File No. 333-
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
Registration Statement
under
The Securities Act of 1933
PENN-AMERICA GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2180139
State or other jurisdiction of incorporation or I.R.S. Employer I.D. No.
organization
420 S. York Road
Hatboro, Pennsylvania 19040
(215) 443-3656
(Address & phone number of principal executive offices)
Jon S. Saltzman
President
Penn-America Group, Inc.
420 S. York Road
Hatboro, Pennsylvania, 19040
(Name and address of agent for service)
(215) 443-3600
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(Telephone number, including area code, of agent for service)
Copy to:
Michael B. Pollack, Esquire
Reed Smith Shaw & McClay
2500 One Liberty Place
Philadelphia, PA 19103
(215) 851-8100
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. x
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement thereafter becomes effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Offering Price Aggregate
Securities Amount Per Security (1) Offering Price Amount of
to be Registered to be Registration Fee
Registered
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<S> <C> <C> <C> <C>
Common Stock, 50,000 Shares $ 21.875 $ 1,093,750 $ 322.66
-------------------
$.01 par value
Total $ 322.66
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</TABLE>
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(1) Estimate solely for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933. Securities
priced as of the bid price, as reported on (NASDAQ) National Market
System, under the "PAGI" symbol as of March 27, 1998.
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50,000 Shares
PENN-AMERICA GROUP, INC.
Common Stock
All of the Shares of Common Stock offered hereby relate to shares being
provided by Penn-America Group, Inc. as part of an Agency Performance Award and
Profit Sharing Plan (the "Plan") offered to certain qualifying independent
agents of Penn-America Insurance Company, its wholly-owned subsidiary. The
Company wishes to provide an incentive to its independent agents to reward them
in a manner in which, by conducting business with Penn-America Insurance Company
in a favorable manner, good underwriting results and loss ratios, they will be
rewarded with the Company's stock and cash as provided by the "Plan" as
described herein. Except where the context otherwise indicates, the term
"Company" includes Penn-America Group, Inc. ("Penn-America Group" or "PAGI") and
its wholly-owned subsidiary Penn-America Insurance Company ("Penn-America") and
its wholly-owned subsidiary Penn-Star Insurance Company.
The Common Stock of Penn-America Group, Inc. is quoted on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") National Market
System under the symbol "PAGI". On March 27, 1998, as reported by NASDAQ, the
closing bid price for the Common Stock was $21.875 per share.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus does not constitute an offer to sell or the
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to or from any person to whom it is unlawful to make or solicit
such offer in such jurisdiction. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
there has or has not been any change in the information contained herein since
the date hereof.
The date of this Prospectus is March 31, 1998.
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AVAILABLE INFORMATION
PAGI, "the Company" is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, such materials
can also be obtained from the Commission's web site at http.//www.sec.gov.
Copies of the above reports, proxy statements and other information may also be
inspected at the offices of the Nasdaq National Market, 9513 Key West Avenue,
Rockville, MD 20850.
This Prospectus constitutes part of a Registration Statement on Form
S-3 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information concerning the Company and the Common Stock
offered hereby, reference is made to the Registration Statement and the
schedules and exhibits filed therewith, copies of which may be obtained from the
Commission at prescribed rates. Any statements contained herein containing the
provisions of any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirely by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December
31, 1997 and all of the reports filed by the Registrant pursuant to Sections
13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by
the Annual Report referred to above are incorporated by reference.
All documents herein filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus prior to the termination of the offering of the Common Stock shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed documents which also is or is deemed to be incorporated by
reference herein modified or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any document incorporated by reference in this Prospectus. Requests for such
documents should be directed to Penn-America Group, Inc., 420 South York Road,
Hatboro, Pennsylvania 19040. The telephone number is (215) 443-3600.
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THE COMPANY
The Company writes commercial property, general liability, commercial
multi-peril and non-standard personal automobile insurance on an admitted and
non-admitted basis as regulatory requirements permit. Premium levels in the
markets that Penn-America serves are generally higher due to unavailability of
the larger standard companies to service these relatively small dollar premiums
that average $1,600 a year. The Company focuses on smaller, Main Street
businesses in this higher rated market, such as restaurants, taverns, retail
businesses, contractors and similar classes, that may not have access to
standard insurance and where management believes the potential for loss is not
excessive and can be adequately quantified. The Company does not write unique or
high risk policies such as medical malpractice, environmental and aviation
liability.
