provided, however, that
the Chairman of the Audit Committee receives an additional $1,500 for each
meeting of the Audit Committee which he attends.
Under the Company's amended and restated 1993 Stock Incentive Plan (the
"Plan"), an option grant for 7,500 shares of the Company's stock is made to each
non-employee director on the first annual meeting of shareholders at which such
person is elected to the Board of Directors, and thereafter on the date of each
annual meeting of shareholders at which such person is reelected to the Board of
Directors. Such options become exercisable on the first anniversary of the date
of grant at an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant.
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return of the NASDAQ Stock
Market (U.S. Companies) Index and the SIC Code 6331 Index for the period October
28, 1993 (the date of the Company's initial public offering) through December
31, 1996, assuming an initial investment of $100 and that dividends are
reinvested annually.
COMPARATIVE 38 MONTH CUMULATIVE TOTAL RETURN AMONG PENN-AMERICA GROUP,
NASDAQ STOCK MARKET AND NASDAQ INSURANCE STOCKS INDEXES
(Chart retroactively adjusted to reflect 3-for-2 stock split
declared on January 29, 1997)
[GRAPHIC OMITTED]
10/28/93 12/31/93 12/31/94 12/31/95 12/31/96
PAGI 100 85.4167 82.0317 158.333 179.167
NASDAQ STK MKT 100 99.7416 97.4786 137.745 169.551
NASDAQ INS STK 100 94.7165 89.1362 126.645 144.318
9
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Proposal No. 2
APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors has declared advisable an amendment to the Company's
Certificate of Incorporation, as amended (the "Certificate"), to increase the
aggregate number of authorized shares of Common Stock from 10,000,000 to
20,000,000 (the "Amendment") and has directed that the Amendment be submitted to
the Stockholders at the annual meeting. The Certificate presently authorizes the
issuance of 10,000,000 shares of Common Stock. The Amendment would increase the
authorized number of shares of Common Stock to 20,000,000.
If the Amendment is approved, the text of the first paragraph of Article 3
of the Certificate would read in its entirety as follows:
3: The total number of shares of stock which the corporation shall have the
authority to issue is twenty million (20,000,000) shares of Common Stock,
of the par value of $0.01 per share.
Of the Company's 10,000,000 authorized shares of Common Stock, 6,710,638
were issued and outstanding as of the record date and approximately 620,000 were
reserved for issuance under the Company's Stock Option, Executive Compensation
and Agent Contingent Commission Plans, leaving only a limited number of
authorized but unissued shares available for issuance. The Board of Directors is
concerned that there is not presently authorized a sufficient number of shares
of Common Stock to give the company the flexibility it needs in today's
competitive, fast changing environment. The Board considers it desirable that
the Company have a reasonable amount of Common Stock available for issuance for
possible stock offerings, stock dividends, stock splits, employee benefit plans,
corporate mergers, acquisitions of property and other corporate purposes,
although there are no present agreements, understandings or plans for the
issuance of any of the additional shares that would be authorized by the
Amendment. Having the additional shares available for issuance, without the
expense and delay of obtaining the approval of stockholders at a special
meeting, will afford the Company greater flexibility.
Adoption of the Amendment would enable the Board from time to time to issue
additional shares of Common Stock for such purposes and such consideration as
the Board may approve, without further approval of the Company's stockholders
except as may be required by law or the rules of any national securities
exchange on which the shares of common Stock are at the time listed. As is true
for shares presently authorized, Common Stock authorized by the Amendment could
be issued in connection with defending the Company against a hostile takeover
bid, and the issuance of shares authorized by the Amendment may, among other
things have a dilutive effect on earnings per share and on the equity and voting
power of existing holders of Common Stock.
There are no preemptive rights with respect to Common Stock. The additional
authorized shares of Common Stock would have the identical powers, preferences
and rights as the shares now authorized. If the Amendment is approved by the
stockholders, it will become effective upon executing, acknowledging, filing and
recording a Certificate of Amendment required by the General Corporation Law of
Pennsylvania.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION.
CERTAIN TRANSACTIONS
Headquarters Lease
The Company's headquarters in Hatboro, Pennsylvania are occupied pursuant
to a lease effective June 30, 1995, between Mr. Irvin Saltzman, Chairman of the
Board of Directors, as landlord, and the Company. The lease is for an initial
term of five years and the Company has one five-year renewal option thereafter.
The current rent is $260,232 per year and the Company is required to pay its pro
rata share of all taxes, fees, assessments and expenses on the entire office
facility to the extent that they exceed $224,562 in the aggregate. In the event
of renewal, the rent will be increased by 50% of the cumulative change in the
Philadelphia area consumer price index during the
10
<PAGE>
initial lease term. Management believes that the amount being paid by the
Company under the lease represents a fair market value annual rental charge.
Affiliated Insurance Entities
Several of Penn Independent's wholly-owned subsidiaries are insurance
agencies (the "Agencies") that write business with Penn-America. During the year
ended December 31, 1996, the business written by the Agencies for Penn-America
represented 4.8% of the gross premiums written by the Agencies and 4.8% of the
business of Penn- America. Premiums written and commissions paid resulting from
transactions with insurance agency affiliates approximated $3,880,000 and
$888,000, respectively, in 1996. Amounts receivable from agency affiliates
approximated $334,000 as of December 31, 1996. The Company believes that its
arrangements with the Agencies are on terms no more favorable than they would
otherwise be if the Agencies were unaffiliated third parties.