The Company currently markets its commercial insurance products
nationally through a select number of high quality general agents. The Company's
general agents have limited binding authority for the Company's products based
on comprehensive guidelines established by the Company. In 1997, approximately
93% of the Company's policies were issued on a binding authority basis. The
remaining commercial business consists of larger or slightly more complex
policies issued on a submit basis from its agents. All non-standard personal
automobile policies are issued on a binding authority basis. The Company's
general agency network and its strong business experience and relationships
provide the Company with significant underwriting support and marketing
expertise. In addition, during 1997, approximately 34.3% of the Company's gross
written premium or $35.9 million, is non-standard minimum limits liability
personal automobile coverage which is written in five states.
The Company's distribution strategy is to select and maintain a general
agency network with fewer and more productive general agents than its
competitors. By concentrating its resources on a limited number of general
agents, approximately 55, the Company believes it enhances not only the volume
and quality of business generated by the general agents, but also the Company's
ability to monitor the agents' performance with respect to Company underwriting
policies and guidelines.
In May 1997, the Company's A (Excellent) rating and financial size
category of VII was reaffirmed by A.M. Best Company, Inc. ("Best") based upon
recent operating performance. According to Best, an A rating is assigned to
those companies that, in Best's opinion, after an extensive review of the
company's financial condition and operating performance, have demonstrated an
excellent ability to meet their respective policyholder and other contractual
obligations when compared to the norms of the property and casualty insurance
industry. Best's ratings are based upon factors relevant to policyholders and
are not directed toward the protection of investors. The Company believes that
an A rating is an important factor in marketing its products to its general
agents.
The Company's principal executive offices are located at 420 South York
Road, Hatboro, Pennsylvania, 19040 and its telephone number is (215) 443-3600.
INVESTMENT CONSIDERATIONS
Except for the historical information contained in this Prospectus,
matters discussed herein may constitute "forward-looking statements" (within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act.) Such forward-looking information reflects the Company's current best
estimates regarding its future operations. The Company's actual results could
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differ materially from those estimated in the forward-looking statements as a
result of several factors, including those discussed below and elsewhere in this
Prospectus.
A variety of factors may materially impact estimates of future
operations. Many of such factors are outside the Company's control and cannot be
accurately predicted. Important factors include, but are not limited to, general
economic conditions, interest rate levels, financial market performance,
legislative initiatives, the adequacy of loss reserves, price competition
impacting premium levels, relationships with and capacity of the Company's
general agents and changes in state insurance regulations.
In addition to the other information in this Prospectus, the following
factors and risks should be considered carefully by potential purchasers in
evaluating the Company, its business and the shares of Common Stock offered
hereby:
Certain Business Considerations
Factors affecting the sectors of the insurance industry in which the
Company operates may subject the Company to significant fluctuations in
operating results. These factors include competition, catastrophe losses and
general economic conditions, including interest rate changes, as well as
legislative initiatives, the frequency of litigation, the size of judgments and
severe weather conditions. The nonstandard automobile insurance market is
influenced by many factors, including state insurance laws, market conditions
for standard automobile insurance and state assigned risk and residual market
plans. Additionally, an economic downturn in the states in which the Company
underwrites its non-standard personal automobile business could result in fewer
new car sales and less demand for automobile insurance. The impact of these
factors can dramatically affect demand for the Company's products, insurance
capacity, pricing and claims experience and, consequently, the Company's
business, results of operations or financial condition.
Historically, the financial performance of the property and casualty
insurance industry has tended to fluctuate in cyclical patterns of soft markets
followed by hard markets. Although an individual insurance company's financial
performance is dependent on its own specific business characteristics, the
profitability of most property and casualty insurance companies tends to follow
this cyclical market pattern. At present, the property and casualty insurance
industry is experiencing a prolonged soft market, and the extension of current
market conditions could have an adverse affect on the Company's business,
results of operations or financial condition. There can be no assurance that a
hard market will emerge or, if it does emerge, that it will have a favorable
impact on the Company.
The Company has grown rapidly over the last few years. The Company
believes that a substantial portion of any future growth will depend on its
ability, among other things, (i) to increase its business from its existing
general agents, (ii) to expand its non-standard personal automobile business
further in states where it presently does business and into additional states
and (iii) to expand its commercial lines of business by offering additional
products and programs. Such future growth is contingent on various factors,
including the availability of adequate capital, the Company's ability to hire
and train additional personnel, regulatory requirements and rating agency
considerations. There is no assurance that the Company will be successful in
expanding its business, that the existing infrastructure will be able to support
such additional expansion or that such new business will be profitable.
In recent years, the Company's nonstandard personal automobile business
has accounted for an increasing portion of its total business, and this trend
may continue in the future. In addition, the Company is considering expanding
into specialty programs and other commercial
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coverages. As the Company's mix of business changes, there can be no assurance
that the Company will be able to maintain its profit margins or other operating
results.
Adequacy Of Loss Reserves
The Company is directly liable for loss and loss adjustment expenses
("LAE") under the terms of the insurance policies it underwrites. The Company
establishes loss reserves for the ultimate payment of all loss and loss
adjustment expenses incurred. These reserves are based on historical data and
estimates of future events and are imprecise. Although management believes that
the Company's established reserves for loss and loss adjustment expenses are
adequate and the Company annually obtains an opinion with respect to loss
reserves from an independent consulting actuary, ultimate loss and loss
adjustment expenses may vary from established reserves. Furthermore, factors
such as future inflation, claims settlement patterns, legislative activity and
litigation trends, all of which are difficult to predict, may have a substantial
impact on the Company's future loss experience. Accordingly, there can be no
assurance that the Company's reserves will be adequate to cover ultimate loss
development. If the Company's reserves should prove to be inadequate, the
Company will be required to increase reserves with a corresponding reduction in
the Company's net income in the period in which the deficiency is identified.
Future loss experience substantially in excess of established reserves could
have a material adverse effect on the Company's business, results of operations
or financial condition.
Regulation
The Company is subject to regulation, primarily by Pennsylvania, its
domiciliary state, and to a lesser degree, the 26 other states in which it is an
admitted insurer. The regulations are generally designed to protect the
interests of insurance policyholders, as opposed to the interests of
stockholders. Such regulations relate to authorized lines of business, capital
and surplus requirements, rates and forms, investment parameters, underwriting
limitations, transactions with affiliates, dividend limitations, changes in
control and a variety of other financial and non-financial components of the
Company's business. The failure of the Company to comply with certain provisions
of applicable insurance laws and regulations could have a material adverse
effect on the Company's business, results of operations or financial condition.
The National Association Of Insurance Commissioners (the "NAIC") has
adopted a system of assessing the financial condition and stability of insurance
companies, known as "IRIS ratios," and a system to test the adequacy of
statutory capital, known as "risk-based capital," each of which applies to
Penn-America and Penn-Star Insurance Company, Penn-America's wholly-owned
subsidiary ("Penn Star"). IRIS ratios consist of 11 ratios that are compiled
annually from each insurance company's statutory financial reports and then
compared against the NAIC established "usual range" for each ratio. The
risk-based capital rules establish statutory capital requirements based on
levels of risk retained by an insurance company. Penn-America's adjusted capital
at December 31, 1997 was in excess of the applicable risk-based standards as
established by the NAIC. There is no assurance that Penn-America or Penn-Star
will be able to maintain the required capital levels or IRIS ratios. Failure to
maintain risk-based capital at the required levels, or IRIS ratios within the
NAIC's usual range, could adversely affect Penn-America's or Penn-Star's ability
to secure regulatory approvals as necessary or appropriate.
Binding Authority
The Company underwrites the substantial majority of its commercial
policies on a binding authority basis (approximately 93% in 1997, which
generated approximately 82% of the Company's commercial lines gross written
premiums). The Company's non-standard personal automobile policies are written
solely on a binding authority basis. The Company generally has 60 days from the
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effective date to cancel a policy if the risk insured does not comply with the
Company's underwriting guidelines. In the event that a general agent exceeds its
authority by binding the Company on a risk which does not comply with the
Company's underwriting guidelines, the Company is at risk for that policy until
it receives the policy and effects a cancellation. The Company generally
requires general agents to deliver all policies to the Company within 35 days of
the date written. There can be no assurance that the general agents will bind
the Company within the limits of the Company's underwriting guidelines or
deliver policies to the Company in a timely manner. As a result, the Company may
be bound by a policy which does not comply with its underwriting guidelines and,
until it can effect a cancellation, may incur loss and loss adjustment expenses
related to that policy.
Reliance On Certain General Agents
A significant portion of the Company's personal automobile gross
written premiums in 1997 was written by two agents who service the states of
Washington, California and Nevada. These agents accounted for $33.0 million
(92%) of the personal automobile gross written premiums in 1997. Additionally,
these same agents accounted for 32%, 25% and 22% of total written premium for
1997, 1996, 1995. During 1997, another agent in California accounted for $8.3
million (12%) of commercial gross written premiums. The loss of any of these
three general agencies, or the loss of the ability to underwrite automobile
insurance in California or Washington for any reason, could have a material
adverse effect on the Company's business, results of operations or financial
condition.