From time to time, Penn-America has loaned money to Penn Independent
Financial Services, Inc., a wholly-owned premium financing subsidiary of Penn
Independent. The principal balance of these loans as of March 10, 1997 was
$150,000. The loans are evidenced by a note due October 31, 1997, which requires
the payment of interest monthly at the annual rate equal to PNC's (Philadelphia,
PA) prime rate plus one-quarter percent and are secured by certain financed
premium receivables.
Agreements with Penn Independent Corporation
In addition to the services of Mr. Irvin Saltzman, Penn-America receives
services from other executives (including Messrs. Heerin, Lear and Ms.
Saltzman-Levy), staff and administrative personnel of Penn Independent,
including services in connection with Penn-America's investment portfolio and
human resource administration and related services. Also, Penn-America has
historically been charged a portion of the amounts paid by Penn Independent for
services such as insurance, telecommunications, professional fees, postage and
office supplies.
During 1996, in addition to amounts paid for Mr. Irvin Saltzman, the
Company and Penn-America paid to Penn-Independent approximately $261,000 for the
services of other Penn Independent personnel for executive, human resource
administration and other related support services. For a description of the
amount paid by the Company and Penn-America for Mr. Irvin Saltzman's services,
see "Executive Compensation--Summary Compensation Table."
Carl Domino Associates, L.P.
Penn-America has retained Carl Domino Associates, L.P. ("CDA"), a
registered investment advisor, to recommend purchases and sales of securities.
Penn Independent and Mr. James E. Heerin, Jr., a Director of the Company, each
own a 5% limited partnership interest in CDA. CDA receives an annual fee based
on the market value of Penn-America's fixed maturity and certain equity security
assets which it manages at an annual rate of .208%. For 1996, the annual fee for
CDA by Penn-America was $207,550.
The Company believes that the terms of the transactions described in this
section are at least as favorable as those that might have been obtained from
unaffiliated third parties.
INFORMATION CONCERNING INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, will
select a certified public accounting firm to serve as independent auditors for
the Company for the current fiscal year at a subsequent Board Meeting this year.
Representatives of KPMG Peat Marwick LLP, the auditors for December 31, 1996 are
expected to be present at the Meeting and will have the opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
11
<PAGE>
OTHER MATTERS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than 10% of the Company's Common
Stock (collectively, the "Reporting Persons") to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and to furnish
the Company with copies of these reports. Based on the reports received by it,
and written representations received from the Reporting Persons, the Company
believes that all filings required to be made by the Reporting Persons for the
period January 1, 1996 through December 31, 1996 were made on a timely basis.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Annual Meeting of
Shareholders in 1998 must be received by the Company at its principal office in
Hatboro, Pennsylvania, no later than December 31, 1997 in order to be considered
for inclusion in the Company's proxy statement and form of proxy relating to the
Meeting.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED BY THIS
PROXY STATEMENT, ON THE WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES
THERETO, AS FILED WITH THE SEC FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN
REQUEST SHOULD BE DIRECTED TO INVESTOR RELATIONS, AT THE ADDRESS OF THE COMPANY
APPEARING ON THE FIRST PAGE OF THIS PROXY STATEMENT.
12
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF PENN-AMERICA GROUP, INC.
The undersigned, a holder of Common Stock of PENN-AMERICA GROUP, INC. hereby
constitutes and appoints JON S. SALTZMAN and ROSEMARY FERRERO, and each of them
acting individually, as the proxy of the undersigned, with full power of
substitution, for and in the name and stead of the undersigned, to attend the
Annual Meeting of Shareholders of the Company to be held on Wednesday, May 14,
1997 at 10:00 a.m. at 420 South York Road, Hatboro, Pennsylvania, and any
adjournment or postponement thereof, and thereat to vote all shares of Common
Stock which the undersigned would be entitled to vote if personally present, as
instructed on the reverse side of this proxy.
This Proxy also delegates discretionary authority to vote with respect to any
other business which may properly come before the meeting and any adjournment or
postponement thereof. THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE
OF ANNUAL MEETING, PROXY STATEMENT AND ANNUAL REPORT OF PENN-AMERICA GROUP, INC.
SEE REVERSE SIDE. PLEASE SIGN, DATE AND RETURN IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
/SEE REVERSE/
/ SIDE /
<PAGE>
/X/ Please mark your
vote as in this
example.
Unless otherwise specified, the shares will be voted "FOR" the election of
all nine nominees for director and "FOR" the other proposals set forth below.
FOR WITHHELD
1. Election of /_/ /_/ Nominees: Irvin Saltzman, Jon S. Saltzman,
Directors James E. Heerin Jr., Robert A. Lear,
(nominees Jami Saltzman-Levy, M. Moshe Porat,
as listed) Thomas M. Spiro, Paul Simon,
Charles Ellman
For, except vote withheld from the following nominee(s):
____________________________________
2. To approve the amendment to the Corporation's Certificate of Incorporation
to increase authorized Common Stock from 10,000,000 shares to 20,000,000
shares.
FOR WITHHELD
/_/ /_/
3. To vote on such other business which may properly come before the meeting.
____________________________________
____________________________________
SIGNATURE(S) DATE
Note: Please sign this Proxy as name(s) appear(s) in address. When signing as
attorney-in-fact, executor, administrator, trustee or guardian, please add your
title as such, and if signer is a corporation please sign with full corporate
name by duly authorized officer or officers and affix the corporate seal. When
stock is issued in the name of two or more persons, all such persons should
sign.