Competition; Financial Ratings
The Company competes in the property and general liability insurance
business with numerous domestic and international insurers. Many of the
Company's existing or potential competitors are larger, have considerably
greater financial and other resources, have greater experience in the insurance
industry and offer a broader line of insurance products than the Company, and
the Company may compete with new entrants in the future. Competition is based on
many factors, including the perceived market strength of the insurer, pricing
and other terms and conditions, services provided, the speed of claims payment,
the reputation and experience of the insurer and ratings assigned by independent
rating organizations (such as A.M. Best). Ultimately, this competition, coupled
with the effects of the current prolonged soft market, could affect the
Company's ability to attract business at premium rates which are likely to
generate underwriting profits, and could have a material adverse effect on the
Company's business, results of operations or financial condition. Penn-America
currently has an "A (Excellent)" rating from A.M. Best. A downgrade of
Penn-America's A.M. Best rating could have a material adverse effect on the
Company's business, results of operations or financial condition. There can be
no assurance that the Company will be able to maintain Penn-America's A.M. Best
rating.
Holding Company Structure; Dividend Restrictions
PAGI is an insurance holding company. Dividends and other payments from
Penn-America are PAGI's primary source of funds to pay expenses, service debt
and pay dividends, if any. The payment of dividends by Penn-America to PAGI and
the payment of dividends by Penn-Star to Penn-America are subject to
restrictions set forth in the Pennsylvania insurance laws. In general, these
restrictions limit the aggregate amount of dividends or other distributions that
Penn-America or Penn-Star may declare or pay within any 12-month period without
the permission of the applicable regulatory authority (generally the greater of
statutory net income for the preceding calendar year or 10% of the statutory
surplus), and require that Penn-America's or Penn-Star's statutory surplus
following any such dividend or distribution be reasonable in relation to its
outstanding liabilities and adequate for its financial needs. The maximum amount
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of dividends payable by Penn-America in 1998, without prior approval of the
Pennsylvania insurance regulators, is approximately $9.5 million. In addition,
the Company has signed a commitment letter with PNC Bank for a $20 million
revolving line of credit.
The continued payment of dividends by the Company will be determined
regularly by the Board of Directors and will be based on general business
conditions, legal and regulatory restrictions regarding the payment of dividends
and other factors the Board of Directors considers relevant. The Company
recently increased its annual dividend to $0.20 annually per share in February
of 1998 from $0.16 per share.
Certain Relationships With Controlling Stockholder
Currently, Mr. Irvin Saltzman and his family and affiliates (the
"Saltzman family"), substantially through their ownership of Penn Independent
Corporation ("Penn Independent"), the Company's controlling stockholder,
beneficially own approximately 31.2% of the Company's outstanding Common Stock.
Mr. Irvin Saltzman, Chairman of Penn Independent, provides consulting
advice for Penn-America's investment portfolio, for which he was paid $64,000
for 1997. In addition, the Company receives services from other executives
(including Messrs. Heerin and Lear and Ms. Saltzman-Levy), staff and
administrative personnel of Penn Independent, including services in connection
with human resource administration and related services. Also, the Company is
charged a portion of the amounts paid by Penn Independent for services such as
insurance, telecommunications, professional fees, postage and office supplies.
In 1997, the Company reimbursed Penn Independent $232,000 for such services.
The Company's headquarters in Hatboro, Pennsylvania are occupied
pursuant to a lease effective June 30, 1995, between Irvin Saltzman, 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
$262,000 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 $224,000 annually in the aggregate. In the event the
Company renews the lease, the rent will be increased by 50% of the cumulative
change in the Philadelphia area consumer price index during the initial lease
term. Management believes that the amount paid by the Company under the lease
represents fair market value for rent.
The Delaware Valley Underwriting Agencies (the "DVUA Agencies"), which
are wholly-owned insurance agency subsidiaries of Penn Independent, produce
business for the Company. The DVUA Agencies generated approximately 1.5% of the
Company's gross written premiums in 1997. In addition, 2.7% of the DVUA
Agencies' business volume was produced for the Company. Gross written premiums
and commissions paid resulting from transactions with the DVUA Agencies were
approximately, $1,600,000 and $359,000, respectively, in 1997.
Dependence On Key Personnel
The efforts and abilities of the Company's present management,
particularly that of Jon S. Saltzman, the Company's President and Chief
Executive Officer, are very important to the success of the Company. If the
Company were to lose the services of Jon S. Saltzman or John M. DiBiasi
(Penn-America's Executive Vice President--Underwriting and Marketing), or any of
the other key management personnel, there could be a material adverse effect on
the Company's business, results of operations or financial condition. The
Company does not have employment agreements
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with any employee, but during 1997, it maintained key personnel life insurance
policies on Jon S. Saltzman, John M. DiBiasi and Rosemary R. Ferrero (Vice
President--Finance, Chief Financial Officer, Treasurer and Secretary).
Reinsurance
The Company currently purchases reinsurance, which allows it to write
more direct insurance and at greater limits than it otherwise could. The
Company's current treaty reinsurance is with General Reinsurance Corporation
("General Re"). For catastrophe losses, the Company is covered by a consortium
of insurers which include General Re and Lloyds of London, in addition to other
A or better rated reinsurers. There can be no assurance that reinsurance will
continue to be available to the Company to the same extent, and at the same
cost, as it has in the past.
The maintenance of reinsurance does not legally discharge the Company
from its primary liability for the full amount of the risks it insures, although
it does make the reinsurer liable to the Company. Therefore, the Company is
subject to credit risk with respect to its reinsurers. The Company's reinsurance
recoverable is primarily with General Re. Although the Company's management
believes that its reinsurance is maintained with financially stable reinsurers
and that its reinsurance support is adequate to protect its interests, the
insolvency of General Re or any other reinsurer or their inability to make
payments under the terms of a reinsurance treaty could have a material adverse
effect on the Company's business, results of operations or financial condition.
The Company may choose in the future to re-evaluate the use of reinsurance to
increase, decrease or eliminate the amount of risk it cedes to reinsurers.
Restrictions
The Plan provides for the qualifying agent to receive 33 1/3% of their
award in PAGI stock, with an election to receive the remaining award balance in
either additional shares of PAGI stock or cash. This determination is made
solely by the qualifying agent and consideration should be given to the risk
factors associated with deciding to receive the remaining award in shares of
PAGI stock. The stock which is granted under this award program is restricted
from sale for a period of six months from the determination date. Under the "New
Agent Award" component of the Plan, the Company will award a one-time award of
common stock of PAGI with a total value of $1,000. The Company will retain the
awarded stock certificates until the expiration of one year from the date of the
initial agency agreement signing at which time the Company will deliver the
awarded certificates.
USE OF PROCEEDS
The shares of common stock issued under the Plan will be issued as
payment of a bonus award payable to the Company's general agents. The Company
will receive no cash proceeds from the issuance of shares under the Plan.
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THE PLAN
Risk Factors
A risk associated with participation in the Plan is that the
Participants will be general unsecured creditors of the Company, and that in the
event of the insolvency of the Company there could be insufficient assets to pay
the Participants according to the terms of the Plan.
There are also investment risks associated with the receipt of stock of
the Company as part of the award distribution. By way of example, there could be
a decline in the value of the stock distributed in accordance with the Plan
between March 31, the valuation date used to determine the number of shares to
be awarded each Participant, and the actual date these shares are distributed to
the Participants, which under the Plan must be by May 15.
The statements in this Prospectus concerning the terms and provisions
of the Plan are summaries and do not purport to be complete. All such statements
are qualified in their entirety by reference to the full text of the documents
filed as exhibits to the Registration Statement of which this Prospectus is a
part. Additional updating and other information with respect to the Plan may be
provided in the future to the participants.
Summary of the Plan
The Plan is designed to reward general agents who place insurance with
Penn-America and have had favorable underwriting results. The following is a
summary of the current key elements of the Plan. A copy of the Plan is attached
as an Exhibit to this Prospectus.
Threshold for Participation in the Plan
The participating general agent must:
o Generally write a minimum of $500,000 for commercial lines and
$1,000,000 for personal lines in total calendar year premium. Some individual
programs may vary between these two amounts.
o For commercial lines, write at least 90% of the previous year's total
premium until the agency reaches $1,000,000 in total calendar year premium, at
which point the 90% requirement is waived.
o Maintain errors and omission coverage with limits of at least
$500,000.
Plan Components
The Plan has three components.
o New Agent Award. The Company will award to a new agent a one time
award of common stock of PAGI with a total value of $1,000. The award will be
valued as of the closing price on the day the Company executes the initial
agency agreement and will be rounded to the closest whole share . No cash
equivalent will be granted.
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o Performance Award (Commercial Lines Only). Based on calendar year
performance criteria for policy issuance, promptness of payment of agency
statements, production increases over the prior calendar year, inspection
timeliness, premium audit responsiveness and acceptable completion of
Penn-America audits.
o Profit sharing. Based on policy year (i.e. the experience of all
policies with an effective date falling within a given calendar year). Separate
standards and payment plans are established for general liability and property
coverages. Payments are based on a profit calculation formula applied to the
loss development of the business over three policy years for general liability
coverages, and two policy years for property insurance.
The profit calculation formula defines the agency profit share as one
half of the agency earned premium minus commissions paid times the positive
difference between specified Company target policy year loss ratios and the
agency's actual loss ratio.
Payment Schedule
o For commercial lines, payments of the general liability insurance
profit sharing are made in three annual installments of one third each of the
agency profit share. Payments of the property coverage profit sharing are made
in two annual installments of one half of each agency profit share. Payment of
the performance award compensation is made the following year. Because a "policy
year" actually covers 24 months of exposure (e.g., a policy with an effective
date of December 31, 1997 may provide coverage through the end of 1998), the
first installment of the profit sharing on a given policy year's business does
not become due until the second year following, (i.e., in the example, by May
1999).
o For personal lines, both private passenger auto liability and
physical damage are made in two annual installments of one half of each agency
profit share similar to commercial property above.
Modification of the Profit Sharing Plan
Penn-America's contract gives the Company the right to prospectively
amend or terminate the Plan at any time.
Termination of an Agency's Participation in the Plan
o Termination of an agency contract for cause automatically cuts off
all profit sharing eligibility as of the termination date.
o Termination by either party for any other reason terminates the
program, with the final calculation and a pro rata payment due by June 1st of
the following year. This termination has the effect of voiding any profit
sharing based on the agency's experience during the calendar year that the
agreement was terminated, but gives the agency the benefit of the experience for
prior year's business throughout the entire termination year.
o With respect to the "New Agent Award," the Company will retain the
$1,000 stock award granted at the initial signing of the general agency
agreement until the expiration of one year from the date the agreement is
executed by both parties. If the agreement was to terminate between the parties
before the expiration of the one year period referenced above, all shares would
revert back to the Company. If the general agency agreement remains in effect at
the expiration
10
<PAGE>
of the one-year period, the Company will deliver a stock certificate for
the number of shares granted pursuant to the "New Agent Award."
Stock and Cash Payments Under the Plan
o Under the Plan, 33 1/3% of all compensation is due to an agency under
the Plan will be distributed in shares of PAGI stock, rounded up to the nearest
even share. For purposes of these calculations PAGI stock will be valued at its
price on March 31. If the market is closed that day, the valuation will be made
based on the value of the price as of the nearest previous business day.
o The agency will have the option, exercisable by notice to the Company
received on or before March 31, of taking a specified greater percentage (either
50%, 75% or 100%) of its profit sharing compensation in PAGI stock.
o The stock will be delivered to the agency by May 15, free of all
sales commissions and transaction costs.
o Stock granted under the Plan may not be sold for a period of six
months from the determination date and will be legended accordingly.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby and
certain other legal matters will be passed upon for the Company by Reed Smith
Shaw & McClay LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements and schedules of Penn-America
Group, Inc. as of December 31, 1997 and 1996, and for each of the years in the
three-year period ended December 31, 1997 included in the Company's Annual
Report on Form 10-K, have been incorporated by reference herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants
and upon the authority of said firm as experts in accounting and auditing.
11
<PAGE>
------------------ ------------------
No dealer, salesman or any
other person has been authorized to
give any information or to take any
representations other than those
contained in this Prospectus, and,
if given or made, such information
or representations must not be relied
on as having been authorized by the
Company. This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy, by any
person in any jurisdiction in which
it is unlawful for such person to make
such offer to solicitation. Neither the
delivery of this Prospectus nor any 50,000 Shares of Common Stock
any offer, solicitation or sale made
hereunder, shall under any circumstances
create an implication that the information
herein is correct as of any time subsequent PENN-AMERICA GROUP, INC.
to the date of the Prospectus.
------------------
Page
The Company................. 3 _______________________
Investment Considerations....3
Use of Proceeds.............. PROSPECTUS
The Plan.....................9
Legal Matters................11 _______________________
Experts......................11
March 31, 1998
Until March 31, 1998, all dealers affecting transactions in the
registered securities, whether or not participating in the distribution thereof
may be required to deliver a Prospectus. This is in addition to the obligation
of dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotment or subscriptions.
------------------ ------------------
12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated fees of the distribution, all of which are to be borne by
the Company, are as follows:
SEC Registration Fee ............................... $322.66
Blue Sky Fee and Expenses........................... ---
Accounting Fees and Expenses ....................... 2,000.00
Legal Fees and Expenses ............................ 2,000.00
Miscellaneous ...................................... 2,000.00
===========
Total...................................... $6,322.66
===========
Item 15. Indemnification of Directors and Officers
Pursuant to the provisions of the Pennsylvania Business Corporation
Law, the Bylaws of the Company provide that a director shall not be personally
liable, as such, for monetary damages for any action taken, unless the director
breaches or fails to perform a duty of his office and such breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. This
limitation does not apply to criminal liability or liability for the payment of
taxes. The Company's Bylaws also provide for indemnification of the Company's
directors and officers to the fullest extent permitted by Pennsylvania law.
Item 16. Exhibits
3 Articles of Incorporation
3.2 Bylaws of the Company
4 Agency Performance Award and Profit Sharing Plan
5 Opinion of Reed Smith Shaw & McClay as to legality of
securities issued
23 (A) Consent of Reed Smith Shaw & McClay (included in opinion
filed as Exhibit 5)
(B) Consent of KPMG Peat Marwick LLP
13
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)
(3)of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement ( or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
Provided, however, that paragraphs 1.(i) and 1.(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain undistributed at the
termination of the offering.
Insofar as indemnification for liabilities arising under Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
14
<PAGE>
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
15
<PAGE>
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Hatboro, Pennsylvania, on March 31, 1998.
PENN-AMERICA GROUP, INC.
By:/s/ Jon S. Saltzman
Jon S. Saltzman, President
KNOW ALL MEN BY THESE PRESENTS, that each such person whose signature
appears below hereby constitutes and appoints Jon S. Saltzman and Rosemary
Ferrero and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and any
other documents in connection therewith, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
/s/ Jon S. Saltzman Principal Executive Officer and March 31, 1998
- -------------------
Jon S. Saltzman Director
/s/ Robert A. Lear Director March 31, 1998
- -------------------
Robert A. Lear
/s/ Irvin Saltzman Director March 31, 1998
- -------------------
Irvin Saltzman
/s/ James E. Heerin, Jr. Director March 31, 1998
- -----------------------
James E. Heerin, Jr.
/s/ Charles Ellman Director March 31, 1998
- --------------------
Charles Ellman
/s/ M. Moshe Porat Director March 31, 1998
- --------------------
M. Moshe Porat
/s/ Paul Simon Director March 31, 1998
- --------------------
Paul Simon
/s/ Thomas M. Spiro Director March 31, 1998
- --------------------
Thomas M. Spiro
/s/ Jami Saltzman-Levy Director March 31, 1998
- ----------------------
Jami Saltzman-Levy
/s/ Rosemary Ferrero Principal Finance and March 31, 1998
- -------------------- Accounting Officer and Secretary
Rosemary Ferrero
16
<PAGE>
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Hatboro, Pennsylvania, on March 31, 1998.
PENN-AMERICA GROUP, INC.
By:____________________________
Jon S. Saltzman, President
KNOW ALL MEN BY THESE PRESENTS, that each such person whose signature
appears below hereby constitutes and appoints Jon S. Saltzman and Rosemary
Ferrero and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and any
other documents in connection therewith, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
Principal Executive Officer and March 31, 1998
- ---------------------
Jon S. Saltzman Director
Director March 31, 1998
- ---------------------
Robert A. Lear
Director March 31, 1998
- ---------------------
Irvin Saltzman
Director March 31, 1998
- ---------------------
James E. Heerin, Jr.
Director March 31, 1998
- --------------------
Charles Ellman
Director March 31, 1998
- ---------------------
M. Moshe Porat
Director March 31, 1998
- ----------------------
Paul Simon
Director March 31, 1998
- ----------------------
Thomas M. Spiro
Director March 31, 1998
- ----------------------
Jami Saltzman-Levy
Principal Finance and March 31, 1998
- -----------------------
Rosemary Ferrero Accounting Officer and Secretary
16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3 Articles of Incorporation as filed in 10-K dated
3/27/98
3.2 Bylaws of the Company as filed in 10-K dated 3/27/98
4 Agency Performance Award and Profit sharing Plan
5 Form of Opinion of Reed Smith Shaw & McClay as to
legality of securities issued which has been filed
with Form S-3 dated January 4, 1996
23(A) Consent of Reed Smith Shaw & McClay which has been
filed with form S-3 dated January 4, 1996.
(included in opinion filed as Exhibit 5)
(B) Consent of KPMG Peat Marwick LLP
17
Exhibit 23(B)
Consent of KPMG peat Marwick LLP
The Board of Directors
Penn-America Group, Inc:
We consent to the use of our reports incorporated by reference herein and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 30, 1998
Exhibit 4
THE PLAN
Risk Factors
A risk associated with participation in the Plan is that the
Participants will be general unsecured creditors of the Company, and that in the
event of the insolvency of the Company there could be insufficient assets to pay
the Participants according to the terms of the Plan.
There are also investment risks associated with the receipt of stock of
the Company as part of the award distribution. By way of example, there could be
a decline in the value of the stock distributed in accordance with the Plan
between March 31, the valuation date used to determine the number of shares to
be awarded each Participant, and the actual date these shares are distributed to
the Participants, which under the Plan must be by May 15.
The statements in this Prospectus concerning the terms and provisions
of the Plan are summaries and do not purport to be complete. All such statements
are qualified in their entirety by reference to the full text of the documents
filed as exhibits to the Registration Statement of which this Prospectus is a
part. Additional updating and other information with respect to the Plan may be
provided in the future to the participants.
Summary of the Plan
The Plan is designed to reward general agents who place insurance with
Penn-America and have had favorable underwriting results. The following is a
summary of the current key elements of the Plan. A copy of the Plan is attached
as an Exhibit to this Prospectus.
Threshold for Participation in the Plan
The participating general agent must:
o Generally write a minimum of $500,000 for commercial lines and
$1,000,000 for personal lines in total calendar year premium. Some individual
programs may vary between these two amounts.
o For commercial lines, write at least 90% of the previous year's total
premium until the agency reaches $1,000,000 in total calendar year premium, at
which point the 90% requirement is waived.
o Maintain errors and omissio n coverage with limits of at least
$500,000.
Plan Components
The Plan has three components.
o New Agent Award. The Company will award to a new agent a one time
award of common stock of PAGI with a total value of $1,000. The award will be
valued as of the closing price on the day the Company executes the initial
agency agreement and will be rounded to the closest whole share . No cash
equivalent will be granted.
<PAGE>
o Performance Award (Commercial Lines Only). Based on calendar year
performance criteria for policy issuance, promptness of payment of agency
statements, production increases over the prior calendar year, inspection
timeliness, premium audit responsiveness and acceptable completion of
Penn-America audits.
o Profit sharing. Based on policy year (i.e. the experience of all
policies with an effective date falling within a given calendar year). Separate
standards and payment plans are established for general liability and property
coverages. Payments are based on a profit calculation formula applied to the
loss development of the business over three policy years for general liability
coverages, and two policy years for property insurance.
The profit calculation formula defines the agency profit share as one
half of the agency earned premium minus commissions paid times the positive
difference between specified Company target policy year loss ratios and the
agency's actual loss ratio.
Payment Schedule
o For commercial lines, payments of the general liability insurance
profit sharing are made in three annual installments of one third each of the
agency profit share. Payments of the property coverage profit sharing are made
in two annual installments of one half of each agency profit share. Payment of
the performance award compensation is made the following year. Because a "policy
year" actually covers 24 months of exposure (e.g., a policy with an effective
date of December 31, 1997 may provide coverage through the end of 1998), the
first installment of the profit sharing on a given policy year's business does
not become due until the second year following, (i.e., in the example, by May
1999).
o For personal lines, both private passenger auto liability and
physical damage are made in two annual installments of one half of each agency
profit share similar to commercial property above.
Modification of the Profit Sharing Plan
Penn-America's contract gives the Company the right to prospectively
amend or terminate the Plan at any time.
Termination of an Agency's Participation in the Plan
o Termination of an agency contract for cause automatically cuts off
all profit sharing eligibility as of the termination date.
o Termination by either party for any other reason terminates the
program, with the final calculation and a pro rata payment due by June 1st of
the following year. This termination has the effect of voiding any profit
sharing based on the agency's experience during the calendar year that the
agreement was terminated, but gives the agency the benefit of the experience for
prior year's business throughout the entire termination year.
o With respect to the "New Agent Award," the Company will retain the
$1,000 stock award granted at the initial signing of the general agency
agreement until the expiration of one year from the date the agreement is
executed by both parties. If the agreement was to terminate between the parties
before the expiration of the one year period referenced above, all shares would
revert back to the Company. If the general agency agreement remains in effect at
the expiration
<PAGE>
of the one-year period, the Company will deliver a stock certificate for
the number of shares granted pursuant to the "New Agent Award."
Stock and Cash Payments Under the Plan
o Under the Plan, 33 1/3% of all compensation is due to an agency under
the Plan will be distributed in shares of PAGI stock, rounded up to the nearest
even share. For purposes of these calculations PAGI stock will be valued at its
price on March 31. If the market is closed that day, the valuation will be made
based on the value of the price as of the nearest previous business day.
o The agency will have the option, exercisable by notice to the Company
received on or before March 31, of taking a specified greater percentage (either
50%, 75% or 100%) of its profit sharing compensation in PAGI stock.
o The stock will be delivered to the agency by May 15, free of all
sales commissions and transaction costs.
o Stock granted under the Plan may not be sold for a period of six
months from the determination date and will be legended accordingly.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby and
certain other legal matters will be passed upon for the Company by Reed Smith
Shaw & McClay LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements and schedules of Penn-America
Group, Inc. as of December 31, 1997 and 1996, and for each of the years in the
three-year period ended December 31, 1997 included in the Company's Annual
Report on Form 10-K, have been incorporated by reference herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants
and upon the authority of said firm as experts in accounting and auditing.
